**UNITED STATES**

##### **SECURITIESAND EXCHANGE COMMISSION**

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

 

**FORM 10-Q**

** **

**Quarterly Report Under Section 13 or 15 (d) of**

**The Securities Exchange Act of 1934**

 

| **For  Quarter Ended:**      | ** ** | **Commission  File Number** |
|------------------------------|------------|-----------------------------|
| **September 30,  2009** | ** ** | **333-113982**              |

 

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**AFFINITYGROUP, 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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SECURITIESREGISTERED PURSUANT TO SECTION 12 (b) OF THE ACT: **NONE**

SECURITIESREGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT:

**9% SeniorSubordinated Notes Due 2012**

 

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

YES  x       NO  o

 

Indicate by check mark whether the registrant has submittedelectronically and posted on its corporate Web site, if any, every InteractiveData File required to be submitted and posted pursuant to Rule 405 ofRegulation S-T (Section 232.405 of this chapter) during the preceding 12months (or for such shorter period that the registrant was required to submitand post such filings).

YES  o    NO  o

 

Indicate by check mark whether the registrant is a large acceleratedfiler, an accelerated filer, or a smaller reporting company.  See the definitions of “large acceleratedfiler,” “accelerated filer” and “smaller reporting company” in Rule 12b-2of the Exchange Act.  (Check one):

 
| Large accelerated filer                        | o      |   | Accelerated filer         | o |
|------------------------------------------------|--------|--------|---------------------------|---|
| Non-accelerated filer                          | **x**  |   | Smaller reporting company | o |
| (Do not check if a smaller  reporting company) |   |   |                      |

 

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

YES  o       NO  x

 

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

 
|                          |       | **Outstanding  as of**      |
|-------------------------------|------------|-----------------------------|
| **Class**                     | ** ** | **November 12,  2009** |
| Common Stock, $.001 par value |       | 2,000                       |

 

**DOCUMENTSINCORPORATED BY REFERENCE:  None**

 

 

 

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**AFFINITY GROUP, INC. AND SUBSIDIARIES**

** **

**INDEX**

 
| ** **                                                                                                   | **Page** |
|--------------------------------------------------------------------------------------------------------------|----------|
|                                                                                                         |     |
| **Part I.**Financial  Information                                                                       |     |
|                                                                                                         |     |
| **Item 1: Financial Statements**                                                                             |     |
|                                                                                                         |     |
| Consolidated Balance Sheets  as of September 30, 2009 (unaudited) and December 31, 2008            | 1        |
|                                                                                                         |     |
| Unaudited Consolidated Statements of Operations  for the three months ended September 30, 2009 and 2008 | 2        |
|                                                                                                         |     |
| Unaudited Consolidated Statements of Operations  for the nine months ended September 30, 2009 and 2008  | 3        |
|                                                                                                         |     |
| Unaudited Consolidated Statements of Cash Flows  for the nine months ended September 30, 2009 and 2008  | 4        |
|                                                                                                         |     |
| Notes to  Unaudited Consolidated Financial Statements                                                        | 5        |
|                                                                                                         |     |
| **Item 2:  Management’s Discussion and Analysis of Financial Condition and Results of  Operations**     | 30       |
|                                                                                                         |     |
| **Item 3:  Quantitative and Qualitative Disclosures about Market Risk**                                      | 51       |
|                                                                                                         |     |
| **Item 4: Controls  and Procedures**                                                                         | 52       |
|                                                                                                         |     |
| **Part II. Other Information**                                                                          | 52       |
|                                                                                                         |     |
| **Signatures**                                                                                               | 54       |

 

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AFFINITY GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

September 30, 2009 and December 31, 2008

(In thousands except shares and par value)

 
| ** **                                                                                     | ** ** | **9/30/2009**   | ** ** | **12/31/2008** | ** ** |
|------------------------------------------------------------------------------------------------|------------|-----------------|------------|----------------|------------|
| ** **                                                                                     | ** ** | **(Unaudited)** | ** ** | ** **     | ** ** |
| **ASSETS**                                                                                     |       |            |       |           |       |
| CURRENT ASSETS:                                                                                |       |            |       |           |       |
| Cash and cash equivalents                                                                      |       | $               | 8,800      |           | $          | 10,608 |   |
| Accounts receivable, less  allowance for doubtful accountsof $2,727 in 2009 and $2,147 in 2008 |       | 27,891          |       | 40,191         |       |
| Inventories                                                                                    |       | 61,032          |       | 57,137         |       |
| Prepaid expenses and other  assets                                                             |       | 18,214          |       | 13,545         |       |
| Total current assets                                                                           |       | 115,937         |       | 121,481        |       |
|                                                                                           |       |            |       |           |       |
| PROPERTY AND EQUIPMENT,  net                                                                   |       | 36,082          |       | 44,077         |       |
| AFFILIATE NOTES AND  INVESTMENTS                                                               |       | 4,711           |       | 4,608          |       |
| INTANGIBLE ASSETS, net                                                                         |       | 16,799          |       | 20,754         |       |
| GOODWILL                                                                                       |       | 49,944          |       | 96,828         |       |
| DEFERRED TAX ASSETS, net                                                                       |       | —          |       | 4,569          |       |
| OTHER ASSETS                                                                                   |       | 3,647           |       | 2,035          |       |
| Total assets                                                                                   |       | $               | 227,120    |           | $          | 294,352 |   |
|                                                                                           |       |            |       |           |       |
| **LIABILITIES  AND STOCKHOLDER’S DEFICIT**                                                |       |            |       |           |       |
| CURRENT LIABILITIES:                                                                           |       |            |       |           |       |
| Accounts payable                                                                               |       | $               | 26,390     |           | $          | 23,950 |   |
| Accrued interest                                                                               |       | 2,956           |       | 6,946          |       |
| Accrued income taxes                                                                           |       | 1,579           |       | 1,165          |       |
| Accrued liabilities                                                                            |       | 26,806          |       | 26,954         |       |
| Deferred revenues and  gains                                                                   |       | 69,769          |       | 60,569         |       |
| Current portion of  long-term debt                                                             |       | 131,242         |       | 12,391         |       |
| Total current liabilities                                                                      |       | 258,742         |       | 131,975        |       |
|                                                                                           |       |            |       |           |       |
| DEFERRED REVENUES AND  GAINS                                                                   |       | 35,211          |       | 35,855         |       |
| LONG-TERM DEBT, net of  current portion                                                        |       | 138,592         |       | 279,755        |       |
| OTHER LONG-TERM  LIABILITIES                                                                   |       | 11,412          |       | 33,281         |       |
|                                                                                           |       | 443,957         |       | 480,866        |       |
|                                                                                           |       |            |       |           |       |
| COMMITMENTS AND  CONTINGENCIES                                                                 |       |            |       |           |       |
|                                                                                           |       |            |       |           |       |
| STOCKHOLDER’S DEFICIT:                                                                    |       |            |       |           |       |
| Common stock, $.001 par  value, 2,000 shares authorized, 2,000 shares issued and outstanding   |       | 1               |       | 1              |       |
| Additional paid-in capital                                                                     |       | 89,505          |       | 81,005         |       |
| Accumulated deficit                                                                            |       | (299,239        | )          | (257,183       | )          |
| Accumulated other  comprehensive loss                                                          |       | (7,104          | )          | (10,337        | )          |
| Total stockholder’s  deficit                                                              |       | (216,837        | )          | (186,514       | )          |
| Total liabilities and  stockholder’s deficit                                              |       | $               | 227,120    |           | $          | 294,352 |   |

 

Seenotes to consolidated financial statements.

 

1

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AFFINITY GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OFOPERATIONS

(In Thousands)

(Unaudited)

 
| ** **                             | ** ** | **THREE MONTHS ENDED** | ** ** |
|----------------------------------------|------------|------------------------|------------|
| ** **                             | ** ** | **9/30/2009**          | ** ** | **9/30/2008** | ** ** |
|                                   |       |                   |       |   |   |
| REVENUES:                              |       |                   |       |   |   |
| Membership services                    |       | $                      | 35,531     |   | $ | 36,610 |   |
| Media                                  |       | 8,333                  |       | 12,547 |   |
| Retail                                 |       | 81,080                 |       | 84,180 |   |
|                                   |       | 124,944                |       | 133,337 |   |
|                                   |       |                   |       |   |   |
| COSTS APPLICABLE TO  REVENUES:         |       |                   |       |   |   |
| Membership services                    |       | 23,031                 |       | 23,151 |   |
| Media                                  |       | 7,152                  |       | 10,604 |   |
| Retail                                 |       | 49,934                 |       | 49,882 |   |
|                                   |       | 80,117                 |       | 83,637 |   |
|                                   |       |                   |       |   |   |
| GROSS PROFIT                           |       | 44,827                 |       | 49,700 |   |
|                                   |       |                   |       |   |   |
| OPERATING EXPENSES:                    |       |                   |       |   |   |
| Selling, general and  administrative   |       | 34,168                 |       | 35,858 |   |
| Goodwill impairment                    |       | 46,884                 |       | 47,601 |   |
| Impairment of investment  in affiliate |       | —                 |       | 81,005 |   |
| Financing expense                      |       | 337                    |       | — |   |
| Depreciation and  amortization         |       | 5,800                  |       | 5,033 |   |
|                                   |       | 87,189                 |       | 169,497 |   |
|                                   |       |                   |       |   |   |
| LOSS FROM OPERATIONS                   |       | (42,362                | )          | (119,797 | ) |
|                                   |       |                   |       |   |   |
| NON-OPERATING ITEMS:                   |       |                   |       |   |   |
| Interest income                        |       | 128                    |       | 162 |   |
| Interest expense                       |       | (8,247                 | )          | (6,064 | ) |
| Gain on derivative  instrument         |       | 114                    |       | — |   |
| Other non-operating items,  net        |       | (399                   | )          | (141 | ) |
|                                   |       | (8,404                 | )          | (6,043 | ) |
|                                   |       |                   |       |   |   |
| LOSS BEFORE INCOME TAXES               |       | (50,766                | )          | (125,840 | ) |
|                                   |       |                   |       |   |   |
| INCOME TAX BENEFIT  (EXPENSE)          |       | 12,916                 |       | (270 | ) |
|                                   |       |                   |       |   |   |
| NET LOSS                               |       | $                      | (37,850    | ) | $ | (126,110 | ) |

 

Seenotes to consolidated financial statements.

 

2

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AFFINITY GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OFOPERATIONS

(In Thousands)

(Unaudited)

 
| ** **                             | ** ** | **NINE MONTHS ENDED** | ** ** |
|----------------------------------------|------------|-----------------------|------------|
| ** **                             | ** ** | **9/30/2009**         | ** ** | **9/30/2008** | ** ** |
| REVENUES:                              |       |                  |       |   |   |
| Membership services                    |       | $                     | 109,960    |   | $ | 114,718 |   |
| Media                                  |       | 35,116                |       | 54,227 |   |
| Retail                                 |       | 214,820               |       | 237,106 |   |
|                                   |       | 359,896               |       | 406,051 |   |
|                                   |       |                  |       |   |   |
| COSTS APPLICABLE TO  REVENUES:         |       |                  |       |   |   |
| Membership services                    |       | 67,976                |       | 72,810 |   |
| Media                                  |       | 28,032                |       | 39,208 |   |
| Retail                                 |       | 130,840               |       | 139,077 |   |
|                                   |       | 226,848               |       | 251,095 |   |
|                                   |       |                  |       |   |   |
| GROSS PROFIT                           |       | 133,048               |       | 154,956 |   |
|                                   |       |                  |       |   |   |
| OPERATING EXPENSES:                    |       |                  |       |   |   |
| Selling, general and  administrative   |       | 97,219                |       | 112,559 |   |
| Goodwill impairment                    |       | 46,884                |       | 47,601 |   |
| Impairment of investment  in affiliate |       | —                |       | 81,005 |   |
| Financing expense                      |       | 1,877                 |       | — |   |
| Depreciation and  amortization         |       | 16,208                |       | 15,074 |   |
|                                   |       | 162,188               |       | 256,239 |   |
|                                   |       |                  |       |   |   |
| LOSS FROM OPERATIONS                   |       | (29,140               | )          | (101,283 | ) |
|                                   |       |                  |       |   |   |
| NON-OPERATING ITEMS:                   |       |                  |       |   |   |
| Interest income                        |       | 392                   |       | 444 |   |
| Interest expense                       |       | (21,884               | )          | (18,174 | ) |
| Gain on derivative  instrument         |       | 799                   |       | — |   |
| Gain on debt restructure               |       | 4,678                 |       | — |   |
| Other non-operating items,  net        |       | (1,218                | )          | (164 | ) |
|                                   |       | (17,233               | )          | (17,894 | ) |
|                                   |       |                  |       |   |   |
| LOSS BEFORE INCOME TAXES               |       | (46,373               | )          | (119,177 | ) |
|                                   |       |                  |       |   |   |
| INCOME TAX BENEFIT  (EXPENSE)          |       | 12,216                |       | (841 | ) |
|                                   |       |                  |       |   |   |
| NET LOSS                               |       | $                     | (34,157    | ) | $ | (120,018 | ) |

 

Seenotes to consolidated financial statements.

 

3

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AFFINITY GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OFCASH FLOWS

(In Thousands)

(Unaudited)

 
| ** **                                                                                | ** ** | **NINE MONTHS ENDED** | ** ** |
|-------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                | ** ** | **9/30/2009**         | ** ** | **9/30/2008** | ** ** |
|                                                                                      |       |                  |       |   |   |
| CASH FLOWS FROM OPERATING  ACTIVITIES:                                                    |       |                  |       |   |   |
| Net income (loss)                                                                         |       | $                     | (34,157    | ) | $ | (120,018 | ) |
| Adjustments to reconcile  net income (loss) to net cash provided by operating activities: |       |                  |       |   |   |
| Depreciation                                                                              |       | 9,892                 |       | 8,802 |   |
| Amortization                                                                              |       | 6,316                 |       | 6,272 |   |
| Impairment loss on  goodwill                                                              |       | 46,884                |       | 47,601 |   |
| Impairment loss on  investment in affiliate                                               |       | —                |       | 81,005 |   |
| Gain on derivative  instrument                                                            |       | (799                  | )          | — |   |
| Gain on debt restructure                                                                  |       | (4,678                | )          | — |   |
| Provision for losses on  accounts receivable                                              |       | 1,714                 |       | 881 |   |
| Deferred compensation                                                                     |       | —                |       | (311 | ) |
| Deferred tax benefit                                                                      |       | 4,569                 |       | — |   |
| Loss on sale of property  and equipment                                                   |       | 561                   |       | 246 |   |
| Changes in operating  assets and liabilities:                                             |       |                  |       |   |   |
| Accounts receivable                                                                       |       | 10,586                |       | (2,463 | ) |
| Inventories                                                                               |       | (3,895                | )          | 890 |   |
| Prepaid expenses and other  assets                                                        |       | (6,281                | )          | (4,919 | ) |
| Accounts payable                                                                          |       | 2,440                 |       | 2,006 |   |
| Accrued and other  liabilities                                                            |       | (22,220               | )          | (7,502 | ) |
| Deferred revenues and  gains                                                              |       | 8,556                 |       | 4,002 |   |
| Net cash provided by  operating activities                                                |       | 19,488                |       | 16,492 |   |
|                                                                                      |       |                  |       |   |   |
| CASH FLOWS FROM INVESTING  ACTIVITIES:                                                    |       |                  |       |   |   |
| Capital expenditures                                                                      |       | (2,481                | )          | (9,407 | ) |
| Net proceeds from sale of  property and equipment                                         |       | 23                    |       | 17 |   |
| Investment in affiliate                                                                   |       | (103                  | )          | 1 |   |
| Acquisitions, net of cash  received                                                       |       | —                |       | (3,409 | ) |
| Repayment of loans  receivable                                                            |       | —                |       | 31 |   |
| Net cash used in investing  activities                                                    |       | (2,561                | )          | (12,767 | ) |
|                                                                                      |       |                  |       |   |   |
| CASH FLOWS FROM FINANCING  ACTIVITIES:                                                    |       |                  |       |   |   |
| Dividends paid                                                                            |       | (7,900                | )          | (1,000 | ) |
| Contribution from parent                                                                  |       | 8,500                 |       | — |   |
| Borrowings on debt                                                                        |       | 18,547                |       | 33,000 |   |
| Payment of debt issue  costs                                                              |       | (2,541                | )          | (121 | ) |
| Principal payments on debt                                                                |       | (35,341               | )          | (27,972 | ) |
| Net cash (used in)  provided by financing activities                                      |       | (18,735               | )          | 3,907 |   |
|                                                                                      |       |                  |       |   |   |
| NET CHANGE IN CASH AND  CASH EQUIVALENTS                                                  |       | (1,808                | )          | 7,632 |   |
|                                                                                      |       |                  |       |   |   |
| CASH AND CASH EQUIVALENTS  AT BEGINNING OF PERIOD                                         |       | 10,608                |       | 8,357 |   |
|                                                                                      |       |                  |       |   |   |
| CASH AND CASH EQUIVALENTS  AT END OF PERIOD                                               |       | $                     | 8,800      |   | $ | 15,989 |   |

 

See notes to consolidatedfinancial statements.

 

4

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**AFFINITYGROUP, INC. AND SUBSIDIARIES**

**Notes to Consolidated Financial Statements**

**(Unaudited)**

 

**(1) BASISOF PRESENTATION**

 

*Principles of Consolidation**–*The consolidated financial statements includethe accounts of Affinity Group, Inc. (“AGI”) and its subsidiaries(collectively the “Company”), presented in accordance with U.S. generallyaccepted accounting principles, (“GAAP”), and pursuant to the rules andregulations of the Securities and Exchange Commission.  Affinity Group Holding, Inc. (“AGHI”) isthe direct parent of the Company. The ultimate parent company of AGHI is AGIHolding Corp. (“AGHC”), a privately-owned corporation.

 

These interimconsolidated financial statements should be read in conjunction with theCompany’s consolidated financial statements and notes in the Company’s 10-Kreport for the year ended December 31, 2008 as filed with the Securitiesand Exchange Commission.  In the opinionof management of the Company, these consolidated financial statements containall adjustments of a normal recurring nature necessary to present fairly thefinancial position, results of operations and cash flows of the Company for theinterim periods presented.

 

*Basisfor Presentation**–*On June 5, 2009, the Companyentered into an amendment to its Senior Credit Facility pursuant to which thematurity date was extended from June 24, 2009 to March 31, 2010, therevolving credit portion of the facility was reduced by $10.0 million to $25.0million, the outstanding term loan borrowings were repaid by $8.0 million andthe borrowing rate was increased to prime rate plus 7.0% to 9.0% or LIBOR plus8.0% to 10.0% with a LIBOR floor of 2.75%. Concurrent with the June 5, 2009 amendment to the Senior CreditFacility, the Company obtained a $9.7 million Second Lien Loan, the netproceeds of which were used to purchase $14.6 million in principal amount ofthe Company’s Senior Subordinated Notes. The Second Lien Loan carries an interest rate of 9.0% and matures on July 31,2010.  See Note 12 – Subsequent Events.

 

Theamended Senior Credit Facility also revised the Company’s financial covenantsin effect through the extended maturity date. As required by the Senior Credit Facility, significant cost reductionswere implemented in 2008 and 2009, including the elimination of personnel,suspension of 401(k) employer contributions, salary cutbacks, hiring andcapital expenditure spending freezes, satellite office closures, and magazinesize and frequency reductions.

 

**(2) RECENTACCOUNTING PRONOUNCEMENTS**

 

InJune 2009, the Financial Accounting Standards Board (“FASB”) issued newaccounting guidance entitled, “The FASB Accounting Standards Codification andthe Hierarchy of Generally Accepted Accounting Principles – a replacement ofFASB Statement No. 162”.  TheAccounting Standards Codification (“ASC” or “Codification”) identifies thesources of accounting principles and the framework for selecting the principlesused in the preparation of financial statements of nongovernmental entities

 

5

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**(2) RECENTACCOUNTING PRONOUNCEMENTS (continued)**

 

thatare presented in conformity with GAAP. This new guidance is effective for financial statements issued forinterim and annual periods ending after September 15, 2009.  The adoption of this guidance has changed howwe reference various elements of GAAP when preparing our financial statementdisclosures, but did not have an impact on our financial position, results ofoperations or cash flows.

 

InMay 2009, the FASB issued new accounting guidance on subsequent events.The objective of this guidance is to establish general standards of accountingfor and disclosure of events that occur after the balance sheet date but beforefinancial statements are issued or are available to be issued. This new accountingguidance was effective for interim and annual periods ending after June 15,2009. The impact of adopting this new guidance had no effect on theaccompanying condensed consolidated financial statements.

