Affinion Group, Inc. Announces Results For The Quarter Ended September 30, 2013

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,

2013

2012

2013

2012

39,986

42,998

41,175

$     29.65

$        30.73

$     28.99

Global Membership Subscribers

Average Global Retail Subscribers ⁽²⁾

8,574

10,298

9,093

10,706

Annualized Net Revenue Per Global Average Subscriber ⁽¹⁾

$     83.80

$        79.77

$     81.15

$        79.81

Global Package Subscribers and Wholesale

Average Global Package Subscribers and Wholesale ⁽²⁾

27,507

28,584

28,114

29,262

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

$      7.43

$          7.34

$      7.38

$          7.61

Global Insureds

Average Supplemental Insureds ⁽²⁾

3,905

4,116

3,968

4,170

Annualized Net Revenue Per Supplemental Insured ⁽¹⁾

$     67.32

$        70.46

$     62.50

$        63.84

Global Average Subscribers, including Basic Insureds

60,931

64,873

62,265

66,229

⁽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, 2013 AND DECEMBER 31, 2012

(In millions, except share amounts)

September 30,

December 31,

2013

2012

Assets

Current assets:

Cash and cash equivalents

$              93.3

$              32.5

Restricted cash

33.5

34.4

Receivables (net of allowances for doubtful accounts of $9.9 and $9.4, respectively)

135.3

140.1

Profit-sharing receivables from insurance carriers

71.0

74.6

Prepaid commissions

38.3

42.5

Income taxes receivable

2.2

6.3

Other current assets

77.0

85.0

Total current assets

450.6

415.4

Property and equipment, net

132.5

136.5

Contract rights and list fees, net

20.2

22.0

Goodwill

605.3

607.3

Other intangibles, net

171.6

225.2

Other non-current assets

61.0

66.7

Total assets

$          1,441.2

$          1,473.1

Liabilities and Deficit

Current liabilities:

Current portion of long-term debt

$              11.7

$              11.8

Accounts payable and accrued expenses

425.9

401.0

Payables to related parties

43.3

42.8

Deferred revenue

99.6

114.6

Income taxes payable

3.3

8.9

Total current liabilities

583.8

579.1

Long-term debt

1,903.8

1,911.8

Deferred income taxes

73.3

71.9

Deferred revenue

11.0

15.3

Other long-term liabilities

39.3

41.1

Total liabilities

2,611.2

2,619.2

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

(1,278.3)

(1,256.8)

Accumulated other comprehensive income

4.0

6.5

Total Affinion Group, Inc. deficit

(1,171.7)

(1,147.7)

Non-controlling interest in subsidiary

1.7

1.6

Total deficit

(1,170.0)

(1,146.1)

Total liabilities and deficit

$          1,441.2

$          1,473.1

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, 2012. 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.

TABLE 3

AFFINION GROUP, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012

(In millions)

For the Three Months Ended

For the Nine Months Ended

September 30,
2013

September 30,
2012

September 30,
2013

September 30,
2012

Net revenues

$            339.4

$            370.6

$          1,022.9

$          1,130.0

Expenses:

Cost of revenues, exclusive of depreciation and amortization

shown separately below:

Marketing and commissions

130.2

142.5

375.1

448.1

Operating costs

107.5

110.8

328.2

344.2

General and administrative

31.9

33.3

118.7

99.4

Impairment of goodwill and other long-lived assets

-

-

-

39.7

Facility exit costs

-

(0.9)

0.5

(0.9)

Depreciation and amortization

28.3

48.5

86.3

147.6

Total expenses

297.9

334.2

908.8

1,078.1

Income from operations

41.5

36.4

114.1

51.9

Interest income

0.2

0.2

0.5

0.7

Interest expense

(41.1)

(37.0)

(123.6)

(111.5)

Other income (expense), net

(0.1)

0.1

-

(0.2)

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

0.5

(0.3)

(9.0)

(59.1)

Income tax expense

(3.8)

(1.9)

(12.2)

(8.9)

Net loss

(3.3)

(2.2)

(21.2)

(68.0)

Less: net income attributable to non-controlling interest

(0.2)

(0.1)

(0.3)

(0.5)

Net loss attributable to Affinion Group, Inc.

