Affinion Group, Inc. Announces Results For The Quarter Ended September 30, 2012 QUARTERLY ADJUSTED EBITDA INCREASES 5.2%

ADJUSTED LTM EBITDA AT $357.1 MILLION

STAMFORD, Conn., Nov. 1, 2012 /PRNewswire/ -- Affinion Group, Inc. ("Affinion" or the "Company"), the global leader in enabling companies to connect and engage with their customers, thereby creating rewarding relationships and enhancing brand loyalty, announced today the financial results for the three month period ended September 30, 2012 ("third quarter") for both Affinion and its parent company, Affinion Group Holdings, Inc. ("Affinion Holdings").  

"We are pleased that our results this quarter reflect the continued strong demand for both our loyalty services as well as our International programs, which together now comprise nearly a third of our overall business," said Todd Siegel, Affinion's Chief Executive Officer.  "The revenues for these products, on a constant currency basis, have now grown at a double digit rate over the first nine months of the year; however, our overall topline results this quarter, particularly in Membership, have also begun to show the anticipated impacts of the reduced opportunities we have seen with our large domestic financial institution partners, due primarily to the regulatory challenges that have been affecting those partners, as we've discussed throughout the year."

"The challenges from this environment are expected to present an ongoing headwind to revenue over the rest of the year, and we continue to believe our Adjusted EBITDA will decline at a mid- to high-single digit rate as compared to 2011," continued Siegel.  "However, given the highly predictable performance of our existing business, we continue to believe we will be able to manage our long-term obligations while making the necessary investments to support the growth in the business."

Results Highlights
Notes: Adjusted EBITDA as referred to above excludes any pro forma impact of acquisitions.  See Tables 6 and 11 for a complete description of Adjusted EBITDA and the related reconciliations to GAAP measures.  On January 14, 2011, Affinion completed the acquisition of Webloyalty, a global online marketing services company.  Webloyalty's business results are reported as part of the Company's Membership and International product segments, as appropriate.  On August 1, 2011, Affinion completed the acquisition of Prospectiv Direct, Inc., an online performance marketer and operator of a daily deal website in the U.S.  Prospectiv's business results are reported as part of the Company's Membership product segment.

Third Quarter Net Revenues

  • Net revenues for the third quarter of 2012 were $370.6 million as compared to $394.7 million for the third quarter of 2011, reflecting a decrease of 6.1%.
  • Excluding a $6.0 million negative impact from unfavorable foreign exchange in the quarter, overall net revenues would have declined 4.6% from the third quarter of 2011.
  • The revenue decline was attributable to a 14.9% decline in North American Membership products revenue, which was due to the previously identified distraction among the Company's large domestic financial institution partners with respect to new campaign launches.
  • The revenue generated from all other products, on a currency consistency basis, increased 5.7% as compared to the third quarter of 2011.

Third Quarter Operating Results

  • Adjusted EBITDA (as defined in Note (d) of Table 6) was $93.5 million as compared to $88.9 million for the third quarter of 2011.
  • Segment EBITDA was $84.9 million as compared to $67.5 million for the third quarter of 2011, an increase of $17.4 million, or 25.8%, as $41.5 million in lower operating expenses more than offset the lower net revenues.
  • As compared to Adjusted EBITDA, third quarter Segment EBITDA reflects the inclusion of, among other items, $2.7 million of costs associated with certain strategic and corporate development activities, $2.6 million of non-cash stock compensation expense, and $1.1 million of severance costs related to restructurings. 

Segment Commentary
North America:
Membership products revenue decreased $29.4 million, from $197.3 million to $167.9 million, or 14.9%, as compared to the third quarter of 2011.  Net Membership revenues decreased primarily due to a decline in volumes related to the distraction from large domestic financial institution partners with respect to new campaign launches as well as the ongoing, but anticipated, attrition in volumes contributed from the domestic portion of the subscriber base acquired from Webloyalty.  Membership Segment EBITDA increased $8.8 million, from $24.7 million to $33.5 million, or 35.6%, as compared to the third quarter of 2011, as lower marketing and commission expense and lower operating costs due to the reduced business volumes more than offset the lower revenues.

Insurance and Package products revenue increased $2.8 million, from $87.2 million to $90.0 million, or 3.2%, as compared to the third quarter of 2011, as a lower cost of insurance contributed to higher average revenue per supplemental insured.  Insurance and Package Segment EBITDA increased $3.6 million, from $27.9 million to $31.5 million, or 12.9%, primarily from the higher net revenues, and as lower general and administrative expense and lower operating costs more than offset higher marketing and commission expense.

Loyalty products revenue increased $2.4 million, from $34.8 million to $37.2 million, or 6.9%, as compared to the third quarter of 2011, due primarily to the launch of new programs with existing clients.  Loyalty Segment EBITDA increased $2.6 million, from $10.9 million to $13.5 million, or 23.9%, as the revenue generated from the new programs was only partially offset by the associated higher operating costs.

