UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~June~~September 30, 2015.

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission file number: 333-133895

AFFINION GROUP, INC.

(Exact name of registrant as specified in its charter)

Delaware

16-1732152

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

6 High Ridge Park

Stamford, CT 06905

(Address, including zip code, of principal executive offices)

(203) 956-1000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ¨ No x

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	¨	Accelerated filer	¨

Non-accelerated filer	x (Do not check if a smaller reporting company)	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

The number of shares outstanding of the registrant’s common stock, $0.01 par value, as of ~~July~~November 296, 2015 was 100.

TABLE OF CONTENTS

	Page
Part I. FINANCIAL INFORMATION
Item 1.	1
Financial Statements	1
Unaudited Condensed Consolidated Balance Sheets as of June 30, 2015 and December 31, 2014	1
Unaudited Condensed Consolidated Balance Sheets as of September 30, 2015 and December 31, 2014	1
Unaudited Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2015 and 2014	2
Unaudited Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2015 and 2014	2
Unaudited Condensed Consolidated Statements of Changes in Deficit for the Six Months Ended June 30, 2015 and Year Ended December 31, 2014	3
Unaudited Condensed Consolidated Statements of Changes in Deficit for the Nine Months Ended September 30, 2015 and 2014	3
Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2015 and 2014	4
Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2015 and 2014	4
Notes to Unaudited Condensed Consolidated Financial Statements	5
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations	3436
Item 3.
Quantitative and Qualitative Disclosures about Market Risk	5458
Item 4.
Controls and Procedures	5559
Part II. OTHER INFORMATION
Item 1.
Legal Proceedings	5660
Item 1A.
Risk Factors	5660
Item 2.
Unregistered Sales of Equity in Securities and Use of Proceeds	5772
Item 3.
Defaults Upon Senior Securities	5772
Item 4.
Mine Safety Disclosure	5773
Item 5.
Other Information	5773
Item 6.
Exhibits	5874
SIGNATURES	S-1

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

AFFINION GROUP, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF ~~JUNE~~SEPTEMBER 30, 2015 AND DECEMBER 31, 2014

(In millions, except share amounts)

	June 30,			December 31,
	September 30,			December 31,
	2015			2014
Assets
Current assets:
Cash and cash equivalents	$	55.7		$	28.0
Restricted cash		3332.20			35.8
Receivables (net of allowances for doubtful accounts of $8.8 and $8.5, respectively)		115.0			119.3
Receivables (net of allowances for doubtful accounts of $1.9 and $8.5, respectively)		112.2			119.3
Profit-sharing receivables from insurance carriers		1624.94			28.7
Prepaid commissions		5146.76			48.0
Income taxes receivable		1.41			1.3
Other current assets		~~103~~117.72			104.6
Total current assets		~~377~~389.62			365.7
Property and equipment, net		~~130~~124.65			139.0
Contract rights and list fees, net		17.70			16.7
Goodwill		~~318~~317.90			322.2
Other intangibles, net		7664.51			103.3
Receivables from related parties		27.01			25.2
Other non-current assets		7073.26			65.6
Total assets	$	1,~~018~~012.5		$	1,037.7
Liabilities and Deficit
Current liabilities:
Current portion of long-term debt	$	10.84		$	10.8
Accounts payable and accrued expenses		~~398~~397.3			411.8
Payables to related parties		4345.7			45.2
Deferred revenue		8281.86			89.9
Income taxes payable		32.13			3.2
Total current liabilities		~~538~~537.73			560.9
Long-term debt		2,~~069~~074.27			2,018.4
Deferred income taxes		3536.56			33.0
Deferred revenue		9.54			10.0
Other long-term liabilities		26.90			31.3
Total liabilities		2,~~679~~684.80			2,653.6
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,~~763~~771.02	)		(1,720.8	)
Accumulated other comprehensive income		(24.2	)		1.2
Total Affinion Group, Inc. deficit		(1,~~662~~672.68	)		(1,617.0	)
Non-controlling interest in subsidiary		1.3			1.1
Total deficit		(1,~~661~~671.35	)		(1,615.9	)
Total liabilities and deficit	$	1,~~018~~012.5		$	1,037.7

See accompanying notes to the unaudited condensed consolidated financial statements.

AFFINION GROUP, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE THREE AND ~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2015 AND 2014

(In millions)

	For the Three Months Ended						For the ~~Six~~Nine Months Ended
	June 30,			June 30,			June 30,			June 30,
	September 30,			September 30,			September 30,			September 30,
	2015			2014			2015			2014
Net revenues	$	~~295~~291.03		$	303.80		$	~~597~~888.36		$	~~625~~928.2
Expenses:
Cost of revenues, exclusive of depreciation
and amortization shown separately below:
Marketing and commissions		~~111~~104.07			~~120~~114.18			~~226~~331.74			~~245~~360.53
Operating costs		9995.41			~~106~~96.07			~~203~~298.01			~~214~~310.07
General and administrative		2829.83			4050.36			6393.81			90141.40
Facility exit costs		0.61			01.71			1.12			01.67
Depreciation and amortization		23.87			2927.12			4871.07			5481.13
Total expenses		~~263~~252.69			~~296~~290.24			~~542~~795.65			~~604~~895.60
Income from operations		3138.4			712.6			5493.71			2033.62
Interest income		01.29			0.32			02.43			0.57
Interest expense		(47.48	)		(4641.31	)		(94142.53	)		(91132.45	)
Loss on extinguishment of debt	—	-		—	~~(6.0~~	)	—	-			(6.0	)
Other income, net		0.16		—	-			01.62		—	-
Loss before income taxes and non-controlling interest		(156.79	)		(4428.43	)		(3845.87	)		(76104.36	)
Income tax expense		(1.1	)		(42.16	)		(34.12	)		(810.39	)
Net loss		(~~16.~~8.0	)		(4830.59	)		(4149.9	)		(84115.65	)
Less: net income attributable to non-controlling interest		(0.12	)		(0.12	)		(0.35	)		(0.24	)
Net loss attributable to Affinion Group, Inc.	$	(168.92	)	$	(4831.61	)	$	(4250.24	)	$	(84115.89	)
Net loss	$	(~~16.~~8.0	)	$	(4830.59	)	$	(4149.9	)	$	(84115.65	)
Currency translation adjustment, net of tax		1.5			(0.7	)		(3.5	)		(1.0	)
Currency translation adjustment, net of tax of $0 for all periods		(2.2	)		(1.1	)		(5.7	)		(2.1	)
Comprehensive loss		(1510.32	)		(4932.20	)		(4555.46	)		(85117.6	)
Less: comprehensive income attributable to non-controlling interest	—	~~(0.1~~	)		(0.12	)		(0.2	)		(0.24	)
Comprehensive loss attributable to Affinion Group, Inc.	$	(1510.42	)	$	(4932.32	)	$	(4555.68	)	$	(85118.80	)

See accompanying notes to the unaudited condensed consolidated financial statements.

AFFINION GROUP, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN DEFICIT

FOR THE ~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2015 AND ~~YEAR ENDED DECEMBER 31,~~ 2014

(In millions)

	Affinion Group, Inc. Deficit
	Common Stock and Additional Paid-in Capital		Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Non- Controlling Interest			Total Deficit
Balance, January 1, 2015	$	102.6	$	(1,720.8	)	$	1.2		$	1.1		$	(1,615.9	)
Net income (loss)	—			(4250.24	)	—				0.35			(4149.9	)
Currency translation adjustment, net of tax	—		—				(35.4	)		(0.13	)		(3.5.7	)
Balance, June 30, 2015	$	102.6	$	(1,763.0	)	$	(2.2	)	$	1.3		$	(1,661.3	)
Balance, September 30, 2015	$	102.6	$	(1,771.2	)	$	(4.2	)	$	1.3		$	(1,671.5	)
	Affinion Group, Inc. Deficit
	Common Stock and Additional Paid-in Capital		Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Non- Controlling Interest			Total Deficit
Balance, January 1, 2014	$	102.6	$	(1,346.4	)	$	5.7		$	1.1		$	(1,237.0	)
Net income (loss)	—			(~~374~~115.49	)	—				0.54			(~~373~~115.95	)
Currency translation adjustment, net of tax	—		—				(42.51	)	—				(42.51	)
Dividend paid to non-controlling interest	—		—			—				(0.5	)		(0.5	)
Balance, September 30, 2014	$	102.6	$	(1,462.3	)	$	3.6		$	1.5		$	(1,354.6	)
Balance, December 31, 2014	$	102.6	$	(1,720.8	)	$	1.2		$	1.1		$	(1,615.9	)

See accompanying notes to the unaudited condensed consolidated financial statements.

AFFINION GROUP, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE ~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2015 AND 2014

(In millions)

	For the Six Months Ended
	For the Nine Months Ended
	June 30,			June 30,
	September 30,			September 30,
	2015			2014
Operating Activities
Net loss	$	(4149.9	)	$	(84115.65	)
Adjustments to reconcile net loss to net cash used in operating activities:
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		4871.07			5481.13
Amortization of debt discount and financing costs		4.7.0			57.58
Financing costs	−−				5.5
Facility exit costs		1.1			0.6
Recovery of accounts receivable loss provided for		(5.5	)	−−
Facility exit costs		1.2			1.7
Loss on extinguishment of debt	−−				6.0
Share-based compensation		01.64			6.18
Deferred income taxes		1.5			57.4
Net change in assets and liabilities:
Restricted cash		24.21			(32.59	)
Receivables		18.37			(70.43	)
Receivables from related parties		4.20		−−
Profit-sharing receivables from insurance carriers		114.83			2535.3
Prepaid commissions		(31.72	)		(07.23	)
Other current assets		(518.38	)		820.97
Contract rights and list fees		(10.14	)		1.13
Other non-current assets		(813.93	)	−−	~~(4.1~~	)
Accounts payable and accrued expenses		(107.28	)		(223.72	)
Payables to related parties		(2.0.8	)		(32.17	)
Deferred revenue		(6.13	)		(1213.29	)
Income taxes receivable and payable	−−	(0.5	)		0.42
Other long-term liabilities		(45.7	)		(05.92	)
Other, net		23.52			(05.62	)
Net cash used in operating activities		(6.0	)		(0.4	)
Net cash provided by (used in) operating activities		(0.7	)		8.8
Investing Activities
Capital expenditures		(1523.23	)		(2336.73	)
Restricted cash		(01.1	)	−−	(0.3	)
Acquisition-related payments, net of cash acquired	−−				(19.4	)
Proceeds from sale of investment		1.5		−−
Net cash used in investing activities		(1322.89	)		(2356.70	)
Financing Activities
Borrowings (repayments) under revolving credit facility, net		5461.0			(4634.0	)
Proceeds from issuance of debt	−−				425.0
Financing costs	−−				(1821.9	)
Principal payments on borrowings		(46.16	)		(~~311~~314.90	)
Receivables from and payables to parent company		(1.9	)		(3.0	)
Net cash provided by financing activities		4852.05			4552.21
Effect of changes in exchange rates on cash and cash equivalents		(01.52	)		0(1.31	)
Net increase in cash and cash equivalents		27.7			213.48
Cash and cash equivalents, beginning of period		28.0			19.6
Cash and cash equivalents, end of period	$	55.7		$	4123.04
Supplemental Disclosure of Cash Flow Information:
Interest payments	$	89138.70		$	77125.90
Income tax payments, net of refunds	$	12.36		$	2.39
Non-cash investing and financing activities:
Accrued capital expenditures	$	0.24		$	0.83
Property and equipment acquired under capital lease	$	-		$	0.7
Contingent consideration for acquisitions	$	-		$	1.9

See accompanying notes to the unaudited condensed consolidated financial statements.

AFFINION GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unless otherwise noted, all dollar amounts are in millions, except per share amounts)

1. BASIS OF PRESENTATION AND BUSINESS DESCRIPTION

Basis of Presentation—On October 17, 2005, Cendant Corporation (“Cendant”) completed the sale of the Cendant Marketing Services Division to Affinion Group, Inc. (the “Company” or “Affinion”), a wholly-owned subsidiary of Affinion Group Holdings, Inc. (“Affinion Holdings”) and an affiliate of Apollo Global Management, LLC (“Apollo”), pursuant to a purchase agreement dated July 26, 2005 for approximately $1.8 billion (the “Apollo Transactions”).

All references to Cendant refer to Cendant Corporation, which changed its name to Avis Budget Group, Inc. in August 2006, and its consolidated subsidiaries, specifically in the context of its business and operations prior to, and in connection with, the Company’s separation from Cendant.

The accompanying unaudited condensed consolidated financial statements include the accounts and transactions of the Company. In presenting these unaudited condensed consolidated financial statements, management makes estimates and assumptions that affect reported amounts of assets and liabilities and related disclosures, and disclosure of contingent assets and liabilities, at the date of the financial statements, and reported amounts of revenues and expenses during the reporting periods. Estimates, by their nature, are based on judgments and available information at the time such estimate is made. As such, actual results could differ from those estimates. In management’s opinion, the unaudited condensed consolidated financial statements contain all normal recurring adjustments necessary for a fair presentation of interim results reported. The results of operations reported for interim periods are not necessarily indicative of the results of operations for the entire year or any subsequent interim period.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and following the guidance of Rule 10-01 of Regulation S-X for interim financial statements required to be filed with the U.S. Securities and Exchange Commission (the “SEC”). As permitted under such rules, certain notes and other financial information normally required by accounting principles generally accepted in the United States of America have been condensed or omitted; however, the unaudited condensed consolidated financial statements do include such notes and financial information sufficient so as to make the interim information presented not misleading. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes of the Company as of December 31, 2014 and 2013, and for the years ended December 31, 2014, 2013 and 2012, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 filed with the SEC on March 19, 2015 (the “Form 10-K”).

Business Description— The Company is one of the world’s leading customer engagement and loyalty solutions companies. The Company designs, markets and services programs that strengthen and extend customer relationships for many of the world’s largest and most respected companies. The Company’s programs and services include:

Loyalty programs that help reward, motivate and retain consumers,

Membership programs that help consumers save money and gain peace of mind,

Package programs that bundle valuable discounts, protection and other benefits to enhance customer relationships, and

Insurance programs that help protect consumers in the event of a covered accident, injury, illness, or death.

The Company designs customer engagement and loyalty solutions with an attractive suite of benefits and ease of usage that it believes are likely to interest and engage consumers based on their needs and interests. For example, the Company provides discount travel services, credit monitoring and identity-theft resolution, accidental death and dismemberment insurance, roadside assistance, various checking account and credit card enhancement services, loyalty program design and management, disaggregated loyalty points redemptions for gift cards, travel and merchandise, as well as other products and services.

The Company is a global leader in the designing, marketing and servicing of comprehensive customer engagement and loyalty solutions that enhances and extends the relationship of millions of consumers with many of the largest and most respected companies in the world. The Company generally partners with these leading companies in two ways: 1) by developing and supporting programs that are natural extensions of its partner companies’ brand image and that provide valuable services to their end-customers, and 2) by providing the back-end technological support and redemption services for points-based loyalty programs. Using its expertise in customer engagement, product development, creative design and data-driven targeted marketing, the Company develops and markets programs and services that enable the companies it partners with to generate significant, high-margin incremental revenue, enhance its partners’ brands among targeted consumers as well as strengthen and enhance the loyalty of their customer relationships. The enhanced loyalty can lead to increased acquisition of new customers, longer retention of existing customers, improved customer satisfaction rates, and greater use of other services provided by such companies. The Company refers to the leading companies that it works with to provide customer engagement and loyalty solutions as marketing partners or clients. The Company refers to the

consumers to whom it provides services directly under a contractual relationship as subscribers, insureds or members. The Company refers to those consumers that it services on behalf of a third party, such as one of its marketing partners, and with whom it has a contractual relationship as end-customers.

The Company utilizes its substantial expertise in a variety of direct engagement media to market valuable products and services to the customers of its marketing partners on a highly targeted, campaign basis. The selection of the media employed in a campaign corresponds to the preferences and expectations the targeted customers have demonstrated for transacting with its marketing partners, as the Company believes this optimizes response, thereby improving the efficiency of our marketing investment. Accordingly, the Company maintains significant capabilities to market through direct mail, point-of-sale, direct response television, the internet, inbound and outbound telephony and voice response unit marketing, as well as other media as needed.

The Company’s operating segments are as follows:

●

Membership Products. The Company designs, implements and markets subscription programs that provide its members with personal protection benefits and value-added services including credit monitoring and identity-theft resolution services, as well as access to a variety of discounts and shop-at-home conveniences in such areas as retail merchandise, travel, automotive and home improvement.

●

Insurance and Package Products. The Company markets AD&D and other insurance programs and designs and provides checking account enhancement programs to financial institutions. These programs allow financial institutions to bundle discounts, protection and other benefits with a standard checking account and offer these packages to customers for an additional monthly fee.

●

Global Loyalty Products. The Company designs, implements and administers points-based loyalty programs for financial, travel, auto and other companies. The Company provides its clients with solutions that meet the most popular redemption options desired by their program points holders, including travel services, gift cards, cash back and merchandise. The Company also provides enhancement benefits to major financial institutions in connection with their credit and debit card programs. In addition, the Company provides and manages turnkey travel services that are sold on a private label basis to provide its clients’ customers with direct access to the Company’s proprietary travel platform. A marketing partner typically engages the Company on a fee-for-services contractual basis, where the Company generates revenue in connection with the volume of redemption transactions.

●

International Products. The Company designs, implements and markets membership and package customer engagement businesses outside North America and operates a discrete loyalty program benefit provider. The Company expects to leverage its current international operational platform to expand its range of products and services, develop new marketing partner relationships in various industries and grow its geographical footprint. In 2012, the Company expanded into Turkey through the acquisition of existing marketing capabilities and also launched business operations in Brazil. In 2015, the Company undertook business activities in Australia.

Recently Issued Accounting Pronouncements

On May 28, 2014, the FASB and International Accounting Standards Board issued their final standard on revenue from contracts with customers. The standard outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The fundamental principles of the guidance are that companies should recognize revenue in a manner that reflects the timing of transfer of goods and services to customers and the amount of revenue recognized reflects the consideration that a company expects to receive for the goods and services provided. The guidance establishes a five-step approach for the recognition of revenue. In addition, the guidance will also require significantly expanded disclosures about revenue recognition. In July 2015, the FASB issued a new standard that, for public entities, defers the effective date of the standard on revenue from contracts with customers by one year, to annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2017. Entities have the option of using either a full retrospective or modified retrospective approach and early application is not permitted, other than entities may earlier adopt the new guidance as of the originally proposed effective date, which was for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2016. The Company is in the process of performing an initial evaluation of the impact of the new guidance. Based on its preliminary assessment, the Company does not believe that adoption of the new guidance will have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

On August 27, 2014, the FASB issued an Accounting Standards Update (“ASU”) that provides guidance on determining when and how reporting entities must disclose going concern uncertainties in their financial statements. The new standard requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date of issuance of the financial statements (or within one year after the date on which the financial statements were available to be issued, when applicable). Further, an entity must provide certain disclosures if there is “substantial doubt about the entity’s ability to continue as a going concern.” The ASU is effective for annual periods ending after December 15, 2016, and interim periods

thereafter, with early adoption permitted. When adopted, the new guidance is not expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

On April 7, 2015, the FASB issued an ASU that requires debt issuance costs to be presented in the balance sheet as a direct deduction from the carrying amount of the debt liability consistent with debt discounts and premiums, rather than as a separate asset. On August 16, 2015, the FASB issued an ASU clarifying the SEC staff’s position on presenting and measuring debt issuance costs incurred in connection with line-of-credit arrangements. The SEC staff announced that it would not object to the deferral and presentation of debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement. The new guidance is effective for financial statements issued for fiscal years beginning after December 31, 2015 and interim periods within those fiscal years. When adopted, the new guidance is not expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows. Had the new guidance been in effect, at December 31, 2014, other noncurrent assets and long-term debt would each have been reduced by $26.8 million and at ~~June~~September 30, 2015, other noncurrent assets and long-term debt would each have been reduced by $2321.12 million.

2. ACQUISITIONS

On September 8, 2014, the Company entered into a Membership Interest Purchase Agreement (the “SkyMall Agreement”) that resulted in the acquisition on September 9, 2014 of SkyMall Ventures, LLC (“SkyMall”), a provider of merchandise, gift cards and experiential rewards for loyalty programs. In accordance with the SkyMall Agreement, the Company acquired all of the outstanding membership interests in SkyMall for an upfront cash payment of approximately $18.4 million, plus a working capital adjustment of $0.4 million, and contingent consideration of up to $3.9 million payable approximately one year after the acquisition date.

In addition to providing merchandise, gift cards and experiential rewards for loyalty programs, it provides services including strategy, creative, technology and fulfillment. The acquisition of SkyMall enhances the Company’s position as a leading loyalty program administrator and incentives provider, as well as solidifies the Company’s position within certain current verticals and provides access to certain new verticals.

