**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C.  20549**

** **

**FORM 10-K**

** **

| **x**                                                                     | ** ** | **ANNUAL REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|---------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------|
|                                                                      |
| **For the  fiscal year ended December 31, 2007   OR** |
|                                                                      |
| **o**                                                                     | ** ** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**  |

 

**For thetransition period from                to                **

 

**CommissionFile Number   333-113982**

 

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**AFFINITY GROUP, INC.**

(Exact name ofregistrant as specified in its charter)

 

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

 

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|   | SECURITIES REGISTERED  PURSUANT TO SECTION 12 (b) OF THE ACT:  **NONE**                                                                |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE  ACT:              |

9% SeniorSubordinated Notes Due 2012

 

Indicateby check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405of the Securities Act.

YES  o      NO  x

 

Indicateby check mark if the registrant is not required to file reports pursuant to Section 13or Section 15(d) of the Act.

YES o      NO x

 

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15 (d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theRegistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days.

YES x      NO o

 

Indicateby check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K is not contained herein, and will not be contained, to the bestof registrant’s knowledge, in definitive proxy or information statementsincorporated by reference in Part III of this Form 10-K or anyamendment to this Form 10-K.

o

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2of the Exchange Act).  (Check one):

 

| Accelerated filer o | Large accelerated filer o | Non-accelerated filer x | Smaller reporting company o |
|--------------------------|--------------------------------|------------------------------|----------------------------------|

 

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

YES o      NO x

 

Indicatethe number of shares outstanding of each of the issuer’s classes of commonstock, as of the latest practicable date.

 

| ** **                    | ** ** | **Outstanding as of** |
|-------------------------------|------------|---------------------------------|
| **Class**                     | ** ** | **March 14, 2008**    |
| Common stock, $.001 par value |       | 2,000                           |

 

 

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**PART I**

 

**ITEM 1: BUSINESS**

 

**General**

 

Except where the context indicates otherwise, the term “Company,”or “AGI” means Affinity Group, Inc. and its predecessors and subsidiaries.

 

Weare a wholly-owned subsidiary of Affinity Group Holding, Inc., (“AGHI”), aprivately-owned corporation.  We are amember-based direct marketing organization targeting North Americanrecreational vehicle (“RV”) owners and outdoor enthusiasts.  Our club members form a receptive audience towhich we sell products, services, merchandise and publications targeted totheir specific recreational interests. In addition, we are a specialty retailer of RV-related products.  We operate through three principal lines ofbusiness, consisting of (i) club memberships and related products andservices, (ii) subscription magazines and other publications includingdirectories, and (iii) specialty merchandise sold primarily through our 77Camping World retail stores, mail order catalogs and the Internet.

 

There are approximately 1.9 million dues paying membersenrolled in our clubs.  We currently haveapproximately 5.3 million in aggregate circulation and 1.0 million paidcirculation across our 38 publications. For the year ended December 31, 2007, our revenue, operating incomeand net income were $562.2 million, $45.7 million and $18.9 million,respectively.

 

**Competitive Strengths**

 

Webelieve that our key competitive strengths are as follows:

 

*Stable, Recurring Cash FlowStream -* Approximately 78% of our operating income, net ofnon-cash charges, is generated through our membership club, subscription-basedproducts and services and publications businesses, which historically haveprovided a recurring income stream through a core base of customers.  Our five membership clubs have a historicalaverage renewal rate of 67%, which we believe compares favorably to othersubscription-based businesses. Similarly, our membership-based products andservices have historically also experienced high renewal rates, averaging over86% over the past four years for our largest product and service offerings,Emergency Road Service (“ERS”), RV vehicle insurance and extended warranty.

 

*Established Market Positions*- We are a member-based direct marketing organization targeting North AmericanRV owners and outdoor enthusiasts with comprehensive targeted productofferings. The Good Sam Club, which was founded in 1966, and Camping World’sPresident’s Club founded in 1986 are the preeminent RV membership clubs inNorth America.  Camping World is anational specialty retailer of merchandise accessories and services for RVowners and camping enthusiasts that has grown to 77 retail stores since itbegan business.

 

We believe oursignificant size relative to our competition is a meaningful advantage thatprovides us greater leverage to negotiate benefits and discounts withthird-party service providers for our members and consequently enhances thevalue of our product and service offerings. Additionally, these negotiating and pricing advantages allow us toincrease membership dues without risking the loss of members, who arecompensated by additional savings and attract other product and serviceofferings.  Our 1.9 million club membersand the 7.8 million consumers in our proprietary database serve as a unique,captive audience for direct marketing, which we believe significantly lowerscustomer acquisition costs relative to our competitors and facilitatescost-effective cross-selling.

 

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*Largely Recession Resistant -*We believe the characteristics of our membership and publication businessesmitigate the effects of economic downturns on our operating performance.  While the sale of new RVs is generallyinfluenced by economic conditions, our financial performance has historicallyshown little correlation to changes in the Gross Domestic Product, gas pricesor even new RV shipments.  We believethis is partially due to the small cost of our products and services relativeto the cost of purchasing an RV and the fact that our clubs provide averageannual savings in excess of the annual dues. We market our clubs, products and services to a sizable existinginstalled base of over 7.9 million RV owners, which affords us the ability tocontinue to attract new customers irrespective of new RV sales.  We believe RV owners may be more likely totake vacations utilizing RVs during an economic downturn, because they aregenerally less expensive than vacations necessitating plane or train travel andhotel accommodations, which would drive increased sales of our products.

 

*Favorable Demographic Trends*- Favorable demographic trends, in particular the aging of the “baby boomers,”indicate that RV ownership should increase during the next five years.  Overall RV ownership rates have historicallybeen highest, with 10% penetration, in the 55-64 age bracket, an age group thatis expected to grow 20.1% by 2010, according to the National Survey of the RVConsumer by the University of Michigan in 2005 (the “RV Survey”).  Furthermore, the 45-54 age bracket, whichmaintains the second highest ownership rate of RVs, is expected to grow 6.3% by2010.  The growth in these age groups isexpected to generate growth in the pool of potential RV consumers.  Also, according to the RV Survey, this agegroup shift will drive the number of households that own at least one RV from7.9 million in 2005 to 8.5 million in 2010. In addition, RV owners havehousehold incomes that generally exceed the national average.  These demographics are attractive foradvertisers and third-party providers of products and services.

 

*Experienced and IncentivizedManagement Team -* Our executive management team has extensivepublishing, direct marketing and retail experience with significant expertisein the RV industry. With an average of twelve years with our company, the teamhas developed substantial experience in increasing our target customer base,using strategic alliances to bolster product offerings that create value forour customers and increasing cross-selling opportunities for our high marginproduct offerings. Our consistent operating performance, to a great extent, isattributable to our senior managers who are responsible for developing andimplementing our business strategy and focusing on increasing profitability.Our executive management team is compensated both through an annual salary andthrough a management incentive program that is directly tied to our financialperformance.

 

**Our Strategy**

 

Ourprimary business strategy is to maximize the sale of club memberships,products, services, publications and merchandise to our target customer base ofRV owners and outdoor enthusiasts. To this end, we focus on cross-selling ourvarious offerings to each of our customers while managing customer acquisitioncosts and maintaining high renewal rates by providing high value productofferings.

 

*MaximizeCustomer Retention with Value-Added Product Offerings -*A key aspect of our strategy is to developstrong membership loyalty by providing an attractive value proposition for clubmembers and offering add-on products specifically targeted to meet their needsas reflected by our strong customer renewal rates. Each of our five membershipclubs provides our customers with tangible savings which substantially exceedthe membership fee.  On average, clubmembers benefit by saving approximately five times greater than the cost oftheir annual membership dues as the result of being able to purchase productsand services at discounts made available through our clubs.  We believe that the participation levels andrenewal rates of club members reflect the benefits derived from theirmembership.  As such, in order tomaximize customer renewal rates, we constantly

 

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evaluatemember satisfaction and actively respond to changing member preferences throughthe enhancement or introduction of new membership benefits including productsand services.

 

*EfficientlyAcquire New Customers -*Webelieve efficient customer acquisition and a sizeable database population arecritical to driving our growth and profitability.  Camping World and its discount buyer’s club,President’s Club, together, account for approximately 40% of our new customerdatabase entries.  In addition to being ahighly valuable customer loyalty program, President’s Club allows us to capturespecific information about each customer including RV type and usage, as wellas information on the customer’s age, income, net worth and interests, whileadding virtually no incremental customer acquisition costs.  We are able to customize our direct marketingoffers based upon our customers’ profiles. Other methods of customer acquisition include purchasing lists from dataproviders and placing our publications at campgrounds and RV dealerships. Wethen manage our database and target our offers to the customers most likely topurchase more than one of our product offerings.

 

*Cross-SellProducts and Services to Existing Customers -*We proactively cross-sell our products andservices across our customer base. For example, we use our existing customerdatabase to cost-efficiently market Camping World products throughcatalogs.  Conversely, Camping Worldsupercenters provide direct customer referrals to our membership clubs,products and services through their in-store kiosks.  In addition, we use our publications tocommunicate with our core customer base and to promote our other businesssegments to existing club members.  Ourmagazines contain relevant content as well as various forms of advertisementsfor our membership clubs, products and services.

 

*ExpandPresence in Specialty Recreation Niche -*We believe aggregate circulation of ourmagazines is an important factor in determining the amount of revenue we canobtain from advertisers.  Consequently,we seek to expand our presence as a publisher in select recreational nichesthrough the introduction of new magazine titles and the acquisition of otherpublications or businesses in our markets or in complementary recreationalmarket niches.  Publications incomplementary niches may also provide the opportunity to launch new membershipclubs, to market our products and services to new customers and to developother products and services, which meet the special needs of thesecustomers.  For example, our acquisitionof the publishing assets of Nordskog Publications, Inc. in May 2005allowed us to expand our presence in the recreational boat market niche.  In addition, we now own 36 consumer outdoorrecreation shows, most of which were acquired from Royal Productions, Inc.in December 2005, Plus Events shows in February 2006, four showspurchased from Apple Rock Advertising and Promotions, Inc. in September 2006and five shows purchased from Industrial Expositions, Inc. in February 2007.  These shows provide an expanded face-to-faceforum for acquiring new customers.

 

*IncreaseCamping World Penetration -*We intend to continue the controlled expansion of our Camping Worldsupercenter network by developing Camping World stores alongside or withinindependent RV dealerships, including RV dealerships owned and operated by ouraffiliates, which provides a competitive advantage by creating a means ofincreasing retail customer traffic.  In2007, we opened 17 new Camping World stores, of which 12 stores are adjacent toor within RV dealerships owned or operated by affiliates, and in 2008 we intendto open six additional Camping World stores which will be located in oradjacent to RV dealerships that may or may not be affiliated with us undercommon ownership of our Chairman, Stephen Adams.  In addition to generating increased cashflows from the sale of merchandise, a larger network of geographically diverseCamping World stores will enhance our ability to market our portfolio of membershipclubs, publications and product and service offerings to a significantly largercustomer base.

 

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**RV Industry**

 

The use of RVs and thedemand for club memberships and related products and services may be influencedby a number of factors including general economic conditions, the availabilityand price of propane and gasoline, and the total number of RVs.  We believe that both the installed base ofRVs and the type of RV owned (full service vehicles excluding van conversions)are the most important factors affecting the demand for our membership clubs,merchandise, products and services. Based on the RV Survey, the number of households owning RVs is projectedto increase from 7.9 million in 2005 to nearly 8.5 million in 2010.  The RV Survey also indicates that thepercentage of households owning RVs during this period will rise slightly from8.0% to 8.2%.

 

According to the RVSurvey, the average RV owner is 49 years old. RV ownership also increases with age reaching its highest percentagelevel among those 55 to 64 years old. Households in this age group are projected to increase from 18.2 millionin 2005 to 21.6 million in 2010.  RVownership also is concentrated in the western United States, an area in whichthe population growth rate continues to be greater than the nationalaverage.  The RV Survey also indicatesthat RV ownership is associated with higher than average annual householdincome, which among RV owners was approximately $68,000 per annum as comparedto the national average of $43,000 per annum.

 

The average age andannual household income of our club members in 2007 were 57 years and $72,000,respectively.  We believe that thedemographic trend towards an aging population will have a favorable impact onRV ownership.  The demographic profile ofour typical club member follows that of the general population and thus webelieve this will also have a favorable impact on demand for our clubmemberships and related products and services.

 

**Membership Clubs**

** **

We operate the Good Sam Club, President’s Club, Coast toCoast Club and Camp Club USA for RV owners, campers and outdoor vacationers,and the Golf Card Club for golf enthusiasts. The membership clubs form a receptive audience to which we market ourproducts and services.

 

The following table sets forth the number of members at December 31,2007, annual membership dues and average annual renewal rates during the periodof 2003 to 2007 for each club:

 
| ** **               | ** ** | **Number of Members**                  | ** ** | ** **                   | ** ** | **Average Renewal** | ** ** |
|--------------------------|------------|--------------------------------------------------|------------|------------------------------|------------|--------------------------|------------|
| **Membership Club** | ** ** | **at December 31, 2007 (1)** | ** ** | **Annual Fee (2)** | ** ** | **Rate (3)**        | ** ** |
| ** **               | ** ** | ** **                                       | ** ** | ** **                   | ** ** | ** **               | ** ** |
| Good Sam Club            |       | 1,012,500                                        |       | $12 - $30                    |       | 65                       | %          |
|                     |       |                                             |       |                         |       |                     |       |
| President's Club         |       | 738,500                                          |       | $15 - $20                    |       | 69                       | %          |
|                     |       |                                             |       |                         |       |                     |       |
| Coast to Coast Club      |       | 69,600                                           |       | $90 - $140                   |       | 73                       | %          |
|                     |       |                                             |       |                         |       |                     |       |
| Other Clubs:             |       |                                             |       |                         |       |                     |       |
| Golf  Card Club          |       | 44,900                                           |       | $49 - $59                    |       | 52                       | %          |
|                     |       |                                             |       |                         |       |                     |       |
| Camp  Club USA (4)       |       | 38,100                                           |       | $40 - $50                    |       | —                   |       |

 

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(1)  Also includesmulti-year and lifetime members.

(2)  For a singlemember, subject to special discounts and promotions.

(3)  Excludesmembers having lifetime memberships.

(4)  Camp Club USAwas launched in 2006 so renewal data is not yet available.

 

Inaddition to regular annual memberships, we also sell multi-yearmemberships.  We believe that multi-yearmemberships provide several advantages, including the up-front receipt of duesin cash,

 

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reducedmembership costs and a strengthened member commitment.

 

*Good Sam Club*

 

The Good Sam Club,a membership organization for RV owners, is the largest RV organization worldwidewith approximately 1,012,500 member families. As of December 31, 2007, there were 1,681 local chapters throughoutthe United States and Canada.  Theaverage renewal rate for Good Sam Club members was approximately 65% during theperiod 2003 through 2007.

 

The Good Sam Club is widely recognized as an essential partof the RV ownership experience.  Bydelivering value to members through information, support and benefits,including 10% discounts at approximately 1,500 RV parks across the U.S. and Canada,members save money, come together to share experiences and more thoroughlyenjoy RVing.  Other benefits includediscounts on the purchase of RV supplies and accessories at select RV servicecenters; an annual subscription to *Highways*, theclub’s monthly news magazine; discounts on our other publications; trip routingand mail-forwarding; and access to products and services developed for clubmembers.  Based on typical usagepatterns, we estimate that Good Sam Club members realize estimated annual savingsfrom discounts of approximately $93.

 

The Good Sam Club establishes quality standards for RV parksand campgrounds participating in its network. Campgrounds and parks participating in the Good Sam Club program benefitfrom increased occupancy and sales of camping-related products.  We believe that we have establishedconsiderable penetration of those for-profit RV parks and campgrounds that meetour quality standards for participation in the discount program.  We monitor our affiliated campgrounds and removesubstandard facilities from our program to ensure that our brand image andreputation are not diluted.

 

In 1992, the Good Sam Club began selling lifetimememberships.  In 2007, the average pricefor a life membership was $331 with approximately 146,400 members registered asof December 31, 2007.  Based on anactuarial analysis of the life members, we expect the average length of alifetime membership to be 18 years.

 

The following table lists the number of club members and RVparks and campgrounds from 2003 through 2007 at which discounts for memberswere available at December 31st of the respective year:

 
| ** **                                                       | ** ** | **2007**   | ** ** | **2006**   | ** ** | **2005**   | ** ** | **2004**   | ** ** | **2003**   | ** ** |
|------------------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|
| ** **                                                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Number of Good  Sam memberships                                  |       | 1,012,500  |       | 992,000    |       | 984,100    |       | 971,000    |       | 958,000    |       |
|                                                             |       |       |       |       |       |       |       |       |       |       |       |
| Lifetime members  included above                                 |       | 146,400    |       | 143,000    |       | 136,100    |       | 131,900    |       | 127,700    |       |
|                                                             |       |       |       |       |       |       |       |       |       |       |       |
| Number of RV  campgrounds offering discounts to Good Sam members |       | 1,500      |       | 1,610      |       | 1,580      |       | 1,750      |       | 1,750      |       |

 

*President’s Club*

 

The President’s Club program, which wasestablished in 1986, is the discount buyer’s club for Camping World and thesecond largest RV club worldwide (behind only our Good Sam Club).  As of December 31, 2007, the President’sClub had approximately 738,500 members. The primary benefit offered to members of the President’s Club is a 10%discount on all retail merchandise at Camping World stores.  The President’s Club offers us an extremelycost effective and powerful method of acquiring customers who are likely to bereceptive to our product and service offerings. We use the significant amount of information gathered when a customersigns up for membership in the President’s Club to tailor product offers to hisor her likely needs and interests. Additionally, we believe that the President’s Club, much

 

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like a traditional customer loyaltyprogram, serves to bolster sales at our Camping World supercenters.

 

In addition to the 10% discount atCamping World stores, President’s Club members also receive *RV View*, the club magazine, as well as special mailings,including newsletters and flyers offering selected products and services atspecial prices.  Typically, we use thePresident’s Club brand in the marketing of our products and services to thesecustomers.

 

President’s Club memberships mayinitially be obtained for one, two or three years at a cost of $20, $35 or $50,respectively.  We estimate that theaverage President’s Club member realizes annual savings of approximately$43.  The average renewal rate formembers of the President’s Club was 69% during the period from 2003 to 2007.

 

The following table sets forth the number of President’s Clubmembers and number of retail stores at year-end for 2003 through 2007:

 
| ** **                                    | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|-----------------------------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|
|                                          |       |     |       |     |       |     |       |     |       |     |       |
| Camping World's  President's Club memberships |       | 738,500  |       | 680,300  |       | 643,100  |       | 596,700  |       | 598,200  |       |
|                                          |       |     |       |     |       |     |       |     |       |     |       |
| Number of stores                              |       | 77       |       | 63       |       | 44       |       | 39       |       | 33       |       |

 

*Coast to Coast Club*

 

The Coast to Coast Clubhas operated a reciprocal use network of private RV resorts in North Americasince 1972.  The club offers a series ofmembership benefits depending upon pricing and program type under the Coast toCoast Club name.  Members of the Coast toCoast Club belong to a private RV resort owned and operated by partiesunrelated to us.  Our club members mayuse the other resorts in the Coast to Coast Club network on a reservation orspace available basis and obtain discounts from other non-private campgrounds.  At December 31, 2007, there wereapproximately 69,600 member families in the Coast to Coast Club which hadnationwide access to approximately 241 private RV resorts and a network ofapproximately 210 public affiliated campgrounds that participated in the Coastto Coast Club reciprocal use programs. These private resorts are designed primarily for RV owners, buttypically provide camping or lodging facilities, comprised of RVs, cabins, parkmodels, and condominiums.  For an initialmembership fee plus annual maintenance fees, both paid by the customer to theresort, the private resorts provide an RV site with water, sewer and electricalhook-ups and recreational amenities, such as swimming, tennis or fishing, orproximity to theme parks or other recreational activities.  We have established quality criteria forresorts to join and remain in the Coast to Coast Club networks.

 

For standardannual renewal dues from $89.95 for a single year membership to $337.95 for afive-year membership, Coast to Coast Club members receive the followingbenefits: discounts for overnight stays at participating resorts andcampgrounds; an annual subscription to *Coast to Coast Magazine;*the*Coast to Coast Directory*providing information on theparticipating resorts; discounts on our other publications; access to discounthotels and travel services; and access to ancillary products and servicesdeveloped for our club members.

 

We believe that resortsparticipating in the Coast to Coast Club networks view access to reciprocatingmember resorts as an incentive for their customers to join their resort.  Because a majority of Coast to Coast Clubmembers own RVs, access to participating resorts throughout North America canbe an important complement to local resort membership.  Based on typical use patterns, we estimatethat Coast to Coast Club members realize estimated annual savings from thesediscounts of approximately $118.  Theaverage annual renewal rate for members of the Coast to Coast Club after theinitial one-year membership (which is generally paid by the member resort not

 

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the club member) wasapproximately 73% during the period 2003 through 2007.

 

The following table setsforth the number of members in the Coast to Coast Club, resorts participatingin the reciprocal use program, and the number of public resorts extendingdiscounts to Coast to Coast Club members for 2003 through 2007:

 
| ** **                                 | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|--------------------------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|
|                                       |       |     |       |     |       |     |       |     |       |     |       |
| Number of Coast  to Coast Club memberships |       | 69,600   |       | 78,900   |       | 85,200   |       | 98,700   |       | 117,300  |       |
|                                       |       |     |       |     |       |     |       |     |       |     |       |
| Participating  private resorts             |       | 241      |       | 301      |       | 301      |       | 309      |       | 329      |       |
| Participating  public resorts              |       | 210      |       | 228      |       | 225      |       | 176      |       | 220      |       |

 

Participating resortsdecreased from 2006 to 2007 due to the loss of a large resort group, somenormal attrition and some proactive deletions on our part of substandardresorts.

 

##### *Golf Card Club*

##### * *

The Golf Card Club,founded in 1974, had approximately 44,900 members at December 31,2007.  The major attraction formembership is the financial savings which members receive when playing at anyof the more than 3,000 participating golf courses located throughout the US andCanada. The annual membership fee varies with the length and type (single ordouble) of membership.  We believe thatthe participating golf courses providing playing privileges to club membersrepresent the largest number of golf courses participating in a discountprogram in North America.  None of theparticipating golf courses are owned or operated by us.

 

Golf Card Club membersreceive a variety of benefits, including: a minimum of two rounds annually of free or discounted golf atparticipating golf courses; discounted vacation packages at 144 “Stay and Play”resorts; discounts on golf practice at 51 driving ranges; savings on golfmerchandise purchases at select member golf courses; car rental discounts fromNational and Alamo; an annual subscription to the *GolfTraveler* member publication, published three times per year in printand twelve times electronically; the annual directory listing participatinggolf courses and resorts; chances to win free golf merchandise in quarterlymember giveaways; access to 87 local Grasshopper Clubs for tournaments andsocial activities; an opportunity to play in member-guest tournaments; anopportunity to test (and keep) select golf products; a chance to win a freegolf lesson from a participating Golf Card pro; and access to the club web site(www.golfcard.com) including member-only features such as handicap tracking,course reviews, and trip routing.

 

Municipal, daily-fee, semi-private, andresort golf courses participate in the Golf Card program.  The program is attractive to participatingcourses because it builds traffic and helps fill empty tee times duringoff-peak hours.  In addition,participating courses receive promotion of their golf course in the *Golf Traveler* member publication, the Annual Directory, andthe club website.  Members also purchaseother merchandise or services when exercising their playing privileges.  In this manner, Golf Card members tend toprovide incremental revenue to the golf courses.  Based on surveys conducted by us, membersrealize savings on green fees ranging from $150 to $250 annually, whichsignificantly exceed the cost of membership.

 

The standard annualmembership fee is $49 for a single membership and $89 for a twosomemembership.  Multi-year memberships rangefrom a single two-year membership for $118, to a three-year twosome membershipfor $267.  The average renewal rate forGolf Card Club members was approximately 52.1% for the period from 2003 to2007.

 

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The following table setsforth the number of Golf Card Club members, participating golf courses and “Stayand Play” resorts at December 31st of each respective year:

 
| ** **                                        | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|---------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|
|                                              |       |     |       |     |       |     |       |     |       |     |       |
| Number of Golf  Card Club memberships (1)         |       | 44,900   |       | 55,000   |       | 57,800   |       | 67,200   |       | 77,400   |       |
|                                              |       |     |       |     |       |     |       |     |       |     |       |
| Number of  Participating Golf Courses             |       | 3,000    |       | 3,300    |       | 3,600    |       | 3,650    |       | 3,800    |       |
|                                              |       |     |       |     |       |     |       |     |       |     |       |
| Number of  "Stay and Play" Golf Resorts |       | 144      |       | 165      |       | 175      |       | 200      |       | 220      |       |

 

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(1)  A singlemembership counts as one member and a double membership as two members.

 

*Camp Club USA*

 

CampClub USA was launched January 2006 as a discount camping club offering 50%off on campsites.  At December 31,2007 we had approximately 38,100 members. Members receive a variety of benefits, including 50% savings at over 700campgrounds, an annual directory with maps, directions, amenities, monthlymember giveaways, $50 cash for camping and travel tips, and a monthlyeNewsletter with campground updates, features and travel tips.  Based on surveys conducted by us, membersrealize savings at campgrounds, ranging from $100 to $150 annually, whichsignificantly exceed the cost of membership.

 

**Membership Products and Services**

 

Our approximately 1.9 million club members form a receptiveaudience to which we sell products and services targeted to the recreationalinterests of our club members.  Wepromote products and services which either address special needs arising in theactivities of our club members or appeal generally to persons with thedemographic characteristics of our club members.  The two most established products are theemergency road service (“ERS”) and the vehicle insurance programs.  Most of our products and services areprovided by third parties who pay us a marketing fee, with the exception of ERSwhere we assume the risk of incurred claims. We believe it is important to target the diversified market niches withidentifiable products that offer a full range of benefits.  We currently market these products throughdirect mail, advertising in publications, campground directories, space ads,the Internet, telemarketing and direct sales.

 

*Emergency Road Service*

 

The Company developed Emergency Road Service (“ERS”)initially for Good Sam Club members in 1984, as an enhancement to their clubmembership.  Since then, the Company hasexpanded the breadth of its programs and now includes club members as well asnon-club members.  Currently 32% of theGood Sam Club members are enrolled in the Good Sam ERS program.  Specializing in RV towing, the Companybelieves it is important to target diversified market niches with identifiableproducts that serve various service level objectives.  The Company markets its products throughdirect mail, but also through publication advertising, space ads, promotionalevents, telemarketing, and the Internet. Annual subscriber dues range from $59.95 to $129.95 and benefits includeroadside assistance, towing, and other travel-related benefits and services.

 

8

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The table below sets forth the total enrollment in thevarious ERS programs for 2003 through 2007:

 
| ** **     | ** ** | **2007**   | ** ** | **2006**   | ** ** | **2005**   | ** ** | **2004**   | ** ** | **2003**   | ** ** |
|----------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|
| ** **     | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ERS Enrollment |       | 388,500    |       | 379,200    |       | 369,900    |       | 360,900    |       | 354,400    |       |

 

For the tenth year in a row, enrollment in the various ERSprograms has grown through promotional and marketing efforts which haveattracted new members.  Combinedenrollment in the programs has increased by 34,100 members or approximately9.6% since 2003.

 

*Vehicle Insurance Programs*

 

We provide our customers with several property and casualtyinsurance products, including two specialized RV insurance programs, amotorcycle insurance program and a homeowner’s insurance program.  The two core brands are the Vehicle InsuranceProgram (“VIP”) and the Motor Vehicle Program (“MVP”); each of these productsis promoted to the company’s database through various direct marketingchannels.  At December 31, 2007, thetwo programs had approximately 201,700 policyholders, which represented a 13.6%and 5.6% penetration, respectively, of the Good Sam Club and the President’sClub.  During the period 2003 to 2007,the average renewal rate of members participating in these insurance programswas 90%.  We have a marketing arrangementwith a third party licensed insurer that provides the vehicle insurance.  The company receives revenue for both new andrenewing policyholders, while we share only in the acquisition marketingexpenses with the insurer.  All claimsrisk is carried by the third-party provider.

 

The following provides detail of the total number of policiesin force, the dollar amount of written premiums generated on the book ofbusiness, and the marketing fees generated for 2003 through 2007:

 
| ** **                                               | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|----------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|
|                                                     |       |     |       |     |       |     |       |     |       |     |       |
| Total policies  in force                                 |       | 201,700  |       | 201,400  |       | 205,800  |       | 208,000  |       | 213,400  |       |
|                                                     |       |     |       |     |       |     |       |     |       |     |       |
| Written premiums  paid to insurance providers (millions) |       | $        | 243        |     | $          | 253      |       | $        | 251        |     | $          | 253 |   | $ | 254 |   |
|                                                     |       |     |       |     |       |     |       |     |       |     |       |
| Marketing fees  (millions)                               |       | $        | 20         |     | $          | 20       |       | $        | 20         |     | $          | 20 |   | $ | 20 |   |

 

*OtherProducts and Services*

 

Other products andservices marketed to club members include extended vehicle warranties, vehiclefinancing, credit cards, supplemental health and life insurance, and financialservices.  Most of these services areprovided to club members by third parties who pay us a marketing fee.

 

In 1996, welaunched the Continued Service Plan (“CSP”), a private label extended vehiclewarranty program for RVs.  Total netrevenue for 2007 increased 28% over 2006, to a total of $30.5 million.  The program had approximately 43,000 policiesin force as of December 31, 2007. Sales of new policies were derived from direct mail marketing, print adsin our magazines, Internet and e-mail solicitations, and retail kiosks inCamping World stores.  Policy renewalsrepresented 54% of the total revenue in 2007. We now offer CSP through our Authorized RV Dealer Program.  As of December 31, 2007, there were 55dealer locations authorized to sell extended vehicle warranty and otherproducts and services offered by the Company. CSP sales through the Authorized Dealer Program exceeded $1.5 millionfor 2007.

 

The RV financing programwas administered by GEMB Lending Inc., a subsidiary of GE Money Bank.  The number of GEMB RV loans to our clubmembers in 2007 decreased by 7% from 2006.

 

9

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The decrease in loans canbe directly attributed to the higher interest rate environment and the factthat most outstanding RV loans were refinanced when rates were lower than whatis currently available.

 

In addition, we evaluateother products and services that club members may find attractive.  When introducing new products and services,we concentrate on products and services provided by third parties, which we canmarket without significant capital investment by us, and for which we receive amarketing fee from the service provider based on sales volume.  We seek to utilize the purchasing power ofour club members to obtain products and services at attractive prices.

 

**Publications**

** **

We produce and distributea variety of publications for select markets in the recreation and leisureindustry, including general circulation periodicals, club magazines,directories, and RV and powersports industry trade magazines.  Revenues are recognized from the sale ofadvertising, subscriptions and direct sales of some of the publications.  We believe that the focused audience of eachpublication is an important factor in attracting advertisers.

 

10

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The following chart sets forth the circulation and frequencyof our publications:

 
| ** **                                                | ** ** | **2007**        | ** ** | **Issues Published** | ** ** |
|-----------------------------------------------------------|------------|-----------------|------------|---------------------------|------------|
| **Publication**                                           | ** ** | **Circulation** | ** ** | **Annually**              | ** ** |
| ** **                                                | ** ** | ** **      | ** ** | ** **                | ** ** |
| **PAID  CIRCULATION MAGAZINES (1)**                       |       |            |       |                      |       |
| American Rider                                            |       | 61,054          |       | 6                         |       |
| ATV Sport                                                 |       | 68,450          |       | 10                        |       |
| Bass &  Walleye Boats                                 |       | 62,980          |       | 9                         |       |
| Camping Life                                              |       | 85,764          |       | 8                         |       |
| MotorHome                                                 |       | 141,296         |       | 12                        |       |
| Powerboat                                                 |       | 24,758          |       | 11                        |       |
| Rider                                                     |       | 139,467         |       | 12                        |       |
| SnowGoer                                                  |       | 66,196          |       | 7                         |       |
| Trailer Boats                                             |       | 100,510         |       | 11                        |       |
| Trailer Life                                              |       | 268,605         |       | 12                        |       |
| **CONTROLLED  CIRCULATION- Business (2)**                 |       |            |       |                      |       |
| Boating Industry                                          |       | 26,000          |       | 12                        |       |
| Campground  Management                                    |       | 14,468          |       | 12                        |       |
| PowerSports  Business                                     |       | 12,000          |       | 16                        |       |
| Power Sports  Business Dealer Directory                   |       | 12,000          |       | 1                         |       |
| Power Sports  Business Market Data Book                   |       | 12,000          |       | 1                         |       |
| RV Business                                               |       | 18,000          |       | 12                        |       |
| **CONTROLLED  CIRCULATION- Consumer (3)**                 |       |            |       |                      |       |
| ATV Magazine                                              |       | 232,331         |       | 6                         |       |
| Snow Week                                                 |       | 30,000          |       | 4                         |       |
| Watercraft World                                          |       | 51,465          |       | 6                         |       |
| **FREE  DISTRIBUTION (4)**                                |       |            |       |                      |       |
| Thunder Press-  North                                     |       | 30,139          |       | 12                        |       |
| Thunder Press-  South                                     |       | 23,925          |       | 12                        |       |
| Thunder Press-  West                                      |       | 45,607          |       | 12                        |       |
| Woodall’s  Specials (5)                              |       | 6,074           |       | 1                         |       |
| Woodall’s  Regional News Tabloids                    |       | 100,101         |       | 36                        |       |
| **ANNUALS  (1)**                                          |       |            |       |                      |       |
| Cruisers Buyers  Guide                                    |       | 76,507          |       | 1                         |       |
| Touring Rider                                             |       | 65,728          |       | 1                         |       |
| Trailer Life  Campground/RV Park & Services Directory |       | 233,954         |       | 1                         |       |
| Trailer Life’s  RV Buyers Guide                      |       | 113,125         |       | 1                         |       |
| Towing Guide                                              |       | 536,246         |       | 1                         |       |
| Ultimate  Snowmobile Buyers Guide                         |       | 90,000          |       | 1                         |       |
| Woodall’s Buyer’s  Guide                        |       | 46,866          |       | 1                         |       |
| Woodall’s  Campground Directory                      |       | 283,641         |       | 1                         |       |
| Woodall’s  Tenting Directory                         |       | 24,268          |       | 1                         |       |
| Woodall’s Go  & Rent...Rent & Go (4)         |       | 78,824          |       | 1                         |       |
| **CLUB  MAGAZINES (6)**                                   |       |            |       |                      |       |
| Camp Club USA  Directory                                  |       | 60,438          |       | 1                         |       |
| Coast to Coast  Magazine                                  |       | 89,925          |       | 8                         |       |
| Golf Traveler  (7)                                        |       | 57,527          |       | 4                         |       |
| Highways                                                  |       | 993,573         |       | 12                        |       |
| RV View                                                   |       | 883,722         |       | 4                         |       |

 

----

(1)          Paid circulation,may include supplemental qualified controlled circulation.

(2)          Trade publication distributedto industry-specific groups.

(3)          Qualified and limited paidcirculation.

(4)          Includes limited paidcirculation.

(5)          Distribution to RV outlets,including campgrounds and dealerships.

(6)          Limited to club members andpromotional copies.  The price isincluded in the membership fee.

(7)          Only one magazine is issuedwhen two members are from the same household.

 

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*PaidCirculation Magazines*

 

*American Rider*, introduced in November 1993, istargeted to owners and operators of Harley-Davidson motorcycles.

 

*ATV Sport* was introduced in May 1998 andtargets recreational and racing sport quad riders.

 

*Bass and Walleye Boats* is dedicated to freshwaterfishing boat owners who demand top performance from their boats, engines andaccessories.

 

*Camping Life*appeals to family-style campers and other outdoorenthusiasts with articles about destinations, products and activities to enhancetheir outdoor lifestyles.

 

*MotorHome* is a monthly periodical for owners andprospective buyers of motorhomes which has been published since 1968 andfeatures articles on subjects such as product tests, travel and touristattractions.

 

*Powerboat* is a leading performance boatingmagazine which was founded in 1968 and acquired by us in 2005.  This magazine focuses on performance boats,engines, as well as race coverage. The magazine is well known for its “PerformanceTrials,” regarded as one of the industry’s most comprehensive and authoritativetesting programs while boasting some of the marine industry’s finestphotography and writing.

 

*Rider* is a monthly magazine for motorcycletouring enthusiasts and has been published since 1974.  Each issue focuses on motorcycles,personalities, technical subjects, travel notes and other features of interestto this recreational affinity group.

 

*SnowGoer* is designed for highly active snowmobiling participantsand provides detailed equipment and product critiques, and maintenance tips.

 

*Trailer Boats*magazine, the country’s only trailerboating magazine, is dedicated to the hard-core enthusiast of trailerableboats, marine propulsion, accessory installations and use, maintenance andrepair, tow vehicles, boat trailering, seamanship, water sports and cruising.

 

*Trailer Life*, initially published in 1941, is theleading consumer magazine for the RV industry, featuring articles on subjectsincluding product tests, travel and tourist attractions.

 

#### *Controlled CirculationMagazines- Business*

#### * *

*Boating Industry*is the leading source of news andinformation for dealers, manufacturers, aftermarket vendors and otherprofessionals in the marine industries through its bi-monthly magazine anddaily web site.

 

*Campground Management* is the leading trade magazine for thecampground industry.

 

*PowerSports Business*is an industry trade magazine, introducedin January 1998, which combines the previously issued *SnowmobileBusiness* and *Watercraft Business*with a motorcycle and ATV business section. Distribution is to dealers servicing these industries, which in numerouscases have combined operations to service more than one of these segments.

 

*PowerSports Business Market DataBook* is an annualpublication that provides industry sales trends for powersports manufacturersand dealers; dealer customer service and performance data;

 

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manufacturer stockperformance updates; industry supplier information; and various industryresearch projects.

 

*PowerSports Business DealerDirectory* is asupplier directory for each of the ATV, snowmobile and watercraft markets.  This directory features hundreds ofmanufacturers and suppliers of parts, services, apparel and much more, completewith detailed company information.

 

*RV Business* is the leading trade magazine coveringindustry news and trends for RV dealers, manufacturers, suppliers, associationsand others.

 

##### *Controlled Circulation Magazines- Consumer*

##### * *

*ATV Magazine’s* first issue was published in October 1995.  The publication is designed to reach largenumbers of active ATV owners with comprehensive product information during thepeak periods when equipment is purchased.

 

*Snow Week* is the central source of information for the competitionand high-performance snowmobiling market segment.  The publication provides timely, year-roundarticles on racing, performance enhancing products, technical assistance, newproduct introductions, and general industry information.

 

*Watercraft World* is targeted to avid personal watercraftenthusiasts and provides detailed critiques of watercraft, in-depth gear andaccessory evaluations, technical tips and racing information.

 

#### *Free DistributionPublications*

#### * *

###### *ThunderPress*newspapersare published monthly in three separate editions to reach the country’smotorcycling public and are available primarily through motorcycledealers.  This tell-it-like-it-ismagazine is designed for the ultra-active motorcycle enthusiast who feelspassionate about the lifestyle.

###### * *

*Woodall’sSpecials* are annual publications geared around specific events,such as the beginning of the camping season and the beginning of the snowbirdseason.  Its editorial content is aimedat seasonal events and the ads are largely from regional campgrounds.

 

*Woodall’sRegional News Tabloids* publications are designed to appeal to theprospective or first-time RV owner. Stories in these publications cover area campgrounds and RV dealerships,as well as new vehicles on the market and new products within theindustry.  The publications are primarilydistributed at campgrounds and RV parks, as well as at RV shows and statewelcome centers.

 

#### *Annual Publications*

#### * *

*Cruiser Buyers Guide* is an annual publication which providesinformation about new and modified cruisers with features embracing themotorcycle cruiser lifestyle.

 

*Touring Rider* is an annual publication which isdevoted exclusively to touring — from bikes and gear to touring tips,adventures and road maps.

 

*Trailer Life Campground/ RV Park &Services Directory*,initially published in 1972, is an annually updated directory which providesinformation on and ratings for approximately 11,700 public and privatecampgrounds, over 800 RV service centers, and over 800 tourist attractions inNorth America along with color maps of the areas covered.  The publication features Good Sam Parks thatoffer discounts on overnight camping fees to our club members.  This directory is sold primarily by directmail to Good Sam Club members, at RV dealerships and in bookstores.

 

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*TrailerLife’s RV Buyers Guide*, issued annually, features more than 400 listings with photos,floorplans and specifications on new RVs including travel trailers, fifth-wheeltrailers, folding camping trailers, motorhomes and pickup campers.  The publication is sold at newsstands and bymail order from magazine advertisements.

 

The*Towing Guide*is a booklet dedicated to meeting the needs ofall camping and boating enthusiasts that are towing a trailer.  This booklet serves as a step-by-steptutorial for newcomers and a refresher course for trailer-towing veterans toensure that maximum enjoyment of their trailer by making informed decisions.

 

The*Ultimate Snowmobile Buyers Guide*is an annual publicationfocusing on new snowmobiles introduced in the current year, along withaccessories, providing competitive statistics to enable the reader to makeinformed purchases.

 

*Woodall’sBuyer’s Guide* isan annual publication distributed mainly through bookstores and newsstands,which provides photos, floor plans and specifications of the new model yearRVs.  The buyer’s guide was firstpublished in 1978.

 

*Woodall’sCampground Directory,* initially published in 1948, is an annual consumer directory offeredin both national and regional editions. This directory is primarily distributed through book stores.