International:
International revenue decreased $0.4 million, from $76.3 million to $75.9 million, or 0.5%, as compared to the third quarter of 2011 as higher retail member volumes, primarily from the Company's online acquisition channel, was offset by a $6.0 million unfavorable impact from foreign exchange.  International Segment EBITDA decreased $0.3 million, from $9.6 million to $9.3 million, or 3.1%, as higher general and administrative costs in connection with the Company's geographic expansion more than offset the higher revenues.

Selected Liquidity Data
Affinion Group, Inc.
Affinion has several debt instruments outstanding, including senior notes, senior subordinated notes, and senior secured credit facilities, which consist of a term loan facility and revolving credit facility. For a more complete description of Affinion's debt instruments at September 30, 2012, see the note in Table 2.

At September 30, 2012, Affinion had $472.3 million outstanding under the senior notes (net of discounts) due in 2018, $1,098.7 million outstanding under its term loan facility, and $353.9 million outstanding under the senior subordinated notes (net of discounts) due in 2015.

As of September 30, 2012, there were no outstanding borrowings against the Company's revolving credit facility, and $158.1 million of the credit facility was available for borrowing, after giving effect to the issuance of $6.9 million in letters of credit.

At September 30, 2012, the Company had $56.5 million of unrestricted cash on hand.

Affinion Group Holdings, Inc.
At September 30, 2012, Affinion Holdings had $322.1 million outstanding under the senior notes (net of discounts) due in 2015, and $94.8 million of unrestricted cash on hand.

Historically, the business results for Affinion and Affinion Holdings have been substantially similar, particularly with respect to revenue and Adjusted EBITDA.  Results for Affinion Holdings have been included as an addendum to this release in Tables 7-11.

Call-In Information
Affinion will hold an informational call to discuss the results for the three-month period ended September 30, 2012 at 10:00 am (EDT) on Thursday, November 1, 2012.  The conference call will be broadcast live and can be accessed by dialing 1-866-394-8483 (domestic) or 1-706-758-1455 (international) and entering passcode 58048763.  Interested parties should call at least ten (10) minutes prior to the call to register.  The Company will also provide an on-line Web simulcast of its conference call at www.affinion.com/ir.  A telephonic replay of the call will be available through midnight (EST) November 5, 2012 by dialing 1-855-859-2056 (domestic) or 1-404-537-3406 (international) and entering passcode 58048763.

Important Notes
The information presented in this release is a comparison of the unaudited consolidated results of operations for the three- and nine-month periods ended September 30, 2012 to the unaudited consolidated results of operations for the three- and nine-month periods ended September 30, 2011.

About Affinion Group
As a global leader with almost 40 years of experience, Affinion Group enhances the value of its partners' customer relationships by developing and marketing loyalty solutions. Leveraging its expertise in customer engagement, product development and targeted marketing, Affinion provides programs in subscription-based lifestyle services, personal protection, insurance and other areas to help generate increased customer loyalty and significant incremental revenue for more than 5,570 marketing partners worldwide, including many of the largest and most respected companies in financial services, retail, travel, and Internet commerce. Based in Stamford, Conn., the Company has approximately 4,500 employees and has marketing capabilities in 17 countries globally. Affinion holds the prestigious ISO 27001 certification for the highest information security practices, is PCI compliant and Cybertrust certified. For more information, visit www.affinion.com.

Safe Harbor Statement Under the U.S. Private Securities Litigation Reform Act of 1995
This press release may contain "forward-looking" statements as defined by the Private Securities Litigation Reform Act of 1995 or by the U.S. Securities and Exchange Commission (SEC) in its rules, regulations and releases. These statements include, but are not limited to, discussions regarding industry outlook, Affinion's expectations regarding the performance of its business, its liquidity and capital resources, its guidance for 2012 and the other non-historical statements. These statements can be identified by the use of words such as "believes" "anticipates," "expects," "intends," "plans," "continues," "estimates," "predicts," "projects," "forecasts," and similar expressions. All forward-looking statements are based on management's current expectations and beliefs only as of the date of this press release and are subject to risks, uncertainties and assumptions that could cause actual results to differ materially from those discussed in, or implied by, the forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to, risks related to general economic and business conditions and international and geopolitical events, a downturn in the credit card industry or changes in the techniques of credit card issuers, industry trends, foreign currency exchange rates, the effects of a decline in travel on the Company's travel fulfillment business, termination or expiration of one or more agreements with its marketing partners or a reduction of the marketing of its services by one or more of its marketing partners, the Company's substantial leverage, restrictions contained in its debt agreements, its inability to compete effectively, and other risks identified and discussed from time to time in reports filed by Affinion and Affinion Holdings with the SEC, including Affinion's most recent Annual Report on Form 10-K for the year ended December 31, 2011, and Affinion Holdings' most recent Annual Report on Form 10-K.  Readers are strongly encouraged to review carefully the full cautionary statements described in these reports. Except as required by law, the Company undertakes no obligation to revise or update publicly any forward-looking statements to reflect events or circumstances after the date of this press release, or to reflect the occurrence of unanticipated events or circumstances.

