Affinion Group, Inc. Announces Results For The Quarter Ended March 31, 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

March 31,

2014

2013

40,196

$     27.49

Global Membership Subscribers

Average Global Retail Subscribers ⁽²⁾

7,906

9,597

Annualized Net Revenue Per Global Average Subscriber ⁽¹⁾

$     85.08

$        78.90

Global Package Subscribers and Wholesale

Average Global Package Subscribers and Wholesale ⁽²⁾

28,472

28,947

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

$      6.78

$          7.45

Global Insureds

Average Supplemental Insureds ⁽²⁾

3,818

4,035

Annualized Net Revenue Per Supplemental Insured ⁽¹⁾

$     62.67

$        61.85

Global Average Subscribers, including Basic Insureds

60,556

63,787

⁽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 MARCH 31, 2014 AND DECEMBER 31, 2013

(In millions, except share amounts)

March 31,

December 31,

2014

2013

Assets

Current assets:

Cash and cash equivalents

$              28.0

$              19.6

Restricted cash

38.6

36.6

Receivables (net of allowances for doubtful accounts of $8.9 and $11.8, respectively)

136.6

132.5

Profit-sharing receivables from insurance carriers

68.0

64.7

Prepaid commissions

39.5

37.5

Income taxes receivable

1.0

2.6

Other current assets

80.9

87.4

Total current assets

392.6

380.9

Property and equipment, net

143.6

140.4

Contract rights and list fees, net

18.7

19.1

Goodwill

606.6

606.3

Other intangibles, net

138.4

153.8

Receivables from related parties

21.4

21.5

Other non-current assets

58.3

62.5

Total assets

$          1,379.6

$          1,384.5

Liabilities and Deficit

Current liabilities:

Current portion of long-term debt

$              11.6

$              11.7

Accounts payable and accrued expenses

409.6

391.2

Payables to related parties

42.7

40.1

Deferred revenue

104.3

105.4

Income taxes payable

4.9

4.3

Total current liabilities

573.1

552.7

Long-term debt

1,956.7

1,947.1

Deferred income taxes

78.1

74.5

Deferred revenue

9.9

10.4

Other long-term liabilities

35.2

36.8

Total liabilities

2,653.0

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

(1,382.6)

(1,346.4)

Accumulated other comprehensive income

5.4

5.7

Total Affinion Group, Inc. deficit

(1,274.6)

(1,238.1)

Non-controlling interest in subsidiary

1.2

1.1

Total deficit

(1,273.4)

(1,237.0)

Total liabilities and deficit

$          1,379.6

$          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.

TABLE 3

AFFINION GROUP, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013

(In millions)

For the Three Months Ended

March 31, 2014

March 31, 2013

Net revenues

$        321.4

$        347.4

Expenses:

Cost of revenues, exclusive of depreciation and amortization

shown separately below:

Marketing and commissions

125.4

117.7

Operating costs

108.0

116.2

General and administrative

50.1

42.1

Facility exit costs

(0.1)

-

Depreciation and amortization

25.0

29.6

Total expenses

308.4

305.6

Income from operations

13.0

41.8

Interest income

0.2

0.1

Interest expense

(45.1)

(41.4)

Other income, net

-

0.1

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

(31.9)

0.6

Income tax expense

(4.2)

(5.1)

Net loss

(36.1)

(4.5)

Less: net (income) loss attributable to non-controlling interest

(0.1)

0.1

Net loss attributable to Affinion Group, Inc.

$         (36.2)

$          (4.4)

Net loss

$         (36.1)

$          (4.5)

Currency translation adjustment, net of tax

(0.3)

(1.7)

Comprehensive loss

(36.4)

(6.2)

Less: comprehensive (income) loss attributable to non-controlling interest

(0.1)

0.2

Comprehensive loss attributable to Affinion Group, Inc.