$               (3.5)

$               (2.3)

$             (21.5)

$             (68.5)

Net loss

$               (3.3)

$               (2.2)

$             (21.2)

$             (68.0)

Currency translation adjustment, net of tax

0.2

2.0

(2.7)

0.3

Comprehensive loss

(3.1)

(0.2)

(23.9)

(67.7)

Less: comprehensive income attributable to non-controlling interest

(0.2)

(0.2)

(0.1)

(0.5)

Comprehensive loss attributable to Affinion Group, Inc.

$               (3.3)

$               (0.4)

$             (24.0)

$             (68.2)

TABLE 4

AFFINION GROUP, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012

(In millions)

For the Nine Months Ended

September 30,
2013

September 30,
2012

Operating Activities

Net loss

$           (21.2)

$           (68.0)

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

Depreciation and amortization

86.3

147.6

Amortization of debt discount and financing costs

7.6

6.3

Unrealized loss on interest rate swaps

-

1.2

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

0.5

(0.9)

Share-based compensation

7.9

8.8

Deferred income taxes

7.1

3.9

Net change in assets and liabilities:

Restricted cash

1.5

(5.2)

Receivables

3.9

(19.6)

Receivables from related parties

-

0.7

Profit-sharing receivables from insurance carriers

3.6

(14.9)

Prepaid commissions

4.3

9.4

Other current assets

8.1

(14.2)

Contract rights and list fees

1.6

(0.7)

Other non-current assets

(5.4)

4.7

Accounts payable and accrued expenses

27.8

6.3

Payables to related parties

(7.4)

(3.6)

Deferred revenue

(18.6)

(32.5)

Income taxes receivable and payable

(1.6)

(1.1)

Other long-term liabilities

(2.3)

0.6

Other, net

(0.8)

(0.1)

Net cash provided by operating activities

102.9

54.8

Investing Activities

Capital expenditures

(29.2)

(38.2)

Restricted cash

(0.6)

0.2

Acquisition-related payments, net of cash acquired

(3.4)

(1.2)

Net cash used in investing activities

(33.2)

(39.2)

Financing Activities

Principal payments on borrowings

(8.8)

(8.8)

Return of capital to parent company

-

(37.0)

Net cash used in financing activities

(8.8)

(45.8)

Effect of changes in exchange rates on cash and cash equivalents

(0.1)

0.4

Net increase (decrease) in cash and cash equivalents

60.8

(29.8)

Cash and cash equivalents, beginning of period

32.5

86.3

Cash and cash equivalents, end of period

$            93.3

$            56.5

Supplemental Disclosure of Cash Flow Information:

Interest payments

$            93.1

$            92.5

Income tax payments, net of refunds

$              6.5

$              6.9

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,
2013

September 30,
2012

Increase
(Decrease)

September 30,
2013

September 30,
2012

Increase
(Decrease)

Affinion North America

Membership products

$            131.2

$            167.9

$        (36.7)

$              23.6

$              33.5

$          (9.9)

Insurance and package products

78.1

90.0

(11.9)

25.1

31.5

(6.4)

Loyalty products

43.0

37.2

5.8

16.8

13.5

3.3

Eliminations

(0.5)

(0.4)

(0.1)

-

-

-

Total North America

251.8

294.7

(42.9)

65.5

78.5

(13.0)

Affinion International

International products

87.6

75.9

11.7

9.4

9.3

0.1

Total products

339.4

370.6

(31.2)

74.9

87.8

(12.9)

Corporate

-

-

-

(5.1)

(2.9)

(2.2)

Total

$            339.4

$            370.6

$        (31.2)

69.8

84.9

(15.1)

Depreciation and amortization

(28.3)

(48.5)

20.2

Income from operations

$              41.5

$              36.4

$           5.1

Net revenues

Segment EBITDA ⁽¹⁾

For the Nine Months Ended

For the Nine Months Ended

September 30,
2013

September 30,
2012

Increase
(Decrease)

September 30,
2013

September 30,
2012

Increase
(Decrease)

Affinion North America

Membership products

$            412.2

$            545.3

$      (133.1)

$              81.7

$            110.4

$        (28.7)

Insurance and package products

226.9

251.2

(24.3)

60.4

82.0

(21.6)

Loyalty products

129.4

113.0

16.4

52.7

38.1

14.6

Eliminations

(1.6)

(1.7)

0.1

-

-

-

Total North America

766.9

907.8

(140.9)

194.8

230.5

(35.7)

Affinion International

International products

256.0

222.2

33.8

18.2

20.5

(2.3)

Total products

1,022.9

1,130.0

(107.1)

213.0

251.0

(38.0)

Corporate

-

-

-

(12.6)

(11.8)

(0.8)

Impairment of goodwill and other long-lived assets

-

-

-

-

(39.7)

39.7

Total

$          1,022.9

$          1,130.0

$      (107.1)

200.4

199.5

0.9

Depreciation and amortization

(86.3)

(147.6)

61.3

Income from operations

$            114.1

$              51.9

$         62.2

⁽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, 2013 and the three and nine months ended September 30, 2013 and 2012 to our Adjusted EBITDA.