Financial Tables and Other Data Follow











TABLE 1

AFFINION GROUP HOLDINGS, INC.

AFFINION GROUP, INC.

UNAUDITED SUPPLEMENTAL DATA FOR 

SELECTED BUSINESS SEGMENTS























The following table provides data for selected business segments.












Subscriber and insured amounts in thousands, except dollars and percentages.
















Three Months Ended


Nine Months Ended





September 30,


September 30,





2012


2011


2012


2011












Global Average Subscribers, excluding Basic Insureds


42,998


48,837


44,138


48,407

Annualized Net Revenue Per Global Average Subscriber,









     excluding Basic Insureds(1)


$     30.73


$     28.97


$     30.44


$     28.64























Global Membership Subscribers









Average Global Retail Subscribers (2)


10,298


11,318


10,706


11,377

Annualized Net Revenue Per Global Average Subscriber (1)


$     79.77


$     79.80


$     79.81


$     79.61












Global Package Subscribers and Wholesale









Average Global Package Subscribers and Wholesale (2)


28,584


33,250


29,262


32,720

Annualized Net Revenue Per Global Average Package Subscriber (1)


$      7.34


$      7.13


$      7.61


$      6.64























Global Insureds









Average Supplemental Insureds (2)


4,116


4,269


4,170


4,310

Annualized Net Revenue Per Supplemental Insured (1)


$     70.46


$     64.32


$     63.84


$     61.08












Global Average Subscribers, including Basic Insureds


64,873


71,190


66,229


70,779



(1)

Annualized Net Revenue Per Global Average Subscriber and Annualized Net Revenue Per Supplemental Insured are each calculated by taking the revenues as reported for the period and dividing it by the average subscribers or insureds, as applicable, for the period. Quarterly periods are then multiplied by four to annualize this amount for comparative purposes. Upon cancellation of a subscriber or an insured, as applicable, the subscriber's or insured's, as applicable, revenues are no longer recognized in the calculation.

(2)

Average Global Subscribers and Average Supplemental Insureds for the period are each calculated by determining the average subscribers or insureds, as applicable, for each month (adding the number of subscribers or insureds, as applicable, at the beginning of the month with the number of subscribers or insureds, as applicable, at the end of the month and dividing that total by two) for each of the months in the period and then averaging that result for the period.  A subscriber's or insured's, as applicable, account is added or removed in the period in which the subscriber or insured, as applicable, has joined or cancelled.

 









TABLE 2

AFFINION GROUP, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF SEPTEMBER 30, 2012 AND DECEMBER 31, 2011

(In millions, except share amounts)
















September 30,


December 31,







2012


2011










Assets








Current assets:









Cash and cash equivalents




$              56.5


$              86.3


Restricted cash




35.6


30.4


Receivables (net of allowances for doubtful accounts of $3.6 and $2.4, respectively)




147.5


126.8


Receivables from related parties




0.1


0.8


Profit-sharing receivables from insurance carriers




88.9


74.0


Prepaid commissions




43.5


52.6


Income taxes receivable




3.9


2.1


Other current assets




83.2


68.1










Total current assets




459.2


441.1

Property and equipment, net




134.3


134.7

Contract rights and list fees, net




23.0


22.5

Goodwill





597.9


627.5

Other intangibles, net




234.5


351.2

Other non-current assets




62.1


74.0










Total assets





$          1,511.0


$          1,651.0










Liabilities and Deficit







Current liabilities:








Current portion of long-term debt




$              11.8


$              11.9


Accounts payable and accrued expenses




407.6


398.1


Payables to related parties




40.4


35.3


Deferred revenue




124.1


152.5


Income taxes payable




4.2


3.4










Total current liabilities




588.1


601.2

Long-term debt





1,914.5


1,922.5

Deferred income taxes




70.9


67.5

Deferred revenue





15.2


17.8

Other long-term liabilities




38.7


53.7










Total liabilities





2,627.4


2,662.7










Commitments and contingencies
















Deficit:








Common stock and additional paid-in capital, $0.01 par value, 1,000 shares








authorized, and 100 shares issued and outstanding




102.6


139.6

Accumulated deficit




(1,226.0)


(1,157.5)

Accumulated other comprehensive income




5.5


5.2










Total Affinion Group, Inc. deficit




(1,117.9)


(1,012.7)

Non-controlling interest in subsidiary




1.5


1.0










Total deficit





(1,116.4)


(1,011.7)