 

InApril 2009, the FASB issued new accounting guidance on fair valuemeasurements. The new guidance impacts certain aspects of fair valuemeasurement and related disclosures. The new guidance was effective beginningin the second quarter of 2009. The adoption of this new guidance resulted inadditional interim disclosures and did not have a material effect on ourconsolidated results of operations or financial position.

 

**(3) DISCLOSURESABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION**

 

The Company’sthree principal lines of business are Membership Services, Media, andRetail.  The Membership Services segmentoperates the Good Sam Club, the Coast to Coast Club, the President’s Club, CampClub USA and assorted membership products and services for recreationalvehicles (“RV”) owners, campers and outdoor vacationers, and the Golf Card Clubfor golf enthusiasts.  The Media segmentpublishes a variety of publications for selected markets in the recreation andleisure industry, including general circulation periodicals, directories and RVand powersports industry trade magazines. In addition, the Media segment operates consumer outdoor recreationshows primarily focused on RV and powersports markets.  The Retail segment sells specialty retailmerchandise and services for RV owners primarily through retail supercentersand mail order catalogs.  The Companyevaluates performance based on profit or loss from operations before incometaxes and unusual items.

 

The reportablesegments are strategic business units that offer different products andservices.  They are managed separatelybecause each business requires different technology, management expertise andmarketing strategies.

 

6

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**(3) DISCLOSURESABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION (continued)**

 

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

 
| ** **                                 | ** ** | **Membership** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **       | ** ** |
|--------------------------------------------|------------|----------------|------------|------------|------------|------------|------------|------------------|------------|
| ** **                                 | ** ** | **Services**   | ** ** | **Media**  | ** ** | **Retail** | ** ** | **Consolidated** | ** ** |
| **THREE MONTHS ENDED SEPTEMBER 30,  2009** |       |           |       |       |       |       |       |             |       |
| Revenues from external  customers          |       | $              | 35,531     |       | $          | 8,333      |       | $                | 81,080     |   | $ | 124,944 |   |
| Loss on sale of property  and equipment    |       | —         |       | —     |       | (397       | )          | (397             | )          |
| Interest income                            |       | 836            |       | —     |       | —     |       | 836              |       |
| Interest expense                           |       | —         |       | 18         |       | 425        |       | 443              |       |
| Depreciation and amortization              |       | 760            |       | 1,339      |       | 2,563      |       | 4,662            |       |
| Goodwill impairment                        |       | —         |       | 46,884     |       | —     |       | 46,884           |       |
| Segment operating profit  (loss)           |       | 10,304         |       | (48,183    | )          | 1,037      |       | (36,842          | )          |
|                                            |            |                |            |            |            |            |            |                  |            |  |  |  |  |

 
| ** **                                 | ** ** | **Membership** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **       | ** ** |
|--------------------------------------------|------------|----------------|------------|------------|------------|------------|------------|------------------|------------|
| ** **                                 | ** ** | **Services**   | ** ** | **Media**  | ** ** | **Retail** | ** ** | **Consolidated** | ** ** |
| **THREE MONTHS ENDED SEPTEMBER 30,  2008** |       |           |       |       |       |       |       |             |       |
| Revenues from external  customers          |       | $              | 36,610     |       | $          | 12,547     |       | $                | 84,180     |   | $ | 133,337 |   |
| Loss on sale of property  and equipment    |       | —         |       | —     |       | (160       | )          | (160             | )          |
| Interest income                            |       | 891            |       | —     |       | 5          |       | 896              |       |
| Interest expense                           |       | —         |       | 53         |       | 4,026      |       | 4,079            |       |
| Depreciation and  amortization             |       | 846            |       | 1,579      |       | 2,087      |       | 4,512            |       |
| Goodwill impairment                        |       | —         |       | —     |       | 47,601     |       | 47,601           |       |
| Impairment of investment  in affiliate     |       | —         |       | —     |       | 81,005     |       | 81,005           |       |
| Segment operating profit  (loss)           |       | 10,880         |       | (1,131     | )          | (129,518   | )          | (119,769         | )          |
|                                            |            |                |            |            |            |            |            |                  |            |  |  |  |  |

 
| ** **                                | ** ** | **Membership** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **       | ** ** |
|-------------------------------------------|------------|----------------|------------|------------|------------|------------|------------|------------------|------------|
| ** **                                | ** ** | **Services**   | ** ** | **Media**  | ** ** | **Retail** | ** ** | **Consolidated** | ** ** |
| **NINE MONTHS ENDED SEPTEMBER 30,  2009** |       |           |       |       |       |       |       |             |       |
| Revenues from external  customers         |       | $              | 109,960    |       | $          | 35,116     |       | $                | 214,820    |   | $ | 359,896 |   |
| Loss on sale of property  and equipment   |       | —         |       | —     |       | (562       | )          | (562             | )          |
| Interest income                           |       | 2,549          |       | —     |       | 4          |       | 2,553            |       |
| Interest expense                          |       | —         |       | 65         |       | 7,166      |       | 7,231            |       |
| Depreciation and  amortization            |       | 2,378          |       | 4,003      |       | 7,389      |       | 13,770           |       |
| Goodwill impairment                       |       | —         |       | 46,884     |       | —     |       | 46,884           |       |
| Segment operating profit  (loss)          |       | 34,882         |       | (46,897    | )          | (6,665     | )          | (18,680          | )          |
|                                           |            |                |            |            |            |            |            |                  |            |  |  |  |  |

 
| ** **                                | ** ** | **Membership** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **       | ** ** |
|-------------------------------------------|------------|----------------|------------|------------|------------|------------|------------|------------------|------------|
| ** **                                | ** ** | **Services**   | ** ** | **Media**  | ** ** | **Retail** | ** ** | **Consolidated** | ** ** |
| **NINE MONTHS ENDED SEPTEMBER 30,  2008** |       |           |       |       |       |       |       |             |       |
| Revenues from external  customers         |       | $              | 114,718    |       | $          | 54,227     |       | $                | 237,106    |   | $ | 406,051 |   |
| Loss on sale of property  and equipment   |       | —         |       | —     |       | (246       | )          | (246             | )          |
| Interest income                           |       | 2,712          |       | —     |       | 25         |       | 2,737            |       |
| Interest expense                          |       | —         |       | 157        |       | 12,116     |       | 12,273           |       |
| Depreciation and  amortization            |       | 2,408          |       | 4,623      |       | 6,509      |       | 13,540           |       |
| Goodwill impairment                       |       | —         |       | —     |       | 47,601     |       | 47,601           |       |
| Impairment of investment  in affiliate    |       | —         |       | —     |       | 81,005     |       | 81,005           |       |
| Segment operating profit  (loss)          |       | 34,094         |       | 5,622      |       | (138,454   | )          | (98,738          | )          |
|                                           |            |                |            |            |            |            |            |                  |            |  |  |  |  |

 

7

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**(3) DISCLOSURESABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION (continued)**

 

Thefollowing is a reconciliation of profit from operations to the Company’sconsolidated financial statements for the three and nine months ended September 30,2009 and 2008 (in thousands):

 
| ** **                                                     | ** ** | **THREE MONTHS ENDED** | ** ** | **NINE MONTHS ENDED** | ** ** |
|----------------------------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                                     | ** ** | **9/30/2009**          | ** ** | **9/30/2008**         | ** ** | **9/30/2009** | ** ** | **9/30/2008** | ** ** |
| **Loss From  Operations Before Income Taxes**                  |       |                   |       |                  |       |   |   |   |   |
| Total loss for reportable  segments                            |       | $                      | (36,842    | )                     | $          | (119,769 | ) | $ | (18,680 | ) | $ | (98,738 | ) |
| Unallocated G & A  expense                            |       | (3,765                 | )          | (2,831                | )          | (11,101 | ) | (10,711 | ) |
| Unallocated depreciation  and amortization expense             |       | (1,138                 | )          | (521                  | )          | (2,438 | ) | (1,534 | ) |
| Unallocated gain on sale  of equipment                         |       | 1                      |       | —                |       | 1 |   | — |   |
| Unallocated other finance  costs                               |       | (287                   | )          | —                |       | (941 | ) | — |   |
| Unallocated gain on  derivative instrument                     |       | 114                    |       | —                |       | 799 |   | — |   |
| Unallocated financing  expense                                 |       | (337                   | )          | —                |       | (1,877 | ) | — |   |
| Unallocated gain on debt  restructure                          |       | —                 |       | —                |       | 4,678 |   | — |   |
| Elimination of  intercompany interest income                   |       | (708                   | )          | (734                  | )          | (2,161 | ) | (2,293 | ) |
| Unallocated interest  expense, net of intercompany elimination |       | (7,804                 | )          | (1,985                | )          | (14,653 | ) | (5,901 | ) |
| Loss from operations  before income taxes                      |       | $                      | (50,766    | )                     | $          | (125,840 | ) | $ | (46,373 | ) | $ | (119,177 | ) |

 

Thefollowing is a reconciliation of assets of reportable segments to the Company’sconsolidated financial statements as of September 30, 2009 and December 31,2008 (in thousands):

 
| ** **                                           | ** ** | **9/30/2009** | ** ** | **12/31/2008** | ** ** |
|------------------------------------------------------|------------|---------------|------------|----------------|------------|
| Membership services  segment                         |       | $             | 210,848    |           | $          | 221,262 |   |
| Media segment                                        |       | 53,687        |       | 88,101         |       |
| Retail segment                                       |       | 104,364       |       | 110,964        |       |
| Total assets for  reportable segments                |       | 368,899       |       | 420,327        |       |
| Capitalized finance costs  not allocated to segments |       | 3,180         |       | 2,815          |       |
| Corporate unallocated  assets (liabilities)          |       | (13,557       | )          | 4,452          |       |
| Elimination of  intersegment receivable              |       | (131,402      | )          | (133,242       | )          |
| Total assets                                         |       | $             | 227,120    |           | $          | 294,352 |   |

 

**(4) STATEMENTS OF CASH FLOWS**

 

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

 
| ** **                                   | ** ** | **2009** | ** ** | **2008** | ** ** |
|----------------------------------------------|------------|----------|------------|----------|------------|
| Cash paid (received)  during the period for: |       |     |       |     |       |
| Interest                                     |       | $        | 25,874     |     | $          | 21,348 |   |
| Income taxes                                 |       | 5        |       | (3       | )          |
|                                              |            |          |            |          |            |  |  |

 

In January 2008,the Company assumed $0.6 million of liabilities and issued $0.4 million of debtin connection with the acquisition of nine RV and boat shows from MAC Events,LLC.

 

8

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**(4) STATEMENTS OF CASH FLOWS (continued)**

 

In February 2008,the Company assumed $0.5 million of liabilities and issued $0.5 million of debtin connection with the acquisition of three RV and boat shows from Mid AmericaExpositions, Inc.

 

In December 2008,the Company recorded the fair value of the interest rate swaps in OtherLong-Term Liabilities of $12.7 million, in Accumulated Other Comprehensive Lossof $10.3 million, and ineffective portion in the statement of operations as aloss on derivative instrument of $2.4 million.

 

For the ninemonths ended September 30, 2009, the Company recorded an adjustment to thefair value of the interest rate swap resulting in a $4.6 million decrease inOther Long-Term Liabilities and a $3.2 million decrease in Other ComprehensiveLoss and ineffective portion in the statement of operations as a non-cash gainon derivative instruments of $0.8 million.

 

**(5)** **GOODWILL AND INTANGIBLEASSETS**

 

The Companyreviews goodwill and indefinite-lived intangible assets for impairment at leastannually and more often when impairment indicators are present.  The Company performs its annual impairmenttest during the fourth quarter.

 

In the thirdquarter of 2009, the Company noted continued decline in advertising revenuecompared to historical trends, in the operations of our RV and powersportspublications, as well as flat to moderate projected growth in futureadvertising revenue as a result of continued deterioration of general economicconditions and consumer confidence. Based on the above, the Company determined that there were identifiedinterim indicators of impairment within these reporting units in the Mediasegment.

 

The Companyperformed an impairment test of the goodwill and intangible assets of thereporting units of our RV and powersports publications.  The impairment test indicated that theestimated fair value of these reporting units were less than book value.  The excess of the carrying value over theestimated fair value of the these reporting units was primarily due to adecline in advertising revenue leading to lower expected future cash flows forthese reporting units. In determining the fair value, the Company used anincome valuation approach.

 

In performing thesecond step of the goodwill impairment test, the Company allocated theestimated fair values of the reporting units of our RV and powersportspublications determined in step one of the impairment test, to the assets andliabilities of the respective reporting unit in accordance with the accountingguidance for business combinations. The Company determined the impairment forthese units to be equal to the carrying value of its goodwill, or $46.9million.  The Company recorded an impairmentcharge of $46.9 million in the third quarter of 2009 related to these units,which is part of the Media segment.

 

9

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**(5)** **GOODWILL AND INTANGIBLEASSETS (continued)**

 

Determining thefair value of a reporting unit under the first step of the goodwill impairmenttest and 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 and assumptions could have a significant impact onwhether or not an impairment charge is recognized and also the extent of suchcharge. The Company’s estimates of fair value utilized in the goodwillimpairment tests may be based upon a number of factors, including assumptionsabout the projected future cash flows, discount rate, growth rate,determination of market comparables, economic conditions, or changes to theCompany’s business operations. Such changes may result in impairment chargesrecorded in future periods.  Also seeNote 9 — Fair Value Measurements.

 

The following is asummary of changes in the Company’s goodwill by business segment, for the ninemonths ended September 30, 2009 and 2008 (in thousands):

 
| ** **                             | ** ** | **Membership  Services** | ** ** | **Media** | ** ** | **Retail** | ** ** | **Consolidated** | ** ** |
|----------------------------------------|------------|--------------------------|------------|-----------|------------|------------|------------|------------------|------------|
|                                   |       |                     |       |      |       |       |       |             |       |
| Balance as of  January 1, 2009    |       | $                        | 49,944     |      | $          | 46,884     |       | $                | —     |   | $ | 96,828 |   |
| Impairments                            |       | —                   |       | (46,884   | )          | —     |       | (46,884          | )          |
| Balance as of  September 30, 2009 |       | $                        | 49,944     |      | $          | —     |       | $                | —     |   | $ | 49,944 |   |
|                                   |       |                     |       |      |       |       |       |             |       |
| Balance as of  January 1, 2008    |       | $                        | 49,944     |      | $          | 46,884     |       | $                | 47,601     |   | $ | 144,429 |   |
| Impairments                            |       | —                   |       | —    |       | (47,601    | )          | (47,601          | )          |
| Balance as of  September 30, 2008 |       | $                        | 49,944     |      | $          | 46,884     |       | $                | —     |   | $ | 96,828 |   |

 

The Company hasevaluated the remaining useful lives of its property and equipment andfinite-lived purchased intangible assets to determine if any adjustments to theuseful lives were necessary.  The Companydetermined that no adjustments to the useful lives of its property andequipment or finite-lived purchased intangible assets were necessary as of September 30.2009.  Under the accounting guidance forGoodwill and Other Intangible Assets, as issued by the FASB, goodwillimpairment is deemed to exist if the net book value of a reporting unit exceedsits estimated fair value.  The Company’sreporting units are generally consistent with the operating segments underlyingthe reporting segments identified in Note 3 – Disclosures about Segments of anEnterprise and Related Information.

 

Effective January 1,2009, the Company adopted new accounting guidance related to businesscombinations which establishes principles and requirements for how an acquirerrecognizes and measures in its financial statements the identifiable assetsacquired, the liabilities assumed, any noncontrolling interest in the acquireeand the goodwill acquired in a business combination.  The Company will apply the provisions anddisclosure requirements of the new guidelines for any acquisitions after theadoption date.

 

10

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**(5) GOODWILLAND INTANGIBLE ASSETS (continued)**

 

Finite-livedintangible assets, related accumulated amortization and weighted average usefullife consisted of the following at September 30, 2009 (in thousands,except as noted):

 
| ** **                                       | ** ** | **Weighted**        | ** ** | ** ** | ** ** | ** **       | ** ** | ** ** | ** ** |
|--------------------------------------------------|------------|---------------------|------------|------------|------------|------------------|------------|------------|------------|
| ** **                                       | ** ** | **Average Useful**  | ** ** | ** ** | ** ** | **Accumulated**  | ** ** | ** ** | ** ** |
| ** **                                       | ** ** | **Life (in years)** | ** ** | **Gross**  | ** ** | **Amortization** | ** ** | **Net**    | ** ** |
|                                             |       |                |       |       |       |             |       |       |       |
| Membership and customer  lists                   |       | 6                   |       | $          | 36,384     |             | $          | (25,583    | )          | $ | 10,801 |   |
| Resort and golf course  participation agreements |       | 4                   |       | 13,352     |       | (13,348          | )          | 4          |       |
| Non-compete and deferred consulting  agreements  |       | 15                  |       | 18,830     |       | (16,016          | )          | 2,814      |       |
| Deferred financing costs                         |       | 6                   |       | 12,693     |       | (9,513           | )          | 3,180      |       |
|                                             |       |                |       | $          | 81,259     |             | $          | (64,460    | )          | $ | 16,799 |   |

 

**(6) SENIOR CREDIT FACILITY**

 

OnJune 24, 2003, AGI entered into an Amended and Restated Credit Agreementand a Senior Secured Floating Rate Note Purchase Agreement which was mostrecently amended on June 5, 2009 (as amended, the “Senior Credit Facility”).  The Senior Credit Facility provides for arevolving credit facility of $25.0 million and term loans.  As of September 30, 2009, $9.0 millionwas outstanding under the revolving credit facility and $111.2 million wasoutstanding under the term loans. Reborrowings under the term loans are not permitted.  Interest rates float with prime and theLondon Interbank Offered Rates, (“LIBOR”), plus an applicable margin rangingfrom 9.00% to 10.00%, respectively, over the stated rates and a LIBOR floor of2.75%.  After consideration of fixedrates under the interest rate swap agreements, (discussed in Note 8 — InterestRate Swap Agreements), as of September 30, 2009, the average interest rateon the term loans and the revolving credit facility was 17.11%, and permittedborrowings under the revolving facility were $18.3 million.  The Company also pays a commitment fee of1.0% per annum on the unused amount of the revolving credit facility.  The aggregate quarterly scheduled payments onthe term loans are $0.4 million.  Boththe revolving credit facility and the term loans under the Senior CreditFacility mature on March 31, 2010. The funds available under the Senior Credit Facility may be utilized forborrowings or letters of credit, except a maximum of $7.5 million may beallocated to such letters of credit.  Asof September 30, 2009, AGI had letters of credit in the aggregate amountof $6.7 million outstanding.  The SeniorCredit Facility is secured by virtually all of AGI’s assets and a pledge of AGI’sstock and the stock of AGI’s subsidiaries.

 

In connection with the June 5, 2009amendment to its Senior Credit Facility, the outstanding term loan borrowingswere repaid by $8.0 million, the financial covenants in effect through theextended maturity date were revised, and the Company capitalized $2.5million in fees paid to the lenders and expensed as incurred $1.9 million inlegal and other fees related to the amendment. As a condition to the amendment, the shareholder of the ultimate parentof the Company was required to arrange for the purchase of approximately $26.6million in principal amount of the term portion of the

 

11

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**(6) SENIOR CREDIT FACILITY (continued)**

 

Senior Credit Facility by new lenders,enhance the yield to such new lenders, purchase AGHI Notes held by one of suchnew lenders at a premium to the most recent market price, contribute $8.5million in capital to the Company and guarantee two required principal paymentson the term loans under the Senior Credit Facility, aggregating $15.0million.  In consideration of such support,the Company entered into an option agreement with the shareholder of theultimate parent of the Company pursuant to which the Company granted suchshareholder or his assigns an option, exercisable on or before March 1,2010, to purchase the Company’s Camping World subsidiary, Camping World, Inc.(“Camping World”) for $55.0 million which was believed to be the then fairvalue of Camping World.  Management wasassisted in determining the fair value of such subsidiary by an independentthird party valuation firm.  The Companyalso agreed to pay the shareholder of the ultimate parent, upon successfulrefinancing of the Company’s secured debt, including the Senior CreditFacility, a success fee equal in amount to the fair value, as determined by anindependent financial advisor of such credit support, taking into account thefair value of the option to purchase Camping World.  In the event the fair value of the CampingWorld purchase option exceeds the fair value of such credit support, theshareholder will pay the amount of such excess to the Company.