For the Twelve
Months Ended
September 30,
2013^(a) 

For the Three Months
Ended September 30,

For the Nine Months
Ended September 30,

2013

2012

2013

2012

Net cash provided by operating activities

$            117.0

$       24.5

$       21.1

$102.9

$           54.8

Interest expense, net

161.8

40.9

36.8

123.1

110.8

Income tax expense

13.5

3.8

1.9

12.2

8.9

Amortization of debt discount and financing costs

(9.9)

(2.5)

(2.1)

(7.6)

(6.3)

Unrealized loss on interest rate swaps

-

-

(0.2)

-

(1.2)

Provision for loss on accounts receivable

(6.9)

-

-

-

-

Deferred income taxes

(5.5)

(2.3)

(1.9)

(7.1)

(3.9)

Changes in assets and liabilities

(12.5)

7.9

32.1

(14.7)

70.2

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

28.4

4.6

0.2

14.1

13.7

Other, net ^(c)

42.5

6.5

5.6

30.6

12.9

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

328.4

$       83.4

$       93.5

$253.5

$         259.9

Effect of the pro forma adjustments ^(f)

11.0

Adjusted EBITDA, including pro forma adjustments ^(g)

$            339.4

^(a)

Represents consolidated financial data for the year ended December 31, 2012, minus consolidated financial data for the nine months ended September 30, 2012, plus consolidated financial data for the nine months ended September 30, 2013.

^(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 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 Prospectiv and Back-Up and Travel acquisitions.  However, we do make such accretive pro forma adjustments as if such restructurings and cost savings initiatives had occurred on October 1, 2012 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 Prospectiv and Back-Up and Travel acquisitions as if such restructurings and cost savings initiatives had occurred on October 1, 2012.

^(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, 2013 and the three and nine months ended September 30, 2013 and 2012 to our Adjusted EBITDA.

For the Twelve
Months Ended
September 30,
2013^(a)  

For the Three Months
Ended September 30,

For the Nine Months
Ended September 30,

2013

2012

2013

2012

Net loss attributable to Affinion Group, Inc.

$             (52.3)

$        (3.5)

$        (2.3)

$ (21.5)

$          (68.5)

Interest expense, net

161.8

40.9

36.8

123.1

110.8

Income tax expense

13.5

3.8

1.9

12.2

8.9

Non-controlling interest

0.5

0.2

0.1

0.3

0.5

Other (income) expense, net

-

0.1

(0.1)

-

0.2

Depreciation and amortization

123.2

28.3

48.5

86.3

147.6

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

4.2

1.2

-

3.8

-

Certain legal costs ^(c)

14.3

2.0

(0.9)

4.0

2.0

Net cost savings ^(d)

9.9

1.4

1.1

6.3

11.7

Other, net ^(e)

53.3

9.0

8.4

39.0

46.7

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

328.4

$       83.4

$       93.5

$253.5

$         259.9

Effect of the pro forma adjustments ^(h)

11.0

Adjusted EBITDA, including pro forma adjustments ⁽ⁱ⁾

$            339.4

Interest coverage ratio ^(j)

2.20

Senior secured leverage ratio ^(k)

2.96

Fixed charge coverage ratio ^(l)

2.19

^(a)

Represents consolidated financial data for the year ended December 31, 2012, minus consolidated financial data for the nine months ended September 30, 2012, plus consolidated financial data for the nine months ended September 30, 2013.

^(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, 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 including business optimization, (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 Prospectiv and Back-Up and Travel acquisitions.  However, we do make such accretive pro forma adjustments as if such restructurings and cost savings initiatives had occurred on October 1, 2012 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 Prospectiv and Back-Up and Travel acquisitions as if such  restructurings and cost savings initiatives had occurred on October 1, 2012.

⁽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 November 20, 2012 (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 September 30, 2013.

^(k)

The senior secured leverage ratio is defined in our amended and restated senior secured credit facility, as amended on November 20, 2012 (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 September 30, 2013.

^(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.