1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation – The consolidated financial statements include the accounts of Good Sam Enterprises, LLC (“GSE”), its predecessors, and its subsidiaries (collectively the “Company”), presented in accordance with U.S. generally accepted accounting principles, (“GAAP”), and pursuant to the rules and regulations of the Securities and Exchange Commission. Affinity Group Holding, LLC, a Delaware corporation (“AGHI”), is the direct parent of the Company. Certain balances in the prior year consolidated financial statements were reclassified to conform with the current year presentation. The ultimate parent company of AGHI is AGI Holding Corp. (“AGHC”), a privately-owned corporation. On March 2, 2011, Affinity Group, Inc. (“AGI”) and AGHI converted the form of their organization from corporations to limited liability companies, and their names were changed to Affinity Group, LLC and Affinity Group Holding, LLC, respectively. On May 2, 2011, Affinity Group, LLC changed its name to Good Sam Enterprises, LLC by filing a Certificate of Amendment to its Certificate of Organization with the Secretary of State of Delaware.

Description of the Business – The Company is a membership-based direct marketing company which sells club memberships, products, services, and publications to selected affinity groups primarily in North America. The Company markets club memberships, merchandise and services to RV owners, and camping enthusiasts. In addition, the Company operates 93 retail stores and a mail order business selling RV accessories, supplies and services through its wholly-owned subsidiary, Camping World, Inc. (“Camping World”). The stores are located throughout the United States. The Company also operates consumer shows, and publishes magazines and directories.

Use of Estimates – The preparation of the Company’s consolidated financial statements in conformity with accounting principles generally accepted in the United States requires the Company’s management to make estimates and assumptions that affect the amounts reported in these financial statements and accompanying notes. Actual results could differ from those estimates.

Fair Value Measurement – Fair value is generally defined as the price that would be received to sell an asset or paid to transfer a liability (i.e. the “exit price”) in an orderly transaction between market participants at the measurement date. See Note 9 – Fair Value Measurements.

Cash, Cash Equivalents – The Company considers all short-term, highly liquid investments purchased with a maturity date of three months or less to be cash equivalents. The carrying amount approximates fair value because of the short-term maturity of these instruments.

Concentration of Credit Risk – The Company is potentially subject to concentrations of credit risk in accounts receivable. Concentrations of credit risk with respect to accounts receivable is limited due to the large number of customers and their geographical dispersion.

Inventories – Inventories are stated at lower of FIFO (first-in, first-out) cost or market. Inventories primarily consist of retail travel and leisure specialty merchandise.

Property and Equipment – Property and equipment are recorded at cost. The Company reviews its property, plant and equipment assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Depreciation of property and equipment is provided using the straight-line method over the following estimated useful lives of the assets:

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

Leasehold improvements are amortized over the useful lives of the assets or the remaining term of the respective lease, whichever is shorter.

Goodwill and Other Intangible Assets – Goodwill is reviewed at least annually for impairment, and more often when impairment indicators are present (See Note 3 – Goodwill and Intangible Assets). The finite-lived intangible assets consisting of membership customer lists and deferred financing costs with weighted average useful lives of approximately 6 years each.

Long-lived Assets - Long-lived assets, including capitalized software costs, to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment is recognized to the extent the sum of the discounted estimated future cash flows from the use of the asset is less than the carrying value.

Self-insurance Program – Self-insurance accruals for workers compensation and general liability programs are calculated by a third party and are based on claims filed and include estimates for claims incurred but not yet reported. Projections of future loss are inherently uncertain because of the random nature of insurance claims occurrences and could be substantially affected if future occurrences and claims differ significantly from these assumptions and historical trends.

Long-term Debt – The fair value of the Company’s long-term debt is estimated based on the quoted market prices for the same or similar issues or on the current rates offered for debt of the same or similar remaining maturities. The fair value of the Company’s total long-term debt was $360.2 million as of December 31, 2012.

Revenue Recognition – Merchandise revenue is recognized when products are sold in the retail stores, shipped for mail and Internet orders, or when services are provided to customers. Roadside Assistance (“RA”) revenues are deferred and recognized over the life of the membership. RA claim expenses are recognized when incurred. Royalty revenue is earned under the terms of an arrangement with a third party credit card provider based on a percentage of the Company’s outstanding credit card balances with such third party credit card provider.

