Affinion Group, Inc. Announces Results For The Second Quarter Ended June 30, 2012

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

Six Months Ended

June 30,

June 30,

2012

2011

2012

2011

Global Average Subscribers, excluding Basic Insureds

43,689

48,619

44,708

48,193

Annualized Net Revenue Per Global Average Subscriber,

     excluding Basic Insureds⁽¹⁾

$     30.76

$        28.40

$   30.30

$   28.48

Global Membership Subscribers

Average Global Retail Subscribers⁽²⁾

10,702

11,377

10,910

11,407

Annualized Net Revenue Per Global Average Subscriber⁽¹⁾

$     80.85

$        79.32

$   79.83

$   79.52

Global Package Subscribers and Wholesale

Average Global Package Subscribers and Wholesale⁽²⁾

28,813

32,924

29,600

32,455

Annualized Net Revenue Per Global Average Package Subscriber⁽¹⁾

$      8.52

$          6.43

$    7.74

$    6.40

Global Insureds

Average Supplemental Insureds⁽²⁾

4,174

4,318

4,198

4,331

Annualized Net Revenue Per Supplemental Insured⁽¹⁾

$     55.83

$        61.76

$   60.59

$   59.48

Global Average Subscribers, including Basic Insureds

65,739

71,047

66,907

70,574

⁽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 JUNE 30, 2012 AND DECEMBER 31, 2011

(In millions, except share amounts)

June 30,

December 31,

2012

2011

Assets

Current assets:

Cash and cash equivalents

$              48.5

$              86.3

Restricted cash

35.2

30.4

Receivables (net of allowances for doubtful accounts of $2.7 and $2.4, respectively)

148.5

126.8

Receivables from related parties

0.1

0.8

Profit-sharing receivables from insurance carriers

72.2

74.0

Prepaid commissions

47.3

52.6

Income taxes receivable

1.0

2.1

Other current assets

70.4

68.1

Total current assets

423.2

441.1

Property and equipment, net

133.9

134.7

Contract rights and list fees, net

23.0

22.5

Goodwill

595.0

627.5

Other intangibles, net

268.0

351.2

Other non-current assets

64.9

74.0

Total assets

$          1,508.0

$          1,651.0

Liabilities and Deficit

Current liabilities:

Current portion of long-term debt

$              11.8

$              11.9

Accounts payable and accrued expenses

399.3

398.1

Payables to related parties

38.0

35.3

Deferred revenue

129.9

152.5

Income taxes payable

3.3

3.4

Total current liabilities

582.3

601.2

Long-term debt

1,917.2

1,922.5

Deferred income taxes

68.2

67.5

Deferred revenue

16.0

17.8

Other long-term liabilities

40.5

53.7

Total liabilities

2,624.2

2,662.7

Commitments and contingencies

Deficit:

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

authorized, 100 shares issued and outstanding

102.6

139.6

Accumulated deficit

(1,223.7)

(1,157.5)

Accumulated other comprehensive income

3.6

5.2

Total Affinion Group, Inc. deficit

(1,117.5)

(1,012.7)

Non-controlling interest in subsidiary

1.3

1.0

Total deficit

(1,116.2)

(1,011.7)

Total liabilities and deficit

$          1,508.0

$          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 SIX MONTHS ENDED JUNE 30, 2012 AND 2011

(In millions)

For the Three Months Ended

For the Six Months Ended

June 30, 2012

June 30, 2011

June 30, 2012

June 30, 2011

Net revenues

$         377.6

$         387.1

$         759.4

$         754.0

Expenses:

Cost of revenues, exclusive of depreciation and amortization

    shown separately below:

Marketing and commissions

150.8

159.9

305.6

303.8

Operating costs

115.3

109.2

233.4

217.2

General and administrative

44.1

44.6

66.1

97.4

Impairment of goodwill and other long-lived assets

39.7

-

39.7

-

Facility exit costs

-

1.3

-

1.3

Depreciation and amortization

49.0

61.4

99.1

122.9

Total expenses

398.9

376.4

743.9

742.6

Income (loss) from operations

(21.3)

10.7

15.5

11.4

Interest income

0.2

0.6

0.5

0.8

Interest expense

(36.9)

(38.9)

(74.5)

(74.7)

Other expense, net

(0.4)

(0.1)

(0.3)

(0.1)

Loss before income taxes and non-controlling interest

(58.4)

(27.7)

(58.8)

(62.6)

Income tax expense

(4.3)

(0.2)

(7.0)

(4.7)

Net loss

(62.7)

(27.9)

(65.8)

(67.3)

Less: net income attributable to non-controlling interest

(0.2)

(0.3)

(0.4)

(0.5)

Net loss attributable to Affinion Group, Inc.