 

*Woodall’sTenting Directory*isan annual directory distributed primarily through newsstands, which providesinformation on both government and privately-owned campgrounds and the outdooractivities and attractions that are available near them.

 

*Woodall’sGo & Rent... Rent & Go* is an annual catalog providing information on whereto find on-site lodging and cabin rentals at RV Parks & Campgroundsand “Over-the-Road” RV Rentals, as well as fully equipped campsites throughoutthe U.S.A. and Canada.  This bookfeatures “turn-key” camping experiences for those who want to try camping, renta cabin, or rent a fully-equipped campsite.

 

#### *Club or Trade Magazinesand Books*

#### * *

Each of our membershipclubs has its own publication which provides information on club activities andevents, feature stories and other articles. We publish *Highways* for the Good Sam Club, *Coast to Coast Magazine* for the Coast to Coast Club, *The Golf Traveler* for the Golf Card Club, the *Camp Club USA Directory* for Camp Club members, and*RV View* for the President’s Club.  We also periodically publish books targetedto our club membership which address the RV lifestyle.

 

#### *Consumer Shows*

#### * *

Weoperate 36 consumer outdoor recreation shows primarily focused on RV andpowersports markets.  Twelve of the showswere acquired from Royal Productions, Inc. in December 2005, six consumer shows were purchased from H &S Productions, LLC in February 2006, four RV shows were purchasedfrom Apple Rock Advertising and Promotions, Inc. in September 2006,one show was acquired from MAC Events, LLC in January 2007, and five showswere acquired from Industrial Expositions, Inc. in February 2007.  These shows provide us with the opportunityto reach new customers and interact with them on a face-to-face basis.  Revenues are recognized from the sale ofexhibitor booth space and admission fees.

 

#### *Campground Guides*

#### * *

Wecurrently produce local campground guides distributed free of charge to over380 campgrounds across the country. These guides include paid listings for local attractions, restaurantsand services

 

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anda map of the campground.

 

**Retail**

 

#### *Camping WorldSupercenters*

#### * *

CampingWorld is a national specialty retailer of merchandise and services for RVowners.  With the opening of our twonewest Camping World supercenters in the fourth quarter of 2007, we currentlyoperate 77 Camping World retail locations in 28 states.  These stores accounted for approximately 87%of the 2007 total retail revenue, while approximately 13% was derived fromcatalog and Internet sales.

 

Inthe RV accessory industry, we believe that Camping World has a high level ofname recognition, an effective triple channel distribution strategy (store,catalog, and Internet), and a commitment to offer a broad selection ofspecialized RV products and services at competitive prices combined withtechnical assistance and on-site installation. Camping World offers approximately 12,000 SKUs, most of which are notregularly available in general merchandise stores.  The Camping World supercenters provideinstallation and repair services for RV products, which are not available atgeneral merchandise stores.  Productssold by Camping World include specialty-sized refrigerators, housewares andother appliances, bedding and furniture, generators and hydraulic levelingsystems, awnings, folding boats, chairs, ladders, cleaning and maintenanceproducts, bicycles, hitch-towing, sanitation products, automotive electronicsand lifestyle products.  Some CampingWorld stores feature resource centers, staffed with licensed insurance agentswho market such products and services as vehicle insurance, extended warrantyand ERS.  Camping World’s supercentersare designed to provide one-stop shopping by combining broad product selection,technical assistance and on-site installation services.  We strategically locate Camping Worldsupercenters in areas where many RV owners live, along major Interstates,and/or in proximity to destinations frequented by RV users.

 

CampingWorld sources its products from approximately 1,100 vendors.  Camping World attends regional, national andinternational trade shows to determine the products it will offer.  The purchasing activities of Camping Worldare focused on RV parts and accessories, electronics, housewares, hardware,automotive, crafts, clothing, home furnishings, gifts, camping and sportinggoods.  Camping World uses an automated “plan-o-gram”system to develop and maintain merchandising plans unique to each supercenterand an inventory replenishment system for its operations to improve in stockrates on key items.  Camping Worldbelieves that the volume of merchandise it purchases from domestic andinternational suppliers and its ability to buy direct from manufacturersenables them to obtain merchandise at costs which compare favorably to local RVdealers and retailers.

 

The retail supercenters are periodically reset to enhance the customers’shopping experience as well as to maximize merchandise category offerings.  New products and services are introduced inorder to keep pace with the advances of the RV industry and to satisfy ourcustomers’ needs.  Customers takeadvantage of the state-of-the art performance centers staffed with expert RVtechnical consultants and equipped with demonstrable merchandise to assist ineducating customers about RV performance products.  The resource centers provide an opportunityto promote service offerings in a more interactive and consultative sellingenvironment.  They are staffed withprofessionals marketing insurance products, extended warranties, roadsideservice, club memberships, and RV financing, which product offerings add to thedepth of services that Camping World customers have become accustomed toreceiving at our supercenters.  Finally,store dress, promotional signage and directional signage are periodicallyrefreshed to further enhance our customers’ shopping experience at CampingWorld’s supercenters.

 

CampingWorld’s supercenters generally range in size from approximately 10,000 to64,000 square feet.  Approximately 40% ofeach supercenter is devoted to a retail sales floor, a customer service area,and a technical information counter; 40% is comprised of the installationfacility, which contains 4 to 16 drive-through installation bays; and 20% isallocated to office and warehouse space. Large parking

 

15

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areasprovide sufficient space and facilitate maneuvering of RVs.  By combining broad product selection,technical assistance, installation and repair services, Camping World’ssupercenters provide one-stop shopping for RV owners.  Camping World maintains toll-free telephonenumbers for customers to schedule installation and repair appointments.  Most supercenters are open seven days a week.

 

Camping World intends to continue the controlled expansion of theirsupercenter store network while simultaneously developing dealer partnershipsacross North America.  We plan toestablish additional Camping World stores alongside or within new and existingRV dealerships.  This marketing strategywill provide an expanded number of customers with access to the vast array ofproducts and services that we offer and generate traffic for our dealer partnersby marketing locally, regionally and nationally our extensive parts andaccessories business.  In 2003, weinitiated the dealer alliance program under which we sublease space in anexisting RV dealership where we operate a Camping World store or operate theCamping World store adjacent to the RV dealership.  Currently, we operate 59 Camping World storesalongside or within RV dealerships, including 49 Camping World stores that arepart of our dealer alliance program.  Ofthese 59 Camping World stores that are alongside or within RV dealerships, 45are located alongside or within dealerships indirectly owned or operated byFreedomRoads Holding LLC and its subsidiaries (collectively “FreedomRoads”).  FreedomRoads is indirectly owned andcontrolled by Stephen Adams, our Chairman and principal owner of our parentcompany and owns and operates RV dealerships at 56 locations across the UnitedStates as of December 31, 2007.

 

#### *On March 6, 2006, Camping World, Inc.,an indirect wholly-owned subsidiary that operates the Camping World stores,entered into a joint venture agreement with FreedomRoads.  The joint venture agreement provides thatCamping World and FreedomRoads will act cooperatively with a view to maximizingsynergies and to locate, establish and utilize mutually beneficialrelationships that are available only to the parties acting together that wouldnot otherwise be available to either party independently.  There are no capital requirements or sharingof income and expenses under the agreement.*

#### * *

CampingWorld initiated its catalog operations in 1967. Camping World currently has a proprietary mailing list of approximately2.5 million RV owners, all of whom have made a purchase or requested a catalogfrom Camping World within the prior 60 months. Camping World maintains a database of these names, which includesinformation such as order frequency, size of order, date of most recent orderand type of merchandise purchased. Camping World analyzes its database to determine those customers mostlikely to order from Camping World’s catalogs. As a result, Camping World is able to target catalog mailings moreeffectively than direct marketers of catalogs offering generalmerchandise.  Camping World continuallyexpands its proprietary mailing list through in-store subscriptions andrequests for catalogs in response to advertisements in regional publicationsdirected to RV owners.  In addition,Camping World rents mailing lists of RV owners from third parties.

 

During2007, Camping World distributed 7.4 million catalogs, 6.3 million of which weremailed in fourteen separate mailings, and the remaining 1.1 million catalogswere distributed in supercenters, at campgrounds and other RV locations, and aspackage inserts.  During the same period,Camping World processed approximately 305,000 catalog orders at an average netorder size of $113, excluding postage and handling charges.  Camping World distributed fourteenhigh-quality, full-color catalogs during 2007, consisting of thirteen catalogsplus a Master Catalog in the spring of 2007.

 

16

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**Internet**

 

TheInternet has proven to be a significant, low-cost source for new club members,subscriptions and other ancillary product sales.  We maintain fifty-five Internet web sites,which are accessible through *http://www.rv.net*,and are experiencing significant growth. In 2000, our club operations commenced a low-cost marketing strategythrough e-mail membership acquisition campaigns.  Members added in 2007 under these programsrepresented approximately 12.7% of all new club members.  E-mail acquisition campaigns and Internetonline revenue totaled approximately $36.3 million in 2007.

 

**Marketing**

 

We market our club memberships and related products andservices through direct mail, e-mail, inserts, ride-alongs, spaceadvertisements, promotional events, point of sale, member-get-a-membercampaigns, and telemarketing.  Directresponse marketing efforts account for approximately 49% of new enrollmentswith the remaining 51% derived from other sources.  We use a variety of commercially availablemailing lists of RV owners in our direct mail efforts.  Currently, the most widely used listdatabases are provided by three commercial list compilers, and direct responselists are from RV industry participants, RV consumer surveys, and proprietaryin-house lists.

 

Our publications segmentsolicits advertisements through an internal sales force and by payingcommissions to advertising agencies and independent contractors who placeadvertisements.  Many advertisers arerepeat customers with whom we have long standing relationships.

 

We market our retailproducts through mail order catalogs, direct mail retail flyers, advertisementsin national and regional industry publications, vendor co-op advertisingprograms, promotional events, the President’s Club direct mailings and personalsolicitations and referrals. Camping World’s principal marketing strategy is tocapitalize on its broad name recognition among RV owners.

 

**Operations**

** **

Our customer serviceoperations are located in Denver, Colorado and Bowling Green, Kentucky.  The primary focus of these groups is tomanage our customers’ expectations and relationship with the organization.  These member service operations processedapproximately 1.3 million telephone calls in 2007. Approximately forty percentof the calls originated from the marketing efforts of catalog mailings,membership acquisition, membership renewals and associated ancillary productsand events.  All such efforts usetoll-free numbers as a response mechanism.

 

Camping World’s catalog,Internet and fulfillment operations are located in Franklin, Kentucky andBakersfield, California.  Fulfillmentoperations involve the processing of orders and checks principally received bymail.   Orders are usually processed andshipped within 24 hours of receipt. Certain fulfillment operations are performed by third parties.

 

Our publicationoperations are based in Minnesota and California.  We develop the layout for publications andoutsource printing to third parties.

 

**Information Support Services**

 

We utilize integrated computer systems to support ourmembership club and publishing operations. A database containing all customer activity across our variousbusinesses and programs has been integrated into our web sites and call centers.  Comprehensive information on each member,including a profile of the purchasing activities of members, is available tocustomer service representatives when responding to member requests and whenmarketing our products and services.  Weemploy publishing software for publication makeup and content, and foradvertising to

 

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support our publications operations.  A wide-area network facilitates communicationwithin and between our offices.  We alsoutilize information technology, including list segmentation, merge and purgeprograms, and advanced data base analysis and modeling techniques to selectprospects for direct mail solicitations and other direct marketing efforts.

 

Camping World’s management information systems and electronicdata processing systems consist of an extensive range of retail, mail order,financial and merchandising systems, including purchasing, inventorydistribution and control, sales reporting, accounts payable and merchandisemanagement.  Camping World’s managementinformation system includes point-of-sale registers that are equipped with barcode readers in each supercenter.  Theseregisters are polled nightly by a central computer.  With this point-of-sale information and theinformation from Camping World’s on-line distribution centers, Camping Worldcompiles comprehensive data, including detailed sales volume and inventoryinformation by product, merchandise transfers and receipts, special orders,supply orders and returns of product purchases to vendors.  In conjunction with its nightly polling,Camping World’s central computer sends price changes to registers at the pointof sale.  The registers capture President’sClub member numbers and associated sales and references to specific promotionalcampaigns.  Management monitors theperformance of each supercenter and mail order operation to evaluate inventorylevels, determine markdowns and analyze gross profit margins by product.

 

Camping World’s catalog operations also utilize acomputerized management system allowing on-line desktop access to informationwhich previously required manual retrieval. Screen prompts that provide product, promotional, and revenue potentialinformation have allowed Camping World to maintain high service levels duringseasonal sales peaks.

 

**Regulation**

 

Our operations aresubject to varying degrees of federal, state and local regulation.  Specifically, our outbound telemarketing,direct mail, and ERS, as well as certain services provided by third parties,including insurance, RV financing, and extended warranty programs, arecurrently subject to certain regulation, and may be subjected to increasedregulation in the future.  We do notbelieve that such federal, state and local regulations currently have amaterial impact on our operations. However, new regulatory efforts impacting our operations may be proposedfrom time to time in the future at the federal, state and local level.  There can be no assurance that suchregulatory efforts will not have a material adverse effect on our ability tooperate our businesses or on our results of operations.

 

**Competition**

 

In general, ourmembership clubs, retail and catalog operations and publications compete withnumerous organizations in the recreation industry for disposable income spenton leisure activities.  By offeringsignificant membership benefits at a reasonable cost and actively marketing toclub members, we believe that we have been able to maintain a loyal followingfor our membership organizations as evidenced by the high renewal rates of ourmembership clubs.  The products andservices marketed by us compete with similar products and services offered byother providers.  However, managementbelieves that we are able to use the large volume of purchases by our clubmembers to secure attractive pricing for the products and services marketed byus.

 

**Employees**

 

As of December 31,2007, we had 1,997 full-time and 206 part-time or seasonal employees,consisting of 9 executives, 1,421 employees in retail operations, 492 employeesin administrative and club operations, 222 employees in publishing andadvertising sales, 6 employees in resort services

 

18

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and 53 employees inmarketing.  No employees are covered by acollective bargaining agreement.  Webelieve that our employee relations are good.

 

**Trademarks and Copyrights**

 

We own a variety ofregistered trademarks and service marks for the names of our clubs, magazinesand other publications.  We also own thecopyrights to certain articles in our publications.  We believe that our trademark and copyrightshave significant value and are important to our marketing efforts.

 

**ITEM1A:  RISK FACTORS**

 

The risks described below are not the only risks we face.  Any of the following risks could materiallyadversely affect our business, financial condition or results of operations.Additional risks and uncertainties not currently known to us, or that wecurrently deem to be immaterial, may also materially adversely affect ourbusiness operations.

 

**Risks Relating to our Debt**

 

*Our substantial indebtedness could adversely affect our financialhealth.*

 

We have a significant amount of indebtedness.  As of December 31, 2007, our total debtand total stockholder’s deficit were $287.2 million and $66.9 million, respectively.  Our total debt as of December 31, 2007primarily consists of: (1) $152.4 million under the AGI 9% SeniorSubordinated Notes due 2012 (“AGI Senior Notes”), (2) $128.6 million underthe Amended and Restated Credit Agreement and Senior Secured floating Rate NotePurchase Agreement (“Senior Credit Facility”), and (3) $6.2 million ofdebt relating to publication and consumer event acquisitions over the last fouryears within our Publications Segment. In the future, we intend to use cash generated by operations to reduceour indebtedness.  However, we may fromtime to time, subject to restrictions imposed by the terms of our indebtedness,pay dividends or find it more advantageous to employ cash generated by operationsfor capital investments and acquisitions.

 

Our ability to satisfy our debt service obligations depends primarilyon our operating performance.  Futuredebt repayments by us, including the principal amount of the notes, may requirefunds in excess of our available cash flow. We cannot assure our investors that we will be able to raise additionalfunds, if necessary, through future financings. The indentures pursuant to which the Company issued its 9% SeniorSubordinated Notes due 2012 were issued impose several restrictions upon us,including restrictions on our ability to incur additional indebtedness, pledgeassets, and make dividends and distributions.

 

Our parent, AGHI, has debt as of December 31,2007 consisting of $109.8 million principal amount of 10-7/8% senior notes due2012 (the “AGHI Notes”) which is net of $2.4 million unamortized original issuediscount.  The AGHI Notes are unsecuredobligations of AGHI, and neither AGI nor its subsidiaries have guaranteedpayment of principal or interest on the AGHI Notes.  Interest on the AGHI Notes is payablesemi-annually and the entire principal amount of the AGHI Notes is due in fullon February 15, 2012.  For interestpayments on and prior to February 15, 2008, the Company may elect to payinterest on the AGHI Notes in cash or by the issuance of additional notes ofthe same tenor as the AGHI Notes.  Anyadditional AGHI Notes issued in payment of interest are due in full on orbefore March 15, 2010.  The Companyexpects to issue additional notes of the same tenor as the AGHI Notes through February 15,2008 to pay interest on the AGHI Notes when and as such interest is due.  After February 15, 2008, the AGHI mustrely on dividends from AGI to fund the interest payments due under the AGHINotes.  Although the only source of thecash payment of the AGHI

 

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Notes is dividends from AGI, there are certainrestrictions on the payment of dividends under the AGI Senior Credit Facilityand the AGI Indenture.

 

TheAGI Senior Credit Facility, the AGI Indenture and the indenture governing ourAGHI Notes contain certain restrictive covenants relating to, but not limitedto, mergers, changes in the nature of the business, acquisitions, additionalindebtedness, sale of assets and investments, and the payment of dividendssubject to certain limitations and minimum operating covenants.

 

Our substantial indebtedness could have important consequences to ourinvestors.  For example, it could: (i) increaseour vulnerability to general adverse economic and industry conditions, (ii) requireus to dedicate a substantial portion of our cash flow from operations topayments on our indebtedness, thereby reducing the availability of our cashflow to fund working capital, capital expenditures, expansion throughacquisitions and other general corporate purposes, (iii) limit ourflexibility in planning for, or reacting to, changes in our business and theindustry in which we operate, (iv) place us at a competitive disadvantagecompared to our competitors that have less debt, and (v) limit ourability, among other things, to borrow additional funds.

 

*Despite current indebtedness levels and restrictive covenants, we stillmay be able to incur substantially more debt in the future.*

 

Despite our current level of debt, we or our subsidiaries may be ableto incur substantial additional debt in the future.  Our Amended and Restated Credit Agreement (“SeniorCredit Facility”) will permit total borrowings of up to $188.6 million.  Although our Senior Credit Facility and ourAGI Senior Notes restrict us and our restricted subsidiaries from incurringadditional debt, these restrictions are subject to important exceptions andqualifications.  If we or oursubsidiaries incur additional debt, the risks that we and they now face asresult of our leverage could increase.

 

If our financial condition and operating results deteriorate, ourrelationships with our creditors, including the holders of the AGI SeniorNotes, the lenders under our Senior Credit Facility and our suppliers, may beadversely affected.

 

*Our operations are substantially restricted by the terms of the AGISenior Notes and our Senior Credit Facility which could adversely affect us andincrease our credit risk.*

 

The indenture governing the AGI Senior Notes and the credit agreementfor the Senior Credit Facility include a number of significant restrictivecovenants.  These covenants restrict,among other things, our ability to: (i) incur more debt, (ii) paydividends or make other distributions, (iii) make investments, (iv) issuestock of subsidiaries, (v) repurchase stock, (vi) create liens, (vii) enterinto transactions with affiliates, (viii) enter into sale-leasebacktransactions, (ix) merge or consolidate, and (x) transfer and sellassets.

 

These covenants could limit our ability to plan for or react to marketconditions or to meet our capital needs. These covenants are subject to certain important exceptions.

 

Our Senior Credit Facility contains additional and more restrictivecovenants than the terms of the indenture governing the AGI Senior Notes,including financial covenants that requires us to achieve certain financial andoperating results and maintain compliance with specified financial ratios.  Our ability to comply with these covenants andrequirements may be affected by events beyond our control, and we may have tocurtail some of our operations and growth plans to maintain compliance.

 

If we are not able to comply with the covenants and other requirementscontained in the indenture for the AGI Senior Notes, our Senior Credit Facilityor our other debt instruments, an event of default under the relevant debtinstrument could occur.  Our ability tocomply with the provisions of the

 

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indenture, our Senior Credit Facility and the agreements or indenturesgoverning other debt we may incur in the future could be affected by eventsbeyond our control and, therefore, we might be unable to meet those ratios andconditions. If an event of default does occur, it could trigger a default underour other debt instruments, we could be prohibited from accessing additionalborrowings, and the holders of the defaulted debt could declare amountsoutstanding with respect to that debt to be immediately due and payable.  We cannot assure our investors that ourassets or cash flow would be sufficient to fully repay borrowings under ouroutstanding debt instruments or that we would be able to refinance orrestructure the payments of these debt instruments. Even if we were able tosecure additional financing, it may not be available on terms favorable to us.

 

*To service our indebtedness, we will require a significant amount ofcash, the availability of which depends on many factors beyond our control.*

 

Our ability to make payments on and to refinance our indebtedness andthe indebtedness of our subsidiaries, and to fund planned capital expenditureswill depend on our ability to generate cash in the future. To a certain extent,this is subject to general economic, financial, competitive, legislative, regulatoryand other factors that are beyond our control.

 

We cannot assure our investors that our business will generatesufficient cash flow from operations or that future borrowings will beavailable to us under our Senior Credit Facility in an amount sufficient toenable us to pay our indebtedness, including the Senior Credit Facility and theAGI Senior Notes, as it becomes due or to fund our other liquidity needs.  If our future cash flow from operations andother capital resources are insufficient to pay our obligations as they matureor to fund our liquidity needs, we may be forced to reduce or delay ourbusiness activities and capital expenditures, sell assets, sell additionalshares of capital stock or restructure or refinance all or a portion of our debt,on or before its maturity.  We cannotassure our investors that we will be able to refinance any of our indebtedness,including the Senior Credit Facility and the AGI Senior Notes, on satisfactoryterms or at all.

 

Our failure to comply with our obligations under the indenturegoverning the AGI Senior Notes or the Senior Credit Facility may result in anevent of default under those debt instruments. A default, if not cured or waived, may permit acceleration of our otherindebtedness.  We cannot be certain thatwe will have funds available to remedy these defaults. If our indebtedness isaccelerated, we cannot be certain that we will have sufficient funds availableto pay the accelerated indebtedness or that we will have the ability torefinance the accelerated indebtedness on terms favorable to us or at all.

 

*We may not have the ability to raise the funds necessary to repurchasethe AGI Senior Notes upon a change of control.*

 

Upon the occurrence of certain specific kinds of change of controlevents, we will be required to offer to repurchase all outstanding AGI SeniorNotes at 101% of the principal amount thereof plus accrued and unpaid interestand liquidated damages, if any, to the date of repurchase.  However, it is possible that we may not havesufficient funds at the time of the change of control to make any requiredrepurchases or that the AGI Senior Credit Facility will not allow suchrepurchases.  Our failure to purchasetendered notes would constitute a default under the indenture governing the notes.In addition, certain important corporate events relating to our capitalstructure would not constitute a “change of control” under the indenture.

 

**Risks Relating to Our Business**

 

*We depend on our ability to attract and retain active members.*

 

Our future success depends in large part upon continued demand for ourmembership club programs

 

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by consumers.  Any number offactors could affect the frequency with which consumers participate in ourprograms or whether they enroll in a membership club at all.  These factors include (1) consumer tastepreferences, (2) the frequency with which members participate in clubactivities, (3) general economic conditions, (4) weather conditions, (5) theavailability of alternative discount programs in the region in which consumerslive and work, and (6) significant increases in gasoline prices.  Any significant decline in usage or increasein program cancellations, without a corresponding increase in new memberenrollments, could have a material adverse effect on our business.

 

Our future growth depends upon continued demand for our membershipclubs from consumers we serve or seek to serve. A significant downturn in leisure travel or in any of the other areasserved by our membership clubs would have a material adverse effect on ourbusiness, financial condition and results of operations.

 

*We depend on our relationships with our marketing partners and adisruption of these relationships or of our marketing partners’ operationscould have an adverse effect on our business and results of operations.*

 

Our business depends in part on developing and maintaining productiverelationships with third party providers of products and services that wemarket to our customers. Many factors outside our control may harm theserelationships.  For example, financialdifficulties that some of our providers may face may adversely affect ourmarketing program with them.  Adisruption of our relationships with our marketing partners or a disruption inour marketing partners’ operations could have a material adverse effect on ourbusiness and results of operations.

 

*We face significant competition for disposable income spent on leisuremerchandise and activities.*

 

In general, our membership clubs, retail and catalog operations andpublications compete with numerous organizations in the recreation industry fordisposable income spent on leisure merchandise and activities. The products andservices we market compete with similar products, services, publications andretail businesses offered by other providers. Increased competition from these and other sources could require us torespond to competitive pressures by establishing pricing, marketing and otherprograms or seeking out additional strategic alliances or acquisitions that maybe less favorable to us than we could otherwise establish or obtain.

 

*Our business could be adversely affected by deteriorating generaleconomic conditions.*

 

Our activities relate significantly to the amount of leisure time andthe amount of disposable income available to users of our products andservices.  Our business, therefore, maybe sensitive to general economic conditions affecting the willingness ofconsumers to purchase club memberships and related products and services and ofadvertisers to place advertisements in our publications.  In particular, during the gasoline shortagesand resulting price increases in 1973, 1980 and 1990, there was a reduction inadvertising revenues for our publications. In addition, the success of the membership club portion of our businessdepends on our members’ use of certain RV sites and/or golf courses or thepurchase of goods through participating merchants.  If the economy slows, our members mayperceive that they have less disposable income to permit them to pursue leisureactivities.  As a consequence, they maytravel less frequently, spend less when they travel and use the benefits oftheir club memberships less often, if at all. Any decline in program usagewould hurt our business. In addition, a decline in the national economy couldcause some of the merchants who participate in our programs to go out ofbusiness. It is likely that, should the number of merchants entering bankruptcyrise, the number of uncollectible accounts would also rise.  This would have an adverse effect on ourbusiness and financial results.

 

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*The interests of our principal shareholder may conflict with theinterests of holders of the debt instruments.*

 

We are a wholly-owned subsidiary of Affinity Group Holding, Inc.,which is indirectly a wholly-owned subsidiary of AGI Holding Corp. (“AGHC”), aprivately held company.  Stephen Adams,our Chairman, owns approximately 98.2% of the outstanding shares of AGHC.  Accordingly, Mr. Adams will be able toelect our Board of Directors and to control matters submitted to the vote ofour shareholders.  Circumstances mayoccur in which the interests of Mr. Adams could be in conflict with theinterests of the holders of our debt instruments and lenders.  For example, Mr. Adams may have aninterest in pursuing acquisitions, divestitures or other transactions that, inhis judgment, could enhance the value of his equity investment, even thoughsuch transactions may involve risks to the holders of our debt instruments andlenders.

 

*We are subject to varying degrees of federal, state and localregulations which may affect our operations.*

 

Our operations are subject to varying degrees of federal, state andlocal regulation.  Our outboundtelemarketing, direct mail, ERS program, and insurance activities are currentlysubject to regulation. Specifically, a principal source of leads for our directresponse marketing efforts was new vehicle registrations provided by motorvehicle departments in various states. Currently, all states restrict access to motor vehicle registrationinformation.

 

In addition to the existing regulatory framework, new regulatoryefforts affecting our operations may be proposed from time to time in thefuture at the federal, state and local level. There can be no assurance thatsuch regulatory efforts will not have a material adverse effect on our abilityto operate our businesses or our results of operations.

 

Our direct marketing operations are subject to various federal andstate “do not call” list requirements. The Federal Trade Commission has created a national “do not call”registry.  Under these federalregulations, consumers may have their phone numbers added to the national “donot call” registry.  Generally, we areprohibited from calling anyone on that registry.  In September 2003, telemarketers weregranted access to the registry and are now required to compare their call listsagainst the national “do not call” registry at least once every 90 days.  We also are required to pay a fee to accessthe registry on a quarterly basis. Enforcement of the “do not call” provisions began in late 2003, and the rule providesfor fines of up to $11,000 per violation and other possible penalties.  These rules limit our ability to marketour products and services to new customers. Furthermore, we may incur penalties if we do not conduct our marketingactivities in compliance with these rules.

 

*Increase in paper costs, postage costs and shipping costs may have anadverse impact on our future financial results.*

 

The price of paper is a significant expense relating to ourpublications and direct mail solicitations. Postage for publicationdistribution and direct mail solicitations is also a significant expense.  In addition, shipping costs are a significantexpense for our business.  Paper, postageand shipping costs have increased in the past and may be expected to increasein the future.  Such increases could havean adverse effect on our business if we are unable to pass them on to ourcustomers.

 

*If we are unable to retain senior executives and attract and retainother qualified employees, our business might be adversely affected.*

 

Our success depends in part on our ability to attract, hire, train andretain qualified managerial, sales and marketing personnel.  Competition for these types of personnel ishigh.  We may be unsuccessful inattracting and retaining the personnel we require to conduct our operations

 

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successfully and, in such an event, our business could be materiallyand adversely affected.  Our success alsodepends to a significant extent on the continued service and performance of oursenior management team.  The loss of anymember of our senior management team could impair our ability to execute ourbusiness plan and could therefore have a material adverse effect on ourbusiness, results of operations and financial condition.

 

**ITEM2:  PROPERTIES**

 

We lease all of the real properties where we have operations.  Our real property leases generally providefor fixed monthly rentals with annual escalation clauses.  The table below sets forth certaininformation concerning our properties and the lease expiration date includesall stated option periods.

 
| ** **                                                                                  | ** ** | **Square  Feet** | ** ** | **Acres**  | ** ** | **Lease  Expiration** | ** ** |
|---------------------------------------------------------------------------------------------|------------|------------------|------------|------------|------------|-----------------------|------------|
| **Corporate  Headquarters:**                                                                | ** ** | ** **       | ** ** | ** ** | ** ** | ** **            | ** ** |
| Ventura, CA                                                                                 |       | 74,100           |       |       |       | 2039                  |       |
|                                                                                        |       |             |       |       |       |                  |       |
| **Other  Office Facilities:**                                                               |       |             |       |       |       |                  |       |
| Carson, CA  (regional publication office)                                                   |       | 10,048           |       |       |       | 2012                  |       |
| Denver, CO  (customer service, warehousing fulfillment, and information system  functions). |       | 60,000           |       |       |       | 2039                  |       |
| Bowling Green,  KY (retail administrative headquarters and mail order operations)           |       | 31,278           |       |       |       | 2039                  |       |
| Seattle, WA  (regional publication sales office)                                            | ** ** | 912              |       |       |       | 2009                  |       |
| Elkhart, IN  (regional publication sales office)                                            | ** ** | 4,076            |       |       |       | 2008                  |       |
| Chesterfield, VA  (shows sales office)                                                      | ** ** | 5,900            |       |       |       | 2008                  |       |
| Maple Grove, MN  (Ehlert Publications Group, Inc. headquarters)                        | ** ** | 17,496           |       |       |       | 2010                  |       |
| Earth City, MO  (information systems functions)                                             |       | 1,769            |       |       |       | 2008                  |       |
| Las Vegas, NV  (regional shows sales office)                                                |       | 2,809            |       |       |       | 2009                  |       |
| Scotts Valley,  CA (regional publication office)                                            |       | 3,905            |       |       |       | 2011                  |       |
| Bowling Green,  KY (database and online media support)                                      |       | 5,952            |       |       |       | 2015                  |       |
| Fort Lauderdale,  FL (regional publication sales office)                                    |       | 528              |       |       |       | 2009                  |       |
| Port Angeles, WA  (regional shows sales office)                                             |       | 3,300            |       |       |       | 2012                  |       |
|                                                                                        |       |             |       |       |       |                  |       |
| **Distribution  Centers:**                                                                  |       |             |       |       |       |                  |       |
| Bakersfield,  California                                                                    |       | 164,747          |       | 14.827     |       | 2037                  |       |
| Franklin,  Kentucky                                                                         |       | 250,000          |       | 33.000     |       | 2035                  |       |
|                                                                                        |       |             |       |       |       |                  |       |
| **Camping  World Supercenter Locations:**                                                   |       |             |       |       |       |                  |       |
| Dothan, AL (1)                                                                              |       | 18,906           |       | 11.275     |       | 2025                  |       |
| Oxford, AL (2)                                                                              |       | 11,828           |       | 23.940     |       | 2027                  |       |
| Robertsdale, AL(1)                                                                          |       | 19,670           |       | 18.360     |       | 2026                  |       |
| North Little  Rock, AR (3)                                                                  |       | 20,592           |       | 10.000     |       | 2042                  |       |
| Tucson, AZ (2)                                                                              |       | 12,145           |       | 2.000      |       | 2018                  |       |
| Mesa, AZ                                                                                    |       | 27,500           |       | 3.140      |       | 2010                  |       |
| Bakersfield, CA (1)                                                                         |       | 23,325           |       | 9.940      |       | 2023                  |       |
| Fresno, CA (2)                                                                              |       | 6,932            |       | 21.010     |       | 2037                  |       |
| La Mirada, CA                                                                               |       | 33,479           |       | 5.501      |       | 2037                  |       |
| San Marcos, CA                                                                              |       | 25,522           |       | 2.212      |       | 2027                  |       |
| Fairfield, CA                                                                               |       | 43,434           |       | 3.780      |       | 2009                  |       |
| Rocklin, CA                                                                                 |       | 29,085           |       | 4.647      |       | 2037                  |       |

 

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| ** **                | ** ** | **Square  Feet** | ** ** | **Acres** | ** ** | **Lease  Expiration** | ** ** |
|---------------------------|------------|------------------|------------|-----------|------------|-----------------------|------------|
| San Bernardino,  CA       |       | 18,126           |       | 1.665     |       | 2012                  |       |
| San Martin, CA            |       | 29,486           |       | 5.000     |       | 2023                  |       |
| Valencia, CA (3)          |       | 64,410           |       | 9.231     |       | 2037                  |       |
| Colorado  Springs, CA (1) |       | 11,672           |       | 26.430    |       | 2027                  |       |
| Denver, CO                |       | 27,085           |       | 4.132     |       | 2037                  |       |
| Longmont, CO (1)          |       | 5,003            |       | 6.750     |       | 2026                  |       |
| Ft. Myers, FL             |       | 22,886           |       | 4.217     |       | 2012                  |       |
| Gulf Breeze, FL (1)       |       | 5,747            |       | 13.897    |       | 2026                  |       |
| Kissimmee, FL (3)         |       | 58,382           |       | 6.043     |       | 2037                  |       |
| St. Augustine,  FL (1)    |       | 21,875           |       | 20.000    |       | 2026                  |       |
| Tampa, FL                 |       | 40,334           |       | 3.711     |       | 2026                  |       |
| Tallahassee, FL (1)       |       | 8,494            |       | 12.630    |       | 2024                  |       |
| Byron, GA (3)             |       | 23,400           |       | 7.000     |       | 2042                  |       |
| Oakwood, GA (1)           |       | 4,510            |       | 7.681     |       | 2026                  |       |
| Savannah, GA (1)          |       | 6,285            |       | 4.898     |       | 2026                  |       |
| Snellville, GA (1)        |       | 12,376           |       | 5.923     |       | 2026                  |       |
| Woodstock, GA (1)         |       | 4,510            |       | 7.715     |       | 2026                  |       |
| Bolingbrook, IL (3)       |       | 25,126           |       | 5.299     |       | 2035                  |       |
| Island Lake, IL (1)       |       | 2,540            |       | 17.028    |       | 2026                  |       |
| Indianapolis, IN  (1)     |       | 7,690            |       | 30.000    |       | 2027                  |       |
| Bowling Green,  KY        |       | 37,615           |       | 2.750     |       | 2037                  |       |
| Hammond, LA (2)           |       | 27,096           |       | 68.454    |       | 2034                  |       |
| Belleville, MI (3)        |       | 44,248           |       | 7.260     |       | 2037                  |       |
| Grand Rapids, MI  (2)     |       | 4,618            |       | 9.180     |       | 2037                  |       |
| Rogers, MN                |       | 24,700           |       | 6.303     |       | 2025                  |       |
| Strafford, MO (3)         |       | 20,592           |       | 8.510     |       | 2042                  |       |
| Colfax, NC (1)            |       | 6,371            |       | 8.094     |       | 2026                  |       |
| Statesville, NC (1)       |       | 39,050           |       | 7.412     |       | 2024                  |       |
| Bridgeport, NJ            |       | 24,581           |       | 6.920     |       | 2031                  |       |
| Lakewood, NJ (1)          |       | 3,800            |       | 9.912     |       | 2027                  |       |
| Albuquerque, NM (1)       |       | 20,412           |       | 31.434    |       | 2026                  |       |
| Henderson, NV (3)         |       | 25,850           |       | 4.400     |       | 2025                  |       |
| Las Vegas, NV (1)         |       | 5,000            |       | 15.840    |       | 2027                  |       |
| Bath, NY (1)              |       | 4,356            |       | 5.500     |       | 2026                  |       |
| Amsterdam, NY (2)         |       | 13,420           |       | 28.000    |       | 2033                  |       |
| Churchville, NY (1)       |       | 7,193            |       | 10.380    |       | 2026                  |       |
| Hamburg, NY (1)           |       | 13,095           |       | 6.553     |       | 2025                  |       |
| Syracuse, NY (1)          |       | 12,242           |       | 8.190     |       | 2026                  |       |
| Akron, OH (1)             |       | 3,865            |       | 9.622     |       | 2026                  |       |
| Brunswick, OH             |       | 23,233           |       | 4.087     |       | 2038                  |       |
| Chichester, OH (1)        |       | 10,447           |       | 1.572     |       | 2026                  |       |
| Oklahoma City,  OK (2)    |       | 12,500           |       | 8.219     |       | 2023                  |       |
| Junction City,  OR (2)    |       | 21,401           |       | 1.970     |       | 2036                  |       |
| Wilsonville, OR           |       | 32,850           |       | 4.653     |       | 2016                  |       |
| Wood Village, OR  (1)     |       | 6,495            |       | 11.070    |       | 2027                  |       |
| Columbia, SC (1)          |       | 23,450           |       | 4.140     |       | 2017                  |       |
| Myrtle Beach, SC  (3)     |       | 38,962           |       | 5.410     |       | 2037                  |       |
| Myrtle Beach, SC  (1)     |       | 2,298            |       | 18.940    |       | 2026                  |       |
| North  Charleston, SC (1) |       | 13,142           |       | 7.690     |       | 2027                  |       |

 

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| ** **             | ** ** | **Square  Feet** | ** ** | **Acres** | ** ** | **Lease  Expiration** | ** ** |
|------------------------|------------|------------------|------------|-----------|------------|-----------------------|------------|
| Spartanburg, SC (1)    |       | 11,900           |       | 19.263    |       | 2033                  |       |
| Chattanooga, TN (1)    |       | 9,400            |       | 10.840    |       | 2024                  |       |
| Knoxville, TN (2)      |       | 10,763           |       | 24.580    |       | 2037                  |       |
| Nashville, TN (2)      |       | 34,478           |       | 3.238     |       | 2037                  |       |
| Anthony, TX (1)        |       | 7,061            |       | 32.000    |       | 2025                  |       |
| Denton, TX             |       | 22,984           |       | 6.887     |       | 2037                  |       |
| Fort Worth, TX (2)     |       | 11,102           |       | 16.000    |       | 2026                  |       |
| Katy, TX (1)           |       | 25,913           |       | 38.861    |       | 2025                  |       |
| Mission, TX            |       | 23,094           |       | 3.430     |       | 2015                  |       |
| New Braunfels,  TX (3) |       | 43,397           |       | 19.100    |       | 2035                  |       |
| Draper, UT             |       | 27,675           |       | 8.031     |       | 2026                  |       |
| Kaysville, UT (1)      |       | 6,033            |       | 16.200    |       | 2027                  |       |
| Manassas, VA (2)       |       | 16,348           |       | 9.754     |       | 2018                  |       |
| Winchester, VA         |       | 19,400           |       | 4.120     |       | 2042                  |       |
| Burlington, WA (1)     |       | 23,033           |       | 6.500     |       | 2025                  |       |
| Fife, WA               |       | 35,659           |       | 5.840     |       | 2032                  |       |

 

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(1)  This supercenter is leased from a FreedomRoads dealership and theacreage reflects the total dealership property. The square footage reported is the portion of the building leased byCamping World, Inc.

(2)  This supercenter is located with an RV dealership (other than aFreedomRoads dealership) and the acreage reflects the total dealershipproperty. The square footage reported is the portion of the building leased byCamping World, Inc.

(3)  The supercenter is co-located with a FreedomRoads dealershipwherein Camping World, Inc. and the dealership are co-tenants or thedealership subleases space from Camping World, Inc.  The square footage reported is the portion ofthe building leased by Camping World, Inc.

 

Wealso lease a body shop of 10,500 square feet on approximately 0.7 acres inDenver, Colorado, a body shop of 12,000 square feet on approximately 1.9 acresin Bellville, Michigan and other miscellaneous office equipment.  In addition, we own 12.439 acres ofunimproved land adjacent to the New Braunfels, Texas Camping World Supercenter.

 

**ITEM 3:  LEGALPROCEEDINGS**

** **

Fromtime to time, the Company is involved in litigation arising in the normalcourse of business operations.   TheCompany does not believe it is involved in any litigation that will have amaterial adverse effect on the results of operations or financial position.

 

**ITEM 4:  SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS**

 

None.