Total liabilities and deficit




$          1,511.0


$          1,651.0




























Note: The information presented in these press release tables 1-6 reflects the financial statement data and the results of operations of Affinion Group, Inc. ("Affinion") and its consolidated subsidiaries as of the dates indicated above and does not include the $325.0 million senior notes incurred in October 2010 by Affinion Group Holdings, Inc., as described in the Liquidity and Capital Resources section of the Form 10-K filed for the fiscal year ended December 31, 2011. As part of the financing for the acquisition of the assets of Cendant Marketing Services Division by the Company from Cendant Corporation, Affinion (a) issued $270.0 million in principal amount of 10 1/8% senior notes maturing on October 15, 2013 ($266.4 million net of discount), (b) entered into senior secured credit facilities consisting of a term loan facility in the principal amount of $860.0 million and a revolving credit facility in an aggregate amount of up to $100.0 million, and (c) entered into a senior subordinated bridge loan facility in the principal amount of $383.6 million. On April 26, 2006, $349.5 million of principal borrowings under the senior subordinated bridge loan facility were repaid using the proceeds from a private offering of $355.5 million aggregate principal amount of 11 1/2% senior subordinated notes maturing on October 15, 2015. Subsequently, on May 3, 2006, the remaining $34.1 million of principal borrowings under the senior subordinated bridge loan facility were repaid using the proceeds from another private offering of $34.0 million aggregate principal amount of 10 1/8% senior notes maturing on October 15, 2013. The senior notes were issued as additional notes under the indenture dated as of October 17, 2005. On June 5, 2009, Affinion issued $150.0 million of new 10 1/8% senior notes maturing on October 15, 2013 ($136.5 million net of discount) in a private placement transaction. On April 9, 2010, Affinion entered into a $1.0 billion amended and restated senior secured credit facility consisting of a five-year $125.0 million revolving loan facility and an $875.0 million term loan facility maturing in six and a half years. The net proceeds of the term loan facility were used in part to refinance our existing senior secured credit facility, with the remainder intended to be used for working capital and other general corporate purposes, including permitted acquisitions, such as Connexions, and investments. In November 2010, Affinion issued 7.875% senior notes and utilized the net proceeds to redeem the 10 1/8% senior notes issued in 2005, 2006 and 2009.  On February 11, 2011, Affinion obtained incremental term loans in an aggregate principal amount of $250.0 million under Affinion's amended and restated senior secured credit facility.  Affinion used a portion of the proceeds to pay a dividend of $199.8 million to Affinion Holdings, with the balance used for working capital and other corporate purposes and to fund strategic initiatives.













TABLE 3

AFFINION GROUP, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

(In millions)


















For the Three Months Ended


For the Nine Months Ended






September 30,

 2012


September 30,

 2011


September 30,

 2012


September 30,

 2011













Net revenues



$            370.6


$            394.7


$          1,130.0


$          1,148.7

Expenses:












Cost of revenues, exclusive of depreciation and amortization











shown separately below:












Marketing and commissions


142.5


168.7


448.1


472.5




Operating costs


110.8


116.0


344.2


333.2


General and administrative


33.3


39.6


99.4


137.0


Impairment of goodwill and other long-lived assets


-


-


39.7


-


Facility exit costs


(0.9)


2.9


(0.9)


4.2


Depreciation and amortization


48.5


60.4


147.6


183.3
















Total expenses


334.2


387.6


1,078.1


1,130.2













Income from operations


36.4


7.1


51.9


18.5

Interest income



0.2


0.1


0.7


0.9

Interest expense



(37.0)


(36.5)


(111.5)


(111.2)

Other income (expense), net


0.1


0.1


(0.2)


-













Loss before income taxes and non-controlling interest


(0.3)


(29.2)


(59.1)


(91.8)

Income tax expense


(1.9)


(3.9)


(8.9)


(8.6)













Net loss




(2.2)


(33.1)


(68.0)


(100.4)

Less: net income attributable to non-controlling interest


(0.1)


(0.2)


(0.5)


(0.7)













Net loss attributable to Affinion Group, Inc.


$               (2.3)


$             (33.3)


$             (68.5)


$           (101.1)

















































Net loss




$               (2.2)


$             (33.1)


$             (68.0)


$           (100.4)

Currency translation adjustment, net of tax


2.0


(3.9)


0.3


(0.2)

Comprehensive loss


(0.2)


(37.0)


(67.7)


(100.6)

Less: comprehensive income attributable to non-controlling interest


(0.2)


(0.1)


(0.5)


(0.6)

Comprehensive loss attributable to Affinion Group, Inc.


$               (0.4)


$             (37.1)


$             (68.2)


$           (101.2)














 













TABLE 4

AFFINION GROUP, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

(In millions)
























For the Nine Months Ended











September 30, 2012


September 30, 2011














Operating Activities












Net loss








$             (68.0)


$            (100.4)


Adjustments to reconcile net loss to net cash provided by operating activities:







Depreciation and amortization






147.6


183.3



Amortization of debt discount and financing costs




6.3


6.2



Unrealized (gain) loss on interest rate swaps




1.2


(4.3)



Impairment of goodwill and other long-lived assets




39.7


-



Impairment of equity investment






1.0


-



Adjustment to liability for additional consideration based on earn-out


(14.6)


-



Facility exit costs







(0.9)