 

Concurrent with the June 5, 2009amendment to the Senior Credit Facility, the Company obtained a $9.7 millionSecond Lien Loan, the net proceeds of which were used to purchase $14.6 millionin principal amount of Senior Subordinated Notes.  The Second Lien Loan carries an interest rateof 9.0% and matures on July 31, 2010. The Second Lien Loan is secured by substantially all of the assets and apledge of the stock of AGI and is second in priority only to the Senior CreditFacility.

 

Inaddition, Company agreed to use its best efforts to secure an asset-based loanof at least $18.5 million secured by the inventory and receivables of itssubsidiary, Camping World, Inc. (the “Camping World Financing”), theproceeds of which would be used to further reduce the amounts outstanding underthe Senior Credit Facility.  Since aCamping World Financing had not been consummated by September 15, 2009,the borrowing rate on revolving credit loans, swing loans and terms loansincreased to prime rate plus 9.0% or LIBOR plus 10.0%.

 

The10th Amendment to the Senior Credit Facility requires the commitment of StephenAdams, the Company’s ultimate shareholder, to cause loans to be made to theCompany in amounts equal to the cash interest payments on $16.0 million inaggregate principal amount of the term loans under the Senior CreditFacility.  In connection with thatrequirement, on June 10, 2009, the Company entered into a loan agreementwith SA Holding, LLC, (“SA Holding”), which is owned by Stephen Adams, pursuantto which SA Holding agreed to loan to AGI (the “SA Loans”) amounts equal to thecash interest payments on $16.0 million in aggregate principal amount of termloans.  The interest rate on the SA Loansis equal to the interest rate payable on the Senior Credit Facility plus 2.0%per annum compounded monthly.  The SALoans mature on the date on which the

 

12

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**(6) SENIOR CREDIT FACILITY (continued)**

 

indebtednessunder the Senior Credit Facility is paid in full.  As of September 30, 2009, $0.6 millionof SA Loans were outstanding.

 

The amended Senior Credit Facility alsorevised the Company’s financial covenants in effect through the extendedmaturity date.  As of September 30,2009, the Company is in compliance with all covenants under the Senior CreditFacility.  As required by the SeniorCredit Facility, significant cost reductions have been implemented in 2008 and2009, including the elimination of personnel, suspension of 401(k) employercontributions, salary cutbacks, hiring and capital expenditure spendingfreezes, satellite office closures, and magazine size and frequency reductions.

 

**(7) NOTES OFFERING, GUARANTOR AND NON-GUARANTOR FINANCIALINFORMATION**

 

InFebruary 2004, the Company issued $200.0 million of 9% Senior SubordinatedNotes (“Senior Subordinated Notes”) due 2012 pursuant to the AGIIndenture.  The Company purchased andretired $29.9 million of the Senior Subordinated Notes in 2006, $17.7 millionin March 2007, and $14.6 million in June 2009.  Interest is payable on the remaining $137.8million Senior Subordinated Notes twice a year on February 15 and August 15.  The Company’s present and future restrictedsubsidiaries guarantee the Senior Subordinated Notes with unconditionalguarantees of payment that rank junior in right of payment to their existingand future senior debt, but rank equal in right of payment to their existingand future senior subordinated debt.  Allof the Company’s subsidiaries have jointly and severally guaranteed theindebtedness under the Senior Subordinated Notes except for CWFR CapitalCorp.  Full financial statements of theGuarantors have not been included because, pursuant to their respectiveguarantees, the Guarantors are jointly and severally liable with respect to theSenior Subordinated Notes.

 

13

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**(7) NOTES OFFERING, GUARANTOR AND NON-GUARANTOR FINANCIALINFORMATION (continued)**

 

The following are summarized statements setting forth certain financialinformation concerning the Guarantor Subsidiaries as of and for the nine monthsended September 30, 2009 (in thousands).

 
| ** **                                               | ** ** | ** ** | ** ** | ** **     | ** ** | **NON-**      | ** ** | ** **       | ** ** | **AGI**          | ** ** |
|----------------------------------------------------------|------------|------------|------------|----------------|------------|---------------|------------|------------------|------------|------------------|------------|
| ** **                                               | ** ** | **AGI**    | ** ** | **GUARANTORS** | ** ** | **GUARANTOR** | ** ** | **ELIMINATIONS** | ** ** | **CONSOLIDATED** | ** ** |
|                                                     |       |       |       |           |       |          |       |             |       |             |       |
| Cash & cash  equivalents                        |       | $          | 5,018      |           | $          | 3,782         |       | $                | —     |             | $          | — |   | $ | 8,800 |   |
| Accounts receivable- net  of allowance                   |       | 2,323      |       | 156,970        |       |          |       | (131,402         | )          | 27,891           |       |
| Inventories                                              |       | —     |       | 61,032         |       | —        |       | —           |       | 61,032           |       |
| Other current assets                                     |       | 1,835      |       | 16,379         |       | —        |       | —           |       | 18,214           |       |
| Total current assets                                     |       | 9,176      |       | 238,163        |       | —        |       | (131,402         | )          | 115,937          |       |
|                                                     |       |       |       |           |       |          |       |             |       |             |       |
| Property and equipment,  net                             |       | 3,545      |       | 32,537         |       | —        |       | —           |       | 36,082           |       |
| Intangible assets                                        |       | 3,181      |       | 13,618         |       | —        |       | —           |       | 16,799           |       |
| Goodwill                                                 |       | 49,944     |       | —         |       | —        |       | —           |       | 49,944           |       |
| Investment in subsidiaries                               |       | 638,205    |       | —         |       | —        |       | (638,205         | )          | —           |       |
| Affiliate note and  investments                          |       | 40,000     |       | 4,711          |       | —        |       | (40,000          | )          | 4,711            |       |
| Other assets                                             |       | 558        |       | 3,089          |       | —        |       | —           |       | 3,647            |       |
| Total assets                                             |       | $          | 744,609    |           | $          | 292,118       |       | $                | —     |             | $          | (809,607 | ) | $ | 227,120 |   |
|                                                     |       |       |       |           |       |          |       |             |       |             |       |
| Accounts payable                                         |       | $          | 547        |           | $          | 25,843        |       | $                | —     |             | $          | — |   | $ | 26,390 |   |
| Accrued and other  liabilities                           |       | 7,860      |       | 23,481         |       | —        |       | —           |       | 31,341           |       |
| Current portion of  long-term debt                       |       | 261,878    |       | 41,313         |       | —        |       | (171,402         | )          | 131,789          |       |
| Current portion of  deferred revenue                     |       | 605        |       | 69,164         |       | —        |       | —           |       | 69,769           |       |
| Total current liabilities                                |       | 270,890    |       | 159,801        |       |          |       | (171,402         | )          | 259,289          |       |
|                                                     |       |       |       |           |       |          |       |             |       |             |       |
| Deferred revenue                                         |       | 2,322      |       | 32,889         |       | —        |       | —           |       | 35,211           |       |
| Long-term debt                                           |       | 137,824    |       | 221            |       | —        |       | —           |       | 138,045          |       |
| Other long-term  liabilities                             |       | 550,410    |       | (538,998       | )          | —        |       | —           |       | 11,412           |       |
| Total liabilities                                        |       | 961,446    |       | (346,087       | )          |          |       | (171,402         | )          | 443,957          |       |
|                                                     |       |       |       |           |       |          |       |             |       |             |       |
| Interdivisional equity                                   |       | —     |       | 638,205        |       | —        |       | (638,205         | )          | —           |       |
| Stockholders’ deficit                               |       | (216,837   | )          | —         |       | —        |       | —           |       | (216,837         | )          |
| Total  liabilities & stockholders’ deficit |       | $          | 744,609    |           | $          | 292,118       |       | $                | —     |             | $          | (809,607 | ) | $ | 227,120 |   |

 
| ** **                                             | ** ** | ** ** | ** ** | ** **     | ** ** | **NON-**      | ** ** | ** **       | ** ** | **AGI**          | ** ** |
|--------------------------------------------------------|------------|------------|------------|----------------|------------|---------------|------------|------------------|------------|------------------|------------|
| ** **                                             | ** ** | **AGI**    | ** ** | **GUARANTORS** | ** ** | **GUARANTOR** | ** ** | **ELIMINATIONS** | ** ** | **CONSOLIDATED** | ** ** |
|                                                   |       |       |       |           |       |          |       |             |       |             |       |
| Revenue                                                |       | $          | 4,100      |           | $          | 355,796       |       | $                | —     |             | $          | — |   | $ | 359,896 |   |
| Costs applicable to  revenues                          |       | (7,888     | )          | (218,960       | )          | —        |       | —           |       | (226,848         | )          |
| Operating expenses                                     |       | (15,968    | )          | (146,220       | )          | —        |       | —           |       | (162,188         | )          |
| Interest expense, net                                  |       | (16,814    | )          | (4,678         | )          | —        |       | —           |       | (21,492          | )          |
| Income from investment in  consolidated subsidiaries   |       | (9,374     | )          | —         |       | —        |       | 9,374            |       | —           |       |
| Other non operating income  (expenses)                 |       | 8,672      |       | (4,413         | )          | —        |       | —           |       | 4,259            |       |
| Income tax expense                                     |       | 3,115      |       | 9,101          |       | —        |       | —           |       | 12,216           |       |
| Net income                                             |       | $          | (34,157    | )              | $          | (9,374        | )          | $                | —     |             | $          | 9,374 |   | $ | (34,157 | ) |
|                                                   |       |       |       |           |       |          |       |             |       |             |       |
| Cash flows from operations                             |       | $          | (14,941    | )              | $          | 34,976        |       | $                | —     |             | $          | — |   | $ | 20,035 |   |
| Cash flows provided by  (used in) investing activities |       | 1,663      |       | (4,224         | )          | —        |       | —           |       | (2,561           | )          |
| Cash flows provided by  (used in) financing activities |       | 16,996     |       | (36,278        | )          | —        |       | —           |       | (19,282          | )          |
| Cash at beginning of year                              |       | 1,300      |       | 9,308          |       | —        |       | —           |       | 10,608           |       |
| Cash at end of period                                  |       | $          | 5,018      |           | $          | 3,782         |       | $                | —     |             | $          | — |   | $ | 8,800 |   |

 

14

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**(7) NOTES OFFERING, GUARANTOR AND NON-GUARANTOR FINANCIALINFORMATION (continued)**

 

The following are summarized statements setting forth certain financialinformation concerning the Guarantor Subsidiaries as of and for the threemonths ended September 30, 2009 (in thousands).

 
| ** **                                           | ** ** | ** ** | ** ** | ** **     | ** ** | **NON-**      | ** ** | ** **       | ** ** | **AGI**          | ** ** |
|------------------------------------------------------|------------|------------|------------|----------------|------------|---------------|------------|------------------|------------|------------------|------------|
| ** **                                           | ** ** | **AGI**    | ** ** | **GUARANTORS** | ** ** | **GUARANTOR** | ** ** | **ELIMINATIONS** | ** ** | **CONSOLIDATED** | ** ** |
| Revenue                                              |       | $          | 500        |           | $          | 124,444       |       | $                | —     |             | $          | — |   | $ | 124,944 |   |
| Costs applicable to  revenues                        |       | (1,997     | )          | (78,120        | )          | —        |       | —           |       | (80,117          | )          |
| Operating expenses                                   |       | (5,507     | )          | (81,682        | )          | —        |       | —           |       | (87,189          | )          |
| Interest expense, net                                |       | (8,512     | )          | 393            |       | —        |       | —           |       | (8,119           | )          |
| Income from investment in  consolidated subsidiaries |       | (27,142    | )          | —         |       | —        |       | 27,142           |       | —           |       |
| Other non operating income  (expenses)               |       | 1,406      |       | (1,691         | )          | —        |       | —           |       | (285             | )          |
| Income tax expense                                   |       | 3,402      |       | 9,514          |       |          |       |             |       | 12,916           |       |
| Net income                                           |       | $          | (37,850    | )              | $          | (27,142       | )          | $                | —     |             | $          | 27,142 |   | $ | (37,850 | ) |

 

The following are summarized balance sheet statements setting forthcertain financial information concerning the Guarantor Subsidiaries as of December 31,2008 (in thousands).

 
| ** **                                               | ** ** | ** ** | ** ** | ** **     | ** ** | **NON-**      | ** ** | ** **       | ** ** | **AGI**          | ** ** |
|----------------------------------------------------------|------------|------------|------------|----------------|------------|---------------|------------|------------------|------------|------------------|------------|
| ** **                                               | ** ** | **AGI**    | ** ** | **GUARANTORS** | ** ** | **GUARANTOR** | ** ** | **ELIMINATIONS** | ** ** | **CONSOLIDATED** | ** ** |
|                                                     |       |       |       |           |       |          |       |             |       |             |       |
| Cash & cash  equivalents                        |       | $          | 1,300      |           | $          | 9,308         |       | $                | —     |             | $          | — |   | $ | 10,608 |   |
| Accounts receivable- net  of allowance                   |       | 5,949      |       | 167,484        |       |          |       | (133,242         | )          | 40,191           |       |
| Inventories                                              |       | —     |       | 57,137         |       | —        |       | —           |       | 57,137           |       |
| Other current assets                                     |       | 2,231      |       | 11,314         |       | —        |       | —           |       | 13,545           |       |
| Total current assets                                     |       | 9,480      |       | 245,243        |       | —        |       | (133,242         | )          | 121,481          |       |
|                                                     |       |       |       |           |       |          |       |             |       |             |       |
| Property and equipment,  net                             |       | 6,885      |       | 37,192         |       | —        |       | —           |       | 44,077           |       |
| Intangible assets                                        |       | 2,815      |       | 17,939         |       | —        |       | —           |       | 20,754           |       |
| Goodwill                                                 |       | 67,584     |       | 29,244         |       | —        |       | —           |       | 96,828           |       |
| Investment in subsidiaries                               |       | 512,024    |       | —         |       | —        |       | (512,024         | )          | —           |       |
| Affiliate note and  investments                          |       | 40,000     |       | 4,608          |       | —        |       | (40,000          | )          | 4,608            |       |
| Other assets                                             |       | 606        |       | 5,998          |       | —        |       | —           |       | 6,604            |       |
| Total assets                                             |       | $          | 639,394    |           | $          | 340,224       |       | $                | —     |             | $          | (685,266 | ) | $ | 294,352 |   |
|                                                     |       |       |       |           |       |          |       |             |       |             |       |
| Accounts payable                                         |       | $          | 625        |           | $          | 23,325        |       | $                | —     |             | $          | — |   | $ | 23,950 |   |
| Accrued and other  liabilities                           |       | 13,873     |       | 21,192         |       | —        |       | —           |       | 35,065           |       |
| Current portion of  long-term debt                       |       | 268,697    |       | (90,564        | )          | —        |       | (173,242         | )          | 4,891            |       |
| Current portion of  deferred revenue                     |       | 1,073      |       | 59,496         |       | —        |       | —           |       | 60,569           |       |
| Total current liabilities                                |       | 284,268    |       | 13,449         |       |          |       | (173,242         | )          | 124,475          |       |
|                                                     |       |       |       |           |       |          |       |             |       |             |       |
| Deferred revenue                                         |       | 2,415      |       | 33,440         |       | —        |       | —           |       | 35,855           |       |
| Long-term debt                                           |       | 152,399    |       | 134,856        |       | —        |       | —           |       | 287,255          |       |
| Other long-term  liabilities                             |       | 386,826    |       | (353,545       | )          | —        |       | —           |       | 33,281           |       |
| Total liabilities                                        |       | 825,908    |       | (171,800       | )          |          |       | (173,242         | )          | 480,866          |       |
|                                                     |       |       |       |           |       |          |       |             |       |             |       |
| Interdivisional equity                                   |       | —     |       | 512,024        |       |          |       | (512,024         | )          | —           |       |
| Stockholders’ deficit                               |       | (186,514   | )          | —         |       | —        |       | —           |       | (186,514         | )          |
| Total  liabilities & stockholders’ deficit |       | $          | 639,394    |           | $          | 340,224       |       | $                | —     |             | $          | (685,266 | ) | $ | 294,352 |   |

 

15

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**(7) NOTES OFFERING, GUARANTOR AND NON-GUARANTOR FINANCIALINFORMATION (continued)**

 

The following are summarized statements setting forth certain financialinformation concerning the Guarantor Subsidiaries for the nine months ended September 30,2008 (in thousands).

 
| ** **                                             | ** ** | ** ** | ** ** | ** **     | ** ** | **NON-**      | ** ** | ** **       | ** ** | **AGI**          | ** ** |
|--------------------------------------------------------|------------|------------|------------|----------------|------------|---------------|------------|------------------|------------|------------------|------------|
| ** **                                             | ** ** | **AGI**    | ** ** | **GUARANTORS** | ** ** | **GUARANTOR** | ** ** | **ELIMINATIONS** | ** ** | **CONSOLIDATED** | ** ** |
|                                                   |       |       |       |           |       |          |       |             |       |             |       |
| Revenue                                                |       | $          | 4,229      |           | $          | 401,822       |       | $                | —     |             | $          | — |   | $ | 406,051 |   |
| Costs applicable to  revenues                          |       | (10,028    | )          | (241,067       | )          | —        |       | —           |       | (251,095         | )          |
| Operating expenses                                     |       | (12,672    | )          | (162,562       | )          | (81,005       | )          | —           |       | (256,239         | )          |
| Interest expense, net                                  |       | (8,194     | )          | (9,536         | )          | —        |       | —           |       | (17,730          | )          |
| Income from investment in  consolidated subsidiaries   |       | (97,631    | )          | —         |       | —        |       | 97,631           |       | —           |       |
| Other non operating income  (expenses)                 |       | 4,504      |       | (4,668         | )          | —        |       | —           |       | (164             | )          |
| Income tax expense                                     |       | (226       | )          | (615           | )          | —        |       | —           |       | (841             | )          |
| Net income (loss)                                      |       | $          | (120,018   | )              | $          | (16,626       | )          | $                | (81,005    | )                | $          | 97,631 |   | $ | (120,018 | ) |
|                                                   |       |       |       |           |       |          |       |             |       |             |       |
| Cash flows from operations                             |       | $          | (26,777    | )              | $          | 43,269        |       | $                | —     |             | $          | — |   | $ | 16,492 |   |
| Cash flows used in  investing activities               |       | (1,171     | )          | (11,596        | )          | —        |       | —           |       | (12,767          | )          |
| Cash flows (used in)  provided by financing activities |       | 36,973     |       | (33,066        | )          | —        |       | —           |       | 3,907            |       |
| Cash at beginning of year                              |       | 5,337      |       | 3,020          |       | —        |       | —           |       | 8,357            |       |
| Cash at end of period                                  |       | $          | 14,362     |           | $          | 1,627         |       | $                | —     |             | $          | — |   | $ | 15,989 |   |

 

The following are summarized statements setting forth certain financialinformation concerning the Guarantor Subsidiaries for the three months ended September 30,2008 (in thousands).

 
| ** **                                           | ** ** | ** ** | ** ** | ** **     | ** ** | **NON-**      | ** ** | ** **       | ** ** | **AGI**          | ** ** |
|------------------------------------------------------|------------|------------|------------|----------------|------------|---------------|------------|------------------|------------|------------------|------------|
| ** **                                           | ** ** | **AGI**    | ** ** | **GUARANTORS** | ** ** | **GUARANTOR** | ** ** | **ELIMINATIONS** | ** ** | **CONSOLIDATED** | ** ** |
|                                                 |       |       |       |           |       |          |       |             |       |             |       |
| Revenue                                              |       | $          | 671        |           | $          | 132,666       |       | $                | —     |             | $          | — |   | 133,337 |   |
| Costs applicable to  revenues                        |       | (2,727     | )          | (80,910        | )          | —        |       | —           |       | (83,637          | )          |
| Operating expenses                                   |       | (3,608     | )          | (84,884        | )          | (81,005       | )          | —           |       | (169,497         | )          |
| Interest expense, net                                |       | (2,719     | )          | (3,183         | )          | —        |       | —           |       | (5,902           | )          |
| Income from investment in  consolidated subsidiaries |       | (119,126   | )          | —         |       | —        |       | 119,126          |       | —           |       |
| Other non operating income  (expenses)               |       | 1,463      |       | (1,604         | )          | —        |       | —           |       | (141             | )          |
| Income tax expense                                   |       | (64        | )          | (206           | )          | —        |       | —           |       | (270             | )          |
| Net income (loss)                                    |       | $          | (126,110   | )              | $          | (38,121       | )          | $                | (81,005    | )                | $          | 119,126 |   | $ | (126,110 | ) |
|                                                      |            |            |            |                |            |               |            |                  |            |                  |            |  |  |  |  |  |

 

**(8) INTEREST RATE SWAP AGREEMENTS**

 

The Company isexposed to certain risks related to its business operations.  The primary risks that we managed by usingderivatives is interest rate risk.  Weuse financial instruments, including interest rate swap agreements, to reduceour risk to this exposure.  We do not usederivatives for speculative trading purposes and are not a party to leveragedderivatives.