 

**PART II**

 

**ITEM 5:  MARKET FOR REGISTRANT’S COMMON EQUITY,RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES**

 

Not Applicable

 

26

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**ITEM6:  SELECTED FINANCIAL DATA**

 

Theselected financial data of our company for each of the five years ended December 31are derived from our audited consolidated financial statements.  Prior to April 27, 2004, AGI was awholly-owned subsidiary of Affinity Group Holding, Inc. (“AGH”).  On April 27, 2004, AGH was merged intoAGI, with AGI being the surviving entity after the merger.  The merger was accounted for as a combinationof entities under common control using historical costs.  All periods have been restated to reflect theresults of operations of AGI and AGH prior to the April 27, 2004merger.  Our selected financial datashould be read in conjunction with “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations” and our Consolidated FinancialStatements and the notes thereto included herein.

 
| ** **                                       | ** ** | **December 31,**                | ** ** |
|--------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                       | ** ** | **(dollars in thousands)** | ** ** |
| **Statement of Operations Data:** | ** ** | **2007**                             | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
| REVENUES:                                        |       |                                 |       |   |   |   |   |   |   |   |   |
| Membership  services                             |       | $                                    | 149,937    |   | $ | 137,394 |   | $ | 133,756 |   | $ | 131,608 |   | $ | 128,664 |   |
| Publications                                     |       | 90,537                               |       | 86,742 |   | 79,122 |   | 77,977 |   | 71,436 |   |
| Retail                                           |       | 321,730                              |       | 290,422 |   | 272,682 |   | 255,094 |   | 225,306 |   |
|                                             |       | 562,204                              |       | 514,558 |   | 485,560 |   | 464,679 |   | 425,406 |   |
| COSTS APPLICABLE  TO REVENUES:                   |       |                                 |       |   |   |   |   |   |   |   |   |
| Membership  services                             |       | 94,840                               |       | 87,407 |   | 85,551 |   | 84,231 |   | 79,500 |   |
| Publications                                     |       | 62,258                               |       | 58,302 |   | 53,855 |   | 53,042 |   | 48,392 |   |
| Retail                                           |       | 194,940                              |       | 175,015 |   | 162,363 |   | 151,196 |   | 136,137 |   |
|                                             |       | 352,038                              |       | 320,724 |   | 301,769 |   | 288,469 |   | 264,029 |   |
| GROSS PROFIT                                     |       | 210,166                              |       | 193,834 |   | 183,791 |   | 176,210 |   | 161,377 |   |
| OPERATING  EXPENSES:                             |       |                                 |       |   |   |   |   |   |   |   |   |
| Selling, general  and administrative             |       | 145,556                              |       | 133,129 |   | 121,178 |   | 116,137 |   | 104,066 |   |
| Restructuring  charge                            |       | —                               |       | 93 |   | — |   | — |   | 1,210 |   |
| Goodwill  impairment                             |       | —                               |       | — |   | 4,344 |   | — |   | — |   |
| Depreciation and  amortization                   |       | 18,948                               |       | 18,656 |   | 15,529 |   | 13,893 |   | 10,298 |   |
|                                             |       | 164,504                              |       | 151,878 |   | 141,051 |   | 130,030 |   | 115,574 |   |
| INCOME FROM  OPERATIONS                          |       | 45,662                               |       | 41,956 |   | 42,740 |   | 46,180 |   | 45,803 |   |
| NON-OPERATING  ITEMS:                            |       |                                 |       |   |   |   |   |   |   |   |   |
| Interest expense,  net                           |       | (24,227                              | )          | (24,593 | ) | (24,581 | ) | (23,239 | ) | (18,123 | ) |
| Debt  extinguishment expense                     |       | (775                                 | )          | (835 | ) | — |   | (5,035 | ) | (3,218 | ) |
| Other  non-operating income (expense), net       |       | (149                                 | )          | 9 |   | (5 | ) | 420 |   | 201 |   |
|                                             |       | (25,151                              | )          | (25,419 | ) | (24,586 | ) | (27,854 | ) | (21,140 | ) |
| INCOME FROM  OPERATIONS BEFORE INCOME TAXES      |       | 20,511                               |       | 16,537 |   | 18,154 |   | 18,326 |   | 24,663 |   |
| INCOME TAX  EXPENSE (1)                          |       | (1,583                               | )          | (22,268 | ) | (7,416 | ) | (8,075 | ) | (9,275 | ) |
| NET INCOME  (LOSS)                               |       | $                                    | 18,928     |   | $ | (5,731 | ) | $ | 10,738 |   | $ | 10,251 |   | $ | 15,388 |   |

 

27

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**SELECTEDFINANCIAL DATA (continued)**

 
| ** **                           | ** ** | **December 31,**                | ** ** |
|--------------------------------------|------------|--------------------------------------|------------|
| ** **                           | ** ** | **(dollars in thousands)** | ** ** |
| ** **                           | ** ** | **2007**                             | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
| Balance Sheet  Data (at period end): |       |                                 |       |   |   |   |   |   |   |   |   |
| Working capital  (deficiency)        |       | $                                    | (17,142    | ) | $ | (34,983 | ) | $ | (6,731 | ) | $ | (10,813 | ) | $ | (25,770 | ) |
| Total assets                         |       | 424,313                              |       | 408,008 |   | 415,460 |   | 320,222 |   | 302,862 |   |
| Deferred  revenues and gains (2)     |       | 104,390                              |       | 100,089 |   | 98,920 |   | 99,130 |   | 98,410 |   |
| Total debt                           |       | 287,173                              |       | 285,155 |   | 320,000 |   | 314,336 |   | 240,127 |   |
| Total stockholders'  deficit         |       | (66,910                              | )          | (75,383 | ) | (66,365 | ) | (158,108 | ) | (88,905 | ) |
|                                      |            |                                      |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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(1) Effective January 1, 2006,the Company changed its tax status from a Subchapter C corporation to aSubchapter S corporation, upon receiving approval from the Internal RevenueService.  The election to change includedthe Company and all its subsidiaries, with the exception of Camping World, Inc.and its wholly-owned subsidiaries, which remained Subchapter CCorporations.  As a result of the changein tax status, all deferred tax accounts of the Company, excluding CampingWorld and its wholly-owned subsidiaries, were revalued to account for the lowertax rates applicable to the Subchapter S corporation status and such reductionwas charged to income tax expense for the year end December 31, 2006.

 

(2) Deferred revenues represent cashreceived by us in advance of the recognition of revenues in accordance withaccounting principles generally accepted in the United States.  Deferred revenues primarily reflect club membershipdues, annual ERS fees, advances on third party credit card fee revenues andpublication subscriptions.  Theserevenues are recognized at the time the goods or services are provided or overthe membership period, which averages approximately 17 months.  The deferred revenue balance for 2007, 2006,2005, 2004, and 2003 also include deferred gains of $9.3 million, $9.8 million,$10.3 million, $10.8 million, and $11.3 million, respectively, from the realestate sale-leaseback transactions which occurred in December 2001.

 

28

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**ITEM 7: MANAGEMENT’S DISCUSSIONAND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION**

 

Thefollowing tables set forth the components of the statements of operations forthe years ended December 31, 2007, 2006, and 2005 as a percentage of totalrevenues, and the comparison of those components from period to period.  The following discussion is based on ourConsolidated Financial Statements included elsewhere herein.  Our revenues are derived principally frommembership services, including club membership dues and marketing fees paid tous for services provided by third parties, from publications, includingsubscriptions and advertising, and from retail sales.

 
| ** **                                  | ** ** | **Percentage of**  | ** ** | ** ** | ** ** | **Percentage Increase/** | ** ** |
|---------------------------------------------|------------|-------------------------|------------|------------|------------|-------------------------------|------------|
| ** **                                  | ** ** | **Total Revenues** | ** ** | ** ** | ** ** | **(Decrease)**                | ** ** |
| ** **                                  | ** ** | ** **              | ** ** | ** ** | ** ** | ** **                    | ** ** | **Year 2007** | ** ** | **Year 2006** | ** ** |
| ** **                                  | ** ** | **2007**                | ** ** | **2006**   | ** ** | **2005**                      | ** ** | **over 2006** | ** ** | **over 2005** | ** ** |
| REVENUES:                                   |       |                    |       |       |       |                          |       |   |   |   |   |
| Membership  services                        |       | 26.7                    | %          | 26.7       | %          | 27.5                          | %          | 9.1 | % | 2.7 | % |
| Publications                                |       | 16.1                    | %          | 16.9       | %          | 16.3                          | %          | 4.4 | % | 9.6 | % |
| Retail                                      |       | 57.2                    | %          | 56.4       | %          | 56.2                          | %          | 10.8 | % | 6.5 | % |
|                                        |       | 100.0                   | %          | 100.0      | %          | 100.0                         | %          | 9.3 | % | 6.0 | % |
| COSTS APPLICABLE  TO REVENUES:              |       |                    |       |       |       |                          |       |   |   |   |   |
| Membership  services                        |       | 16.9                    | %          | 17.0       | %          | 17.6                          | %          | 8.5 | % | 2.2 | % |
| Publications                                |       | 11.1                    | %          | 11.3       | %          | 11.1                          | %          | 6.8 | % | 8.3 | % |
| Retail                                      |       | 34.6                    | %          | 34.0       | %          | 33.4                          | %          | 11.4 | % | 7.8 | % |
|                                        |       | 62.6                    | %          | 62.3       | %          | 62.1                          | %          | 9.8 | % | 6.3 | % |
| GROSS PROFIT                                |       | 37.4                    | %          | 37.7       | %          | 37.9                          | %          | 8.4 | % | 5.5 | % |
| OPERATING  EXPENSES:                        |       |                    |       |       |       |                          |       |   |   |   |   |
| Selling, general  and administrative        |       | 25.9                    | %          | 25.9       | %          | 25.0                          | %          | 9.3 | % | 9.9 | % |
| Restructuring  charge                       |       | —                  |       | —     |       | —                        |       | — |   | — |   |
| Goodwill  impairment                        |       | —                  |       | —     |       | 0.9                           | %          | — |   | (100.0 | )% |
| Depreciation and  amortization              |       | 3.4                     | %          | 3.6        | %          | 3.2                           | %          | 1.6 | % | 20.1 | % |
|                                        |       | 29.3                    | %          | 29.5       | %          | 29.1                          | %          | 8.3 | % | 7.7 | % |
|                                        |       |                    |       |       |       |                          |       |   |   |   |   |
| INCOME FROM  OPERATIONS                     |       | 8.1                     | %          | 8.2        | %          | 8.8                           | %          | 8.8 | % | (1.8 | )% |
|                                        |       |                    |       |       |       |                          |       |   |   |   |   |
| NON-OPERATING  ITEMS:                       |       |                    |       |       |       |                          |       |   |   |   |   |
| Interest income                             |       | 0.1                     | %          | 0.2        | %          | 0.2                           | %          | (46.9 | )% | 5.1 | % |
| Interest expense                            |       | (4.5                    | )%         | (5.0       | )%         | (5.3                          | )%         | (3.5 | )% | 0.3 | % |
| Debt  extinguishment expense                |       | (0.1                    | )%         | (0.2       | )%         | —                        |       | (7.2 | )% | — |   |
| Other  non-operating (expense) income, net  |       | —                  |       | —     |       | —                        |       | — |   | (280.0 | )% |
|                                        |       | (4.5                    | )%         | (5.0       | )%         | (5.1                          | )%         | (1.1 | )% | 3.4 | % |
| INCOME FROM  OPERATIONS BEFORE INCOME TAXES |       | 3.6                     | %          | 3.2        | %          | 3.7                           | %          | 24.0 | % | (8.9 | )% |
| INCOME TAX  EXPENSE                         |       | (0.2                    | )%         | (4.3       | )%         | (1.5                          | )%         | (92.9 | )% | 200.3 | % |
| NET INCOME  (LOSS)                          |       | 3.4                     | %          | (1.1       | )%         | 2.2                           | %          | 430.3 | % | (153.4 | )% |

 

29

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**YearEnded December 31, 2007 Compared with Year Ended December 31, 2006**

 

*Revenues*

 

Revenuesof $562.2 million for 2007 increased by $47.6 million or 9.3% from thecomparable period in 2006.

 

Membershipservices revenues for 2007 of $149.9 million increased by $12.5 million or 9.1%from 2006.  This revenue increase waslargely attributable to a $6.7 million increase in extended vehicle warrantyprogram revenue due to continued growth in the sales of one-year renewablewarranty products including warranty sales through our growing network of GoodSam dealers, a $2.5 million revenue increase primarily due to increasedenrollment 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 CoastClub, a $1.7 million increase in emergency road service revenue attributable toincreased enrollment and price increases, a $1.2 million increase in marketingfee revenue from health and life insurance products, a $0.7 million increase indealer program marketing revenue and a $0.4 million increase in marketing feeincome recognized on RV financing products. These increases were partially offset by a $0.7 million revenuereduction due to the elimination of the RV Today television program.

 

Publicationsrevenues for 2007 of approximately $90.6 million increased by $3.8 million or4.4% from 2006.  This increase wasprimarily attributable to $2.6 million of revenue associated with theacquisition of the publishing assets of American Guide Services, Inc. in August 2006,$2.1 million of revenue associated with consumer shows acquired over the lasttwo years and $0.9 million of additional annual directory revenue.  These increases were partially offset by a$0.7 million revenue decrease from the elimination of the *CruisingRider* title, a $0.5 million decrease in campground atlas revenue,which is scheduled for its bi-annual update and reprint in 2008, a $0.3 milliondecrease in advertising revenue for the RV magazine group, and a $0.3 millionrevenue decrease due to ten fewer issues of Snow Week magazine in 2007.

 

Retailrevenue for 2007 of $321.7 million increased approximately $31.3 million or10.8% from 2006.  Store merchandise salesincreased $24.8 million over 2006 primarily due to a $38.2 million revenueincrease from the addition of 36 new stores over the past two years.  Same store sales decreased $13.4 million, or6.8%, compared to a 3.5% decrease in 2006. Same store sale calculations for a given period include only thosestores that were open both at the end of that period and at the beginning ofthe preceding fiscal year.  Supplies andother sales increased $4.5 million, including $0.8 million recorded during theperiod relating to the recognition of estimated gift card breakage.  Prior to third quarter of 2007 the Company hadnot recorded any unredeemed gift card sales into revenue.  In the third quarter the Company changed thestate of jurisdiction where gift cards will be administered and commencedaccounting for estimated breakage of gift cards under the “redemption ratemethod.”  In addition, installation andservice fees increased $1.3 million, and product extended warranty salesincreased $1.0 million.  These increaseswere partially offset by a $0.3 million decrease in mail order revenue.

 

*Costs Applicable to Revenues*

 

Costsapplicable to revenues totaled $352.0 million in 2007, an increase of $31.3million or 9.8% from 2006.

 

Membership services costsand expenses increased by $7.4 million or 8.5% to $94.8 million for 2007.  This increase was attributable to $5.1 millionof additional costs associated with increased extended vehicle warranty programrevenue, including incremental marketing and overhead costs associated with theexpansion of our of Good Sam authorized dealer network, $0.9 million ofadditional emergency road service costs attributable to increased enrollment, $0.9 million of net additional membershipservices costs associated with increased membership in the Camping WorldPresident’s

 

30

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Club and Camp Club USA,partially offset by reduced membership in the Coast Club and the Golf CardClub, $0.7 million of additional dealer program marketing costs, and $0.7million of additional program costs associated with increased marketing feerevenue from health and life insurance products.  These increases were partially offset by $0.9million of reduced costs resulting from the elimination of the RV Todaytelevision program.

 

Publicationcosts and expenses of $62.3 million for 2007 increased $4.0 million or 6.8%compared to 2006.  Thisincrease was attributable to $2.7 million of incremental costs from therecently acquired Affinity Guest Services Group, $1.6 million of costsassociated with the recently acquired consumer shows, $0.7 million ofadditional costs associated with increased annual directory revenue, and $0.3million of additional advertising expenses for the RV magazine group.  These increases were partially offset by a$0.7 million reduction in costs related to the elimination of *Cruising Rider* magazine, reduced campground atlas costs of$0.3 million resulting from reduced sales, and reduced costs of $0.3 millionassociated with fewer issues of *Snow Week*magazine.

 

Retailcosts applicable to revenues increased $19.9 million or 11.4% to $194.9 millionprimarily due to the opening of 36 new stores over the past two years.  The retail gross profitincreased by $11.4 million, but the gross margin as a percent of revenuesdecreased from 39.7% in 2006 to 39.4% in 2007 due primarily to a shift inproduct mix to relatively lower margin products and margin compression causedby a combination of competitive pricing and increased product costs.

 

*Operating Expenses*

 

Selling,general and administrative expenses of $145.6 million for 2007 increased $12.4million or 9.3% over 2006.  This increasewas largely attributable to an increase in retail selling and general andadministrative expenses of approximately $10.8 million consisting of increasesin selling, labor and real property expenses primarily due to new storeopenings and other marketing programs, $1.0 million of costs associated withthe recently acquired consumer shows, $0.9 million of arbitration expenses inconnection with our asserted claim to a right of first refusal in connectionwith the sale of the insurance provider for the RV vehicle insurance offered byour Membership Services segment, which claim was rejected by the arbitrationpanel, and a $0.4 million increase in other general and administrativeexpenses.  These increases were partiallyoffset by a $0.7 million reduction in deferred executive compensation.

 

Depreciationand amortization expenses of $18.9 million were $0.3 million higher than in2006 due primarily to increased amortization of intangible assets associatedwith the recent acquisitions and depreciation associated with new stores.

 

*Income from Operations*

 

Incomefrom operations of $45.7 million for 2007 increased $3.7 million or 8.8%compared to 2006.  This increase wasattributable to increased gross profit in the retail and membership servicesoperations of $11.4 million and $5.1 million, respectively, partially offset byincreased operating expenses of $12.6 million and reduced gross profit forpublications operations of $0.2 million.

 

*Non-Operating Items*

 

Netnon-operating items for 2007 were $25.2 million, a $0.3 million decrease from2006.  This decrease was primarilyattributable to a $0.9 million decrease in interest expense in 2007 resultingfrom a lower average interest rate in 2007, partially offset by a $0.5 milliondecrease in interest income and a $0.1 million loss on sale of equipment.

 

31

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*Income before Income Taxes*

 

Incomebefore income taxes for 2007 was $20.5 million, or 24.0% more than 2006.  This $4.0 million increase from the prioryear was attributable to the $3.7 million increase in income from operationsmentioned above, and a $0.3 million decrease in non-operating items.

 

*Income Tax Expense*

 

TheCompany recorded $1.6 million of income tax expense for 2007, compared to a$22.3 million income tax expense for 2006. This expense decrease was primarily due to AGHC’s S corporation changeof tax status election effective for the second quarter of 2006, which includedAGI and all of its subsidiaries, with the exception of Camping World, Inc.and its wholly-owned subsidiaries which will remain Subchapter Ccorporations.  As a result, all deferredtax assets and liabilities were revalued with the exception of those related toCamping World, Inc. and its wholly-owned subsidiaries and other potentialbuilt-in gains.  Further, the companyincreased its valuation allowance by $2.7 million for 2007 as it was determinedthat it is more likely that the Company would have insufficient taxable incomein the current, carryback, or carryforward periods under the tax laws torealize the future tax benefit of its deferred tax assets.

 

*Net Income (Loss)*

 

Netincome for 2007 was $18.9 million compared to a net loss of $5.7 million for2006mainly due to the reasons discussed above.

 

*Segment Profit*

 

Segmentprofit of $59.9 million for 2007 (before unallocated depreciation andamortization, general and administrative, interest, debt restructuring andincome tax expense) increased by approximately $5.5 million, or 10.0%, from2006.

 

Membershipservices segment profit of $50.5 million in 2007 increased by $5.8 million, or13.0% from 2006.  This increase wasprimarily attributable to a $3.9 million increase in profit associated withincreased enrollment and increased interest income for the ERS programs, a $1.3million increase in profit in the extended vehicle warranty program and a $0.6million increase in profit from Camp Club USA.

 

Publicationsegment profit for 2007 of $17.5 million decreased by $2.3 million, or 11.8%from $19.8 million in 2006.  The decreasein gross profit margin was primarily due to reduced profit related to theconsumer shows of $1.0 million primarily related to increased amortizationexpense, reduced gross profit from the RV-related titles of $1.0 million and$0.3 million of additional new product development costs and overhead.

 

Retailsegment loss for 2007 of $8.1 million decreased by $2.0 million from 2006.  This reduced segment loss resulted primarilyfrom a $14.2 million increase in gross profit and a $0.5 million decrease indepreciation and amortization expense partially offset by a $10.8 millionincrease in selling, general and administrative expenses primarily related tothe increase in new stores, a $1.7 million increase in net interest expense anda $0.2 million loss on sale of equipment.

 

32

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**YearEnded December 31, 2006 Compared with Year Ended December 31, 2005**

 

*Revenues*

 

Revenuesof $514.6 million for 2006 increased by $29.0 million or 6.0% from thecomparable period in 2005.

 

Membershipservices revenues for 2006 of $137.4 million increased by approximately $3.6million or 2.7% from 2005.  This revenueincrease was largely attributable to a $3.4 million increase in extendedvehicle warranty program revenue due to continued growth in the sales ofone-year renewable warranty products, an $0.8 million increase in ERS revenueattributable to increased enrollment, a $0.5 million revenue increase from therollout of our new discount camping club, Camp Club USA, and a $0.2 millionincrease in advertising revenue for *Highways m*agazine.  These increases were partially offset by a$1.3 million decrease in dealer marketing program revenue.

 

Publicationsrevenues for 2006 of approximately $86.8 million increased by approximately$7.6 million or 9.6% from 2005.  Thisincrease was primarily attributable to a $6.8 million increase associated withthe acquisition of consumer shows, acquired from Royal Productions, Inc.in December 2005, Plus Events shows in February 2006, and RV showspurchased from Apple Rock Advertising and Promotions, Inc. in September 2006,a $0.9 million revenue increase in the boating group primarily associated withthe acquisition of *Powerboat Magazine*in May 2005, a $0.5 million increase in revenue from the updated editionof the campground atlas, a $0.6 million revenue increase resulting from thepurchase of the publishing assets of American Guide Services, Inc. in August 2006,and a $0.5 million revenue increase for the powersports group titles due toincreased issues published.  Theserevenue increases were partially offset by a $0.9 million decrease in the snowgroup titles primarily due to discontinuing *Snowmobile Magazine*in 2006 and four fewer issues of *Snow Week* in2006, and an $0.8 million decrease in advertising and circulation revenue forthe RV-related titles.

 

Retailrevenue for 2006 of $290.4 million increased approximately $17.8 million or6.5% from 2005.  Store merchandise salesincreased $18.0 million over 2005 primarily due to a $24.9 million revenueincrease from the addition of twenty-four new stores over the past twoyears.  Same store sales decreased $6.9million, or 3.5%, compared to a 2.1% increase in 2005.  Same store sale calculations for a givenperiod include only those stores that were open both at the end of that periodand at the beginning of the preceding fiscal year.  In addition, installation fees, supplies andservice revenue increased by $0.9 million from 2005 to 2006.  These increases were partially offset by a$1.1 million decrease in mail order sales.

 

*Costs Applicable to Revenues*

 

Costsapplicable to revenues totaled $320.7 million in 2006, an increase of $19.0million or 6.3% from 2005.

 

Membership services costsand expenses increased by approximately $1.9 million or 2.2% to $87.4 millionfor 2006.  This increase consisted of$1.7 million of marketing and program expenses associated with the increasedenrollment in the extended vehicle warranty programs and ERS programs, a $1.4million increase in membership services and start-up costs associated with ournew camping club, Camp Club USA, partially offset by a $1.2 million decrease indealer marketing program costs.

 

Publication costs and expenses of $58.3 million for 2006increased $4.4 million or 8.3% compared to 2005.  This increase consisted of $4.1 million ofadditional costs resulting from the operations of the acquired consumer showsand the publishing assets of American Guide Services, Inc., a $0.6 millionincrease in boating group costs primarily associated with the purchase of *Powerboat Magazine*, a $0.5 million increase in campgroundatlas costs related to increased revenue, and a $0.2 million increase

 

33

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in costs associated with the increased issues publishedwithin our powersports group.  Theseincreases were partially offset by a $0.5 million decrease in costs within thesnow group due to decreased issues published, and a $0.5 million decrease in costsrelated to the RV publications.

 

Retailcosts applicable to revenues increased $12.7 million or 7.8% to $175.0 millionprimarily due to the opening of 24 new stores over the past two years.  The retail gross profitincreased by $5.1 million but the gross margin as a percent of revenues decreasedfrom 40.5% in 2005 to 39.7% in 2006 due primarily to vendor price increases andincreased international freight charges as our import program continues togrow.

 

*Operating Expenses*

 

Selling,general and administrative expenses of $133.1 million for 2006 increased $12.0million or 9.9% over 2005.  The increasein selling, general and administrative expenses resulted primarily fromincreased retail selling, labor and other general and administrative expensesof $11.9 million primarily related to the opening of 24 new stores over thepast two years, and a $1.2 million increase in expense related to the consumershow acquisitions, partially offset by a $1.1 million decrease in executivecompensation.  The Companyincurred restructuring charges of $0.1 million in 2006 which was primarilyattributable to an operating management restructuring in the membershipsegment.

 

Depreciationand amortization expenses of $18.7 million were $3.1 million higher than in2005 due primarily to increased capital expenditures at Camping World, and theamortization of intangible assets associated with the purchase of consumershows and *Powerboat Magazine*.

 

*Income from Operations*

 

Incomefrom operations of $42.0 million for 2006 decreased $0.8 million or 1.8%compared to 2005.  This decrease wasattributable to increased operating expenses of $10.9 million, partially offsetby increased gross profit in the retail, publications and membership servicesoperations of $5.1 million, $3.2 million and $1.8 million, respectively.  For 2005, income from operations included a$4.3 million non-cash goodwill impairment charge.

 

*Non-Operating Items*

 

Netnon-operating items for 2006 were $25.4 million, a $0.8 million increase from2005.  This increase was primarilyattributable to an $0.8 million debt extinguishment expense relating to thepurchase and retirement of $29.9 million of the Company’s Senior SubordinatedNotes.

 

*Income before Income Taxes*

 

Incomebefore income taxes for 2006 was $16.5 million, or 8.9% less than 2005.  This $1.6 million decrease from the prioryear was attributable to the $0.8 million decrease in income from operationsmentioned above, and an $0.8 million debt extinguishment expense.

 

*Income Tax Expense*

 

TheCompany recorded $22.3 million of income tax expense for 2006, an increase of$14.9 million from 2005.  The increasewas primarily due to AGHC’s S corporation change of tax status electioneffective for 2006, which included AGI and all its subsidiaries with theexception of Camping World, Inc. and its wholly-owned subsidiaries whichremain Subchapter C corporations.  As aresult, all deferred assets and liabilities were revalued based on Scorporation rates with the exception of those related to Camping World, Inc.and its wholly-owned subsidiaries which remained Subchapter C corporations.As aresult, $22.3 million of tax expenses was recorded.  Deferred tax liabilities related to CampingWorld, Inc. and its wholly-owned subsidiaries which remained Subchapter Ccorporations

 

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wereapproximately $12.9 million.  As theresult of the Company’s change in tax status to S corporation, a deferred taxliability related to a Subchapter S corporation of approximately $2.8 millionwas recorded on the financial statements for a potential tax liability in priorC corporation years.  The deferred taxassets of $3.2 million are related solely to Camping World, Inc.

 

*Net Income (Loss)*

 

Netloss for 2006 was $5.7 million compared to net income of $10.7 million for2005.

 

*Segment Profit*

 

Segmentprofit of $54.4 million for 2006 (before unallocated depreciation andamortization, general and administrative, interest, debt restructuring andincome tax expense) decreased by $3.8 million, or 6.6%, from 2005.

 

Membershipservices segment profit of $44.7 million in 2006 increased by $7.0 million, or18.6% from $37.7 million in 2005.  Thisincrease was primarily attributable to the $4.3 million goodwill impairmentcharge in 2005, a $2.1 million increase in profit associated with increasedenrollment and increased interest income for the ERS programs, a $1.5 millionincrease in profit in the extended vehicle warranty program, partially offsetby a $0.9 million decrease in profit associated with the start-up of our newclub, Camp Club USA.

 

Publicationsegment profit for 2006 of $19.8 million decreased by $0.1 million, or 0.3%from $19.9 million in 2005.  The $0.1million decrease in gross profit margin was primarily due to reduced grossprofit from the RV-related titles of $0.5 million partially offset by increasedprofit related to the consumer shows of $0.4 million.

 

Retailsegment loss for 2006 of $10.1 million increased by $10.8 million from2005.  This increased segment lossresulted primarily from a $12.0 million increase in selling, general andadministrative expenses primarily related to the increase in new stores, a $3.4million increase in interest expense and a $1.1 million increase indepreciation and amortization expense partially offset by a $5.7 millionincrease in gross profit.

 

**Liquidity and Capital Resources**

 

We have historically operated with a working capitaldeficit.  The working capital deficit asof December 31, 2007 and 2006 was $17.1 million and $35.0 million,respectively.  The primary reason for theworking capital deficit is the deferred revenue and gains reported undercurrent liabilities in the amount of $65.9 million and $62.9 million as of December 31,2007 and 2006, respectively.  Deferredrevenue is primarily comprised of cash collected for club memberships inadvance which is deferred and recognized as revenue over the life of themembership.  We use net proceeds fromthis deferred membership revenue to lower our long-term borrowings and financeour working capital needs.  The primaryreason for the fluctuation in working capital is an increase in inventorybalances related to new store openings. We generated net cash**from operations of $19.3million and $47.1 million, in 2007 and 2006, respectively.

 

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*Contractual Obligations and Commercial Commitments*

 

Thefollowing table reflects our contractual obligations and commercial commitmentsat December 31, 2007, in thousands. The table below includes principal and future interest due under ourdebt agreements based on interest rates as of December 31, 2007 andassumes debt obligations will be held to maturity.

 
| ** **                                      | ** ** | **Payments Due by Period** | ** ** |
|-------------------------------------------------|------------|-------------------------------------------|------------|
| **(in thousands)**                         | ** ** | **Total**                                 | ** ** | **2008** | ** ** | **2009** | ** ** | **2010** | ** ** | **2011** | ** ** | **2012** | ** ** | **Thereafter** | ** ** |
| Long-term debt                                  |       | $                                         | 363,802    |   | $ | 28,057 |   | $ | 148,041 |   | $ | 14,646 |   | $ | 13,801 |   | $ | 159,257 |   | $ | — |   |
| Operating lease  obligations                    |       | 191,447                                   |       | 18,287 |   | 17,236 |   | 16,596 |   | 15,248 |   | 13,722 |   | 110,358 |   |
| Deferred  compensation                          |       | 3,487                                     |       | 1,757 |   | 1,380 |   | 117 |   | 117 |   | 116 |   | — |   |
| Other commercial  commitmentsLetters  of credit |       | 6,686                                     |       | 6,186 |   | 500 |   | — |   | — |   | — |   | — |   |
| Grand total                                     |       | $                                         | 565,422    |   | $ | 54,287 |   | $ | 167,157 |   | $ | 31,359 |   | $ | 29,166 |   | $ | 173,095 |   | $ | 110,358 |   |

 

On June 24,2003, we entered into the Amended and Restated Credit Agreement and a SeniorSecured Floating Rate Note Purchase Agreement (“Senior Credit Facility”)providing for term loans (“Term Loans”) in the aggregate of $140.0 million anda revolving credit facility of $35.0 million. As of December 31, 2007, $128.6 million was outstanding under theTerm Loans.  No borrowings wereoutstanding on the revolving credit facility as of December 31, 2007.  Reborrowings under the Term Loans are notpermitted.  The interest on borrowingsunder the Senior Credit Facility is at variable rates based on the ratio oftotal cash flow to outstanding indebtedness (as defined).  Interest rates float with prime and theLondon Interbank Offered Rates, or LIBOR, plus an applicable margin rangingfrom 1.50% to 2.50% over the stated rates. As of December 31, 2007, the average interest rate on the TermLoans was 7.57%, and permitted borrowings under the undrawn revolving facilitywere $28.3 million.  We also pay acommitment fee of 0.5% per annum on the unused amount of the revolving creditfacility.  The aggregate quarterlyscheduled payments on the Term Loans are $0.4 million.  The revolving credit facility and the TermLoans mature on June 24, 2009.  Thefunds available under our Senior Credit Facility may be utilized for borrowingsor letters of credit; however, a maximum of $12.5 million may be allocated tosuch letters of credit.  As of December 31,2007, we had letters of credit in the aggregate amount of $6.7 millionoutstanding.  The Senior Credit Facilityis secured by virtually all of our assets and a pledge of our stock and thestock of our subsidiaries.  Further theSenior Credit Facility requires the loans to be prepaid in an amount equal to75% of the excess cash flow, as defined. As of December 31, 2007, the Company has no excess cash flow asdefined.

 

On March 3,2006, AGI amended its Senior Credit Facility to revise the definition ofConsolidated Fixed Charges Ratio and Permitted Tax Distributions.  This amendment allows AGI to distribute taxesto its ultimate parent based on its stand-alone tax obligation rather than thetax obligation of its parent, AGHI, until such time that AGHI pays interest onits 10 7/8% Senior Notes in cash instead of by the issuance of additionalnotes.  For the year ended December 31,2007, AGI has distributed $5.8 million in the form of a dividend to AGHI tofund the Company’s tax obligations.

 

On June 8, 2006, AGIamended its Senior Credit Facility to permit AGI to purchase up to $30.0million of AGI’s Senior Subordinated Notes from time to time as and when theCompany determines.  During 2006, AGIpurchased $29.9 million of the Senior Subordinated Notes.  The Senior Subordinated Note purchases weremade with available cash and the notes purchased have been retired.

 

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

 

In February 2004, weissued $200.0 million aggregate principal amount of 9% Senior SubordinatedNotes due 2012 (the “AGI Senior Notes”). The Company completed a registered exchange of the AGI Senior Notesunder the Securities Act of 1933 in August 2004.  On June 8, 2006, AGI amended its SeniorCredit Facility to permit AGI to purchase up to $30.0 million of AGI’s SeniorNotes from time to time as and when the Company determines.  AGI purchased $47.6 million of the SeniorNotes at various times from June 2006 through March 2007 with itsavailable cash.  On February 27,2007, the Company amended its Senior Credit Facility to extend the maturity ofthe revolving credit facility from June 24, 2008 to June 24, 2009,increase 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 amendmentpermits the Company to repurchase up to an additional $50.0 million of theSenior Notes from time to time as and when the Company determines through theissuance of additional term loans of up to $50.0 million.  Any loan amounts not used for the repurchaseof the Senior Notes may be used for acquisitions or repay revolving creditloans.  As of December 31, 2007,$152.4 million of Senior Notes remain outstanding.

 

The Senior CreditFacility and the AGI Indenture contain certain restrictive covenants relatingto, but not limited to, mergers, changes in the nature of the business,acquisitions, additional indebtedness, sale of assets, investments, and thepayment of dividends subject to certain limitations and minimum operatingcovenants.  We were in compliance withall debt covenants at December 31, 2007.

 

On March 24,2005, in a private placement, the Company’s parent, AGHI, issued $88.2 millionprincipal amount of its 10-7/8% senior notes due 2012 (the “AGHI Notes”) at a$3.2 million original issue discount. AGHI completed a registered exchange of the AGHI Notes under theSecurities Act of 1933 on June 8, 2005. The AGHI Notes are unsecured obligations of AGHI, and neither AGI norits subsidiaries have guaranteed payment of principal or interest on the AGHINotes.  Interest on the AGHI Notes ispayable 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 infull on February 15, 2012.  Forinterest payments on and prior to February 15, 2008, AGHI may elect to payinterest on the AGHI Notes in cash or by the issuance of additional notes ofthe same tenor as the AGHI Notes.  Anyadditional AGHI Notes issued in payment of interest are due in full on orbefore March 15, 2010.  The AGHINotes cannot be redeemed prior to February 15, 2008.  Although the only source of the cash paymentof the AGHI Notes is dividends from AGI, there are certain restrictions on thepayment of dividends under the Senior Credit Facility and the AGI Indenture.

 

AGHI contributed the net proceeds fromthe issuance of the AGHI Notes, approximately $81.0 million, to the Company andin turn, the Company made an equity contribution to its wholly-ownedsubsidiary, Camping World, Inc. (“Camping World”).  Camping World then made an equity capitalcontribution in the same amount to its wholly-owned subsidiary, CWI, Inc.(“CWI”).  In 2005, CWI created a newwholly-owned subsidiary named CWFR Capital Corp., a Delaware corporation (“CWFR”)which is an “unrestricted subsidiary” as defined under the AGHI Notes and theAGI Indenture.  Since CWFR is anunrestricted subsidiary, its operations are not restricted by either the AGIIndenture or the AGHI Notes.  CWI made anequity capital contribution to CWFR in an equal amount to the capital contributionthat CWI received from Camping World. CWFR used the 

 

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proceeds from the equity capitalcontribution to acquire a preferred membership interest in FreedomRoads.

 

The preferred membership interest acquired by CWFRhas a face amount of $88.2 million and is entitled to receive a preferredpayment from FreedomRoads at 10-7/8% per annum when and as declared by theBoard of Governors of FreedomRoads from any source legally available therefor.  Any portion of the preferred payment not paidwill accumulate and will be compounded semi-annually until paid.  FreedomRoads may redeem the preferredmembership interest upon the payment of $88.2 million plus the accrued and unpaidpreferred return to the date of redemption. FreedomRoads will be required to redeem the preferred membershipinterest at that same redemption price if there is a sale or reorganization ofthe membership interests of FreedomRoads or a sale of substantially all of theassets of FreedomRoads.  According to theterms of the preferred membership interest, FreedomRoads cannot makedistributions with respect to membership interests other than (a) distributionswith respect to the preferred membership interest, (b) distributions forthe members’ estimated tax liabilities from earnings of FreedomRoads and (c) distributionsin the aggregate not to exceed 50% of the amount of (i) FreedomRoads netprofit for the period from January 1, 2005 through the end of the fiscalquarter next preceding the distribution date less (ii) the aggregateamount of tax distributions made during the period from January 1, 2005through the end of the fiscal quarter next preceding the distributiondate.  CWFR may not sell, pledge orotherwise transfer the preferred membership interest.  The preferred membership interest does notprovide CWFR with any voting rights in FreedomRoads.  The preferred membership interest inFreedomRoads is being carried at cost and is reviewed periodically forimpairment.

 

On October 15, 2007,the Company entered into a five-year interest rate swap agreement with anotional amount of $100.0 million from which it will receive periodic paymentsat the 3 month LIBOR-based variable rate (4.96% percent at December 31,2007 based upon the October 31, 2007 reset date) and make periodicpayments at a fixed rate of 5.135% percent, with settlement and rate resetdates every January 31, April 30, July 31, and October 31.  The fair value of the swap was zero atinception.  The Company entered into theinterest rate swap to limit the effect of increases on our floating ratedebt.  The interest rate swap isdesignated as a cash flow hedge of the variable rate interest payments due on$100 million of the Term Loans issued June 24, 2003, and accordingly,gains and losses on the fair value of the interest rate swap agreement arereported in accumulated other comprehensive loss and reclassified to earningsin the same period in which the hedged interest payment affects earnings.  The interest rate swap agreement expires on October 31,2012.  The fair value of this swap isincluded in other accrued liabilities and was $4.7 million as of December 31,2007.

 

On April 16, 2007,the Company entered into a stock purchase agreement with FreedomRoads HoldingCompany, LLC (“FreedomRoads”), an entity under common ownership with theCompany’s ultimate parent corporation, pursuant to which the Company agreed,subject to satisfaction of certain conditions, to sell all of the outstandingstock of its wholly-owned subsidiary Camping World, Inc. (“Camping World”)to FreedomRoads for $175.8 million subject to certain adjustments. Thetransactions contemplated by the purchase agreement were not consummated withinthe time periods contemplated by the purchase agreement because the uncertaintyin the capital markets prevented FreedomRoads from achieving a desirablecapital structure to effect the acquisition. Although Freedom Roads and the Company may enter into a new purchaseagreement on substantially the same terms if the capital markets become morefavorable, no assurance can be provided that the appropriate financing will beobtained or such new agreement made.

 

In February 2006,AGI Productions, Inc. acquired the consumer shows and related assets of H &S Productions, LLC for $2.5 million.  Aspart of the purchase, the Company issued $0.4 million of debt and assumed $1.0million of liabilities.  In August 2006,TL Enterprises, Inc. acquired the consumer park guides and related assetsof American Guide Services, Inc for $1.0 million.  As part of the 

 

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purchase, the Companyissued $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 andPromotions, Inc. for $1.2 million. As part of the purchase, the Company issued $0.2 million of debt andassumed $0.4 million of liabilities.

 

In January 2007, AGIProductions, 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. for $1.9 million.  As part of the purchase, the Company issued$1.5 million of debt and assumed $0.6 million of liabilities.

 

During 2007, weincurred $0.4 million of deferred executive compensation expense under ourphantom stock agreements and made payments of $3.2 million on mature phantomstock agreements.  The earned incentivesunder these agreements are scheduled to be paid at various times over the nextfive years.  Phantom stock payments of$1.8 million are scheduled to**be made during2008.

 

Capitalexpenditures for 2007 totaled $19.7 million compared to capital expenditures of$15.2 million in 2006.  Capitalexpenditures are anticipated to be approximately $14.2 million for 2008,primarily for 6 new Camping World stores and equipment, software enhancements,information technology upgrades, existing store upgrades, and a retail supplychain execution project.

 

Management believes that funds generated by operations, together withavailable borrowings under our revolving credit line, will be sufficient tomeet all of our anticipated cash requirements for the foreseeable future.