4.2



Share-based compensation






8.8


8.5



Deferred income taxes






3.9


3.8



Payment received for assumption of loyalty points program liability


-


4.8


Net change in assets and liabilities:











Restricted cash







(5.2)


2.1



Receivables







(19.6)


(31.5)



Receivables from related parties






0.7


0.4



Profit-sharing receivables from insurance carriers




(14.9)


(18.2)



Prepaid commissions






9.4


4.1



Other current assets







(14.2)


12.6



Contract rights and list fees






(0.7)


(2.7)



Other non-current assets






4.7


8.1



Accounts payable and accrued expenses





6.3


4.1



Payables to related parties






(3.6)


(6.8)



Deferred revenue







(32.5)


(10.0)



Income taxes receivable and payable





(1.1)


5.5



Other long-term liabilities






0.6


(7.9)



Other, net








(0.1)


-

















Net cash provided by operating activities

54.8


65.9














Investing Activities












Capital expenditures







(38.2)


(39.0)


Restricted cash








0.2


1.1


Acquisition-related payments, net of cash acquired




(1.2)


(32.9)


Cash acquired in Webloyalty acquisition





-


26.1


Other investing activity







-


0.2

















Net cash used in investing activities

(39.2)


(44.5)














Financing Activities












Proceeds from issuance of term loan






-


250.0


Principal payments on borrowings






(8.8)


(8.8)


Financing costs








-


(5.8)


Repurchase of employee equity award of a subsidiary




-


(3.5)


Return of capital to parent company






(37.0)


(323.2)


Receivables from and payables to parent company





-


15.3


Distribution to non-controlling interest of a subsidiary




-


(1.1)

















Net cash used in financing activities

(45.8)


(77.1)














Effect of changes in exchange rates on cash and cash equivalents




0.4


0.1

Net decrease in cash and cash equivalents






(29.8)


(55.6)

Cash and cash equivalents, beginning of period





86.3


121.1














Cash and cash equivalents, end of period






$              56.5


$              65.5














Supplemental Disclosure of Cash Flow Information:








Interest payments








$              92.5


$              91.9

Income tax payments, net of refunds






$                6.9


$                2.9















 














TABLE 5

AFFINION GROUP, INC.

UNAUDITED OPERATING SEGMENT RESULTS

(In millions)





























Net revenues and Segment EBITDA by operating segment are as follows:























Net revenues


Segment EBITDA (1)




For the Three Months Ended




For the Three Months Ended






September 30,

2012


September 30,

2011


Increase (Decrease)


September 30,

2012


September 30,

 2011


Increase (Decrease)















Affinion North America













Membership products


$            167.9


$            197.3


$          (29.4)


$              33.5


$              24.7


$            8.8

Insurance and package products


90.0


87.2


2.8


31.5


27.9


3.6

Loyalty products


37.2


34.8


2.4


13.5


10.9


2.6

Eliminations


(0.4)


(0.9)


0.5


-


-


-
















Total North America


294.7


318.4


(23.7)


78.5


63.5


15.0

Affinion International













International products


75.9


76.3


(0.4)


9.3


9.6


(0.3)
















Total products


370.6


394.7


(24.1)


87.8


73.1


14.7

Corporate

-


-


-


(2.9)


(5.6)


2.7

Impairment of goodwill and other long-lived assets

-


-


-


-


-


-
















Total


$            370.6


$            394.7


$          (24.1)


84.9


67.5


17.4

Depreciation and amortization








(48.5)


(60.4)


11.9
















Income from operations








$              36.4


$                7.1


$           29.3
































Net revenues


Segment EBITDA (1)




For the Nine Months Ended




For the Nine Months Ended






September 30, 2012


September 30, 2011


Increase (Decrease)


September 30, 2012


September 30, 2011


Increase (Decrease)















Affinion North America













Membership products


$            545.3


$            575.5


$          (30.2)


$            110.4


$              91.0


$           19.4

Insurance and package products


251.2


260.1


(8.9)


82.0


82.1


(0.1)

Loyalty products


113.0


102.3


10.7


38.1


32.0


6.1

Eliminations


(1.7)


(2.6)


0.9


-


-


-
















Total North America


907.8


935.3


(27.5)


230.5


205.1


25.4

Affinion International













International products


222.2


213.4


8.8


20.5


23.3


(2.8)
















Total products


1,130.0


1,148.7


(18.7)


251.0


228.4


22.6

Corporate

-


-


-


(11.8)


(26.6)


14.8

Impairment of goodwill and other long-lived assets

-


-


-


(39.7)


-


(39.7)
















Total


$          1,130.0


$          1,148.7


$          (18.7)


199.5


201.8


(2.3)

Depreciation and amortization








(147.6)


(183.3)


35.7
















Income from operations








$              51.9


$              18.5


$           33.4





























(1)

See Reconciliation of Non-GAAP Financial Measures on Table 6 for a discussion of Segment EBITDA.

















TABLE 6

AFFINION GROUP, INC.