OnThe ~~a preliminary basis, the~~ Company allocated the purchase price of $19.1 million, consisting of the upfront cash payment of $18.4 million, plus the working capital adjustment of $0.4 million, and the acquisition date fair value of the up to $3.9 million contingent consideration, based on an income approach and probability model, of $0.3 million (which was not achieved), among the assets acquired and liabilities assumed as follows (in millions):

Trade receivables	$	3.8
Other current assets, including gift card inventory		37.7
Intangible assets		11.9
Goodwill		14.63
Accounts payable and accrued liabilities		(48.85	)
Other current liabilities		(0.1	)
Consideration transferred	$	19.1

The intangible assets are comprised of affinity relationships, which are being amortized on an accelerated basis over a weighted-average useful life of eight years. The goodwill, which is expected to be deductible for income tax purposes, has been attributed to the Global Loyalty Products segment. In connection with the acquisition of SkyMall, the Company incurred $0.83 million of acquisition costs, ~~none~~which are included in general and administrative expense in the consolidated statement of ~~which~~comprehensive ~~was~~income for the three and nine months ended September 30, 2014. There were no acquisition costs incurred during the ~~six~~three and nine months ended ~~June~~September 30, 2015 ~~or 2014~~.

3. INTANGIBLE ASSETS

Intangible assets consisted of:

	June 30, 2015
	September 30, 2015
	Gross Carrying		Accumulated			Net Carrying
	Amount		Amortization			Amount
	(in millions)
Amortizable intangible assets:
Member relationships	$	~~938~~937.6	$	(933.38	)	$	5.3.8
Affinity relationships		642.90		(~~589~~597.06	)		5344.94
Proprietary databases and systems		59.7		(57.56	)		2.21
Trademarks and tradenames		32.73		(1920.82	)		12.91
Patents and technology		47.7		(4546.82	)		1.95
Covenants not to compete		2.65		(2.3	)		0.32
	$	1,~~724~~721.28	$	(1,~~647~~657.7	)	$	7664.51
	December 31, 2014
	Gross Carrying		Accumulated			Net Carrying
	Amount		Amortization			Amount
	(in millions)
Amortizable intangible assets:
Member relationships	$	939.8	$	(932.0	)	$	7.8
Affinity relationships		649.1		(574.4	)		74.7
Proprietary databases and systems		59.9		(57.4	)		2.5
Trademarks and tradenames		33.5		(18.8	)		14.7
Patents and technology		47.8		(44.6	)		3.2
Covenants not to compete		2.6		(2.2	)		0.4
	$	1,732.7	$	(1,629.4	)	$	103.3

Foreign currency translation resulted in a decrease in intangible assets and accumulated amortization of $810.59 million and $68.6 million, respectively, from December 31, 2014 to ~~June~~September 30, 2015.

Amortization expense relating to intangible assets was as follows:

	For the Three Months Ended				For the ~~Six~~Nine Months Ended
	June 30,		June 30,		June 30,		June 30,
	September 30,		September 30,		September 30,		September 30,
	2015		2014		2015		2014
	(in millions)
Amortizable intangible assets:
Member relationships	$	01.94	$	3.5	$	23.04	$	710.27
Affinity relationships		9.85		910.92		1929.72		1930.80
Proprietary databases and systems		0.1		0.1		0.23		0.23
Trademarks and tradenames		0.65		0.67		1.38		12.30
Patents and technology		0.74		0.8		12.60		12.64
Covenants not to compete		-0.1		~~0.1~~-		0.12		0.2
	$	12.10	$	15.03	$	2436.9	$	3045.36

Based on the Company’s amortizable intangible assets as of ~~June~~September 30, 2015, the Company expects the related amortization expense for fiscal year 2015 and the four succeeding fiscal years to be approximately $42.16 million in 2015, $13.43 million in 2016, $9.10 million in 2017, $8.21 million in 2018 and $76.09 million in 2019.

At January 1, 2015 and ~~June~~September 30, 2015, the Company had gross goodwill of $661.6 million and $~~658~~656.34 million, respectively, and accumulated impairment losses of $339.4 million at both dates. The accumulated impairment losses represent the $15.5 million impairment loss recognized in 2006 impairing all of the goodwill assigned to the Global Loyalty Products segment related to the Apollo Transactions, the $31.5 million impairment loss recognized in 2012 impairing all of the goodwill assigned toin connection with the acquisition of Prospectiv ~~acquisition~~Direct, Inc. included in the Membership Products segment and the $292.4 million impairment loss recognized in 2014 impairing a portion of the goodwill assigned to the Membership Products segment.

The changes in the Company’s carrying amount of goodwill for the year ended December 31, 2014 and the ~~six~~nine months ended ~~June~~September 30, 2015 are as follows:

	Balance at										Balance at					~~Balance at~~			Balance at
	January 1,							Currency			December 31,		~~Currency~~			~~June 30,~~Currency			September 30,
	2014		Acquisition		Impairment			Translation			2014		~~Translation~~Acquisition			~~2015~~Translation			2015
	(in millions)
Membership products	$	382.0	$	-	$	(292.4	)	$	-		$	89.6	$	-		$	~~89.6~~-		$	89.6
Insurance and package products		58.3	—		—			—				58.3	—			—	~~58.3~~			58.3
Global loyalty products		81.7		15.8	—			—				97.5	—	(0.3	)	—	~~97.5~~			97.2
International products		84.3	—		—				(7.5	)		76.8	—	~~(3.3~~	)		73(4.59	)		71.9
Total	$	606.3	$	15.8	$	(292.4	)	$	(7.5	)	$	322.2	$	(30.3	)	$	~~318~~(4.9	)	$	317.0

In connection with the Company’s previously announced global reorganization and the Company’s stated intent to no longer materially invest in lines of business that it believes are not essential to its long-term growth prospects, the Company has been reviewing and refining its business strategy, including evaluating certain marketing opportunities and other initiatives. The Company is currently revising forecasts and analysis to assess the impact of the global reorganization and change in strategy, including the potential effects of no longer investing in lines of business that are not essential to the Company’s long-term growth prospects. The Company will continue to evaluate triggering events for the recoverability of its intangible assets during this process. No assurances can be given that the Company will not be required to record an impairment loss on goodwill or its other intangible assets during the quarter ended December 31, 2015 or in the future.

4. CONTRACT RIGHTS AND LIST FEES, NET

Contract rights and list fees consisted of:

	June 30, 2015							December 31, 2014
	September 30, 2015							December 31, 2014
	Gross Carrying		Accumulated			Net Carrying		Gross Carrying		Accumulated			Net Carrying
	Amount		Amortization			Amount		Amount		Amortization			Amount
	(in millions)
Contract rights	$	5957.78	$	(5957.46	)	$	0.32	$	59.1	$	(58.7	)	$	0.4
List fees		5556.40		(3839.02	)		1716.48		51.7		(35.4	)		16.3
	$	~~115~~113.18	$	(9796.48	)	$	17.70	$	110.8	$	(94.1	)	$	16.7

Amortization expense for the three months ended ~~June~~September 30, 2015 and 2014 was $1.43 million and $1.4 million, respectively, of which $1.3 million and $1.34 million, respectively, is included in marketing expense and less than $0.1 million and less than $0.1 million, respectively, is included in depreciation and amortization expense in the unaudited condensed consolidated statement of comprehensive income. Amortization expense for the ~~six~~nine months ended ~~June~~September 30, 2015 and 2014 was $24.70 million and $24.93 million, respectively, of which $23.58 million and $24.71 million, respectively, is included in marketing expense and $0.2 million and $0.2 million, respectively, is included in depreciation and amortization expense in the unaudited condensed consolidated statement of comprehensive income. Based on the Company’s contract rights and list fees as of ~~June~~September 30, 2015, the Company expects the related amortization expense for fiscal year 2015 and the four succeeding fiscal years to be approximately $5.3 million in 2015, $4.45 million in 2016, $3.23 million in 2017, $2.56 million in 2018 and $12.90 million in 2019.

5. LONG-TERM DEBT

Long-term debt consisted of:

	June 30,			December 31,
	September 30,			December 31,
	2015			2014
	(in millions)
First-lien term loan due 2018	$	~~765~~763.34		$	769.2
Second-lien term loan due 2018		425.0			425.0
Revolving credit facility, expiring in 2018		5966.0			5.0
7.875% senior notes due 2018, net of unamortized discount of $1.5
7.875% senior notes due 2018, net of unamortized discount of $1.4
million and $1.7 million, respectively, with an effective interest rate
of 8.31%		473.56			473.3
13.50% senior subordinated notes due 2018, net of unamortized
discount of $6.0 million and $6.7 million, respectively, with an
discount of $5.6 million and $6.7 million, respectively, with an
effective interest rate of 14.31%		354.04			353.3
11 1/2% senior subordinated notes due 2015, with an effective
interest rate of 12.25%		2.6			2.6
Capital lease obligations		0.61			0.8
Total debt		2,~~080~~085.01			2,029.2
Less: current portion of long-term debt		(10.84	)		(10.8	)
Long-term debt	$	2,~~069~~074.27		$	2,018.4

On April 9, 2010, the Company, as Borrower, and Affinion Holdings entered into a $1.0 billion amended and restated senior secured credit facility with its lenders (“Affinion Credit Facility”). On November 20, 2012, the Company, as Borrower, and Affinion Holdings entered into an amendment to the Affinion Credit Facility, which (i) increased the margins on LIBOR loans from 3.50% to 5.00% and on base rate loans from 2.50% to 4.00%, (ii) replaced the financial covenant requiring the Company to maintain a maximum consolidated leverage ratio with a financial covenant requiring Affinion to maintain a maximum senior secured leverage ratio, and (iii) adjusted the ratios under the financial covenant requiring Affinion to maintain a minimum interest coverage ratio. On December 12, 2013, in connection with the refinancing of the Company’s 11 ½ % senior subordinated notes due 2015 (the “2006 senior subordinated notes”) and Affinion Holdings’ 11.625% senior notes due 2015 (the “Affinion Holdings’ “2010 senior notes”), the Company, as Borrower, and Affinion Holdings entered into an amendment to the Affinion Credit Facility, which (i) provided permission for the consummation of the exchange offers for the Company’s 2006 senior subordinated notes and Affinion Holdings’ 2010 senior notes; (ii) removed the springing maturity provisions applicable to the term loan facility; (iii) modified the senior secured leverage ratio financial covenant in the Affinion Credit Facility; (iv) provided additional flexibility to make dividends to Affinion Holdings to be used by Affinion Holdings to make certain payments with respect to its indebtedness and to repay, repurchase or redeem subordinated indebtedness of Affinion; and (v) increased the interest rate margins by 0.25%, to 5.25% on LIBOR loans and 4.25% on base rate loans. The amendment became effective upon the satisfaction of the conditions precedent set forth therein, including the payment by Affinion of the consent fee equal to 0.25% of the sum of (i) the aggregate principal amount of all term loans and (ii) the revolving loan commitments in effect, in each case, held by each lender that entered into the amendment on the date of effectiveness of the amendment. On May 20, 2014, the Company, as Borrower, and Affinion Holdings entered into an amendment to the Affinion Credit Facility, 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, which loans were designated as first lien term loans (the “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 (the “Second Lien Term Loans”), (iii) extended the maturity to January 29, 2018 of $80.0 million of the commitments (and related obligations) 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.

The revolving credit facility includes a letter of credit subfacility and a swingline loan subfacility. The First Lien Term Loan facility matures in April 2018 and the Second Lien Term Loan facility matures in October 2018. The First Lien Term Loan facility provides for quarterly amortization payments totaling 1% per annum, with the balance payable upon the final maturity date. The Second Lien Term Loan facility does not provide for quarterly amortization payments. The Affinion Credit Facility also requires mandatory prepayments of the outstanding term loans based on excess cash flow (as defined), if any, and the proceeds from certain specified transactions. The interest rates with respect to First Lien Term Loans and revolving loans under the amended Affinion Credit Facility are based on, at the Company’s option, (a) the higher of (i) adjusted LIBOR and (ii) 1.50%, in each case plus 5.25%, or (b) the highest of (i) Deutsche Bank Trust Company Americas’ prime rate, (ii) the Federal Funds Effective Rate plus 0.5% and (iii) 2.50% (“ABR”), in each case plus 4.25%. The interest rates with respect to Second Lien Term Loans under the amended Affinion Credit

Facility are based on, at the Company’s option, (a) the higher of (i) adjusted LIBOR and (ii) 1.50%, in each case plus 7.00%, or (b) the highest of (i) Deutsche Bank Trust Company Americas’ prime rate, (ii) the Federal Funds Effective Rate plus 0.5% and (iii) 2.50% (“ABR”), in each case plus 6.00%. The weighted average interest rate on the term loan for the period from ~~April 1, 2014 through May 20, 2014 and for the period from~~ January 1, 2014 through May 20, 2014 was 6.75%. The weighted average interest rate on the First Lien Term Loan and Second Lien Term Loan for the three and ~~six~~nine months ended ~~June~~September 30, 2015 and for the period from May 20, 2014 through ~~June~~September 30, 2014 was 6.75% and 8.50%, respectively. The weighted average interest rate on revolving credit facility borrowings for the three and ~~six~~nine months ended ~~June~~September 30, 2015 was 7.~~1% and 7.~~2%, ~~respectively~~for both periods, and for the three and ~~six~~nine months ended ~~June~~September 30, 2014 was 7.5% and 7.1%, ~~for both periods~~respectively. The Company’s obligations under the credit facility are, and the Company’s obligations under any interest rate protection or other hedging arrangements entered into with a lender or any of its affiliates will be, guaranteed by Affinion Holdings and by each of the Company’s existing and subsequently acquired or organized domestic subsidiaries, subject to certain exceptions. The Affinion Credit Facility is secured to the extent legally permissible by substantially all of the assets of (i) Affinion Holdings, which consists of a pledge of all the Company’s capital stock and (ii) the Company and the subsidiary guarantors, including but not limited to: (a) a pledge of substantially all capital stock held by the Company or any subsidiary guarantor and (b) security interests in substantially all tangible and intangible assets of the Company and each subsidiary guarantor, subject to certain exceptions. The Affinion Credit Facility also contains financial, affirmative and negative covenants. The negative covenants in the Affinion Credit Facility include, among other things, limitations (all of which are subject to certain exceptions) on the Company’s (and in certain cases, Affinion Holdings’) ability to: declare dividends and make other distributions, redeem or repurchase the Company’s capital stock; prepay, redeem or repurchase certain of the Company’s subordinated indebtedness; make loans or investments (including acquisitions); incur additional indebtedness (subject to certain exceptions); enter into agreements that would restrict the ability of the Company’s subsidiaries to pay dividends; merge or enter into acquisitions; sell assets; and enter into transactions with affiliates. The Affinion Credit Facility also requires the Company to comply with a financial maintenance covenant with a maximum ratio of senior secured debt (as defined) to EBITDA (as defined) of 4.25:1.00.

As of ~~June~~September 30, 2015 and December 31, 2014, there were outstanding borrowings of $5966.0 million and $5.0 million, respectively, under the revolving credit facility. During the ~~six~~nine months ended ~~June~~September 30, 2015, the Company had borrowings and repayments of $7481.0 million and $20.0 million, respectively, under the revolving credit facility. During the ~~six~~nine months ended ~~June~~September 30, 2014, the Company had borrowings and repayments of $83133.0 million and $~~129~~167.0 million, respectively, under the revolving credit facility. As of ~~June~~September 30, 2015, the Company had $70.1 million available for borrowing under the Affinion Credit Facility after giving effect to the issuance of $13.9 million of letters of credit.

On December 12, 2013, the Company completed a private offer to exchange the Company’s 2006 senior subordinated notes for 13.50% senior subordinated notes due 2018 (“Investments senior subordinated notes”) issued by Affinion Investments, pursuant to which $360.0 million aggregate principal amount of Investments senior subordinated notes were issued in exchange for $352.9 million aggregate principal amount of 2006 senior subordinated notes. Under the terms of the exchange offer, for each $1,000 principal amount of 2006 senior subordinated notes tendered at or prior to the consent time, holders received $1,020 principal amount of Investments senior subordinated notes. For each $1,000 principal amount of 2006 senior subordinated notes tendered during the offer period but after the consent period, holders received $1,000 principal amount of Investments senior subordinated notes. The Investments senior subordinated notes bear interest at 13.50% per annum, payable semi-annually on February 15 and August 15 of each year, commencing on February 15, 2014. The Investments senior subordinated notes will mature on August 15, 2018. Affinion Investments may redeem some or all of the Investments senior subordinated notes at any time on or after December 12, 2016 at redemption prices (generally at a premium) set forth in the indenture governing the Investments senior subordinated notes. In addition, prior to December 12, 2016, up to 35% of the outstanding Investments senior subordinated notes are redeemable at the option of Affinion Investments, with the net proceeds raised by the Company or Affinion Holdings in one or more equity offerings, at 113.50% of their principal amount. In addition, prior to December 12, 2016, the Investments senior subordinated notes are redeemable, in whole or in part, at a redemption price equal to 100% of the principal amount of the Investments senior subordinated notes redeemed plus a “make-whole” premium. The indenture governing the Investments senior subordinated notes contains negative covenants which restrict the ability of Affinion Investments, any future restricted subsidiaries of Affinion Investments and one of the Company’s other wholly-owned subsidiaries that guarantees the Investments senior subordinated notes to engage in certain transactions and also contains customary events of default. Affinion Investments’ obligations under the Investments senior subordinated notes are guaranteed on an unsecured senior subordinated basis by Affinion Investments II. Each of Affinion Investments and Affinion Investments II is an unrestricted subsidiary of the Company and guarantees the Company’s indebtedness under its senior secured credit facility but does not guarantee the Company’s other indebtedness. The Investments senior subordinated notes and guarantee thereof are unsecured senior subordinated obligations of Affinion Investments, as issuer, and Affinion Investments II, as guarantor, and rank junior in right of payment to their respective guarantees of the Company’s senior secured credit facility.

On December 12, 2013, Affinion Investments exchanged with the Company all of the 2006 senior subordinated notes received by it in the exchange offer for Affinion’s 13.50% senior subordinated notes due 2018 (Affinion’s “2013 senior subordinated notes”). Affinion’s 2013 senior subordinated notes bear interest at 13.50% per annum payable semi-annually on February 15 and August 15 of each year, commencing on February 15, 2014. The 2013 senior subordinated notes will mature on August 15, 2018. The 2013 senior subordinated notes are redeemable at the Company’s option prior to maturity. The indenture governing the 2013 senior subordinated notes contains negative covenants which restrict the ability of Affinion and its restricted subsidiaries to engage in certain transactions

and also contains customary events of default. Affinion’s obligations under the 2013 senior subordinated notes are jointly and severally and fully and unconditionally guaranteed on an unsecured senior subordinated basis by each of Affinion’s existing and future domestic subsidiaries that guarantee Affinion’s indebtedness under its senior secured credit facility (other than Affinion Investments and Affinion Investments II). The 2013 senior subordinated notes and guarantees thereof are unsecured senior subordinated obligations of Affinion’s and rank junior to all of Affinion’s and the guarantors’ existing and future senior indebtedness, pari passu with Affinion’s 2006 senior subordinated notes and senior to Affinion’s and the guarantors’ future subordinated indebtedness. Although Affinion Investments is the only holder of Affinion’s 2013 senior subordinated notes, the trustee for the Investments senior subordinated notes, and holders of at least 25% of the principal amount of the Investments senior subordinated notes will have the right as third party beneficiaries to enforce the remedies available to Affinion Investments against Affinion, and Affinion Investments will not be able to amend the covenants in the note agreement governing ~~the~~Affinion’s ~~Investments~~2013 senior subordinated notes in favor of Affinion unless it has received consent from the holders of a majority of the aggregate principal amount of the outstanding Investments senior subordinated notes.

On November 19, 2010, the Company completed a private offering of $475.0 million aggregate principal amount of 7.875% senior notes due 2018 (Affinion’s “2010 senior notes”). The 2010 senior notes bear interest at 7.875% per annum payable semi-annually on June 15 and December 15 of each year, commencing on June 15, 2011. The 2010 senior notes will mature on December 15, 2018. The 2010 senior notes are redeemable at the Company’s option prior to maturity. The indenture governing the 2010 senior notes contains negative covenants which restrict the ability of the Company and its restricted subsidiaries to engage in certain transactions and also contains customary events of default. The Company’s obligations under the 2010 senior notes are jointly and severally and fully and unconditionally guaranteed on a senior unsecured basis by each of the Company’s existing and future domestic subsidiaries that guarantee the Company’s indebtedness under the Affinion Credit Facility, other than Affinion Investments and Affinion Investments II. The 2010 senior notes and guarantees thereof are senior unsecured obligations of the Company and rank equally with all of the Company’s and the guarantors’ existing and future senior indebtedness and senior to the Company’s and the guarantors’ existing and future subordinated indebtedness. The 2010 senior notes are therefore effectively subordinated to the Company’s and the guarantors’ existing and future secured indebtedness, including the Company’s obligations under the Affinion Credit Facility, to the extent of the value of the collateral securing such indebtedness. The 2010 senior notes are structurally subordinated to all indebtedness and other obligations of each of the Company’s existing and future subsidiaries that are not guarantors, including the Investments senior subordinated notes. On August 24, 2011, pursuant to the registration rights agreement entered into in connection with the issuance of the 2010 senior notes, the Company completed a registered exchange offer and exchanged all of the then-outstanding 2010 senior notes for a like principal amount of 2010 senior notes that have been registered under the Securities Act of 1933, as amended (the “Securities Act”).