 

**FactorsAffecting Future Performance**

 

Although increasesin operating costs could adversely affect our operations, management does notbelieve that inflation has had a material effect on operating profit during thepast several years.  However, fuel shortagesand substantial increases in propane and gasoline costs could have asignificant impact on our travel-related membership services and publicationsrevenues.  Historically such events havecaused declines in advertisements but have not significantly affected clubmembership enrollment.  We are unable topredict at what point fluctuating fuel prices may begin to adversely impactrevenues or cash flow.  We believe wewill be able to partially offset any cost increases with price increases to ourmembers and certain cost reducing measures.

 

**Seasonality**

 

Ourcash flow is highest in the summer months due to the seasonal nature of theretail segment, membership renewals and advertising prepayments for the annualdirectories.

 

**CriticalAccounting Policies**

 

*General*

 

Our discussion andanalysis of our financial condition and results of operations is based upon ourconsolidated financial statements, which have been prepared in accordance withaccounting principles generally accepted in the United States.  The preparation of these financial statementsrequires us to make estimates and judgments that affect the reported amounts ofassets, liabilities, revenues and expenses, and related disclosure ofcontingent assets and liabilities.  On anon-going basis, we evaluate our estimates, including those related tomembership programs and incentives, bad debts, inventories, intangible assets,employee health insurance benefits, income taxes, restructuring, contingenciesand litigation.  We base our estimates onhistorical experience and on various other assumptions that are believed to bereasonable under the circumstances, the results of which form 

 

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the basis for makingjudgments about the carrying values of assets and liabilities that are notreadily apparent from other sources. Actual results may differ from these estimates under differentassumptions or conditions.

 

We believe the followingcritical accounting policies affect our more significant judgments and estimatesused in the preparation of our consolidated financial statements.

 

*RevenueRecognition*

 

Merchandiserevenue is recognized when products are sold in the retail stores, shipped formail and Internet orders, or when services are provided to customers.* *Emergency RoadService (“ERS”) revenues are deferred and recognized over the life of themembership.  ERS claim expenses arerecognized when incurred.  Royaltyrevenue is earned under the terms of an arrangement with a third party creditcard provider based on a percentage of the Company’s outstanding credit cardbalances with such third party credit card provider.  Membership revenue is generated from annual,multi-year and lifetime memberships.  Therevenue and expenses associated with these memberships are deferred andamortized over the membership period. For lifetime memberships, an 18-year period is used, which is theactuarially determined estimated fulfillment period.  Promotional expenses, consisting primarily ofdirect mail advertising, are deferred and expensed over the period of expectedfuture benefit, typically three months based on historical actual responserates.  Renewal expenses are expensed atthe time related materials are mailed. Recognized revenues and profit are subject to revisions as themembership progresses to completion. Revisions to membership period estimates would change the amount ofincome and expense amortized in future accounting periods.

 

Newsstandsales of publications and related expenses are recorded at the time of delivery,net of estimated provision for returns. Subscription sales of publications are reflected in income over thelives of the subscriptions.  The relatedselling expenses are expensed as incurred. Advertising revenues and related expenses are recorded at the time ofdelivery.  Subscription and newsstandrevenues and expenses related to annual publications are deferred until thepublications are distributed.  Revenuesand related expenses for consumer shows are recognized when the show occurs.

 

*AccountsReceivable*

 

We estimate thecollectability of our trade receivables. A considerable amount of judgment is required in assessing the ultimaterealization of these receivables including the current credit-worthiness ofeach customer.  Changes in required reserveshave been recorded in recent periods and may occur in the future due to themarket environment.

 

*Inventory*

 

We state inventories atthe lower of cost or market.  Inassessing the ultimate realization of inventories, we are required to makejudgments as to future demand requirements and compare that with the current orcommitted inventory levels.  We haverecorded changes in required reserves in recent periods due to changes instrategic direction, such as discontinuances of product lines as well as changesin market conditions due to changes in demand requirements.  It is possible that changes in requiredinventory reserves may continue to occur in the future due to the marketconditions.

 

*Long-Lived Assets*

 

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

 

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Long-lived assets, suchas property, plant and equipment and purchased intangible assets with finitelives are evaluated for impairment whenever events or changes in circumstancesindicate the carrying value of an asset may not be recoverable in accordancewith SFAS No. 144, “Accounting for the Impairment or Disposal of Long-LivedAssets.”  We assess the fair value of theassets based on the future cash flow the assets are expected to generate andrecognize an impairment loss when estimated undiscounted future cash flowexpected to result from the use of the asset plus net proceeds expected fromdisposition of the asset (if any) are less than the carrying value of theasset.  When an impairment is identified,we reduce the carrying amount of the asset to its estimated fair value based ona discounted cash flow approach or, when available and appropriate, comparablemarket values.  We determined there wereno indicators of impairment of long-lived assets as of December 31, 2007.

 

We have evaluated theremaining useful lives of our finite-lived purchased intangible assets todetermine if any adjustments to the useful lives were necessary or if any ofthese assets had indefinite lives and were therefore not subject toamortization.  We determined that noadjustments to the useful lives of our finite-lived purchased intangible assetswere necessary.  The finite-livedpurchased intangible assets consist of membership customer lists, resort andgolf course agreements, non-compete and deferred consulting agreements anddeferred financing costs which have weighted average useful lives of approximately6 years, 4 years, 15 years and 7 years, respectively.

 

*Indefinite Lived IntangibleAssets*

 

Effective January 1,2002, we adopted new accounting standards on “Business Combinations” and “Goodwilland Other Intangible Assets.”  Inaccordance with these new standards, goodwill and intangible assets withindefinite lives are no longer amortized but instead are measured forimpairment at least annually or when events indicate that an impairmentexists.  As required by the newstandards, the impairment tests for goodwill and other indefinite-livedintangible assets are assessed for impairment using fair value measurementtechniques.  Specifically, goodwillimpairment is determined using a two-step process.  The first step of the goodwill impairment testis used to identify potential impairment by comparing the fair value of areporting unit with the net book value (or carrying amount), includinggoodwill.  If the fair value of thereporting unit exceeds the carrying amount, goodwill of the reporting unit isconsidered not impaired and the second step of the impairment test isunnecessary.  If the carrying amount ofthe reporting unit exceeds the fair value, the second step of the goodwillimpairment test is performed to measure the amount of impairment loss, ifany.  The second step of the goodwillimpairment test compares the implied fair value of the reporting unit’sgoodwill with the carrying amount of that goodwill.  If the carrying amount of the reporting unit’sgoodwill exceeds the implied fair value of that goodwill, an impairment loss isrecognized in an amount equal to that excess. The implied fair value of goodwill is determined in the same manner asthe amount of goodwill recognized in a business combination, accordingly thefair value of the reporting unit is allocated to all of the assets andliabilities of that unit as if the reporting unit had been acquired in abusiness combination and the fair value of the reporting unit was the purchaseprice paid to acquire the reporting unit. The impairment test for other intangible assets consists of a comparisonof the fair value of the intangible asset with its carrying value.  If the carrying value of the intangible assetexceeds its fair value, an impairment loss is recognized in an amount equal tothat excess.

 

Determining the fairvalue of a reporting unit under the first step of the goodwill impairment testand determining the fair value of individual assets and liabilities of areporting unit under the second step of the goodwill impairment test isjudgmental in nature and often involves the use of significant estimates andassumptions.  These estimates andassumptions could have a significant impact on whether or not an impairmentcharge is recognized and also the extent of such charge.  Our estimates of fair value utilized ingoodwill and other indefinite-lived intangible asset tests may be based upon anumber of factors, including assumptions about the projected future cash flows,discount rate, growth 

 

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rate, determination ofmarket comparables, technological change, economic conditions or changes to ourbusiness operations.  Such changes mayresult in impairment charges recorded in future periods.

 

The fair value of ourreporting units is annually determined using a combination of the incomeapproach and the market approach.  Underthe income approach, the fair value of a reporting unit is calculated based onthe present value of estimated future cash flows.  Future cash flows are estimated by us underthe market approach, fair value is estimated based on market multiples ofrevenue or earnings for comparable companies.

 

Based on the results ofthe annual impairment tests, we determined that no indicators of goodwillimpairment existed as of December 31, 2007.  However, future goodwill impairments testscould result in a charge to earnings.  Wewill continue to evaluate goodwill on an annual basis and whenever events andchanges in circumstances indicate that there may be a potential impairment.

 

*Accumulated Other ComprehensiveLoss*

 

Accumulated other comprehensive lossconsists of unrealized losses on cash flow hedges.  At December 31, 2007, accumulated other comprehensiveloss was $4.7 million.

 

*Income Taxes*

 

Where applicable, the Company recognizes deferredtax assets and liabilities based on the liability method, which requires anadjustment to the deferred tax asset or liability to reflect income tax ratescurrently in effect. When income tax rates increase or decrease, acorresponding adjustment to income tax expense is recorded by applying the ratechange to the cumulative temporary differences.

 

*Restructuring*

 

In2006, we recorded reserves in connection with the restructuring programprimarily within our membership segment. These reserves included estimates pertaining to employee separationcosts and the settlements of contractual obligations resulting from ouractions.  We do not anticipatesignificant changes.

 

**ITEM7A:  QUANTITATIVE AND QUALITATIVEDISCLOSURES ABOUT MARKET RISK**

 

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

 

The following information discusses thesensitivity to our earnings.  The rangeof changes chosen for this analysis reflects our view of changes which arereasonably possible over a one-year period. These forward-looking disclosures are selective in nature and onlyaddress the potential impacts from financial instruments.  They do not include other potential effectswhich could impact our business as a result of these interest ratefluctuations.

 

#### *Interest RateSensitivity Analysis*

#### * *

At December 31,2007, we had debt totaling $287.2 million, comprised of $28.6 million ofvariable rate debt, and $258.6 million of fixed rate debt, comprised of $100.0million of debt fixed through the interest rate swap agreement, $152.4 millionof Senior Notes and $6.2 million of purchase debt.  Holding other variables constant (such asdebt levels), the earnings and cash flow impact of a one-

 

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percentage pointincrease/ decrease in interest rates would have an unfavorable/ favorableimpact of approximately $0.3 million.

 

#### *Credit Risk*

#### * *

We are exposed tocredit risk on accounts receivable.  Weprovide credit to customers in the ordinary course of business and performongoing credit evaluations. Concentrations of credit risk with respect to trade receivables arelimited due to the number of customers comprising our customer base.  We currently believe our allowance fordoubtful accounts is sufficient to cover customer credit risks.

 

###### **New Accounting Standards**

###### ** **

In September 2006,the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157, “FairValue Measurements” (“SFAS 157”) which defines fair value, establishes aframework and gives guidance regarding the method used for measuring fairvalue, and expands disclosures about fair value measurements.  SFAS 157 requires companies to disclose thefair value of their financial instruments according to a fair value hierarchy,as defined, and may require companies to provide additional disclosures basedon that hierarchy.  SFAS 157 is effectivefor financial statements issued for fiscal years beginning after November 15,2007, and interim periods within those fiscal years.  The Company is currently assessing the impactthat SFAS 157 may have on its consolidated financial statements.

 

In February 2007,the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assetsand Liabilities- Including an amendment of FASB Statement No. 115 (“SFAS159”).  SFAS 159 expands the use of fairvalue accounting but does not affect existing standards which requires assetsor liabilities to be carried at fair value. The objective of SFAS 159 is to improve financial reporting by providingcompanies with the opportunity to mitigate volatility in reported earningscaused by measuring related assets and liabilities differently without havingto apply complex hedge accounting provisions. Under SFAS 159, a company many elect to use fair value to measureeligible items at specified election dates and report unrealized gains andlosses on items for which the fair value option has been elected in earnings ateach subsequent reporting date.  Eligibleitems include, but are not limited to, accounts and loans receivable,available-for-sale and held-to-maturity securities, equity method investments,accounts payable, guarantees, issued debt and firm commitments.  If elected, SFAS 159 is effective for fiscalyears beginning after November 15, 2007. The Company is currently evaluating the impact adoption of SFAS 159 mayhave on its consolidated financial statements.

 

In December 2007,the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS141(R)”).  SFAS 141(R) establishesprinciples and requirements for how an acquirer recognizes and measures in itsfinancial statements the identifiable assets acquired, the liabilities assumed,any noncontrolling interest in the acquiree and the goodwill acquired.  SFAS 141(R) also establishes disclosurerequirements to enable the evaluation of the nature and financial effects ofthe business combination.  SFAS 141(R) iseffective for fiscal years beginning after December 15, 2008.  The Company will adopt SFAS 141(R) inthe first quarter of fiscal 2009 and apply the provisions of the Statement forany acquisition after the adoption date. The Company is currently evaluating the potential impact, if any, of theadoption of SFAS 141(R) on its consolidated financial statements.

 

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

 

43

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benefits in the currentperiod and does not anticipate any material increases over the next twelvemonths.

 

Thefollowing table summarizes the activity related to unrecognized tax benefits:

 
| Balance at  January 1, 2007                                                              |   | $      | 14,184 |   |
|------------------------------------------------------------------------------------------|--------|--------|--------|--------|
| Gross increases  in unrecognized tax benefits due to prior year positions                |   | — |   |
| Gross decreases  in unrecognized tax benefits due to prior year positions                |   | — |   |
| Gross increases  in unrecognized tax benefits due to current year positions              |   | — |   |
| Gross decreases  in unrecognized tax benefits due to current year positions              |   | — |   |
| Gross decreases  in unrecognized tax benefits due to settlements with taxing authorities |   | — |   |
| Gross decreases  in unrecognized tax benefits due to statute expirations                 |   | — |   |
| Other                                                                                    |   | 206    |   |
| Unrecognized tax  benefits at December 31, 2007                                          |   | $      | 14,390 |   |

 

 

TheCompany accrues interest and penalties related to unrecognized tax benefits inits income tax provision.  The Companyrecorded interest and penalties of $0.9 million related to unrecognized taxbenefits during 2007 and in total, as of December 31, 2007, the Companyrecorded a total liability for penalties and interest of $1.6 million, whichwas included in other long-term liabilities. The Company does not expect its unrecognized tax benefits to changesignificantly over the next twelve months.

 

TheCompany and its subsidiaries file income tax returns in the U.S. and variousstates.  With few exceptions, the Companyis no longer subject to U.S. federal, state, and local income tax examinationsby tax authorities for years before 2005*.*

 

Effective December 31,2006, the Company adopted the provisions of Staff Accounting Bulletin No. 108(SAB 108), Guidance for Quantifying Financial Statement Misstatements.  In SAB 108, the SEC staff establishes anapproach that requires quantification of Financial Statement errors based on theeffects of the error on each of the Company’s Financial Statements and therelated Financial Statement disclosures. This model is commonly referred to as a “dual approach” because itessentially requires quantification of errors under both the “iron-curtain” andthe “roll-over” methods.  The ironcurtain method focuses primarily on the effect of correcting the period-endbalance sheet with less emphasis on the reversing effects of prior year errorson the income statement in the period of correction.  The roll-over method focuses primarily on theimpact of a misstatement on the income statement, including the reversingeffect of prior year misstatements, but can lead to the accumulation ofmisstatements in the balance sheet.  Theadoption of this bulletin did not impact the Company’s Financial Statements.

 

###### **Disclosure RegardingForward Looking Statements**

###### ** **

This filing contains statements that are “forwardlooking statements,” and includes, among other things, discussions of ourbusiness strategy and expectations concerning market position, futureoperations, margins, profitability, liquidity and capital resources, as well asstatements concerning the integrations of acquired operations and theachievement of financial benefits and operational efficiencies in connectionwith acquisitions.  Forward lookingstatements are included in “Business- General,” “Business- CompetitiveStrengths,” “Business- Our Strategy,” “Business- RV Industry,” “Business-Membership Clubs,” “Business- Membership Products and Services,” “Business-Publications,” “Business- Retail,” “Business- Marketing,” “Business-Operations,” “Business- Information Support Services,” “Business- Regulation,” “Business-Competition,” “Risk Factors,” “Legal Proceedings,” and in “Management’sDiscussion and Analysis of Financial Condition and Results of Operations.”  Although we believe that the expectationsreflected in such forward looking statements are reasonable, we can give noassurance that such expectations will prove to have been correct.  Generally, these statements relate tobusiness plans or strategies, projected or anticipated benefits or otherconsequences of such plans or strategies, the number of acquisitions andprojected or anticipated benefits from acquisitions made by or to be made by us,or projections involving anticipated revenues, expenses, earnings, levels ofcapital expenditures or other aspects of operating results.  All phases of our operations of are subjectto a number of uncertainties, risks and other influences, including consumerspending, fuel prices, general economic conditions, regulatory 

 

44

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changes, changes in interest rates,availability of debt financing in capital markets and competition, many ofwhich are outside our control, any one of which, or a combination of which,could materially affect the results of our operations and whether the forwardlooking statements made by us ultimately prove to be accurate.

 

45

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**ITEM 8:  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA**

 

###### **Index to Financial Statements**

 
| ** **                                                                                                        | ** ** | **Page** | ** ** |
|-------------------------------------------------------------------------------------------------------------------|------------|----------|------------|
| Report  of Independent Registered Public Accounting Firm                                                          |       | 47       |       |
|                                                                                                              |       |     |       |
| Consolidated  Balance Sheets as of December 31, 2007 and 2006                                                |       | 48       |       |
|                                                                                                              |       |     |       |
| Consolidated  Statements of Operations for the years ended December 31, 2007, 2006 and  2005                 |       | 49       |       |
|                                                                                                              |       |     |       |
| Consolidated  Statements of Stockholders’ Deficit for the years ended December 31,  2007, 2006 and 2005 |       | 50       |       |
|                                                                                                              |       |     |       |
| Consolidated  Statements of Cash Flows for the years ended December 31, 2007, 2006 and  2005                 |       | 51       |       |
|                                                                                                              |       |     |       |
| Notes to Consolidated Financial Statements                                                                        |       | 52       |       |
|                                                                                                              |       |     |       |

 

Allfinancial statement schedules have been omitted since the required informationis included in the consolidated financial statements, the notes thereto or becausesuch information is not applicable.

 

46

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**REPORT OFINDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

 

TheBoard of Directors of Affinity Group, Inc.

 

Wehave audited the accompanying consolidated balance sheets of Affinity Group, Inc.and its subsidiaries (the “Company”), a wholly-owned subsidiary of AffinityGroup Holding, Inc., as of December 31, 2007 and 2006, and therelated consolidated statements of operations, stockholders’ deficit and cashflows for each of the three years in the period ended December 31,2007.  These financial statements are theresponsibility of the Company’s management. Our responsibility is to express an opinion on these financialstatements based on our audits.

 

We conducted our audits in accordance with the standards of the PublicCompany Accounting Oversight Board (United States).  Those standards require that we plan andperform the audit to obtain reasonable assurance about whether the financialstatements are free of material misstatement. We were not engaged to perform an audit of the Company’s internalcontrol over financial reporting.  Ouraudits included consideration of internal control over financial reporting as abasis for designing audit procedures that are appropriate in the circumstances,but not for the purpose of expressing an opinion on the effectiveness of theCompany’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit also includes examining, on a testbasis, evidence supporting the amounts and disclosures in the financialstatements, assessing the accounting principles used and significant estimatesmade by management, and evaluating the overall financial statementpresentation.  We believe that our auditsprovide a reasonable basis for our opinion.

 

Inour opinion, the financial statements referred to above present fairly, in allmaterial respects, the consolidated financial position of Affinity Group, Inc.and subsidiaries at December 31, 2007 and 2006, and the consolidatedresults of their operations and their cash flows for each of the three years inthe period ended December 31, 2007, in conformity with U.S. generallyaccepted accounting principles.

 

 
|                        | /s/  Ernst & Young LLP |
|-----------------------------|---------------------------------|
|                        |                            |
| March 4,  2008         |                            |
| Woodland  Hills, California |                            |

 

47

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**AFFINITYGROUP, INC. AND SUBSIDIARIES**

** **

**CONSOLIDATEDBALANCE SHEETS**

**DECEMBER31, 2007 AND 2006 (IN THOUSANDS, EXCEPT SHARE AMOUNTS)**

 
|                                                                                             |   | **2007** | ** ** | **2006** |   |
|--------------------------------------------------------------------------------------------------|--------|----------|------------|----------|--------|
| **ASSETS**                                                                                       |   |     |       |     |   |
| CURRENT ASSETS:                                                                                  |   |     |       |     |   |
| Cash and cash  equivalents                                                                       |   | $        | 8,357      |     | $      | 15,006 |   |
| Accounts  receivable, less allowance for doubtful accounts of $1,473 in 2007 and $1,193  in 2006 |   | 33,330   |       | 27,199   |   |
| Inventories                                                                                      |   | 64,209   |       | 52,703   |   |
| Prepaid expenses  and other assets                                                               |   | 14,430   |       | 12,995   |   |
| Deferred tax  assets, net                                                                        |   | 3,922    |       | 3,203    |   |
| Total current  assets                                                                            |   | 124,248  |       | 111,106  |   |
|                                                                                             |   |     |       |     |   |
| PROPERTY AND  EQUIPMENT, net                                                                     |   | 44,307   |       | 34,765   |   |
| INVESTMENT IN  AFFILIATE                                                                         |   | 81,005   |       | 81,005   |   |
| NOTE FROM  AFFILIATE                                                                             |   | 4,650    |       | 4,688    |   |
| INTANGIBLE  ASSETS, net                                                                          |   | 23,695   |       | 30,311   |   |
| GOODWILL                                                                                         |   | 144,429  |       | 144,429  |   |
| OTHER ASSETS                                                                                     |   | 1,979    |       | 1,704    |   |
| Total assets                                                                                     |   | $        | 424,313    |     | $      | 408,008 |   |
|                                                                                             |   |     |       |     |   |
| **LIABILITIES  AND STOCKHOLDER’S DEFICIT**                                                  |   |     |       |     |   |
| CURRENT  LIABILITIES:                                                                            |   |     |       |     |   |
| Accounts payable                                                                                 |   | $        | 27,171     |     | $      | 32,577 |   |
| Accrued interest                                                                                 |   | 6,700    |       | 5,936    |   |
| Accrued income  taxes                                                                            |   | 1,189    |       | 1,736    |   |
| Accrued  liabilities                                                                             |   | 36,069   |       | 35,663   |   |
| Deferred  revenues and gains                                                                     |   | 65,855   |       | 62,906   |   |
| Current portion  of long-term debt                                                               |   | 4,406    |       | 7,271    |   |
| Total current  liabilities                                                                       |   | 141,390  |       | 146,089  |   |
|                                                                                             |   |     |       |     |   |
| DEFERRED REVENUES  AND GAINS                                                                     |   | 38,535   |       | 37,183   |   |
| LONG-TERM DEBT,  net of current portion                                                          |   | 282,767  |       | 277,884  |   |
| DEFERRED TAX  LIABILITY                                                                          |   | 2,702    |       | 15,724   |   |
| OTHER LONG-TERM  LIABILITIES                                                                     |   | 25,829   |       | 6,511    |   |
|                                                                                             |   | 491,223  |       | 483,391  |   |
|                                                                                             |   |     |       |     |   |
| COMMITMENTS AND  CONTINGENCIES                                                                   |   |     |       |     |   |
|                                                                                             |   |     |       |     |   |
| STOCKHOLDERS’  DEFICIT:                                                                     |   |     |       |     |   |
| Common stock,  $.001 par value, 2,000 shares authorized, 2,000 shares issued and outstanding     |   | 1        |       | 1        |   |
| Additional  paid-in capital                                                                      |   | 81,005   |       | 81,005   |   |
| Accumulated  deficit                                                                             |   | (147,916 | )          | (156,389 | )      |
| Accumulated  other comprehensive loss                                                            |   | (4,705   | )          | —   |   |
| Total  stockholders’ deficit                                                                |   | (66,910  | )          | (75,383  | )      |
| Total  liabilities and stockholders’ deficit                                                |   | $        | 424,313    |     | $      | 408,008 |   |
|                                                                                             |   |     |       |     |   |
| See notes to  consolidated financial statements.                                                 |   |     |       |     |   |

 

48

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**AFFINITYGROUP, INC. AND SUBSIDIARIES**

 

**CONSOLIDATEDSTATEMENTS OF OPERATIONS**

**FOR THEYEARS ENDED DECEMBER 31, 2007, 2006 AND 2005 (IN THOUSANDS)**

 
| ** **                                       | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** |   |
|--------------------------------------------------|------------|----------|------------|----------|------------|----------|--------|
|                                             |       |     |       |     |       |     |   |
| REVENUES:                                        |       |     |       |     |       |     |   |
| Membership  services                             |       | $        | 149,937    |     | $          | 137,394  |   | $ | 133,756 |   |
| Publications                                     |       | 90,537   |       | 86,742   |       | 79,122   |   |
| Retail                                           |       | 321,730  |       | 290,422  |       | 272,682  |   |
|                                             |       | 562,204  |       | 514,558  |       | 485,560  |   |
|                                             |       |     |       |     |       |     |   |
| COSTS APPLICABLE  TO REVENUES:                   |       |     |       |     |       |     |   |
| Membership  services                             |       | 94,840   |       | 87,407   |       | 85,551   |   |
| Publications                                     |       | 62,258   |       | 58,302   |       | 53,855   |   |
| Retail                                           |       | 194,940  |       | 175,015  |       | 162,363  |   |
|                                             |       | 352,038  |       | 320,724  |       | 301,769  |   |
|                                             |       |     |       |     |       |     |   |
| GROSS PROFIT                                     |       | 210,166  |       | 193,834  |       | 183,791  |   |
|                                             |       |     |       |     |       |     |   |
| OPERATING  EXPENSES:                             |       |     |       |     |       |     |   |
| Selling, general  and administrative             |       | 145,556  |       | 133,129  |       | 121,178  |   |
| Restructuring  charge                            |       | —   |       | 93       |       | —   |   |
| Goodwill  impairment                             |       | —   |       | —   |       | 4,344    |   |
| Depreciation and  amortization                   |       | 18,948   |       | 18,656   |       | 15,529   |   |
|                                             |       | 164,504  |       | 151,878  |       | 141,051  |   |
|                                             |       |     |       |     |       |     |   |
| INCOME FROM  OPERATIONS                          |       | 45,662   |       | 41,956   |       | 42,740   |   |
|                                             |       |     |       |     |       |     |   |
| NON-OPERATING  ITEMS:                            |       |     |       |     |       |     |   |
| Interest income                                  |       | 592      |       | 1,115    |       | 1,061    |   |
| Interest expense                                 |       | (24,819  | )          | (25,708  | )          | (25,642  | )      |
| Debt  extinguishment expense                     |       | (775     | )          | (835     | )          | —   |   |
| Other  non-operating income (expense), net       |       | (149     | )          | 9        |       | (5       | )      |
|                                             |       | (25,151  | )          | (25,419  | )          | (24,586  | )      |
|                                             |       |     |       |     |       |     |   |
| INCOME FROM  OPERATIONS BEFORE INCOME TAXES      |       | 20,511   |       | 16,537   |       | 18,154   |   |
|                                             |       |     |       |     |       |     |   |
| INCOME TAX  EXPENSE                              |       | (1,583   | )          | (22,268  | )          | (7,416   | )      |
|                                             |       |     |       |     |       |     |   |
| NET INCOME  (LOSS)                               |       | $        | 18,928     |     | $          | (5,731   | )      | $ | 10,738 |   |
|                                             |       |     |       |     |       |     |   |
| See notes to  consolidated financial statements. |       |     |       |     |       |     |   |

 

49

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**AFFINITYGROUP, INC. AND SUBSIDIARIES**

 

**CONSOLIDATEDSTATEMENTS OF STOCKHOLDERS’ DEFICIT**

**FOR THE YEARS ENDED DECEMBER 31,2007, 2006 AND 2005**

**(IN THOUSANDS EXCEPT SHAREAMOUNTS)**

 
| ** **                             | ** ** | ** **        | ** ** | ** **  | ** ** | ** **      | ** ** | ** **        | ** ** | **Accumulated** | ** ** | ** ** |       |
|----------------------------------------|------------|-------------------|------------|-------------|------------|-----------------|------------|-------------------|------------|-----------------|------------|------------|------------|
| ** **                             | ** ** | ** **        | ** ** | ** **  | ** ** | **Additional**  | ** ** | ** **        | ** ** | **Other**       | ** ** | ** ** |       |
| ** **                             | ** ** | **Common  Stock** | ** ** | **Paid-in** | ** ** | **Accumulated** | ** ** | **Comprehensive** | ** ** | ** **      |       |
| ** **                             | ** ** | **Shares**        | ** ** | **Amount**  | ** ** | **Capital**     | ** ** | **Deficit**       | ** ** | **Loss**        | ** ** | **Total**  |       |
| ** **                             | ** ** | ** **        | ** ** | ** **  | ** ** | ** **      | ** ** | ** **        | ** ** | ** **      | ** ** | ** ** | ** ** |
| BALANCES AT  JANUARY 1, 2005           |       | 2,000             |       | $           | 1          |            | $          | —            |       | $               | (158,109   | )          | $          | — |   | $ | (158,108 | ) |
|                                   |       |              |       |        |       |            |       |              |       |            |       |       |       |
| Additional paid  in capital            |       | —            |       | —      |       | 81,005          |       | —            |       | —          |       | 81,005     |       |
| Net income                             |       | —            |       | —      |       | —          |       | 10,738            |       | —          |       | 10,738     |       |
| BALANCES AT  DECEMBER 31, 2005         |       | 2,000             |       | 1           |       | 81,005          |       | (147,371          | )          | —          |       | (66,365    | )          |
|                                   |       |              |       |        |       |            |       |              |       |            |       |       |       |
| Dividends                              |       | —            |       | —      |       | —          |       | (3,287            | )          | —          |       | (3,287     | )          |
| Net loss                               |       | —            |       | —      |       | —          |       | (5,731            | )          | —          |       | (5,731     | )          |
| BALANCES AT  DECEMBER 31, 2006         |       | 2,000             |       | 1           |       | 81,005          |       | (156,389          | )          | —          |       | (75,383    | )          |
|                                   |       |              |       |        |       |            |       |              |       |            |       |       |       |
| Dividends                              |       | —            |       | —      |       | —          |       | (5,750            | )          | —          |       | (5,750     | )          |
|                                   |       |              |       |        |       |            |       |              |       |            |       |       |       |
| Unrealized loss  on interest rate swap |       |              |       |        |       |            |       |              |       | (4,705          | )          | (4,705     | )          |
| Net income                             |       | —            |       | —      |       | —          |       | 18,928            |       | —          |       | 18,928     |       |
| Total  comprehensive income            |       |              |       |        |       |            |       |              |       |            |       | 14,223     |       |
|                                   |       |              |       |        |       |            |       |              |       |            |       |       |       |   |   |   |   |   |
| BALANCES AT  DECEMBER 31, 2007         |       | 2,000             |       | $           | 1          |            | $          | 81,005            |       | $               | (143,211   | )          | $          | (4,705 | ) | $ | (66,910 | ) |

 

See notes to consolidatedfinancial statements.

 

50

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**AFFINITYGROUP, INC. AND SUBSIDIARIES**

 

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

**FOR THEYEARS ENDED DECEMBER 31, 2007, 2006, AND 2005 (IN THOUSANDS)**

** **
|                                                    |   | **2007** | ** ** | **2006** | ** ** | **2005** |   |
|---------------------------------------------------------|--------|----------|------------|----------|------------|----------|--------|
|                                                    |   |     |       |     |       |     |   |
| CASH FLOWS FROM  OPERATING ACTIVITIES:                  |   |     |       |     |       |     |   |
| Net income  (loss)                                      |   | $        | 18,928     |     | $          | (5,731   | )      | $ | 10,738 |   |
| Adjustments to  reconcile net income (loss) to net cash |   |     |       |     |       |     |   |
| provided by  operating activities:                      |   |     |       |     |       |     |   |
| Deferred tax  provision (benefit)                       |   | 443      |       | 22,136   |       | (2,677   | )      |
| Depreciation                                            |   | 9,933    |       | 10,333   |       | 9,194    |   |
| Amortization                                            |   | 9,015    |       | 8,323    |       | 6,335    |   |
| Goodwill  impairment                                    |   |     |       | —   |       | 4,344    |   |
| Provision for  losses on accounts receivable            |   | 1,373    |       | 745      |       | 521      |   |
| Deferred  compensation                                  |   | 350      |       | 1,070    |       | 2,200    |   |
| (Gain) loss on  sale of property and equipment          |   | 150      |       | (16      | )          | (2       | )      |
| Loss on early  extinguishment of debt                   |   | 775      |       | 835      |       | —   |   |
| Changes in  operating assets and liabilities (net of    |   |     |       |     |       |     |   |
| purchased  businesses):                                 |   |     |       |     |       |     |   |
| Accounts  receivable                                    |   | (7,504   | )          | (1,436   | )          | (2,765   | )      |
| Inventories                                             |   | (11,506  | )          | (5,664   | )          | (4,475   | )      |
| Prepaid expenses  and other assets                      |   | (1,428   | )          | (1,478   | )          | 442      |   |
| Accounts payable                                        |   | (5,406   | )          | 19,894   |       | (3,828   | )      |
| Accrued and  other liabilities                          |   | 702      |       | (1,446   | )          | (331     | )      |
| Deferred  revenues and gains                            |   | 3,495    |       | (460     | )          | (2,454   | )      |
| Net cash  provided by operating activities              |   | 19,320   |       | 47,105   |       | 17,242   |   |
|                                                    |   |     |       |     |       |     |   |
| CASH FLOWS FROM  INVESTING ACTIVITIES:                  |   |     |       |     |       |     |   |
| Capital  expenditures                                   |   | (19,708  | )          | (15,245  | )          | (11,371  | )      |
| Net proceeds  from sale of property and equipment       |   | 180      |       | 126      |       | 33       |   |
| Change in  intangible assets                            |   | (2       | )          | —   |       | (45      | )      |
| Investment in  affiliate                                |   | —   |       | —   |       | (81,005  | )      |
| Acquisitions,  net of cash received                     |   | (304     | )          | (2,868   | )          | (3,620   | )      |
| Cash paid on  loans to affiliate                        |   | 38       |       | 34       |       | 30       |   |
| Net cash used in  investing activities                  |   | (19,796  | )          | (17,953  | )          | (95,978  | )      |
|                                                    |   |     |       |     |       |     |   |
| CASH FLOWS FROM  FINANCING ACTIVITIES:                  |   |     |       |     |       |     |   |
| Dividends paid                                          |   | (5,750   | )          | (3,287   | )          | —   |   |
| Borrowings on  long-term debt                           |   | 64,300   |       | —   |       | 81,005   |   |
| Payment of debt  issue costs                            |   | (291     | )          | (12      | )          | (264     | )      |
| Principal  payments of long-term debt                   |   | (64,432  | )          | (35,625  | )          | (1,791   | )      |
| Net cash (used  in) provided by financing activities    |   | (6,173   | )          | (38,924  | )          | 78,950   |   |
|                                                    |   |     |       |     |       |     |   |
| NET (DECREASE)  INCREASE IN CASH AND CASH EQUIVALENTS   |   | (6,649   | )          | (9,772   | )          | 214      |   |
|                                                    |   |     |       |     |       |     |   |
| CASH AND CASH  EQUIVALENTS AT BEGINNING OF YEAR         |   | 15,006   |       | 24,778   |       | 24,564   |   |
|                                                    |   |     |       |     |       |     |   |
| CASH AND CASH  EQUIVALENTS AT END OF YEAR               |   | $        | 8,357      |     | $          | 15,006   |   | $ | 24,778 |   |
|                                                    |   |     |       |     |       |     |   |
| See notes to  consolidated financial statements.        |   |     |       |     |       |     |   |

 

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** **

**AFFINITYGROUP, INC. AND SUBSIDIARIES**

** **

**NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS**

**YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005**

 

1.          SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES

 

*Principles of Consolidation –*The consolidated financial statementsinclude the accounts of Affinity Group, Inc. (“AGI”) and its subsidiaries(collectively the “Company”).  In March 2005,AGI Holding Corp. (“AGHC”) formed a holding company, Affinity Group Holding, Inc.,a Delaware corporation (“AGHI”) at which time AGHC contributed 100% of theoutstanding shares of common stock of AGI to AGHI.  AGHI is the direct parent of the Company.

 

*Description of the Business –*TheCompany is a membership-based direct marketing company which sells clubmemberships, products, services, and publications to selected affinity groupsprimarily in North America.** The Company markets club memberships,merchandise and services to RV owners, and camping and golf enthusiasts.  In addition, the Company operates 77 retailstores and a mail order business selling RV accessories, supplies and servicesthrough its wholly-owned subsidiary, Camping World, Inc. (“Camping World”).  The stores are located throughout the UnitedStates.  The Company also operatesconsumer shows and publishes magazines, directories and books.

 

*Use of Estimates*–**The preparation of the Company’s consolidated financialstatements in conformity with accounting principles generally accepted in theUnited States requires the Company’s management to make estimates andassumptions that affect the amounts reported in these financial statements andaccompanying notes.  Actual results coulddiffer from those estimates.

 

*Cash and Cash Equivalents –*TheCompany considers all short-term, highly liquid investments purchased with amaturity date of three months or less to be cash equivalents.  The carrying amount approximates fair valuebecause of the short maturity of these instruments.

 

*Concentration of Credit Risk –*TheCompany is potentially subject to concentrations of credit risk in accountsreceivable.  Concentrations of creditrisk with respect to accounts receivable is limited due to the large number ofcustomers and their geographical dispersion.

 

*Inventories –*Inventoriesare stated at lower of FIFO (first-in, first-out) cost or market.  Inventories consist of retail travel andleisure specialty merchandise.

 

*Property and Equipment –*Propertyand equipment are recorded at cost. Depreciation of property and equipment is provided using thestraight-line method over the following estimated useful lives of the assets:

 
| **Years**                | ** ** | ** ** | ** ** |
|--------------------------|------------|------------|------------|
| Leasehold  improvements  |       | 3-27       |       |
| Furniture and  equipment |       | 3-12       |       |
| Software                 |       | 3-5        |       |

 

Leaseholdimprovements are amortized over their useful lives or the remaining term of therespective lease, whichever is shorter.

 

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1.           SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

*Goodwill and Other Intangible Assets –*Goodwillis reviewed at least annually for impairment, and more often when impairmentindicators are present (See Note 3).  Thefinite-lived intangible assets consisting of membership customer lists, resortand golf course agreements, non-compete and deferred consulting agreements, anddeferred financing costs have weighted average useful lives of approximately 6years, 4 years, 15 years and 7 years, respectively.

 

*Long-lived assets*- Long-lived assets, including capitalized software costs, to be held and usedare reviewed for impairment whenever events or changes in circumstancesindicate that the carrying amount of an asset may not be recoverable.  Impairment is recognized to the extent thesum of the discounted estimated future cash flows from the use of the asset isless than the carrying value.

 

*Self-insurance program*– Self-insurance accruals for workers compensation and general liabilityprograms are calculated by outside actuaries and are based on claims filed andinclude estimates for claims incurred but not yet reported.  Projections of future loss are inherentlyuncertain because of the random nature of insurance claims occurrences andcould be substantially affected if future occurrences and claims differsignificantly from these assumptions and historical trends.

 

*Long-term Debt*– The fair value of the Company’s long-term debt is estimated based on thequoted market prices for the same or similar issues or on the current ratesoffered for debt of the same or similar remaining maturities.  The fair value of the Company’s long-termdebt was $275.0 million as of December 31, 2007.

 

*Revenue Recognition –*Merchandiserevenue is recognized when products are sold in the retail stores, shipped formail and Internet orders, or when services are provided to customers.* *Emergency RoadService (“ERS”) revenues are deferred and recognized over the life of themembership.  ERS claim expenses arerecognized when incurred.  Royaltyrevenue is earned under the terms of an arrangement with a third party creditcard provider based on a percentage of the Company’s outstanding credit cardbalances with such third party credit card provider.

 

Membershiprevenue is generated from annual, multi-year and lifetime memberships.  The revenue and expenses associated withthese memberships are deferred and amortized over the membership period.  For lifetime memberships, an 18-year periodis used, which is the actuarially determined estimated fulfillment period.  Promotional expenses, consisting primarily ofdirect mail advertising, are deferred and expensed over the period of expectedfuture benefit, typically three months based on historical actual responserates.  Renewal expenses are expensed atthe time related materials are mailed. Recognized revenues and profit are subject to revisions as themembership progresses to completion. Revisions to membership period estimates would change the amount ofincome and expense amortized in future accounting periods. At December 31, 2007 and 2006, $7.0 million and $6.0 million ofadvertising expenses have been capitalized as direct-response advertising, ofwhich $4.4 million and $3.5 million, respectively, were reported as assets and$2.6 million and $2.5 million, respectively, were reported net of relateddeferred revenue.  Advertising expensesfor 2007, 2006 and 2005 were $39.1 million, $32.8 million, and $27.4 million,respectively.

 

*Accumulated Other ComprehensiveLoss –*Accumulated othercomprehensive loss consists of unrealized losses on cash flow hedges.  At December 31, 2007, accumulated other comprehensiveloss was $4.7 million.

 

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1.         SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

*Publications Revenue and Expense –*Newsstand sales of publications andrelated expenses are recorded at the time of delivery, net of estimatedprovision for returns.  Subscriptionsales of publications are reflected in income over the lives of thesubscriptions.  The related sellingexpenses are expensed as incurred. Advertising revenues and related expenses are recorded at the time ofdelivery.  Subscription and newsstandrevenues and expenses related to annual publications are deferred until thepublications are distributed.  Revenuesand related expenses for consumer shows are recognized when the show occurs.