$          (62.9)

$          (28.2)

$          (66.2)

$          (67.8)

Net loss

$          (62.7)

$          (27.9)

$          (65.8)

$          (67.3)

Currency translation adjustment, net of tax

(4.0)

1.2

(1.7)

3.7

Comprehensive loss

(66.7)

(26.7)

(67.5)

(63.6)

Less: comprehensive income attributable to non-controlling interest

(0.1)

(0.3)

(0.3)

(0.5)

Comprehensive loss attributable to Affinion Group, Inc.

$          (66.8)

$          (27.0)

$          (67.8)

$          (64.1)

TABLE 4

AFFINION GROUP, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2012 AND 2011

(In millions)

For the Six Months Ended

June 30, 2012

June 30, 2011

Operating Activities

Net loss

$          (65.8)

$          (67.3)

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

Depreciation and amortization

99.1

122.9

Amortization of debt discount and financing costs

4.2

4.1

Unrealized (gain) loss on interest rate swaps

1.0

(0.7)

Impairment of goodwill and other long-lived assets

39.7

-

Adjustment to liability for additional consideration based on earn-out

(14.6)

-

Facility exit costs

-

1.3

Share-based compensation

6.2

6.3

Deferred income taxes

2.0

1.4

Payment received for assumption of loyalty points program liability

-

0.5

Net change in assets and liabilities:

Restricted cash

(5.0)

(1.3)

Receivables

(22.1)

(2.9)

Receivables from related parties

0.7

0.1

Profit-sharing receivables from insurance carriers

1.8

(3.2)

Prepaid commissions

5.4

2.0

Other current assets

(2.6)

7.0

Contract rights and list fees

(0.7)

(2.9)

Other non-current assets

3.8

5.7

Accounts payable and accrued expenses

4.3

(35.9)

Payables to related parties

(3.5)

(4.4)

Deferred revenue

(24.5)

(2.6)

Income taxes receivable and payable

1.0

5.5

Other long-term liabilities

1.5

(5.2)

Other, net

1.8

(2.0)

Net cash provided by operating activities

33.7

28.4

Investing Activities

Capital expenditures

(27.2)

(24.9)

Restricted cash

0.2

1.1

Acquisition-related payments, net of cash acquired

(1.2)

(3.6)

Cash acquired in Webloyalty acquisition

-

26.1

Other investing activity

-

0.3

Net cash used in investing activities

(28.2)

(1.0)

Financing Activities

Proceeds from issuance of term loan

-

250.0

Principal payments on borrowings

(5.9)

(5.9)

Financing costs

-

(5.5)

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

-

16.1

Distribution to non-controlling interest of a subsidiary

-

(1.1)

Net cash used in financing activities

(42.9)

(73.1)

Effect of changes in exchange rates on cash and cash equivalents

(0.4)

1.4

Net decrease in cash and cash equivalents

(37.8)

(44.3)

Cash and cash equivalents, beginning of period

86.3

121.1

Cash and cash equivalents, end of period

$           48.5

$           76.8

Supplemental Disclosure of Cash Flow Information:

Interest payments

$           74.6

$           74.1

Income tax payments, net of refunds

$             4.1

$             0.8

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

June 30, 2012

June 30, 2011

Increase (Decrease)

June 30, 2012

June 30, 2011

Increase (Decrease)

Affinion North America

Membership products

$         189.5

$         194.9

$           (5.4)

$           31.7

$           34.8

$           (3.1)

Insurance and package products

75.3

85.0

(9.7)

19.2

22.5

(3.3)

Loyalty products

37.4

34.7

2.7

12.2

10.9

1.3

Eliminations

(0.7)

(0.8)

0.1

-

-

-

Total North America

301.5

313.8

(12.3)

63.1

68.2

(5.1)

Affinion International

International products

76.1

73.3

2.8

10.0

9.8

0.2

Total products

377.6

387.1

(9.5)

73.1

78.0

(4.9)

Corporate

-

-

-

(5.7)

(5.9)

0.2

Impairment of goodwill and other long-lived
assets

-

-

-

(39.7)