On April 26, 2006, the Company issued $355.5 million aggregate principal amount of 2006 senior subordinated notes and applied the gross proceeds of $350.5 million to repay $349.5 million of outstanding borrowings under a then-outstanding $383.6 million senior subordinated loan facility (the “Bridge Loan”), plus accrued interest, and used cash on hand to pay fees and expenses associated with such issuance. The 2006 senior subordinated notes bear interest at 11 1/2% per annum, payable semi-annually on April 15 and October 15 of each year. The 2006 senior subordinated notes mature on October 15, 2015. The Company may redeem some or all of the 2006 senior subordinated notes at any time on or after October 15, 2010 at redemption prices (generally at a premium) set forth in the indenture governing the 2006 senior subordinated notes. The 2006 senior subordinated notes are unsecured obligations of the Company and rank junior in right of payment with the Company’s existing and future senior obligations and senior to the Company’s future subordinated indebtedness. At ~~June~~September 30, 2015, the 2006 senior subordinated notes were guaranteed by certain, but not all, subsidiaries of the Company that guarantee Affinion’s 2010 senior notes as discussed in Note 12—Guarantor/Non-Guarantor Supplemental Financial Information. On December 12, 2013, $352.9 million aggregate principal amount of 2006 senior subordinated notes were exchanged for $360.0 million of Investments senior subordinated notes.

On September 13, 2006, the Company completed a registered exchange offer and exchanged all of the then-outstanding 2006 senior subordinated notes for a like principal amount of 2006 senior subordinated notes that have been registered under the Securities Act ~~of 1933, as amended~~.

The amended Affinion Credit Facility, the 2010 senior notes and the 2013 senior subordinated notes all contain restrictive covenants related primarily to the Company’s ability to distribute dividends, redeem or repurchase capital stock, sell assets, issue additional debt or merge with or acquire other companies. Under the Affinion Credit Facility, the Company generally may pay dividends of up to approximately $13.8 million in the aggregate, provided that no default or event of default has occurred or is continuing, or would result from the dividend. Under the Affinion Credit Facility, payment of additional dividends requires the satisfaction of various conditions, including meeting defined leverage ratios and a defined fixed charge coverage ratio, and the total dividend paid cannot exceed a calculated amount of defined available free cash flow, or requires availability under specified baskets. The covenants in the Affinion Credit Facility also require compliance with a senior secured leverage ratio. During the ~~six~~nine months ended ~~June~~September 30, 2015 and 2014, the Company did not pay any cash dividends to Affinion Holdings. The Company was in compliance with the covenants referred to above as of ~~June~~September 30, 2015. Payment under each of the debt agreements may be accelerated in the event of a default. Events of default include the failure to pay principal and interest when due, covenant defaults ~~(unless cured within~~

(unless cured within applicable grace periods, if any), events of bankruptcy and, for the amended Affinion Credit Facility, a material breach of representation or warranty and a change of control.

On October 5, 2010, Affinion Holdings issued $325.0 million aggregate principal amount of Affinion Holdings’ 2010 senior notes. Affinion Holdings used a portion of the proceeds of $320.3 million (net of issue discount), along with proceeds from a cash dividend from the Company in the amount of $115.3 million, to repay its senior unsecured term loan. A portion of the remaining proceeds from the offering of ~~the~~Affinion Holdings’ 2010 senior notes were utilized to pay related fees and expenses of approximately $6.7 million, with the balance retained for general corporate purposes. The indenture governing Affinion Holdings’ 2010 senior notes contains restrictive covenants related primarily to the Company’s and Affinion Holdings’ ability to distribute dividends, redeem or repurchase capital stock, sell assets, issue additional debt or merge with or acquire other companies. The Company did not make any dividend distributions to Affinion Holdings during the ~~six~~nine months ended ~~June~~September 30, 2015 and 2014. The Company expects that, in the future, to the extent that it is permitted contractually and legally to pay cash dividends to Affinion Holdings, Affinion Holdings may require the Company to pay cash dividends to enable Affinion Holdings to service its net cash obligations under Affinion Holdings’ 2010 senior notes and Affinion Holdings’ 2013 senior notes (as defined below). The Company and its subsidiaries do not guarantee Affinion Holdings’ 2010 senior notes.

On December 12, 2013, Affinion Holdings completed an offer to exchange Affinion Holdings’ 2010 senior notes for 13.75%/14.50% senior secured PIK/toggle notes due 2018 (Affinion Holdings’ “2013 senior notes”). Under the terms of the exchange offer, for each $1,000 principal amount of Affinion Holdings’ 2010 senior notes tendered at or prior to the consent time, holders received (i) $1,000 principal amount of Affinion Holdings’ 2013 senior notes, (ii) Series A warrants to purchase 46.1069 shares of Affinion Holdings’ Class B common stock, and (iii) Series B warrants to purchase 239.8612 shares of Affinion Holdings’ Class B common stock. For each $1,000 principal amount of Affinion Holdings’ 2010 senior notes tendered during the offer period but after the consent period, holders received (i) $950 principal amount of Affinion Holdings’ 2013 senior notes, (ii) Series A warrants to purchase 46.1069 shares of Affinion Holdings’ Class B common stock, and (iii) Series B warrants to purchase 239.8612 shares of Affinion Holdings’ Class B common stock. In connection with the exchange offer, $292.8 million aggregate principal amount of Affinion Holdings’ 2010 senior notes were exchanged for $292.8 million aggregate principal amount of Affinion Holdings’ 2013 senior notes. The Affinion Holdings’ 2013 senior notes bear interest at 13.75% per annum, payable semi-annually on March 15 and September 15 of each year, commencing on September 15, 2014. At Affinion Holdings’ option (subject to certain exceptions), it may elect to pay interest (i) in cash, (ii) by increasing the principal amount of the Affinion Holdings’ 2013 senior notes (“PIK Interest”), or (iii) 50% as cash and 50% as PIK Interest. PIK Interest accrues at 13.75% per annum plus 0.75%. The Affinion Holdings’ 2013 senior notes will mature on September 15, 2018. In June 2014, Affinion Holdings completed an offer to exchange Affinion Holdings’ 2013 senior notes for Affinion Holdings’ Series A warrants to purchase shares of Affinion Holdings’ Class B common stock. In connection with the exchange offer, approximately $88.7 million aggregate principal amount of Affinion Holdings’ 2013 senior notes were exchanged for up to approximately 30.3 million Series A warrants to purchase shares of Affinion Holdings Class B common stock.

6Subsequent Events - On November 9, 2015, (a) Affinion Holdings completed a private offer to exchange its outstanding 2013 senior notes for shares of new Common Stock, par value $0.01 ~~INCOME~~per ~~TAXES~~share (the “New Common Stock”), of Affinion Holdings, (b) Affinion Investments completed a private offer to exchange its outstanding Investments senior subordinated notes for shares of New Common Stock and (c) Affinion Holdings and Affinion International Holdings Limited (“Affinion International”), a wholly-owned subsidiary of Affinion, jointly completed a rights offering giving holders of Affinion Holdings’ 2013 senior notes and the Investments senior subordinated notes the right to purchase an aggregate principal amount of $110.0 million of 7.5% Cash/PIK Senior Notes due 2018 (the “International Notes”) of Affinion International and 2,483,333 shares of New Common Stock for an aggregate cash purchase price of $110.0 million. Under the terms of Affinion Holdings’ exchange offer, for each $1,000 principal amount of Affinion Holdings’ 2013 senior notes tendered during the offer period, holders received 7.15066 shares of Affinion Holdings’ New Common Stock. Under the terms of Affinion Investments’ exchange offer, for each $1,000 principal amount of the Investments senior subordinated notes tendered during the offer period, holders received 15.52274 shares of Affinion Holdings’ New Common Stock. Under certain circumstances, certain holders received non-participating penny warrants (the “Limited Warrants”) of Affinion Holdings that are convertible into shares of New Common Stock upon certain conditions. Pursuant to Affinion Holdings’ exchange offer, approximately $247.4 million of Affinion Holdings’ 2013 senior notes were exchanged for 1,769,104 shares of New Common Stock and pursuant to Affinion Investments’ exchange offer, approximately $337.3 million of Investments senior subordinated notes were exchanged for 5,236,517 shares of New Common Stock.

~~The~~Concurrently ~~Company~~with isthe ~~included~~exchange asoffers, aAffinion ~~member~~Holdings ofand Affinion ~~Holdings’~~Investments ~~consolidated~~successfully ~~federal~~solicited ~~income~~consents ~~tax~~from ~~return~~holders ~~and~~to ascertain aamendments ~~member~~to of(a) ~~certain~~the ofindenture governing Affinion Holdings’ ~~unitary~~2013 orsenior ~~combined~~notes ~~state~~to ~~income~~remove ~~tax~~substantially ~~returns.~~all ~~Income~~of ~~taxes are presented in~~ the ~~Company’s~~restrictive ~~consolidated~~covenants ~~financial~~and ~~statements~~certain ~~using~~of the ~~asset~~default provisions and ~~liability~~to ~~approach~~release ~~based on~~ the ~~separate~~collateral ~~return~~securing ~~method~~Affinion ~~for~~Holdings’ ~~the~~2013 ~~consolidated~~senior ~~group. Under this method~~notes, ~~current~~(b) ~~and deferred tax expense or benefit for~~ the ~~period~~indenture isgoverning ~~determined for~~ the ~~Company~~Investments ~~and~~senior ~~its~~subordinated ~~subsidiaries~~notes asto aremove ~~separate~~substantially ~~group~~all onof ~~a standalone basis. Deferred tax assets and liabilities are calculated based upon~~ the ~~temporary~~restrictive ~~differences~~covenants ~~between the financial statements~~ and ~~income~~certain ~~tax bases~~ of ~~assets~~the ~~and~~default ~~liabilities using currently enacted tax rates. Deferred tax assets are recorded net of a valuation allowance when~~provisions, ~~based~~and on(c) the ~~weight~~note ofagreement ~~available~~governing ~~evidence,~~Affinion’s it2013 issenior ~~more~~subordinated ~~likely~~notes ~~than~~to ~~not~~remove ~~that~~substantially ~~some portion, or~~ all, of the ~~recorded~~restrictive ~~deferred~~covenants ~~tax~~and ~~assets~~certain ~~will~~of ~~not be realized in future periods. Decreases to~~ the ~~valuation~~default ~~allowance~~provisions ~~are~~and ~~recorded as reductions~~ to ~~the~~permit ~~income tax provision, while increases to~~ the ~~valuation~~repurchase ~~allowance~~and ~~result~~cancellation ~~in additional income tax provision. The realization~~ of ~~deferred~~Affinion’s ~~tax~~2013 ~~assets~~senior issubordinated ~~primarily~~notes ~~dependent~~by onAffinion ~~estimated~~in ~~future~~the ~~taxable~~same ~~income.~~aggregate Asprincipal ofamount ~~June~~as ~~30, 2015 and December 31, 2014,~~ the ~~Company~~aggregate ~~has~~principal ~~recorded~~amount ~~a full valuation allowance for its U.S. federal net deferred tax assets. As~~ of ~~June 30, 2015 and December 31, 2014, the Company has also recorded valuation allowances against the deferred tax assets related to certain state and foreign tax jurisdictions.~~

The Company’s effective income tax rates for the three and six months ended June 30, 2015 were (6.7)% and (7.9)%, respectively. The Company’s effective income tax rates for the three and six months ended June 30, 2014 were (9.1)% and (10.8)%, respectively. The difference in the effective tax rates for the three months ended June 30, 2015 and 2014 is primarily a result of the decrease from loss before income taxes and non-controlling interest of $44.4 million for the three months ended June 30, 2014 to $15.7 million for the three months ended June 30, 2015 and a decrease in the income tax provision from $4.1 million for the three months ended June 30, 2014 to $1.1 million for the three months ended June 30, 2015. The difference in the effective tax rates for the six months ended June 30, 2015 and 2014 is primarily a result of the decrease from loss before income taxes and non-controlling interest of $76.3 million for the six months ended June 30, 2014 to $38.8 million for the six months ended June 30, 2015 and a decrease in the income tax provision from $8.3 million for the six months ended June 30, 2014 to $3.1 million for the six months ended June 30, 2015.The Company’s tax rate is affected by recurring items, such as tax rates in foreign jurisdictions and the relative

~~amount~~the ofInvestments ~~income~~senior itsubordinated ~~earns~~notes inrepurchased ~~those~~or ~~jurisdictions.~~redeemed ~~It is also affected~~ by ~~discrete~~Affinion ~~items~~Investments ~~that~~at ~~may occur in~~ any ~~given year~~time, ~~but~~including ~~are~~pursuant ~~not consistent from year~~ to ~~year.~~Affinion ~~In addition to state and foreign income taxes, the requirement to maintain valuation allowances had the most significant impact on the difference between the Company~~Investments’s ~~effective~~exchange ~~tax rate and the statutory U~~offer.S. ~~federal income tax rate of 35%.~~

~~The~~In ~~Company~~connection ~~recognizes~~with ~~interest~~the exchange offers, Affinion Holdings and ~~penalties~~Affinion ~~related~~International tojointly ~~uncertain~~conducted ~~tax~~a ~~positions~~rights inoffering ~~income~~for ~~tax~~International ~~expense~~Notes and shares of Affinion Holdings’ New Common Stock. The ~~Company~~rights ~~recognized~~offering ~~less~~was ~~than~~for an aggregate principal amount of $0110.10 million of International Notes and $02,483,333 shares of New Common Stock. Each unit sold in the rights offering consisted of (1) ~~million~~$1,000 principal amount of ~~interest~~International ~~related~~Notes toand ~~uncertain~~(2) ~~tax~~22.57576 ~~positions~~shares of Affinion Holdings’ New Common Stock, and was sold at a purchase price per unit of $1,000. Each holder that properly tendered for ~~the~~exchange, ~~three~~and did not validly withdraw, all of their Affinion Holdings’ 2013 senior notes and ~~six~~the ~~months~~Investments ~~ended~~senior ~~June~~subordinated 30notes in the exchange offers received non-certificated rights to subscribe for rights offering units. In connection with the rights offering, ~~2015~~Empyrean Capital Partners, ~~respectively~~L.P. ~~The~~agreed ~~Company~~to ~~recognized~~purchase ~~less~~any ~~than~~rights $0offering units that were unpurchased in the rights offering (the “Backstop”).1 ~~million~~Pursuant to Affinion Holdings’ and Affinion International’s rights offering and the Backstop, Affinion International received cash of approximately $110.0 million in exchange for $110.10 million aggregate principal amount of ~~interest~~International ~~related~~Notes and 2,113,033 shares of New Common Stock and Limited Warrants to ~~uncertain~~purchase ~~tax~~up ~~positions~~to 370,275 shares of New Common Stock. The net cash proceeds from the rights offering will be used for working capital purposes of Affinion International and the ~~three~~Foreign Guarantors (as defined below) and ~~six~~to ~~months~~repay ~~ended~~certain ~~June~~intercompany ~~30,~~loans ~~2014~~owed by Affinion International to Affinion and its domestic subsidiaries. The Company will use such intercompany loan repayment proceeds for general corporate purposes, ~~respectively~~including to repay borrowings under its revolving credit facility and to pay fees and expenses related to the exchange offers and rights offering. The International Notes bear interest ~~has~~at ~~been~~7.5% ~~included~~per annum, of which 3.5% per annum will be payable in ~~income~~cash ~~tax~~(“Cash ~~expense~~Interest”) ~~for~~and 4.0% per annum will be payable by increasing the ~~current~~principal ~~period~~amount of the outstanding International Notes or by issuing International Notes (“International PIK Interest”); provided, that all of the accrued interest on the International Notes from the issue date to, but not including, May 1, 2016 will be payable on May 1, 2016 entirely as International PIK Interest. Interest on the International Notes is payable semi-annually on May 1 and November 1 of each year, commencing on May 1, 2016. The ~~Company~~International Notes will mature on July 30, 2018. The International Notes are redeemable at Affinion International’s ~~gross~~option ~~unrecognized~~prior ~~tax~~to ~~benefits~~maturity. ~~for~~The indenture governing the ~~six~~International ~~months~~Notes ~~ended~~contains ~~June~~negative 30covenants which restrict the ability of Affinion International, ~~2015~~Affinion ~~decreased~~and bytheir $1respective restricted subsidiaries to engage in certain transactions and also contains customary events of default.6 ~~million~~Affinion asInternational’s aobligations ~~result~~under the International Notes are jointly and severally and fully and unconditionally guaranteed on an unsecured senior basis by each of ~~tax~~Affinion’s ~~positions~~existing ~~taken~~and ~~during~~future domestic subsidiaries that guarantee Affinion’s indebtedness under its senior secured credit facility (other than Affinion Investments and Affinion Investments II, and additionally including (such additional guarantors, the ~~current~~“Foreign ~~period~~Guarantors”) Affinion International Limited, ~~which~~Affinion ~~was~~International ~~offset~~Travel byHoldCo aLimited, ~~valuation~~Webloyalty ~~allowance~~International Limited, Loyalty Ventures Limited, Bassae Holding B.V., Webloyalty Holdings Coöperatief U.A. and Webloyalty International S.à r.l.). The International Notes and guarantees thereof are unsecured senior obligations of Affinion International’s and rank equally with all of Affinion International’s and the guarantors’ existing and future senior indebtedness and senior to Affinion International’s and the guarantors’ existing and future subordinated indebtedness.

~~The~~Upon ~~Company’s~~consummation ~~income~~of ~~tax returns are periodically examined by various tax authorities. In connection with these and future examinations, certain tax authorities, including~~ the ~~Internal~~exchange ~~Revenue Service~~offers, ~~may~~consent ~~raise~~solicitations ~~issues~~ and ~~impose~~rights ~~additional~~offering, ~~assessments.~~Affinion ~~The~~Holdings ~~Company~~effected ~~regularly~~a ~~evaluates~~reclassification (the ~~likelihood~~“Reclassification”) ofas ~~additional~~follows. Affinion ~~assessments~~Holdings’ ~~resulting~~existing ~~from~~Class ~~these~~A ~~examinations~~Common ~~and~~Stock ~~establishes~~(including ~~liabilities,~~Class ~~through~~A ~~the~~Common ~~provision~~Stock ~~for~~issued ~~income~~as ~~taxes,~~a ~~for~~result ~~potential~~of ~~amounts~~a ~~that~~mandatory ~~may~~cashless ~~result~~exercise ~~therefrom.~~of ~~The~~all ~~recognition~~ of ~~uncertain~~its ~~tax~~Series ~~benefits~~A ~~are~~Warrants) ~~not~~was ~~expected~~converted tointo ~~have~~(i) ashares ~~material~~of ~~impact~~Affinion ~~on the Company~~Holdings’s ~~effective~~new ~~tax~~Class ~~rate~~C orCommon ~~results of operations. Federal~~Stock, ~~state~~that ~~and~~upon ~~local~~conversion ~~jurisdictions~~will ~~are~~represent ~~subject~~5% toof ~~examination by~~ the ~~taxing~~outstanding ~~authorities~~shares ~~for~~of ~~all~~New ~~open~~Common ~~years~~Stock ason ~~prescribed~~a byfully ~~applicable~~diluted ~~statute. For significant foreign jurisdictions~~basis, ~~tax years in Germany, France, Turkey, Switzerland~~ and ~~the~~(ii) ~~United~~shares ~~Kingdom~~of ~~remain~~Affinion ~~open~~Holdings’ asnew ~~prescribed~~Class byD ~~applicable~~Common ~~statute. During 2014~~Stock, ~~income tax waivers were executed in certain states~~ that ~~extend~~upon ~~the~~conversion ~~period~~will ~~subject~~represent to5% ~~examination~~of ~~beyond~~ the ~~period~~outstanding ~~prescribed~~shares byof ~~statute.~~New ~~There~~Common ~~are~~Stock noon ~~significant~~a ~~changes~~fully ~~anticipated~~diluted inbasis. ~~accordance~~In ~~with~~addition, ~~the~~Affinion ~~extension~~Holdings’ ofSeries ~~the~~A ~~income~~Warrants ~~tax~~and ~~statutes~~Affinion inHoldings’ ~~these~~Class ~~jurisdictions.~~B ~~The~~Common ~~Company~~Stock ~~does~~were ~~not~~eliminated ~~believe~~from ~~that~~Affinion itHoldings’ iscertificate ~~reasonably~~of ~~possible~~incorporation ~~that~~and ~~the~~Affinion ~~total~~Holdings’ ~~amount~~Series ofB ~~unrecognized~~Warrants ~~tax~~were ~~benefits~~cancelled ~~will~~for ~~change~~no ~~significantly~~additional ~~within the next 12 months~~consideration.

Upon consummation of the exchange offers, Apollo and investment funds affiliated with General Atlantic LLC (“General Atlantic”) ceased to have beneficial ownership of any New Common Stock.