 

We recognize allof our derivative instruments as either assets or liabilities at fairvalue.  Fair value is determined inaccordance with the accounting guidance for Fair Value

 

16

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**(8) INTEREST RATE SWAPAGREEMENTS (continued)**

 

Measurements.  See Note 9 — Fair Value Measurements.  The accounting for changes in the fair valueof a derivative instrument depends on whether it has been designated andqualifies as part of a hedging relationship and, further, on the type ofhedging relationship.  For derivativesdesignated as hedges under the accounting guidance for Derivative Instrumentsand Hedging Activities, we formally assess, both at inception and periodicallythereafter, whether the hedging derivatives are highly effective in offsettingchanges in either the fair value or cash flows of the hedged item.  Our derivatives that are not designated anddo not qualify as hedges under the accounting guidance for DerivativeInstruments and Hedging Activities are adjusted to fair value through currentearnings.

 

Effective January 1,2009, the Company adopted the provisions of the new accounting guidance forDisclosures about Derivative Instruments and Hedging Activities.  The guidance requires that the objectives forusing derivative instruments be disclosed to better convey the purpose ofderivative use in terms of the risks that the Company is intending tomanage.  This standard also requiresdisclosure of how derivatives and related hedged items are accounted for andhow they affect the Company’s financial statements.  The adoption of the new guidance did not havea material impact on our condensed consolidated results of operations,financial position or cash flows.

 

On October 15, 2007, AGI entered into a five-year interest rateswap agreement with a notional amount of $100.0 million from which it willreceive periodic payments at the 3 month LIBOR-based variable rate (0.4875% at September 30,2009 based upon the July 31, 2009 reset date) and make periodic paymentsat a fixed rate of 5.135%, with settlement and rate reset dates every January 31,April 30, July 31, and October 31.  The interest rate swap agreement waseffective beginning October 31, 2007 and expires on October 31,2012.  On March 19, 2008, AGIentered into a 4.5 year interest rate swap agreement with a notional amount of$35.0 million from which it will receive periodic payments at the 3 monthLIBOR-based variable rate (0.4875% at September 30, 2009 based upon the July 31,2009 reset date) and make periodic payments at a fixed rate of 3.430%, withsettlement and rate reset dates every January 31, April 30, July 31,and October 31.  The interest rateswap was effective beginning April 30, 2008 and expires on October 31,2012.  The fair value of the swapagreements were zero at inception.  TheCompany entered into the interest rate swap agreements to limit the effect ofincreases on our floating rate debt.  Theinterest rate swap agreements are designated as a cash flow hedge of thevariable rate interest payments due on $135.0 million of the term loans and therevolving credit facility issued June 24, 2003, and accordingly, gains andlosses on the fair value of the interest rate swap agreements are reported inaccumulated other comprehensive loss and reclassified to earnings in the sameperiod in which the hedged interest payment affects earnings.

 

Due to thedisclosure of a potential sale of Camping World, in the fourth quarter of 2008a highly effective hedge on the $35.0 million outstanding debt by the $35.0million notional amount interest rate swap agreement was deemed to be no longerprobable and is now deemed to be reasonably possible.  As a result, changes in the value of the$35.0 million interest rate swap agreement are included in earnings as a gain(loss) on derivative instrument on October 1, 2008.  Included in other comprehensive loss at

 

17

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**(8) INTEREST RATE SWAP AGREEMENTS (continued)**

 

September 30,2009 is $0.4 million related to changes in the fair value of the $35.0 millioninterest rate swap prior to October 1, 2008 which will be amortized overthe remaining life of the interest rate swap and included in earnings as a gain(loss) on derivative instrument.  On June 11,2009, the Company partially terminated the $35.0 million interest rate swap,subject to a partial termination fee of $0.6 million which was expensed.  The notional amount was reduced to $20.0million.  All other terms of the interestrate swap agreement remained unchanged. As a result, the amount included in other comprehensive income relatedto the $35.0 million interest rate swap was reduced prorata and included inearnings as a gain (loss) on derivative instrument.

 

Due to theissuance of an option to the shareholder of the ultimate parent of the Companyto purchase Camping World, in the second quarter of 2009 a portion of thehighly effective hedge on the $100.0 million outstanding debt by the $100.0million notional amount interest rate swap agreement was deemed to be no longerprobable and is now deemed to be reasonably possible.  As a result, changes in the value of the last$20.0 million of the $100.0 million interest rate swap agreement are includedin earnings beginning on June 5, 2009. Included in other comprehensive loss is $1.6 million related to the last$20.0 million of the $100.0 million interest rate swap which will be amortizedover the remaining life of the interest rate swap and included in earnings as again (loss) on derivative instrument.

 

The following isthe location and amounts of derivative instruments fair values in the statementof financial position segregated between designated, qualifying hedginginstruments segregated by assets and liabilities as required by accounting guidance.

 

FairValues of Derivative Instruments (in thousands):

 
| **Derivatives  designated as   hedging intruments under   Statement 133** | ** ** | **Balance Sheet Location**   | ** ** | **9/30/2009** | ** ** | **12/31/2008** | ** ** |
|---------------------------------------------------------------------------|------------|------------------------------|------------|---------------|------------|----------------|------------|
|                                                                      |       |                         |       |          |       |           |       |
| Interest rate swap  contracts                                             |       | Other  long-term liabilities |       | $             | (8,138     | )              | $          | (12,731 | ) |
|                                                                           |            |                              |            |               |            |                |            |  |  |

 

18

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**(8) INTEREST RATE SWAP AGREEMENTS (continued)**

 

The following isthe location and amount of gains and losses on derivative instruments in thestatement of operations for the nine months ended September 30, 2009 and2008 segregated between designated, qualifying hedging instruments and thosethat are not, and segregated by assets and liabilities as required by theaccounting guidance for Derivative Instruments (in thousands):

 

Derivatives in Cashflow Hedging Relationships:

 
| ** **                                                                                                   | ** ** | **Interest Rate Swap Agreements**    | ** ** |
|--------------------------------------------------------------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                                                                                   | ** ** | **9/30/2009**                        | ** ** | **9/30/2008** | ** ** |
| Amount of Gain or (Loss) recognized in OCI on  Derivatives                                                   |       | $                                    | (3,233     | ) | $ | 58 |   |
|                                                                                                         |       |                                 |       |   |   |
| Location of Gain (Loss)  Reclassified from Accumulated OCI into Statement of operations (Effective  Portion) |       | Gain (loss) on derivative Instrument |       |
|                                                                                                              |            |                                      |            |  |  |  |  |

 
| ** **                                                                                                                                          | ** ** | **9/30/2009**                        | ** ** | **9/30/2008** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------|------------|---------------|------------|
| Amount of Gain or (Loss) reclassified from OCI into  Statement of Operations (Effective portion)                                                    |       | $                                    | (33        | )             | $          | — |   |
|                                                                                                                                                |       |                                 |       |          |       |
| Location of Gain (Loss)  Recognized in Statement of Operations on Derivatives (Ineffective Portion and  Amount Excluded from Effectiveness Testing) |       | Gain (loss) on derivative Instrument |       |
|                                                                                                                                                     |            |                                      |            |               |            |  |  |

 
| ** **                                                                                                                          | ** ** | **9/30/2009** | ** ** | **9/30/2008** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------|------------|---------------|------------|---------------|------------|
| Amount of Gain or (Loss)  recognized in income on Derivatives (Ineffective portion and amount excluded  from Effectiveness testing) |       | $             | 832        |          | $          | — |   |
|                                                                                                                                     |            |               |            |               |            |  |  |

 

**(9) FAIR VALUE MEASUREMENTS**

 

The Company adopted the new accountingguidance for fair value measurements, effective January 1, 2008, for itsfinancial assets and liabilities and effective January 1, 2009, withrespect to the fair value measurement requirements for non-financial assets andliabilities that are not remeasured on a recurring basis.  The new accounting guidance defines fairvalue, establishes a framework and gives guidance regarding the methods usedfor measuring fair value, and expands disclosures about fair valuemeasurements. Under this standard, fair value is defined as the price thatwould be received to sell an asset or paid to transfer a liability (i.e., the “exitprice”) in an orderly transaction between market participants at themeasurement date. Although the adoption of new accounting guidance did not havea material impact on our results of operations, financial position or cashflows, the Company is now required to provide additional disclosures as part ofits financial statements.

 

During the second quarter of 2009, theCompany adopted the provisions of the FASB’s new accounting guidance forinterim disclosures about fair value of financial instruments.  The adoption of the new accounting guidanceresulted in additional interim disclosures and did not have a material impacton our condensed consolidated results of operations, financial position or cashflows.  The new accounting guidance establishesa three-tier 

 

19

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**(9) FAIR VALUE MEASUREMENTS (continued)**

 

fair value hierarchy, which prioritizes theinputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such asquoted prices in active markets; Level 2, defined as inputs other than quotedprices in active markets that are either directly or indirectly observable; andLevel 3, defined as unobservable inputs in which little or no market dataexists, therefore requiring an entity to develop its own assumptions.

 

As of September 30, 2009, the Company holds interest rate swapagreements that are required to be measured at fair value on a recurringbasis.  The Company’s interest rate swapagreements are not traded on a public exchange. See Note 8 — Interest Rate Swap Agreements.  The fair value of these interest rate swapagreements are determined based on inputs that are readily available in publicmarkets or can be derived from information available in publicly quotedmarkets.  Therefore, the Company hascategorized these swap agreements as Level 2.

 

The Companyperformed an impairment test of the goodwill and intangible assets of thereporting units of our RV and powersports publications in the Mediasegment.  The impairment test indicatedthat the estimated fair value of these reporting units were less than bookvalue.  The excess of the carrying valueover the estimated fair value of the these reporting units was primarily due toa decline in advertising revenue leading to lower expected future cash flowsfor the business. In determining the fair value, the Company used an incomevaluation approach.

 

In performing thesecond step of the goodwill impairment test, the Company allocated theestimated fair values of the reporting units of our RV and powersportspublications determined in step one of the impairment test, to the assets andliabilities of the respective reporting unit in accordance with the accountingguidance for business combinations. The Company measured the impairment forthese units to be equal to the carrying value of its goodwill, or $46.9million.  The fair value of thegoodwill in the Media segment is measured on a non-recurring basis, andtherefore, the Company has categorized this asset as Level 3.  The Company recorded an impairment charge of $46.9million in the third quarter of 2009 related to these units, which is part ofthe Media segment.

 

Determining the fair value of a reporting unit under the first step ofthe goodwill impairment test and determining the fair value of individualassets and liabilities of a reporting unit under the second step of thegoodwill impairment test is judgmental in nature and often involves the use ofsignificant estimates and assumptions. These estimates and assumptions couldhave a significant impact on whether or not an impairment charge is recognizedand also the extent of such charge. The Company’s estimates of fair valueutilized in goodwill test may be based upon a number of factors, includingassumptions about the projected future cash flows, discount rate, growth rate,determination of market comparables, economic conditions, or changes to theCompany’s business operations. Such changes may result in impairment chargesrecorded in future periods.

 

The Company recorded an impairment charge of $81.0 million in the thirdquarter of 2008 that wrote down to zero the carrying value of the preferredinterest (the “FreedomRoads

 

20

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**(9) FAIR VALUE MEASUREMENTS (continued)**

 

Preferred Interest”) held by an indirect subsidiary of Camping World inFreedomRoads Holding Company, LLC (“FreedomRoads”), a holding company whosesubsidiaries sell and service new and used recreational vehicles.  FreedomRoads is an affiliate under commonownership with the Company’s ultimate parent. Management was assisted in determining the fair value of the preferredinterest in FreedomRoads by an independent third party valuation firm.  In anticipation of the potential sale of Camping World,the impairment charge was recorded as a result of declining performanceof the recreational vehicle industry driven by overall weakening of the economyand a significant decline in consumer confidence, in addition to limited creditavailable to consumers interested in purchasing recreational vehicles.  Therefore, the Company has categorized theFreedomRoads Preferred Interest as Level 3. The impairment charge relating to the FreedomRoads Preferred Interestwas allocated to the retail operating segment.

 

The Company’s liabilities at September 30, 2009, measured at fairvalue on a recurring basis subject to the disclosure requirements of fair valuemeasurements, was as follows:

 
| ** **                      | ** ** | ** ** | ** ** | **Fair Value Measurements at Reporting Date Using**        | ** ** |
|---------------------------------|------------|------------|------------|------------------------------------------------------------|------------|
| **(in thousands)**              | ** ** | ** ** | ** ** | **Quoted Prices in  Active Markets for  Identical Assets** | ** ** | **Significant Other  Observable   Inputs** | ** ** | **Significant   Unobservable   Inputs** | ** ** |
| **Description**                 | ** ** | **Amount** | ** ** | **(Level 1)**                                              | ** ** | **(Level 2)** | ** ** | **(Level 3)** | ** ** |
|                            |       |       |       |                                                       |       |   |   |   |   |
| As of September 30,  2009: |       |       |       |                                                       |       |   |   |   |   |
| Interest Rate Swap  Contracts   |       | $          | (8,138     | )                                                          | $          | — |   | $ | (8,138 | ) | $ | — |   |
|                            |       |       |       |                                                       |       |   |   |   |   |
| As of December 31,  2008:  |       |       |       |                                                       |       |   |   |   |   |
| Interest Rate Swap  Contracts   |       | (12,731    | )          | —                                                     |       | (12,731 | ) | — |   |
|                                 |            |            |            |                                                            |            |  |  |  |  |  |  |  |  |

 

Goodwill relatedto the Media segment was re-measured in the third quarter of 2009.  The fair values of cash equivalents, accountsreceivable and accounts payable approximate their carrying values due to theshort-term nature of these financial instruments.

 

The following table presents the reported carrying value and fair valueinformation for the Company’s Senior Subordinated Notes, and Senior CreditFacility.  The fair values shown belowfor the Senior Subordinated Notes are based on quoted prices in the market foridentical assets (Level 1), and the fair value shown for the Senior CreditFacility is based on significant unobservable inputs (Level 3) (in thousands):

 
| ** **                | ** ** | **9/30/2009** | ** ** | **12/31/2008** | ** ** |
|---------------------------|------------|---------------|------------|----------------|------------|
| ** **                | ** ** | **Cost**      | ** ** | **Fair Value** | ** ** | **Cost** | ** ** | **Fair Value** | ** ** |
| Senior Subordinated Notes |       | $             | 137,824    |           | $          | 96,477 |   | $ | 152,399 |   | $ | 80,771 |   |
| Senior Credit Facility    |       | 120,212       |       | 120,212        |       | 134,455 |   | 134,455 |   |
|                           |            |               |            |                |            |  |  |  |  |  |  |  |  |

 

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**(10) ****INCOME TAXES**

 

The followingtable summarizes the activity related to unrecognized tax benefits (inthousands):

 
| Balance at  December 31, 2008                                                       |   | $       | 14,493 |   |
|------------------------------------------------------------------------------------------|--------|---------|--------|--------|
| 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                 |   | (14,571 | )      |
| Other                                                                                    |   | 78      |   |
| Unrecognized tax benefits  at September 30, 2009                                    |   | $       | — |   |

 

The Companyaccrues interest and penalties related to unrecognized tax benefits in itsincome tax provision.  The Companyreversed accrued interest and penalties of $2.5 million related to unrecognizedtax benefits during the first nine months of 2009 and the entire liability forpenalties and interest was eliminated. This amount was originally included in other long-term liabilities.

 

The Company andits subsidiaries file income tax returns in the U.S. and various states.  With few exceptions, the Company is no longersubject to U.S. federal, state, and local income tax examinations by taxauthorities for years before 2006.

 

**(****11) RECENT EVENTS**

 

On June 5, 2009, the Company enteredinto an option agreement with the shareholder of its ultimate parent to whichthe Company granted such shareholder or his assigns an option, exercisable onor before March 1, 2010, to purchase the Company’s Camping Worldsubsidiary for $55.0 million. In the event the Camping World purchase option isexercised and, subject to the consent of the lenders under the Senior CreditFacility, the sale of Camping World consummated, the Company would intend touse the net cash proceeds from the sale of Camping World to repay indebtednessoutstanding under the Senior Credit Facility, as amended.  As of September 30, 2009, an aggregateof $111.2 million was outstanding under the term loans and $9.0 million wasoutstanding under the revolving credit facility of the Senior Credit Facility.

 

The financial statements for Camping Worldare different from the segment reporting in Note 3 because the Camping WorldPresident’s Club and other related ancillary products are included as part ofthe Membership Services segment in the segment reporting.

 

The following unaudited proforma condensed consolidated balance sheet as of September 30, 2009 and December 31,2008 and the statement of operations for the nine months ended September 30,2009 and 2008 reflect the reclassification

 

22

----

 

**(****11)RECENT EVENTS (continued)**

 

adjustments associated withthe proposed disposal/sale of Camping World to the shareholder of the ultimateparent of the Company.  The pro formaadjustments relate to the disposal are presented since the disposition did notmeet the discontinued operations reporting requirements pursuant to new guidancefor Accounting for the Impairment or Disposal of Long-Lived Assets as of September 30,2009, but are expected to meet such requirements if the transaction iscompleted.  Since the transaction is asale to an entity under common ownership with AGI such long-lived assets areconsidered disposed of when they are exchanged or distributed in accordancewith new accounting guidance.  The proforma adjustments reflect the reclassification of assets and liabilities associatedwith Camping World to current assets and liabilities to be disposed of inaccordance with accounting guidance as if the reporting requirements had beenmet at September 30, 2009.  Inaddition, the historical operating results have also been reclassified toreflect discontinued operations.

 

Corporate Expenses - Theallocation to Camping World of expenses for certain Affinity Group, Inc.corporate functions historically provided to Camping World are done in accordancewith new accounting guidance for Allocation of Expenses and Related Disclosuresin Subsidiaries’ Financial Statements. Such allocations were made on a specific identification basis to theextent possible and otherwise based on relative percentages, as compared to theCompany’s other businesses, of headcount or other appropriate methods dependingon the nature of each item of cost to be allocated.

 

Interest Expense - Theinterest expense included in discontinued operations below reflects theinterest allocated to Camping World based upon debt required to be repaid uponconsummation of this transaction.

