Affinion Group, Inc. Announces Results For The Third Quarter Ended September 30, 2014

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,

2014

2013

2014

2013

38,905

39,986

39,557

$

26.93

$

29.65

$

26.80

$

Global Membership Subscribers

Average Global Retail Subscribers ⁽²⁾

7,457

8,574

7,665

9,093

Annualized Net Revenue Per Global Average Subscriber ⁽¹⁾

$

89.97

$

83.80

$

87.09

$

81.15

Global Package Subscribers and Wholesale

Average Global Package Subscribers and Wholesale ⁽²⁾

27,712

27,507

28,116

28,114

Annualized Net Revenue Per Global Average Package and Wholesale Subscriber ⁽¹⁾

$

6.57

$

7.43

$

6.61

$

7.38

Global Insureds

Average Supplemental Insureds ⁽²⁾

3,736

3,905

3,776

3,968

Annualized Net Revenue Per Supplemental Insured ⁽¹⁾

$

52.11

$

67.32

$

54.75

$

62.50

Global Average Subscribers, including Basic Insureds

59,015

60,931

59,767

62,265

(1)

Annualized Net Revenue Per Global Average Subscriber and Supplemental Insured are all 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 all calculated by determining the average subscribers or insureds, as applicable, for each month in the period (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) 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, 2014 AND DECEMBER 31, 2013

(In millions, except share amounts)

September 30,

December 31,

2014

2013

Assets

Current assets:

Cash and cash equivalents

$

23.4

$

19.6

Restricted cash

39.0

36.6

Receivables (net of allowances for doubtful accounts of $8.7 and $11.8, respectively)

134.1

132.5

Profit-sharing receivables from insurance carriers

29.4

64.7

Prepaid commissions

44.7

37.5

Income taxes receivable

1.5

2.6

Other current assets

102.2

87.4

Total current assets

374.3

380.9

Property and equipment, net

138.2

140.4

Contract rights and list fees, net

17.6

19.1

Goodwill

617.4

606.3

Other intangibles, net

120.2

153.8

Receivables from related parties

23.3

21.5

Other non-current assets

63.9

62.5

Total assets

$

1,354.9

$

1,384.5

Liabilities and Deficit

Current liabilities:

Current portion of long-term debt

$

8.3

$

11.7

Accounts payable and accrued expenses

407.1

391.2

Payables to related parties

43.0

40.1

Deferred revenue

91.3

105.4

Income taxes payable

3.3

4.3

Total current liabilities

553.0

552.7

Long-term debt

2,029.6

1,947.1

Deferred income taxes

83.3

74.5

Deferred revenue

9.2

10.4

Other long-term liabilities

34.4

36.8

Total liabilities

2,709.5

2,621.5

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

102.6

Accumulated deficit

(1,462.3)

(1,346.4)

Accumulated other comprehensive income

3.6

5.7

Total Affinion Group, Inc. deficit

(1,356.1)

(1,238.1)

Non-controlling interest in subsidiary

1.5

1.1

Total deficit

(1,354.6)

(1,237.0)

Total liabilities and deficit

$

1,354.9

$

1,384.5

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. or the $292.8 million 13.75%/14.5% Senior Secured PIK/Toggle Notes due 2018 issued as part of the debt exchange offer on December 12, 2013, as described in the Liquidity and Capital Resources section of the Form 10-K filed for the fiscal year ended December 31, 2013. 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 (increased in December 2012 to $165.0 million) and an $875.0 million term loan facility maturing in six and a half years. 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. As part of the debt exchange offer on December 12, 2013, Affinion Investments, LLC, a wholly-owned subsidiary of the Company, issued $360.0 million in face value of 13.5% senior subordinated notes due in 2018 in exchange for $352.9 million in aggregate face principal amount of the existing senior subordinated notes due in 2015. On May 20, 2014, the Company, as Borrower, and Affinion Holdings entered into an amendment to the Affinion Credit Agreement, which (i) extended the maturity to April 30, 2018 of $775.0 million in aggregate principal amount of existing senior secured term loans and existing senior secured revolving loans ("First Lien Term Loans"), (ii) extended the maturity to October 31, 2018 of $377.9 million in aggregate principal amount of existing senior secured term loans on a second lien senior secured basis, which, together with additional borrowings obtained on the same terms, total $425.0 million ("Second Lien Term Loan"), (iii) extended the maturity to January 29, 2018 of $80.0 million of the commitments under the existing senior secured revolving credit facility on a first lien senior secured basis, (iv) reduced the commitments under the existing senior secured revolving credit facility by $85.0 million and (v) removed the existing financial covenant requiring the Company to maintain a minimum interest coverage ratio.