6. INCOME TAXES

The Company is included as a member of Affinion Holdings’ consolidated federal income tax return and as a member of certain of Affinion Holdings’ unitary or combined state income tax returns. Income taxes are presented in the Company’s consolidated financial statements using the asset and liability approach based on the separate return method for the consolidated group. Under this method, current and deferred tax expense or benefit for the period is determined for the Company and its subsidiaries as a separate group on a standalone basis. Deferred tax assets and liabilities are calculated based upon the temporary differences between the financial statements and income tax bases of assets and liabilities using currently enacted tax rates. Deferred tax assets are recorded net of a valuation allowance when, based on the weight of available evidence, it is more likely than not that some portion, or all, of the recorded deferred tax assets will not be realized in future periods. Decreases to the valuation allowance are recorded as reductions to the income tax provision, while increases to the valuation allowance result in additional income tax provision. The realization of deferred tax assets is primarily dependent on estimated future taxable income. As of September 30, 2015 and December 31, 2014, the Company has recorded a full valuation allowance for its U.S. federal net deferred tax assets. As of September 30, 2015 and December 31, 2014, the Company has also recorded valuation allowances against the deferred tax assets related to certain state and foreign tax jurisdictions.

The Company’s effective income tax rates for the three and nine months ended September 30, 2015 were (16.4)% and (9.2)%, respectively. The Company’s effective income tax rates for the three and nine months ended September 30, 2014 were (9.4)% and (10.4)%, respectively. The difference in the effective tax rates for the three months ended September 30, 2015 and 2014 is primarily a result of the decrease from loss before income taxes and non-controlling interest of $28.3 million for the three months ended September 30, 2014 to $6.9 million for the three months ended September 30, 2015 and a decrease in the income tax provision from $2.6 million for the three months ended September 30, 2014 to $1.1 million for the three months ended September 30, 2015. The difference in the effective tax rates for the nine months ended September 30, 2015 and 2014 is primarily a result of the decrease from loss before income taxes and non-controlling interest of $104.6 million for the nine months ended September 30, 2014 to $45.7 million for the nine months ended September 30, 2015 and a decrease in the income tax provision from $10.9 million for the nine months ended September 30, 2014 to $4.2 million for the nine months ended September 30, 2015. The Company’s tax rate is affected by recurring items, such as tax rates in foreign jurisdictions and the relative amount of income it earns in those jurisdictions. It is also affected by discrete items that may occur in any given year, but are not consistent from year to year. In addition to state and foreign income taxes, the requirement to maintain valuation allowances had the most significant impact on the difference between the Company’s effective tax rate and the statutory U.S. federal income tax rate of 35%.

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. The Company recognized less than $0.1 million and $0.2 million of interest related to uncertain tax positions for the three and nine months ended September 30, 2015, respectively. The Company recognized less than $0.1 million and $0.2 million of interest related to uncertain tax positions for the three and nine months ended September 30, 2014, respectively. The interest has been included in income tax expense for the current period. The Company’s gross unrecognized tax benefits for the nine months ended September 30, 2015 decreased by $2.6 million as a result of tax positions taken during the current period, which was offset by a valuation allowance.

The Company’s income tax returns are periodically examined by various tax authorities. In connection with these and future examinations, certain tax authorities, including the Internal Revenue Service, may raise issues and impose additional assessments. The Company regularly evaluates the likelihood of additional assessments resulting from these examinations and establishes liabilities, through the provision for income taxes, for potential amounts that may result therefrom. The recognition of uncertain tax benefits are not expected to have a material impact on the Company’s effective tax rate or results of operations. Federal, state and local jurisdictions are subject to examination by the taxing authorities for all open years as prescribed by applicable statute. For significant foreign jurisdictions, tax years in Germany, France, Turkey, Switzerland and the United Kingdom remain open as prescribed by applicable statute. During 2015, income tax waivers were executed in certain states that extend the period subject to examination beyond the period prescribed by statute. There are no significant changes anticipated in accordance with the extension of the income tax statutes in these jurisdictions. The Company does not believe that it is reasonably possible that the total amount of unrecognized tax benefits will change significantly within the next 12 months.

7. COMMITMENTS AND CONTINGENCIES

Litigation

In the ordinary course of business, the Company is involved in claims, governmental inquiries and legal proceedings related to employment matters, contract disputes, business practices, trademark and copyright infringement claims and other commercial matters. The Company is also a party to lawsuits which were brought against it and its affiliates and which purport to be a class action in nature and allege that the Company violated certain federal or state consumer protection statutes (as described below). The Company intends to vigorously defend itself against such lawsuits.

On June 17, 2010, a class action complaint was filed against the Company and Trilegiant Corporation (“Trilegiant”) in the United States District Court for the District of Connecticut. The complaint asserts various causes of action on behalf of a putative nationwide class and a California-only subclass in connection with the sale by Trilegiant of its membership programs, including claims under the Electronic Communications Privacy Act (“ECPA”), the Connecticut Unfair Trade Practices Act (“CUTPA”), the Racketeer Influenced Corrupt Organizations Act (“RICO”), the California Consumers Legal Remedies Act, the California Unfair Competition Law, the California False Advertising Law, and for unjust enrichment. On September 29, 2010, the Company filed a motion to compel arbitration of all of the claims asserted in this lawsuit. On February 24, 2011, the court denied the Company’s motion. On March 28, 2011, the Company and Trilegiant filed a notice of appeal in the United States Court of Appeals for the Second Circuit, appealing the district court’s denial of their motion to compel arbitration. On September 7, 2012, the Second Circuit affirmed the decision of the district court denying arbitration. While that issue was on appeal, the matter proceeded in the district court. There was written discovery and depositions. Previously, the court had set a briefing schedule on class certification that called for the completion of class certification briefing on May 18, 2012. However, on March 28, 2012, the court suspended the briefing schedule on the motion due to the filing of two other overlapping class actions in the United States District Court for the District of Connecticut. The first of those cases was filed on March 6, 2012, against the Company, Trilegiant, Chase Bank USA, N.A., Bank of America, N.A., Capital One Financial Corp., Citigroup, Inc., Citibank, N.A., Apollo Global Management, LLC, 1-800-Flowers.Com, Inc., United Online, Inc., Memory Lane, Inc., Classmates Int’l, Inc., FTD Group, Inc., Days Inn Worldwide, Inc., Wyndham Worldwide Corp., People Finderspro, Inc., Beckett Media LLC, Buy.com, Inc., Rakuten USA, Inc., IAC/InteractiveCorp., and Shoebuy.com, Inc. The second of those cases was filed on March 25, 2012, against the same defendants as well as Adaptive Marketing, LLC, Vertrue, Inc., Webloyalty.com, Inc., and Wells Fargo & Co. These two cases assert similar claims as the claims asserted in the earlier-filed lawsuit in connection with the sale by Trilegiant of its membership programs. On April 26, 2012, the court consolidated these three cases. The court also set an initial status conference for May 17, 2012. At that status conference, the court ordered that Plaintiffs file a consolidated amended complaint to combine the claims in the three previously separate lawsuits. The court also struck the class certification briefing schedule that had been set previously. On September 7, 2012, the Plaintiffs filed a consolidated amended complaint asserting substantially the same legal claims. The consolidated amended complaint added Priceline, Orbitz, Chase Paymentech, Hotwire, and TigerDirect as Defendants and added three new Plaintiffs; it also dropped Webloyalty and Rakuten as Defendants. On December 7, 2012, all Defendants filed motions seeking to dismiss the consolidated amended complaint and to strike certain portions of the complaint. Plaintiff’s response brief was filed on February 7, 2013, and Defendants’ reply briefs were filed on

April 5, 2013. On September 25, 2013, the court held oral argument on the motions to dismiss. On March 28, 2014, the court ruled on the motions to dismiss, granting them in part and denying them in part. The court dismissed the Plaintiffs’ RICO claims and claims under the California Automatic Renewal Statute as to all defendants. The court also dismissed certain named Plaintiffs as their claims were barred either by the statute of limitations and/or a prior settlement agreement. Certain Defendants were also dismissed from the case. The court also struck certain allegations from the consolidated amended complaint, including certain of Plaintiffs’ class action allegations under CUTPA. As to the Company and Trilegiant, the court denied the motion to dismiss certain Plaintiffs’ claims under ECPA and for unjust enrichment, as well as certain other claims of Plaintiffs under CUTPA.

Also, on December 5, 2012, the Plaintiffs’ law firms in these consolidated cases filed an additional action in the United States District Court for the District of Connecticut. That case is identical in all respects to this case except that it was filed by a new Plaintiff (the named Plaintiff from the class action complaint previously filed against the Company, Trilegiant, 1-800-Flowers.com, and Chase Bank USA, N.A., in the United States District Court for the Eastern District of New York on November 10, 2010). On January 23, 2013, Plaintiff filed a motion to consolidate that case into the existing set of consolidated cases. On June 13, 2013, the court entered an order staying the date for all Defendants to respond to the Complaint until 21 days after the court ruled on the motion to consolidate. On March 28, 2014, the court entered an order granting the motion to consolidate.

On May 12, 2014, remaining Defendants in the consolidated cases filed answers in which they denied the material allegations of the consolidated amended complaint. On April 28, 2014, Plaintiffs filed a motion seeking interlocutory appellate review of portions of the court’s order of March 28, 2014. Briefing on the motion was completed on June 5, 2014. On March 26, 2015, the court denied Plaintiff’s motion for interlocutory appeal. On May 29, 2015, the court issued a scheduling order indicating that discovery was to commence immediately and be completed by December 31, 2015. On May 29, 2015, the court also set deadlines for dispositive motions, which are due February 29, 2016. If no dispositive motions are filed, a joint trial memorandum would be due by April 1, 2016, and jury selection would take place on May 3, 2016. If dispositive motions are filed, the joint trial memorandum would be due by October 3, 2016, and jury selection would take place on November 1, 2016. On June 16, 2015, the court set a schedule for class certification, with plaintiffs’ motion for class certification due on September 15, 2015, and with briefing to be completed by November 30, 2015.

On August 27, 2010, a class action lawsuit was filed against Webloyalty, one of its former clients and one of the credit card associations in the United States District Court for the District of Connecticut alleging, among other things, violations of the Electronic Fund Transfer Act, Electronic Communications Privacy Act, unjust enrichment, civil theft, negligent misrepresentation, fraud and Connecticut Unfair Trade Practices Act violation (the “Connecticut Action”). This lawsuit relates to Webloyalty’s alleged conduct occurring on and after October 1, 2008. On November 1, 2010, the defendants moved to dismiss the initial complaint, which plaintiff then amended on November 19, 2010. On December 23, 2010, Webloyalty filed a second motion to dismiss this lawsuit. On May 15, 2014, the court heard oral argument on plaintiff’s motion to strike the Company’s request for judicial notice of the plaintiff’s membership enrollment documents filed in support of the Company’s second motion to dismiss. On July 17, 2014, the court denied plaintiff’s motion to strike. The court, at the same time, dismissed those claims grounded in fraud, but reserved until further proceedings the determination as to whether all of plaintiff’s claims are grounded in fraud and whether those claims not grounded in fraud are dismissible. The court permitted the plaintiff until August 15, 2014 to amend his complaint and allowed the parties the opportunity to conduct limited discovery, to be completed by September 26, 2014, concerning the issues addressed in its dismissal order. All other discovery is currently stayed in the case. The July 17, 2014 order indicated that the court will set a further motion to dismiss briefing schedule following the conclusion of this limited discovery. The plaintiff amended his complaint as scheduled, and the parties conducted limited discovery as ordered. After this limited discovery, the parties proposed a motion to dismiss briefing schedule calling for the defendants to file their opening briefs on January 9, 2015. The plaintiff filed his opposition brief on March 24, 2015, and on April 24, 2015, the defendants filed their reply briefs in response to that opposition. The court has not yet scheduled a hearing on the defendants’ motions to dismiss the second amended complaint.

~~review~~nationwide class and a California-only subclass in connection with the ~~submissions~~sale by Trilegiant of its membership programs, including claims under the Electronic Communications Privacy Act (“ECPA”), the Connecticut Unfair Trade Practices Act (“CUTPA”), the Racketeer Influenced Corrupt Organizations Act (“RICO”), the California Consumers Legal Remedies Act, the California Unfair Competition Law, the California False Advertising Law, and ~~issue~~for unjust enrichment. On September 29, 2010, the Company filed a ~~decision~~motion onto ~~plaintiff~~compel arbitration of all of the claims asserted in this lawsuit. On February 24, 2011, the court denied the Company’s motion. ~~without~~On ~~oral~~March 28, ~~argument~~2011, the Company and Trilegiant filed a notice of appeal in the United States Court of Appeals for the Second Circuit, appealing the district court’s denial of their motion to compel arbitration. On September 7, 292012, ~~2014~~the Second Circuit affirmed the decision of the district court denying arbitration. While that issue was on appeal, the matter proceeded in the district court. ~~dismissed~~There was written discovery and depositions. Previously, the ~~plaintiff’s~~court ~~claims~~had set a briefing schedule on ~~substantive~~class ~~grounds~~certification ~~and/or~~that ~~statute~~called for the completion of ~~limitations~~class ~~grounds~~certification briefing on May 18, 2012. ~~The~~However, ~~court~~on ~~has~~March 28, ~~allowed~~2012, the ~~plaintiff~~court 28suspended ~~days~~the tobriefing ~~file~~schedule aon the motion ~~demonstrating~~due ~~why~~to athe ~~further~~filing ~~amendment~~of two other overlapping class actions in the United States District Court for the District of Connecticut. The first of those cases was filed on March 6, 2012, against the ~~complaint~~Company, ~~would~~Trilegiant, ~~not~~Chase beBank ~~futile~~USA, N.A., OnBank ~~October~~of 27America, ~~2014~~N.A., Capital One Financial Corp., Citigroup, Inc., Citibank, N.A., Apollo Global Management, LLC, 1-800-Flowers.Com, Inc., United Online, Inc., Memory Lane, Inc., Classmates Int’l, Inc., FTD Group, Inc., Days Inn Worldwide, Inc., Wyndham Worldwide Corp., People Finderspro, Inc., Beckett Media LLC, Buy.com, Inc., Rakuten USA, Inc., IAC/InteractiveCorp., and Shoebuy.com, Inc. The second of those cases was filed on March 25, 2012, against the ~~plaintiff~~same defendants as well as Adaptive Marketing, LLC, Vertrue, Inc., Webloyalty.com, Inc., and Wells Fargo & Co. These two cases assert similar claims as the claims asserted in the earlier-filed alawsuit ~~motion~~in connection with the sale by Trilegiant of its membership programs. On April 26, 2012, the court consolidated these three cases. The court also set an initial status conference for ~~leave~~May 17, to2012. ~~amend~~At that status conference, the ~~complaint~~court ~~and~~ordered ~~attached~~that Plaintiffs file a ~~proposed~~consolidated amended complaint to combine the claims in the three previously separate lawsuits. The ~~Company~~court ~~responded~~also tostruck the ~~motion~~class oncertification ~~November~~briefing ~~10,~~schedule ~~2014~~that had been set previously. On ~~June 22~~September 7, ~~2015~~2012, the ~~court~~Plaintiffs ~~entered~~filed a ~~final~~consolidated ~~order~~amended ~~and~~complaint ~~judgment~~asserting ~~denying~~substantially ~~plaintiff’s~~the ~~motion~~same tolegal ~~amend,~~claims. ~~dismissing~~The ~~all~~consolidated ~~federal~~amended ~~claims~~complaint ~~with~~added ~~prejudice~~Priceline, Orbitz, Chase Paymentech, Hotwire, and ~~dismissing~~TigerDirect ~~all~~as ~~state~~Defendants ~~claims~~and ~~without~~added ~~prejudice~~three new Plaintiffs; it also dropped Webloyalty and Rakuten as Defendants. On ~~July 10~~December 7, ~~2015~~2012, ~~plaintiff~~all Defendants filed amotions ~~notice~~seeking ~~appealing~~to dismiss the ~~dismissal~~consolidated ~~decision~~amended complaint and ~~denial~~to strike certain portions of ~~his~~the ~~request~~complaint. Plaintiff’s response brief was filed on February 7, 2013, and Defendants’ reply briefs were filed on April 5, 2013. On September 25, 2013, the court held oral argument on the motions to ~~further~~dismiss. ~~amend~~On ~~his~~March ~~complaint~~28, 2014, the court ruled on the motions to dismiss, granting them in part and denying them in part. The court dismissed the UPlaintiffs’ RICO claims and claims under the California Automatic Renewal Statute as to all defendants.S. ~~Court~~The ofcourt ~~Appeals~~also ~~for~~dismissed certain named Plaintiffs as their claims were barred either by the ~~Ninth~~statute ~~Circuit~~of limitations and/or a prior settlement agreement. Certain Defendants were also dismissed from the case. The ~~plaintiff’s~~court ~~opening~~also ~~appeal~~struck ~~brief~~certain isallegations ~~due~~from onthe ~~October~~consolidated ~~19,~~amended ~~2015~~complaint, ~~and~~including certain of Plaintiffs’ class action allegations under CUTPA. As to the Company and Trilegiant, the court denied the motion to dismiss certain Plaintiffs’s ~~responsive~~claims ~~brief~~under isECPA ~~due~~and onfor ~~November~~unjust 19enrichment, ~~2015~~as well as certain other claims of Plaintiffs under CUTPA.

OnAlso, ~~February~~on 7December 5, ~~2014~~2012, athe ~~class~~Plaintiffs’ ~~action~~law ~~lawsuit~~firms ~~was~~in ~~filed~~these ~~against~~consolidated ~~the~~cases ~~Company~~filed ~~and~~an ~~one~~additional ofaction ~~its clients~~ in the United States District Court for the District of ~~Massachusetts~~Connecticut. ~~alleging,~~That ~~among~~case ~~other~~is ~~things,~~identical ~~violations~~in ofall ~~the~~respects ~~Electronic~~to ~~Fund~~this ~~Transfer~~case ~~Act~~except ~~and~~that ~~Electronic~~it ~~Communications~~was ~~Privacy~~filed ~~Act,~~by ~~unjust~~a ~~enrichment,~~new ~~money~~Plaintiff ~~had~~(the ~~and~~named ~~received,~~Plaintiff ~~conversion,~~from ~~misrepresentation,~~the ~~violation~~class ofaction ~~the~~complaint ~~Massachusetts~~previously ~~Consumer~~filed ~~Protection~~against ~~Act~~the ~~and~~Company, ~~equitable~~Trilegiant, ~~relief~~1-800-Flowers. ~~Claims~~com, ~~are~~and ~~based~~Chase onBank ~~allegations~~USA, ~~that~~N.A., ~~plaintiff~~in ~~was~~the ~~enrolled~~United ~~and~~States ~~billed~~District Court for athe ~~package~~Eastern ~~program~~District ~~without~~of ~~plaintiff’s~~New ~~proper~~York ~~consent~~on ~~and~~November 10, ~~knowledge~~2010). On ~~April 4~~January 23, ~~2014~~2013, ~~the~~Plaintiff ~~Company~~ filed a motion to ~~dismiss.~~consolidate ~~A hearing on~~ that ~~motion~~case ~~was~~into ~~held~~the onexisting ~~July~~set ~~24,~~of ~~2014~~consolidated cases. On ~~March 11~~June 13, ~~2015~~2013, the ~~magistrate~~court ~~judge~~entered toan ~~whom~~order ~~the~~staying ~~motion was referred by~~ the ~~district~~date ~~court~~for ~~judge~~all ~~issued~~Defendants ato ~~report~~respond ~~and~~to ~~recommendation granting in part and denying in part~~ the ~~motion~~Complaint tountil ~~dismiss. The~~21 ~~magistrate~~days ~~judge~~after ~~granted~~ the ~~motion~~court toruled ~~dismiss~~ on the ~~fraud claim, which was dismissed as time-barred, but denied the remainder of the~~ motion~~. On~~ ~~March 25, 2015, the Company filed objections~~ to ~~the magistrate judge’s report and recommendation~~consolidate. ~~Briefing~~ ~~on the objections concluded on April 9, 2015.~~ On ~~June~~March 428, ~~2015~~2014, the court ~~accepted~~entered ~~and~~an ~~adopted~~order ~~the~~granting ~~report and recommendation of~~ the ~~magistrate~~motion ~~judge over the Company’s objections. The Company filed its answer~~ to ~~the complaint on July 2, 2015~~consolidate. ~~A scheduling conference with the court is set for August 11, 2015.~~

On May 12, 2014, aremaining ~~class~~Defendants ~~action~~in ~~lawsuit~~the ~~was~~consolidated cases filed ~~against~~answers in which they denied the ~~Company~~material ~~and~~allegations ~~one~~of the consolidated amended complaint. On April 28, 2014, Plaintiffs filed a motion seeking interlocutory appellate review of ~~its~~portions ~~clients~~of inthe court’s order of March 28, 2014. Briefing on the ~~United~~motion ~~States~~was ~~District~~completed ~~Court~~on June 5, ~~Northern~~2014. On ~~District~~March of26, ~~California~~2015, –the ~~San~~court ~~Francisco~~denied ~~Division~~Plaintiff’s motion for interlocutory appeal. On ~~The~~May ~~complaint~~29, ~~alleges~~2015, ~~plaintiff~~the court issued a scheduling order indicating that discovery was ~~unknowingly~~to ~~enrolled~~commence inimmediately and ~~charged~~be completed by December 31, 2015. On May 29, 2015, the court also set deadlines for andispositive ~~Identity~~motions, ~~Theft~~which ~~Protection~~are ~~program~~due February 29, 2016. ~~The~~If ~~defendants~~no ~~moved~~dispositive tomotions ~~compel~~are ~~individual~~filed, ~~arbitration~~a ofjoint ~~the~~trial ~~case~~memorandum orwould inbe ~~the~~due ~~alternative~~by toApril ~~dismiss~~1, 2016, and jury selection would take place on May 3, 2016. If dispositive motions are filed, the ~~case~~joint trial memorandum would be due by October 3, 2016, and ~~briefing~~jury onselection ~~that~~would ~~motion~~take ~~concluded~~place on ~~September~~November 261, ~~2014~~2016. On ~~October~~June 3116, ~~2014~~2015, the court ~~granted~~set ~~the~~a ~~Company~~schedule for class certification, with plaintiffs’s motion for class certification due on September 15, 2015, and with briefing to ~~compel~~be ~~individual~~completed ~~arbitration~~by ofNovember ~~the~~30, ~~case~~2015. On ~~April~~Plaintiffs 28filed their motion for class certification on September 15, 2015, ~~the~~and ~~plaintiff~~Defendants’ ~~voluntarily~~opposition ~~dismissed~~brief ~~her~~is ~~claims~~due ~~against~~on ~~the~~November ~~Company~~16, ~~without prejudice~~2015.

proceedings the determination as to whether all of plaintiff’s claims are grounded in fraud and whether those claims not grounded in fraud are dismissible. The court permitted the plaintiff until August 15, 2014 to amend his complaint and allowed the parties the opportunity to conduct limited discovery, to be completed by September 26, 2014, concerning the issues addressed in its dismissal order. All other discovery is currently stayed in the case. The July 17, 2014 order indicated that the court will set a further motion to dismiss briefing schedule following the conclusion of this limited discovery. The plaintiff amended his complaint as scheduled, and the parties conducted limited discovery as ordered. After this limited discovery, the parties proposed a motion to dismiss briefing schedule calling for the defendants to file their opening briefs on January 9, 2015. The plaintiff filed his opposition brief on March 24, 2015, and on April 24, 2015, the defendants filed their reply briefs in response to that opposition. On October 15, 2015, the court entered a judgment dismissing all of the plaintiff’s claims with prejudice and without further leave to amend.