 

23

----

 

**(****11)RECENT EVENTS (continued)**

 

The unaudited pro formabalance sheet of AGI reclassifying Camping World as of September 30, 2009to assets and liabilities of discontinued operations is as follows (inthousands except shares and par value):

 
| ** **                                                                                   | ** ** | ** **     | ** ** | **Reclassification of** | ** ** | ** **    | ** ** |
|----------------------------------------------------------------------------------------------|------------|----------------|------------|-------------------------|------------|---------------|------------|
| ** **                                                                                   | ** ** | **Historical** | ** ** | **Camping World**       | ** ** | **Pro Forma** | ** ** |
| **ASSETS**                                                                                   |       |           |       |                    |       |          |       |
| CURRENT ASSETS:                                                                              |       |           |       |                    |       |          |       |
| Cash and cash equivalents                                                                    |       | $              | 8,800      |                    | $          | (3,259        | )          | $ | 5,541 |   |
| Accounts receivable, net                                                                     |       | 27,891         |       | (5,118                  | )          | 22,773        |       |
| Inventories                                                                                  |       | 61,032         |       | (60,363                 | )          | 669           |       |
| Prepaid expenses and other  assets                                                           |       | 18,214         |       | (1,943                  | )          | 16,271        |       |
| Assets of discontinued  operations                                                           |       | —         |       | 104,364                 |       | 104,364       |       |
| Total current assets                                                                         |       | 115,937        |       | 33,681                  |       | 149,618       |       |
|                                                                                         |       |           |       |                    |       |          |       |
| PROPERTY AND EQUIPMENT,  net                                                                 |       | 36,082         |       | (28,809                 | )          | 7,273         |       |
| NOTE FROM AFFILIATE                                                                          |       | 4,711          |       | —                  |       | 4,711         |       |
| INTANGIBLE ASSETS, net                                                                       |       | 16,799         |       | (2,609                  | )          | 14,190        |       |
| GOODWILL                                                                                     |       | 49,944         |       | —                  |       | 49,944        |       |
| OTHER ASSETS                                                                                 |       | 3,647          |       | (2,263                  | )          | 1,384         |       |
| Total assets                                                                                 |       | $              | 227,120    |                    | $          | —        |       | $ | 227,120 |   |
|                                                                                         |       |           |       |                    |       |          |       |
| **LIABILITIES  AND STOCKHOLDER’S DEFICIT**                                              |       |           |       |                    |       |          |       |
| CURRENT LIABILITIES:                                                                         |       |           |       |                    |       |          |       |
| Accounts payable                                                                             |       | $              | 26,390     |                    | $          | (23,564       | )          | $ | 2,826 |   |
| Accrued interest                                                                             |       | 2,956          |       | —                  |       | 2,956         |       |
| Accrued income taxes                                                                         |       | 1,579          |       | 138                     |       | 1,717         |       |
| Accrued liabilities                                                                          |       | 26,806         |       | (13,257                 | )          | 13,549        |       |
| Deferred revenues and  gains                                                                 |       | 69,769         |       | (8,104                  | )          | 61,665        |       |
| Current portion of  long-term debt                                                           |       | 131,242        |       | —                  |       | 131,242       |       |
| Liabilities of  discontinued operations                                                      |       | —         |       | 53,042                  |       | 53,042        |       |
| Total current liabilities                                                                    |       | 258,742        |       | 8,255                   |       | 266,997       |       |
|                                                                                         |       |           |       |                    |       |          |       |
| DEFERRED REVENUES AND  GAINS                                                                 |       | 35,211         |       | (8,255                  | )          | 26,956        |       |
| LONG-TERM DEBT, net of  current portion                                                      |       | 138,592        |       | —                  |       | 138,592       |       |
| OTHER LONG-TERM  LIABILITIES                                                                 |       | 11,412         |       | —                  |       | 11,412        |       |
|                                                                                         |       | 443,957        |       | —                  |       | 443,957       |       |
|                                                                                         |       |           |       |                    |       |          |       |
| COMMITMENTS AND  CONTINGENCIES                                                               |       |           |       |                    |       |          |       |
|                                                                                         |       |           |       |                    |       |          |       |
| STOCKHOLDER’S DEFICIT :                                                                 |       |           |       |                    |       |          |       |
| Common stock, $.001 par  value, 2,000shares  authorized, 2,000 shares issued and outstanding |       | 1              |       | —                  |       | 1             |       |
| Additional paid-in capital                                                                   |       | 89,505         |       | —                  |       | 89,505        |       |
| Accumulated deficit                                                                          |       | (299,239       | )          | —                  |       | (299,239      | )          |
| Accumulated other  comprehensive income                                                      |       | (7,104         | )          | —                  |       | (7,104        | )          |
| Total stockholder’s  deficit                                                            |       | (216,837       | )          | —                  |       | (216,837      | )          |
| Total liabilities and  stockholder’s deficit                                            |       | $              | 227,120    |                    | $          | —        |       | $ | 227,120 |   |

 

24

----

 

**(****11) RECENT EVENTS (continued)**

 

The unaudited proforma balance sheet of AGI reclassifying Camping World as of December 31,2008 to assets and liabilities of discontinued operations is as follows (inthousands except shares and par value):

 
| ** **                                                                                   | ** ** | ** **     | ** ** | **Reclassification of** | ** ** | ** **    | ** ** |
|----------------------------------------------------------------------------------------------|------------|----------------|------------|-------------------------|------------|---------------|------------|
| ** **                                                                                   | ** ** | **Historical** | ** ** | **Camping World**       | ** ** | **Pro Forma** | ** ** |
| **ASSETS**                                                                                   |       |           |       |                    |       |          |       |
| CURRENT ASSETS:                                                                              |       |           |       |                    |       |          |       |
| Cash and cash equivalents                                                                    |       | $              | 10,608     |                    | $          | (842          | )          | $ | 9,766 |   |
| Accounts receivable, less  allowance fordoubtbul  accounts                                   |       | 40,191         |       | (9,084                  | )          | 31,107        |       |
| Inventories                                                                                  |       | 57,137         |       | (55,908                 | )          | 1,229         |       |
| Prepaid expenses and other  assets                                                           |       | 13,545         |       | (2,476                  | )          | 11,069        |       |
| Assets of discontinued  operations                                                           |       | —         |       | 110,964                 |       | 110,964       |       |
| Total current assets                                                                         |       | 121,481        |       | 42,654                  |       | 164,135       |       |
|                                                                                         |       |           |       |                    |       |          |       |
| PROPERTY AND EQUIPMENT,  net                                                                 |       | 44,077         |       | (34,022                 | )          | 10,055        |       |
| NOTE FROM AFFILIATE                                                                          |       | 4,608          |       | —                  |       | 4,608         |       |
| INTANGIBLE ASSETS, net                                                                       |       | 20,754         |       | (3,391                  | )          | 17,363        |       |
| GOODWILL                                                                                     |       | 96,828         |       | —                  |       | 96,828        |       |
| DEFERRED TAX ASSETS, net                                                                     |       | 4,569          |       | (4,569                  | )          | —        |       |
| OTHER ASSETS                                                                                 |       | 2,035          |       | (672                    | )          | 1,363         |       |
| Total assets                                                                                 |       | $              | 294,352    |                    | $          | —        |       | $ | 294,352 |   |
|                                                                                         |       |           |       |                    |       |          |       |
| **LIABILITIES  AND STOCKHOLDER’S DEFICIT**                                              |       |           |       |                    |       |          |       |
| CURRENT LIABILITIES:                                                                         |       |           |       |                    |       |          |       |
| Accounts payable                                                                             |       | $              | 23,950     |                    | $          | (19,383       | )          | $ | 4,567 |   |
| Accrued interest                                                                             |       | 6,946          |       | —                  |       | 6,946         |       |
| Accrued income taxes                                                                         |       | 1,165          |       | 372                     |       | 1,537         |       |
| Accrued liabilities                                                                          |       | 26,954         |       | (10,864                 | )          | 16,090        |       |
| Deferred revenues and  gains                                                                 |       | 60,569         |       | (7,254                  | )          | 53,315        |       |
| Current portion of  long-term debt                                                           |       | 12,391         |       | —                  |       | 12,391        |       |
| Liabilities of  discontinued operations                                                      |       | —         |       | 59,536                  |       | 59,536        |       |
| Total current liabilities                                                                    |       | 131,975        |       | 22,407                  |       | 154,382       |       |
|                                                                                         |       |           |       |                    |       |          |       |
| DEFERRED REVENUES AND  GAINS                                                                 |       | 35,855         |       | (8,500                  | )          | 27,355        |       |
| LONG-TERM DEBT, net of  current portion                                                      |       | 279,755        |       | —                  |       | 279,755       |       |
| OTHER LONG-TERM  LIABILITIES                                                                 |       | 33,281         |       | (13,907                 | )          | 19,374        |       |
|                                                                                         |       | 480,866        |       | —                  |       | 480,866       |       |
|                                                                                         |       |           |       |                    |       |          |       |
| COMMITMENTS AND  CONTINGENCIES                                                               |       |           |       |                    |       |          |       |
|                                                                                         |       |           |       |                    |       |          |       |
| STOCKHOLDER’S DEFICIT :                                                                 |       |           |       |                    |       |          |       |
| Common stock, $.001 par  value, 2,000shares  authorized, 2,000 shares issued and outstanding |       | 1              |       | —                  |       | 1             |       |
| Additional paid-in capital                                                                   |       | 81,005         |       | —                  |       | 81,005        |       |
| Accumulated deficit                                                                          |       | (257,183       | )          | —                  |       | (257,183      | )          |
| Accumulated other  comprehensive income                                                      |       | (10,337        | )          | —                  |       | (10,337       | )          |
| Total stockholder’s  deficit                                                            |       | (186,514       | )          | —                  |       | (186,514      | )          |
| Total liabilities and  stockholder’s deficit                                            |       | $              | 294,352    |                    | $          | —        |       | $ | 294,352 |   |

 

25

----

 

**(****11)RECENT EVENTS (continued)**

 

Unaudited pro forma information relating to the operations of AGIreclassifying Camping World for the nine months ended September 30, 2009to discontinued operations is as follows (in thousands):

 
| ** **                                                                       | ** ** | **2009**       | ** ** | **Reclassification of** | ** ** | **2009**      | ** ** |
|----------------------------------------------------------------------------------|------------|----------------|------------|-------------------------|------------|---------------|------------|
| ** **                                                                       | ** ** | **Historical** | ** ** | **Camping World**       | ** ** | **Pro Forma** | ** ** |
|                                                                             |       |           |       |                    |       |          |       |
| REVENUES:                                                                        |       |           |       |                    |       |          |       |
| Membership services                                                              |       | $              | 109,960    |                    | $          | (13,102       | )          | $ | 96,858 |   |
| Media                                                                            |       | 35,116         |       | —                  |       | 35,116        |       |
| Retail                                                                           |       | 214,820        |       | (214,820                | )          | —        |       |
|                                                                             |       | 359,896        |       | (227,922                | )          | 131,974       |       |
|                                                                             |       |           |       |                    |       |          |       |
| COSTS APPLICABLE TO  REVENUES:                                                   |       |           |       |                    |       |          |       |
| Membership services                                                              |       | 67,976         |       | (2,359                  | )          | 65,617        |       |
| Media                                                                            |       | 28,032         |       | —                  |       | 28,032        |       |
| Retail                                                                           |       | 130,840        |       | (130,840                | )          | —        |       |
|                                                                             |       | 226,848        |       | (133,199                | )          | 93,649        |       |
|                                                                             |       |           |       |                    |       |          |       |
| GROSS PROFIT                                                                     |       | 133,048        |       | (94,723                 | )          | 38,325        |       |
|                                                                             |       |           |       |                    |       |          |       |
| OPERATING EXPENSES:                                                              |       |           |       |                    |       |          |       |
| Selling, general and  administrative                                             |       | 97,219         |       | (83,822                 | )          | 13,397        |       |
| Financing expenses                                                               |       | 1,877          |       | —                  |       | 1,877         |       |
| Goodwill impairment                                                              |       | 46,884         |       | —                  |       | 46,884        |       |
| Depreciation and  amortization                                                   |       | 16,208         |       | (7,389                  | )          | 8,819         |       |
|                                                                             |       | 162,188        |       | (91,211                 | )          | 70,977        |       |
|                                                                             |       |           |       |                    |       |          |       |
| LOSS FROM OPERATIONS                                                             |       | (29,140        | )          | (3,512                  | )          | (32,652       | )          |
|                                                                             |       |           |       |                    |       |          |       |
| NON-OPERATING ITEMS:                                                             |       |           |       |                    |       |          |       |
| Interest income                                                                  |       | 392            |       | (4                      | )          | 388           |       |
| Interest expense                                                                 |       | (21,884        | )          | 3,430                   |       | (18,454       | )          |
| Debt restructuring expense                                                       |       | 4,678          |       | —                  |       | 4,678         |       |
| Gain on derivative  instrument                                                   |       | 799            |       | —                  |       | 799           |       |
| Other non-operating items                                                        |       | (1,218         | )          | 562                     |       | (656          | )          |
|                                                                             |       | (17,233        | )          | 3,988                   |       | (13,245       | )          |
|                                                                             |       |           |       |                    |       |          |       |
| LOSS FROM CONTINUING  OPERATIONS BEFORE INCOME TAXES AND DISCONTINUED OPERATIONS |       | (46,373        | )          | 476                     |       | (45,897       | )          |
|                                                                             |       |           |       |                    |       |          |       |
| INCOME TAX BENEFIT                                                               |       | 12,216         |       | (9,101                  | )          | 3,115         |       |
|                                                                             |       |           |       |                    |       |          |       |
| LOSS FROM CONTINUING  OPERATIONS                                                 |       | (34,157        | )          | (8,625                  | )          | (42,782       | )          |
|                                                                             |       |           |       |                    |       |          |       |
| DISCONTINUED OPERATIONS                                                          |       |           |       |                    |       |          |       |
| Loss from operations of  discontinued Camping World, Inc.                   |       | —         |       | (476                    | )          | (476          | )          |
| Income tax benefit                                                               |       | —         |       | 9,101                   |       | 9,101         |       |
| Gain on discontinued  operations                                                 |       | —         |       | 8,625                   |       | 8,625         |       |
|                                                                             |       |           |       |                    |       |          |       |
| NET LOSS                                                                         |       | $              | (34,157    | )                       | $          | —        |       | $ | (34,157 | ) |

 

26

----

 

**(****11) RECENT EVENTS (continued)**

 

Unaudited proforma information relating the operations of AGI reclassifying Camping Worldfor the nine months ended September 30, 2008 to discontinued operations isas follows (in thousands):

 
| ** **                                                                       | ** ** | **2008**       | ** ** | **Reclassification of** | ** ** | **2008**      | ** ** |
|----------------------------------------------------------------------------------|------------|----------------|------------|-------------------------|------------|---------------|------------|
| ** **                                                                       | ** ** | **Historical** | ** ** | **Camping World**       | ** ** | **Pro Forma** | ** ** |
|                                                                             |       |           |       |                    |       |          |       |
| REVENUES:                                                                        |       |           |       |                    |       |          |       |
| Membership services                                                              |       | $              | 114,718    |                    | $          | (14,297       | )          | $ | 100,421 |   |
| Media                                                                            |       | 54,227         |       | —                  |       | 54,227        |       |
| Retail                                                                           |       | 237,106        |       | (237,106                | )          | —        |       |
|                                                                             |       | 406,051        |       | (251,403                | )          | 154,648       |       |
|                                                                             |       |           |       |                    |       |          |       |
| COSTS APPLICABLE TO  REVENUES:                                                   |       |           |       |                    |       |          |       |
| Membership services                                                              |       | 72,810         |       | (3,573                  | )          | 69,237        |       |
| Media                                                                            |       | 39,208         |       | —                  |       | 39,208        |       |
| Retail                                                                           |       | 139,077        |       | (139,077                | )          | —        |       |
|                                                                             |       | 251,095        |       | (142,650                | )          | 108,445       |       |
|                                                                             |       |           |       |                    |       |          |       |
| GROSS PROFIT                                                                     |       | 154,956        |       | (108,753                | )          | 46,203        |       |
|                                                                             |       |           |       |                    |       |          |       |
| OPERATING EXPENSES:                                                              |       |           |       |                    |       |          |       |
| Selling, general and  administrative                                             |       | 112,559        |       | (97,922                 | )          | 14,637        |       |
| Goodwill impairment                                                              |       | 47,601         |       | (47,601                 | )          | —        |       |
| Impairment of long-lived  assets                                                 |       | 81,005         |       | (81,005                 | )          | —        |       |
| Depreciation and  amortization                                                   |       | 15,074         |       | (6,509                  | )          | 8,565         |       |
|                                                                             |       | 256,239        |       | (233,037                | )          | 23,202        |       |
|                                                                             |       |           |       |                    |       |          |       |
| LOSS FROM OPERATIONS                                                             |       | (101,283       | )          | 124,284                 |       | 23,001        |       |
|                                                                             |       |           |       |                    |       |          |       |
| NON-OPERATING ITEMS:                                                             |       |           |       |                    |       |          |       |
| Interest income                                                                  |       | 444            |       | (25                     | )          | 419           |       |
| Interest expense                                                                 |       | (18,174        | )          | 2,243                   |       | (15,931       | )          |
| Other non-operating items                                                        |       | (164           | )          | (246                    | )          | (410          | )          |
|                                                                             |       | (17,894        | )          | 1,972                   |       | (15,922       | )          |
|                                                                             |       |           |       |                    |       |          |       |
| LOSS FROM CONTINUING  OPERATIONS BEFORE INCOME TAXES AND DISCONTINUED OPERATIONS |       | (119,177       | )          | 126,256                 |       | 7,079         |       |
|                                                                             |       |           |       |                    |       |          |       |
| INCOME TAX EXPENSE                                                               |       | (841           | )          | 615                     |       | (226          | )          |
|                                                                             |       |           |       |                    |       |          |       |
| LOSS FROM CONTINUING  OPERATIONS                                                 |       | (120,018       | )          | 126,871                 |       | 6,853         |       |
|                                                                             |       |           |       |                    |       |          |       |
| DISCONTINUED OPERATIONS                                                          |       |           |       |                    |       |          |       |
| Loss from operations of  discontinued Camping World, Inc.                   |       | —         |       | (126,256                | )          | (126,256      | )          |
| Income tax expense                                                               |       | —         |       | (615                    | )          | (615          | )          |
| Loss on discontinued  operations                                                 |       | —         |       | (126,871                | )          | (126,871      | )          |
|                                                                             |       |           |       |                    |       |          |       |   |   |   |
| NET LOSS                                                                         |       | $              | (120,018   | )                       | $          | —        |       | $ | (120,018 | ) |

 

27

----

 

**(12) SUBSEQUENT EVENTS**

 

The Company hascompleted an evaluation of all subsequent events through November 12, 2009and concluded, that except as disclosed below, no other subsequent events haveoccurred that would require recognition in the Company’s Consolidated FinancialStatements or disclosed in the Notes to the Consolidated Financial Statements.

 

The Company andits parent, AGHI, have engaged a financial advisor to seek capital to permit apossible refinancing or restructuring of the Senior Credit Facility ($111.2million principal amount of the term loans and $9.0 million principal amountunder the revolving credit line under the Senior Credit Facility on September 30,2009), AGI’s Second Lien Loan indebtedness ($9.7 million principal outstandingon September 30, 2009), the AGI Senior Subordinated Notes due 2012 ($137.8million principal outstanding on September 30, 2009) and the AGHI Notesdue 2012 ($112.1 million principal outstanding on September 30,2009).  The Company has receivedpreliminary written proposals from a number of potential capital sources, someof whom have performed business due diligence.

 

The Company andAGHI have engaged in discussions with the holders of the AGHI Notes and theholders of other indebtedness of the Company regarding a refinancing orrestructuring of the indebtedness of the Company and its parent, AGHI.  As part of those discussions, AGHI hasdeferred payment of the interest on the AGHI Notes that was due on August 15,2009.  The indenture governing the AGHINotes provides a 30 day grace period for the payment of interest.  On September 14, 2009, AGHI receivedconsent letters for the payment deferral from certain institutional holders ofthe AGHI Notes holding in the aggregate $65.8 million principal amount of theAGHI Notes outstanding and consent letters for the payment deferral fromcertain non-institutional holders of the AGHI Notes holding in the aggregate$46.6 million principal amount of the AGHI Notes outstanding.  The aggregate principal amount of the AGHINotes outstanding is $113.6 million so the holders executing the consents hold98.9% of the outstanding principal amount of the AGHI Notes.  Pursuant to the consent letters from theinstitutional holders, AGHI agreed to pay the legal fees for a law firm to representthe institutional holders in connection with such discussions and has paid a$150,000 retainer to that law firm.  Inaddition, AGHI has paid a consent fee equal 1⁄4 of 1% of the principal amount tothe institutional holders who signed a consent letter, or an aggregate of$164,600.  No consent fee was paid to thenon-institutional holders.  Theinstitutional holders have extended the most recent interest payment date ontheir AGHI Notes until November 13, 2009. The non-institutional holders have extended the most recent interestpayment date on their AGHI Notes until five business days after the terminationof the consents from the institutional holders. On September 14, 2009, AGHI paid the interest on the remaining $1.3million principal amount of AGHI Notes that are outstanding and for which apayment deferral consent was not obtained.

 

As a result of restrictions in the Senior CreditFacility, AGI is blocked from making distributions to AGHI for the purpose ofpaying interest on the AGHI Notes.  Forthe two most recent interest payments, AGHI has made the interest paymentsusing the proceeds of a capital contribution from AGHI’s parent.  There can be no assurance

 

28

----

 

**(12) SUBSEQUENT EVENTS (continued)**

 

that AGHI’s parent will fund the interest payment onthe AGHI Notes by the end of the deferral period.

 

There can be no assurance that the Company and AGHIwill be able to implement a new capital structure to repay or refinance theSenior Credit Facility, AGI’s Second Lien Loan indebtedness, the AGI SeniorSubordinated Notes or the AGHI Notes before the final maturity of the SeniorCredit Facility in March 2010, the maturity of AGI’s Second Lien Loanindebtedness in July 2010, the maturity of the AGI Senior SubordinatedNotes in February 2012, or the maturity of the AGHI Notes, $25.4 millionof which mature in March 2010 and the balance in February 2012.   If the Company or AGHI is not able torefinance or replace any such debt before its scheduled maturity, the holdersof such debt will be entitled to exercise their respective remedies including,in the case of secured debt, to sell the collateral securing the repaymentthereof.  In as much as the indebtednessowned under the Senior Credit Facility and AGI’s Second Lien Loan indebtednessis secured, it would be repaid before funds are available to discharge anyunsecured or subordinated obligations.