TABLE 3

AFFINION GROUP, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013

(In millions)

For the Three Months Ended

For the Nine Months Ended

September 30,

September 30,

September 30,

September 30,

2014

2013

2014

2013

Net revenues

$

303.0

$

339.4

$

928.2

$

1,022.9

Expenses:

Cost of revenues, exclusive of depreciation

and amortization shown separately below:

Marketing and commissions

114.8

130.2

360.3

375.1

Operating costs

96.7

107.5

310.7

328.2

General and administrative

50.6

31.9

141.0

118.7

Facility exit costs

1.1

—

1.7

0.5

Depreciation and amortization

27.2

28.3

81.3

86.3

Total expenses

290.4

297.9

895.0

908.8

Income from operations

12.6

41.5

33.2

114.1

Interest income

0.2

0.2

0.7

0.5

Interest expense

(41.1)

(41.1)

(132.5)

(123.6)

Loss on extinguishment of debt

—

—

(6.0)

—

Other expense, net

—

(0.2)

—

—

Income (loss) before income taxes and non-controlling interest

(28.3)

0.4

(104.6)

(9.0)

Income tax expense

(2.6)

(3.8)

(10.9)

(12.2)

Net loss

(30.9)

(3.4)

(115.5)

(21.2)

Less: net income attributable to non-controlling interest

(0.2)

(0.2)

(0.4)

(0.3)

Net loss attributable to Affinion Group, Inc.

$

(31.1)

$

(3.6)

$

(115.9)

$

(21.5)

Net loss

$

(30.9)

$

(3.4)

$

(115.5)

$

(21.2)

Currency translation adjustment, net of tax

(1.1)

0.2

(2.1)

(2.7)

Comprehensive loss

(32.0)

(3.2)

(117.6)

(23.9)

Less: comprehensive income attributable to non-controlling interest

(0.2)

(0.2)

(0.4)

(0.1)

Comprehensive loss attributable to Affinion Group, Inc.

$

(32.2)

$

(3.4)

$

(118.0)

$

(24.0)

TABLE 4

AFFINION GROUP, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013

(In millions)

For the Nine Months Ended

September 30,

September 30,

2014

2013

Operating Activities

Net loss

$

(115.5)

$

(21.2)

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

Depreciation and amortization

81.3

86.3

Amortization of debt discount and financing costs

7.8

7.6

Financing costs

5.5

—

Loss on extinguishment of debt

6.0

—

Facility exit costs

1.7

0.5

Share-based compensation

6.8

7.9

Deferred income taxes

7.4

7.1

Net change in assets and liabilities:

Restricted cash

(2.9)

1.5

Receivables

0.3

3.9

Profit-sharing receivables from insurance carriers

35.3

3.6

Prepaid commissions

(7.3)

4.3

Other current assets

20.7

8.1

Contract rights and list fees

1.3

1.6

Other non-current assets

—

(5.4)

Accounts payable and accrued expenses

(23.2)

27.8

Payables to related parties

(2.7)

(7.4)

Deferred revenue

(13.9)

(18.6)

Income taxes receivable and payable

0.2

(1.6)

Other long-term liabilities

(5.2)

(2.3)

Other, net

5.2

(0.8)

Net cash provided by operating activities

8.8

102.9

Investing Activities

Capital expenditures

(36.3)

(29.2)

Restricted cash

(0.3)

(0.6)

Acquisition-related payments, net of cash acquired

(19.4)

(3.4)

Net cash used in investing activities

(56.0)

(33.2)

Financing Activities

Repayments under revolving credit facility, net

(34.0)

—

Proceeds from issuance of debt

425.0

—

Financing costs

(21.9)

—

Principal payments on borrowings

(314.0)

(8.8)

Receivables from and payables to parent company

(3.0)

—

Net cash provided by (used in) financing activities

52.1

(8.8)

Effect of changes in exchange rates on cash and cash equivalents

(1.1)

(0.1)

Net increase in cash and cash equivalents

3.8

60.8

Cash and cash equivalents, beginning of period

19.6

32.5

Cash and cash equivalents, end of period

$

23.4

$

93.3

Supplemental Disclosure of Cash Flow Information:

Interest payments

$

125.0

$

93.1

Income tax payments, net of refunds

$

2.9

$

6.5

TABLE 5

AFFINION GROUP, INC.