 

*Vendor Allowances*– The Company receives rebates from vendors pursuant to several different typesof programs.  Vendor consideration isaccounted for as a reduction of the inventory cost and related cost of saleswhen the inventory is sold.

 

*Shipping andHandling Fees and Costs**–*The Company reports shipping and handling costs billed tocustomers as a component of revenues, and related costs are reported as acomponent of cost applicable to revenues.

 

*DerivativeFinancial Instruments –***The Company accounts forderivative instruments and hedging activities in accordance with SFAS No. 133,“Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”).  All derivatives are recognized on the balancesheet at their fair value.  On the datethat the Company enters into a derivative contract, management formallydocuments all relationships between hedging instruments and hedged items, aswell as risk management objectives and strategies for undertaking various hedgetransactions.

 

Changesin the fair value of a derivative that is highly effective and that isdesignated and qualifies as a cash flow hedge (a “swap”), to the extent thatthe hedge is effective, are recorded in accumulated other comprehensive loss,until earnings are affected by the variability of cash flows of the hedgedtransaction.  The Company measureseffectiveness of the swap at each quarter end using the Hypothetical DerivativeMethod.  Under this method, hedgeeffectiveness is measured based on a comparison of the change in fair value ofthe actual swap designated as the hedging instrument and the change in fairvalue of the hypothetical swap which would have the terms that identicallymatch the critical terms of the hedged cash flows from the anticipated debtissuance.  The amount of ineffectiveness,if any, recorded in earnings would be equal to the excess of the cumulativechange in the fair value of the swap over the cumulative change in the fairvalue of the plain vanilla swap lock, as defined in the accountingliterature.  Once a swap is settled, theeffective portion is amortized over the estimated life of the hedge item.

 

TheCompany utilizes derivative financial instruments to manage its exposure tointerest rate risks.  The Company doesnot enter into derivative financial instruments for trading purposes.

 

*IncomeTaxes –*The Company recognizesdeferred tax assets and liabilities based on the liability method, whichrequires an adjustment to the deferred tax asset or liability to reflect incometax rates currently in effect.  Whenincome tax rates increase or decrease, a corresponding adjustment to income taxexpense is recorded by applying the rate change to the cumulative temporarydifferences.

 

Inthe second quarter of 2006, AGHC received approval from the Internal RevenueService to change its tax status from a Subchapter C corporation to aSubchapter S corporation (“S corporation”) to be effective as of January 1,2006.  The election for change in taxstatus to an S corporation included AGHC and all of its subsidiaries with theexception of Camping World, Inc. and its wholly-owned subsidiaries, whichare to remain Subchapter C corporations. Pursuant to SFAS No. 109, “Accounting for Income taxes”, a changein tax status resulting from an S

 

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1.         SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

corporationelection requires that all deferred tax accounts be revalued upon formalapproval of the S corporation status. Accordingly, all deferred tax accounts of AGHC and its subsidiaries,excluding Camping World, Inc. and its wholly owned subsidiaries, wererevalued to account for the tax effect for the change to the S corporationstatus.

 

*MajorCustomers –*Included in the Membership Services Segmentis revenue in the amount of $19.9 million, $20.3 million, and $20.0 million,for the years 2007, 2006 and 2005, respectively, which was received undercontracts from one customer of the Company.

 

*RecentAccounting Pronouncements:*

 

In September 2006,the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157, “FairValue Measurements” (“SFAS 157”) which defines fair value, establishes aframework and gives guidance regarding the method used for measuring fairvalue, and expands disclosures about fair value measurements.  SFAS 157 requires companies to disclose thefair value of their financial instruments according to a fair value hierarchy,as defined, and may require companies to provide additional disclosures basedon that hierarchy.  SFAS 157 is effectivefor financial statements issued for fiscal years beginning after November 15,2007, and interim periods within those fiscal years.  The Company is currently assessing the impactthat SFAS 157 may have on its consolidated financial statements.

 

In February 2007,the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assetsand Liabilities- Including an amendment of FASB Statement No. 115 (“SFAS159”).  SFAS 159 expands the use of fairvalue accounting but does not affect existing standards which requires assetsor liabilities to be carried at fair value. The objective of SFAS 159 is to improve financial reporting by providingcompanies with the opportunity to mitigate volatility in reported earningscaused by measuring related assets and liabilities differently without havingto apply complex hedge accounting provisions. Under SFAS 159, a company many elect to use fair value to measureeligible items at specified election dates and report unrealized gains andlosses on items for which the fair value option has been elected in earnings ateach subsequent reporting date.  Eligibleitems include, but are not limited to, accounts and loans receivable,available-for-sale and held-to-maturity securities, equity method investments,accounts payable, guarantees, issued debt and firm commitments.  If elected, SFAS 159 is effective for fiscalyears beginning after November 15, 2007. The Company is currently evaluating the impact adoption of SFAS 159 mayhave on its consolidated financial statements.

 

In December 2007,the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS141(R)”).  SFAS 141(R) establishesprinciples and requirements for how an acquirer recognizes and measures in itsfinancial statements the identifiable assets acquired, the liabilities assumed,any noncontrolling interest in the acquiree and the goodwill acquired.  SFAS 141(R) also establishes disclosurerequirements to enable the evaluation of the nature and financial effects ofthe business combination.  SFAS 141(R) iseffective for fiscal years beginning after December 15, 2008.  The Company will adopt SFAS 141(R) inthe first quarter of fiscal 2009 and apply the provisions of the Statement forany acquisition after the adoption date. The Company is currently evaluating the potential impact, if any, of theadoption of SFAS 141(R) on its consolidated financial statements.

 

The Company adopted theprovisions of Financial Accounting Standards Board (“FASB”) Interpretation No. 48(“FIN 48”), “Accounting for Uncertainty in Income Taxes,” on January 1,2007.  At the date of adoption, theCompany had $14.2 million of unrecognized tax benefits.  Accounting for the unrecognized tax benefitshad no affect on current period earnings or retained earnings as the liabilityhad been previously recorded and was reclassified from long-

 

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1.         SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

term deferred taxliabilities to other long-term liabilities. There would be no affect on the effective tax rate if the unrecognizedtax benefits were recognized.  TheCompany did not have any material increases in unrecognized tax benefits in thecurrent period and does not anticipate any material increases over the nexttwelve months.

 

2.         PROPERTYAND EQUIPMENT

 

Property and equipment consisted of the following at December 31(in thousands):

 
| ** **                                        | ** ** | **2007** | ** ** | **2006** | ** ** |
|---------------------------------------------------|------------|----------|------------|----------|------------|
|                                              |       |     |       |     |       |
| Land                                              |       | $        | 477        |     | $          | 477 |   |
| Building and  improvements                        |       | 16,100   |       | 12,134   |       |
| Furniture and  equipment                          |       | 61,950   |       | 51,479   |       |
| Software                                          |       | 25,402   |       | 20,538   |       |
| Systems  development and construction in progress |       | 5,930    |       | 6,180    |       |
|                                              |       | 109,859  |       | 90,808   |       |
| Less: accumulated  depreciation and amortization  |       | (65,552  | )          | (56,043  | )          |
|                                              |       | $        | 44,307     |     | $          | 34,765 |   |

 

3.          GOODWILLAND OTHER INTANGIBLE ASSETS

 

There were no changes in the carryingamount of goodwill in 2007 or 2006.

 
| ** **                       | ** ** | **Membership  Services** | ** ** | **Publications** | ** ** | **Retail** | ** ** | **Consolidated** | ** ** |
|----------------------------------|------------|--------------------------|------------|------------------|------------|------------|------------|------------------|------------|
|                             |       |                     |       |             |       |       |       |             |       |
| Balance as of  January 1, 2006   |       | $                        | 49,944     |             | $          | 46,884     |       | $                | 47,601     |   | $ | 144,429 |   |
| Impairment                       |       | —                   |       | —           |       | —     |       | —           |       |
| Balance as of  December 31, 2006 |       | 49,944                   |       | 46,884           |       | 47,601     |       | 144,429          |       |
| Impairment                       |       | —                   |       | —           |       | —     |       | —           |       |
| Balance as of  December 31, 2007 |       | $                        | 49,944     |             | $          | 46,884     |       | $                | 47,601     |   | $ | 144,429 |   |

 

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3.          GOODWILLAND OTHER INTANGIBLE ASSETS (continued)

 

Finite-lived intangibleassets and related accumulated amortization consisted of the following at December 31(in thousands):

 
| ** **                                       | ** ** | ** ** | ** ** | **2007**         | ** ** | ** ** | ** ** |
|--------------------------------------------------|------------|------------|------------|------------------|------------|------------|------------|
| ** **                                       | ** ** | ** ** | ** ** | **Accumulated**  | ** ** | ** ** | ** ** |
| ** **                                       | ** ** | **Gross**  | ** ** | **Amortization** | ** ** | **Net**    | ** ** |
|                                             |       |       |       |             |       |       |       |
| Membership and  customer lists                   |       | $          | 31,466     |             | $          | (16,705    | )          | $ | 14,761 |   |
| Resort and golf  course participation agreements |       | 13,410     |       | (13,383          | )          | 27         |       |
| Non-compete and  deferred consulting agreements  |       | 18,830     |       | (13,885          | )          | 4,945      |       |
| Deferred  financing costs                        |       | 10,414     |       | (6,452           | )          | 3,962      |       |
|                                             |       | $          | 74,120     |             | $          | (50,425    | )          | $ | 23,695 |   |

 
| ** **                                       | ** ** | ** ** | ** ** | **2006**         | ** ** | ** ** | ** ** |
|--------------------------------------------------|------------|------------|------------|------------------|------------|------------|------------|
| ** **                                       | ** ** | ** ** | ** ** | **Accumulated**  | ** ** | ** ** | ** ** |
| ** **                                       | ** ** | **Gross**  | ** ** | **Amortization** | ** ** | **Net**    | ** ** |
|                                             |       |       |       |             |       |       |       |
| Membership and  customer lists                   |       | $          | 28,961     |             | $          | (11,561    | )          | $ | 17,400 |   |
| Resort and golf  course participation agreements |       | 13,465     |       | (12,503          | )          | 962        |       |
| Non-compete and  deferred consulting agreements  |       | 18,830     |       | (12,667          | )          | 6,163      |       |
| Deferred  financing costs                        |       | 10,769     |       | (4,983           | )          | 5,786      |       |
|                                             |       | $          | 72,025     |             | $          | (41,714    | )          | $ | 30,311 |   |

 

The aggregate future five-year amortizationof finite-lived intangibles at December 31, 2007 is as follows (inthousands):

 
| 2008       |   | $     | 7,256  |   |
|------------|--------|-------|--------|--------|
| 2009       |   | 5,769 |   |
| 2010       |   | 4,617 |   |
| 2011       |   | 4,099 |   |
| 2012       |   | 1,917 |   |
| Thereafter |   | 37    |   |
| Total      |   | $     | 23,695 |   |

 

Under SFAS No. 142,Goodwill and Other Intangible Assets, (“SFAS No. 142”) goodwill impairmentis deemed to exist if the carrying value of a reporting unit exceeds itsestimated fair value.  The Company’sreporting units are generally consistent with the operating segments underlyingthe reporting segments identified in Note 12 - Segment Information.  The determination of fair value for areporting unit involves the use of assumptions and estimates such as the futureperformance of the operations of the reporting unit and discount rates used todetermine the current value of expected future cash flows of the reportingunit.  Any change in these assumptionsand estimates, and other factors such as inflation rates, competition andgeneral economic conditions, could cause the calculated fair value of theoperating unit to decrease significantly.

 

The Company performed itsannual impairment test of its goodwill and intangible assets during the fourthquarter of 2007.  Based on this test, theCompany concluded that no impairment existed as of December 31, 2007.

 

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3.          GOODWILLAND OTHER INTANGIBLE ASSETS (continued)

 

In February 2006,AGI Productions, Inc. acquired the consumer shows and related assets of H &S Productions, LLC for $2.5 million.  Theacquisition price was allocated primarily to membership and customerlists.  In August 2006, the Company’ssubsidiary TL Enterprises, Inc. acquired the consumer park guides andrelated assets of American Guide Services, Inc. for $1.0 million.  The acquisition price was allocated primarilyto membership and customer lists.  In September 2006,AGI Productions, Inc. acquired the consumer shows and related assets ofApple Rock Advertising and Promotions, Inc. for $1.5 million.  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 ExpositionInc. for $1.9 million.  As part of thepurchase, the Company issued $1.5 million of debt and assumed $0.6 million ofliabilities.  The cost of theacquisitions were allocated primarily to membership and customer lists.

 

The total costs of theacquisitions have been allocated to the assets acquired and the liabilitiesassumed based on their respective fair values in accordance with SFAS No. 141,“Business Combinations.”  The allocationsof the purchase price to assets and liabilities include various finite-livedassets and no additional goodwill.  Theresults of operations for each respective acquisition have been included in theCompany’s results of operations from the date of the acquisitions.

 

4.          ACCRUEDLIABILITIES

 

Accruedliabilities consisted of the following at December 31 (in thousands):

 
| ** **                 | ** ** | **2007** | ** ** | **2006** | ** ** |
|----------------------------|------------|----------|------------|----------|------------|
|                       |       |     |       |     |       |
| Compensation and  benefits |       | $        | 14,511     |     | $          | 15,341 |   |
| Other accruals             |       | 21,558   |       | 20,322   |       |
|                       |       | $        | 36,069     |     | $          | 35,663 |   |

 

5.          LONG-TERMDEBT

 

Thefollowing reflects outstanding long-term debt as of December 31 (inthousands):

 
| ** **                                 | ** ** | **2007** | ** ** | **2006** | ** ** |
|--------------------------------------------|------------|----------|------------|----------|------------|
|                                       |       |     |       |     |       |
| AGI Credit  Facility: Term Loans           |       | $        | 128,605    |     | $          | 108,475 |   |
| AGI 9% Senior  Subordinated Notes due 2012 |       | 152,399  |       | 170,094  |       |
| Other long-term  obligations               |       | 6,169    |       | 6,586    |       |
|                                       |       | 287,173  |       | 285,155  |       |
| Less: current  portion                     |       | (4,406   | )          | (7,271   | )          |
|                                       |       | $        | 282,767    |     | $          | 277,884 |   |

 

On June 24, 2003, the Company entered into anAmended and Restated Credit Agreement and a Senior Secured Floating Rate NotePurchase Agreement (“Senior Credit Facility”)providing for term loans (“Term Loans”) in theaggregate of $140.0 million and a revolving credit facility of $35.0million.  The funds available under therevolving credit line of the Senior Credit Facility may be utilized forborrowings or letters of credit; however,a maximum of $12.5 million may be allocated to such letters of credit.  Re-borrowings under the Term Loans are notpermitted.  The interest on borrowingsunder the Senior Credit Facility is at variable

 

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5.          LONG-TERMDEBT (continued)

 

rates based on the ratio of total cash flow tooutstanding indebtedness (as defined). Interest rates float with prime and the London Interbank Offered Rates (“LIBOR”),plus an applicable margin ranging from 1.50% to 2.50% over the statedrates.  AGI also pays a commitment fee of0.5% per annum on the unused amount of the revolving credit line.  Further, the Senior Credit Facilityrequires the loans to be prepaid in an amount equal to 75% of the excess cashflow, as defined.  As of December 31,2007, the Company had no excess cash flow, as defined.  The Senior Credit Facility is secured bysubstantially all the assets and a pledge of the stock of AGI.

 

On March 3, 2006,AGI amended its Senior Credit Facility to revise the definition of ConsolidatedFixed Charges Ratio and Permitted Tax Distributions.  This amendment allows AGI to distribute taxesto its ultimate parent based on its stand-alone tax obligation rather than thetax obligation of its parent, AGHI, until such time that AGHI pays interest onits 10 7/8% Senior Notes in cash instead of by the issuance of additionalnotes.  For the year ended December 31,2007, AGI has distributed $5.8 million cash in the form of a dividend to AGHIto fund the Company’s tax obligations. Further, AGI amended the Senior Credit Facility’s covenant restrictionswith affiliates to permit a joint venture arrangement between Camping World, Inc.and FreedomRoads Holding Company LLC and its subsidiaries, (collectively “FreedomRoads”),an affiliate of the Company.

 

OnJune 8, 2006, AGI amended its Senior Credit Facility to permit AGI topurchase up to $30.0 million of AGI’s Senior Subordinated Notes from time totime as and when the Company determines. During 2006, AGI purchased $29.9 million of the Senior SubordinatedNotes.  The Senior Subordinated Notepurchases were made with available cash and the notes purchased have beenretired.

 

On March 8, 2007,the Company purchased $17.7 million of the Senior Subordinated Notes.  The Company funded the purchase through theissuance of the $25.0 million in additional incremental term loans as permittedunder the February 27, 2007 amendment to the Senior Credit Facility.  The balance of the $25.0 million incrementalloan was used to pay down the Company’s revolving credit facility by $6.5million and to pay associated loan fees and transaction expenses.  The terms on the additional incremental loansare consistent with the remaining term loan outstanding under the Senior CreditFacility. The Company also incurred an $0.8 million debt extinguishment chargerepresenting the pro rata unamortized deferred finance costs associated withthe prepayment of the Senior Subordinated Notes.  As of December 31, 2007, $152.4 millionof Senior Subordinated Notes remain outstanding.

 

On February 27,2007, the Company amended its Senior Credit Facility to extend the maturity ofthe revolving credit facility from June 24, 2008 to June 24, 2009,increase 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 amendmentpermits the Company to repurchase up to an additional $50.0 million of theSenior Subordinated Notes from time to time as and when the Company determinesthrough the issuance of additional term loans of up to $50.0 million.  Any loan amounts not used for the repurchaseof the Senior Subordinated Notes may be used for acquisitions or repayrevolving credit loans.

 

As of December 31, 2007, $128.6 million wasoutstanding under the Term Loans and the average interest rate on the TermLoans was 7.57%.  As of December 31,2007, permitted borrowings under the undrawn revolving line were$28.3 million.  The Company hadcommercial and standby letters of credit in the aggregate amount of $6.7million outstanding as of December 31, 2007.  The aggregate quarterly scheduled payments onthe Term Loans are $0.4 million.  Therevolving credit facility and the Term Loans mature on June 24, 2009.

 

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5.          LONG-TERMDEBT (continued)

 

On February 18, 2004,the Company issued $200.0 million of 9% Senior Subordinated Notes due 2012 (the“AGI Senior Notes”).  Interest is payableon the AGI Senior Notes twice a year on each February 15 and August 15,beginning August 15, 2004, and the AGI Senior Notes mature on February 15,2012.

 

In February 2004, weissued $200.0 million aggregate principal amount of 9% Senior SubordinatedNotes due 2012 (the “AGI Senior Notes”). The Company completed a registered exchange of the AGI Senior Notesunder the Securities Act of 1933 in August 2004.  On June 8, 2006, AGI amended its SeniorCredit Facility to permit AGI to purchase up to $30.0 million of AGI’s SeniorSubordinated Notes from time to time as and when the Company determines.  AGI purchased $47.6 million of the SeniorSubordinated Notes at various times from June 2006 through March 2007.  The Senior Subordinated Note purchases weremade with available cash and the notes purchased have been retired.  As of December 31, 2007, $152.4 millionof Senior Subordinated Notes remain outstanding.

 

On October 15, 2007,the Company entered into a five-year interest rate swap agreement with anotional amount of $100.0 million from which it will receive periodic paymentsat the 3 month LIBOR-based variable rate (4.96% percent at December 31,2007 based upon the October 31, 2007 reset date) and make periodicpayments at a fixed rate of 5.135% percent, with settlement and rate resetdates every January 31, April 30, July 31, and October 31.  The fair value of the swap was zero atinception.  The Company entered into theinterest rate swap to limit the effect of increases on our floating rate debt.  The interest rate swap is designated as acash flow hedge of the variable rate interest payments due on $100 million ofthe Term Loans issued June 24, 2003, and accordingly, gains and losses onthe fair value of the interest swap agreement are reported in accumulated othercomprehensive loss and reclassified to earnings in the same period in which thehedged interest payment affects earnings. The interest rate swap agreement expires on October 31, 2012.  The fair value of this swap is included inother accrued liabilities and was $4.7 million as of December 31, 2007.

 

On March 24, 2005 in aprivate placement, AGHI, our parent company, issued $88.2 million principalamount of its 10-7/8% senior notes due 2012 (the “AGHI Notes”) at a $3.2million original issue discount.  AGHIcompleted a registered exchange of the AGHI Notes under the Securities Act of1933 on June 8, 2005.  The AGHINotes are unsecured obligations of AGHI, and AGI and its subsidiaries have notguaranteed payment of principal or interest on the AGHI Notes.  Interest on the AGHI Notes is payablesemi-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 infull on February 15, 2012.  Forinterest payments on and prior to February 15, 2008, AGHI may elect to payinterest on the AGHI Notes in cash or by the issuance of additional notes ofthe same tenor as the AGHI Notes.  Anyadditional AGHI Notes issued in payment of interest are due in full on orbefore March 15, 2010.  AGHI made the interest payments due August 15,2005, February 15, 2006, August 15, 2006, and February 15, 2007through the issuance of additional notes. The Company paid the interest on the notes due August 15, 2007 fromproceeds of a $5.9 million contribution made by the Company’s parent, AGHC.  The AGHI Notes cannot beredeemed prior to February 15, 2008. If the source of the cash payment of the AGHI Notes is dividends fromits subsidiary, there are certain restrictions on the payment of dividendsunder the Senior Credit Facility and the indenture governing the terms of theAGI Senior Notes (the “AGI Indenture”) under which AGI has issued $200.0million in 9% senior subordinated notes due 2012.  AGHI expects to issue additional notes of thesame tenor as the AGHI Notes on February 15, 2008 to pay interest on theAGHI Notes when and as such interest is due. After February 15, 2008, AGHI must rely on dividends from AGI tofund the interest payments due under the AGHI Notes.

 

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5.          LONG-TERMDEBT (continued)

 

AGHI contributed the netproceeds from the issuance of the AGHI Notes, approximately $81.0 million, toAGI and in turn, AGI made an equity contribution to its wholly-ownedsubsidiary, Camping World, Inc. (“Camping World”).  Camping World then made an equity capital contribution inthe same amount to its wholly-owned subsidiary, CWI, Inc. (“CWI”).  In 2005, CWI created a new wholly-ownedsubsidiary named CWFR Capital Corp., a Delaware corporation (“CWFR”) which isan “unrestricted subsidiary” as defined under the AGHI Notes and the AGIIndenture.  Since CWFR is an unrestrictedsubsidiary, its operations are not restricted by either the AGI Indenture orthe AGHI Notes.  CWI made an equitycapital contribution to CWFR in an equal amount to the capital contributionthat CWI received from Camping World. CWFR used the proceeds from the equity capital contribution to acquire apreferred membership interest in FreedomRoads, a Minnesota limited liabilitycompany owned 90% by The Stephen Adams Living Trust which also indirectly owns98.2% of the outstanding capital stock of AGHC and indirectly AGHI.

 

The preferred membershipinterest acquired by CWFR has a face amount of $88.2 million and is entitled toreceive a preferred payment from FreedomRoads at 10-7/8% per annum when and asdeclared by the Board of Governors of FreedomRoads from any source legallyavailable therefor.  Any portion of thepreferred payment not paid will accumulate and will be compounded semi-annuallyuntil paid.  FreedomRoads may redeem thepreferred membership interest upon the payment of $88.2 million plus theaccrued and unpaid preferred return to the date of redemption.  FreedomRoads will be required to redeem thepreferred membership interest at that same redemption price if there is a saleor reorganization of the membership interests of FreedomRoads or a sale ofsubstantially all of the assets of FreedomRoads.  According to the terms of the preferredmembership interest, FreedomRoads cannot make distributions with respect tomembership interests other than (a) distributions with respect to thepreferred membership interest, (b) distributions for the members’estimated tax liabilities from earnings of FreedomRoads and (c) distributionsin the aggregate not to exceed 50% of the amount of (i) FreedomRoads’ netprofit for the period from January 1, 2005 through the end of the fiscalquarter next preceding the distribution date less (ii) the aggregateamount of tax distributions made during the period from January 1, 2005through the end of the fiscal quarter next preceding the distributiondate.  CWFR may not sell, pledge orotherwise transfer the preferred membership interest.  The preferred membership interest does notprovide CWFR with any voting rights in FreedomRoads.  The preferred membership interestFreedomRoads is being carried at cost and is reviewed periodically forimpairment.

 

On March 6, 2006,Camping World entered into a Joint Venture Agreement with FreedomRoads.  FreedomRoads is indirectly owned and controlledby Stephen Adams, the Chairman and indirect controlling shareholder ofAGHI.  FreedomRoads, through itswholly-owned subsidiaries, owns and operates RV dealerships, currentlyoperating across the United States.  TheJoint Venture Agreement provides that Camping World and FreedomRoads are to actcooperatively with a view to maximizing synergies and to locate, establish andutilize mutually beneficial relationships that are available only to theparties acting together that would not otherwise be available to either partyindependently.  There are no capitalrequirements or sharing of income and expenses.

 

The AGI Credit Facilityand the AGI indenture contains certain restrictive covenants relating to, butnot limited to, mergers, changes in the nature of the business, acquisitions,additional indebtedness, sale of assets and investments, and the payment ofdividends subject to certain limitations and minimum operating covenants.  The Company was in compliance with all debtcovenants at December 31, 2007.

 

61

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5.          LONG-TERM DEBT (continued)

 

The aggregate future maturities oflong-term debt at December 31, 2007 are as follows (in thousands):

 
| 2008  |   | $       | 4,406   |   |
|-------|--------|---------|---------|--------|
| 2009  |   | 129,393 |    |
| 2010  |   | 893     |    |
| 2011  |   | 82      |    |
| 2012  |   | 152,399 |    |
| Total |   | $       | 287,173 |   |

 

6.          INCOMETAXES

 

Thecomponents of the Company’s income tax expense from operations for the yearended December 31, consisted of (in thousands):

 
| ** **          | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** |
|---------------------|------------|----------|------------|----------|------------|----------|------------|
| Current:            |       |     |       |     |       |     |       |
| Federal             |       | $        | —     |     | $          | —   |       | $ | 8,866 |   |
| State               |       | 16       |       | 12       |       | 1,227    |       |
| Deferred            |       |     |       |     |       |     |       |
| Federal             |       | 1,443    |       | 19,549   |       | (2,352   | )          |
| State               |       | 124      |       | 2,707    |       | (325     | )          |
| Income tax  expense |       | $        | 1,583      |     | $          | 22,268   |       | $ | 7,416 |   |

 

A reconciliation ofincome tax expense from operations to the federal statutory rate for the yearended December 31 is as follows (in thousands):

 
| ** **                                       | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** |
|--------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                             |       |     |       |     |       |     |       |
| Income taxes  computed at federal statutory rate |       | $        | (992       | )        | $          | (2,830   | )          | $ | 6,354 |   |
| State income  taxes - net of federal benefit     |       | (85      | )          | (243     | )          | 545      |       |
| Other  differences:                              |       |     |       |     |       |     |       |
| Deferred taxes  upon change in tax status        |       | —   |       | 23,097   |       | —   |       |
| Goodwill written  off                            |       | —   |       | —   |       | 1,651    |       |
| Increase  (decrease) of valuation allowance      |       | 2,724    |       | 2,459    |       | (1,036   | )          |
| Other                                            |       | (64      | )          | (215     | )          | (98      | )          |
| Income tax  expense                              |       | $        | 1,583      |     | $          | 22,268   |       | $ | 7,416 |   |

 

62

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6.          INCOMETAXES (continued)

 

Deferred income taxes reflect the net taxeffects of temporary differences between the carrying amounts of assets andliabilities for financial reporting purposes and the amounts used for incometax purposes and operating loss and tax credit carryforwards.  Significant items comprising the net deferredtax asset at December 31 are (in thousands):

 
| ** **                                       | ** ** | **2007**   | ** ** | **2006**   | ** ** |
|--------------------------------------------------|------------|------------|------------|------------|------------|
| **Deferred  tax liabilities:**                   | ** ** | ** ** | ** ** | ** ** | ** ** |
| Management  incentive                            |       | $          | (3,349     | )          | $          | (3,349 | ) |
| Accelerated  depreciation                        |       | (1,251     | )          | (7,181     | )          |
| Prepaid expenses                                 |       | (313       | )          | (254       | )          |
| Basis difference  on building and land           |       | —     |       | (8,861     | )          |
| Other                                            |       | (790       | )          | (662       | )          |
|                                             |       | (5,703     | )          | (20,307    | )          |
|                                             |       |       |       |       |       |
| **Deferred  tax assets:**                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| Gift Cards                                       |       | 799        |       | —     |       |
| Deferred revenues                                |       | 148        |       | 630        |       |
| Accrual for  employee benefits and severance     |       | 615        |       | 1,033      |       |
| Accrual for  deferred phantom stock compensation |       | 59         |       | 59         |       |
| Net operating  loss carryforward                 |       | 4,569      |       | 2,459      |       |
| Claims reserves                                  |       | 1,250      |       | 1,649      |       |
| Intangible  assets                               |       | 216        |       | 225        |       |
| Deferred book  gain                              |       | 2,521      |       | 2,652      |       |
| Other reserves                                   |       | 1,929      |       | 1,538      |       |
|                                             |       | 12,106     |       | 10,245     |       |
|                                             |       |       |       |       |       |
| Valuation  allowance                             |       | (5,183     | )          | (2,459     | )          |
|                                             |       |       |       |       |       |
| Net deferred tax  liabilities                    |       | $          | (1,220     | )          | $          | (12,521 | ) |

 

Effective January 1, 2006, theCompany received approval from the Internal Revenue Service for a change in taxstatus to an S corporation which included AGHC and all its subsidiaries withthe exception of Camping World, Inc. and its wholly-owned subsidiaries,which are to remain Subchapter C corporations. At December 31, 2007, Camping World, Inc. and its subsidiarieshad a net operating loss carryforward of approximately $12.0 million, whichwill be able to offset future taxable income. If not used, the net operating loss carryforward will expire between 2026and 2027.  The valuation allowance fordeferred taxes was increased by $2.7 million as it was determined that theCompany would have insufficient taxable income in the current, or carryforwardperiods under the tax laws to realize the future tax benefits of its deferredtax assets.

 

On January 1, 2007, the Companyadopted the provisions of FIN 48.  At thedate of adoption, the Company had $14.2 million of unrecognized taxbenefits.  Accounting for theunrecognized tax benefits had no affect on current year earnings or retainedearnings as the liability had been previously recorded and was reclassifiedfrom long-term deferred tax liabilities to other long-term liabilities.

 

63

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6.          INCOMETAXES (continued)

 

The following table summarizes theactivity related to unrecognized tax benefits:

 
| Balance at  January 1, 2007                                                           |   | $      | 14,184 |   |   |
|--------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|
| Gross increases  in unrecognized tax benefits due to prior year positions                  |   |   | — |   |
| Gross decreases  in unrecognized tax benefits due to prior year positions                  |   |   | — |   |
| Gross increases  in unrecognized tax benefits due to current year positions                |   |   | — |   |
| Gross decreases  in unrecognized tax benefits due to current year positions                |   |   | — |   |
| Gross decreases  in unrecognized tax benefits due to settlements with taxing   authorities |   |   | — |   |
| Gross decreases  in unrecognized tax benefits due to statute expirations                   |   |   | — |   |
| Other                                                                                      |   | 206    |   |   |
| Unrecognized tax  benefits at December 31, 2007                                       |   | $      | 14,390 |   |   |

 

 

The Company accrues interest andpenalties related to unrecognized tax benefits in its income taxprovision.  The Company recorded interestand penalties of $0.9 million related to unrecognized tax benefits during 2007and in total, as of December 31, 2007, the liability for penalties andinterest was $1.6 million.  This amountwas included in other long-term liabilities. The Company does not expect its unrecognized tax benefits to changesignificantly over the next twelve months.

 

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

 

7.         COMMITMENTS,CONTINGENCIES

 

*Leases*— The Company holds certain property and equipment under rental agreements andoperating leases which have varying expiration dates.  Future minimum annual fixed rentals underoperating leases having an original term of more than one year as of December 31,2007 are as follows (in thousands):

 
| ** ** | ** ** | **Third Party** | ** ** | **Related Party** | ** ** | **Total** | ** ** |
|------------|------------|----------------------|------------|------------------------|------------|-----------|------------|
| 2008       |       | $                    | 10,275     |                   | $          | 8,012     |       | $ | 18,287 |   |
| 2009       |       | 9,239                |       | 7,997                  |       | 17,236    |       |
| 2010       |       | 8,542                |       | 8,054                  |       | 16,596    |       |
| 2011       |       | 7,193                |       | 8,055                  |       | 15,248    |       |
| 2012       |       | 5,667                |       | 8,055                  |       | 13,722    |       |
| Thereafter |       | 36,571               |       | 73,787                 |       | 110,358   |       |
| Total      |       | $                    | 77,487     |                   | $          | 113,960   |       | $ | 191,447 |   |

 

During 2007, 2006 and 2005, respectively,approximately $17.9 million, $14.6 million, and $13.1 million of rent expensewas charged to costs and expenses.

 

On December 5, 2001, the Companysold eleven real estate properties to eleven separate wholly-owned subsidiariesof AGRP Holding Corp., a wholly-owned subsidiary of the Company’s ultimateparent, AGI Holding Corp., for $52.3 million in cash and a notereceivable.  The properties have beenleased back to the Company on a triple net basis.  Both the sales price and lease rates werebased on market rates determined by third party independent appraisers engagedby the mortgage lender and approved by the AGI Senior Credit Facility agentbank.  These leases have an initial termof 25 to 27 years with two five-year options at the then current marketrent.  The leases are classified asoperating leases in accordance with SFAS No. 13 “Accounting for Leases.”  Land and buildings with a net book valuetotaling $45.8 million have been removed from the balance sheet.  The transaction resulted in a net gain of$6.1 million consisting of a $12.1 million gain on certain properties and a$6.0 million loss on other properties. In accordance with accounting principlesgenerally accepted in the United States,

 

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7.                         COMMITMENTS,CONTINGENCIES (continued)

 

the $6.0 million loss was recognized uponthe date of sale in 2001 in the statement of operations and the $12.1 milliongain was deferred and will be credited to income as rent expense adjustmentsover the lease terms.  The average netannual lease payments over the lives of the leases are $3.4 million.  As of December 31, 2007, $9.4 milliongain remains and will be recognized over the future lease terms.

 

*Litigation*—From time to time, the Company is involved in litigation arising in the normalcourse of business operations.  TheCompany does not believe it is involved in any litigation that will have amaterial adverse effect on its results of operations or financial position.

 

*Employment**Agreements*—The Company has employment agreements with certain officers.  The agreements include, among other things,an annual bonus based on earnings before interest, taxes, depreciation andamortization, and up to one year’s severance pay beyond termination date orthree weeks of severance pay for every year of continuous employment, whicheveris greater.

 

8.          RELATED-PARTYTRANSACTIONS

 

In conjunction with the sale of realestate properties to an affiliate on December 5, 2001, (see Note 7), theCompany accepted $4.8 million of the purchase price in the form of a ten-yearballoon note receivable yielding 11% per annum, with monthly payments ofapproximately $46,000.  Such amount isincluded in Note from Affiliate on the accompanying balance sheet.

 

Certain directors of the Company arepartners in partnerships and shareholders of corporations that lease facilitiesto the Company under long-term leases. For the years ended December 31, 2007, 2006 and 2005, paymentsunder these leases were approximately $4.1 million, $4.3 million, and $6.7million, respectively.  Futurecommitments under these leases total approximately $81.4 million.  The leases expire at various dates from December 2020through July 2029, subject to the Company’s right to exercise renewaloptions.

 

In connection with our effort to expandthe number of Camping World stores by developing retail alliances with RVdealerships across North America, the Company has established 45 Camping Worldstores alongside or within RV dealerships owned by FreedomRoads, which iscontrolled by the Chairman of our Board of Directors, Stephen Adams, and weexpect to open additional Camping World stores alongside or within such RVdealerships in the future.  At December 31,2007, the Company leased 35 properties from FreedomRoads, sub-leased sevenproperties to FreedomRoads, and Camping World and FreedomRoads are jointtenants under three leases.  Totalpayments by the Company to Freedom Roads under these leased properties for 2007and 2006 were approximately $3.7 million and $1.7 million, respectively, andfuture commitments under these leases total approximately $32.1 million.  The leases expire at various dates from August 2013through November 2017.  For 2007 and2006, lease payments received from FreedomRoads for the seven subleasedproperties were approximately $0.9 million and $1.0 million, respectively, andfuture payments to be received under these subleases total approximately $4.5million.  The Company paid FreedomRoadsapproximately $9.4 million in 2007 and FreedomRoads paid the Companyapproximately $17.5 million, $5.5 million and $3.2 million in 2007, 2006 and2005, respectively, under the product marketing and sales agreements.  The outstanding accounts receivable balanceto FreedomRoads was $3.7 million at December 31, 2007.

 

The law firm of Kaplan, Strangis andKaplan, P.A. (“KSK”) provides ongoing legal services to the Company and certainsubsidiaries in connection with various matters. Andris A. Baltins, a

 

65

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8.          RELATED-PARTYTRANSACTIONS (continued)

 

member of the Board of Directors, is amember of that firm.  During 2007, 2006and 2005 KSK received $257,000 million, $198,000 and $294,000 in legal feesfrom the Company, respectively.

 

The consulting firm ofPransky and Associates, P.S. (“PA”) provides ongoing consulting services to theCompany and certain subsidiaries.  GeorgePransky, a member of the Board of Directors, is a director of thatcompany.  During 2007 and 2006, PAreceived $86,000 and $37,000 in fees from the Company, respectively.

 

The accounting firm ofFrith-Smith & Archibald, LLP (“FSA”), provides tax preparation andreview services to the Company and certain subsidiaries.  David Frith-Smith, a member of the Board ofDirectors, is a partner of that company. During 2007, FSA received $13,000 in fees from the Company.

 

9.          STATEMENTSOF CASH FLOWS

 

Supplemental disclosures of cash flowinformation for December 31 (in thousands):

 
| ** **                                 | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** |
|--------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Cash paid  (received) during the year for: |       |     |       |     |       |     |       |
| Interest                                   |       | $        | 24,055     |     | $          | 26,669   |       | $ | 25,602 |   |
| Income taxes                               |       | (195     | )          | (1,138   | )          | 9,633    |       |
|                                            |            |          |            |          |            |          |            |  |  |  |

 

The Company entered into the followingnon-cash investing and financing transactions:

 

**2007:**

In January 2007,the Company assumed $0.3 million of liabilities in connection with theacquisition 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 debtin connection with the acquisition of five RV and Sportsman Shows fromIndustrial Expositions, Inc.

 

In December 2007,the Company recorded the fair value of the interest rate swap in OtherLong-Term Liabilities of $4.7 million and through Other Comprehensive Loss.

 

**2006:**

In February 2006,the Company assumed $1.0 million of liabilities and issued $0.4 million of debtin the acquisition of Plus Events consumer shows and related assets of H &S Productions, LLC.

 

In August 2006,the Company assumed $0.3 million of liabilities and issued $0.1 million of debtin the acquisition of the publishing assets of American Guide Services, Inc.

 

In September 2006,the Company assumed $0.4 million of liabilities and issued $0.5 million of debtin the asset acquisition of four North Carolina RV shows from Apple RockAdvertising and Promotions, Inc.

 

**2005:**

InMay 2005, the Company assumed $0.5 million of liabilities and issued $1.5million of debt in the acquisition of the Powerboat magazine title and relatedassets from Nordskog Publishing, Inc.

 

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9.          STATEMENTSOF CASH FLOWS (continued)

 

InDecember 2005, the Company assumed $1.8 million of liabilities and issued$6.0 million of debt in the acquisition from Royal Productions, Inc.

 

10.                       BENEFITPLAN

 

The Company’s total contribution to a deferredsavings and profit sharing plan (the “401(k) Plan”) totaled approximately$1.7 million, $1.9 million, and $1.7 million for 2007, 2006, and 2005,respectively.

 

Affinity Group, Inc.

 

TheCompany sponsors a 401(k) Plan qualified under Section 401(a) and401(k) of the Internal Revenue Service Code of 1986, as amended (the “Code”).  All employees over age twenty-one, includingthe Executive Officers, are eligible to participate in the 401(k) Plan.  Employees who have completed one year ofservice (minimum of 1,000 hours) are eligible for matching contributions.  For the plan year 2007, the Company elected aSafe Harbor Matching Contribution for the employer match and set the employermatch, which vests upon contribution, at an amount equal to 100% of the first4% of the employee’s contribution. Employees may defer up to 60% of their eligible compensation up toInternal Revenue Service limits electing pre-tax contributions or post-taxcontributions (Roth contributions). The Company’s contributions to the plantotaled approximately $0.9 million for 2007.

 

CampingWorld, Inc.

 

BeginningJanuary1,2007CampingWorldelectedtonolongerparticipateintheAffinityGroup401(k)PlanandbeganparticipatingintheFreedomRoads401(k)DefinedContributionPlan,FreedomRewards401(k)Plan,qualifiedunderSection401(a)and401(k)oftheInternalRevenueServiceCodeof1986,asamended(the“Code”).  Allemployeesovertheageofeighteen,includingtheExecutiveOfficersareeligibletoparticipateinthe401(k)Plan.  Employeeswhohavecompletedtwelvemonthsofconsecutiveserviceareeligibleforcompanymatch.  Fortheplanyear2007,thematchingcontributionscheduleis50%uptothefirst6%ofeligiblecompensation.  Companymatchingcontributionsfollowasix(6)yeargradedvestingschedule.  Non-highlycompensatedemployeesmaydeferupto75%oftheireligiblecompensationuptotheInternalRevenueServicelimits.  Highlycompensatedemployeesmaydeferupto15%oftheireligiblecompensationuptotheInternalRevenueServicelimits.  TheCompany’scontributionstotheplantotaledapproximately$0.8millionin2007.