-

(39.7)

Total

$         377.6

$         387.1

$           (9.5)

27.7

72.1

(44.4)

Depreciation and amortization

(49.0)

(61.4)

12.4

Income (loss) from operations

$          (21.3)

$           10.7

$          (32.0)

Net revenues

Segment EBITDA⁽¹⁾

For the Six Months Ended

For the Six Months Ended

June 30, 2012

June 30, 2011

Increase (Decrease)

June 30, 2012

June 30, 2011

Increase (Decrease)

Affinion North America

Membership products

$         377.4

$         378.2

$           (0.8)

$           76.9

$           66.3

$           10.6

Insurance and package products

161.2

172.9

(11.7)

50.5

54.2

(3.7)

Loyalty products

75.8

67.5

8.3

24.6

21.1

3.5

Eliminations

(1.3)

(1.7)

0.4

-

-

-

Total North America

613.1

616.9

(3.8)

152.0

141.6

10.4

Affinion International

International products

146.3

137.1

9.2

11.2

13.7

(2.5)

Total products

759.4

754.0

5.4

163.2

155.3

7.9

Corporate

-

-

-

(8.9)

(21.0)

12.1

Impairment of goodwill and other long-lived assets

-

-

-

(39.7)

-

(39.7)

Total

$         759.4

$         754.0

$            5.4

114.6

134.3

(19.7)

Depreciation and amortization

(99.1)

(122.9)

23.8

Income from operations

$           15.5

$           11.4

$            4.1

⁽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 June 30, 2012 and the three and six months ended June 30, 2012 and 2011 to our Adjusted EBITDA.

For the Twelve Months Ended June 30, 2012 ^(a)

For the Three Months Ended June 30,

For the Six Months Ended June 30,

2012

2011

2012

2011

Net cash provided by operating activities

$            112.3

$       5.1

$         20.2

$     33.7

$         28.4

Interest expense, net

147.4

36.7

38.3

74.0

73.9

Income tax expense

7.5

4.3

0.2

7.0

4.7

Amortization of favorable and unfavorable contracts

0.6

-

0.3

-

0.6

Amortization of debt discount and financing costs

(8.4)

(2.1)

(2.1)

(4.2)

(4.1)

Unrealized gain (loss) on interest rate swaps

(4.2)

(0.1)

1.3

(1.0)

0.7

Deferred income taxes

(2.9)

(1.0)

1.1

(2.0)

(1.4)

Payment received for assumption of loyalty points program liability

(4.2)

-

(0.5)

-

(0.5)

Changes in assets and liabilities

55.3

27.2

18.0

38.1

39.5

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

25.3

7.4

5.0

13.5

19.5

Other, net^(c)

23.8

6.6

2.3

7.3

19.0

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

352.5

$     84.1

$         84.1

$    166.4

$       180.3

Effect of the pro forma adjustments^(f)

10.3

Adjusted EBITDA, including pro forma adjustments^(g)

$            362.8

^(a)

Represents consolidated financial data for the year ended December 31, 2011, minus consolidated financial data for the six months ended June 30, 2011, plus consolidated financial data for the six months ended June 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 related to acquisitions 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 (i) our acquisition of Prospectiv Direct, Inc. ("Prospectiv"), an online performance marketer and operator of a daily deal website in the United States, that was completed in the third quarter of 2011 and (ii) 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 acquisition and such restructurings and cost savings initiatives had occurred on July 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 completion of the Prospectiv acquisition and the projected annualized benefits of restructurings and other cost savings initiatives in connection with the Webloyalty and Prospectiv acquisitions as if such acquisitions and restructurings and cost savings initiatives had occurred on July 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 June 30, 2012 and the three and six months ended June 30, 2012 and 2011 to our Adjusted EBITDA.

For the Twelve Months Ended June 30, 2012^(a)

For the Three Months Ended June 30,

For the Six Months Ended June 30,

2012

2011

2012

2011

Net loss attributable to Affinion Group, Inc.

$           (108.1)

$    (62.9)

$        (28.2)

$    (66.2)

$        (67.8)

Interest expense, net

147.4

36.7

38.3

74.0

73.9

Income tax expense

7.5

4.3

0.2

7.0

4.7

Non-controlling interest

0.8

0.2

0.3

0.4

0.5

Other income

-

0.4

0.1

0.3

0.1

Depreciation and amortization

214.9

49.0

61.4