$         (36.5)

$          (6.0)

TABLE 4

AFFINION GROUP, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013

(In millions)

For the Three Months Ended

March 31, 2014

March 31, 2013

Operating Activities

Net loss

$          (36.1)

$           (4.5)

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

Depreciation and amortization

25.0

29.6

Amortization of debt discount and financing costs

2.9

2.5

Share-based compensation

5.0

2.5

Deferred income taxes

3.0

3.3

Net change in assets and liabilities:

Restricted cash

(1.9)

(0.3)

Receivables

(3.9)

(9.9)

Profit-sharing receivables from insurance carriers

(3.3)

(8.0)

Prepaid commissions

(1.9)

4.6

Other current assets

6.5

1.2

Contract rights and list fees

0.2

0.4

Other non-current assets

2.4

0.1

Accounts payable and accrued expenses

21.5

26.0

Payables to related parties

(2.3)

(4.2)

Deferred revenue

(1.6)

(3.0)

Income taxes receivable and payable

2.2

1.4

Other long-term liabilities

(1.6)

(0.7)

Other, net

(0.1)

3.6

Net cash provided by operating activities

16.0

44.6

Investing Activities

Capital expenditures

(14.1)

(8.8)

Restricted cash

-

(0.1)

Acquisition-related payments, net of cash acquired

-

(0.9)

Net cash used in investing activities

(14.1)

(9.8)

Financing Activities

Borrowings under revolving credit facility, net

12.0

-

Principal payments on borrowings

(2.9)

(3.0)

Financing costs

(2.7)

-

Net cash provided by (used in) financing activities

6.4

(3.0)

Effect of changes in exchange rates on cash and cash equivalents

0.1

(1.2)

Net increase in cash and cash equivalents

8.4

30.6

Cash and cash equivalents, beginning of period

19.6

32.5

Cash and cash equivalents, end of period

$           28.0

$           63.1

Supplemental Disclosure of Cash Flow Information:

Interest payments

$           28.8

$           17.4

Income tax payments, net of refunds

$           (1.0)

$            0.4

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

March 31, 2014

March 31, 2013

Increase (Decrease)

March 31, 2014

March 31, 2013

Increase (Decrease)

Affinion North America

Membership products

$         116.1

$         143.7

$        (27.6)

$           14.3

$           23.7

$          (9.4)

Insurance and package products

70.9

76.6

(5.7)

21.3

29.2

(7.9)

Loyalty products

41.4

42.7

(1.3)

15.0

16.7

(1.7)

Eliminations

(0.5)

(0.5)

-

-

-

-

Total North America

227.9

262.5

(34.6)

50.6

69.6

(19.0)

Affinion International

International products

93.5

84.9

8.6

(7.0)

5.8

(12.8)

Total products

321.4

347.4

(26.0)

43.6

75.4

(31.8)

Corporate

-

-

-

(5.6)

(4.0)

(1.6)

Impairment of goodwill and other long-lived assets

-

-

-

-

-

-

Total

$         321.4

$         347.4

$        (26.0)

38.0

71.4

(33.4)

Depreciation and amortization

(25.0)

(29.6)

4.6

Income from operations

$           13.0

$           41.8

$        (28.8)

⁽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 March 31, 2014 and the three months ended March 31, 2014 and 2013 to our Adjusted EBITDA.

For the Twelve Months Ended

For the Three Months Ended March 31,

March 31, 2014 (a)

2014

2013

Net cash provided by operating activities

$                    12.9

$                   16.0

$                   44.6

Interest expense, net

168.7

44.9

41.3

Income tax expense

12.7

4.2

5.1

Amortization of debt discount and financing costs

(10.5)

(2.9)

(2.5)

Provision for loss on accounts receivable

(2.7)

-

-

Deferred income taxes

(7.0)

(3.0)

(3.3)

Changes in assets and liabilities

21.8

(16.2)

(11.2)

Effect of purchase accounting, reorganizations, certain legal costs and net cost savings ^(b)

35.7

20.3

6.9

Other, net ^(c)

46.7

7.2

4.6

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

278.3

$                   70.5

$                   85.5

Effect of the pro forma adjustments ^(f)

14.4

Adjusted EBITDA, including pro forma adjustments ^(g)

$                   292.7

^(a)

Represents consolidated financial data for the year ended December 31, 2013, minus consolidated financial data for the three months ended March 31, 2013, plus consolidated financial data for the three months ended March 31, 2014.