On June 7, 2012, another class action lawsuit was filed in the U.S. District Court for the Southern District of California against Webloyalty that was factually similar to the Connecticut Action. The action claims that Webloyalty engaged in unlawful business practices in violation of California Business and Professional Code § 17200, et seq. and in violation of the Connecticut Unfair Trade Practices Act. Both claims are based on allegations that in connection with enrollment and billing of the plaintiff, Webloyalty charged plaintiff’s credit or debit card using information obtained through a data pass process and without obtaining directly from plaintiff his full account number, name, address, and contact information, as purportedly required under Restore Online Shoppers’ Confidence Act. On September 25, 2012, Webloyalty filed a motion to dismiss the complaint in its entirety and the court scheduled a hearing on the motion for January 14, 2013. Webloyalty also sought judicial notice of the enrollment page and related enrollment and account documents. Plaintiff filed his opposition on December 12, 2012, and Webloyalty filed its reply submission on January 7, 2013. Thereafter, on January 10, 2013, the court cancelled the previously scheduled January 14, 2013 hearing and indicated that it would rule based on the parties’ written submissions without the need for a hearing. On August 28, 2013, the court sua sponte dismissed plaintiff’s complaint without prejudice with leave to amend by September 30, 2013. The plaintiff filed his amended complaint on September 30, 2013, adding purported claims under the Electronic Communications Privacy Act and for unjust enrichment, money had and received, conversion, civil theft, and invasion of privacy. On December 2, 2013, the Company moved to dismiss plaintiff’s amended complaint. Plaintiff responded to the motion on January 27, 2014. On February 6, 2014, the court indicated that it would review the submissions and issue a decision on plaintiff’s motion without oral argument. On September 29, 2014, the court dismissed the plaintiff’s claims on substantive grounds and/or statute of limitations grounds. The court has allowed the plaintiff 28 days to file a motion demonstrating why a further amendment of the complaint would not be futile. On October 27, 2014, the plaintiff filed a motion for leave to amend the complaint and attached a proposed amended complaint. The Company responded to the motion on November 10, 2014. On June 22, 2015, the court entered a final order and judgment denying plaintiff’s motion to amend, dismissing all federal claims with prejudice, and dismissing all state claims without prejudice. On July 10, 2015, plaintiff filed a notice appealing the dismissal decision and denial of his request to further amend his complaint to the U.S. Court of Appeals for the Ninth Circuit. The plaintiff’s opening appeal brief is due on October 19, 2015, and the Company’s responsive brief is due on November 19, 2015.

On February 7, 2014 a class action lawsuit was filed against the Company and one of its clients in the United States District Court for the District of Massachusetts alleging, among other things, violations of the Electronic Fund Transfer Act and Electronic Communications Privacy Act, unjust enrichment, money had and received, conversion, misrepresentation, violation of the Massachusetts Consumer Protection Act and equitable relief. Claims are based on allegations that plaintiff was enrolled and billed for a package program without plaintiff’s proper consent and knowledge. On April 4, 2014, the Company filed a motion to dismiss. A hearing on that motion was held on July 24, 2014. On March 11, 2015, the magistrate judge to whom the motion was referred by the district court judge issued a report and recommendation granting in part and denying in part the motion to dismiss. The magistrate judge granted the motion to dismiss on the fraud claim, which was dismissed as time-barred, but denied the remainder of the motion. On March 25, 2015, the Company filed objections to the magistrate judge’s report and recommendation. Briefing on the objections concluded on April 9, 2015. On June 4, 2015, the court accepted and adopted the report and recommendation of the magistrate judge over the Company’s objections. The Company filed its answer to the complaint on July 2, 2015. A scheduling conference was held with the court on August 11, 2015. The court entered an order providing that fact discovery is to be completed by March 31, 2016. On October 2, 2015, plaintiff’s counsel filed a motion to withdraw as counsel. On October 20, 2015, the court granted the motion of plaintiff’s counsel to withdraw as counsel. On October 21, 2015, plaintiff and the Company agreed to settle plaintiff’s claims on an individual, non-class basis for a payment of less than $0.1 million. In connection with such settlement, plaintiff released the Company and its affiliates from all claims that plaintiff had against such parties related to such lawsuit.

Other Contingencies

From time to time, the Company receives inquiries from federal and state agencies which may include the Federal Trade Commission, the Federal Communications Commission, the Consumer Financial Protection Bureau (the “CFPB”), state attorneys general and other state regulatory agencies, including state insurance regulators. The Company responds to these matters and requests for documents, some of which may lead to further investigations and proceedings.

From time to time, our international operations also receive inquiries from consumer protection, insurance or data protection agencies. The Company responds to these matters and requests for documents, some of which may lead to further investigations and proceedings. On January 27, 2015, following voluntary discussions with the Financial Conduct Authority in the United Kingdom (the “FCA”), Affinion International Limited (“AIL”), one of our UK subsidiaries, and 11 UK retail banks and credit card issuers, announced a proposed joint arrangement, which will allow eligible consumers to make claims for compensation in relation to a discontinued benefit in one of AIL’s products. The proposed arrangement has been approved by a majority of those affected consumers who voted at a creditors’ meeting held on June 30, 2015, and has also been approved by the High Court in London at a hearing held on July 9, 2015. The proposed arrangement, which will not result in the imposition of any fines on AIL or the Company, should therefore become effective on August 17, 2015. Based on the information currently available, the Company has recorded an estimated liability that represents potential consumers’ refunds to be paid by the Company as part of such arrangement.

On April 18, 2014, Bank of America, N.A. (“Bank of America”) and FIA Card Services, N.A. (“FIA Card Services”) commenced an arbitration proceeding against Trilegiant and Affinion pursuant to the terms of the parties’ servicing agreements. In the arbitration proceeding, Bank of America asserted various causes of action and requests for monetary and other relief, including a demand for contractual indemnification of the losses and costs, including in particular customer refunds and reasonable attorneys’ fees that Bank of America incurred related to consent orders entered into by Bank of America with the Office of the Comptroller of the Currency on April 7, 2014 and with the CFPB on April 9, 2014. On May 16, 2014, Trilegiant commenced two separate arbitration proceedings against Bank of America, asserting that Bank of America breached the parties’ servicing agreements. On July 7, 2014, the parties agreed to stay one of the arbitrations initiated by Trilegiant and to dismiss the other arbitrations without prejudice, pending mediation. On September 22, 2014, Bank of America and Trilegiant participated in a mediation to attempt to resolve their outstanding disputes. The mediation process was ultimately unsuccessful in resolving the parties’ disputes. As such, the parties have resumed the arbitration process. The final arbitration hearing is scheduled to take place in mid-October 2015. Assuming the parties submit post-hearing memoranda, a decision is not expected until late 2015 or early 2016. 17

Inannounced ~~September~~a ~~2014~~proposed joint arrangement, ~~the~~which ~~Company~~allows ~~received~~eligible aconsumers ~~Notice~~to ~~and~~make ~~Opportunity~~claims for compensation in relation to ~~Respond~~a discontinued benefit in one of AIL’s products. The proposed arrangement has been approved by a majority of those affected consumers who voted at a creditors’ meeting held on June 30, 2015, and ~~Advise~~has ~~("NORA")~~also ~~letter~~been ~~indicating~~approved ~~that~~by the ~~CFPB~~High ~~was~~Court ~~considering~~in ~~taking~~London ~~legal~~at ~~action~~a ~~against~~hearing ~~the~~held ~~Company~~on ~~for~~July ~~violations~~9, of2015. The ~~Sections~~proposed ~~1031~~arrangement, ~~and~~which ~~1036~~will ofnot result in the ~~Consumer~~imposition ~~Financial~~of ~~Protection~~any ~~Act~~fines ~~relating~~on toAIL or the Company’s, ~~identity~~became ~~theft~~effective ~~protection~~on ~~products~~August 17, 2015 and eligible customers have until March 18, 2016 to claim compensation (and, in exceptional circumstances, until September 18, 2016). InBased ~~July~~on ~~2015~~the information currently available, the Company ~~entered~~has ~~into~~recorded aan ~~Stipulated~~estimated ~~Final~~liability that represents potential consumers’ refunds to be paid by the Company as part of such arrangement.

On April 18, 2014, Bank of America, N.A. (“Bank of America”) and FIA Card Services, N.A. (“FIA Card Services”) commenced an arbitration proceeding against Trilegiant and Affinion pursuant to the terms of the parties’ servicing agreements. In the arbitration proceeding, Bank of America asserted various causes of action and requests for monetary and other relief, including a demand for contractual indemnification of the losses and costs, including in particular customer refunds and reasonable attorneys’ fees that Bank of America incurred related to consent orders entered into by Bank of America with the Office of the Comptroller of the Currency on April 7, 2014 and with the CFPB on April 9, 2014. On May 16, 2014, Trilegiant commenced two separate arbitration proceedings against Bank of America, asserting that Bank of America breached the parties’ servicing agreements. On July 7, 2014, the parties agreed to stay one of the arbitrations initiated by Trilegiant and to dismiss the other arbitrations without prejudice, pending mediation. On September 22, 2014, Bank of America and Trilegiant participated in a mediation to attempt to resolve their outstanding disputes. The mediation process was ultimately unsuccessful in resolving the parties’ disputes. As such, the parties have resumed the arbitration process. The arbitration hearing commenced on October 12, 2015 and has not yet concluded. The arbitration hearing is expected to be concluded by the end of 2015. The parties intend to submit post-hearing memoranda, such that a decision is not expected until early 2016.

In September 2014, the Company received a Notice and Opportunity to Respond and Advise ("NORA") letter indicating that the CFPB was considering taking legal action against the Company for violations of Sections 1031 and 1036 of the Consumer Financial Protection Act relating to the Company’s identity theft protection products. In July 2015, the Company entered into a Stipulated Final Judgment and Order (“Consent Order”) settling allegations regarding unfair billing practices related to certain of the Company’s protection products and deceptive retention practices related to these same products. The Consent Order iswas ~~subject~~approved toby ~~court approval, which~~ the ~~Company~~court ~~expects~~on toOctober ~~occur~~27, ~~in August~~ 2015. The Consent Order ~~required~~requires a payment by the Company of $1.9 million to the CFPB’s civil penalty fund and approximately $6.75 million in consumer restitution, as well as injunctive provisions against the Company related to certain of its billing and retention practices, which are not expected to have a material effect on the Company.

The Company believes that the amount accrued for the above litigation and contingencies matters is adequate, and the reasonably possible loss beyond the amounts accrued will not have a material effect on its consolidated financial statements, taken as a whole, based on information currently available. However, litigation is inherently unpredictable and, although the Company believes that accruals are adequate and it intends to vigorously defend itself against such matters, unfavorable resolution could occur, which could have a material effect on the Company’s consolidated financial statements, taken as a whole.

Surety Bonds and Letters of Credit

In the ordinary course of business, the Company is required to provide surety bonds to various state authorities in order to operate its membership, insurance and travel agency programs. As of ~~June~~September 30, 2015, the Company provided guarantees for surety bonds totaling approximately $10.87 million and issued letters of credit totaling $15.95 million.

8. STOCK-BASED COMPENSATION

In connection with the closing of the Apollo Transactions on October 17, 2005, Affinion Holdings adopted the 2005 Stock Incentive Plan (the “2005 Plan”). The 2005 Plan authorizes the Board of Directors (the “Board”) of Affinion Holdings to grant non-qualified, non-assignable stock options and rights to purchase shares of Affinion Holdings’ common stock to directors and employees of, and consultants to, Affinion Holdings and its subsidiaries. Options granted under the 2005 Plan have an exercise price no less than the fair market value of a share of the underlying common stock on the date of grant. Stock awards have a purchase price determined by the Board. The Board was authorized to grant up to 4.9 million shares of Affinion Holdings’ common stock under the 2005 Plan over a ten year period. As discussed below, no additional grants may be made under Affinion Holdings’ 2005 Plan on or after November 7, 2007, the effective date of the 2007 Plan, as defined below.

In November 2007, Affinion Holdings adopted the 2007 Stock Award Plan (the “2007 Plan”). The 2007 Plan authorizes the Board to grant awards of non-qualified stock options, incentive stock options, stock appreciation rights, restricted stock awards, restricted stock units, stock bonus awards, performance compensation awards (including cash bonus awards) or any combination of these awards to directors and employees of, and consultants to, Affinion Holdings and its subsidiaries. Unless otherwise determined by the Board of Directors, options granted under the 2007 Plan will have an exercise price no less than the fair market value of a share of the underlying common stock on the date of grant. Stock awards have a purchase price determined by the Board. The Board was authorized to grant up to 10.0 million shares of Affinion Holdings’ common stock under the 2007 Plan over a ten year period. As of June 30, 2015, there were 2.2 million shares available under the 2007 Plan for future grants.

In connection with the acquisition of Webloyalty in January 2011, the Company assumed the Webloyalty Holdings, Inc. 2005 Equity Award Plan (the “Webloyalty 2005 Plan”). The Webloyalty 2005 Plan, adopted by Webloyalty’s board of directors in May 2005, authorized Webloyalty’s board of directors to grant awards of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, stock bonuses and performance compensation awards or any combination of these awards to directors and employees of, and consultants to, Webloyalty. Unless otherwise determined by Webloyalty’s board of directors, incentive stock options granted under the Webloyalty 2005 Plan were to have an exercise price no less than the fair market value of a share of the underlying common stock on the date of grant and nonqualified stock options granted under the Webloyalty 2005 Plan were to have an exercise price no less than the par value of a share of Webloyalty’s common stock on the date of grant. The Webloyalty board of directors was authorized to grant shares of Webloyalty’s common stock under the Webloyalty 2005 Plan over a ten year period. As of June 30, 2015, after conversion of the outstanding options under the Webloyalty 2005 Plan into options to acquire shares of Affinion Holdings’ common stock, there were options to acquire 0.5 million shares of Affinion Holdings’ common stock. On March 28, 2014, the Company modified approximately 0.5 million of the outstanding options under the Webloyalty 2005 Plan, adjusting the exercise price to $1.14 per common share and extending the contractual life of the modified options until April 1, 2024. At June 30, 2015, the outstanding options had exercise prices ranging from $1.14 to $7.32. All of the outstanding options were vested as of June 30, 2015 and expire between December 2016 and April 2024. 18

authorized to grant up to 10.0 million shares of Affinion Holdings’ common stock under the 2007 Plan over a ten year period. As of September 30, 2015, there were 2.6 million shares available under the 2007 Plan for future grants.

In connection with the acquisition of Webloyalty in January 2011, the Company assumed the Webloyalty Holdings, Inc. 2005 Equity Award Plan (the “Webloyalty 2005 Plan”). The Webloyalty 2005 Plan, adopted by Webloyalty’s board of directors in May 2005, authorized Webloyalty’s board of directors to grant awards of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, stock bonuses and performance compensation awards or any combination of these awards to directors and employees of, and consultants to, Webloyalty. Unless otherwise determined by Webloyalty’s board of directors, incentive stock options granted under the Webloyalty 2005 Plan were to have an exercise price no less than the fair market value of a share of the underlying common stock on the date of grant and nonqualified stock options granted under the Webloyalty 2005 Plan were to have an exercise price no less than the par value of a share of Webloyalty’s common stock on the date of grant. The Webloyalty board of directors was authorized to grant shares of Webloyalty’s common stock under the Webloyalty 2005 Plan over a ten year period. As of September 30, 2015, after conversion of the outstanding options under the Webloyalty 2005 Plan into options to acquire shares of Affinion Holdings’ common stock, there were options to acquire 0.5 million shares of Affinion Holdings’ common stock. On March 28, 2014, the Company modified approximately 0.5 million of the outstanding options under the Webloyalty 2005 Plan, adjusting the exercise price to $1.14 per common share and extending the contractual life of the modified options until April 1, 2024. At September 30, 2015, the outstanding options had exercise prices ranging from $1.14 to $7.32. All of the outstanding options were vested as of September 30, 2015 and expire between December 2016 and April 2024.

For employee stock awards, the Company recognizes compensation expense, net of estimated forfeitures, over the requisite service period, which is the period during which the employee is required to provide services in exchange for the award. The Company has elected to recognize compensation cost for awards with only a service condition and have a graded vesting schedule on a straight-line basis over the requisite service period for the entire award.

Stock Options

During the three and ~~six~~nine months ended ~~June~~September 30, 2015 and 2014, there were no stock options granted to employees from the 2005 Plan. All options previously granted were granted with an exercise price equal to the estimated fair market value of a share of the underlying common stock on the date of grant.

Stock options granted to employees from the 2005 Plan are comprised of three tranches with the following terms:

	Tranche A	Tranche B	Tranche C
Vesting	Ratably over 5 years*	100% after 8 years**	100% after 8 years**
Initial option term	10 years	10 years	10 years

*	In the event of a sale of the Company, vesting for tranche A occurs 18 months after the date of sale.

**	Tranche B and C vesting would be accelerated upon specified realized returns to Apollo.

On March 28, 2014, the Company modified approximately 1.9 million of the outstanding options under the 2005 Plan, adjusting the exercise price to $1.14 per common share and extending the contractual life of the modified options until April 1, 2024.

During the three and ~~six~~nine months ended ~~June~~September 30, 2015, there were no stock options granted to employees from the 2007 Plan. During the ~~three~~nine ~~and six~~ months ended ~~June~~September 30, 2014, 1.4 million stock options were granted to employees from the 2007 Plan. There were no stock options granted to employees from the 2007 Plan during the three months ended September 30, 2014. All options granted were granted with an exercise price equal to the estimated fair market value of a share of the underlying common stock on the date of grant.

The stock options granted to employees from the 2007 Plan have the following terms:

Vesting period		Ratably over 4 years
Initial option term		10 years

On March 28, 2014, the Company modified approximately 2.4 million of the outstanding options under the 2007 Plan, adjusting the exercise price to $1.14 per common share and extending the contractual life of the modified options until April 1, 2024.

During the three and ~~six~~nine months ended ~~June~~September 30, 2015, there were no stock options granted to members of the Board of Directors. During the ~~three~~nine ~~and six~~ months ended ~~June~~September 30, 2014, there were 0.1 million stock options granted to members of the Board of Directors. During the three months ended September 30, 2014, there were no stock options granted to members of the Board of Directors. Generally, options granted to members of the Board of Directors fully vest on the date of grant and have an initial option term of 10 years. On March 28, 2014, the Company modified approximately 0.2 million of the outstanding options granted to ~~members of the Board of Directors, adjusting the exercise price to $1.14 per common share and extending the contractual life of the modified options until April 1, 2024.~~

members of the Board of Directors, adjusting the exercise price to $1.14 per common share and extending the contractual life of the modified options until April 1, 2024.