Membership revenue is generated from annual, multi-year and lifetime memberships. The revenue and expenses associated with these memberships are deferred and amortized over the membership period. For lifetime memberships, an 18-year period is used, which is the actuarially determined estimated fulfillment period. Promotional expenses, consisting primarily of direct mail advertising, are deferred and expensed over the period of expected future benefit, typically three months based on historical actual response rates. Renewal expenses are expensed at the time related materials are mailed. Recognized revenues and profit are subject to revisions as the membership progresses to completion. Revisions to membership period estimates would change the amount of income and expense amortized in future accounting periods. At December 31, 2012 and 2011, $5.8 million and $5.6 million of advertising expenses have been capitalized as direct-response advertising, of which $3.5 million and $3.0 million, respectively, were reported as assets and $2.3 million and $2.6 million, respectively, were reported net of related deferred revenue. Advertising expenses for 2012, 2011 and 2010 were $26.6 million, $28.4 million and $24.6 million, respectively.

Publications Revenue and Expense – Newsstand sales of publications and related expenses are recorded at the time of delivery, net of estimated provision for returns. Subscription sales of publications are reflected in income over the lives of the subscriptions. The related selling expenses are expensed as incurred. Advertising revenues and related expenses are recorded at the time of delivery. Subscription and newsstand revenues and expenses related to annual publications are deferred until the publications are distributed. Revenues and related expenses for consumer shows are recognized when the show occurs.

Vendor Allowances – The Company receives rebates from vendors pursuant to several different types of programs. Vendor consideration is accounted for as a reduction of the inventory cost and related cost of sales when the inventory is sold.

Shipping and Handling Fees and Costs – The Company reports shipping and handling costs billed to customers as a component of revenues, and related costs are reported as a component of cost applicable to revenues. At December 31, 2012, 2011 and 2010, $9.3 million, $7.0 million and $5.7 million of shipping and handling fees, respectively, were included in the Retail segment as revenue.

Derivative Financial Instruments – The Company accounts for derivative instruments and hedging activities in accordance with accounting guidance for derivative instruments and hedging activities, which states that all derivatives are recognized on the balance sheet at their fair value. On the date that the Company enters into a derivative contract, management formally documents all relationships between hedging instruments and hedged items, as well as risk management objectives and strategies for undertaking various hedge transactions.

Changes in the fair value of a derivative that is highly effective and that is designated and qualifies as a cash flow hedge (a “swap”), to the extent that the hedge is effective, are recorded in accumulated other comprehensive loss, until earnings are affected by the variability of cash flows of the hedged transaction. The Company measures effectiveness of the swap at each quarter end using the Hypothetical Derivative Method. Under this method, hedge effectiveness is measured based on a comparison of the change in fair value of the actual swap designated as the hedging instrument and the change in fair value of the hypothetical swap which would have the terms that identically match the critical terms of the hedged cash flows from the underlying debt. The amount of ineffectiveness, if any, recorded in earnings would be equal to the excess of the cumulative change in the fair value of the swap over the cumulative change in the fair value of the plain vanilla swap, as defined in the accounting literature. The Company’s derivatives that are not designated and do not qualify as hedges are adjusted through current earnings. See Note 8 - Interest Rate Swap Agreements.

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

Income Taxes –The Company recognizes deferred tax assets and liabilities based on the liability method, which requires an adjustment to the deferred tax asset or liability to reflect income tax rates currently in effect. When income tax rates increase or decrease, a corresponding adjustment to income tax expense is recorded by applying the rate change to the cumulative temporary differences.

The Company recognizes the tax benefit from an uncertain tax position in accordance with accounting guidance on accounting for uncertainty in income taxes. See Note 7 – Income Taxes.

Major Customers – Included in the Membership Services segment is revenue of $13.8 million, $14.6 million and $18.1 million, for the years 2012, 2011 and 2010, respectively, which was received under contracts from one third party customer of the Company. For transactions with related parties, see Note 11 – Related Party Transactions.