 

11.        DEFERREDPHANTOM STOCK COMPENSATION

 

The Company has deferred compensationagreements with certain officers.  Theagreements provide for payment to the officers upon their termination, death,disability, or sale of the Company, and other agreed upon events.  Deferred compensation is included in otherlong-term liabilities except for amounts expected to be paid in 2008, whichhave been classified in current liabilities. This deferred compensation is subject to vesting under the terms of theindividual agreements.  Vesting periodsrange from 20% per year over a five-year period to immediate vesting uponentering an agreement.  The Companyincurred deferred compensation expense of $0.4 million, $1.1 million, and $2.2million for 2007, 2006, and 2005, respectively.

 

12.        SEGMENTINFORMATION

 

The Company’s three principallines of business are Membership Services, Publications, and Retail.  The Membership Services segment operates theGood Sam Club, the Coast to Coast Club, the President’s Club, Camp Club USA andassorted membership products and services for RV owners, campers and outdoorvacationers, and the Golf Card Club for golf enthusiasts.

 

67

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12.                       SEGMENTINFORMATION (continued)

 

The Publications segmentpublishes a variety of publications for selected markets in the recreation andleisure industry, including general circulation periodicals, club magazines,directories and RV and powersports industry trade magazines.  In addition, the Publications segmentoperates 36 consumer outdoor recreation shows primarily focused on RV andpowersports markets.  The Retail segmentsells specialty retail merchandise and services for RV owners primarily throughretail supercenters and mail order catalogs. The Company evaluates performance based on profit or loss fromoperations before income taxes.

 

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

 

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

 
| ** **                                     | ** ** | **Membership** | ** ** | ** **       | ** ** | ** ** | ** ** | ** **       | ** ** |
|------------------------------------------------|------------|----------------|------------|------------------|------------|------------|------------|------------------|------------|
| ** **                                     | ** ** | **Services**   | ** ** | **Publications** | ** ** | **Retail** | ** ** | **Consolidated** | ** ** |
| **YEAR  ENDED DECEMBER 31, 2007**              | ** ** | ** **     | ** ** | ** **       | ** ** | ** ** | ** ** | ** **       | ** ** |
| Revenues from  external customers              |       | $              | 149,937    |             | $          | 90,537     |       | $                | 321,730    |   | $ | 562,204 |   |
| Gain (loss) on  sale of property and equipment |       | —         |       | 5                |       | (216       | )          | (211             | )          |
| Interest income                                |       | 9,521          |       | —           |       | 84         |       | 9,605            |       |
| Interest expense                               |       | —         |       | 258              |       | 15,402     |       | 15,660           |       |
| Depreciation and  amortization                 |       | 3,620          |       | 5,124            |       | 7,754      |       | 16,498           |       |
| Segment profit  (loss)                         |       | 50,491         |       | 17,497           |       | (8,136     | )          | 59,852           |       |
| Segment assets                                 |       | 203,836        |       | 89,074           |       | 249,174    |       | 542,084          |       |
| Expenditures for  segment assets               |       | 2,744          |       | 1,244            |       | 15,650     |       | 19,638           |       |
|                                           |       |           |       |             |       |       |       |             |       |
| **YEAR  ENDED DECEMBER 31, 2006**              | ** ** | ** **     | ** ** | ** **       | ** ** | ** ** | ** ** | ** **       | ** ** |
| Revenues from  external customers              |       | $              | 137,394    |             | $          | 86,742     |       | $                | 290,422    |   | $ | 514,558 |   |
| Gain on sale of  property and equipment        |       | —         |       | 5                |       | 11         |       | 16               |       |
| Interest income                                |       | 6,485          |       | —           |       | 6          |       | 6,491            |       |
| Interest expense                               |       | —         |       | 329              |       | 13,709     |       | 14,038           |       |
| Depreciation and  amortization                 |       | 3,658          |       | 4,365            |       | 8,217      |       | 16,240           |       |
| Segment profit  (loss)                         |       | 44,695         |       | 19,837           |       | (10,128    | )          | 54,404           |       |
| Segment assets                                 |       | 167,837        |       | 87,122           |       | 225,680    |       | 480,639          |       |
| Expenditures for  segment assets               |       | 2,263          |       | 1,171            |       | 11,309     |       | 14,743           |       |
|                                           |       |           |       |             |       |       |       |             |       |
| **YEAR  ENDED DECEMBER 31, 2005**              | ** ** | ** **     | ** ** | ** **       | ** ** | ** ** | ** ** | ** **       | ** ** |
| Revenues from  external customers              |       | $              | 133,756    |             | $          | 79,122     |       | $                | 272,682    |   | $ | 485,560 |   |
| Gain (loss) on  sale of property and equipment |       | —         |       | (5               | )          | 7          |       | 2                |       |
| Interest income                                |       | 5,000          |       | —           |       | 14         |       | 5,014            |       |
| Interest expense                               |       | —         |       | 273              |       | 10,375     |       | 10,648           |       |
| Depreciation and  amortization                 |       | 3,546          |       | 2,401            |       | 7,085      |       | 13,032           |       |
| Segment profit                                 |       | 37,685         |       | 19,894           |       | 660        |       | 58,239           |       |
| Segment assets                                 |       | 162,562        |       | 89,104           |       | 207,736    |       | 459,402          |       |
| Expenditures for  segment assets               |       | 2,241          |       | 849              |       | 8,005      |       | 11,095           |       |

 

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12.        SEGMENTINFORMATION (continued)

 

The following is asummary of the reconciliations of reportable segments to the consolidatedfinancial statements for the years ended December 31, 2007, 2006 and 2005(in thousands):

 
| ** **                                                   | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** |
|--------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| **Gain on  Sale of Property and Equipment**                  |       |     |       |     |       |     |       |
| Total gain on  sale for reportable segments                  |       | $        | (211       | )        | $          | 16       |       | $ | 2 |   |
| Other  non-allocated gain                                    |       | 61       |       | —   |       | —   |       |
| Total gain on  sale of property and equipment                |       | $        | (150       | )        | $          | 16       |       | $ | 2 |   |
|                                                         |       |     |       |     |       |     |       |
| **Interest  Income**                                         |       |     |       |     |       |     |       |
| Total interest  income for reportable segments               |       | $        | 9,605      |     | $          | 6,491    |       | $ | 5,014 |   |
| Elimination of  intersegment interest income                 |       | (9,521   | )          | (6,485   | )          | (4,994   | )          |
| Other  non-allocated interest income                         |       | 508      |       | 1,109    |       | 1,041    |       |
| Total interest  income                                       |       | $        | 592        |     | $          | 1,115    |       | $ | 1,061 |   |
|                                                         |       |     |       |     |       |     |       |
| **Interest  Expense**                                        |       |     |       |     |       |     |       |
| Total interest  expense for reportable segments              |       | $        | 15,660     |     | $          | 14,038   |       | $ | 10,648 |   |
| Elimination of  intersegment interest expense                |       | (15,026  | )          | (13,525  | )          | (10,534  | )          |
| Other  non-allocated interest expense                        |       | 24,185   |       | 25,195   |       | 25,528   |       |
| Total interest  expense                                      |       | $        | 24,819     |     | $          | 25,708   |       | $ | 25,642 |   |
|                                                         |       |     |       |     |       |     |       |
| **Depreciation  and Amortization**                           |       |     |       |     |       |     |       |
| Total  depreciation and amortization for reportable segments |       | $        | 16,498     |     | $          | 16,240   |       | $ | 13,032 |   |
| Unallocated  depreciation and amortization expense           |       | 2,450    |       | 2,416    |       | 2,497    |       |
| Total  consolidated depreciation and amortization            |       | $        | 18,948     |     | $          | 18,656   |       | $ | 15,529 |   |
|                                                         |       |     |       |     |       |     |       |
| **Income  From Operations Before Taxes**                     |       |     |       |     |       |     |       |
| Total profit for  reportable segments                        |       | $        | 59,852     |     | $          | 54,404   |       | $ | 58,239 |   |
| Unallocated  depreciation and amortization expense           |       | (2,450   | )          | (2,416   | )          | (2,497   | )          |
| Unallocated  G & A expense                          |       | (17,050  | )          | (17,477  | )          | (18,641  | )          |
| Unallocated  interest expense, net                           |       | (23,677  | )          | (24,086  | )          | (24,487  | )          |
| Unallocated gain  on sale of property and equipment          |       | 61       |       | —   |       | —   |       |
| Unallocated debt  restructure expense                        |       | (775     | )          | (835     | )          | —   |       |
| Unallocated  restructuring charge                            |       | —   |       | (93      | )          | —   |       |
| Unallocated  arbitration expense                             |       | (955     | )          | —   |       | —   |       |
| Elimination of  intersegment interest expense, net           |       | 5,505    |       | 7,040    |       | 5,540    |       |
| Income from  operations before income taxes                  |       | $        | 20,511     |     | $          | 16,537   |       | $ | 18,154 |   |
|                                                         |       |     |       |     |       |     |       |
| **Assets**                                                   |       |     |       |     |       |     |       |
| Total assets for  reportable segments                        |       | $        | 542,084    |     | $          | 480,639  |       | $ | 459,402 |   |
| Capitalized  finance costs not allocated to segments         |       | 5,348    |       | 8,190    |       | 9,568    |       |
| Corporate  unallocated assets                                |       | 3,334    |       | 6,353    |       | 16,376   |       |
| Elimination of  intersegment receivable                      |       | (126,453 | )          | (87,174  | )          | (69,886  | )          |
| Consolidated  total assets                                   |       | $        | 424,313    |     | $          | 408,008  |       | $ | 415,460 |   |
|                                                         |       |     |       |     |       |     |       |
| **Capital  Expenditures**                                    |       |     |       |     |       |     |       |
| Total expenditures  for assets for reportable segments       |       | $        | 19,638     |     | $          | 14,743   |       | $ | 11,095 |   |
| Other asset  expenditures                                    |       | 70       |       | 502      |       | 276      |       |
| Total capital  expenditures                                  |       | $        | 19,708     |     | $          | 15,245   |       | $ | 11,371 |   |

 

69

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13.       SELECTED QUARTERLYINFORMATION (UNAUDITED)

 

The following is asummary of selected quarterly information for the years ended December 31,2007, 2006 and 2005 (in thousands):

 
| ** **         | ** ** | **March 31,** | ** ** | **June 30,** | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|--------------------|------------|--------------------|------------|-------------------|------------|------------------------|------------|-----------------------|------------|
| ** **         | ** ** | **2007**           | ** ** | **2007**          | ** ** | **2007**               | ** ** | **2007**              | ** ** |
|               |       |               |       |              |       |                   |       |                  |       |
| Total revenue      |       | $                  | 127,807    |              | $          | 153,864                |       | $                     | 146,428    |   | $ | 134,105 |   |
| Gross profit       |       | 48,527             |       | 57,234            |       | 53,505                 |       | 50,900                |       |
| Net income  (loss) |       | 2,550              |       | 7,557             |       | (673                   | )          | 9,494                 |       |
|                    |            |                    |            |                   |            |                        |            |                       |            |  |  |  |  |

 
| ** **         | ** ** | **March 31,** | ** ** | **June 30,** | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|--------------------|------------|--------------------|------------|-------------------|------------|------------------------|------------|-----------------------|------------|
| ** **         | ** ** | **2006**           | ** ** | **2006**          | ** ** | **2006**               | ** ** | **2006**              | ** ** |
|               |       |               |       |              |       |                   |       |                  |       |
| Total revenue      |       | $                  | 116,870    |              | $          | 139,003                |       | $                     | 130,040    |   | $ | 128,645 |   |
| Gross profit       |       | 44,776             |       | 51,294            |       | 48,735                 |       | 49,029                |       |
| Net income  (loss) |       | 2,264              |       | (16,438           | )          | 1,885                  |       | 6,558                 |       |
|                    |            |                    |            |                   |            |                        |            |                       |            |  |  |  |  |

 
| ** **    | ** ** | **March 31,** | ** ** | **June 30,** | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|---------------|------------|--------------------|------------|-------------------|------------|------------------------|------------|-----------------------|------------|
| ** **    | ** ** | **2005**           | ** ** | **2005**          | ** ** | **2005**               | ** ** | **2005**              | ** ** |
|          |       |               |       |              |       |                   |       |                  |       |
| Total revenue |       | $                  | 108,687    |              | $          | 133,212                |       | $                     | 124,717    |   | $ | 118,944 |   |
| Gross profit  |       | 42,671             |       | 50,575            |       | 44,627                 |       | 45,918                |       |
| Net income    |       | 1,898              |       | 5,131             |       | 1,736                  |       | 1,973                 |       |
|               |            |                    |            |                   |            |                        |            |                       |            |  |  |  |  |

 

14.        VALUATION AND QUALIFYINGACCOUNTS

 
| ** **                                  | ** ** | ** **          | ** ** | **Additions**       | ** ** | ** **     | ** ** | ** **          | ** ** |
|---------------------------------------------|------------|---------------------|------------|---------------------|------------|----------------|------------|---------------------|------------|
| ** **                                  | ** ** | **Balance at** | ** ** | **Charged to** | ** ** | ** **     | ** ** | **Balance at** | ** ** |
| ** **                                  | ** ** | **Beginning**       | ** ** | **Costs and**  | ** ** | ** **     | ** ** | **End**             | ** ** |
| **(in thousands)**                     | ** ** | **of Period**  | ** ** | **Expenses**        | ** ** | **Deductions** | ** ** | **of Period**  | ** ** |
|                                        |       |                |       |                |       |           |       |                |       |
| Description:                                |       |                |       |                |       |           |       |                |       |
|                                        |       |                |       |                |       |           |       |                |       |
| Year ended  December 31, 2007:         |       |                |       |                |       |           |       |                |       |
| Allowance for  doubtful accounts receivable |       | $                   | 1,193      |                | $          | 1,373          |       | $                   | 1,093      | (a) | $ | 1,473 |   |
|                                        |       |                |       |                |       |           |       |                |       |
| Year ended  December 31, 2006:         |       |                |       |                |       |           |       |                |       |
| Allowance for  doubtful accounts receivable |       | 952                 |       | 745                 |       | 504            | (a)        | 1,193               |       |
|                                        |       |                |       |                |       |           |       |                |       |
| Year ended  December 31, 2005:         |       |                |       |                |       |           |       |                |       |
| Allowance for  doubtful accounts receivable |       | 810                 |       | 521                 |       | 379            | (a)        | 952                 |       |
|                                        |       |                |       |                |       |           |       |                |       |
|                                             |            |                     |            |                     |            |                |            |                     |            |  |  |  |  |

 

----

(a)   Accounts determined to beuncollectable and charged against allowance account, net of collection onaccounts previously charged against allowance account.

 

15.       NOTES OFFERING ANDGUARANTOR FINANCIAL INFORMATION

 

In February 2004,the Company completed an offering of $200.0 million 9.0% Senior SubordinatedNotes (“AGI Senior Notes”) due in 2012. Interest is payable on the AGI Senior

 

70

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16.       NOTES OFFERING ANDGUARANTOR FINANCIAL INFORMATION (continued)

 

Notes twice a year on February 15and August 15, beginning August 15, 2004.  The Company’s present and future restrictedsubsidiaries will guarantee the AGI Senior Notes with unconditional guaranteesof payment that will rank junior in right of payment to their existing andfuture senior debt, but will rank equal in right of payment to their existingand future senior subordinated debt.

 

All of the Company’ssubsidiaries have jointly and severally guaranteed the indebtedness under theAGI Senior Notes.  Full financialstatements of the Guarantors have not been included because, pursuant to theirrespective guarantees, the Guarantors are jointly and severally liable withrespect to the AGI Senior Notes.

 

The following aresummarized statements setting forth certain financial information concerningthe Guarantor Subsidiaries as of and for the year ended December 31, 2007(in thousands).

 
| ** **                                                    | ** ** | ** ** | ** ** | ** **     | ** ** | **NON-**      | ** ** | ** **       | ** ** | **AGI**          | ** ** |
|---------------------------------------------------------------|------------|------------|------------|----------------|------------|---------------|------------|------------------|------------|------------------|------------|
| ** **                                                    | ** ** | **AGI**    | ** ** | **GUARANTORS** | ** ** | **GUARANTOR** | ** ** | **ELIMINATIONS** | ** ** | **CONSOLIDATED** | ** ** |
|                                                          |       |       |       |           |       |          |       |             |       |             |       |
| Cash &  cash equivalents                             |       | $          | 5,337      |           | $          | 3,020         |       | $                | —     |             | $          | — |   | $ | 8,357 |   |
| Accounts  receivable- net of allowance for doubtful accounts) |       | 431        |       | 159,352        |       |          |       | (126,453         | )          | 33,330           |       |
| Inventories                                                   |       | —     |       | 64,209         |       | —        |       | —           |       | 64,209           |       |
| Other current  assets                                         |       | 2,481      |       | 15,871         |       | —        |       | —           |       | 18,352           |       |
| Total current  assets                                         |       | 8,249      |       | 242,452        |       | —        |       | (126,453         | )          | 124,248          |       |
|                                                          |       |       |       |           |       |          |       |             |       |             |       |
| Property and  equipment, net                                  |       | 7,744      |       | 36,563         |       | —        |       | —           |       | 44,307           |       |
| Intangible  assets                                            |       | 3,962      |       | 19,733         |       | —        |       | —           |       | 23,695           |       |
| Goodwill                                                      |       | 67,584     |       | 76,845         |       | —        |       | —           |       | 144,429          |       |
| Investment in  subsidiaries                                   |       | 597,138    |       | 81,005         |       | —        |       | (678,143         | )          | —           |       |
| Affiliate note  and investments                               |       | 40,000     |       | 4,650          |       | 81,005        |       | (40,000          | )          | 85,655           |       |
| Other assets                                                  |       | 759        |       | 1,220          |       | —        |       | —           |       | 1,979            |       |
| Total assets                                                  |       | $          | 725,436    |           | $          | 462,468       |       | $                | 81,005     |             | $          | (844,596 | ) | $ | 424,313 |   |
|                                                          |       |       |       |           |       |          |       |             |       |             |       |
| Accounts payable                                              |       | $          | 1,380      |           | $          | 25,791        |       | $                | —     |             | $          | — |   | $ | 27,171 |   |
| Accrued and  other liabilities                                |       | 13,792     |       | 30,166         |       | —        |       | —           |       | 43,958           |       |
| Current portion  of long-term debt                            |       | 128,103    |       | 42,756         |       | —        |       | (166,453         | )          | 4,406            |       |
| Current portion  of deferred revenue                          |       | 2,029      |       | 63,826         |       | —        |       | —           |       | 65,855           |       |
| Total current  liabilities                                    |       | 145,304    |       | 162,539        |       |          |       | (166,453         | )          | 141,390          |       |
|                                                          |       |       |       |           |       |          |       |             |       |             |       |
| Deferred revenue                                              |       | 2,538      |       | 35,997         |       | —        |       | —           |       | 38,535           |       |
| Long-term debt                                                |       | 279,354    |       | 3,413          |       | —        |       | —           |       | 282,767          |       |
| Other long-term  liabilities                                  |       | 365,150    |       | (336,619       | )          | —        |       | —           |       | 28,531           |       |
| Total  liabilities                                            |       | 792,346    |       | (134,670       | )          |          |       | (166,453         | )          | 491,223          |       |
|                                                          |       |       |       |           |       |          |       |             |       |             |       |
| Interdivisional  equity                                       |       | —     |       | 597,138        |       | 81,005        |       | (678,143         | )          | —           |       |
| Stockholders’ deficit                                    |       | (66,910    | )          |           |       | —        |       |             |       | (66,910          | )          |
| Total  liabilities & stockholders’ deficit      |       | $          | 725,436    |           | $          | 462,468       |       | $                | 81,005     |             | $          | (844,596 | ) | $ | 424,313 |   |
|                                                          |       |       |       |           |       |          |       |             |       |             |       |
| Revenue                                                       |       | $          | 5,116      |           | $          | 557,088       |       | $                | —     |             | $          | — |   | $ | 562,204 |   |
| Costs applicable  to revenues                                 |       | (12,726    | )          | (339,312       | )          | —        |       | —           |       | (352,038         | )          |
| Operating  expenses                                           |       | (20,204    | )          | (144,300       | )          | —        |       | —           |       | (164,504         | )          |
| Interest  expense, net                                        |       | (18,172    | )          | (6,055         | )          | —        |       | —           |       | (24,227          | )          |
| Income from  investment in consolidated subsidiaries          |       | 59,727     |       | —         |       | —        |       | (59,727          | )          | —           |       |
| Other non  operating income (expenses)                        |       | 5,512      |       | (6,436         | )          | —        |       | —           |       | (924             | )          |
| Income tax  expense                                           |       | (325       | )          | (1,258         | )          | —        |       | —           |       | (1,583           | )          |
| Net income  (loss)                                            |       | $          | 18,928     |           | $          | 59,727        |       | $                | —     |             | $          | (59,727 | ) | $ | 18,928 |   |
|                                                          |       |       |       |           |       |          |       |             |       |             |       |
| Cash flows from  operations                                   |       | $          | (35,507    | )              | $          | 54,827        |       | $                | —     |             | $          | — |   | $ | 19,320 |   |
| Cash flows used  in investing activities                      |       | (3,485     | )          | (16,311        | )          | —        |       | —           |       | (19,796          | )          |
| Cash flows (used  in) provided by financing activities        |       | 31,720     |       | (37,893        | )          | —        |       | —           |       | (6,173           | )          |
| Cash at  beginning of year                                    |       | 12,609     |       | 2,397          |       | —        |       | —           |       | 15,006           |       |
| Cash at end of  year                                          |       | $          | 5,337      |           | $          | 3,020         |       | $                | —     |             | $          | — |   | $ | 8,357 |   |

 

71

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15.        NOTES OFFERING ANDGUARANTOR FINANCIAL INFORMATION (continued)

 

The following aresummarized statements setting forth certain financial information concerningthe Guarantor Subsidiaries as of and for the year ended December 31, 2006(in thousands).

 
| ** **                                                    | ** ** | ** ** | ** ** | ** **     | ** ** | **NON-**      | ** ** | ** **       | ** ** | **AGI**          | ** ** |
|---------------------------------------------------------------|------------|------------|------------|----------------|------------|---------------|------------|------------------|------------|------------------|------------|
| ** **                                                    | ** ** | **AGI**    | ** ** | **GUARANTORS** | ** ** | **GUARANTOR** | ** ** | **ELIMINATIONS** | ** ** | **CONSOLIDATED** | ** ** |
| Cash &  cash equivalents                             |       | $          | 12,609     |           | $          | 2,397         |       | $                | —     |             | $          | — |   | $ | 15,006 |   |
| Accounts  receivable (net of allowance for doubtful accounts) |       | 436        |       | 131,028        |       | —        |       | (104,265         | )          | 27,199           |       |
| Inventories                                                   |       | —     |       | 52,703         |       | —        |       | —           |       | 52,703           |       |
| Other current  assets                                         |       | 2,439      |       | 13,759         |       | —        |       | —           |       | 16,198           |       |
| Total current  assets                                         |       | 15,484     |       | 199,887        |       | —        |       | (104,265         | )          | 111,106          |       |
|                                                          |       |       |       |           |       |          |       |             |       |             |       |
| Property and  equipment, net                                  |       | 6,581      |       | 28,184         |       | —        |       | —           |       | 34,765           |       |
| Intangible  assets                                            |       | 5,816      |       | 24,495         |       | —        |       | —           |       | 30,311           |       |
| Goodwill                                                      |       | 67,584     |       | 76,845         |       | —        |       | —           |       | 144,429          |       |
| Investment in  subsidiaries                                   |       | 530,094    |       | 81,005         |       | —        |       | (611,099         | )          | —           |       |
| Affiliate note  and investments                               |       | 44,688     |       | —         |       | 81,005        |       | (40,000          | )          | 85,693           |       |
| Other assets                                                  |       | 915        |       | 789            |       | —        |       | —           |       | 1,704            |       |
| Total assets                                                  |       | $          | 671,162    |           | $          | 411,205       |       | $                | 81,005     |             | $          | (755,364 | ) | $ | 408,008 |   |
|                                                          |       |       |       |           |       |          |       |             |       |             |       |
| Accounts payable                                              |       | $          | 1,305      |           | $          | 31,272        |       | $                | —     |             | $          | — |   | $ | 32,577 |   |
| Accrued and  other liabilities                                |       | 13,154     |       | 30,181         |       | —        |       | —           |       | 43,335           |       |
| Current portion  of long-term debt                            |       | 108,948    |       | 42,588         |       | —        |       | (144,265         | )          | 7,271            |       |
| Current portion  of deferred revenue                          |       | 1,386      |       | 61,520         |       | —        |       | —           |       | 62,906           |       |
| Total current  liabilities                                    |       | 124,793    |       | 165,561        |       |          |       | (144,265         | )          | 146,089          |       |
|                                                          |       |       |       |           |       |          |       |             |       |             |       |
| Deferred revenue                                              |       | 2,663      |       | 34,520         |       | —        |       | —           |       | 37,183           |       |
| Long-term debt                                                |       | 273,886    |       | 3,998          |       | —        |       | —           |       | 277,884          |       |
| Other long-term  liabilities                                  |       | 345,203    |       | (322,968       | )          | —        |       | —           |       | 22,235           |       |
| Total  liabilities                                            |       | 746,545    |       | (118,889       | )          |          |       | (144,265         | )          | 483,391          |       |
|                                                          |       |       |       |           |       |          |       |             |       |             |       |
| Interdivisional  equity                                       |       | —     |       | 530,094        |       | 81,005        |       | (611,099         | )          | —           |       |
| Stockholders’  deficit                                   |       | (75,383    | )          | —         |       | —        |       | —           |       | (75,383          | )          |
|                                                          |       |       |       |           |       |          |       |             |       |             |       |
| Total  liabilities & stockholders’ deficit      |       | $          | 671,162    |           | $          | 411,205       |       | $                | 81,005     |             | $          | (755,364 | ) | $ | 408,008 |   |
|                                                          |       |       |       |           |       |          |       |             |       |             |       |
| Revenue                                                       |       | $          | 5,476      |           | $          | 509,082       |       | $                | —     |             | $          | — |   | $ | 514,558 |   |
| Costs applicable  to revenues                                 |       | (13,466    | )          | (307,258       | )          | —        |       | —           |       | (320,724         | )          |
| Operating  expenses                                           |       | (18,962    | )          | (132,823       | )          | —        |       | —           |       | (151,785         | )          |
| Interest  expense, net                                        |       | (17,046    | )          | (7,547         | )          | —        |       | —           |       | (24,593          | )          |
| Income from  investment in consolidated subsidiaries          |       | 46,755     |       | —         |       | —        |       | (46,755          | )          | —           |       |
| Other non  operating income (expenses)                        |       | 4,953      |       | (5,872         | )          | —        |       |             |       | (919             | )          |
| Income tax  expense                                           |       | (13,441    | )          | (8,827         | )          | —        |       | —           |       | (22,268          | )          |
| Net income  (loss)                                            |       | $          | (5,731     | )              | $          | 46,755        |       | $                | —     |             | $          | (46,755 | ) | $ | (5,731 | ) |
|                                                          |       |       |       |           |       |          |       |             |       |             |       |
| Cash flows from  operations                                   |       | $          | (30,540    | )              | $          | 77,645        |       | $                | —     |             | $          | — |   | $ | 47,105 |   |
| Cash flows used  in investing activities                      |       | (2,978     | )          | (14,975        | )          | —        |       | —           |       | (17,953          | )          |
| Cash flows (used  in) provided by financing activities        |       | 19,706     |       | (58,630        | )          | —        |       | —           |       | (38,924          | )          |
| Cash at  beginning of year                                    |       | 26,421     |       | (1,643         | )          | —        |       | —           |       | 24,778           |       |
| Cash at end of  year                                          |       | $          | 12,609     |           | $          | 2,397         |       | $                | —     |             | $          | — |   | $ | 15,006 |   |

 

72

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15.        NOTES OFFERING ANDGUARANTOR FINANCIAL INFORMATION (continued)

 

The following aresummarized statements setting forth certain financial information concerningthe Guarantor Subsidiaries for the year ended December 31, 2005 (inthousands).

 
| ** **                                           | ** ** | ** ** | ** ** | ** **     | ** ** | **NON-**      | ** ** | ** **       | ** ** | **AGI**          | ** ** |
|------------------------------------------------------|------------|------------|------------|----------------|------------|---------------|------------|------------------|------------|------------------|------------|
| ** **                                           | ** ** | **AGI**    | ** ** | **GUARANTORS** | ** ** | **GUARANTOR** | ** ** | **ELIMINATIONS** | ** ** | **CONSOLIDATED** | ** ** |
| Revenue                                              |       | $          | 5,432      |           | $          | 480,128       |       | $                | —     |             | $          | — |   | $ | 485,560 |   |
| Costs applicable  to revenues                        |       | (12,995    | )          | (288,774       | )          | —        |       | —           |       | (301,769         | )          |
| Operating  expenses                                  |       | (20,617    | )          | (120,434       | )          | —        |       | —           |       | (141,051         | )          |
| Interest income,  net                                |       | (18,947    | )          | (5,634         | )          | —        |       | —           |       | (24,581          | )          |
| Income from  investment in consolidated subsidiaries |       | 35,115     |       | —         |       | —        |       | (35,115          | )          | —           |       |
| Other non  operating income (expenses)               |       | 5,914      |       | (5,919         | )          | —        |       | —           |       | (5               | )          |
| Income tax  benefit (expense)                        |       | 16,836     |       | (24,252        | )          | —        |       | —           |       | (7,416           | )          |
| Net income                                           |       | $          | 10,738     |           | $          | 35,115        |       | $                | —     |             | $          | (35,115 | ) | $ | 10,738 |   |
|                                                 |       |       |       |           |       |          |       |             |       |             |       |
| Cash flows from  operations                          |       | $          | (16,663    | )              | $          | 33,905        |       | $                | —     |             | $          | — |   | $ | 17,242 |   |
| Cash flows used  in investing activities             |       | (123,159   | )          | (93,897        | )          | (81,005       | )          | 202,083          |       | (95,978          | )          |
| Cash flows  provided by financing activities         |       | 141,391    |       | 58,637         |       | 81,005        |       | (202,083         | )          | 78,950           |       |
| Cash at  beginning of year                           |       | 24,852     |       | (288           | )          | —        |       | —           |       | 24,564           |       |
| Cash at end of  year                                 |       | $          | 26,421     |           | $          | (1,643        | )          | $                | —     |             | $          | — |   | $ | 24,778 |   |

 

**ITEM 9:CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIALDISCLOSURE**

 

None

 

**ITEM 9A:CONTROLS AND PROCEDURES**

 

Within 90 days prior tothe filing of this Annual Report on Form 10-K, we carried out anevaluation, under the supervision and with the participation of our management,including our President and Chief Executive Officer and our Senior VicePresident and Chief Financial Officer, of the effectiveness of the design andoperation of our disclosure controls and procedures (as defined in Rule 13a-15(e) ofthe Securities Exchange Act of 1934, as amended) as of the end of the periodcovered by this report.  Based upon thatevaluation, our President and Chief Executive Officer, along with our SeniorVice President and Chief Financial Officer, concluded that our disclosurecontrols and procedures are effective in timely alerting them to materialinformation relating to our Company (including our consolidated subsidiaries)required to be included in our periodic SEC filings.  No changes have occurred during the periodcovered by this report or since the evaluation date that would have a materialeffect on the disclosure controls and procedures.

 

Management of the Company is responsible for establishing andmaintaining adequate internal control over financial reporting, as such term isdefined in Rule 13a-15(f) under the Securities Exchange Act of 1934. TheCompany’s internal control over financial reporting is designed to providereasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance withgenerally accepted accounting principles in the United States. However, allinternal control systems, no matter how well designed, have inherentlimitations. Therefore, even those systems determined to be effective canprovide only reasonable assurance with respect to financial statementpreparation and reporting. 

 

Management assessed theeffectiveness of the Company’s internal control over financial reporting as ofDecember 31, 2007. In making this assessment, management used the criteria setforth by the Committee of Sponsoring Organizations of the Treadway Commissionin Internal Control-Integrated Framework. Based on our assessment, managementbelieves that the Company maintained effective internal control over financialreporting as of December 31, 2007, based on those criteria.

 

Thisannual report does not include an audit report of the company’s registeredpublic accounting firm regarding internal control over financial reporting.Management’s report was not subject to audit by the company’s registered publicaccounting firm pursuant to temporary rules of the Securities and ExchangeCommission that permit the company to provide only management’s report in thisannual report.

 

**ITEM 9B:OTHER INFORMATION**

 

None

 

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** **

**PART III**

** **

**ITEM 10:  DIRECTORS, EXECUTIVEOFFICERS AND CORPORATE GOVERNANCE**

 

Ourexecutive officers and directors are as follows:

 
| **Name**              | ** ** | **Age** | ** ** | **Position**                                                                                  |
|-----------------------|------------|---------|------------|-----------------------------------------------------------------------------------------------|
| Michael  A. Schneider |       | 53      |       | President,  Chief Executive Officer and Director                                              |
| Marcus  Lemonis       |       | 34      |       | Chief  Executive Officer and President of Camping World, Inc.                            |
| Mark  J. Boggess      |       | 52      |       | Chief  Operating Officer of Camping World, Inc.                                          |
| Thomas  F. Wolfe      |       | 46      |       | Senior  Vice President and Chief Financial Officer                                            |
| Laura  A. James       |       | 51      |       | Senior  Vice President/ Human Resources                                                       |
| Kenneth  Marshall     |       | 48      |       | President  of E-Commerce of Camping World, Inc.                                          |
| Brent  Moody          |       | 46      |       | Senior  Vice President/ General Counsel and Business Development of Camping  World, Inc. |
| Prabhuling  Patel     |       | 61      |       | Senior  Vice President                                                                        |
| Stephen  Adams        |       | 70      |       | Chairman  of the Board of Directors                                                           |
| Andris  A. Baltins    |       | 62      |       | Director                                                                                      |
| David  Frith-Smith    |       | 62      |       | Director                                                                                      |
| J.  Kevin Gleason     |       | 56      |       | Director                                                                                      |
| George  Pransky       |       | 67      |       | Director                                                                                      |

 

MichaelA. Schneider became our President and Chief Executive Officer as of January 1,2004.  Prior to that time, Mr. Schneiderhad been our Chief Operating Officer since 1996.  Prior thereto, Mr. Schneider served asour Senior Vice President and General Counsel since January 1993 and wasresponsible for administrative areas, development of new corporate ventures andportions of the RV publication business and the advertising and salesdepartments.  Prior to January 1993and since 1977, Mr. Schneider has held a variety of senior managementpositions in our publication business.  Mr. Schneiderjoined the Board of Directors in 2004.  Mr. Schneideralso serves as a director of Adams Outdoor Advertising Inc. (“AOA”), whichoperates an outdoor media advertising business thought its subsidiaries, andAffinity Bank, a national bank owned by Affinity Bank Holdings, Inc. (“ABH”).  Mr. Adams owns a controlling interest inboth AOA and ABH.

 

MarcusA. Lemonis was appointed President and Chief Executive Officer of Camping World, Inc.(“Camping World”) effective September 13, 2006.  Mr. Lemonis also currently serves and,since 2003, has served as Chief Executive Officer and President of FreedomRoadsHolding Company LLC and its subsidiaries (“FreedomRoads”).  FreedomRoads operates RV dealerships acrossthe United States (53 dealerships as of December 31, 2006) and iscontrolled by Mr. Adams.  From 2001to 2003, Mr. Lemonis served as President, Chief Executive Officer andChairman of the Board of Directors of Holiday RV Superstores, Inc.  Holiday RV Superstores, Inc. filed forbankruptcy on October 18, 2003.

 

MarkJ. Boggess became the Chief Operating Officer of Camping World effective September 2006.  Mr. Boggess served as the President andChief Executive Officer of our Camping World subsidiary as of January 2004through September 2006.  Prior tothat time, Mr. Boggess had been our Senior Vice President and ChiefFinancial Officer since June 1993. From June 1992 through May 1993, Mr. Boggess was VicePresident and Chief Financial Officer of Hypro Corporation, a privately ownedmanufacturer of fluid transfer pumps. From June 1989 through

 

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June 1992,Mr. Boggess was Treasurer of Adams Communications Corporation, a holdingcompany controlled by Stephen Adams which owned television and radio stationoperations throughout the United States.

 

ThomasF. Wolfe became our Senior Vice President and Chief Financial Officer as of January1, 2004.   Prior to that time, Mr. Wolfehad been our Vice President and Controller since 1997.  From 1991 to 1997, Mr. Wolfe was VicePresident of Finance of Convenience Management Group, a privately-owneddistributor of petroleum products and equipment.  From 1989 to 1991, Mr. Wolfe was VicePresident and Controller of First City Properties, Inc.  Prior to 1989, and since 1983, Mr. Wolfe helda variety of staff and management positions at Deloitte & Touche LLP.

 

LauraA. James became our Senior Vice President/Human Resources as of January 1,2004.  Prior to that time, Ms. Jamesserved as Vice President/Human Resources since 1996.  From 1984 until her appointment as VicePresident/Human Resources, Ms. James served in various management andstaff positions at the Company.

 

KennethMarshall became President of E-Commerce of Camping World as of April 1,2007.  Prior to that, he served asExecutive Vice President of Finance and Information Technology, Vice Presidentof Finance and Controller and Senior Vice President of Finance/InformationTechnology and Distribution since joining Camping World in 2002.  Prior to that time and since 2000, Mr. Marshallserved as Chief Information Officer of Harwood International, a real estatedevelopment company in Dallas, Texas. From 1995 to 2000, Mr. Marshall served as Chief FinancialOfficer/Chief Operating Officer and was a shareholder of Virtual Solutions, Inc.,a technology consulting firm in Dallas, Texas.

 

BrentMoody joined Camping World in 2002 and since that time has served Camping Worldas Vice President and General Counsel and then Senior Vice President/ GeneralCounsel and Business Development as well as General Counsel of the Company from2004-2006.  Mr. Moody also serves asthe Executive Vice President Business Development and General Counsel ofFreedomRoads, a position he has held since September 1, 2006.** **Prior to that timeand since 1998, Mr. Moody was a shareholder of the law firm of GreenbergTraurig, P.A.  From 1996 to 1998, Mr. Moodyserved as Vice President and Assistant General Counsel for Blockbuster, Inc.

 

PrabhulingPatel was appointed Senior Vice President of Products & Services as ofMay 1, 2004.  Mr. Patel joinedthe Company in December 2003 as Vice President of Database Marketing.  Prior to that he served as an advisor toventure capital firms on start-up companies and was also a consultant to theCompany from 2002 to 2003.  From 2000 to2002, Mr. Patel was Senior Vice President & General Manager ofthe outsourcing business of Message Media, Inc., an email marketingcompany.  Prior to 2000, he was Presidentof the Telecommunications, Energy & Cable Division of Experian, acredit bureau and direct marketing services company.  He served in senior executive positionsrunning various businesses at Metromail Corporation, which was in the directmarketing services business.  Mr. Patelalso held a number of executive level positions in marketing, finance, IT, businessdevelopment and business strategy at Citigroup, Cigna, Household Internationaland Montgomery Ward.

 

StephenAdams has been the Chairman of our Board of Directors since December 1988.  Mr. Adams is also chairman and 90% ownerof FreedomRoads which operates RV dealerships (56 dealerships as of December 31,2007) throughout the United States.  Inaddition, Mr. Adams is the chairman of the board of directors and thecontrolling shareholder of AOA.  Mr. Adamsis

 

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alsothe chairman and 95% owner of ABH, which operates through its subsidiary, anational bank.

 

AndrisA. Baltins has been a member of the law firm of Kaplan, Strangis and Kaplan,P.A. since 1979.  Mr. Baltins is amember of the board of Polaris Industries Inc., a manufacturer of snowmobiles,all-terrain vehicles, motorcycles and related products, and serves as the Chairof its Corporate Governance and Nominating Committee and is also a member ofits Compensation Committee.  He alsoserves as a director of various private and non-profit corporations.  Mr. Baltins joined the Board ofDirectors in February 2006.  Mr. Baltins’law firm provides legal services to the Company and its subsidiaries.  Mr. Baltins also serves as a director ofFreedomRoads and of AOA, both of which are controlled by Stephen Adams.

 

DavidFrith-Smith has served as managing partner of Biller, Frith-Smith &Archibald, Certified Public Accountants since 1988.  Mr. Frith-Smith was a principal withMaidy Biller Frith-Smith & Brenner, Certified Public Accountants from1984 to 1988, and with Maidy and Lederman, Certified Public Accountants from1980 to 1984.  Mr. Frith-Smith hasbeen a member of our Board of Directors since November 1996.  Mr. Frith-Smith is also a director ofAOA and ABH, both of which are controlled by Stephen Adams, and various privateand non-profit corporations.

 

J.Kevin Gleason has served as the Chief Executive Officer and President of AOA,an entity controlled by Mr. Adams, since 1991.  Prior to that time, Mr. Gleason wasExecutive Vice President and General Manager of AOA since 1987.  Mr. Gleason served as General Manager ofNaegele Outdoor Advertising of Southern California from 1985 to 1987.  He has served as vice chair marketing, andChairman of the Outdoor Advertising Association of America as well as a boardmember of the Traffic Audit Bureau.  Mr. Gleasonjoined the Board of Directors in October 2005.