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

TO GAAP FINANCIAL MEASURES (UNAUDITED)

(In millions, except ratios)














    Set forth below is a reconciliation of our consolidated net cash provided by operating activities for the twelve months ended September 30, 2012 and the three and nine months ended September 30, 2012 and 2011 to our Adjusted EBITDA.

















For the Twelve Months Ended September 30, 2012(a)


For the Three Months Ended September 30,


For the Nine Months Ended September 30,





2012


2011


2012


2011














Net cash provided by operating activities


$              95.9



$     21.1


$         37.5


$     54.8


$         65.9

Interest expense, net


147.8



36.8


36.4


110.8


110.3

Income tax expense


5.5



1.9


3.9


8.9


8.6

Amortization of favorable and unfavorable contracts


0.3



-


0.3


-


0.9

Amortization of debt discount and financing costs


(8.4)



(2.1)


(2.1)


(6.3)


(6.2)

Unrealized gain (loss) on interest rate swaps


(8.0)



(0.2)


3.6


(1.2)


4.3

Deferred income taxes


(2.4)



(1.9)


(2.4)


(3.9)


(3.8)

Payment received for assumption of loyalty points program liability


0.1



-


(4.3)


-


(4.8)

Changes in assets and liabilities


87.6



32.1


(0.2)


70.2


39.3

Effect of the Apollo Transactions, reorganizations, certain legal costs and net cost savings (b)

22.5



0.2


3.0


13.7


22.5

Other, net (c)


16.2



5.6


13.2


12.9


32.2














Adjusted EBITDA, excluding pro forma adjustments (d) (e)


357.1



$     93.5


$         88.9


$    259.9


$       269.2














Effect of the pro forma adjustments (f)


7.5























Adjusted EBITDA, including pro forma adjustments (g)


$            364.6




































(a)

Represents consolidated financial data for the year ended December 31, 2011, minus consolidated financial data for the nine months ended September 30, 2011, plus consolidated financial data for the nine months ended September 30, 2012.

(b)

Eliminates the effect of the Apollo Transactions and purchase accounting related to the Webloyalty acquisition, legal costs for certain legal matters and costs associated with severance incurred.

(c)

Eliminates (i) net changes in certain reserves, (ii) foreign currency gains and losses related to unusual, non-recurring intercompany transactions, (iii) the loss from an investment accounted for under the equity method, (iv) costs associated with certain strategic and corporate development activities and (v) consulting fees paid to Apollo. 

(d)

Adjusted EBITDA consists of income from operations before depreciation and amortization further adjusted to exclude non-cash and unusual items and other adjustments permitted in our debt agreements to test the permissibility of certain types of transactions, including debt incurrence. We believe that the inclusion of Adjusted EBITDA is appropriate as a liquidity measure. Adjusted EBITDA is not a measurement of liquidity or financial performance under U.S. GAAP and Adjusted EBITDA may not be comparable to similarly titled measures of other companies.  You should not consider Adjusted EBITDA as an alternative to cash flows from operating activities determined in accordance with U.S. GAAP, as an indicator of cash flows, as a measure of liquidity, as an alternative to operating or net income determined in accordance with U.S. GAAP or as an indicator of operating performance.

(e)

Adjusted EBITDA, excluding pro forma adjustments, does not give pro forma effect to the projected annualized benefits of restructurings and other cost savings initiatives in connection with the Webloyalty and Prospectiv acquisitions.  However, we do make such accretive pro forma adjustments as if such restructurings and cost savings initiatives had occurred on October 1, 2011 in calculating the Adjusted EBITDA under the amended and restated senior secured credit facility and the indentures governing our 7.875% senior notes and senior subordinated notes.

(f)

Gives effect to the projected annualized benefits of restructurings and other cost savings initiatives in connection with the Webloyalty and Prospectiv acquisitions as if such restructurings and cost savings initiatives had occurred on October 1, 2011.

(g)

Adjusted EBITDA, including pro forma adjustments, gives pro forma effect to the adjustments discussed in (f) above.





































TABLE 6 - cont'd














    Set forth below is a reconciliation of our consolidated net loss attributable to Affinion Group, Inc. for the twelve months ended September 30, 2012 and the three and nine months ended September 30, 2012 and 2011 to our Adjusted EBITDA.

















For the Twelve Months Ended September 30, 2012(a)


For the Three Months Ended September 30,


For the Nine Months Ended September 30,





2012


2011


2012


2011














Net loss attributable to Affinion Group, Inc.