The fair value of each option award from the 2007 Plan was estimated on the date of grant using the Black-Scholes option-pricing model based on the assumptions noted in the following table. Expected volatilities are based on historical volatilities of comparable companies.

The expected term of the options granted represents the period of time that options are expected to be outstanding, and is based on the average of the requisite service period and the contractual term of the option.

	2014 Grants

Expected volatility		85	%
Expected life (in years)	6.25
Risk-free interest rate		2.04	%
Expected dividends	—

18A summary of option activity for the nine months ended September 30, 2015 is presented below (number of options in thousands):

A summary of option activity for the six months ended June 30, 2015 is presented below (number of options in thousands):

	2005 Plan			2005 Plan			2005 Plan
	Grants to			Grants to			Grants to			Grants to		2007 Plan
	Employees -			Employees -			Employees -			Board of		Grants to
	Tranche A			Tranche B			Tranche C			Directors		Employees

Outstanding options at January 1, 2015		1,109			554			554			383		4,003
Granted	—			—			—			—		—
Exercised	—			—			—			—		—
Forfeited or expired		(21	)		(11	)		(11	)	—			(430	)
Outstanding options at September 30, 2015		1,088			543			543			383		3,573
Vested or expected to vest at September 30, 2015		1,088			543			543			383		3,573
Exercisable options at September 30, 2015		1,088			543			543			383		2,420
Weighted average remaining contractual term (in years)	7.3			7.3			7.3			5.6			8.5
Weighted average grant date fair value per option
granted in 2015	$	-		$	-		$	-		$	-	$	-
Weighted average exercise price of exercisable options
at September 30, 2015	$	1.18		$	1.18		$	1.18		$	1.57	$	2.57
Weighted average exercise price of outstanding options
at September 30, 2015	$	1.18		$	1.18		$	1.18		$	1.57	$	2.14

	2005 Plan		2005 Plan		2005 Plan
	Grants to		Grants to		Grants to		Grants to		2007 Plan
	Employees -		Employees -		Employees -		Board of		Grants to
	Tranche A		Tranche B		Tranche C		Directors		Employees
Outstanding options at January 1, 2015		1,109		554		554		383		4,003
Granted	—		—		—		—		—
Exercised	—		—		—		—		—
Forfeited or expired		(18)		(10)		(10)	—			(240)
Outstanding options at June 30, 2015		1,091		544		544		383		3,763
Vested or expected to vest at June 30, 2015		1,091		544		544		383		3,763
Exercisable options at June 30, 2015		1,091		544		544		383		2,521
Weighted average remaining contractual term (in years)	7.5		7.5		7.5		5.8			8.7
Weighted average grant date fair value per option
granted in 2015	$	-	$	-	$	-	$	-	$	-
Weighted average exercise price of exercisable options
at June 30, 2015	$	1.18	$	1.18	$	1.18	$	1.57	$	2.52
Weighted average exercise price of outstanding options
at June 30, 2015	$	1.18	$	1.18	$	1.18	$	1.57	$	2.09

Based on the estimated fair values of options granted, stock-based compensation expense for the three and nine months ended September 30, 2015 totaled $0.2 million and $1.1 million, respectively. Based on the estimated fair values of options granted, stock-based compensation expense for the three and nine months ended September 30, 2014 totaled $0.8 million and $5.4 million, respectively. The stock-based compensation expense recognized during the nine months ended September 30, 2014 included $3.4 million of stock-based compensation expense recognized during the three months ended March 31, 2014 related to the modification of certain stock options held by approximately 200 employees. As of September 30, 2015, there was $1.1 million of unrecognized compensation cost related to unvested stock options, which will be recognized over a weighted average period of approximately 1.1 years.

Based on the estimated fair values of options granted, stock-based compensation expense for the three and six months ended June 30, 2015 totaled $0.3 million and $0.9 million, respectively. Based on the estimated fair values of options granted, stock-based compensation expense for the three and six months ended June 30, 2014 totaled $0.6 million and $4.6 million, respectively. The stock-based compensation expense recognized during the six months ended June 30, 2014 included $3.4 million of stock-based compensation expense recognized during the three months ended March 31, 2014 related to the modification of certain stock options held by approximately 200 employees. As of June 30, 2015, there was $1.3 million of unrecognized compensation cost related to unvested stock options, which will be recognized over a weighted average period of approximately 1.2 years.

Restricted Stock Units

On March 30, 2012, the Board’s Compensation Committee approved the 2012 Retention Award Program (the “2012 RAP”), which provides for awards of RSUs under the 2007 Stock Award Plan. During the year ended December 31, 2012, the Company granted approximately 1.4 million RSUs to key employees. The RSUs awarded under the 2012 RAP have an aggregate cash election dollar value of approximately $11.3 million and are subject to time-based vesting conditions that generally ran through December 31, 2014. Generally, the number of RSUs awarded to each participant is equal to the quotient of (i) the Dollar Award Value, divided by (ii) $8.16, the value per share of Affinion Holdings’ common stock as of the grant date. Upon vesting of the RSUs, participants are able to settle the RSUs in shares of common stock or elect to receive cash in lieu of shares of common stock upon any of the three vesting dates for such RSUs. Due to the ability of the participants to settle their awards in cash, the Company accounts for these RSUs as a liability award.

A summary of restricted stock unit activity for the six months ended June 30, 2015 is presented below (number of restricted stock units in thousands):

	Number of			Weighted Average
	Restricted			Grant Date
	Stock Units			Fair Value
Outstanding restricted unvested awards at January 1, 2015		522		$	1.14
Granted	—
Vested		(261	)	1.14
Forfeited	—
Outstanding restricted unvested awards at June 30, 2015		261		$	1.14
Weighted average remaining contractual term (in years)		0.6

Based on the estimated fair value of the restricted stock units granted, stock-based compensation expense for the three and six months ended June 30, 2015 was $0.1 million and $0.2 million, respectively. Based on the estimated fair value of the restricted stock units granted, stock-based compensation expense for both the three and six months ended June 30, 2014 was $1.0 million. As of June 30, 2015, there was $0.2 million of unrecognized compensation cost related to the remaining vesting period of restricted stock units granted under the 2007 Plan. This cost will be recorded in future periods as stock-based compensation expense over a weighted average period of approximately 0.3 years.

Incentive Awards

On April 1, 2014, the Compensation Committee of the Board approved the terms of the Affinion Group Holdings, Inc. 2014 Performance Incentive Award Program (the “2014 Performance Program”), an equity and cash incentive award program intended to foster retention of key employees of the Company. The awards to key employees consisted of performance incentive units (“PIUs”) and a cash incentive award (“CIA”) and the aggregate cash value of awarded PIUs and CIA comprise the Award Value. The number of PIUs awarded to a participant, which will be awarded from the 2007 Plan, will be equal to the quotient of (i) 50% of the Award Value divided by (ii) the fair market value per share of common stock as of the grant date, which was determined to be $1.14. The amount of the CIA granted to a participant was equal to 50% of the Award Value. Each of the two components of an award was subject to adjustment based on the achievement of performance goals. The awards were subject to certain performance and time-based vesting factors. The maximum number of PIUs and the maximum amount of the CIA into which a participant would be eligible to vest would be determined based on the achievement of certain overall corporate and business unit performance goals, as applicable, during the 2014 calendar year. A participant’s maximum amount of PIUs and the maximum amount of a participant’s CIA would vest in three substantially equal installments on March 15, 2015, 2016 and 2017, subject to that participant’s continued service with the Company on each applicable vesting date. Each PIU that would have vested on a vesting date would be settled for a share of common stock and for the portion of the CIA that vested on a vesting date the Company would have paid the participant an amount equal to the vested portion of the CIA. The aggregate award value granted to participants under the 2014 Performance Program was approximately $9.6 million, subject to adjustment as described above. In March 2015, the Compensation Committee determined that the performance goals established under the 2014 Performance Program had not been achieved and therefore the PIUs and CIA were not eligible to vest and were terminated. During the six months ended June 30, 2015, the Company recognized an expense reduction related to the 2014 Performance Program of $2.2 million, of which $1.1 million related to the common stock portion of the 2014 Performance Program awards. During the three and six months ended June 30, 2015, there was no expense recognized related to the 2014 Performance Program. During the three and six months ended June 30, 2014, stock-based compensation expense of $0.4 million was recognized related to the 2014 Performance Program.

On March 16, 2015, the Compensation Committee of the Board approved the terms of (i) the Affinion Group Holdings, Inc. 2015 Retention Award Program (the “2015 Retention Program”), an equity and cash incentive award program intended to foster retention of key employees of Affinion Holdings and its subsidiaries, and (ii) the awards (the “Retention Awards”) to each such key employee consisting of retention units (“RUs”) and a cash retention award (“CRA”) to be made by Affinion Holdings under the 2015 Retention Program. Each Retention Award will entitle the employee to one share of Affinion Holdings’ common stock for each RU and a cash payment in respect of the CRA, in each case, subject to applicable withholding taxes, when the applicable vesting conditions for the Awards are met. The Retention Awards are subject to time-based vesting conditions. An employee’s RUs and CRA will vest in two substantially equal installments on each of March 15, 2016 and March 15, 2017 (each, a “Vesting Date”), subject to that employee’s continued service with Affinion Holdings and its subsidiaries on each applicable Vesting Date. An employee’s RUs and the portion of his or her CRA that become vested as of a given Vesting Date in accordance with the above vesting criteria will be settled as follows: (i) for each RU that vests on such Vesting Date, Affinion Holdings will deliver to the employee on the Settlement Date one share of common stock and (ii) for the portion of the CRA that vests on such Vesting Date, Affinion Holdings will pay to the employee on the Settlement Date an amount in cash equal to such vested portion of the CRA, in each case, subject to applicable tax

~~withholding.~~dollar Anvalue ~~employee’s RUs and the portion~~ of ~~his~~approximately or$11.3 ~~her~~million ~~CRA~~and ~~that~~are ~~become~~subject ~~vested~~to ontime-based avesting ~~given~~conditions ~~Vesting~~that ~~Date~~generally ~~will~~ran bethrough ~~settled~~December 31, as2014. ~~soon~~Generally, asthe ~~practicable~~number ~~following~~of ~~such~~RSUs ~~Vesting~~awarded ~~Date~~to ~~but~~each inparticipant nois ~~event~~equal ~~later~~to ~~than~~ the ~~sixtieth~~quotient of (~~60th~~i) the ~~day~~dollar ~~following~~value ~~such~~of ~~Vesting~~the ~~Date~~award, ~~(the~~divided ~~“Settlement~~by ~~Date”~~(ii) $8.16, ~~Upon~~the ~~termination~~value ofper ~~employment~~share ~~for~~of ~~any~~Affinion ~~reason,~~Holdings’ ancommon ~~employee~~stock ~~will~~as ~~forfeit~~of the ~~entire~~grant ~~unvested~~date. ~~portion~~Upon vesting of ~~his~~the orRSUs, ~~her~~participants ~~Retention~~are ~~Award.~~able ~~The aggregate award value granted~~ to ~~participants~~settle ~~under~~ the ~~2015~~RSUs ~~Retention~~in ~~Program~~shares ~~outstanding as~~ of ~~June~~common ~~30,~~stock ~~2015~~or ~~was~~elect ~~approximately~~to ~~$8.3~~receive ~~million,~~cash ~~net~~in lieu of ~~forfeitures~~shares of ~~$0.1~~common ~~million.~~stock ~~During~~upon any of the three ~~and~~vesting ~~six~~dates ~~months~~for ~~ended~~such ~~June~~RSUs. ~~30,~~Due ~~2015, the Company recognized expense related~~ to the ~~2015~~ability ~~Retention Program~~ of ~~$1.0~~the ~~million~~participants ~~and~~to ~~$1.2~~settle ~~million,~~their ~~respectively,~~awards ofin ~~which $0.5 million and $0.6 million~~cash, ~~respectively, related to~~ the ~~common~~Company ~~stock~~accounts ~~portion~~for ofthese ~~the~~RSUs ~~2015~~as ~~Retention~~a ~~Program~~liability ~~awards~~award.

A summary of restricted stock unit activity for the nine months ended September 30, 2015 is presented below (number of restricted stock units in thousands):

	Number of			Weighted Average
	Restricted			Grant Date
	Stock Units			Fair Value

Outstanding restricted unvested awards at January 1, 2015		522		$	1.14
Granted	—
Vested		(261	)	1.14
Forfeited	—
Outstanding restricted unvested awards at September 30, 2015		261		$	1.14
Weighted average remaining contractual term (in years)		0.3

Based on the estimated fair value of the restricted stock units granted, stock-based compensation expense for the three and nine months ended September 30, 2015 was $0.1 million and $0.3 million, respectively. Based on the estimated fair value of the restricted stock units granted, stock-based compensation expense for the three and nine months ended September 30, 2014 was an expense reduction of $0.3 million and expense of $0.7 million. As of September 30, 2015, there was $0.1 million of unrecognized compensation cost related to the remaining vesting period of restricted stock units granted under the 2007 Plan. This cost will be recorded in future periods as stock-based compensation expense over a weighted average period of approximately 0.2 years.

Incentive Awards

On April 1, 2014, the Compensation Committee of the Board approved the terms of the Affinion Group Holdings, Inc. 2014 Performance Incentive Award Program (the “2014 Performance Program”), an equity and cash incentive award program intended to foster retention of key employees of the Company. The awards to key employees consisted of performance incentive units (“PIUs”) and a cash incentive award (“CIA”) and the aggregate cash value of awarded PIUs and CIA comprise the Award Value. The number of PIUs awarded to a participant, which will be awarded from the 2007 Plan, will be equal to the quotient of (i) 50% of the Award Value divided by (ii) the fair market value per share of common stock as of the grant date, which was determined to be $1.14. The amount of the CIA granted to a participant was equal to 50% of the Award Value. Each of the two components of an award was subject to adjustment based on the achievement of performance goals. The awards were subject to certain performance and time-based vesting factors. The maximum number of PIUs and the maximum amount of the CIA into which a participant would be eligible to vest would be determined based on the achievement of certain overall corporate and business unit performance goals, as applicable, during the 2014 calendar year. A participant’s maximum amount of PIUs and the maximum amount of a participant’s CIA would vest in three substantially equal installments on March 15, 2015, 2016 and 2017, subject to that participant’s continued service with the Company on each applicable vesting date. Each PIU that would have vested on a vesting date would be settled for a share of common stock and for the portion of the CIA that vested on a vesting date the Company would have paid the participant an amount equal to the vested portion of the CIA. The aggregate award value granted to participants under the 2014 Performance Program was approximately $9.6 million, subject to adjustment as described above. In March 2015, the Compensation Committee determined that the performance goals established under the 2014 Performance Program had not been achieved and therefore the PIUs and CIA were not eligible to vest and were terminated. During the nine months ended September 30, 2015, the Company recognized an expense reduction related to the 2014 Performance Program of $2.2 million, of which $1.1 million related to the common stock portion of the 2014 Performance Program awards. During the three and nine months ended September 30, 2015, there was no expense recognized related to the 2014 Performance Program. During the three and nine months ended September 30, 2014, stock-based compensation expense of $0.9 million and $1.3 million, respectively, was recognized related to the 2014 Performance Program.

conditions for the Retention Awards are met. The Retention Awards are subject to time-based vesting conditions. An employee’s RUs and CRA will vest in two substantially equal installments on each of March 15, 2016 and March 15, 2017 (each, a “Vesting Date”), subject to that employee’s continued service with Affinion Holdings and its subsidiaries on each applicable Vesting Date. An employee’s RUs and the portion of his or her CRA that become vested as of a given Vesting Date in accordance with the above vesting criteria will be settled as follows: (i) for each RU that vests on such Vesting Date, Affinion Holdings will deliver to the employee on the Settlement Date one share of common stock and (ii) for the portion of the CRA that vests on such Vesting Date, Affinion Holdings will pay to the employee on the Settlement Date an amount in cash equal to such vested portion of the CRA, in each case, subject to applicable tax withholding. An employee’s RUs and the portion of his or her CRA that become vested on a given Vesting Date will be settled as soon as practicable following such Vesting Date but in no event later than the sixtieth (60th) day following such Vesting Date (the “Settlement Date”). Upon termination of employment for any reason, an employee will forfeit the entire unvested portion of his or her Retention Award. The aggregate award value granted to participants under the 2015 Retention Program outstanding as of September 30, 2015 was approximately $8.0 million, net of forfeitures of $0.4 million. During the three and nine months ended September 30, 2015, the Company recognized expense related to the 2015 Retention Program of $1.0 million and $2.2 million, respectively, of which $0.5 million and $1.1 million, respectively, related to the common stock portion of the 2015 Retention Program awards.

Subsequent Events – In connection with the Reclassification, existing option awards under the Webloyalty 2005 Plan and the 2007 Plan have been cancelled with no consideration due to option holders, and existing option awards under the 2005 Plan have been adjusted in accordance with their terms. Generally, existing options for Class A Common Stock under the 2005 Plan have been converted into options for shares of Class C Common Stock and Class D Common Stock, and both the exercise price and the number of shares of Class C Common Stock and Class D Common Stock underlying such options have been adjusted. Outstanding restricted stock unit awards and Retention Awards under the 2015 Retention Plan are unchanged, other than awards that called for vesting of Class A Common Stock will now vest in an adjusted number of shares of Class C Common Stock and Class D Common Stock. On November 9, 2015, the Board of Directors adopted the 2015 Equity Incentive Plan, which authorizes the Compensation Committee to grant stock options, restricted stock, restricted stock units and other equity-based awards. Under the 2015 Equity Incentive Plan, 10% of the outstanding of shares of New Common Stock have been reserved for issuance pursuant to awards. As of November 9, 2015, no further grants may be awarded under the 2005 Plan, the 2007 Plan and the Webloyalty 2005 Plan.

9. RELATED PARTY TRANSACTIONS

Post-Closing Relationships with Cendant

Cendant has agreed to indemnify the Company, Affinion Holdings and the Company’s affiliates (collectively the “indemnified parties”) for breaches of representations, warranties and covenants made by Cendant, as well as for other specified matters, certain of which are described below. Affinion Holdings and the Company have agreed to indemnify Cendant for breaches of representations, warranties and covenants made in the purchase agreement, as well as for certain other specified matters. Generally, all parties’ indemnification obligations with respect to breaches of representations and warranties (except with respect to the matters described below) (i) are subject to a $0.1 million occurrence threshold, (ii) are not effective until the aggregate amount of losses suffered by the indemnified party exceeds $15.0 million (and then only for the amount of losses exceeding $15.0 million), and (iii) are limited to $275.1 million of recovery. Generally, subject to certain exceptions of greater duration, the parties’ indemnification obligations with respect to representations and warranties survived until April 15, 2007 with indemnification obligations related to covenants surviving until the applicable covenant has been fully performed.

In connection with the purchase agreement, Cendant agreed to specific indemnification obligations with respect to the matters described below.

Excluded Litigation. Cendant has agreed to fully indemnify the indemnified parties with respect to any pending or future litigation, arbitration, or other proceeding relating to accounting irregularities in the former CUC International, Inc. announced on April 15, 1998.

Certain Litigation and Compliance with Law Matters. Cendant has agreed to indemnify the indemnified parties up to specified amounts for: (a) breaches of its representations and warranties with respect to legal proceedings that (1) occur after the date of the purchase agreement, (2) relate to facts and circumstances related to the business of ~~AGLLC~~Affinion Group, LLC or Affinion International Holdings Limited (“Affinion International”), and (3) constitute a breach or violation of its compliance with law representations and warranties and (b) breaches of its representations and warranties with respect to compliance with laws to the extent related to the business of ~~AGLLC~~Affinion Group LLC or Affinion International.

Cendant, Affinion Holdings and the Company have agreed that losses up to $15.0 million incurred with respect to these matters will be borne solely by the Company and losses in excess of $15.0 million will be shared by the parties in accordance with agreed upon allocations. The Company has the right at all times to control litigation related to shared losses and Cendant has consultation rights with respect to such litigation.

Prior to 2009, Cendant (i) distributed the equity interests it previously held in its hospitality services business (“Wyndham”) and its real estate services business (“Realogy”) to Cendant stockholders and (ii) sold its travel services business (“Travelport”) to a third party. Cendant continues as a re-named publicly traded company which owns the vehicle rental business (“Avis Budget,” together with Wyndham and Realogy, the “Cendant Entities”). Subject to certain exceptions, Wyndham and Realogy have agreed to share Cendant’s contingent and other liabilities (including its indemnity obligations to the Company described above and other liabilities to the Company in connection with the Apollo Transactions) in specified percentages. If any Cendant Entity defaults in its payment, when due, of any such liabilities, the remaining Cendant Entities are required to pay an equal portion of the amounts in default. Wyndham held a portion of the preferred stock issued in connection with the Apollo Transactions until the preferred stock was redeemed in 2011, and a portion of the warrants issued in connection with the Apollo Transactions until the warrants expired in 2011, while Realogy was subsequently acquired by an affiliate of Apollo and remained an affiliate of Apollo until July 2013. Therefore, for the three and six months ended June 30, 2015 and 2014, none of the Cendant Entities is a related party. 22

Prior to 2009, Cendant (i) distributed the equity interests it previously held in its hospitality services business (“Wyndham”) and its real estate services business (“Realogy”) to Cendant stockholders and (ii) sold its travel services business (“Travelport”) to a third party. Cendant continues as a re-named publicly traded company which owns the vehicle rental business (“Avis Budget,” together with Wyndham and Realogy, the “Cendant Entities”). Subject to certain exceptions, Wyndham and Realogy have agreed to share Cendant’s contingent and other liabilities (including its indemnity obligations to the Company described above and other liabilities to the Company in connection with the Apollo Transactions) in specified percentages. If any Cendant Entity defaults in its payment, when due, of any such liabilities, the remaining Cendant Entities are required to pay an equal portion of the amounts in default. Wyndham held a portion of the preferred stock issued in connection with the Apollo Transactions until the preferred stock was redeemed in 2011, and a portion of the warrants issued in connection with the Apollo Transactions until the warrants expired in 2011, while Realogy was subsequently acquired by an affiliate of Apollo and remained an affiliate of Apollo until July 2013. Therefore, for the three and nine months ended September 30, 2015 and 2014, none of the Cendant Entities is a related party.