 

29

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**ITEM2:**

 

AFFINITY GROUP, INC. AND SUBSIDIARIES

MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION ANDRESULTS OF OPERATIONS

 

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

 
| ** **                             | ** ** | **THREE MONTHS ENDED** | ** ** |
|----------------------------------------|------------|------------------------|------------|
| ** **                             | ** ** | **9/30/2009**          | ** ** | **9/30/2008** | ** ** | **Inc/(Dec)** | ** ** |
|                                   |       |                   |       |   |   |   |   |
| REVENUES:                              |       |                   |       |   |   |   |   |
| Membership services                    |       | 28.4                   | %          | 27.5 | % | (2.9 | )% |
| Media                                  |       | 6.7                    | %          | 9.4 | % | (33.6 | )% |
| Retail                                 |       | 64.9                   | %          | 63.1 | % | (3.7 | )% |
|                                   |       | 100.0                  | %          | 100.0 | % | (6.3 | )% |
|                                   |       |                   |       |   |   |   |   |
| COSTS APPLICABLE TO  REVENUES:         |       |                   |       |   |   |   |   |
| Membership services                    |       | 18.4                   | %          | 17.4 | % | (0.5 | )% |
| Media                                  |       | 5.7                    | %          | 8.0 | % | (32.6 | )% |
| Retail                                 |       | 40.0                   | %          | 37.3 | % | 0.1 | % |
|                                   |       | 64.1                   | %          | 62.7 | % | (4.2 | )% |
|                                   |       |                   |       |   |   |   |   |
| GROSS PROFIT                           |       | 35.9                   | %          | 37.3 | % | (9.8 | )% |
|                                   |       |                   |       |   |   |   |   |
| OPERATING EXPENSES:                    |       |                   |       |   |   |   |   |
| Selling, general and  administrative   |       | 27.3                   | %          | 26.8 | % | (4.7 | )% |
| Goodwill impairment                    |       | 37.5                   | %          | 35.7 | % | (1.5 | )% |
| Impairment of investment  in affiliate |       | —                 |       | 60.8 | % | (100.0 | )% |
| Financing expense                      |       | 0.3                    | %          | — |   | 100.0 | % |
| Depreciation and  amortization         |       | 4.7                    | %          | 3.8 | % | 15.2 | % |
|                                   |       | 69.8                   | %          | 127.1 | % | (48.6 | )% |
|                                   |       |                   |       |   |   |   |   |
| LOSS FROM OPERATIONS                   |       | (33.9                  | )%         | (89.8 | )% | (64.6 | )% |
|                                   |       |                   |       |   |   |   |   |
| NON-OPERATING ITEMS:                   |       |                   |       |   |   |   |   |
| Interest income                        |       | 0.1                    | %          | 0.1 | % | (21.0 | )% |
| Interest expense                       |       | (6.6                   | )%         | (4.6 | )% | 36.0 | % |
| Gain on derivative  instrument         |       | 0.1                    | %          | — |   | 100.0 | % |
| Other non-operating items,  net        |       | (0.3                   | )%         | (0.1 | )% | 183.0 | % |
|                                   |       | (6.7                   | )%         | (4.6 | )% | 39.1 | % |
|                                   |       |                   |       |   |   |   |   |
| LOSS BEFORE INCOME TAXES               |       | (40.6                  | )%         | (94.4 | )% | (59.7 | )% |
|                                   |       |                   |       |   |   |   |   |
| INCOME TAX BENEFIT  (EXPENSE)          |       | 10.3                   | %          | (0.2 | )% | (4883.7 | )% |
|                                   |       |                   |       |   |   |   |   |
| NET LOSS                               |       | (30.3                  | )%         | (94.6 | )% | (70.0 | )% |

 

30

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AFFINITY GROUP, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

 

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

 
| ** **                             | ** ** | **NINE MONTHS ENDED** | ** ** |
|----------------------------------------|------------|-----------------------|------------|
| ** **                             | ** ** | **9/30/2009**         | ** ** | **9/30/2008** | ** ** | **Inc/(Dec)** | ** ** |
|                                   |       |                  |       |   |   |   |   |
| REVENUES:                              |       |                  |       |   |   |   |   |
| Membership services                    |       | 30.5                  | %          | 28.3 | % | (4.1 | )% |
| Media                                  |       | 9.8                   | %          | 13.4 | % | (35.2 | )% |
| Retail                                 |       | 59.7                  | %          | 58.3 | % | (9.4 | )% |
|                                   |       | 100.0                 | %          | 100.0 | % | (11.4 | )% |
|                                   |       |                  |       |   |   |   |   |
| COSTS APPLICABLE TO  REVENUES:         |       |                  |       |   |   |   |   |
| Membership services                    |       | 18.9                  | %          | 17.9 | % | (6.6 | )% |
| Media                                  |       | 7.8                   | %          | 9.7 | % | (28.5 | )% |
| Retail                                 |       | 36.3                  | %          | 34.2 | % | (5.9 | )% |
|                                   |       | 63.0                  | %          | 61.8 | % | (9.7 | )% |
|                                   |       |                  |       |   |   |   |   |
| GROSS PROFIT                           |       | 37.0                  | %          | 38.2 | % | (14.1 | )% |
|                                   |       |                  |       |   |   |   |   |
| OPERATING EXPENSES:                    |       |                  |       |   |   |   |   |
| Selling, general and  administrative   |       | 27.0                  | %          | 27.6 | % | (13.6 | )% |
| Goodwill impairment                    |       | 13.0                  | %          | 11.8 | % | (1.5 | )% |
| Impairment of investment  in affiliate |       | —                |       | 20.0 | % | (100.0 | )% |
| Financing expense                      |       | 0.6                   | %          | — |   | 100.0 | % |
| Depreciation and  amortization         |       | 4.5                   | %          | 3.7 | % | 7.5 | % |
|                                   |       | 45.1                  | %          | 63.1 | % | (36.7 | )% |
|                                   |       |                  |       |   |   |   |   |
| LOSS FROM OPERATIONS                   |       | (8.1                  | )%         | (24.9 | )% | (71.2 | )% |
|                                   |       |                  |       |   |   |   |   |
| NON-OPERATING ITEMS:                   |       |                  |       |   |   |   |   |
| Interest income                        |       | 0.1                   | %          | 0.1 | % | (11.7 | )% |
| Interest expense                       |       | (6.1                  | )%         | (4.6 | )% | 20.4 | % |
| Gain on derivative  instrument         |       | 0.2                   | %          | — |   | 100.0 | % |
| Gain on debt restructure               |       | 1.3                   | %          | — |   | 100.0 | % |
| Other non-operating items,  net        |       | (0.3                  | )%         | — |   | 642.7 | % |
|                                   |       | (4.8                  | )%         | (4.5 | )% | (3.7 | )% |
|                                   |       |                  |       |   |   |   |   |
| LOSS BEFORE INCOME TAXES               |       | (12.9                 | )%         | (29.4 | )% | (61.1 | )% |
|                                   |       |                  |       |   |   |   |   |
| INCOME TAX BENEFIT  (EXPENSE)          |       | 3.4                   | %          | (0.2 | )% | (1552.6 | )% |
|                                   |       |                  |       |   |   |   |   |
| NET LOSS                               |       | (9.5                  | )%         | (29.6 | )% | (71.5 | )% |

 

31

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**RESULTS OF OPERATIONS**

 

**ThreeMonths Ended September 30, 2009**

**ComparedWith Three Months Ended September 30, 2008**

 

*Revenues*

 

Revenuesof $124.9 million for the third quarter of 2009 decreased by $8.4 million, or6.3%, from the comparable period in 2008.

 

MembershipServices revenues of $35.5 million for the third quarter of 2009 decreased $1.1million, or 2.9%, from the comparable period in 2008.  This revenue decrease was largelyattributable to a $0.7 million reduction in member publication advertisingrevenue, a $0.2 million decrease due to reduced membership for the Coast Cluband Golf Card Club, a $0.4 million reduction in revenue from emergency roadservice products, a $0.3 million decrease in marketing fee income for vehicleinsurance products and a $0.2 million reduction in revenue from member events.  These decreases were partially offsetby increased extended vehicle warranty program revenue of $0.7 millionresulting from continued policy growth and strong renewals.

 

Mediarevenues of $8.3 million for the third quarter of 2009 decreased $4.2 million,or 33.6%, from the comparable period in 2008. This decrease was primarily attributable to a $2.0 million reduction inrevenue in the outdoor power sports magazines and a $2.0 million reduction inRV related publication revenue primarily attributable to decreased advertisingrevenue, and reduced issues published. In addition, two fewer consumer shows in the third quarter resulted in a$0.2 million reduction in exhibitor revenue.

 

Retail revenues of$81.1 million decreased by $3.1 million, or 3.7 %, from the comparable periodin 2008.  Store merchandise salesdecreased $1.1 million from the third quarter of 2008 due to a same store salesdecrease of $0.2 million, or 0.3%, compared to a 14.3% decrease in same storesales for the third quarter of 2008, and decreased revenue from discontinuedstores of $1.9 million, was partially offset by a $1.0 million revenue increasefrom the opening of seven new stores over the past twenty-one months.  Same store sale calculations for a given periodinclude only those stores that were open both at the end of that period and atthe beginning of the preceding fiscal year. Also, mail order sales decreased $0.5 million, installation and servicefees increased $0.5 million and supplies and other sales decreased $2.0million.

 

*CostsApplicable to Revenues*

 

Costsapplicable to revenues totaled $80.1 million for the third quarter of 2009, adecrease of $3.5 million, or 4.2%, from the comparable period in 2008.

 

MembershipServices costs applicable to revenues of $23.0 million decreased $0.1 million,or 0.5%, from the comparable period in 2008. This decrease consisted of a $0.9 million reduction in wage-relatedexpenses and overhead costs, and a $0.3 million reduction in marketing costsrelated to vehicle insurance products, partially offset by a 

 

32

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$0.7million increase in emergency road services claims costs and $0.4 million ofadditional expenses related to increased extended vehicle warranty revenue.

 

Mediacosts applicable to revenues of $7.2 million for the third quarter of 2009decreased $3.5 million, or 32.6%, from the comparable period in 2008 primarilyrelated to a $1.8 million reduction in magazine expenses resulting fromdecreased circulation and production costs, a $1.0 million reduction inwage-related costs, a $0.5 million reduction in overhead costs, and a $0.2million reduction in costs related to reduced consumer shows revenue.

 

Retailcosts applicable to revenues increased $0.1 million, or 0.1%, to $49.9million.  The retail gross profit marginof 38.4% for the third quarter of 2009 decreased from 40.7% for the comparableperiod in 2008 primarily due to lower prices on high volume products.

 

*OperatingExpenses*

 

Selling,general and administrative expenses of $34.2 million for the third quarter of2009 decreased $1.7 million compared to the third quarter of 2008.  This decrease was due to a $2.2 milliondecrease in retail general and administrative expenses consisting primarily ofdecreases in labor and selling expenses, and a $0.4 million reduction in wagerelated expenses, partially offset by a $0.9 million increase in other generaland administrative expenses, primarily related to professional fees.

 

TheCompany recorded a non-cash goodwill impairment charge of $46.9 million in thethird quarter of 2009 related to our RV and powersports publications, which ispart of the Media segment.  The Companyrecorded a non-cash goodwill impairment charge of $47.6 million in the thirdquarter of 2008 based on management’s evaluation, prepared in anticipation ofthe potential sale of Camping World, that determined the carrying value of thegoodwill associated with Camping World exceeded the estimated fair value ofCamping World in anticipation of the potential sale of Camping World, which encompassesthe entire Retail segment, and to a lesser extent, part of the MembershipServices segment.  The Company alsorecorded an $81.0 million non-cash long-lived asset impairment charge in thethird quarter of 2008 relating to the carrying value of the preferred interestin FreedomRoads Holding Company, LLC, held by an indirect subsidiary of CampingWorld, exceeding its estimated fair value.

 

Forthe third quarter of 2009, financing expense of $0.3 million was incurred forlegal and other costs related to the amendment to the credit facility dated June 5,2009, which were expensed in accordance with accounting guidance for debtorsaccounting for a modification or exchange of debt instruments.

 

Depreciationand amortization expense of $5.8 million increased $0.8 million from the prioryear primarily due to depreciationof a retail supply chain system installed in 2009.

 

*Loss fromOperations*

* *

Lossfrom operations for the third quarter of 2009 totaled $42.4 million compared toa loss from operations of $119.8 million for the third quarter of 2008.  This decreased loss

 

33

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wasprimarily the result of the $81.0 million asset impairment charge in the 2008quarter, a net decrease in goodwill impairment of $0.7 million from the 2008quarter to the 2009 quarter and $0.3 million of financing expense in the 2009quarter.  Operationally, reduced grossprofit for Retail, Membership Services and Media segments of $3.2 million, $0.9million and $0.8 million, respectively, was partially offset by reducedoperating expenses of $0.9 million.

 

*Non-OperatingItems*

* *

Non-operatingitems of approximately $8.4 million for the third quarter of 2009 increasedapproximately $2.3 million compared to the third quarter of 2008 due to a $2.2million increase in net interest expense relating to higher interest rates, anda $0.2 million loss on sale of retail equipment, partially offset by a $0.1million gain on derivative interest rate swap agreements.  See Note 8 – Interest Rate Swap Agreements.

 

*LossBefore Income Tax*

* *

Lossbefore income tax for the third quarter of 2009 was $50.8 million, or $75.1million lower than the loss for the third quarter of 2008.  This decreased loss was attributable to the$77.4 million decrease in loss from operations partially offset by $2.3 millionof increased non-operating items mentioned above.

 

*IncomeTax (Benefit) Expense*

* *

TheCompany recorded income tax benefit of approximately $12.9 million for thethird quarter of 2009, compared to $0.3 million income tax expense for thethird quarter of 2008. The difference is due to the reversal of unrecognizedtax benefits, reversal of accrued interest and penalties related tounrecognized tax benefits, and decrease in the valuation allowance againstdeferred tax assets.

 

# *Net loss*

# * *

Netloss in the third quarter of 2009 was $37.9 million compared to $126.1 millionfor the same period in 2008 mainly due to the reasons discussed above.

 

*SegmentProfit (Loss)*

* *

The Company’sthree principal lines of business are Membership Services, Media andRetail.  The Membership Services segmentoperates the Good Sam Club, the Coast to Coast Club, the President’s Club, CampClub USA and assorted membership products and services for RV owners, campers andoutdoor vacationers, and the Golf Card Club for golf enthusiasts.  The Media segment publishes a variety ofpublications for selected markets in the recreation and leisure industry,including general circulation periodicals, directories, and RV and powersportsindustry trade magazines.  In addition,the Media segment operates consumer outdoor recreation shows primarily focusedon RV and powersports markets.  TheRetail segment sells specialty retail merchandise and services for RV ownersprimarily through retail supercenters and mail order catalogs.  The

 

34

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Company evaluatesperformance based on profit or loss from operations before income taxes andunusual items.

 

The reportablesegments are strategic business units that offer different products andservices.  They are managed separatelybecause each business required different technology, management expertise andmarketing strategies.

 

Membershipservices segment profit of $10.3 million for the third quarter of 2009decreased $0.6 million, or 5.3%, from the comparable period in 2008.  This decrease was largely attributable to a$0.7 million decrease in segment profit from emergency road service products, a$0.5 million decrease in segment profit from a decline in Coast to Coast Cluband Golf Card Club membership fees and $0.3 million of reduced memberpublication segment profit primarily relating to reduced advertising revenue,partially offset by a $0.4 million increase in profit from the extended vehiclewarranty programs, associated with increased renewal revenue, $0.3 million ofreduced overhead expenses and $0.2 million of reduced depreciation expense.

 

Media segment lossincreased $47.1 million to a loss of $48.2 million for the third quarter of2009 from the comparable period in 2008. This decrease in segmentprofit resulted primarily from the $46.9 million non-cash goodwill impairmentcharge, a $0.3 million decrease in segment profit from our consumer shows groupand a $0.2 million decrease in segment profit from our publishing, primarily dueto reduced advertising revenue, partially offset by a $0.3 million reduction inamortization expense.

 

Retail segmentprofit was $1.0 million for the third quarter of 2009 compared to a loss of$129.5 million for the third quarter of 2008. This improvement in segmentprofit resulted primarily from Camping World goodwill impairment andFreedomRoads Preferred Interest impairment totaling $128.6 million in 2008, a$2.3 million decrease in selling,general and administrative expenses, and a $3.6 million decrease in interestexpense, which were partially offset by a $3.2 million decrease in gross profitmargin, a $0.5 million increase in depreciation and amortization expense and a$0.2 million increase in loss on sale of equipment.

** **

**NineMonths Ended September 30, 2009**

**ComparedWith Nine Months Ended September 30, 2008**

** **

*Revenues*

* *

Revenuesof $359.9 million for the first nine months of 2009 decreased by $46.2 million,or 11.4%, from the comparable period in 2008.

 

Membershipservices revenues of $110.0 million for the first nine months of 2009 decreased$4.8 million, or 4.1%, from the comparable period in 2008.  This revenue decrease was largelyattributable to a $2.9 million reduction in revenue due to reduced advertisingrevenue in member publications, a $1.4 million decrease in membership revenuedue to reduced file size in the Coast to Coast Club and Golf Card Club, a $1.3million reduction in member events revenue, a $1.1 million decrease inmarketing fee

 

35

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incomefor vehicle insurance products, a $0.6 million reduction in dealer programmarketing revenue, a $0.6 million reduction in emergency road service revenueand a $0.6 million reduction in other various ancillary products.  These decreases were partially offset a $2.5million increase in extended vehicle warranty program revenue resulting fromcontinued growth and strong renewals of contracts in force and a $1.2 millionbrand usage licensing fee charged to FreedomRoads Holding LLC and its subsidiaries (collectively “FreedomRoads”).  Pursuant to the Cooperative ResourcesAgreement dated January 1, 2008, payment is required by FreedomRoads of anannual fee based on revenue, as defined, in exchange for the right to use theCamping World logos, trademarks, and trade names granted by AGI.  The brand usage license fee of $1.2 millionrecognized from FreedomRoads in the second and third quarters of 2009 has beenfully reserved due to the uncertainty of its collectability.

 

Mediarevenues of $35.1 million for the first nine months of 2009 decreased $19.1million, or 35.2%, from the comparable period in 2008.  This decrease was primarily attributable to a$7.4 million reduction in revenue from the outdoor power sports magazinesprimarily related to reduced advertising revenue and reduced published issuesof boating and ATV magazines, a $6.3 million reduction in advertising revenuefrom RV-related magazines, a $4.4 million reduction in consumer show revenuemainly due to reduced exhibitor attendance, a $0.6 million reduction in revenueassociated with our campground guides and a $0.4 million reduction in revenuefrom the annual campground directories.

 

Retail revenues of$214.8 million decreased by $22.3 million, or 9.4%, from the comparable periodin 2008.  Store merchandise salesdecreased $13.5 million from the first nine months of 2008 due to a same storesales decrease of $12.1 million, or 7.3%, compared to a 15.0% decrease in samestore sales for the first nine months of 2008, and discontinued store revenueof $5.2 million, was partially offset by a $3.8 million revenue increase fromthe opening of seven new stores over the past twenty-one months.  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.  Further, mail order sales decreased $2.0million, installation and service fees decreased $1.0 million and supplies andother sales decreased $5.8 million.

 

*CostsApplicable to Revenues*

* *

Costsapplicable to revenues totaled approximately $226.9 million for the first ninemonths of 2009, a decrease of $24.2 million, or 9.7%, from the comparableperiod in 2008.

 

Membershipservices costs applicable to revenues of $68.0 million decreased $4.8 million,or 6.6%, from the comparable period in 2008. This decrease consisted of a $1.6 million reduction in wage-relatedexpenses, a $1.3 million reduction in marketing costs related to vehicleinsurance products, a $1.2 million reduction in costs related to various otherancillary products and overhead decreases, a $1.1 million reduction in memberpublication costs, a $0.6 million decrease in events costs related to reducedrevenue, a $0.4 million reduction in dealer program marketing costs related toreduced revenue, and a $0.3 million decrease in marketing costs for Camp ClubUSA primarily related to

 

36

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reducedmailings.  These decreases were partiallyoffset by $1.3 million of incremental costs associated with increased extendedvehicle warranty program revenue and $0.4 million of increased emergency roadservice program costs.