 

GeorgePransky, Ph.D. has been in private practice as co-director of Pransky andAssociates in La Conner, Washington since 1988. He is a frequent consultant for government and private agencies and hasbeen a contract faculty member for a number of educational institutions,including the University of Washington, the University of Oregon and AntiochCollege.  Dr. Pransky has trainedmanagement groups in team building, stress elimination and leadershipdevelopment for twenty-five years.  Dr. Pranskyjoined the Board of Directors in February 2006 and he also serves as adirector of AOA.

 

Directorsare elected for terms of one year or until their successors have been dulyelected.  There are no familyrelationships between any of the directors and/or executive officers.

 

**Board Functions as Audit Committee**

 

Our securities are notlisted on any national securities exchange and we are not required to maintaina separate audit committee of the Board nor are we subject to the auditcommittee independence requirements set forth in Rule 10A-3 of theSecurities Exchange Act of 1934, as amended. On February 22, 2006, the Board of Directors of the Companydisbanded the Audit Committee and assumed its oversight of the integrity of ourfinancial statements; our compliance with legal and regulatory requirements;the retention, independence and qualifications of our independent auditor; andthe responsibilities, budget and performance of our independent auditor.  The Board of Directors recognizes Mr. Frith-Smithas an “Audit Committee Financial Expert” as such term has been defined by theSecurities and Exchange Commission.  Mr. Frith-Smithis not an independent director.

 

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**Code ofProfessional Conduct**

 

Wehave adopted a Code of Professional Conduct that applies to our principalexecutive officer, principal financial officer, principal accounting officerand all other employees.  This Code ofProfessional Conduct is posted on our website at www.affinitygroup.com and maybe found as follows:

 

·                  From our main web page,first click on “About AGI,”

·                  Then, click on “Code ofConduct.”

 

TheCompany intends to satisfy the disclosure requirement under Item 5.05 of Form 8-Kregarding an amendment to, or waiver from a provision of, this Code ofProfessional Conduct by posting such information at the address and locationspecified above under the heading “Waivers.”

 

**Section 16(a) Beneficial Ownership Reporting Compliance**

 

TheCompany is a voluntary filer pursuant to Section 15(d) of theSecurities Exchange Act of 1934, as amended (the “Act”) and does not have aclass of equity securities registered pursuant to Section 12 of theAct.  Accordingly, our officers,directors and 10% or greater holders of our securities are not currentlyrequired to file reports pursuant to Section 16(a) of the Act.

 

**ITEM 11:  EXECUTIVE COMPENSATION**

 

**Compensation Discussion and Analysis**

 

***Overview***

 

Thefollowing discussion and analysis describes the Company’s compensationobjectives and policies as applied to the named executive officers appearing inthe Summary Compensation Table below (the “Executive Officers”).  This section is intended to provide aframework within which to understand the actual compensation awarded to, earnedor held by each Executive Officer during 2006 and 2007 as reported in thecompensation tables and accompanying narrative sections appearing on pages 85to 94 of this annual report on Form 10-K.

 

Inconnection with our joint marketing agreement with FreedomRoads, some of ourofficers also perform services for FreedomRoads.  Messrs. Boggess, Moody and Marshall, whowere officers of our Camping World subsidiary prior to entering into the jointmarketing agreement with FreedomRoads, are compensated by the Company.  Mr. Lemonis was, and currently is,President and Chief Executive Officer of FreedomRoads before the jointmarketing agreement was implemented and receives his primary compensation fromFreedomRoads, except for $100,000 in annual salary paid by Camping World.  Accordingly, Mr. Lemonis is not includedin the Summary Compensation Table below or the following discussion.

 

***Compensation Objectives***

 

Ourexecutive compensation program is tied closely to our performance and aimed atenabling us to attract and retain the best possible executive talent.  In addition, the total compensation

 

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opportunitiesprovided to Executive Officers reflect both the responsibility of each position(internal equity) and competitive market levels (external competitiveness).

 

DrivingPerformance:  The Companyseeks to significantly correlate the level of compensation paid to itsExecutive Officers, when taken as a whole, with the financial performance ofthe Company.  Accordingly, base salarycomprises only 15-20% of the total compensation opportunity for the Presidentand Chief Executive Officer of the Company, Mr. Schneider, and the ChiefOperating Officer of our Camping World subsidiary, Mr. Boggess, and 50-60%of the total compensation opportunity for the other Executive Officers.  The remaining balance of each ExecutiveOfficer’s total compensation opportunity is dependent upon short-term andlong-term increases in Company financial performance and operating profit andis comprised of:

 

·                                          In the case of Messrs. Schneider,Wolfe and Patel in 2006 and 2007, an annual incentive award that is based on anassigned percentage of income from operations in excess of $2.8 million,excluding depreciation, amortization, phantom stock expense and othernon-recurring expenses;

 

·                                          In the case of Mr. Marshallin 2006 and 2007, and Mr. Boggess in 2007, the annual discretionary incentiveaward was determined and valued by Mr. Lemonis; and

 

·                                          A payout undertheir phantom stock agreement, the amount of which is dependent upon increasesin the base value of the Company or Camping World, as appropriate, over amultiple-year period based on a formula related to cash flow, subject tocertain adjustments.

 

Thebase salary and annual incentive awards are designed to reward ExecutiveOfficers for annual achievements, both individually and as a Company.  The phantom stock agreements are designed todrive long-term Company performance and value, and to retain the ExecutiveOfficer.

 

Attractingand Retaining Executive Talent:  The Company has structured the incentiveopportunities under the annual incentive award programs and the phantom stockagreements to provide Executive Officers with a substantial upside in drivingthe value of the Company, which it views as a tool for attracting newtalent.  In addition, the phantom stockagreements, which are based on performance over a multiple-year period, provideExecutive Officers with an incentive to stay with the Company.

 

***Determining Compensation***

 

TheCompany relies upon its own judgment in designing the compensationopportunities provided to the Executive Officers.  Messrs. Schneider and Lemonis make recommendationsto the Chairman of the Board of Directors regarding the appropriate levels oftotal compensation opportunities based upon their review of the individualperformance and responsibilities of the Executive Officers under theirsupervision and the financial and operational performance of the Company orCamping World, as appropriate, as a whole. The Chairman of the Board of Directors makes the final decisionregarding the amount of base salary and annual incentive award opportunityprovided to Mr. Schneider and the phantom stock agreement opportunitiesfor all of the Executive Officers.  TheChairman of the Board of Directors also provides Mr. Schneider and Mr. Lemoniswith parameters regarding the compensation opportunities to be provided to the remainingExecutive Officers.  Mr. Schneiderultimately determines the amount of compensation opportunities provided to Messrs. Wolfeand Patel within the scope of authority provided by the Chairman of the Boardof Directors.  In addition, Mr. Lemonisultimately determines the amount of compensation opportunities provided to Messrs. Boggess,and Marshall within the scope of

 

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authorityprovided by the Chairman of the Board of Directors.  The Chairman of the Board of Directors or theChief Executive Officer of either the Company or Camping World, as the case maybe, considers the annual and long-term financial performance of the Company orCamping World in determining the forms and amounts of compensation paid to eachExecutive Officer.

 

TheCompany does not employ a compensation consultant, nor does it engage in anyformal market analysis in determining the levels of total compensationopportunity (or components thereof) provided to each Executive Officer.  Generally, the Company attempts to achieveits goal of driving performance by making a significant portion, 80-85% of thetotal compensation opportunity provided to each of Messrs. Schneider andBoggess, and 40-50% of the total compensation opportunity provided to each ofthe other Executive Officers, dependent upon the Company’s annual and long-termperformance and value.  A higherproportion of the compensation opportunity provided to each of Messrs. Schneiderand Boggess, as compared to the other Executive Officers, is tied to Companyperformance because each is the leader of his respective business operationsand thus is in a more unique position to influence the performance of theCompany.  However, the Company believesthat the total compensation opportunities of all the Executive Officers providea substantial incentive to each of them to drive the performance of theCompany—both in the short and long-term.

 

TheCompany, which is a wholly-owned subsidiary of Affinity Group Holding, Inc.(“AGHI”), does not grant shares of Company stock or stock options to theExecutive Officers.  The long-termincentive awards in the form of phantom stock agreements are intended toprovide Executive Officers with a cash equivalent to the increase in value ofthe Company or Camping World that would otherwise be realized in stock oroption awards of a company with publicly traded equity securities.

 

***Elements of Compensation***

 

AnnualCompensation

 

**BaseSalary**

 

EachExecutive Officer receives a minimum level of fixed compensation in the form ofbase salary.  The Company does not reviewthe base salaries of the Executive Officers on a regular basis; however, it hasadjusted base salary levels from time to time on a discretionary basis basedupon factors such as an increase in the responsibilities or duties of aparticular Executive Officer.  In 2006,the Company exercised its discretion and increased the amount of base salarypaid to each of Mr. Marshall in recognition of increased duties assumed byeach in connection with the joint marketing arrangement entered into betweenCamping World and FreedomRoads, which is described under Item 13 of this AnnualReport on Form 10-K.  The Companyprovided nominal cost of living increases to Messrs. Wolfe, Marshall andPatel, but no increase for Messrs. Schneider and Boggess.

 

Theamount of base salary paid to each of the Executive Officers for 2007 and 2006is reflected in the Salary column of the Summary Compensation Table below.

 

**AnnualIncentive Awards**

 

TheCompany adopts an annual incentive award program applicable to its ExecutiveOfficers and other employees.

 

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*2007 –Non-Equity Incentive Awards:*

 

For2007, Messrs. Schneider and Wolfe received their annual incentive awardsbased on the actual performance of the Company as measured under the parametersof the annual incentive award program. The amount of the annual incentive award for Messrs. Schneider and Wolfewas based on 1.0% and 0.25%, respectively, of the Company’s income from operationsexcluding depreciation, amortization, phantom stock expense, othernon-recurring expense, and the operations of Camping World, Inc. (the “2007Value”).  The 2007 Value was $48.2million.  This amount was paid on a prorata basis every two weeks, in connection with the regular payroll cycle, basedon estimated Company performance.  Afinal measurement of Company performance under the parameters of the annualincentive award is made following the end of the fiscal year.  To the extent necessary after year-end,additional payments were made to each of Messrs. Schneider and Wolfe basedupon this final measurement in order that the aggregate amount of incentiveaward paid correlates with his assigned percentage of actual Companyperformance during the year.  The Companytakes a conservative position in estimating the pro rata amounts paid to Messrs. Schneiderand Wolfe throughout the year in connection with the regular payroll cycle and,to date, has not made any downward adjustments in the amount of incentive awardpaid based upon the final performance review. These amounts are reflected in the Non-Equity Incentive Compensationcolumn of the Summary Compensation table.

 

For2007, Messrs. Boggess, Marshall and Patel participated in discretionaryannual incentive award programs.  Theannual incentive award for Messrs. Boggess and Marshall was based upon thereview and evaluation of Mr. Lemonis. In the fourth quarter of 2007, Mr. Lemonis determined that theamount of annual incentive awards payable to Messrs. Boggess and Marshallshould be $450,000 and $135,000, respectfully. The 2007 annual incentive award for Messrs. Boggess and Marshallwas paid pro-rata every two weeks, in connection with the regular payrollcycle, based on estimated Company performance. Mr. Patel’s annual incentive award was based on the performance ofspecific subsidiaries and programs of the Company as determined by Mr. Schneider.  The amount of annual incentive award for Mr. Patelwas $132,350 for 2007 and paid in the first quarter of 2008.  These amounts are reflected in the Bonuscolumn of the Summary Compensation table.

 

*2006 –Non-Equity Incentive Awards:*

 

For2006, Messrs. Schneider, Boggess and Wolfe received their annual incentiveawards based on the actual performance of the Company as measured under theparameters of the annual incentive award program.  The amount of the annual incentive award for Messrs. Schneider,Boggess and Wolfe was based on 1.0%, 1.0% and 0.2%, respectively, of theCompany’s income from operations in excess of $2.8 million, excludingdepreciation, amortization, phantom stock expense and other non-recurringexpenses (specifically, debt extinguishment expense of $835,000 andreorganization expense of $93,000 in 2006) (“2006 Value”).  The 2006 Value was $59 million.  This amount was paid on a pro rata basisevery two weeks, in connection with the regular payroll cycle, based onestimated Company performance.  A finalmeasurement of Company performance under the parameters of the annual incentiveaward is made following the end of the fiscal year.  These amounts are reflected in the Non-EquityIncentive Compensation column of the Summary Compensation table.

 

For2006, Messrs. Marshall and Patel participated in discretionary annualincentive award programs.  The annualincentive award for Mr. Marshall was based upon the review and evaluationof Mr. Lemonis.  In the fourthquarter of 2006, Mr. Lemonis determined that the amount of annualincentive award for Mr. Marshall was $123,000 which was paid in March

 

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2007.  Mr. Patel’s annual incentive award wasbased on the performance of specific subsidiaries and programs of the Companyas determined by Mr. Schneider.  Theamount of annual incentive award for Mr. Patel was $108,250 for 2006 andpaid in the first quarter of 2007. These amounts are reflected in the Bonuscolumn of the Summary Compensation table.

 

Long-TermCompensation/Phantom Stock Agreements

 

TheCompany has entered into phantom stock agreements with each of the ExecutiveOfficers.  In general, payouts under thephantom stock agreements are based upon increases in the base value of certainbusiness units measured over a multiple-year period.  The amount earned over the measurement periodis generally paid out in three equal annual installments following the end ofsuch period.  The first such installmentis generally paid in the second quarter of the year following the end of themeasurement period once the audited financial statements for the last year ofthe measurement period have been determined, with the two remaining annualpayments made in January of each of the next two years.

 

Theamount of phantom stock expensed during 2006 and 2007 for each ExecutiveOfficer is included in the Stock Awards column of the Summary CompensationTable below.

 

*Mr. Schneider*:  Mr. Schneider entered into a phantomstock agreement with the Company, dated January 1, 2000, pursuant to whichMr. Schneider received 1.8% of the Increase in Company Value as measuredover the period beginning January 1, 2000 until December 31,2003.  The value of such earnings werepaid in three equal annual installments of $43,326.  The last payment under the 2000 phantom stockagreement was made to Mr. Schneider in January 2006.

 

*Messrs. Schneider,Wolfe and Patel*:  Messrs. Schneider,Wolfe and Patel have also each entered into phantom stock agreements with theCompany.  The agreements for Messrs. Schneiderand Wolfe are dated January 1, 2004, and the agreement for Mr. Patelis dated April 1, 2004 pursuant to which Mr. Schneider will receive2.50%, Mr. Wolfe will receive 0.33% and Mr. Patel will receive 0.10%of the increase in Company value as measured over the period beginning as pertheir respective agreements and ending December 31, 2006.  The phantom stock payout under the 2004agreements will be paid in three equal annual installments of $826,637,$109,116 and $35,660 for Messrs. Schneider, Wolfe and Patel, respectively,the first of which was distributed during the second quarter of 2007.

 

*Messrs. Schneider,Wolfe and Patel*:  Messrs. Schneider,Wolfe and Patel have also each entered into phantom stock agreements with theCompany.  The agreements for Messrs. Schneiderand Wolfe are dated January 1, 2007, and the agreement for Mr. Patelis dated April 1, 2004 pursuant to which Mr. Schneider will receive5.0%, Mr. Wolfe will receive 0.66% and Mr. Patel will receive 0.25%of the increase in Company value as measured over the period beginning as pertheir respective agreements and ending December 31, 2009.  The phantom stock payout under the 2009agreements will be paid in three equal annual installments starting in 2010.

 

*Mr. Boggess*:  Mr. Boggess did not earn any awardsunder any phantom stock agreements during 2006. The last phantom stock agreement entered into between Mr. Boggessand the Company, dated July 1, 2003, which was amended March 1, 2006to freeze the measurement period under such agreement effective as of December 31,2005 as a result of various changes in corporate structure, organization andadministration affecting Camping WorId, including the joint marketingarrangement between Camping World and FreedomRoads.  The amount of

 

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phantomstock payments earned by Mr. Boggess under this agreement will be paid inthree equal annual installments of $382,209 in each January of 2007, 2008and 2009.

 

*Mr. Marshall*:  Mr. Marshall did not earn any awardsunder any phantom stock agreements during 2006 or 2007.  Mr. Marshall is party to a phantom stockagreement with the Company dated June 30, 2002, as amended July 31,2003.  On March 1, 2006, the Companydecided to freeze the measurement period under such agreements effective as of December 31,2005 as a result of various changes in corporate structure, organization andadministration affecting Camping World, including the joint marketingarrangement between Camping World and FreedomRoads.  The amount of phantom stock payments earnedby Mr. Marshall under this phantom stock agreement was paid in one lumpsum of $463,883 on January 2, 2007.

 

OtherElements of Compensation

 

TheCompany provides a full range of benefits to its Executive Officers, includinga 401(k) Savings and Profit Plan and the standard medical, dental anddisability coverage, which are available to employees generally.  The Company believes that these benefits arereasonable in amount and are designed to be competitive with comparablecompanies.

 

**401(k) Savingsand Profit Plan**

 

AffinityGroup, Inc.

 

TheCompany sponsors a deferred savings and profit sharing plan (the “401(k) Plan”)qualified under Section 401(a) and 401(k) of the InternalRevenue Service Code of 1986, as amended (the “Code”).  All employees over age twenty-one, includingthe Executive Officers, are eligible to participate in the 401(k) Plan.  Employees who have completed one year ofservice (minimum of 1,000 hours) are eligible for matching contributions.  For the plan year 2007, the Company elected aSafe Harbor Matching Contribution for the employer match and set the employermatch, which vests upon contribution, at an amount equal to 100% of the first4% of the employee’s contribution. Employees may defer up to 60% of their eligible compensation up toInternal Revenue Service limits electing pre-tax contributions or post-taxcontributions (Roth contributions).  2007Employer Matching Contributions for all Affinity employees totaled$884,448.  The amounts of 401(k) Planmatching contributions by the Company during 2007 are reflected in the AllOther Compensation column of the Summary Compensation Table below.

 

CampingWorld, Inc.

 

BeginningJanuary 1, 2007 Camping World was no longer a participating employer inthe Affinity Group 401(k) Plan and elected to begin participating in theFreedom Roads 401(k) Defined Contribution Plan, Freedom Rewards 401(k) Plan,qualified under Section 401(a) and 401(k) of the InternalRevenue Service Code of 1986, as amended (the “Code”).  All employees over the age of 18, includingthe Executive Officers are eligible to participate in the 401(k) Plan.  Employees who have completed twelve months ofconsecutive service are eligible for company match.  For the plan year 2007, the matchingcontribution schedule is 50% up to the first 6% of eligible compensation.  Company matching contributions follow a six (6) yeargraded vesting schedule.  Non-highlycompensated employees may defer up to 75% of their eligible compensation up tothe Internal Revenue Service limits. Highly compensated employees may defer up to 15% of their eligiblecompensation up to the Internal Revenue Service limits.  Employer Matching Contributions for allAffinity employees totaled $812,500.  Theamounts of 401(k) Plan matching contributions by the Company during 2007are reflected in the All Other Compensation column of the Summary CompensationTable below.

 

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**KEYSOP**

 

EffectiveJanuary 1999, the Company participates in AGHC’s KEYSOP, a non-qualifieddeferred compensation plan administered through RABBI trusts, for key employeesof the Company and its subsidiaries.  Mr. Marshallelected not to participate in the KEYSOP. Through March, 2007 participants could contribute all or a portion oftheir annual incentive awards and payout from the phantom stock awards to theKEYSOP.  Beginning April 1, 2007future contributions to the KEYSOP were no longer allowed.  Trustees under the KEYSOP received suchcontributions and invest the deferred amounts based upon the specific electionof each participant.  The Company doesnot make any matching contributions to the KEYSOP.  Payouts under the KEYSOP are based upon theelections of the specific participants and are subject to the rules andregulations governing the KEYSOP program.

 

**Other Benefit Plans**

 

Employees of the Company, including the Executive Officers, receivecertain medical and dental benefits during their employment.  One of the Company’s predecessors alsoprovided eligible employees with medical, dental and life insurance coverageafter retirement.  The estimated futurecosts associated with such coverage to retirees are reserved as a liability inthe Company’s consolidated financial statements.  Current employees are not provided medicaland dental benefits upon retirement.

 

**Perquisites**

 

TheCompany provides its Executive Officers with very limited perquisites, which itbelieves are appropriate components of the compensation package for theparticular Executive Officer.  TheCompany pays the premiums on life insurance policies for each of Messrs. Schneiderand Boggess.  In addition, Mr. Marshallreceives an annual car allowance of approximately $9,000.  To the extent that such aggregate incrementalcost to the Company of providing these perquisites to each Executive Officer isequal to or greater than $10,000, such amount is included in the All OtherCompensation column of the Annual Compensation Table.

 

PhantomStock Agreements:  Asdescribed in the section entitled “*Compensation Discussionand Analysis—Elements of Compensation—Long-Term Compensation/Phantom StockAgreements*” above, the Company has entered into phantom stockagreements with each of the Executive Officers. The phantom stock agreements also include the terms of employment forsuch Executive Officers, which are described in more detail in the sectionentitled “*Potential Payments upon Termination or Change inControl—Employment Terms in Phantom Stock Agreements*” below.  The terms of the phantom stock agreements forMessrs. Schneider, Wolfe, and Patel end on December 31, 2009.

 

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**Compensation Committee Report**

 

Oursecurities are not listed on a national securities exchange and we are notrequired to maintain a separate compensation committee of the Board ofDirectors.  The full Board of Directorsfunctions as the Compensation Committee. The Board of Directors has reviewed the Compensation Discussion andAnalysis and discussed that analysis with management.  Based on its review and discussions with management,the Board of Directors has determined that the Compensation Discussion andAnalysis be included in the Company’s Annual Report on Form 10-K.

 
|   | Stephen  Adams        |
|--------|-----------------------|
|   | Andris  A. Baltins    |
|   | David  Frith-Smith    |
|   | J.  Kevin Gleason     |
|   | George  Pransky       |
|   | Michael  A. Schneider |

 

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**SummaryCompensation Table**

 

The following table shows, for the fiscalyears completed December 31, 2007 and December 31, 2006, the annualcompensation paid to or earned by the Company’s President and Chief ExecutiveOfficer, the Company’s Senior Vice President and Chief Financial Officer andthe other three most highly compensated executive officers who served asexecutive officers as of December 31, 2007 (collectively, the “ExecutiveOfficers”).

 

**SUMMARY COMPENSATION TABLE**

** **
| **Name and Principal Position** | ** ** | **Year** | ** ** | **Salary  ($)** | ** ** | **Bonus  ($)** | ** ** | **Stock  Awards  ($)(1)** | ** ** | **Non-Equity  Incentive   Plan  Compensation  ($)(2)** | ** ** | **Change in  Pension  Value and  Non-qualified  Deferred  Compensation  Earnings  ($)(3)** | ** ** | **All  Other  Compensation  ($)(4)** | ** ** | **Total  ($)** | ** ** |
|------------------------------------------------|------------|----------|------------|-----------------|------------|----------------|------------|---------------------------|------------|--------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------|------------|--------------------------------------|------------|----------------|------------|
| **(a)**                                        | ** ** | **(b)**  | ** ** | **(c)**         | ** ** | **(d)**        | ** ** | **(e)**                   | ** ** | **(g)**                                                | ** ** | **(h)**                                                                                              | ** ** | **(i)**                              | ** ** | **(j)**        | ** ** |
| Michael A.  Schneider                          |       | 2007     |       | $               | 100,000    |           | —     |                      | $          | 236,167                                                |       | $                                                                                                    | 481,850    |                                 | $          | 248,070        |       | $ | 11,608 |   | $ | 1,077,695 |   |
| President,                                     |       | 2006     |       | 100,000         |       | —         |       | 936,011                   |       | 590,050                                                |       | 519,133                                                                                              |       | 8,587                                |       | 2,153,781      |       |
| Chief Executive  Officer                       |       |     |       |            |       |           |       |                      |       |                                                   |       |                                                                                                 |       |                                 |       |           |       |
|                                           |       |     |       |            |       |           |       |                      |       |                                                   |       |                                                                                                 |       |                                 |       |           |       |
| Mark J. Boggess                                |       | 2007     |       | 100,000         |       | 450,000        |       | —                    |       | —                                                 |       | 488,570                                                                                              |       | 28,745                               |       | 1,067,315      |       |
| Chief Operating                                |       | 2006     |       | 101,923         |       | —         |       | —                    |       | 590,050                                                |       | 368,723                                                                                              |       | 21,006                               |       | 1,081,702      |       |
| Officer of  Camping                            |       |     |       |            |       |           |       |                      |       |                                                   |       |                                                                                                 |       |                                 |       |           |       |
| World, Inc.                               |       |     |       |            |       |           |       |                      |       |                                                   |       |                                                                                                 |       |                                 |       |           |       |
|                                           |       |     |       |            |       |           |       |                      |       |                                                   |       |                                                                                                 |       |                                 |       |           |       |
| Thomas F. Wolfe                                |       | 2007     |       | 190,769         |       | —         |       | 31,174                    |       | 120,463                                                |       | 23,284                                                                                               |       | 8,857                                |       | 374,547        |       |
| Senior Vice  President                         |       | 2006     |       | 185,000         |       | —         |       | 122,985                   |       | 118,010                                                |       | 41,080                                                                                               |       | 8,673                                |       | 475,748        |       |
| Chief Financial  Officer                       |       |     |       |            |       |           |       |                      |       |                                                   |       |                                                                                                 |       |                                 |       |           |       |
|                                           |       |     |       |            |       |           |       |                      |       |                                                   |       |                                                                                                 |       |                                 |       |           |       |
| Kenneth Marshall                               |       | 2007     |       | 200,000         |       | 135,000        |       | —                    |       | —                                                 |       | —                                                                                               |       | 26,387                               |       | 361,387        |       |
| President of                                   |       | 2006     |       | 191,346         |       | 123,000        |       | —                    |       | —                                                 |       | —                                                                                               |       | 8,700                                |       | 323,046        |       |
| E-Commerce of                                  |       |     |       |            |       |           |       |                      |       |                                                   |       |                                                                                                 |       |                                 |       |           |       |
| Camping  World, Inc.                      |       |     |       |            |       |           |       |                      |       |                                                   |       |                                                                                                 |       |                                 |       |           |       |
|                                           |       |     |       |            |       |           |       |                      |       |                                                   |       |                                                                                                 |       |                                 |       |           |       |
| Prabhuling Patel                               |       | 2007     |       | 179,808         |       | 132,350        |       | 11,808                    |       | —                                                 |       | 19,309                                                                                               |       | 4,133                                |       | 347,408        |       |
| Senior Vice  President                         |       | 2006     |       | 175,000         |       | 108,250        |       | 40,155                    |       | —                                                 |       | 13,989                                                                                               |       | 4,000                                |       | 341,394        |       |
|                                                |            |          |            |                 |            |                |            |                           |            |                                                        |            |                                                                                                      |            |                                      |            |                |            |  |  |  |  |  |  |

 

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(1)                                 Includes dollar amounts recognized forfinancial statement reporting purposes for the fiscal year ended December 31,2006 and 2007 pursuant to the phantom stock agreements and thus may includeawards granted in and prior to 2007. These amounts differ from the actual payments described under Long-TermCompensation/ Phantom Stock Agreements as the amounts described in that sectioninclude amounts of phantom stock awards earned in prior years.

 

(2)                                 Mr. Boggess deferred $407,582 of theannual incentive awards otherwise payable to him during 2006 under the terms ofthe KEYSOP.

 

(3)                                 The amount of earnings on amounts deferredunder the KEYSOP is dependent upon the particular investment choices of theparticipant, which may include private investments.  The Company does not influence or have anyinvolvement in the earnings under the KEYSOP. The amounts shown in the table reflect the aggregate earnings on eachExecutive Officer’s account during 2006 and 2007 (including earnings that areat

 

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or below market).  Messrs. Moody and Marshall elected notto participate in the KEYSOP.  TheCompany does not maintain any pension plans. In addition, the Executive Officers do not receive above-market orpreferential earnings on compensation that is deferred pursuant to the 401(k) Plan.

 

(4)                                 Includes $8,857, $6,750, $8,857, $6,750 and$4,133 for 2007, and $8,587, $8,407, $8,673 $8,700, and $0 for 2006, of Companymatching contributions under the 401(k) Plan for Messrs. Schneider,Boggess, Wolfe, Marshall, and Patel, respectively.  In addition, includes $2,751 and $2,221 for2007, and $0 and $3,290 for 2006, of Company-paid life insurance premiums for Mr. Schneiderand Mr. Boggess, respectively.  Alsoincludes $19,394 and $19,637 for 2007, and $9,307 and $0 for 2006 of automobileallowance for Mr. Boggess and Mr. Marshall, respectively.

 

**Grantsof Plan-Based Awards in 2007**

 

The Company, which is a wholly-ownedsubsidiary of AGHI, does not grant shares of Company stock or stock options tothe Executive Officers.  However, theCompany has historically entered into phantom stock agreements with theExecutive Officers, which are intended to provide the Executive Officers with acash equivalent to the increase in value of the Company or Camping World that wouldotherwise be realized in stock or option awards of a public company.  These awards are described in the sectionentitled “*Compensation Discussion and Analysis—Elements ofCompensation—Long-Term Compensation/Phantom Stock Agreements*” above.

 

The following table reflects the actualpayout to Messrs. Schneider, Boggess and Wolfe pursuant to the annualincentive award program based on Company performance in 2006 and 2007, aportion of which were paid the year earned with the remainder paid thefollowing year.  As noted in footnote 1to the following table, the annual incentive awards paid to Messrs. Marshalland Patel for 2006 and 2007 and Mr. Boggess in 2007 were discretionary andthus are not reflected in this table.

 
| **Name**                                          | ** ** | **Year**   | ** ** | **Estimated Future Payouts Under Non-  Equity Incentive Plan Awards  Target ($)(1)** | ** ** |
|---------------------------------------------------|------------|------------|------------|------------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                        | ** ** | ** ** | ** ** | ** **                                                                                                                   | ** ** |
| Michael A.  Schneider                             |       | 2007       |       | $ 481,350                                                                                                               |       |
| President, Chief  Executive Officer               |       | 2006       |       |   590,050                                                                                                          |       |
| Mark J. Boggess                                   |       | 2007       |       | —                                                                                                                       |       |
| Chief Operating  Officer of Camping  World, Inc.  |       | 2006       |       |   590,050                                                                                                          |       |
| Thomas F. Wolfe                                   |       | 2007       |       |   120,463                                                                                                          |       |
| Senior Vice  President, Chief   Financial Officer |       | 2006       |       |   118,010                                                                                                          |       |
| Kenneth Marshall                                  |       | 2007       |       | —                                                                                                                       |       |
| President of  E-Commerce of  Camping World, Inc.  |       | 2006       |       | —                                                                                                                       |       |
| Prabhuling Patel                                  |       | 2007       |       | —                                                                                                                       |       |
| Senior Vice  President                            |       | 2006       |       | —                                                                                                                       |       |

 

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(1)                                 Represents award under the Company’s annualincentive award program.  The amounts incolumn (d) reflect the actual payout to each of Messrs. Schneider,Boggess and Wolfe under the annual incentive award program based upon Companyperformance in 2006 and 2007 a portion of which was paid in the year earnedwith the remainder paid the following year. These amounts are also reflected in column (g) of the SummaryCompensation Table for each Executive Officer, as applicable.  The annual incentive award program does notinclude threshold or maximum target amounts. The annual incentive awards paid to Messrs. Marshall and Patel for2006 and 2007 performance and Mr. Boggess for 2007 performance werediscretionary and thus are not included in the foregoing table.  The terms of the Company’s annual incentiveaward program for 2006 and 2007 are described in more detail under the sectionentitled “*Compensation Discussion and Analysis—Elements ofCompensation—Annual Compensation—Annual Incentive Awards*” above.

 

**OutstandingEquity Awards at 2007 Fiscal Year-End**

 

The Company, which is a wholly-ownedsubsidiary of AGHI, does not grant shares of Company stock or stock options tothe Executive Officers.  However, theCompany has historically entered into phantom stock agreements with theExecutive Officers, which are intended to provide the Executive Officers with acash equivalent to the increase in value of the Company or Camping World thatwould otherwise be realized in stock or option awards of a public company.  These awards are described in the sectionentitled “*Compensation Discussion and Analysis—Elements ofCompensation—Long-Term Compensation/Phantom Stock Agreements*”above.  All prior awards to the ExecutiveOfficers pursuant to phantom stock agreements entered into before January 1,2007 were earned or vested as of December 31, 2007.

 

**Option Exercises and Stock Vested in 2007**

 

The following table gives information concerning the vesting of theExecutive Officers’ interests under phantom stock agreements during 2006 and2007.  The Company, which is awholly-owned subsidiary of AGHI, does not grant option awards to the ExecutiveOfficers.

 
| ** **                                       | ** ** | ** ** | ** ** | **Stock Awards**                                                  | ** ** |
|--------------------------------------------------|------------|------------|------------|------------------------------------------------------------------------|------------|
| **Name**                                         | ** ** | **Year**   | ** ** | **Number of Shares  Acquired on Vesting   (#)(1)** | ** ** | **Value Realized  on Vesting  ($)** | ** ** |
| ** **                                       | ** ** | ** ** | ** ** | ** **                                                             | ** ** | ** ** | ** ** |
| Michael A.  Schneider                            |       | 2007       |       | $                                                                      | 236,167    | (2) | $ 236,167(6) |   |
| President, Chief  Executive Officer              |       | 2006       |       | 936,011                                                                | (3)        |    936,011(5) |   |
| Mark J. Boggess                                  |       | 2007       |       | —                                                                 | (4)        | — |   |
| Chief Operating  Officer of Camping  World, Inc. |       | 2006       |       | —                                                                 | (4)        | — |   |
| Thomas F. Wolfe                                  |       | 2007       |       | 31,174                                                                 | (2)        |     31,174(6) |   |
| Senior Vice  President, Chief  Financial Officer |       | 2006       |       | 122,985                                                                | (3)        |    122,985(5) |   |
| Kenneth Marshall                                 |       | 2007       |       | —                                                                 | (4)        | — |   |
| President of  E-Commerce of  Camping World, Inc. |       | 2006       |       | —                                                                 | (4)        | — |   |
| Prabhuling Patel                                 |       | 2007       |       | 11,808                                                                 | (2)        |     11,808(6) |   |
| Senior Vice  President                           |       | 2006       |       | 40,155                                                                 | (3)        |     40,155(5) |   |
|                                                  |            |            |            |                                                                        |            |  |  |  |

 

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(1)                                  The Executive Officers’ interests under thephantom stock agreements are denominated as a percentage of increases in thevalue over a multiple-year measurement period, as described in more detailunder the section entitled “*Compensation Discussionand Analysis—Elements of Compensation—Long-Term Compensation/Phantom StockAgreements*” above.  Theamounts set forth in this column reflect the dollar amount of that percentageinterest, as calculated upon vesting.

 

(2)                                  Represents the dollar value of Messrs. Schneider’sand Wolfe’s percentage increase in the value during 2007 pursuant to theirrespective phantom stock agreements dated January 1, 2007, as described inmore detail under the section entitled, “*Compensation Discussionand Analysis—Elements of Compensation—Long-Term Compensation/Phantom StockAgreements*” above.  Asdescribed in that section, this amount will be paid out in three equal annualinstallments, the first of which were distributed during the second quarter of2009.

 

(3)                                  Represents the dollar value of Messrs. Schneider’s,Wolfe’s and Patel’s percentage increase in the value during 2006 pursuant totheir respective phantom stock agreements dated January 1, 2004, asdescribed in more detail under the section entitled, “*CompensationDiscussion and Analysis—Elements of Compensation—Long-Term Compensation/PhantomStock Agreements*” above.  Asdescribed in that section, this amount will be paid out in three equal annualinstallments, the first of which will be distributed during the second quarterof 2007.

 

(4)                                  None of Messrs. Boggess or Marshallearned any interests under the phantom stock agreements during 2006.  As described in more detail under the sectionentitled “*Compensation Discussion and Analysis—Elements ofCompensation—Long-Term Compensation/Phantom Stock Agreements*” above,each of Messrs. Boggess and Marshall are parties to phantom stock agreementswhich were deemed to be vested as of December 31, 2005 as a result ofvarious changes in corporate structure, organization and administrationaffecting Camping World, including the joint marketing arrangement betweenCamping World and FreedomRoads.  Also, asexplained in that section, the amount of phantom stock interest earned by Messrs.Moody and Marshall as of December 31, 2005 was distributed to each of themin one lump-sum payment on January 2, 2007.  The amount of phantom stock interest earned byMr. Boggess as of December 31, 2005 is to be paid out in three equalannual installments in 2007, 2008 and 2009.

 

(5)                                  As described in more detail under the sectionentitled, “*Compensation Discussion and Analysis—Elements ofCompensation—Long-Term Compensation/Phantom Stock Agreements*,” thisamount will be paid out in three equal annual installments, the first of whichwill be distributed during the second quarter of 2007.

 

(6)                                  As described in more detail under the sectionentitled, “*Compensation Discussion and Analysis—Elements ofCompensation—Long-Term Compensation/Phantom Stock Agreements*,” thisamount represents the phantom stock interest earned in 2007 under theagreements entered into on January 1, 2007 with a determination date of December 31,2009.

 

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**Nonqualified Deferred Compensation in Fiscal 2007**

 

The following table sets forth information regarding the ExecutiveOfficers’ participation in the KEYSOP.

 
| **Name**                                         | ** ** | **Year**   | ** ** | **Executive  Contribution   In Last FY  ($)** | ** ** | **Registrant  Contributions  in Last FY  ($ )** | ** ** | **Aggregate   Earnings  in Last FY  ($)** | ** ** | **Aggregate  Withdrawals/  Distributions  ($)** | ** ** | **Aggregate  Balance  at Last FYE  ($)** | ** ** |
|--------------------------------------------------|------------|------------|------------|--------------------------------------------------------------|------------|----------------------------------------------------------------|------------|----------------------------------------------------------|------------|-------------------------------------------------|------------|----------------------------------------------------|------------|
| **(a)**                                          | ** ** | ** ** | ** ** | **(b)**                                                      | ** ** | **(c)**                                                        | ** ** | **(d)**                                                  | ** ** | **(e)**                                         | ** ** | **(f)**                                            | ** ** |
| Michael A. Schneider                   | ** ** | 2007       | ** ** | —                                                       | ** ** | **—**                                                     | ** ** | $                                                        | 248,070    | ** **                                      | $          | 2,816,304                                          | ** ** | $ | 2,231,598 | ** ** |
| President, Chief  Executive Officer              |       | 2006       |       | —                                                       |       | —                                                         |       | 519,133                                                  |       | —                                          |       | 4,799,832                                          |       |
| Mark J. Boggess                                  |       | 2007       |       | —                                                       |       | —                                                         |       | 488,570                                                  |       | —                                          |       | 4,328,448                                          |       |
| Chief Operating  Officer of Camping World, Inc.  |       | 2006       |       | $                                                            | 407,582    |                                                           | —     |                                                     | 368,723    |                                            | —     |                                               | 3,839,878  |   |
| Thomas F. Wolfe                                  |       | 2007       |       | —                                                       |       | —                                                         |       | 23,284                                                   |       |                                            |       | 279,046                                            |       |
| Senior Vice  President,  Chief Financial Officer |       | 2006       |       | —                                                       |       | —                                                         |       | 41,080                                                   |       |                                            |       | 255,762                                            |       |
| Kenneth  Marshall(1)                             |       | 2007       |       | —                                                       |       | —                                                         |       | —                                                   |       | —                                          |       | —                                             |       |
| President of E-  Commerce of Camping World, Inc. |       | 2006       |       | —                                                       |       | —                                                         |       | —                                                   |       | —                                          |       | —                                             |       |
| Prabhuling Patel                                 |       | 2007       |       | 102,722                                                      |       | —                                                         |       | 19,309                                                   |       | —                                          |       | 242,723                                            |       |
| Senior Vice  President                           |       | 2006       |       | 106,703                                                      |       | —                                                         |       | 13,989                                                   |       | —                                          |       | 120,692                                            |       |
|                                                  |            |            |            |                                                              |            |                                                                |            |                                                          |            |                                                 |            |                                                    |            |  |  |  |  |

 

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(1)                                  Mr. Marshall elected not to participatein the KEYSOP.

 

Key employees of the Company, including the Executive Officers, areeligible to participate in the KEYSOP, the terms of which are described underthe section entitled “*Compensation Discussionand Analysis—Elements of Compensation—Other Elements of Compensation—KEYSOP*”above through March 2007.  Theeligible Executive Officers could elect to defer all or a portion of theirannual incentive awards and payout from the phantom stock awards to theKEYSOP.  Beginning April 1, 2007future contributions to the KEYSOP were no longer allowed.  Trustees under the KEYSOP receive suchcontributions and invest the deferred amounts based on the specific electionsof each participant.  Participants mayinvest in a wide range of products, excluding certificates of deposits andmoney market accounts.  The Company doesnot make matching contributions to the KEYSOP.

 

**Potential Payments upon Termination or Change-in-Control**

 

Overview:  The tables below reflect the estimated amountof compensation that would be payable to each Executive Officer under the termsof his phantom stock agreement in the event of termination of such ExecutiveOfficer’s employment under any one of the following scenarios:

 

·                  Without cause by the Company; or

 

·                  Without cause by the Company or with goodreason by the Executive Officer in connection with a change in control.