Other Agreements

On October 17, 2005, Apollo entered into a consulting agreement with the Company for the provision of certain structuring and advisory services. The consulting agreement allows Apollo and its affiliates to provide certain advisory services for a period of twelve years or until Apollo owns less than 5% of the beneficial economic interests of the Company, whichever is earlier. The agreement could be terminated earlier by mutual consent. The Company was required to pay Apollo an annual fee of $2.0 million for these services commencing in 2006. On January 14, 2011, the Company and Apollo entered into an Amended and Restated Consulting Agreement (“Consulting Agreement”), pursuant to which Apollo and its affiliates will continue to provide Affinion with certain advisory services on substantially the same terms as the previous consulting agreement, except that the annual fee paid by Affinion increased to $2.6 million from $2.0 million, commencing January 1, 2012, with an additional one-time fee of $0.6 million which was paid in January 2011 in respect of calendar year 2011. In connection with the December 2013 refinancing of Affinion’s 2006 senior subordinated notes and Affinion Holdings’ 2010 senior notes, Apollo and the Company further amended the consulting agreement, pursuant to which Apollo will not be paid any fees due under the consulting agreement until such time as none of Affinion Holdings’ 2013 senior notes remain outstanding. The amounts expensed related to this consulting agreement were $0.7 million for each of the three month periods ended September 30, 2015 and 2014 and $2.0 million for each of the nine month periods ended September 30, 2015 and 2014, which are included in general and administrative expenses in the accompanying unaudited condensed consolidated statements of comprehensive income. If a transaction is consummated involving a change of control or an initial public offering, then, in lieu of the annual consulting fee and subject to certain qualifications, Apollo may elect to receive a lump sum payment equal to the present value of all consulting fees payable through the end of the term of the consulting agreement.

Agreement (“Consulting Agreement”), pursuant to which Apollo and its affiliates will continue to provide Affinion with certain advisory services on substantially the same terms as the previous consulting agreement, except that the annual fee paid by Affinion increased to $2.6 million from $2.0 million, commencing January 1, 2012, with an additional one-time fee of $0.6 million which was paid in January 2011 in respect of calendar year 2011. In connection with the December 2013 refinancing of Affinion’s 2006 senior subordinated notes and Affinion Holdings’ 2010 senior notes, Apollo and the Company further amended the consulting agreement, pursuant to which Apollo will not be paid any fees due under the consulting agreement until such time as none of Affinion Holdings’ 2013 senior notes remain outstanding. The amounts expensed related to this consulting agreement were $0.6 million for each of the three month periods ended June 30, 2015 and 2014 and $1.3 million for each of the six month periods ended June 30, 2015 and 2014, which are included in general and administrative expenses in the accompanying unaudited condensed consolidated statements of comprehensive income. If a transaction is consummated involving a change of control or an initial public offering, then, in lieu of the annual consulting fee and subject to certain qualifications, Apollo may elect to receive a lump sum payment equal to the present value of all consulting fees payable through the end of the term of the consulting agreement.

In addition, the Company will be required to pay Apollo a transaction fee if it engages in any merger, acquisition or similar transaction. The Company will also indemnify Apollo and its affiliates and their directors, officers and representatives for potential losses relating to the services to be provided under the consulting agreement.

InSubsequent ~~July~~Event ~~2014,~~- ~~Novitex Enterprise Solutions (“Novitex”), a document outsourcing provider owned by affiliates of Apollo, commenced providing administrative services to the Company.~~ In ~~addition,~~connection inwith ~~June 2015, Novitex assumed responsibility for~~ the ~~performance~~exchange ~~and~~offers ~~management of the Company’s domestic print~~ and ~~mailing~~rights ~~operations.~~offering ~~During~~consummated ~~the~~on ~~three~~November ~~and six months ended June 30~~9, 2015, ~~the~~each ~~Company recognized expenses~~ of ~~$0.3~~the ~~million~~parties ~~and~~to ~~$0.6 million, respectively, which are included in general and administrative expenses in~~ the ~~accompanying~~Consulting ~~unaudited~~Agreement ~~condensed~~entered ~~consolidated~~into ~~statement~~a oftermination ~~comprehensive~~agreement ~~income~~ for ~~the~~no ~~three~~additional ~~and six months ended June 30, 2015~~consideration. InAs ~~connection~~a ~~with~~result ~~the transfer~~ of ~~responsibility~~the ~~for~~termination ~~performance and management~~ of the ~~Company’s~~consulting ~~domestic print and mailing operations~~agreement, the Company ~~also~~has ~~recognized~~no aobligations ~~reduction~~to ofpay ~~operating~~Apollo ~~expense~~any ofpreviously ~~$0.2~~accrued ~~million for the three~~ and ~~six~~unpaid ~~months~~amounts ~~ended June 30, 2015~~ for ~~usage~~prior ofservices ~~certain~~rendered ~~equipment~~under bythe ~~Novitex~~consulting ~~and also sold certain assets to Novitex for $0~~agreement.1 ~~million and recognized a gain of less than $0.1 million.~~

~~SkyMall~~In July 2014, ~~which~~Novitex ~~was~~Enterprise ~~acquired~~Solutions by(“Novitex”), ~~the~~a ~~Company~~document inoutsourcing ~~September~~provider ~~2014~~owned by affiliates of Apollo, ~~provides~~commenced ~~fulfillment~~providing administrative services to ~~Caesar’s~~the ~~Entertainment~~Company. ~~Corporation~~In addition, ~~which~~in isJune ~~owned~~2015, byNovitex anassumed ~~affiliate~~responsibility for the performance and management of ~~Apollo~~the Company’s domestic print and mailing operations. During the three and ~~six~~nine months ended ~~June~~September 30, 2015, the Company recognized ~~revenues~~expenses of $2.5 million and $3.5 million, ~~net~~respectively, which are included in general and administrative expenses in the accompanying unaudited condensed consolidated statement of comprehensive income for the ~~cost~~three toand ~~acquire~~nine months ended September 30, 2015. In connection with the ~~merchandise~~transfer of responsibility for performance and ~~gift~~management ~~cards~~of the Company’s domestic print and mailing operations, the Company also recognized a reduction of operating expense of $0.46 million and $0.8 million, respectively, ~~which~~for ~~are~~the ~~included~~three inand ~~net~~nine ~~revenues~~months inended ~~the~~September ~~accompanying~~30, ~~unaudited~~2015 ~~condensed~~for ~~consolidated~~usage ~~statement~~ of ~~comprehensive~~certain ~~income~~equipment ~~for~~by ~~the~~Novitex ~~three~~ and ~~six~~for the nine months ended ~~June~~September 30, 2015 also sold certain assets to Novitex for $0.1 million and recognized a gain of less than $0.1 million.

~~On January 28~~SkyMall, ~~2010,~~which ~~the~~was ~~Company~~ acquired anby ~~ownership~~the ~~interest~~Company ofin ~~approximately~~September 5%2014, ~~subsequently~~provides ~~reduced~~fulfillment services to ~~approximately~~Caesar’s ~~2.9%,~~Entertainment ~~in Alclear Holdings~~Corporation, ~~LLC~~which ~~(“Alclear”)~~is ~~for~~owned ~~$1.0~~by ~~million.~~an Aaffiliate ~~family member~~ of ~~one~~Apollo. ofDuring the ~~Company’s~~three ~~directors controls~~ and ~~partially~~nine ~~funded~~months ~~Alclear~~ended ~~and~~September ~~serves~~30, ~~as its chief executive officer. In March~~ 2015, the Company ~~sold~~recognized ~~its~~revenues, ~~ownership~~net ~~interest~~of inthe ~~Alclear~~cost to ~~certain~~acquire ~~existing~~the ~~members~~merchandise ofand ~~Alclear~~gift ~~who~~cards, ~~are~~of ~~not related parties or otherwise affiliated with the Company for~~ $10.51 million, and ~~the related gain of~~ $0.59 million, isrespectively, which are included in ~~other income,~~ net revenues in the accompanying unaudited condensed consolidated statement of comprehensive income for the ~~six months ended June 30, 2015. The Company continues to provide support services to Alclear and recognized revenue of $0.1 million and $0.2 million, respectively, for the~~ three ~~months ended June 30, 2015~~ and ~~2014~~nine ~~and $0.2 million and $0.3 million, respectively, for the six~~ months ended ~~June~~September 30, 2015 ~~and 2014~~.

During Onthe ~~May~~three 8,and ~~2013,~~nine inmonths ~~connection~~ended ~~with~~September ~~his resignation as Chief Executive Officer of Global Retail Services and Co-President of Affinion~~30, ~~Mr. Richard J. Fernandes entered into a consulting agreement with Trilegiant Corporation~~2015, ~~a wholly owned subsidiary of~~ the Company, ~~effective~~sold ~~May~~its ~~13,~~investment ~~2013,~~in ~~pursuant~~Prospectiv toDirect, ~~which~~LLC hefor ~~would~~cash ~~continue~~proceeds ~~working with the Company until the one-year anniversary~~ of ~~such resignation~~$0.1 ~~The~~million, ~~contract~~shares ~~was~~of ~~subsequently~~common ~~amended~~stock toof ~~extend~~ the ~~term~~buyer onvalued aat ~~month-to-month basis and the contract may be terminated by either party upon thirty days written notice~~$0. ~~Mr.~~2 ~~Fernandes~~million ~~provides certain consulting services to the Company on a part-time basis~~ and ~~receives~~receivables ~~a fee~~ of $0.7~~,500~~ ~~per month~~million, ~~subject~~which tohas ~~increase~~been ~~depending~~recorded onat ~~the~~its ~~level~~estimated ofnet ~~consulting~~realizable ~~services~~value ~~provided. The agreement also provides for reimbursement~~ of Mr$0.4 ~~Fernandes’~~million. ~~out-of-pocket~~In ~~business~~connection ~~and~~with ~~travel~~the ~~expenses~~sale, ~~and~~the ~~for~~Company ~~his~~recognized ~~healthcare~~a ~~insurance~~gain ~~costs~~of ~~during the contract period~~$0.7

million which is included in other income, net in the accompanying unaudited condensed consolidated statement of comprehensive income for the three and nine months ended September 30, 2015 and also recognized revenue of $0.2 million related to the settlement of future royalty income due to the Company.

On January 28, 2010, the Company acquired an ownership interest of approximately 5%, subsequently reduced to approximately 2.9%, in Alclear Holdings, LLC (“Alclear”) for $1.0 million. A family member of one of the Company’s directors controls and partially funded Alclear and serves as its chief executive officer. In March 2015, the Company sold its ownership interest in Alclear to certain existing members of Alclear who are not related parties or otherwise affiliated with the Company for $1.5 million, and the related gain of $0.5 million is included in other income, net in the accompanying unaudited condensed consolidated statement of comprehensive income for the nine months ended September 30, 2015. The Company continues to provide support services to Alclear and recognized revenue of $0.1 million and $0.3 million, respectively, for the three and nine months ended September 30, 2015 and $0.1 million and $0.4 million, respectively, for the three and nine months ended September 30, 2014.

On May 8, 2013, in connection with his resignation as Chief Executive Officer of Global Retail Services and Co-President of Affinion, Mr. Richard J. Fernandes entered into a consulting agreement with Trilegiant Corporation, a wholly owned subsidiary of the Company, effective May 13, 2013, pursuant to which he would continue working with the Company until the one-year anniversary of such resignation. The contract was subsequently amended to extend the term on a month-to-month basis and the contract may be terminated by either party upon thirty days written notice. Mr. Fernandes provides certain consulting services to the Company on a part-time basis and receives a fee of $7,500 per month, subject to increase depending on the level of consulting services provided. The agreement also provides for reimbursement of Mr. Fernandes’ out-of-pocket business and travel expenses and for his healthcare insurance costs during the contract period. The consulting agreement was terminated during the fourth quarter of 2015.

On each of May 13, 2014 and November 14, 2014, the Company loaned $1.9 million to Affinion Holdings to be utilized by Affinion Holdings to make interest payments on its 2010 senior notes. On May 14, 2015, the Company loaned $1.9 million to Affinion Holdings to be utilized to make interest payments on its 2010 senior notes.

10. FINANCIAL INSTRUMENTS, DERIVATIVES AND FAIR VALUE MEASURES

As a matter of policy, the Company does not use derivatives for trading or speculative purposes.

22The following table provides information about the Company’s financial instruments that are sensitive to changes in interest rates. The table presents principal cash flows and related weighted-average interest rates by expected maturity for the Company’s long-term debt as of September 30, 2015:

The following table provides information about the Company’s financial instruments that are sensitive to changes in interest rates. The table presents principal cash flows and related weighted-average interest rates by expected maturity for the Company’s long-term debt as of June 30, 2015:

																			Fair Value At
															2020 and				September 30,
	2015			2016			2017			2018			2019		Thereafter		Total		2015
	(in millions)
Fixed rate debt	$	2.7		$	0.3		$	—		$	835.0		$	—	$	—	$	838.0	$	541.8
Average interest rate		10.30	%		10.30	%		10.30	%		9.73	%
Variable rate debt	$	1.9		$	7.8		$	7.7		$	1,237.0		$	—	$	—	$	1,254.4	$	1,156.9
Average interest rate (a)		7.37	%		7.37	%		7.37	%		7.84	%

																			Fair Value At
															2020 and				June 30,
	2015			2016			2017			2018			2019		Thereafter		Total		2015
	(in millions)
Fixed rate debt	$	2.8		$	0.3		$	—		$	835.0		$	—	$	—	$	838.1	$	477.4
Average interest rate		10.30	%		10.30	%		10.30	%		9.73	%
Variable rate debt	$	3.9		$	7.8		$	7.7		$	1,229.9		$	—	$	—	$	1,249.3	$	1,172.8
Average interest rate (a)		7.37	%		7.37	%		7.37	%		7.84	%

(a)	Average interest rate is based on rates in effect at September 30, 2015.

(a) Average interest rate is based on rates in effect at June 30, 2015.

Foreign Currency Forward Contracts

On a limited basis the Company has entered into 30 day foreign currency forward contracts, and upon expiration of the contracts, entered into successive 30 day foreign currency forward contracts. The contracts have been entered into to mitigate the Company’s foreign currency exposures related to intercompany loans which are not expected to be repaid within the next twelve months and that are denominated in Euros and British pounds. At ~~June~~September 30, 2015, the Company had in place contracts to sell EUR 10.0 million and receive $11.2 million and to sell GBP 13.9 million and receive $21.91 million.

During the three and ~~six~~nine months ended ~~June~~September 30, 2015, the Company recognized a realized ~~loss~~gain on the forward contracts of $10.67 million and ~~a realized gain~~ $23.74 million, respectively, and during the three and ~~six~~nine months ended ~~June~~September 30, 2014, the Company recognized a realized ~~loss~~gain on the forward contracts of $03.45 million and $02.78 million, respectively. As of ~~June~~September 30, 2015, the Company had a de minimis unrealized ~~gain~~loss on the foreign currency forward contracts.

Credit Risk and Exposure

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of receivables, profit-sharing receivables from insurance carriers, prepaid commissions and interest rate swaps. The Company manages such risk by evaluating the financial position and creditworthiness of such counterparties. Receivables and profit-sharing receivables from insurance carriers are from various marketing, insurance and business partners and the Company maintains an allowance for losses, based upon expected collectability. Commission advances are periodically evaluated as to recovery.

Fair Value

The Company determines the fair value of financial instruments as follows:

a. Cash and Cash Equivalents, Restricted Cash, Receivables, Profit-Sharing Receivables from Insurance Carriers and Accounts Payable—Carrying amounts approximate fair value at ~~June~~September 30, 2015 and December 31, 2014 due to the short-term maturities of these assets and liabilities.

b. Long-Term Debt—The Company’s estimated fair value of its long-term fixed-rate debt at ~~June~~September 30, 2015 and December 31, 2014 is based upon available information for debt having similar terms and risks. The fair value of the publicly-traded debt is the published market price per unit multiplied by the number of units held or issued without consideration of transaction costs. The fair value of the non-publicly-traded debt, substantially all of which is variable-rate debt, is based on third party indicative valuations and estimates prepared by the Company after consideration of the creditworthiness of the counterparties.

c. Foreign Currency Forward Contracts—At ~~June~~September 30, 2015 and December 31, 2014, the Company’s estimated fair value of its foreign currency forward contracts is based upon available market information. The fair value of the foreign currency forward contracts is based on significant other observable inputs, adjusted for contract restrictions and other terms specific to the foreign currency forward contracts. The fair value has been determined after consideration of foreign currency exchange rates and the creditworthiness of the parties to the foreign currency forward contracts. The counterparty to the foreign currency forward contracts is a major financial institution. The Company does not expect any losses from non-performance by the counterparty.

Current accounting guidance establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from sources independent of the reporting entity (observable inputs) and (2) the reporting entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels, giving the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs. Level 1 inputs to a fair value measurement are quoted market prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 2 inputs are inputs other than quoted market prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability.

23There were no financial instruments measured at fair value on a recurring basis as of September 30, 2015 and December 31, 2014, other than foreign currency forward contracts. Such contracts have historically had a term of approximately thirty days and have been held to maturity. The fair value of the foreign currency forward contracts is measured based on significant observable inputs (Level 2).

circumstances (unobservable inputs). The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels, giving the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs. Level 1 inputs to a fair value measurement are quoted market prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 2 inputs are inputs other than quoted market prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability.

There were no financial instruments measured at fair value on a recurring basis as of June 30, 2015 and December 31, 2014, other than foreign currency forward contracts. Such contracts have historically had a term of approximately thirty days and have been held to maturity. The fair value of the foreign currency forward contracts is measured based on significant observable inputs (Level 2).

The following table summarizes assets measured at fair value using Level 3 inputs on a nonrecurring basis subsequent to initial recognition:

Fair Value Measurements at December 31, 2014

Impairment

Losses

Fair Value at

Quoted Prices in Active

Significant Other

Significant

Year

December 31,

Markets for Identical

Observable

Unobservable

Ended

2014

Assets (Level 1)

Inputs (Level 2)

Inputs (Level 3)

December 31, 2014

(in millions)

Goodwill - Membership Products

89.6

—

89.6

(292.4

)

11. SEGMENT INFORMATION

Management evaluates the operating results of each of its reportable segments based upon several factors, of which the primary factors are revenue and “Segment EBITDA,” which the Company defines as income from operations before depreciation and amortization. The presentation of Segment EBITDA may not be comparable to similarly titled measures used by other companies.

The Segment EBITDA of the Company’s four reportable segments does not include general corporate expenses. General corporate expenses include costs and expenses that are of a general corporate nature or managed on a corporate basis, including primarily stock-based compensation expense and consulting fees payable to Apollo. General corporate expenses have been excluded from the presentation of the Segment EBITDA for the Company’s four reportable segments because they are not reported to the chief operating decision maker for purposes of allocating resources among operating segments or assessing operating segment performance. The accounting policies of the reportable segments are the same as those described in Note 2—Summary of Significant Accounting Policies in the Company’s Form 10-K for the year ended December 31, 2014.