^(b)

Eliminates the effect of purchase accounting related to the Apollo Transactions and acquisition of Boyner Bireysel Urunler Satis ve Pazarlama A.S. ("Back-Up"), a Turkish provider of concierge and other assistance services and a sister company, Bofis Turizm ve Ticaret A.S. ("Travel"), a Turkish travel agency, 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 the projected annualized benefits of restructurings and other cost savings initiatives.  However, we do make such accretive pro forma adjustments as if such restructurings and cost savings initiatives had occurred on April 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 restructurings and other cost savings initiatives as if such restructurings and cost savings initiatives had occurred on April 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 March 31, 2014 and the three months ended March 31, 2014 and 2013 to our Adjusted EBITDA.

For the Twelve Months Ended

For the Three Months Ended March 31,

March 31, 2014 (a)

2014

2013

Net loss attributable to Affinion Group, Inc.

$                  (121.4)

$                  (36.2)

$                   (4.4)

Interest expense, net

168.7

44.9

41.3

Income tax expense

12.7

4.2

5.1

Non-controlling interest

0.6

0.1

(0.1)

Other income, net

-

-

(0.1)

Depreciation and amortization

109.3

25.0

29.6

Effect of purchase accounting, reorganizations and non-recurring revenues and gains ^(b)

3.3

-

1.3

Certain legal costs ^(c)

21.6

15.0

0.9

Net cost savings ^(d)

10.8

5.3

4.7

Other, net ^(e)

72.7

12.2

7.2

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

278.3

$                   70.5

$                   85.5

Effect of the pro forma adjustments ^(h)

14.4

Adjusted EBITDA, including pro forma adjustments ⁽ⁱ⁾

$                   292.7

Interest coverage ratio ^(j)

1.65

Senior secured leverage ratio ^(k)

3.83

Fixed charge coverage ratio ^(l)

1.84

^(a)

Represents consolidated financial data for the year ended December 31, 2013, minus consolidated financial data for the three months ended March 31, 2013, plus consolidated financial data for the three months ended March 31, 2014.

^(b)

Eliminates the effect of purchase accounting related to the Apollo Transactions and Back-Up and Travel 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, (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, including business optimization, (vi) consulting fees paid to Apollo, (vii) facility exit costs, (viii) the impairment charge related to the intangible assets and property and equipment of Prospectiv Direct, Inc. ("Prospectiv"), (ix) the impact of an adjustment related to the recognition of International retail revenue and (x) debt refinancing expenses.

^(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.  However, we do make such accretive pro forma adjustments as if such restructurings and cost savings initiatives had occurred on April 1, 2013 in calculating the Adjusted EBITDA under the amended and restated senior secured credit facility and the indentures governing our 2010 senior notes and 2013 senior subordinated notes.

^(h)

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

⁽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, as amended on December 12, 2013 (Adjusted EBITDA, as defined, to interest expense, as defined). The interest coverage ratio must be equal to or greater than 1.25 to 1.0 at March 31, 2014.

^(k)

The senior secured leverage ratio is defined in our amended and restated senior secured credit facility, as amended on December 12, 2013 (senior secured debt, as defined, to Adjusted EBITDA, as defined). The senior secured leverage ratio must be equal to or less than 4.25 to 1.0 at March 31, 2014.