$             (77.1)



$      (2.3)


$        (33.3)


$    (68.5)


$      (101.1)

Interest expense, net


147.8



36.8


36.4


110.8


110.3

Income tax expense


5.5



1.9


3.9


8.9


8.6

Non-controlling interest


0.7



0.1


0.2


0.5


0.7

Other (income) expense, net


-



(0.1)


(0.1)


0.2


-

Depreciation and amortization


203.0



48.5


60.4


147.6


183.3

Effect of the Apollo Transactions, reorganizations and non-recurring revenues and gains (b)

(0.6)



-


(0.7)


-


9.3

Certain legal costs (c)


8.9



(0.9)


3.2


2.0


7.4

Net cost savings (d)


14.2



1.1


0.5


11.7


5.8

Other, net (e)


54.7



8.4


18.4


46.7


44.9














Adjusted EBITDA, excluding pro forma adjustments (f) (g)


357.1



$     93.5


$         88.9


$    259.9


$       269.2














Effect of the pro forma adjustments (h)


7.5























Adjusted EBITDA, including pro forma adjustments (i)


$            364.6























Interest coverage ratio (j)


2.39























Consolidated leverage ratio (k)


5.17























Fixed charge coverage ratio (l)


2.40




































(a)

Represents consolidated financial data for the year ended December 31, 2011, minus consolidated financial data for the nine months ended September 30, 2011, plus consolidated financial data for the nine months ended September 30, 2012.

(b)

Eliminates the effect of the Apollo Transactions and purchase accounting related to the Webloyalty acquisition.

(c)

Represents the elimination of legal costs for certain legal matters.

(d)

Represents the elimination of costs associated with severance incurred.

(e)

Eliminates (i) net changes in certain reserves, (ii) share-based compensation expense, including payments to option holders, (iii) foreign currency gains and losses related to unusual, non-recurring intercompany transactions, (iv) the loss from an investment accounted for under the equity method, (v) costs associated with certain strategic and corporate development activities, (vi) consulting fees paid to Apollo, (vii) facility exit costs and (viii) the impairment charge related to the goodwill and certain intangible assets of Prospectiv.

(f)

Adjusted EBITDA consists of income from operations before depreciation and amortization further adjusted to exclude non-cash and unusual items and other adjustments permitted in our debt agreements to test the permissibility of certain types of transactions, including debt incurrence. We believe that the inclusion of Adjusted EBITDA is appropriate as a liquidity measure. Adjusted EBITDA is not a measurement of liquidity or financial performance under U.S. GAAP and Adjusted EBITDA may not be comparable to similarly titled measures of other companies.  You should not consider Adjusted EBITDA as an alternative to cash flows from operating activities determined in accordance with U.S. GAAP, as an indicator of cash flows, as a measure of liquidity, as an alternative to operating or net income determined in accordance with U.S. GAAP or as an indicator of operating performance.

(g)

Adjusted EBITDA, excluding pro forma adjustments, does not give pro forma effect to the projected annualized benefits of restructurings and other cost savings initiatives in connection with the Webloyalty and Prospectiv acquisitions.  However, we do make such accretive pro forma adjustments as if such restructurings and cost savings initiatives had occurred on October 1, 2011 in calculating the Adjusted EBITDA under the amended and restated senior secured credit facility and the indentures governing our 7.875% senior notes and senior subordinated notes.

(h)

Gives effect to the projected annualized benefits of restructurings and other cost savings initiatives in connection with the Webloyalty and Prospectiv acquisitions as if such  restructurings and cost savings initiatives had occurred on October 1, 2011.

(i)

Adjusted EBITDA, including pro forma adjustments, gives pro forma effect to the adjustments discussed in (h) above.

(j)

The interest coverage ratio is defined in our amended and restated senior secured credit facility (Adjusted EBITDA, as defined, to interest expense, as defined). The interest coverage ratio must be greater than 1.85 to 1.0 at September 30, 2012.

(k)

The consolidated leverage ratio is defined in our amended and restated senior secured credit facility (total debt, as defined, to Adjusted EBITDA, as defined). The consolidated leverage ratio must be less than 5.75 to 1.0 at September 30, 2012.

(l)

The fixed charge coverage ratio is defined in the indentures governing our 7.875% senior notes and our senior subordinated notes (consolidated cash flows, as defined, which is equivalent to Adjusted EBITDA ( as defined in our amended and restated senior secured credit facility) to fixed charges, as defined).  The calculation of fixed charges excludes the amortization of deferred financing costs associated with the amendment and restatement of our credit facility on April 9, 2010.



























    Set forth below is a reconciliation of our consolidated net loss attributable to Affinion Group, Inc. for the twelve months ended September 30, 2012 and the three and nine months ended September 30, 2012 and 2011 to our Segment EBITDA.

















For the Twelve Months Ended September 30, 2012(a)


For the Three Months Ended September 30,


For the Nine Months Ended September 30,





2012


2011


2012


2011














Net loss attributable to Affinion Group, Inc.


$             (77.1)



$      (2.3)


$        (33.3)


$    (68.5)


$      (101.1)

Interest expense, net


147.8



36.8


36.4


110.8


110.3

Income tax expense


5.5



1.9


3.9


8.9


8.6

Non-controlling interest


0.7



0.1


0.2


0.5


0.7

Other (income) expense, net


-



(0.1)


(0.1)


0.2


-

Depreciation and amortization


203.0



48.5


60.4


147.6


183.3














Segment EBITDA


$            279.9



$     84.9


$         67.5


$    199.5


$       201.8



























(a)

Represents consolidated financial data for the year ended December 31, 2011, minus consolidated financial data for the nine months ended September 30, 2011, plus consolidated financial data for the nine months ended September 30, 2012.