 

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An Executive Officer is not entitled to a severance payment upon (i) terminationof the phantom stock agreement or employment at any time by the ExecutiveOfficer (other than termination with good reason in connection with a change incontrol); (ii) death of the Executive Officer or (iii) disability ofthe Executive Officer.

 

The amounts set forth in the tables below do not reflect any applicabletax withholdings or other deductions by the Company from the amounts otherwisepayable to the Executive Officers upon termination of employment.

 

Potential Payments Upon Termination Without Cause by the Company:  Thephantom stock agreements provide for severance payments to the ExecutiveOfficers in the event the Company terminates their employment without “cause.”  “Cause” includes, but is not limited to:

 

·                  The Executive Officer’s breach of the termsof the phantom stock agreement or any other legal obligation of the Company; or

 

·                  The Executive Officer’s fraud, dishonesty,negligence, misconduct or other deliberate action which causes injury to theCompany or any of its subsidiaries or to their respective reputations or an actof the Executive involving moral turpitude or a serious crime.

 

For purposes of calculating the potential payments set forth in thetable below, we have assumed that the date of termination was December 31,2007.  The total amounts set forth in thetable below would be distributed to each Executive Officer in a lump sum within30 days after the determination of the amount of accrued but unpaid annualincentive award.

 
| **Benefits and  Payments**                | ** ** | **Mr. Schneider** | ** ** | **Mr. Boggess** | ** ** | **Mr. Wolfe** | ** ** | **Mr. Marshall** | ** ** | **Mr. Patel** | ** ** |
|------------------------------------------------|------------|------------------------|------------|----------------------|------------|--------------------|------------|-----------------------|------------|--------------------|------------|
| Basic  Compensation                            |       | $                      | 973,480    |                 | —     | (3)                | $          | 311,232               | (4)        | —             | (3)        | $ | 208,105 | (5) |
|                                           |       |                   |       |                 |       |               |       |                  |       |               |       |
| Accrued and  unpaid annual incentive award (1) |       | 31,850                 |       | —               |       | 30,462             |       | —                |       | 132,350            |       |
| Total                                          |       | $                      | 1,005,330  |                 | —     |               | $          | 341,694               |       | —             |       | $ | 340,455 |   |

 

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(1)                                  Represents an amount equal to each ExecutiveOfficer’s accrued but unpaid annual incentive award as of December 31,2007.

 

(2)                                  Represents an amount equal to Mr. Schneider’sbase salary and annual incentive award as of December 31, 2007, divided by52 weeks, times 87 weeks.   As of December 31,2007, Mr. Schneider had been employed with the Company for 30 years.  The annual base salary and annual incentiveaward in effect for Mr. Schneider as of December 31, 2007 isreflected in the Salary column and Non-Equity Incentive Plan Compensationcolumn, respectively, of the Summary Compensation Table above.

 

(3)                                  Messrs. Boggess and Marshall are notparticipants in a current phantom stock agreement and are not entitled to anypayments upon termination or change of control.

 

(4)                                  Represents an amount equal to one full yearof the base salary and annual incentive award to Mr. Wolfe as of December 31,2007.  The annual base salary and annualincentive award in effect as of December 31, 2007 is reflected in theSalary column and

 

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the Non-Equity Incentive Plan Compensation column, respectively, of theSummary Compensation Table above.

 

(5)                                  Represents an amount equal to eight months ofbase salary and annual incentive award for Mr. Patel as of December 31,2007.  The annual base salary and annualincentive award in affect as of December 31, 2007 is reflected in theSalary column and Bonus column, respectively, of the Summary CompensationTable.

 

Potential Payments Upon Termination by Executive Officer with GoodReason upon a Change in Control:  The phantom stock agreementsentered into by Messrs. Schneider, Wolfe and Patel provide for severancepayments in the event their employment is terminated without “cause” by theCompany (as defined in the preceding section) or with “good reason” by theExecutive Officer in connection with a “change in control.”  A “change in control” will be deemed to haveoccurred under the phantom stock agreements at such time as:

 

·                  StephenAdams, his spouse, lineal descendants and trusts for the benefit of suchpersons cease to beneficially own (as defined under Rule 13d-3 of theAct), directly or indirectly a majority of the voting equity interests of the Company;

 

·                  There is a consolidation or merger of theCompany or its parent, AGHI (or such other entity that holds in excess of 80%of the issued and outstanding equity securities of AGHI) (the “Parent”), inwhich the Company or the Parent is not the surviving entity or in which theholders of the voting equity interests in the Company or the Parent, as thecase may be, do not continue to hold at least a majority of the voting equityinterests of the surviving entity following the merger;

 

·                  There is a sale, lease or transfer of all orsubstantially all of the assets of the Company or the Parent to any person orgroup; or

 

·                  The shareholders of the Company or the Parentshall approve a plan or proposal for the liquidation or dissolution of theCompany or the Parent, as the case may be.

 

The phantom stock agreements define “good reason” as occurrence of oneor more of the following events, without the Executive Officer’s writtenconsent, within 3 years following a change in control (or before the change incontrol if the occurrence is directly connected to the change in control andthe change in control occurs):

 

·                  A change in the Executive Officer’s duties,authorities or any other responsibilities (including status, offices, titlesand reporting requirements);

 

·                  A reduction in base salary or annualincentive award compensation; or

 

·                  A relocation of the Executive Officer outsidethe same metropolitan area as the Executive Officer’s current office location.

 

The phantom stock agreements entered into by Mr. Marshall do notprovide for payments upon termination in connection with a change in control.

 

For purposes of calculating the potential payments set forth in thetable below, we have assumed that the date of termination was December 31,2007.  The amounts of basic

 

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compensation and accrued but unpaid annual incentive award would bepaid in a lump sum within 30 days after the determination of the amount of theaccrued annual incentive award.

 
| **Benefits and  Payments**                                | ** ** | **Mr. Schneider** | ** ** | **Mr. Boggess** | ** ** | **Mr. Wolfe** | ** ** | **Mr. Marshall** | ** ** | **Mr. Patel** | ** ** |
|----------------------------------------------------------------|------------|------------------------|------------|----------------------|------------|--------------------|------------|-----------------------|------------|--------------------|------------|
| Basic  Compensation *(base salary and annual incentive award)* |       | $                      | 973,480    | (3)                  | —     | (4)                | $          | 311,232               | (5)        | —             | (4)        | $ | 208,105 | (6) |
|                                                           |       |                   |       |                 |       |               |       |                  |       |               |       |
| Accrued and unpaid  annual incentive award (1)                 |       | 31,850                 |       | —               |       | 30,462             |       | —                |       | 132,350            |       |
|                                                           |       |                   |       |                 |       |               |       |                  |       |               |       |
| Life and Health Insurance  Benefits (2)                        |       | 52,947                 |       | —               |       | 44,694             |       | —                |       | 36,711             |       |
| Total                                                          |       | $                      | 1,058,277  |                 | —     |               | $          | 386,388               |       | —             |       | $ | 377,166 |   |

 

----

(1)                                  Represents an amount equal to each ExecutiveOfficer’s accrued but unpaid annual incentive award as of December 31,2007.

 

(2)                                  Represents the value of health benefits for athree year period following termination based on a monthly premium of $1,241for Messrs. Schneider and Wolfe and $1,020 for Mr. Patel.  In the case of Mr. Schneider, alsoincludes the value of life insurance benefits for a period of three yearsfollowing termination based on a monthly premium of $229.

 

(3)                                  Represents an amount equal to Mr. Schneider’sbase salary and annual incentive award as of December 31, 2007, divided by52 weeks, times 87 weeks.  The annualbase salary and annual incentive award in effect for Mr. Schneider as of December 31,2007 is reflected in the Salary column and Non-Equity Incentive PlanCompensation column, respectively, of the Summary Compensation Table above.

 

(4)                                  Messrs. Boggess and Marshall are notparticipants in a current phantom stock agreement and are not entitled to anypayments upon termination or change of control.

 

(5)                                  Represents an amount equal to one full yearof the base salary and annual incentive award of Mr. Wolfe as of December 31,2007.  The annual base salary and annualincentive award in effect as of December 31, 2007 is reflected in theSalary column and the Non-Equity Incentive Plan Compensation column,respectively, of the Summary Compensation Table above.

 

(6)                                  Represents an amount equal to eight months ofbase salary and annual incentive award for Mr. Patel as of December 31,2007.  The annual base salary and annualincentive award in affect as of December 31, 2007 is reflected in thesalary column, respectively, of the Summary Compensation Table.

 

Non-Competition and Non-Solicitation Agreements: The phantom stock agreement entered into byeach Executive Officer includes an eighteen month covenant not to compete and aone year non-solicitation clause.

 

Employment Terms of Phantom Stock Agreements: In addition to establishing the parametersfor phantom stock incentive awards (as described under the section entitled “*Compensation*

 

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*Discussion and Analysis—Elements of Compensation—Long-TermCompensation/Phantom Stock Agreements*” and the severance payments described above, the phantom stockagreements set forth the terms of employment for each Executive Officer asfollows:

 

·                  *Mr. Schneider*:  Mr. Schneider’sphantom stock agreement, dated January 1, 2007, provides that he will beemployed as the President and Chief Executive Officer of the Company.  Mr. Schneider is entitled to receive abase salary and annual incentive award in accordance with such practices andprocedures as are generally applicable to other employees.  The term of the phantom stock agreementexpires on December 31, 2009.

 

·                  *Mr. Boggess*:  Mr. Boggess’phantom stock agreement, dated January 1, 2005, provides that he will beemployed as the President and Chief Executive Officer of Camping World.  In September 2006, Mr. Boggess wasappointed to his current position as the Chief Operating Officer of CampingWorld and Mr. Lemonis assumed the role of President and Chief ExecutiveOfficer of Camping World in connection with various changes in corporatestructure, organization and administration affecting Camping World, includingthe joint marketing arrangement between Camping World and FreedomRoads.  The other terms of Mr. Boggess’employment remained the same following such restructuring.  Accordingly, Mr. Boggess continues to beentitled to receive a base salary and annual incentive award in accordance withsuch practices and procedures as are generally applicable to otheremployees.  The term of the phantom stockagreement expired on December 31, 2006.

 

·                  *Mr. Marshall*:  Mr. Marshall’sphantom stock agreement, dated July 31, 2002 as amended on July 31,2003 and March 1, 2006, provides that he will be employed as the VicePresident Finance/Controller of Camping World. In April 2007, Mr. Marshall was appointed to his currentposition as President of E-Commerce in connection with various changes incorporate structure, organization and administration affecting Camping World,including the joint marketing arrangement between Camping World andFreedomRoads.  In connection with his newrole, Mr. Marshall received an increase in base salary to $200,000.  The other terms of Mr. Marshall’semployment remained unchanged.  The termof the phantom stock agreement expired on December 31, 2006.

 

·                  *Mr. Wolfe*:  Mr. Wolfe’sphantom stock agreement, dated January 1, 2007, provides that he will beemployed as the Senior Vice President and Chief Financial Officer of theCompany.  Mr. Wolfe is entitled toreceive a base salary and annual incentive award in accordance with suchpractices and procedures as are generally applicable to other employees.  The term of the phantom stock agreementexpires on December 31, 2009.

 

·                  *Mr. Patel*:  Mr. Patel’sphantom stock agreement, dated January 1, 2007, provides that he will beemployed as the Senior Vice President of the Company.  Mr. Patel is entitled to receive a basesalary and annual incentive award in accordance with such practices andprocedures as are generally applicable to other employees.  The term of the phantom stock agreementexpires on December 31, 2009.

 

Each of the Executive Officer’s phantom stock agreement also providesthat he (i) will be eligible to receive such benefits as are provided bythe Company or Camping World, as 

 

93

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applicable, from time to time to similarly situated employees and (ii) willbe eligible to participate in any future bonus programs adopted by theCompany.  An Executive Officer mayterminate his employment upon two-weeks’ notice.  The Company or Camping World, as applicable,may terminate the employment of an Executive Officer at any time upon writtennotice, effective immediately.

 

**Director Compensation in 2007**

 

The Company pays its non-management directors a monthly director’s feeof $1,800 per month.  The Company doesnot compensate Messrs. Adams or Schneider for their service on the Boardof Directors.  The Company does notprovide any other compensation or benefits to the members of its Board ofDirectors.  During 2007, the followingfees were earned or paid in cash to the respective director:

 
| **Name  (a)**         | ** ** | **Year** | ** ** | **Fees Earned or  Paid in Cash ($)  (b)** | ** ** |
|-----------------------|------------|----------|------------|--------------------------------------------------------------------|------------|
| Andris A.  Baltins(1) |       | 2007     |       | $                                                                  | 21,600     |   |
|                  |       | 2006     |       | 18,000                                                             |       |
| David  Frith-Smith    |       | 2007     |       | 21,600                                                             |       |
|                  |       | 2006     |       | 21,600                                                             |       |
| J. Kevin  Gleason(2)  |       | 2007     |       | 21,600                                                             |       |
|                  |       | 2006     |       | 21,600                                                             |       |
| George  Pransky(1)    |       | 2007     |       | 21,600                                                             |       |
|                  |       | 2006     |       | 18,000                                                             |       |
|                       |            |          |            |                                                                    |            |  |

 

----

(1)                Messrs. Baltins and Pransky were electedto the Board of Directors in February 2006.

 

(2)                 In addition to the amount set forth in thistable, Mr. Gleason received $5,400 in 2006 as payment for his service as amember of the Board of Directors from October through December of2005.

 

**CompensationCommittee Interlocks and Insider Participation**

 

The Company’s Board of Directors determinesthe compensation of the executive officers. Michael A. Schneider, President and Chief Executive Officer of theCompany, serves on the Board of Directors. Mr. Schneider also serves as adirector of AOA, which is controlled by Mr. Adams and for which Mr. Gleasonis the Chief Executive Officer.  Mr. Gleason,a member of the Company’s Board of Directors, is also the Chief ExecutiveOfficer of AOA, which is controlled by Mr. Adams and Mr. Schneider ison the Board of Directors of AOA.

 

94

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**ITEM 12:  SECURITY OWNERSHIP OF CERTAIN BENEFICIALOWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS**

 

AGI is a wholly-owned subsidiary ofAGHI.  AGHI is a wholly-owned subsidiaryof AGI Holding Corp. (“AGHC”), a privately-owned corporation.  The following table sets forth, as of December 31,2007, certain information with respect to the beneficial ownership of theCommon Stock of AGHC by each shareholder who is known to us to beneficially ownmore than 5% of the outstanding shares, each director, each executive officerlisted in the Summary Compensation Table and all of our executive officers anddirectors as a group.

 
| **Name and Address of Beneficial Owner**      | ** ** | **Number of Shares  of Stock Owned (1)** | ** ** | **Percent of  Common Stock** | ** ** |
|------------------------------------------------------------------------|------------|-------------------------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                                             | ** ** | ** **                                                        | ** ** | ** **                             | ** ** |
| Stephen Adams,  Director  2575 Vista Del Mar Drive Ventura, CA 93001   |       | 1,407.7                                                           | (2)        | 98.23                                  | %          |
|                                                                   |       |                                                              |       |                                   |       |
| Michael A.  Schneider  President, Chief Executive Officer and Director |       | 0                                                                 |       | 0                                      |       |
|                                                                   |       |                                                              |       |                                   |       |
| Mark J. Boggess  Chief Operating Officer of Camping World, Inc.        |       | 0                                                                 |       | 0                                      |       |
|                                                                   |       |                                                              |       |                                   |       |
| Kenneth Marshall  President of E-Commerce of Camping World, Inc.  |       | 0                                                                 |       | 0                                      |       |
|                                                                   |       |                                                              |       |                                   |       |
| Thomas F. Wolfe  Senior Vice President, Chief Financial Officer        |       | 0                                                                 |       | 0                                      |       |
|                                                                   |       |                                                              |       |                                   |       |
| Prabuhling Patel  Senior Vice President                                |       | 0                                                                 |       | 0                                      |       |
|                                                                   |       |                                                              |       |                                   |       |
| Andris A.  Baltins                                                     |       | 0                                                                 |       | 0                                      |       |
|                                                                   |       |                                                              |       |                                   |       |
| David  Frith-Smith                                                     |       | 0                                                                 |       | 0                                      |       |
|                                                                   |       |                                                              |       |                                   |       |
| J. Kevin Gleason                                                       |       | 0                                                                 |       | 0                                      |       |
|                                                                   |       |                                                              |       |                                   |       |
| George Pransky                                                         |       | 0                                                                 |       | 0                                      |       |
|                                                                   |       |                                                              |       |                                   |       |
| All executive  officers and directors as a group (10 persons)          |       | 1,407.7                                                           |       | 98.23                                  | %          |

 

----

(1)  Except as otherwise indicated, the beneficial owners havesole voting and investment power with respect to the shares in the table.

 

(2)  Does not include 37.5 shares owned by members of the Adams’family, representing the remaining outstanding shares, who do not reside withhim and as to which Mr. Adams disclaims beneficial ownership.

 

95

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**ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTORINDEPENDENCE**

 

**Certain Relationships and Related PersonTransactions**

 

Review and Approval of Related Person Transactions

 

TheCompany entered into an indenture for the AGI Senior Notes in February 2004,which requires the Board of Directors to approve any new transaction or seriesof transactions entered into between the Company and other entities controlledby Mr. Adams subsequent to the date of the indenture which, eitherindividually or in the aggregate, exceeds $2.5 million.  In addition, the Company must obtain afairness opinion with respect to any such new transaction or series oftransactions entered into subsequent to the date of the indenture which, eitherindividually or in the aggregate, exceeds $10 million.  The Company has been in compliance with theindenture requirements at all times.

 

RelatedParty Transactions

 

Inconnection with our effort to expand the number of Camping World stores bydeveloping retail alliances with RV dealerships across North America, we haveestablished 45 Camping World stores alongside or within RV dealerships owned byFreedomRoads, which is controlled by the Chairman of our Board of Directors,Stephen Adams, and we expect to open additional Camping World stores alongsideor within such RV dealerships in the future. At December 31, 2007, the Company leased 35 properties fromFreedomRoads, sub-leased seven properties to FreedomRoads, and Camping Worldand FreedomRoads are joint tenants under three leases.  Total payments by the Company to FreedomRoads under these leased properties for 2007 and 2006 were approximately $3.7million and $1.7 million, respectively, and future commitments under theseleases total approximately $30.3 million. The leases expire at various dates from August 2013 through May 2017.  For 2007 and 2006, lease payments receivedfrom FreedomRoads for the seven subleased properties were approximately $0.9million and $1.0 million,respectively, and future payments to be received under these subleases totalapproximately $4.5 million.  The Companypaid FreedomRoads approximately $9.4 million in 2007 and FreedomRoads paid theCompany approximately $17.5 million, $5.5 million, and $3.2 million in 2007,2006 and 2005, respectively, under the product marketing and sales agreements.

 

OnDecember 5, 2001, we sold eleven real estate properties to eleven separatewholly-owned subsidiaries of AGRP Holding Corp, a wholly-owned subsidiary ofour ultimate parent, AGHC, which is owned 98.23% by Mr. Adams, for $52.3million in cash and a $4.8 million note receivable.  The properties have been leased back to us ona triple net basis. These leases are classified as operating leases and theaverage net annual lease payments over the lives of the leases are $3.4million.  These leases have an initialterm of 25 to 27 years with two five-year options at the then current marketrent.  The $4.8 million note receivableyields 11% per annum, with monthly payments of $46,000 and a ten-year balloondue December 2011.

 

Mr. Boggess, Chief Operating Officer ofCamping World, is a partner in a partnership that leases one facility under along-term lease to Camping World, Inc. in 2007.  In prior years other related-party leasesexisted with executives who are no longer with the Company.  For the years ended December 31, 2007,2006 and 2005, payments under these leases were approximately $0.6 million,$0.9 million, and $3.3 million, respectively. This lease expires December 2020, subject to the right of CampingWorld to exercise renewal options.

 

96

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Fora description of the employment, consulting and non-competition agreementsbetween the Company and the Executive Officers, see the sections entitled “*Potential Payments upon Termination and Change inControl—Non-Competition and Non-Solicitation Agreements*” and “*—Employment Terms of Phantom Stock Agreements*” above.  For a description of the management incentiveand phantom stock agreements between the Company and the Executive Officers,see the sections entitled “*Compensation Discussionand Analysis—Elements of Compensation—Annual Compensation—Annual IncentiveAwards*” and “*—Long-TermCompensation/Phantom Stock Agreements*” above.

 

Thelaw firm of Kaplan, Strangis and Kaplan, P.A. (“KSK”) provides ongoing legalservices to the Company and certain subsidiaries in connection with variousmatters. Andris A. Baltins, a member of the Board of Directors, is a member ofthat firm.  During2007, 2006 and 2005 KSK received $257,000 million, $198,000 and $294,000 inlegal fees from the Company, respectively.

 

The consulting firm ofPransky and Associates, P.S. (“PA”) provides ongoing consulting services to theCompany and certain subsidiaries.  GeorgePransky, a member of the Board of Directors, is a director of thatcompany.  During 2007 and 2006, PAreceived $86,000 and $37,000 in fees from the Company, respectively.

 

The accounting firm ofFrith-Smith & Archibald, LLP (“FSA”), provides tax preparation andreview services to the Company and certain subsidiaries.  David Frith-Smith, a member of the Board ofDirectors, is a partner of that company. During 2007, FSA received $13,000 in fees from the Company.

 

Director Independence

 

TheCompany’s securities are not listed on any national securities exchange and itis not subject to any director independence requirements.  In addition, the Company has not adopted itsown standards of director independence. For purposes of this disclosure, the Company has reviewed theindependence of its directors under the standards adopted by the New York StockExchange.  The Company has determinedthat none of the members of the Board of Directors are independent under theNew York Stock Exchange standards.

 

**ITEM14: PRINCIPAL ACCOUNTING FEES AND SERVICES**

 

The Board of Directors engaged Ernst & Young LLP as anindependent Registered Public Accounting Firm to examine our accounts for thefiscal year ending December 31, 2007.

 

**AuditFees**

 

Theaggregate audit fees paid to Ernst & Young LLP for the fiscal yearsended December 31, 2007 and 2006 were $366,045 and $435,118,respectively.   These fees includeamounts for the audit of the Company’s consolidated annual financialstatements, stand alone audits of certain subsidiaries, and the reviews of theconsolidated financial statements included in the Company’s Quarterly Reportson Form 10-Q, including assistance with and review of documents filed withthe SEC.

 

**Audit-RelatedFees**

 

Theaggregate audit-related fees paid to Ernst & Young LLP for the fiscalyears ended December 31, 2007 and 2006 were $0, and $16,000,respectively.  These fees related to****

 

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specificanalysis of accounting treatments and general assistance with theimplementation of the SEC rules pursuant to the Sarbanes-Oxley Act of2002.

 

**Tax Fees**

 

The aggregate fees billed by Ernst & Young LLP for taxservices rendered for the fiscal years ended December 31, 2007 and 2006were $11,000 and $47,900, respectively. The fees paid in each of those years primarily related to tax planningand compliance services.

 

**All Other Fees**

 

There were no other fees paid to Ernst & Young LLP for theyears ended December 31, 2007 and 2006. The consulting firm of Pransky and Associates, P.S. (“PA”) providesongoing consulting services to the Company and certain subsidiaries.

 

**Pre-ApprovalRequirements**

 

TheBoard of Directors has the sole authority to review in advance and grant anypre-approvals of (i) all auditing services to be provided by theindependent Registered Public Accounting Firm, (ii) all significantnon-audit services to be provided by the independent auditors as permitted by Section 10Aof the Securities Exchange Act of 1934, and (iii) all fees and the termsof engagement with respect to such services. All audit and non-audit services performed by Ernst & Young LLPduring fiscal 2007 were pre-approved pursuant to the procedures outlined above.

 

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**PART IV**

 

**ITEM15:  EXHIBITS, FINANCIAL STATEMENTSCHEDULES**

 
|   | (a) (1) | Consolidated financial  statements are included in Item 8 hereto.                                                         |
|--------|--------------|---------------------------------------------------------------------------------------------------------------------------|
|   |         |                                                                                                                      |
|   | (a) (2) | Consolidated financial  statement schedules are included in Item 8 hereto.                                                |
|   |         |                                                                                                                      |
|   | (a) (3) | Listing of Exhibits:                                                                                                      |
|   |         |                                                                                                                      |
|   |         | The exhibits required  to be a part of this report are listed in the Index to Exhibits which follows  the signature page. |
|   |         |                                                                                                                      |
|   | (b)          | Exhibits:                                                                                                                 |
|   |         |                                                                                                                      |
|   |         | Included in Item 15  (a) (3) above.                                                                             |
|   |         |                                                                                                                      |
|   | (c)          | Financial Statement  Schedules                                                                                            |
|   |         |                                                                                                                      |
|   |         | Included in Item 15  (a) (2) above.                                                                             |

 

99

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**SIGNATURES**

** **

 

Pursuantto the requirements of Section 13 or 15(d) of the Securities ExchangeAct of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized, in the City of Ventura,State of California on March 14, 2008.

 

 

AFFINITY GROUP, INC.

 

 
| By                      |   /s/ Michael  A. Schneider |   |
|-------------------------|---------------------------------------|--------|
| Michael A. Schneider    |                                  |
| Chief Executive Officer |                                  |

 

 

Pursuant to therequirements of the Securities Act of 1934, this report has been signed belowby the following persons on behalf of the registrant in the capacities and onthe dates indicated.

 

 
| /s/ Thomas F. Wolfe |   | Senior Vice President  and                    | March 14, 2008 |
|---------------------|--------|-----------------------------------------------|---------------------|
| Thomas F. Wolfe     |   | Chief Financial Officer                       |                |
|                |   | (Principal Financial  and Accounting Officer) |                |
|                |   |                                          |                |
|                |   |                                          |                |
| *                   |   | Director                                      | March 14, 2008 |
| Stephen Adams       |   |                                          |                |
|                |   |                                          |                |
|                |   |                                          |                |
| *                   |   | Director                                      | March 14, 2008 |
| Andris A. Baltins   |   |                                          |                |
|                |   |                                          |                |
|                |   |                                          |                |
| *                   |   | Director                                      | March 14, 2008 |
| David Frith-Smith   |   |                                          |                |
|                |   |                                          |                |
|                |   |                                          |                |
| *                   |   | Director                                      | March 14, 2008 |
| J. Kevin Gleason    |   |                                          |                |
|                |   |                                          |                |
|                |   |                                          |                |
| *                   |   | Director                                      | March 14, 2008 |
| George Pransky      |   |                                          |                |

 

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----

| *By:   | /s/ Thomas F. Wolfe     | March 14, 2008 |
|--------|-------------------------|---------------------|
|   |  (Thomas F. Wolfe  |
|   |  Attorney-in-Fact) |

 

Thomas F. Wolfe,pursuant to Powers of Attorney executed by each of the officers and directorslisted above whose name is marked by an “*” and filed as an exhibit hereto, bysigning his name hereto does hereby sign and execute this Report of AffinityGroup, Inc. on behalf of each of such officers and directors in thecapacities in which the names of each appear above.

 

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**AFFINITY GROUP, INC.**

 

**EXHIBITINDEX TO ANNUAL REPORT**

 

**ON FORM 10-K**

 

**ForFiscal Year Ended December 31, 2007**

 
| ** **                                                                                                                                                                                                       | ** ** | **Regulation  S-K Exhibit  Table  Reference** | ** ** | **Sequential  Page No.** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------|------------|-------------------------------|
| Certificate of  Incorporation of Affinity Group, Inc. (1)                                                                                                                                                   |       | 3.1                                                |       |                          |
|                                                                                                                                                                                                             |       |                                               |       |                          |
| Bylaws of Affinity  Group, Inc. (1)                                                                                                                                                                         |       | 3.2                                                |       |                          |
|                                                                                                                                                                                                             |       |                                               |       |                          |
| Certificate of  Ownership and Merger (1)                                                                                                                                                                         |       | 3.3                                                |       |                          |
|                                                                                                                                                                                                             |       |                                               |       |                          |
| Indenture (including  form of 9% Senior Subordinated Notes due 2012) dated as of February 18,  2004 among Affinity Group, Inc., the Guarantors named therein and The  Bank of New York, as Trustee (1) |       | 4.5                                                |       |                          |
|                                                                                                                                                                                                             |       |                                               |       |                          |
| Registration Rights  Agreement dated as of February 18, 2004 among Affinity Group, Inc.,  the Guarantors named herein and CIBC World Markets Corp., as Initial  Purchaser (1)                          |       | 4.6                                                |       |                          |
|                                                                                                                                                                                                             |       |                                               |       |                          |
| Tax Sharing Agreement  among Affinity Group Holding, Inc., Affinity Group, Inc. and its  subsidiaries, as amended (1)                                                                                  |       | 10.1                                               |       |                          |
|                                                                                                                                                                                                             |       |                                               |       |                          |
| Form of Phantom  Stock Agreement between certain executives and Affinity Group, Inc. (1)                                                                                                               |       | 10.2                                               |       |                          |
|                                                                                                                                                                                                             |       |                                               |       |                          |
| Form of Phantom  Stock Agreements between certain executives and CWI, Inc. (1)                                                                                                                         |       | 10.3                                               |       |                          |
|                                                                                                                                                                                                             |       |                                               |       |                          |
| Form of Phantom  Stock Agreements between certain executives and Camp Coast to  Coast, Inc. (1)                                                                                                        |       | 10.4                                               |       |                          |
|                                                                                                                                                                                                             |       |                                               |       |                          |
| Working Agreements and  Service Agreements with National General Insurance Contract, as amended (1)                                                                                                              |       | 10.6                                               |       |                          |
|                                                                                                                                                                                                             |       |                                               |       |                          |
| 401(k) Savings and  Investment Plan (1)                                                                                                                                                                     |       | 10.7                                               |       |                          |
|                                                                                                                                                                                                             |       |                                               |       |                          |
| Form of  Indemnification Agreement for persons consenting to serve as directors (1)                                                                                                                         |       | 10.8                                               |       |                          |
|                                                                                                                                                                                                             |       |                                               |       |                          |
| Unsecured Promissory Note  of AGRP Holding Corp., dated December 5, 2001 (1)                                                                                                                                |       | 10.9                                               |       |                          |
|                                                                                                                                                                                                             |       |                                               |       |                          |
| Amended and Restated  Marketing Agreement, dated March 15, 2002 by and between Camping  World, Inc. and National General Insurance Company (1)                                                         |       | 10.10                                              |       |                          |

 

102

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| ** **                                                                                                                                                                                                                                                                                                                                                                                                    | ** ** | **Regulation  S-K Exhibit  Table  Reference** | ** ** | **Sequential  Page No.** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------|------------|-------------------------------|
| Amended and Restated  Credit Agreement dated as of June 24, 2003 among Affinity  Group, Inc., the guarantors party thereto, the lenders party thereto,  Canadian Imperial Bank of Commerce, as syndication agent, Fleet National  Bank, as administrative agent, and General Electric Capital Corporation, as  documentation agent (1)                                                              |       | 10.11                                         |       |                          |
|                                                                                                                                                                                                                                                                                                                                                                                                          |       |                                          |       |                          |
| Senior Secured Floating  Rate Note Purchase Agreement dated as of June 24, 2003 among Affinity Group, Inc.,  the guarantors party thereto, the noteholders party thereto, Canadian  Imperial Bank of Commerce, as syndication agent, Fleet National Bank, as  administrative agent and General Electric Capital Corporation, as  documentation agent (1)                                            |       | 10.12                                         |       |                          |
|                                                                                                                                                                                                                                                                                                                                                                                                          |       |                                          |       |                          |
| First Amendment to  Credit Agreement dated as of February 18, 2004 among Affinity  Group, Inc., the guarantors party thereto, the lenders party thereto,  Canadian Imperial Bank of Commerce, as syndication agent, Canadian Imperial  Bank of Commerce, as administrative agent and successor to Fleet National  Bank, and General Electric Capital Corporation, as documentation agent (1)        |       | 10.13                                         |       |                          |
|                                                                                                                                                                                                                                                                                                                                                                                                          |       |                                          |       |                          |
| First Amendment to Note  Purchase Agreement dated as of February 18, 2004 among Affinity  Group, Inc., the guarantors party thereto, the lenders party thereto,  Canadian Imperial Bank of Commerce, as syndication agent, Canadian Imperial  Bank of Commerce, as administrative agent and successor to Fleet National  Bank, and General Electric Capital Corporation, as documentation agent (1) |       | 10.14                                         |       |                          |
|                                                                                                                                                                                                                                                                                                                                                                                                          |       |                                          |       |                          |
| Second Amendment to  Credit Agreement dated as of June 30, 2004 among Affinity  Group, Inc., the guarantors party thereto, the lenders party thereto,  Canadian Imperial Bank of Commerce, as syndication agent, Canadian Imperial  Bank of Commerce, as administrative agent and successor to Fleet National  Bank, and General Electric Capital Corporation, as documentation agent (2)           |       | 10.15                                         |       |                          |
|                                                                                                                                                                                                                                                                                                                                                                                                          |       |                                          |       |                          |
| Second Amendment to  Note Purchase Agreement dated as of June 30, 2004 among Affinity  Group, Inc., the guarantors party thereto, the lenders party thereto,  Canadian Imperial Bank of Commerce, as syndication agent, Canadian Imperial  Bank of Commerce, as administrative agent and successor to Fleet National  Bank, and General Electric Capital Corporation, as documentation agent (2)    |       | 10.16                                         |       |                          |
|                                                                                                                                                                                                                                                                                                                                                                                                          |       |                                          |       |                          |
| Third Amendment to  Credit Agreement dated as of November 12, 2004 among Affinity  Group, Inc., the guarantors party thereto, the lenders party thereto,  Canadian Imperial Bank of Commerce, as syndication agent, Canadian Imperial  Bank of Commerce, as administrative agent and successor to Fleet National  Bank, and General Electric Capital Corporation, as documentation agent (4)        |       | 10.17                                         |       |                          |

 

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| ** **                                                                                                                                                                                                                                                                                                                                                                                                    | ** ** | **Regulation  S-K Exhibit  Table  Reference** | ** ** | **Sequential  Page No.** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------|------------|-------------------------------|
| Third Amendment to Note  Purchase Agreement dated as of November 12, 2004 among Affinity  Group, Inc., the guarantors party thereto, the lenders party thereto,  Canadian Imperial Bank of Commerce, as syndication agent, Canadian Imperial  Bank of Commerce, as administrative agent and successor to Fleet National  Bank, and General Electric Capital Corporation, as documentation agent (4) |       | 10.18                                         |       |                          |
|                                                                                                                                                                                                                                                                                                                                                                                                          |       |                                          |       |                          |
| Agreement with Cross  Country Motor Club, Inc. dated September 7, 2004 (3)                                                                                                                                                                                                                                                                                                                          |       | 10.19                                         |       |                          |
|                                                                                                                                                                                                                                                                                                                                                                                                          |       |                                          |       |                          |
| Lease Agreement for  distribution center in Franklin, Kentucky (5)                                                                                                                                                                                                                                                                                                                                            |       | 10.20                                         |       |                          |
|                                                                                                                                                                                                                                                                                                                                                                                                          |       |                                          |       |                          |
| Fourth Amendment to  Credit Agreement dated March 24, 2005 (6)                                                                                                                                                                                                                                                                                                                                           |       | 10.21                                         |       |                          |
|                                                                                                                                                                                                                                                                                                                                                                                                          |       |                                          |       |                          |
| Fourth Amendment to  Note Purchase Agreement dated March 24, 2005 (6)                                                                                                                                                                                                                                                                                                                                    |       | 10.22                                         |       |                          |
|                                                                                                                                                                                                                                                                                                                                                                                                          |       |                                          |       |                          |
| Preferred Membership  Unit Subscription Agreement dated March 24, 2005 between FreedomRoads  Holding LLC and CWFR Capital Corp. (6)                                                                                                                                                                                                                                                                      |       | 10.23                                         |       |                          |
|                                                                                                                                                                                                                                                                                                                                                                                                          |       |                                          |       |                          |
| Fifth Amendment to  Credit Agreement dated November 13, 2005 among Affinity Group, Inc, the  guarantors party hereto, the lenders party thereto, Canadian Imperial Bank of  Commerce, as syndication agent, Canadian Imperial Bank of Commerce as  administrative agent, and General Electric Capital Corporation as  documentation agent. (7)                                                           |       | 10.24                                         |       |                          |
|                                                                                                                                                                                                                                                                                                                                                                                                          |       |                                          |       |                          |
| Second Amendment to Tax  Sharing Agreement among Affinity Group Holding, Inc., Affinity  Group, Inc. and its subsidiaries (8)                                                                                                                                                                                                                                                                       |       | 10.25                                         |       |                          |
|                                                                                                                                                                                                                                                                                                                                                                                                          |       |                                          |       |                          |
| Sixth Amendment to  Credit Agreement dated March 3, 2006 among Affinity Group, Inc, the  guarantors party hereto, the lenders party thereto, Canadian Imperial Bank of  Commerce, as syndication agent, Canadian Imperial Bank of Commerce as  administrative agent, and General Electric Capital Corporation as  documentation agent. (10)                                                              |       | 10.26                                         |       |                          |
|                                                                                                                                                                                                                                                                                                                                                                                                          |       |                                          |       |                          |
| Seventh Amendment to  Credit Agreement dated June 8, 2006 among Affinity Group, Inc, the  guarantors party hereto, the lenders party thereto, Canadian Imperial Bank of  Commerce, as syndication agent, Canadian Imperial Bank of Commerce as  administrative agent, and General Electric Capital Corporation as documentation  agent. (11)                                                             |       | 10.27                                         |       |                          |
|                                                                                                                                                                                                                                                                                                                                                                                                          |       |                                          |       |                          |
| Agreement with Brickell  Financial Services Motor Club, Inc. dated September 28, 2007 (13)                                                                                                                                                                                                                                                                                                          |       | 10.28                                         |       |                          |
|                                                                                                                                                                                                                                                                                                                                                                                                          |       |                                          |       |                          |
| Form of Phantom  Stock Agreement between certain executives and Affinity Group, Inc. (14)                                                                                                                                                                                                                                                                                                           |       | 10.29                                         |       |                          |
|                                                                                                                                                                                                                                                                                                                                                                                                          |       |                                          |       |                          |
| Subsidiaries of the  Registrant                                                                                                                                                                                                                                                                                                                                                                               |       | 21                                            |       |                          |
|                                                                                                                                                                                                                                                                                                                                                                                                          |       |                                          |       |                          |
| Powers of Attorney                                                                                                                                                                                                                                                                                                                                                                                            |       | 24.1                                          |       |                          |
|                                                                                                                                                                                                                                                                                                                                                                                                          |       |                                          |       |                          |
| Certification of  President and Chief Executive Officer                                                                                                                                                                                                                                                                                                                                                       |       | 31.1                                          |       |                          |
|                                                                                                                                                                                                                                                                                                                                                                                                          |       |                                          |       |                          |
| Certification of Senior  Vice President and Chief Financial Officer                                                                                                                                                                                                                                                                                                                                           |       | 31.2                                          |       |                          |

 

104

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| ** **                                         | ** ** | **Regulation  S-K Exhibit  Table  Reference** | ** ** | **Sequential  Page No.** |
|----------------------------------------------------|------------|-----------------------------------------------|------------|-------------------------------|
| Appointment of  Directors (9)                      |       | 31.3                                          |       |                          |
|                                               |       |                                          |       |                          |
| Appointment of  Principal Officers (12)            |       | 31.4                                          |       |                          |
|                                               |       |                                          |       |                          |
| Statement Pursuant to  18 U.S.C. Section 1350 |       | 32.1                                          |       |                          |
|                                               |       |                                          |       |                          |
| Statement Pursuant to  18 U.S.C. Section 1350 |       | 32.2                                          |       |                          |
|                                               |       |                                          |       |                          |
| Affinity Group Code of  Professional Conduct (2)   |       | 99.1                                          |       |                          |

 

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(1) Filed with the Company’s Registration Statement No. 333-113982and incorporated by reference herein.

 

(2) Filed with the Company’s Report on Form 10-Qfor the quarter ended June 30, 2004 and incorporated by reference herein.

 

(3) Filed with the Company’s Report on Form 8-Kdated September 9, 2004 and incorporated by reference herein.

 

(4) Filed with the Company’s Report on Form 8-Kdated November 16, 2004 and incorporated by reference herein.

 

(5) Filed with the Company’s Report on Form 8-Kdated December 31, 2004 and incorporated by reference herein.

 

(6) Filed with the Company’s Report on Form 8-Kdated March 25, 2005 and incorporated by reference herein.

 

(7) Filed with the Company’s Report on Form 8-Kdated November 13, 2005 and incorporated by reference herein.

 

(8) Filed with the Company’s Report on Form 10-Kdated December 31, 2005 and incorporated by reference herein.

 

(9) Filed with the Company’s Report on Form 8-Kdated February 21, 2006 and incorporated by reference herein.

 

(10) Filed with the Company’s Report on Form 8-Kdated March 9, 2006 and incorporated by reference herein.

 

(11) Filed with the Company’s Report on Form 8-K dated June 8,2006 and incorporated by reference herein.

 

(12) Filed with the Company’s Report on Form 8-K dated September 13,2006 and incorporated by reference herein.

 

(13) Filed with the Company’s Report on Form 10-Q dated September 30,2007 and incorporated by reference herein.

 

(14) Filed with the Company’s Report on Form 10-K dated December 31,2007 and incorporated by reference herein.

 

105

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A copy of any ofthese exhibits will be furnished at a reasonable cost to any person uponreceipt from such person of a written request for such exhibit.  Such request should be sent to Affinity Group, Inc.,2575 Vista Del Mar Drive, Ventura, CA 93001, Attention:  Chief FinancialOfficer.

** **

**106**

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