^(l)

The fixed charge coverage ratio is defined in the indentures governing our 2010 senior notes and 2013 senior subordinated notes (consolidated cash flows, as defined, which is computed with the same addbacks as in 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 March 31, 2014 and the three months ended March 31, 2014 and 2013 to our Segment EBITDA, defined as income from operations before depreciation and amortization.

For the Twelve Months Ended

For the Three Months Ended March 31,

March 31, 2014 (a)

2014

2013

Net loss attributable to Affinion Group, Inc.

$                  (121.4)

$                  (36.2)

$                   (4.4)

Interest expense, net

168.7

44.9

41.3

Income tax expense

12.7

4.2

5.1

Non-controlling interest

0.6

0.1

(0.1)

Other income, net

-

-

(0.1)

Depreciation and amortization

109.3

25.0

29.6

Segment EBITDA

$                   169.9

$                   38.0

$                   71.4

^(a)

Represents consolidated financial data for the year ended December 31, 2013, minus consolidated financial data for the three months ended March 31, 2013, plus consolidated financial data for the three months ended March 31, 2014.

TABLE 7

AFFINION GROUP HOLDINGS, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF MARCH 31, 2014 AND DECEMBER 31, 2013

(In millions, except share amounts)

March 31,

December 31,

2014

2013

Assets

Current assets:

Cash and cash equivalents

$              28.4

$              20.1

Restricted cash

38.6

36.6

Receivables (net of allowances for doubtful accounts of $8.9 and $11.8, respectively)

136.6

132.5

Profit-sharing receivables from insurance carriers

68.0

64.7

Prepaid commissions

39.5

37.5

Income taxes receivable

1.0

2.6

Other current assets

80.9

87.4

Total current assets

393.0

381.4

Property and equipment, net

143.6

140.4

Contract rights and list fees, net

18.7

19.1

Goodwill

606.6

606.3

Other intangibles, net

138.4

153.8

Other non-current assets

62.9

67.2

Total assets

$          1,363.2

$          1,368.2

Liabilities and Deficit

Current liabilities:

Current portion of long-term debt

$              11.6

$              11.7

Accounts payable and accrued expenses

427.2

398.4

Deferred revenue

104.3

105.4

Income taxes payable

4.9

4.3

Total current liabilities

548.0

519.8

Long-term debt

2,256.9

2,246.5

Deferred income taxes

78.1

74.5

Deferred revenue

9.9

10.4

Other long-term liabilities

35.2

36.8

Total liabilities

2,928.1

2,888.0

Commitments and contingencies

Deficit:

Common stock, $0.01 par value, 540,000,000 shares authorized, 85,129,859 shares

0.9

0.9

Additional paid-in capital

140.6

136.6

Warrants

25.8

25.8

Accumulated deficit

(1,737.7)

(1,688.8)

Accumulated other comprehensive income

5.4

5.7

Treasury stock, at cost, 216,246 shares

(1.1)

(1.1)

Total Affinion Group Holdings, Inc. deficit

(1,566.1)

(1,520.9)

Non-controlling interest in subsidiary

1.2

1.1

Total deficit

(1,564.9)

(1,519.8)

Total liabilities and deficit

$          1,363.2

$          1,368.2

TABLE 8

AFFINION GROUP HOLDINGS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013

(In millions)

For the Three Months Ended

March 31, 2014

March 31, 2013

Net revenues

$        321.4

$        347.4

Expenses:

Cost of revenues, exclusive of depreciation and amortization

shown separately below:

Marketing and commissions

125.4

117.7

Operating costs

108.0

116.2

General and administrative

50.2

42.2

Facility exit costs

(0.1)

-

Depreciation and amortization

25.0

29.6

Total expenses

308.5

305.7

Income from operations

12.9

41.7

Interest income

0.1

0.1

Interest expense

(57.6)

(51.4)

Other income, net

-

0.1

Loss before income taxes and non-controlling interest

(44.6)

(9.5)

Income tax expense

(4.2)

(5.1)

Net loss