 









TABLE 7

AFFINION GROUP HOLDINGS, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF SEPTEMBER 30, 2012 AND DECEMBER 31, 2011

(In millions, except share amounts)
















September 30,


December 31,







2012


2011










Assets








Current assets:









Cash and cash equivalents




$              94.8


$            106.4


Restricted cash




35.6


30.4


Receivables (net of allowances for doubtful accounts of $3.6 and $2.4, respectively)


147.5


126.8


Receivables from related parties




0.1


0.8


Profit-sharing receivables from insurance carriers




88.9


74.0


Prepaid commissions




43.5


52.6


Income taxes receivable




3.9


2.1


Other current assets




83.2


68.1










Total current assets




497.5


461.2

Property and equipment, net




134.3


134.7

Contract rights and list fees, net




23.0


22.5

Goodwill





597.9


627.5

Other intangibles, net




234.5


351.2

Other non-current assets




66.6


79.6










Total assets





$          1,553.8


$          1,676.7










Liabilities and Deficit







Current liabilities:








Current portion of long-term debt




$              11.8


$              11.9


Accounts payable and accrued expenses




426.3


405.3


Payables to related parties




0.1


0.7


Deferred revenue




124.1


152.5


Income taxes payable




4.2


3.4










Total current liabilities




566.5


573.8

Long-term debt





2,236.6


2,244.0

Deferred income taxes




70.9


67.5

Deferred revenue





15.2


17.8

Other long-term liabilities




38.7


53.7










Total liabilities





2,927.9


2,956.8










Commitments and contingencies
















Deficit:








Common stock, $0.01 par value, 360,000,000 shares authorized, 85,128,062 and 85,049,740






shares issued and 84,912,610 and 84,834,856 shares outstanding




0.9


0.9

Additional paid-in capital




131.5


125.9

Warrants





-


1.7

Accumulated deficit




(1,512.4)


(1,413.7)

Accumulated other comprehensive income




5.5


5.2

Treasury stock, at cost, 215,452 and 214,884 shares




(1.1)


(1.1)










Total Affinion Group Holdings, Inc. deficit




(1,375.6)


(1,281.1)

Non-controlling interest in subsidiary




1.5


1.0










Total deficit





(1,374.1)


(1,280.1)










Total liabilities and deficit




$          1,553.8


$          1,676.7











 












TABLE 8

AFFINION GROUP HOLDINGS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

(In millions)


















For the Three Months Ended


For the Nine Months Ended






September 30,

 2012


September 30,

 2011


September 30,

 2012


September 30,

 2011













Net revenues



$            370.6


$            394.7


$          1,130.0


$          1,148.7

Expenses:












Cost of revenues, exclusive of depreciation and amortization











shown separately below:












Marketing and commissions


142.5


168.7


448.1


472.5




Operating costs


110.8


116.0


344.2


333.2


General and administrative


33.3


39.7


99.5


137.3


Impairment of goodwill and other long-lived assets


-


-


39.7


-


Facility exit costs


(0.9)


2.9


(0.9)


4.2


Depreciation and amortization


48.5


60.4


147.6


183.3
















Total expenses


334.2


387.7


1,078.2


1,130.5













Income from operations


36.4


7.0


51.8


18.2

Interest income



0.2


0.1


0.7


1.0

Interest expense



(47.0)


(46.5)


(141.6)


(141.6)

Loss on redemption of preferred stock


-


-


-


(6.5)

Other income (expense), net


0.1


0.2


(0.2)


0.1













Loss before income taxes and non-controlling interest


(10.3)


(39.2)


(89.3)


(128.8)

Income tax expense


(1.9)


(3.9)


(8.9)


(8.6)













Net loss




(12.2)


(43.1)


(98.2)


(137.4)

Less: net income attributable to non-controlling interest


(0.1)


(0.2)


(0.5)


(0.7)













Net loss attributable to Affinion Group Holdings, Inc.


$             (12.3)


$             (43.3)


$             (98.7)


$           (138.1)

























Net loss




$             (12.2)


$             (43.1)


$             (98.2)


$           (137.4)

Currency translation adjustment, net of tax


2.0


(3.9)


0.3


(0.2)

Comprehensive loss


(10.2)


(47.0)


(97.9)


(137.6)

Less: comprehensive income attributable to non-controlling interest


(0.2)


(0.1)


(0.5)


(0.6)

Comprehensive loss attributable to Affinion Group Holdings, Inc.

$             (10.4)


$             (47.1)


$             (98.4)


$           (138.2)

















































TABLE 9

AFFINION GROUP HOLDINGS, INC.

 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

(In millions)
























For the Nine Months Ended











September 30, 2012


September 30, 2011














Operating Activities