UNAUDITED OPERATING SEGMENT RESULTS

(In millions)

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

Net Revenues

For the Three Months Ended

For the Nine Months Ended

September 30,

September 30,

Increase

September 30,

September 30,

Increase

2014

2013

(Decrease)

2014

2013

(Decrease)

    Affinion North America

    Membership products

$

113.0

$

131.2

$

(18.2)

$

342.5

$

412.2

$

(69.7)

    Insurance and package products

59.1

78.1

(19.0)

187.3

226.9

(39.6)

    Loyalty products

40.3

43.0

(2.7)

124.5

129.4

(4.9)

    Eliminations

(0.4)

(0.5)

0.1

(1.4)

(1.6)

0.2

        Total North America

212.0

251.8

(39.8)

652.9

766.9

(114.0)

    Affinion International

    International products

91.0

87.6

3.4

275.3

256.0

19.3

        Total

$

303.0

$

339.4

$

(36.4)

$

928.2

$

1,022.9

$

(94.7)

Segment EBITDA (1)

For the Three Months Ended

For the Nine Months Ended

September 30,

September 30,

Increase

September 30,

September 30,

Increase

2014

2013

(Decrease)

2014

2013

(Decrease)

    Affinion North America

    Membership products

$

13.9

$

23.6

$

(9.7)

$

46.4

$

81.7

$

(35.3)

    Insurance and package products

9.6

25.1

(15.5)

37.6

60.4

(22.8)

    Loyalty products

18.8

16.8

2.0

50.9

52.7

(1.8)

        Total North America

42.3

65.5

(23.2)

134.9

194.8

(59.9)

    Affinion International

    International products

1.5

9.4

(7.9)

(2.5)

18.2

(20.7)

        Total products

43.8

74.9

(31.1)

132.4

213.0

(80.6)

    Corporate

(4.0)

(5.1)

1.1

(17.9)

(12.6)

(5.3)

39.8

69.8

(30.0)

114.5

200.4

(85.9)

Depreciation and amortization

(27.2)

(28.3)

1.1

(81.3)

(86.3)

5.0

Income from operations

$

12.6

$

41.5

$

(28.9)

$

33.2

$

114.1

$

(80.9)

(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 (used in) operating activities for the twelve months ended September 30, 2014 and the three and nine months ended September 30, 2014 and 2013 to our Adjusted EBITDA.

For the Twelve

For the Three Months

For the Nine Months

Months Ended

Ended September 30,

Ended September 30,

September 30, 2014 (a)

2014

2013

2014

2013

Net cash provided by (used in) operating activities

$

(52.6)

$

9.2

$

24.5

$

8.8

$

102.9

Interest expense, net

173.8

40.9

40.9

131.8

123.1

Income tax expense

12.3

2.6

3.8

10.9

12.2

Amortization of debt discount and financing costs

(10.3)

(2.3)

(2.5)

(7.8)

(7.6)

Provision for loss on accounts receivable

(2.7)

—

—

—

—

Deferred income taxes

(7.6)

(2.0)

(2.3)

(7.4)

(7.1)

Changes in assets and liabilities

33.7

(6.8)

7.9

(7.8)

(14.7)

Effect of purchase accounting, reorganizations,

   certain legal costs and net cost savings (b)

61.0

23.9

4.6

52.8

14.1

Other, net (c)

31.9

6.6

6.5

18.4

30.6

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

239.5

$

72.1

$

83.4

$

199.7

$

253.5

Effect of the pro forma adjustments (f)

23.8

Adjusted EBITDA, including pro forma adjustments (g)

$

263.3

(a)

Represents consolidated financial data for the year ended December 31, 2013, minus consolidated financial data for the nine months ended September 30, 2013, plus consolidated financial data for the nine months ended September 30, 2014.

(b)

Eliminates the effect of purchase accounting related to the Apollo transactions and Back-Up and Travel 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, including business optimization, (v) consulting fees paid to Apollo, and (vi) the impact of an adjustment related to the recognition of International retail revenue.

(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 (i) the acquisition of Propp Corp. that was completed in the third quarter of 2014, (ii) the acquisition of SkyMall that was completed in the third quarter of 2014, or (iii) the projected annualized benefits of restructurings and other cost savings initiatives. However, we do make such accretive pro forma adjustments as if such acquisitions, restructurings and cost savings initiatives had occurred on October 1, 2013 in calculating the Adjusted EBITDA under the amended and restated senior secured credit facility and the indentures governing Affinion's 7.875% senior notes due 2018 (the "2010 senior notes") and Affinion's 13.5% senior subordinated notes due 2018 (the "2013 senior subordinated notes").    

(f)

Gives effect to the projected annualized benefits of the acquisitions of Propp Corp. and SkyMall, restructurings and other cost savings initiatives as if such acquisitions, restructurings and cost savings initiatives had occurred on October 1, 2013.

(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, 2014 and the three and nine months ended September 30, 2014 and 2013 to our Adjusted EBITDA.

For the Twelve

For the Three Months

For the Nine Months

Months Ended

Ended September 30,

Ended September 30,

September 30, 2014 (a)

2014

2013

2014

2013

Net loss attributable to Affinion Group, Inc.

$

(184.0)

$

(31.1)

$

(3.5)

$

(115.9)

$

(21.5)

Interest expense, net

173.8

40.9

40.9

131.8

123.1

Income tax expense

12.3

2.6

3.8

10.9

12.2

Non-controlling interest

0.5

0.2

0.2

0.4

0.3

Other income, net

(0.1)

—

0.1