 

Mediacosts applicable to revenues of $28.0 million for the first nine months of 2009decreased $11.2 million, or 28.5%, from the comparable period in 2008 primarilyrelated to reduced costs of $4.5 million in magazine circulation and productioncosts, a $3.5 million reduction in wage related expenses, a $1.9 millionreduction related to consumer show costs, including reduced site rental, outsideservices and promotion expense related to fewer exhibitors, a $0.5 millionreduction in mostly marketing costs related to the annual campgrounddirectories, a $0.5 million reduction in other overhead expenses and a $0.3million reduction related to reduced campground guide revenue.

 

Retailcosts applicable to revenues of $130.9 million for the first nine months of2009 decreased $8.2 million, or 5.9%, from the comparable period in 2009primarily as a result of the decrease in retail revenue.  The retail gross profit margin of 39.1% forthe first nine months of 2009 decreased from 41.3% for the comparable period in2008 primarily due to decreased ad sales, a new, discounted “value pricing”adopted on over 1,000 products and price increases from key vendors.

 

*OperatingExpenses*

* *

Selling,general and administrative expenses of $97.2 million for the first nine monthsof 2009 decreased $15.3 million compared to the first nine months of 2008.  This decrease was due to a $14.1 milliondecrease in retail general and administrative expenses primarily consistingdecreases in labor and selling expenses. In addition, wage-related expense savings were $1.4 million in the othertwo segments, the consumer shows group in the Media segment had a $1.1 millionreduction in general and administrative expenses related to discontinuedconsulting agreements and management fees, and other expenses were reduced $0.4million.  These decreases were partiallyoffset by an increase of $1.7 million in corporate professional fees.

 

TheCompany recorded a non-cash goodwill impairment charge of $46.9 million in thethird quarter of 2009 related to our RV and powersports publications, which ispart of the Media segment.  The Companyrecorded a non-cash goodwill impairment charge of $47.6 million in the thirdquarter of 2008 based on management’s evaluation, prepared in anticipation ofthe potential sale of Camping World, that determined the carrying value of thegoodwill associated with Camping World exceeded the estimated fair value of CampingWorld, which encompasses the entire Retail segment, and to a lesser extent,part of the Membership Services segment. The Company further recorded an $81.0 million non-cash long-lived assetimpairment charge in the third quarter of 2008 relating to the carrying valueof the preferred interest in FreedomRoads Holding Company, LLC, held by anindirect subsidiary of Camping World, exceeding its estimated fair value.

 

Forthe first nine months of 2009, financing expense of $1.9 million was incurredfor legal and other costs related to the amendment to the Senior CreditFacility dated in June, 2009, which were expensed in accordance with accountingguidance for debtors accounting for a modification or exchange of debtinstruments.

 

37

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Depreciationand amortization expense of $16.2 million increased $1.1 million primarily dueto the commencement of depreciation of a retail supply chain project installedin 2009.

 

*Loss FromOperations*

 

Lossfrom operations for the first nine months of 2009 totaling $29.1 millioncompared to a loss from operations of $101.3 million for the first nine monthsof 2008.  This $72.1 million lossreduction was primarily the result of the $81.0 million asset impairment chargein 2008 and a $0.7 million net decrease in goodwill impairment charges from the2008 period to the 2009 period, partially offset by $1.9 million of financingexpense in 2009.  Operationally, theremaining loss reduction resulted from reduced operating expenses ofapproximately $14.1 million and increased gross profit for the MembershipServices segment of $0.1 million partially offset by reduced gross profit forRetail and Media segments of $14.0 million, and $7.9 million, respectively.

 

*Non-OperatingItems*

 

Non-operatingitems of $17.2 million for the first nine months of 2009 decreased $0.7 millioncompared to the first nine months of 2008 due to a $4.7 million gain onpurchase of the $14.6 million Senior Subordinated Notes in the second quarterof 2009, an $0.8 million gain on derivative interest rate swap agreements (SeeNote 8 — Interest Rate Swap Agreements), partially offset by a $3.8 millionincrease in net interest expense resulting from increased interest rates, $0.7million of non-operating items, and a $0.3 million loss on sale of retailequipment.

 

*Lossbefore Income Taxes*

 

Lossbefore income taxes for the first nine months of 2009 was $46.4 million, or$72.8 million lower than the loss before income taxes for the first nine monthsof 2008.  This decrease was attributableto the $72.1 million of reduced loss from operations and the $0.7 millionreduction in non-operating items mentioned above.

 

*IncomeTax Benefit (Expense)*

 

TheCompany recorded income tax benefit of approximately $12.2 million for thefirst nine months of 2009, compared to $0.8 million of income tax expense forthe first nine months of 2008.  Thedifference is due to the recognition of previously unrecognized tax benefits,reversal of accrued interest and penalties related to the previouslyunrecognized tax benefits, and decrease in the valuation allowance againstdeferred tax assets.

 

# *Net Loss*

# * *

Netloss in the first nine months of 2009 was $34.2 million compared to $120.0million for the same period in 2008 primarily due to the reasons discussedabove.

 

38

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*SegmentProfit (Loss)*

 

The Company’sthree principal lines of business are Membership Services, Media andRetail.  The Membership Services segmentoperates the Good Sam Club, the Coast to Coast Club, the President’s Club, CampClub USA and assorted membership products and services for RV owners, campersand outdoor vacationers, and the Golf Card Club for golf enthusiasts.  The Media segment publishes a variety ofpublications for selected markets in the recreation and leisure industry,including general circulation periodicals, directories, and RV and powersportsindustry trade magazines.  In addition,the Media segment operates consumer outdoor recreation shows primarily focusedon RV and powersports markets.  The Retailsegment sells specialty retail merchandise and services for RV owners primarilythrough retail supercenters and mail order catalogs.  The Company evaluates performance based onprofit or loss from operations before income taxes and unusual items.

 

The reportablesegments are strategic business units that offer different products andservices.  They are managed separatelybecause each business required different technology, management expertise andmarketing strategies.

 

MembershipServices segment profit of $34.9 million for the first nine months of 2009increased $0.8 million, or 2.3%, from the comparable period in 2008.  This increase was largely attributable to a$2.2 million increase in profit from the extended vehicle warranty program,associated with increased revenue, a $1.2 million brand licensing fee chargedto FreedomRoads in March 2009 and a $0.6 million decrease in overheadexpenses, partially offset by $1.3 million of reduced member publicationsegment profit primarily relating to reduced advertising revenue, a $1.1million decrease in segment profit relating to vehicle insurance products, andan $0.8 million decrease in segment profit in Coast to Coast Club and Golf CardClub due to reduced member enrollment.

 

Media segment lossof $46.9 million for the first nine months of 2009 represents an increased lossof $52.5 million from the comparable period in 2008.  This segment loss was largely attributed to anon-cash goodwill impairment charge of $46.9 million in the third quarter of2009 related to our RV and powersports publications, a $4.0 million decrease insegment profit from the RV-related publications primarily related toattributable to reduced advertising revenue, a $2.2 million decrease in segmentprofit from our outdoor powersports magazine group, primarily attributable toreduced advertising revenue and fewer issues published, and a $0.9 milliondecrease in segment profit from our consumer shows group primarily related toreduced exhibitor revenue.  Thesedecreases were partially offset by a $1.0 million reduction in overheadexpenses and a $0.5 million segment profit increase for annual directories.

 

Retail segmentloss decreased $131.8 million from the first nine months of 2008 to a loss of$6.7 million for the first nine months of 2009. This decrease insegment loss resulted primarily from an $81.0 million non-cashlong-lived asset impairment charge in the third quarter of 2008 relating to thecarrying value of the preferred interest in FreedomRoads Holding Company, LLC,held by an indirect subsidiary of Camping World, a non-cash goodwill impairmentcharge of $47.6 million in the third quarter of 2008 related to the potentialsale of Camping World, a $14.1 milliondecrease in selling, general and 

 

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administrative expenses and a $5.0 million decrease in interestexpense, partially offset by a $14.7 million decrease in gross profit margin, a$0.9 million increase in depreciation and amortization expense and a $0.3increase in loss on sale of equipment.

 

**LIQUIDITYAND CAPITAL RESOURCES**

 

The Company has historically operated with a workingcapital deficit.  The working capitaldeficit as of September 30, 2009 and December 31, 2008 was $142.8million and $10.5 million, respectively. The primary reason for the increase in working capital deficit for 2009is the classification of the debt under the Senior Credit Facility due March 31,2010 and the Second Lien Loan due July 31, 2010 totaling $129.9 million asa current liability.  Deferred revenueand gains reported under current liabilities as of September 30, 2009 and December 31,2008 were $69.8 million and $60.6 million, respectively.  Deferred revenue is primarily comprised ofcash collected for club memberships in advance, which is amortized over thelife of the membership.  The Company usesnet proceeds from this deferred membership revenue to lower its borrowings.

 

The Company and its parent, AGHI, have engaged afinancial advisor to seek capital to permit a possible refinancing or restructuringof the Senior Credit Facility ($111.2 million principal amount of the termloans and $9.0 million principal amount under the revolving credit line underthe Senior Credit Facility on September 30, 2009), AGI’s Second Lien Loanindebtedness ($9.7 million principal outstanding on September 30, 2009),the AGI Senior Subordinated Notes due 2012 ($137.8 million principaloutstanding on September 30, 2009) and the AGHI Notes due 2012 ($112.1million principal outstanding on September 30, 2009).  The Company has received preliminary writtenproposals from a number of potential capital sources, some of whom haveperformed business due diligence.

 

The Company and AGHI have engaged in discussions withthe holders of the AGHI Notes and the holders of other indebtedness of theCompany regarding a refinancing or restructuring of the indebtedness of theCompany and its parent, AGHI.  As part ofthose discussions, AGHI has deferred payment of the interest on the AGHI Notesthat was due on August 15, 2009. The indenture governing the AGHI Notes provides a 30 day grace periodfor the payment of interest.  On September 14,2009, AGHI received consent letters for the payment deferral from certaininstitutional holders of the AGHI Notes holding in the aggregate $65.8 millionprincipal amount of the AGHI Notes outstanding and consent letters for thepayment deferral from certain non-institutional holders of the AGHI Notesholding in the aggregate $46.6 million principal amount of the AGHI Notesoutstanding.  The aggregate principalamount of the AGHI Notes outstanding is $113.6 million so the holders executingthe consents hold 98.9% of the outstanding principal amount of the AGHINotes.  Pursuant to the consent lettersfrom the institutional holders, AGHI agreed to pay the legal fees for a lawfirm to represent the institutional holders in connection with such discussionsand has paid a $150,000 retainer to that law firm.  In addition, AGHI has paid a consent feeequal 1⁄4 of 1% of the principal amount to the institutional holders who signed aconsent letter, or an aggregate of $164,600. No consent fee was paid to the non-institutional holders.  The institutional holders have extended themost recent interest payment date on their 

 

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AGHI Notes until November 13, 2009.  The non-institutional holders have extendedthe most recent interest payment date on their AGHI Notes until five businessdays after the termination of the consents from the institutional holders.  On September 14, 2009, AGHI paid theinterest on the remaining $1.3 million principal amount of AGHI Notes that areoutstanding and for which a payment deferral consent was not obtained.

 

As a result of restrictions in the Senior CreditFacility, AGI is blocked from making distributions to AGHI for the purpose ofpaying interest on the AGHI Notes.  Forthe two most recent interest payments, AGHI has made the interest paymentsusing the proceeds of a capital contribution from AGHI’s parent.  There can be no assurance that AGHI’s parentwill fund the interest payment on the AGHI Notes by the end of the deferralperiod.

 

There can be no assurance that the Company and AGHIwill be able to implement a new capital structure to repay or refinance theSenior Credit Facility, AGI’s Second Lien Loan indebtedness, the AGI SeniorSubordinated Notes or the AGHI Notes before the final maturity of the SeniorCredit Facility in March 2010, the maturity of AGI’s Second Lien Loanindebtedness in July 2010, the maturity of the AGI Senior SubordinatedNotes in February 2012, or the maturity of the AGHI Notes, $25.4 millionof which mature in March 2010 and the balance in February 2012.   If the Company or AGHI is not able torefinance or replace any such debt before its scheduled maturity, the holdersof such debt will be entitled to exercise their respective remedies including,in the case of secured debt, to sell the collateral securing the repaymentthereof.  In as much as the indebtednessowned under the Senior Credit Facility and AGI’s Second Lien Loan indebtednessis secured, it would be repaid before funds are available to discharge anyunsecured or subordinated obligations.

 

*Contractual Obligations andCommercial Commitments*

 

The following table reflects our contractual obligations and commercialcommitments at September 30, 2009. This table includes principal and future interest due under our debtagreements based on interest rates as of September 30, 2009 and assumesdebt obligations will be held to maturity.

 
| ** **                   | ** ** | **Payments Due by Period** | ** ** |
|------------------------------|------------|----------------------------|------------|
| **(in  thousands)**          | ** ** | **Total**                  | ** ** | **2009** | ** ** | **2010 and  2011** | ** ** | **2012 and   2013** | ** ** | **Thereafter** | ** ** |
|                         |       |                       |       |   |   |   |   |   |   |   |   |
| Debt and future interest     |       | $                          | 314,367    |   | $ | 9,490 |   | $ | 160,851 |   | $ | 144,026 |   | $ | — |   |
| Operating lease  obligations |       | 226,328                    |       | 5,834 |   | 44,435 |   | 37,745 |   | 138,314 |   |
| Standby letters of credit    |       | 6,673                      |       | 4,673 |   | 2,000 |   | — |   | — |   |
| Grand total                  |       | $                          | 547,368    |   | $ | 19,997 |   | $ | 207,286 |   | $ | 181,771 |   | $ | 138,314 |   |

 

Senior CreditFacility

 

On June 24, 2003, AGI entered into an Amended and Restated CreditAgreement and a Senior Secured Floating Rate Note Purchase Agreement which wasmost recently amended on June 5, 2009 (as amended, the “Senior CreditFacility”).  The Senior Credit Facilityprovides for a revolving credit facility of $25.0 million and term loans.  As of September 30, 2009, $9.0 millionwas outstanding under the revolving credit facility and 

 

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$111.2 million was outstanding under the term loans.  Reborrowings under the term loans are notpermitted.  Interest rates float withprime and the London Interbank Offered Rates, or LIBOR, plus an applicablemargin ranging from 9.00% to 10.00%, respectively, over the stated rates and aLIBOR floor of 2.75%.  Afterconsideration of fixed rates under the interest rate swap agreements,(discussed in Note 8 — Fair Value Measurements), as of September 30, 2009,the average interest rate on the term loans and the revolving credit facilitywas 17.11%, and permitted borrowings under the revolving facility were $18.3million.  The Company also pays acommitment fee of 1.0% per annum on the unused amount of the revolving creditfacility.  The aggregate quarterlyscheduled payments on the term loans are $0.4 million.  Both the revolving credit facility and theterm loans under the Senior Credit Facility mature on March 31, 2010.  The funds available under the Senior CreditFacility may be utilized for borrowings or letters of credit, except a maximumof $7.5 million may be allocated to such letters of credit.  As of September 30, 2009, AGI hadletters of credit in the aggregate amount of $6.7 million outstanding.  The Senior Credit Facility is secured byvirtually all of AGI’s assets and a pledge of AGI’s stock and the stock of AGI’ssubsidiaries.

 

On March 3, 2006, theCompany amended the Senior Credit Facility to revise the definition ofConsolidated Fixed Charges Ratio and Permitted Tax Distributions.  This amendment allows the Company todistribute taxes to its ultimate parent based on its stand-alone tax obligationrather than the tax obligation of its parent, AGHI, until such time that AGHIpays interest on its 10 7/8% Senior Notes in cash instead of by the issuance ofadditional notes and AGI makes a distribution to AGHI for purposes of payingthat cash interest.  Further, the Companyamended the Senior Credit Facility’s covenant restrictions with affiliates topermit a joint venture arrangement between Camping World and FreedomRoadsHolding Company, LLC (“FreedomRoads”), an affiliate of the Company.

 

On June 5, 2009, theCompany entered into an amendment to its Senior Credit Facility pursuant towhich the maturity date was extended from June 24, 2009 to March 31,2010, the revolving credit portion of the facility was reduced by $10.0 millionto $25.0 million, the outstanding term loan borrowings were repaid by $8.0million, the financial covenants in effect through the extended maturity datewere revised and the borrowing rate was increased to prime rate plus 7.0% orLIBOR plus 8.0% with a LIBOR floor of 2.75%. The Company capitalized $2.5 million in fees paid to the lenders andexpensed as incurred $1.9 million in legal and other fees related to theamendment.  As a condition to theamendment, the shareholder of the ultimate parent of the Company was requiredto arrange for the purchase of approximately $26.6 million in principal amountof the term portion of the Senior Credit Facility by new lenders, enhance theyield to such new lenders, purchase AGHI Notes held by one of such new lendersat a premium to the most recent market price, contribute $8.5 million incapital to the Company and guarantee two required principal payments on theterm loans under the Senior Credit Facility, aggregating $15.0 million.  In consideration of such support, the Companyentered into an option agreement with the shareholder of the ultimate parent ofthe Company pursuant to which the Company granted such shareholder or hisassigns an option, exercisable on or before March 1, 2010, to purchase theCompany’s Camping World subsidiary for $55.0 million.  Management was assisted in determining the fairvalue of such subsidiary by an independent third 

 

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party valuation firm.  See Note 11 — Recent Events.  The Company also agreed to pay theshareholder of the ultimate parent, upon successful refinancing of the Company’ssecured debt, including the Senior Credit Facility, a success fee equal inamount to the fair value, as determined by an independent financial advisor ofsuch credit support, taking into account the fair value of the option topurchase Camping World.  In the event thefair value of the Camping World purchase option exceeds the fair value of suchcredit support, the shareholder will pay the amount of such excess to theCompany.

 

The June 5, 2009amendment to the Senior Credit Facility also revised the Company’s financialcovenants in effect through the extended maturity date.  As required by the Senior Credit Facility,significant cost reductions have been implemented in 2008 and 2009, includingthe elimination of personnel, suspension of 401(k) employer contributions,salary cutbacks, hiring and capital expenditure spending freezes, satelliteoffice closures, and magazine size and frequency reductions.

 

The 10th Amendment to the AGI Senior CreditFacility requires the commitment of Stephen Adams, AGI’s ultimate shareholder,to cause loans to be made to AGI in amounts equal to the cash interest paymentson $16.0 million in aggregate principal amount of the term loans.  In connection with that requirement, on June 10,2009, AGI entered into a loan agreement with SA Holding, LLC, (“SA Holding”),which is owned by Stephen Adams, pursuant to which SA Holding agreed to loan toAGI (the “SA Loans”) amounts equal to the cash interest payments on $16.0million in aggregate principal amount of term loans.  The interest rate on the SA Loans is equal tothe interest rate payable on the AGI Senior Credit Facility plus 2.0% per annumcompounded monthly.  The SA Loans matureon the date on which the indebtedness under the AGI Senior Credit Facility ispaid in full.  As of September 30,2009, $0.6 million of SA Loans were outstanding.

 

The Senior CreditFacility contains certain restrictive covenants relating to, but not limitedto, mergers, changes in the nature of the business, acquisitions, additionalindebtedness, sale of assets, investments, and the payment of dividends subjectto certain limitations and minimum operating covenants.  There was no event of default under theSenior Credit Facility at September 30, 2009.

 

SeniorSubordinated Notes

 

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

 

On June 8,2006, AGI amended its Senior Credit Facility to permit AGI to purchase up to$30.0 million of the Senior Subordinated Notes from time to time as and whenthe Company determines.  During 2006, AGIpurchased $29.9 million of the Senior Subordinated Notes. The purchases ofthese notes were made with available cash, and the notes purchased have beenretired.

 

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On March 8,2007, the Company purchased $17.7 million of the Senior SubordinatedNotes.  The Company funded the purchasethrough the issuance of the $25.0 million in additional incremental term loansas permitted under the February 27, 2007 amendment to the Senior CreditFacility.  The balance of the $25.0million issued was used to pay down the Company’s revolving credit facility by$6.5 million 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. On June 5, 2009, the Company purchased $14.6 million of theSenior Subordinated Notes.  The Companyfunded the purchase through the issuance of a $9.7 million Second LienLoan.  As of September 30, 2009,$137.8 million of Senior Subordinated Notes remain outstanding.  The fair value of the Senior SubordinatedNotes, based on the quoted market price at September 30, 2009, was $96.5million.

 

The AGI Indenturepursuant to which the Senior Subordinated Notes were issued contains certainrestrictive covenants relating to, but not limited to, mergers, changes in thenature of the business, acquisitions, additional indebtedness, sale of assets,investments, and the payment of dividends subject to certain limitations andminimum operating covenants.  There wasno event of default under the AGI Indenture at September 30, 2009.

 

Other Debt

 

Concurrent with the June 5,2009 amendment to the Senior Credit Facility, the Company obtained a $9.7million Second Lien Loan, the net proceeds of which were used to purchase $14.6million in principal amount of Senior Subordinated Notes.  The Second Lien Loan carries an interest rateof 9.0% and matures on July 31, 2010.

 

In addition, Company agreedto use its best efforts to secure an asset-based loan of at least $18.5 millionsecured by the inventory and receivables of its subsidiary, Camping World, Inc.(the “Camping World Financing”), the proceeds of which would be used to furtherreduce the amounts outstanding under the Senior Credit Facility.  Since a Camping World Financing had not beenconsummated by September 15, 2009, the borrowing rate on revolving creditloans, swing loans and terms loans increased to prime rate plus 9.0% or LIBORplus 10.0%.  See Note 11 — Recent Events.

 

Interest Rate Swap Agreements

 

On October 15, 2007, AGI entered into a five-year interest rateswap agreement with a notional amount of $100.0 million from which it willreceive periodic payments at the 3 month LIBOR-based variable rate (0.4875% at September 30,2009 based upon the July 31, 2009 reset date) and make periodic paymentsat a fixed rate of 5.135%, with settlement and rate reset dates every January 31,April 30, July 31, and October 31.  The interest rate swap agreement waseffective beginning October 31, 2007 and expires on October 31,2012.  On March 19, 2008, AGIentered into a 4.5 year interest rate swap agreement with a notional amount of$35.0 million from which it will receive periodic payments at the 3 monthLIBOR-based variable rate (0.4875% at September 30, 2009 based upon the July 31,2009 reset date) and make periodic payments at a fixed rate of 3.430%, withsettlement and rate reset dates every January 31, April 30, July 31,and October 31.  The interest rateswap was effective beginning April 30, 2008 and expires on October 31,2012.  The fair value of the swapagreements were zero at inception.  

 

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The Company entered into the interest rate swap agreements to limit theeffect of increases on our floating rate debt. The interest rate swap agreements are designated as a cash flow hedge ofthe variable rate interest payments due on $135.0 million of the term loans andthe revolving credit facility issued June 24, 2003, and accordingly, gainsand losses on the fair value of the interest rate swap agreements are reportedin accumulated other comprehensive loss and reclassified to earnings in thesame period in which the hedged interest payment affects earnings.  The interest rate swap agreements expire on October 31,2012.  The fair value of these swapsincluded in other long-term liabilities was $8.1 million of which $7.1 millionis in accumulated other comprehensive gain, and $0.8 million in the statementof operations at September 30, 2009. The fair value of these swaps included in other long-term liabilitieswas $12.7 million of which $10.3 million is in accumulated other comprehensiveloss and $2.4 million in the statement of operations at December 31,2008.  See Note 8 — Interest Rate SwapAgreements.

 

Due to thedisclosure of a potential sale of Camping World, in the fourth quarter of 2008a highly effective hedge on the $35.0 million outstanding debt by the $35.0million notional amount interest rate swap agreement was deemed to be no longerprobable and is now deemed to be reasonably possible.  As a result, changes in the value of the$35.0 million interest rate swap agreement are included in earnings as a gain(loss) on derivative instrument on October 1, 2008.  Included in other comprehensive loss at September 30,2009 is $0.4 million related to changes in the fair value of the $35.0 millioninterest rate swap prior to October 1, 2008 which will be amortized overthe remaining life of the interest rate swap and included in earnings as a gain(loss) on derivative instrument.

 

Due to theissuance of an option to the shareholder of the ultimate parent of the Companyto purchase Camping World, in the second quarter of 2009 a portion of thehighly effective hedge on the $100.0 million outstanding debt by the $100.0million notional amount interest rate swap agreement was deemed to be no longerprobable and is now deemed to be reasonably possible.  As a result, changes in the value of the last$20.0 million of the $100.0 million interest rate swap agreement are includedin earnings beginning on June 5, 2009. Included in other comprehensive loss is $1.6 million related to the last$20.0 million of the $100.0 million interest rate swap which will be amortizedover the remaining life of the interest rate swap and included in earnings as again (loss) on derivative instrument.

 

On June 11,2009, the Company partially terminated the $35.0 million interest rate swap,subject to a partial termination fee of $0.6 million which was expensed.  The notional amount was reduced to $20.0million.  All other terms of the interestrate swap agreement remained unchanged. As a result, the amount included in other comprehensive income relatedto the $35.0 million interest rate swap was reduced prorata and included inearnings as a gain (loss) on derivative instrument.

 

Other ContractualObligations and Commercial Commitments

 

In January 2008,AGI Productions, Inc. acquired nine consumer shows from MAC Events, LLCfor $3.4 million.  As part of thepurchase, the Company issued $0.4 million of debt and assumed $0.6 million inliabilities.  In February 2008, AGIProductions, Inc. acquired three 

 

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consumer showsfrom Mid America Expositions, Inc. for $1.6 million.  As part of the purchase, the Company issued$0.5 million in debt and assumed $0.5 million in liabilities.

 

For the ninemonths ended September 30, 2009, the Company incurred no deferredexecutive compensation expense under the phantom stock agreements, and madepayments of $1.4 million under the terms of the vested phantom stockagreements.  Any earned incentives underthese agreements are scheduled to be paid at various times over the next fouryears.  No phantom stock payments arescheduled to**be made for the remainder of 2009.

 

Capital expendituresfor the first nine months of 2009 totaling $2.5 million decreased $6.9 millionfrom the first nine months of 2008 primarily due to the curtailment of newretail store openings.  Additionalcapital expenditures of $0.1 million are anticipated for the balance of 2009primarily for software enhancements, information technology upgrades andfurther website development.

 

**CRITICALACCOUNTING POLICIES**

 

*General*

 

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

 

The Companybelieves the following critical accounting policies affect the more significantjudgments and estimates used in the preparation of the Company’s consolidatedfinancial statements.

 

*Revenue Recognition*

 

Merchandise revenue is recognized when products are sold in the retailstores, shipped for mail and Internet orders, or when services are provided tocustomers. Publication advertising and newsstand sales, net of estimatedprovision for returns, are recorded at time of delivery.  Subscription sales of publications aredeferred and recognized over the lives of the subscriptions.  Revenues from the emergency road serviceprogram (“ERS”) are deferred and recognized over the life of themembership.  ERS claim expenses arerecognized when incurred.  Advances onthird party credit card fee revenues are deferred 

 

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and recognized based primarily on a percentage of credit cardreceivables held by third parties.  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.  Renewal expenses areexpensed at the time related materials are mailed.  Recognized revenues and profit are subject torevisions as the membership progresses to completion.  Revisions to membership period estimateswould change the amount of income and expense amortized in future accountingperiods.  Revenue and related expensesfor consumer shows are recognized when the show occurs.

 

*Accounts Receivable*

 

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

 

*Inventory*

 

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

 

*Long-LivedAssets*

 

Purchasedintangible assets with finite lives are amortized using the straight-linemethod over the estimated economic lives of the assets, ranging from one tofifteen years.

 

Long-lived assets,such as property, plant and equipment and purchased intangible assets withfinite lives are evaluated for impairment whenever events or changes incircumstances indicate the carrying value of an asset may not be recoverable inaccordance with new accounting guidance for accounting for the impairment ordisposal of long-lived assets.  TheCompany assesses the fair value of the assets based on the future cash flow theassets are expected to generate and recognize an impairment loss when estimatedundiscounted future cash flow expected to result from the use of the asset plusnet proceeds expected from disposition of the asset (if any) are less than thecarrying value of the asset.  When animpairment is identified, the Company reduces the carrying amount of the assetto its estimated fair value based on a discounted cash flow approach or, whenavailable and appropriate, comparable market values.

 

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The Company hasevaluated the remaining useful lives of its finite-lived purchased intangibleassets to determine if any adjustments to the useful lives were necessary or ifany of these assets had indefinite lives and were therefore not subject toamortization.  The Company determinedthat no adjustments to the useful lives of its finite-lived purchasedintangible assets were necessary.  Thefinite-lived purchased intangible assets consist of membership customer lists,resort and golf course agreements, non-compete and deferred consultingagreements and deferred financing costs which have weighted average usefullives of approximately 6 years, 4 years, 15 years and 6 years, respectively.

 

*Indefinite-LivedIntangible Assets*

 

The Companyevaluates indefinite-lived intangible assets for impairment at least annuallyor when events indicate that impairment exists in accordance with accountingguidance for goodwill and other intangibles. The impairment test for goodwill and other indefinite-lived intangibleassets is calculated annually using fair value measurement techniques.

 

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

 

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

 

In the thirdquarter of 2009, the Company noted continued reduction in advertising revenuein the operations of our RV and powersports publications, as well as flat tomoderate projected growth in future advertising revenue as a result ofcontinued deterioration of general economic conditions and consumerconfidence.  Based on the above, theCompany determined that there were identified indicators of impairment within thesereporting units in the Media segment.

 

The Companyperformed an impairment test of the goodwill and intangible assets of thereporting units of our RV and powersports publications.  The impairment test indicated that theestimated fair value of these reporting units were less than book value.  The excess of the carrying value over theestimated fair value of the these reporting units was primarily due to thedecline in the recreational vehicle and camping retail markets leading to lower

 

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expected futurecash flows for the business. In determining the fair value, the Company used anincome valuation approach.

 

In performing thesecond step of the goodwill impairment test, the Company allocated theestimated fair values of the reporting units of our RV and powersportspublications determined in step one of the impairment test, to the assets andliabilities of the respective reporting unit in accordance with new accountingguidance for Business Combinations. The Company measured the impairment forthese units to be equal to the carrying value of its goodwill, or $46.9million.  The Company recorded animpairment charge of $46.9 million in the third quarter of 2009 related tothese units, which is part of the Media segment.

 

The Company has evaluatedthe remaining useful lives of its property and equipment and finite-livedpurchased intangible assets to determine if any adjustments to the useful liveswere necessary.  The Company determinedthat no adjustments to the useful lives of its property and equipment orfinite-lived purchased intangible assets were necessary. Future goodwillimpairment tests could result in a charge to earnings.  The Company will continue to evaluategoodwill on an annual basis and whenever events and changes in circumstancesindicate that there may be a potential impairment.

 

*AccumulatedOther Comprehensive Loss*

 

Accumulatedother comprehensive loss consists of unrealized losses on cash flowhedges.  At September 30, 2009,accumulated other comprehensive loss was $7.1 million.

 

*Derivative Financial Instruments*

 

As discussed in Note 8 — Interest Rate Swap Agreement, the Companyaccounts for derivative instruments and hedging activities in accordance withnew accounting guidance for Accounting for Derivative Instruments and HedgingActivities.  All derivatives arerecognized on the balance sheet at their fair value.  On the date that the Company enters into aderivative contract, management formally documents all relationships betweenhedging instruments and hedged items, as well as risk management objectives andstrategies for undertaking various hedge transactions.

 

Changes in the fair value of a derivativethat is highly effective and that is designated and qualifies as a cash flowhedge (a “swap”), to the extent that the hedge is effective, are recorded inaccumulated other comprehensive loss, until earnings are affected by thevariability of cash flows of the hedged transaction.  The Company measures effectiveness of theswap at each quarter end using the Hypothetical Derivative Method.  Under this method, hedge effectiveness ismeasured based on a comparison of the change in fair value of the actual swapdesignated as the hedging instrument and the change in fair value of the hypotheticalswap which would have the terms that identically match the critical terms ofthe hedged cash flows from the anticipated debt issuance.  The amount of ineffectiveness, if any,recorded in earnings would be equal to the excess of the cumulative change inthe fair value of the swap over the cumulative change in the fair value of theplain vanilla swap lock, as defined in the accounting literature.  Once a 

 

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swap is settled, the effective portion isamortized over the estimated life of the hedge item.

 

The Company utilizes derivative financialinstruments to manage its exposure to interest rate risks.  The Company does not enter into derivativefinancial instruments for trading purposes.

 

Due to thedisclosure of a potential sale of Camping World, in the fourth quarter of 2008a highly effective hedge on the $35.0 million outstanding debt by the $35.0million notional amount interest rate swap agreement was deemed to be no longerprobable and is now deemed to be reasonably possible.  As a result, changes in the value of the$35.0 million interest rate swap agreement are included in earnings beginningon October 1, 2008.  Included inother comprehensive loss is $0.4 million related to the $35.0 million interestrate swap prior to October 1, 2008 which will be amortized over theremaining life of the interest rate swap and included in earnings as a gain(loss) on derivative instrument.

 

Due to the issuance of an option to the shareholder of the ultimateparent of the Company to purchase Camping World, in the second quarter of 2009a portion of the highly effective hedge on the $100.0 million outstanding debtby the $100.0 million notional amount interest rate swap agreement was deemedto be no longer probable and is now deemed to be reasonably possible.  As a result, changes in the value of the last$20.0 million of the $100.0 million interest rate swap agreement are includedin earnings beginning on June 5, 2009. Included in other comprehensive loss is $1.6 million related to the last$20.0 million of the $100.0 million interest rate swap which will be amortizedover the remaining life of the interest rate swap and included in earnings as again (loss) on derivative instrument.

 

On June 11,2009, the Company partially terminated the $35.0 million interest rate swap,subject to a partial termination fee of $0.6 million which was recorded toearnings.  The notional amount wasreduced to $20.0 million.  All otherterms of the interest rate swap agreement remained unchanged.  As a result, the amount included in othercomprehensive income related to the $35.0 million interest rate swap wasreduced prorata and included in earnings as a gain (loss) on derivativeinstrument.

 

*FairValue Measurements*

 

As discussed in Note 2 — Recent AccountingPronouncements, the Company adopted accounting guidance effective on Fair ValueMeasurements.  The Company has determinedthat it utilizes observable (Level 2) inputs in determining the fair value ofits interest rate swap agreements which totaled $8.1 million at September 30,2009.  The Company has determined that itutilizes unobservable (Level 3) inputs in determining the fair value of itsFreedomRoads Preferred Interest and Media segment goodwill which each totaled$0.0 million at September 30, 2009.

 

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*IncomeTaxes*

 

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

 

**ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES 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 agreements.

 

The followinginformation discusses the sensitivity to our earnings.  The range of changes chosen for this analysisreflects our view of changes which are reasonably possible over a one-yearperiod.  These forward-lookingdisclosures are selective in nature and only address the potential impacts fromfinancial instruments.  They do notinclude other potential effects which could impact our business as a result ofthese interest rate fluctuations.

 

*InterestRate Sensitivity Analysis*

 

At September 30,2009, we had debt totaling $269.8 million, comprised of $0.8 million ofvariable rate debt and $269.0 million of fixed rate debt, comprised of $120.0million of debt fixed through the interest rate swap agreements, $137.8 millionof Senior Subordinated Notes, $9.7 million of Second Lien Loan, and $1.6 millionof purchase debt.  Holding othervariables constant (such as debt levels), the earnings and cash flow impact ofa one-percentage point increase/ decrease in interest rates would have anunfavorable/ favorable impact of less than $0.1 million.

 

*CreditRisk*

 

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.

 

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**ITEM 4: CONTROLS AND PROCEDURES**

 

Managements’ Report on Internal Control over FinancialReporting

 

Within 90 days prior to the filing of this Quarterly Report on Form 10-Q,the Company carried out an evaluation, under the supervision and with theparticipation of the Company’s management, including the President and ChiefExecutive Officer and the Senior Vice President and Chief Financial Officer, ofthe effectiveness of the design and operation of the Company’s disclosurecontrols and procedures pursuant to Regulation 13a-15e under the SecuritiesExchange Act of 1934, as amended.  Basedupon that evaluation, the President and Chief Executive Officer along with theSenior Vice President and Chief Financial Officer concluded that the disclosurecontrols and procedures are effective in timely alerting them to materialinformation relating to the Company (including its consolidated subsidiaries)required to be included in the periodic SEC filings.  Management determined that, as of September 30,2009, there have been no significant changes in the Company’s internal controlover financial reporting or in other factors that could significantly affectthese controls subsequent to the date the Company carried out its evaluation.

 

**PART II: OTHER INFORMATION.**

 

**ITEM 1A:RISK FACTORS**

 

The Senior CreditFacility matures on March 31, 2010. As of September 30, 2009, there was $120.2 million outstandingunder the Senior Credit Facility and it is secured by a lien on all of theassets of AGI and its subsidiaries and a pledge of the stock of AGI and itssubsidiaries.  The Second Lien Loanmatures on July 31, 2010.  As of September 30,2009, there was $9.7 million outstanding under the Second Lien Loan and it issecured by a second lien on the assets and stock of AGI and itssubsidiaries.  In addition, $25.4 millionof the AGHI Notes mature in March 2010 and are unsecured.  Although the Company is currently seeking torefinance or replace the Senior Credit Facility and has received certainproposals or indications of interest from prospective lenders, there can be noassurance that the Senior Credit Facility will be refinanced or replaced priorto its maturity.  The availability offinancing is limited due to the current uncertainties in the capital markets.  In addition, the current general conditionsin the U.S. economy had an adverse impact on the Company’s operations becauseconsumers are reducing discretionary spending, including spending on therecreational activities offered by the Company, and businesses are reducingadvertising and marketing expenditures which have adversely affected theadvertising revenues received by the Company. As a result, it may be even more difficult for the Company to refinanceor replace the Senior Credit Facility due to the current deterioration in the Company’soperating results and the prospects for the business segments in which theCompany operates.  If the Company is notable to refinance or replace the Senior Credit Facility prior to its maturityon March 31, 2010, the lenders will be entitled to exercise their remediesto sell the collateral securing the repayment of the Senior Credit Facility,including the Company’s assets, the stock of the Company and the stock of theCompany’s subsidiaries.  Since theindebtedness owned under the Senior Credit Facility is secured, it would berepaid before any of the unsecured or subordinated obligations of the Companyand its subsidiaries.  It is alsopossible that the interest rate payable on a new credit facility will be higherthan the interest rates under the current 

 

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Senior CreditFacility as amended June 5, 2009 which will adversely affect the Company’scash flow and profitability (or increase losses).  See Note 12 — Subsequent Events.

 

The ability of theCompany to replace or refinance the Senior Credit Facility may also depend onthe ability of the Company to replace, refinance or modify its Second Lien Loanin the principal amount of $9.7 million as of September 30, 2009 thatmatures on July 31, 2010, and its Senior Subordinated Notes in theprincipal amount of $137.8 million as of September 30, 2009 that mature onFebruary 15, 2012, and on the ability of AGHI to replace, refinance ormodify the AGHI Senior Notes in the principal amount of $112.1 as of September 30,2009 of which $25.4 million mature in March 2010 and the balance in February 2012,since these other debt instruments mature in proximity to the maturity of theSenior Credit Facility, or the ability of the Company or AGHI to repay suchdebt when due is an important factor in any new capital structure for theCompany and AGHI.

 

If the Company orAGHI is not able to refinance or replace any such debt before its scheduledmaturity, the holders of such debt will be entitled to exercise theirrespective remedies including, in the case of secured debt, to sell thecollateral securing the repayment thereof. In as much as the indebtedness owned under the Senior Credit Facilityand the AGI Second Lien Loan indebtedness is secured, it would be repaid beforefunds are available to discharge any unsecured or subordinated obligations.

 

**ITEM 5: OTHER INFORMATION**

 

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

 

Item 6.    Exhibitsand Reports on Form 8-K

 

(a)           Exhibits.

 

Exhibit 10.34 — Loan Agreement with SA Holding LLC dated June 10,2009

Exhibit 10.35 — Promissory Note with SA Holding LLC dated June 10,2009

 

(b)           Reportson Form 8-K.

 

None.

 

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**SIGNATURES:**

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the Registrants have dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 

 
|                          | **AFFINITY  GROUP, INC.**  |
|-------------------------------|----------------------------|
| ** **                    |                       |
|                          |                       |
|                          | /s/ Thomas F.  Wolfe       |
| Date:  November 12, 2009 | Thomas F. Wolfe            |
|                          | Senior Vice  President and |
|                          | Chief Financial  Officer   |

 

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