Net Revenues
	For the Three Months Ended						For the ~~Six~~Nine Months Ended
	June 30,			June 30,			June 30,			June 30,
	September 30,			September 30,			September 30,			September 30,
	2015			2014			2015			2014
	(in millions)
Membership products	$	102.15		$	113.40		$	~~205~~307.05		$	~~229~~342.5
Insurance and package products		6764.3			5759.31			~~135~~199.69			~~128~~187.23
Global loyalty products		4238.17			4240.83			87126.41			84124.25
International products		8386.91			9091.80			~~170~~256.01			~~184~~275.3
Eliminations		(0.43	)		(0.54	)		(01.70	)		(1.04	)
	$	~~295~~291.03		$	303.80		$	~~597~~888.36		$	~~625~~928.2

Segment EBITDA
	For the Three Months Ended						For the Nine Months Ended
	September 30,			September 30,			September 30,			September 30,
	2015			2014			2015			2014
	(in millions)

Membership products	$	20.9		$	13.9		$	40.6		$	46.4
Insurance and package products		20.1			9.6			61.3			37.6
Global loyalty products		14.0			18.8			44.2			50.9
International products		14.3			1.5			28.3			(2.5	)
Total products		69.3			43.8			174.4			132.4
Corporate		(7.2	)		(4.0	)		(9.6	)		(17.9	)
	$	62.1		$	39.8		$	164.8		$	114.5

Segment EBITDA
	For the Three Months Ended						For the Nine Months Ended
	For the Three Months Ended						For the Six Months Ended
	September 30,			September 30,			September 30,			September 30,
	June 30,			June 30,			June 30,			June 30,
	2015			2014			2015			2014
	(in millions)
Membership products	$	15.7		$	18.2		$	19.7		$	32.5
Segment EBITDA	$	62.1		$	39.8		$	164.8		$	114.5
Insurance and package products		20.7			6.7			41.2			28.0
Depreciation and amortization		(23.7	)		(27.2	)		(71.7	)		(81.3	)
Global loyalty products		14.7			17.1			30.2			32.1
Income from operations	$	38.4		$	12.6		$	93.1		$	33.2
International products		6.8			3.0			14.0			(4.0	)
Total products		57.9			45.0			105.1			88.6
Corporate		(2.7	)		(8.3	)		(2.4	)		(13.9	)
	$	55.2		$	36.7		$	102.7		$	74.7

	For the Three Months Ended						For the Six Months Ended
	June 30,			June 30,			June 30,			June 30,
	2015			2014			2015			2014
	(in millions)
Segment EBITDA	$	55.2		$	36.7		$	102.7		$	74.7
Depreciation and amortization		(23.8	)		(29.1	)		(48.0	)		(54.1	)
Income from operations	$	31.4		$	7.6		$	54.7		$	20.6

12. GUARANTOR/NON-GUARANTOR SUPPLEMENTAL FINANCIAL INFORMATION

The following supplemental condensed consolidating financial information presents, in separate columns, the condensed consolidating balance sheets as of ~~June~~September 30, 2015 and December 31, 2014, and the related condensed consolidating statements of operations for the three and ~~six~~nine month periods ended ~~June~~September 30, 2015 and 2014 and the related condensed consolidating statements of cash flows for the ~~six~~nine month periods ended ~~June~~September 30, 2015 and 2014 for (i) the Company (Affinion Group, Inc.) on a parent-only basis, with its investment in subsidiaries recorded under the equity method, (ii) the Guarantor Subsidiaries (the Company’s subsidiaries that guarantee the 2010 senior notes) on a combined basis, (iii) the Non-Guarantor Subsidiaries on a combined basis and (iv) the Company on a consolidated basis. The guarantees are full and unconditional and joint and several obligations of each of the guarantor subsidiaries, all of which are 100% owned by the Company. There are no significant restrictions on the ability of the Company to obtain funds from any of its guarantor subsidiaries by dividends or loan.

The supplemental financial information has been presented in lieu of separate financial statements of the guarantors as such separate financial statements are not considered meaningful.

The supplemental condensed consolidating financial information presented includes Propp Corp. and SkyMall Ventures, LLC, each a recently acquired subsidiary, and Connexions SMV, LLC, a recently formed subsidiary, as Guarantor Subsidiaries. Propp Corp., SkyMall Ventures, LLC and Connexions SMV, LLC guarantee the 2010 senior notes and the 2013 senior subordinated notes, but do not guarantee the 2006 senior subordinated notes.

2527

UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEET

AS OF ~~JUNE~~SEPTEMBER 30, 2015

(In millions)

						Non-
	Parent			Guarantor		Guarantor
	Company			Subsidiaries		Subsidiaries			Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	2428.07		$	2.9	$	2824.81		$	—		$	55.7
Restricted cash		—			16.97		1615.3			—			3332.20
Receivables, net		12.92			7066.13		43.07			—			~~115~~112.02
Profit-sharing receivables from insurance carriers		—			1624.94		—			—			1624.94
Prepaid commissions		—			4540.35		6.41			—			5146.76
Income taxes receivable		—			0.5		0.96			—			1.41
Intercompany interest receivable		01.80			—		186.21			(197.01	)		—
Other current assets		2148.32			4937.42		3331.08			—			~~103~~117.72
Total current assets		4880.01			~~202~~188.05		~~146~~127.67			(197.01	)		~~377~~389.62
Property and equipment, net		4.36			8480.46		4139.93			—			~~130~~124.65
Contract rights and list fees, net		—			17.70		—			—			17.70
Goodwill		—			245.41		7371.59			—			~~318~~317.90
Other intangibles, net		—			6152.40		1512.1			—			7664.51
Receivables from related parties		27.01			—		—			—			27.01
Investment in subsidiaries		2,~~243~~292.28			52.1		63.9			(2,~~359~~408.28	)		—
Investment in intercompany notes		—			—		360.0			(360.0	)		—
Intercompany loan receivable		~~233~~244.31			2120.34		—			(~~254~~264.65	)		—
Intercompany receivables		—			2,~~015~~110.80		—			(2,~~015~~110.80	)		—
Other non-current assets		2018.24			3743.60		12.42			—			7073.26
Total assets	$	2,~~576~~667.01		$	2,~~737~~808.7	$	~~713~~687.41		$	(5,~~008~~150.64	)	$	1,~~018~~012.5
Liabilities and Deficit
Current liabilities:
Current portion of long-term debt	$	10.43		$	0.41	$	—		$	—		$	10.84
Accounts payable and accrued expenses		8599.2			~~165~~178.56		~~147~~119.65			—			~~398~~397.3
Payables to related parties		4344.67			0.1.0		—			—			4345.7
Intercompany interest payable		186.21			—		01.80			(197.01	)		-
Deferred revenue		0.12			55.10		2726.64			—			8281.86
Income taxes payable		0.34			—		21.89			—			32.13
Total current liabilities		~~157~~160.89			~~221~~234.17		~~178~~148.8			(197.01	)		~~538~~537.73
Long-term debt		1,~~715~~720.02			0.21		354.04			—			2,~~069~~074.27
Deferred income taxes		—			3335.91		1.65			—			3536.56
Deferred revenue		0.3			4.5		4.76			—			9.54
Intercompany notes payable		360.0			—		—			(360.0	)		—
Intercompany loans payable		—			—		~~254~~264.65			(~~254~~264.65	)		—
Intercompany payables		2,~~002~~095.43			—		1314.47			(2,~~015~~110.80	)		—
Other long-term liabilities		3.12			2019.10		3.78			—			26.90
Total liabilities		4,~~238~~339.69			~~279~~293.84		~~810~~792.83			(2,~~649~~741.46	)		2,~~679~~684.80
Total Affinion Group, Inc. deficit		(1,~~662~~672.68	)		2,~~457~~515.93		(98106.75	)		(2,~~359~~408.28	)		(1,~~662~~672.68	)
Non-controlling interest in subsidiary		—			—		1.3			—			1.3
Total deficit		(1,~~662~~672.68	)		2,~~457~~515.93		(97105.42	)		(2,~~359~~408.28	)		(1,~~661~~671.35	)
Total liabilities and deficit	$	2,~~576~~667.01		$	2,~~737~~808.7	$	~~713~~687.41		$	(5,~~008~~150.64	)	$	1,~~018~~012.5

2628

UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEET

AS OF DECEMBER 31, 2014

(In millions)

						Non-
	Parent			Guarantor		Guarantor
	Company			Subsidiaries		Subsidiaries			Eliminations			Consolidated

Assets
Current assets:
Cash and cash equivalents	$	7.8		$	2.5	$	17.7		$	—		$	28.0
Restricted cash		1.7			17.6		16.5			—			35.8
Receivables, net		1.4			62.2		55.7			—			119.3
Profit-sharing receivables from insurance carriers		—			28.7		—			—			28.7
Prepaid commissions		—			41.8		6.2			—			48.0
Income taxes receivable		—			0.4		0.9			—			1.3
Intercompany interest receivable		0.4			—		18.2			(18.6	)		—
Other current assets		11.7			58.2		34.7			—			104.6
Total current assets		23.0			211.4		149.9			(18.6	)		365.7
Property and equipment, net		5.4			90.9		42.7			—			139.0
Contract rights and list fees, net		—			16.7		—			—			16.7
Goodwill		—			245.4		76.8			—			322.2
Other intangibles, net		—			81.3		22.0			—			103.3
Receivables from related parties		25.2			—		—			—			25.2
Investment in subsidiaries		2,242.0			52.1		63.9			(2,358.0	)		—
Investment in intercompany notes		—			—		360.0			(360.0	)		—
Intercompany loan receivable		202.5			20.1		—			(222.6	)		—
Intercompany receivables		—			1,916.1		—			(1,916.1	)		—
Other non-current assets		23.9			27.7		14.0			—			65.6
Total assets	$	2,522.0		$	2,661.7	$	729.3		$	(4,875.3	)	$	1,037.7
Liabilities and Deficit
Current liabilities:
Current portion of long-term debt	$	10.3		$	0.5	$	—		$	—		$	10.8
Accounts payable and accrued expenses		79.1			174.9		157.8			—			411.8
Payables to related parties		45.0			0.2		—			—			45.2
Intercompany interest payable		18.2			—		0.4			(18.6	)		—
Deferred revenue		—			61.5		28.4			—			89.9
Income taxes payable		0.7			—		2.5			—			3.2
Total current liabilities		153.3			237.1		189.1			(18.6	)		560.9
Long-term debt		1,664.7			0.4		353.3			—			2,018.4
Deferred income taxes		—			30.9		2.1			—			33.0
Deferred revenue		—			5.1		4.9			—			10.0
Intercompany notes payable		360.0			—		—			(360.0	)		—
Intercompany loans payable		—			—		222.6			(222.6	)		—
Intercompany payables		1,899.7			—		16.4			(1,916.1	)		—
Other long-term liabilities		3.1			25.0		3.2			—			31.3
Total liabilities		4,080.8			298.5		791.6			(2,517.3	)		2,653.6
Total Affinion Group, Inc. deficit		(1,558.8	)		2,363.2		(63.4	)		(2,358.0	)		(1,617.0	)
Non-controlling interest in subsidiary		—			—		1.1			—			1.1
Total deficit		(1,558.8	)		2,363.2		(62.3	)		(2,358.0	)		(1,615.9	)
Total liabilities and deficit	$	2,522.0		$	2,661.7	$	729.3		$	(4,875.3	)	$	1,037.7

2729

UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME

FOR THE THREE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2015

(In millions)

							Non-
	Parent			Guarantor			Guarantor
	Company			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Net revenues	$	—		$	~~210~~205.91		$	8486.12		$	—		$	~~295~~291.03
Expenses:
Cost of revenues, exclusive of depreciation and amortization shown separately below:
Marketing and commissions		—			7772.25			3332.82			—			~~111~~104.07
Operating costs		—			5149.03			4845.48			—			9995.41
General and administrative		110.96			1710.65			98.32			—			2829.83
Facility exit costs		—			0.61			—			—			0.61
Depreciation and amortization		0.1			1716.17			6.69			—			23.87
Total expenses		210.07			~~163~~149.51			9893.1			—			~~263~~252.69
Income from operations		(210.07	)		4756.40			(146.09	)		—			3138.4
Interest income		(0.13	)		—1.7			0.15			—			01.29
Interest expense		(3435.51	)		~~(0.1~~—	)		(12.87	)		—			(47.48	)
Interest income (expense) - intercompany		(11.95	)		—			11.95			—			—
Other income (expense), net		—			20.87			(20.71	)		—			0.16
Loss before income taxes and non-controlling interest		(4857.36	)		5058.14			(177.57	)		—			(156.79	)
Income tax expense		(0.41	)		(0.92	)		(0.28	)		—			(1.1	)
		(48.7	)		49.2			(17.3	)		—			(16.8	)
		(57.7	)		58.2			(8.5	)		—			(8.0	)
Equity in income of subsidiaries		3149.85			(03.50	)		—			(3152.35	)		-—
Net loss		(168.92	)		4861.72			(178.35	)		(3152.35	)		(~~16.~~8.0	)
Less: net income attributable to non-controlling interest		—			—			(0.12	)		—			(0.12	)
Net loss attributable to Affinion Group, Inc.	$	(168.92	)	$	4861.72		$	(178.47	)	$	(3152.35	)	$	(168.92	)
Net loss	$	(168.92	)	$	4861.72		$	(178.35	)	$	(3152.35	)	$	(~~16.~~8.0	)
Currency translation adjustment, net of tax		—			—			1(2.52	)		—			1(2.52	)
Comprehensive loss		(168.92	)		4861.72			(1510.87	)		(3152.35	)		(1510.32	)
Less: comprehensive income attributable to non-controlling interest		—			—			~~(0.1~~—	)		—			~~(0.1~~—	)
Comprehensive loss attributable to Affinion Group, Inc.	$	(168.92	)	$	4861.72		$	(1510.97	)	$	(3152.35	)	$	(1510.42	)

2830

UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME

FOR THE ~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2015

(In millions)

							Non-
	Parent			Guarantor			Guarantor
	Company			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Net revenues	$	—		$	~~427~~632.01		$	~~170~~256.35		$	—		$	~~597~~888.36
Expenses:
Cost of revenues, exclusive of depreciation and amortization shown separately below:
Marketing and commissions		—			~~156~~229.50			70102.24			—			~~226~~331.74
Operating costs		—			~~106~~155.36			96142.75			—			~~203~~298.01
General and administrative		1121.06			3546.50			1725.35			—			6393.81
Facility exit costs		—			1.12			—			—			1.12
Depreciation and amortization		0.45			3450.29			1320.43			—			4871.07
Total expenses		1122.41			~~333~~482.67			~~197~~290.67			—			~~542~~795.65
Income from operations		(1122.41	)		93149.4			(2734.32	)		—			5493.71
Interest income		~~0.3~~—			—1.7			0.16			—			02.43
Interest expense		(68103.67	)		(0.1	)		(2538.85	)		—			(94142.53	)
Interest income (expense) - intercompany		(2335.83	)		—			2335.83			—			—
Other income (expense), net		—			23.85			(2.23	)		—			01.62
Loss before income taxes and non-controlling interest		(~~103~~161.51	)		96154.15			(3139.41	)		—			(3845.87	)
Income tax expense		(0.78	)		(12.80	)		(01.64	)		—			(34.12	)
		(104.2	)		94.3			(32.0	)		—			(41.9	)
		(161.9	)		152.5			(40.5	)		—			(49.9	)
Equity in income of subsidiaries		62111.05			(1.19	)		—			(60113.94	)		—
Net loss		(4250.24	)		93154.24			(3240.05	)		(60113.94	)		(4149.9	)
Less: net income attributable to non-controlling interest		—			—			(0.35	)		—			(0.35	)
Net loss attributable to Affinion Group, Inc.	$	(4250.24	)	$	93154.24		$	(3241.30	)	$	(60113.94	)	$	(4250.24	)
Net loss	$	(4250.24	)	$	93154.24		$	(3240.05	)	$	(60113.94	)	$	(4149.9	)
Currency translation adjustment, net of tax		—			—			(3.5.7	)		—			(3.5.7	)
Comprehensive loss		(4250.24	)		93154.24			(3546.52	)		(60113.94	)		(4555.46	)
Less: comprehensive income attributable to non-controlling interest		—			—			(0.2	)		—			(0.2	)
Comprehensive loss attributable to Affinion Group, Inc.	$	(4250.24	)	$	93154.24		$	(3546.74	)	$	(60113.94	)	$	(4555.68	)

2931

UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME

FOR THE THREE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2014

(In millions)

							Non-
	Parent			Guarantor			Guarantor
	Company			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Net revenues	$	—		$	~~213~~211.07		$	9091.83		$	—		$	303.80
Expenses:
Cost of revenues, exclusive of depreciation and amortization shown separately below:
Marketing and commissions		—			7975.54			4039.64			—			~~120~~114.18
Operating costs		—			5752.28			4843.89			—			~~106~~96.07
General and administrative		1219.75			1816.90			815.71			—			4050.36
Facility exit costs		—			01.71			—			—			01.71
Depreciation and amortization		0.3			1819.90			97.9			—			2927.12
Total expenses		1319.08			~~175~~164.23			~~108~~106.03			—			~~296~~290.24
Income from operations		(1319.08	)		3747.84			(1715.20	)		—			712.6
Interest income		0.12			~~0.1~~—			~~0.1~~—			—			0.32
Interest expense		(3334.03	)		(06.13	)		(13.21	)		—			(4641.31	)
Interest income (expense) - intercompany		(11.98	)		—			11.98			—			—
Loss on extinguishment of debt		~~(6.0~~—	)		—			—			—			~~(6.0~~—	)
Loss before income taxes and non-controlling interest		(6365.87	)		3753.87			(1816.43	)		—			(4428.43	)
Income tax expense		(0.4	)		(31.28	)		(0.54	)		—			(42.16	)
		(64.2	)		34.6			(18.9	)		—			(48.5	)
		(66.1	)		51.9			(16.7	)		—			(30.9	)
Equity in income of subsidiaries		1535.60			23.8			—			(1838.48	)		—
Net loss		(4831.61	)		3755.47			(1816.97	)		(1838.48	)		(4830.59	)
Less: net income attributable to non-controlling interest		—			—			(0.12	)		—			(0.12	)
Net loss attributable to Affinion Group, Inc.	$	(4831.61	)	$	3755.47		$	(1916.09	)	$	(1838.48	)	$	(4831.61	)
Net loss	$	(4831.61	)	$	3755.47		$	(1816.97	)	$	(1838.48	)	$	(4830.59	)
Currency translation adjustment, net of tax		—			—			(01.71	)		—			(01.71	)
Comprehensive loss		(4831.61	)		3755.47			(1917.68	)		(1838.48	)		(4932.20	)
Less: comprehensive income attributable to non-controlling interest		—			—			(0.12	)		—			(0.12	)
Comprehensive loss attributable to Affinion Group, Inc.	$	(4831.61	)	$	3755.47		$	(1918.70	)	$	(1838.48	)	$	(4932.32	)

3032

UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME

FOR THE ~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2014

(In millions)

							Non-
	Parent			Guarantor			Guarantor
	Company			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Net revenues	$	—		$	~~440~~652.74		$	~~184~~275.58		$	—		$	~~625~~928.2
Expenses:
Cost of revenues, exclusive of depreciation and amortization shown separately below:
Marketing and commissions		—			~~161~~237.93			83123.60			—			~~245~~360.53
Operating costs		—			~~117~~170.53			96140.54			—			~~214~~310.07
General and administrative		2342.16			3854.7			2843.67			—			90141.40
Facility exit costs		—			01.67			—			—			01.67
Depreciation and amortization		0.69			3756.8			1523.76			—			5481.13
Total expenses		2343.75			~~356~~520.58			~~224~~330.47			—			~~604~~895.60
Income from operations		(2343.75	)		84131.26			(3954.9	)		—			2033.62
Interest income		0.35			0.1			0.1			—			0.57
Interest expense		(6499.81	)		~~(0.~~5.8	)		(2639.12	)		—			(91132.45	)
Interest income (expense) - intercompany		(2335.64	)		—			2335.64			—			—
Loss on extinguishment of debt		(6.0	)		—			—			—			(6.0	)
Loss before income taxes and non-controlling interest		(~~117~~183.85	)		83137.85			(4258.36	)		—			(76104.36	)
Income tax expense		(01.82	)		(68.64	)		(01.93	)		—			(810.39	)
		(118.6	)		77.2			(43.2	)		—			(84.6	)
		(184.7	)		129.1			(59.9	)		—			(115.5	)
Equity in income of subsidiaries		3368.8			711.97			—			(4180.75	)		—
Net loss		(84115.89	)		85140.18			(4359.29	)		(4180.75	)		(84115.65	)
Less: net income attributable to non-controlling interest		—			—			(0.24	)		—			(0.24	)
Net loss attributable to Affinion Group, Inc.	$	(84115.89	)	$	85140.18		$	(4360.43	)	$	(4180.75	)	$	(84115.89	)
Net loss	$	(84115.89	)	$	85140.18		$	(4359.29	)	$	(4180.75	)	$	(84115.65	)
Currency translation adjustment, net of tax		—			—			(12.01	)		—			(12.01	)
Comprehensive loss		(84115.89	)		85140.18			(4462.20	)		(4180.75	)		(85117.6	)
Less: comprehensive income attributable to non-controlling interest		—			—			(0.24	)		—			(0.24	)
Comprehensive loss attributable to Affinion Group, Inc.	$	(84115.89	)	$	85140.18		$	(4462.4	)	$	(4180.75	)	$	(85118.80	)

3133

UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE ~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2015

(In millions)

							Non-
	Parent			Guarantor			Guarantor
	Company			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Operating Activities
Net loss	$	(4250.24	)	$	93154.24		$	(3240.05	)	$	(60113.94	)	$	(4149.9	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		0.45			3450.29			1320.43			—			4871.07
Amortization of debt discount and financing costs		35.86			—			01.94			—			4.7.0
Facility exit costs		—			1.1			—			—			1.1
Recovery of accounts receivable loss provided for		—			(5.7	)		0.2			—			(5.5	)
Share-based compensation		0.6			—			—			—			0.6
Facility exit costs		—			1.2			—			—			1.2
Equity in (income) loss of subsidiaries		(62.0	)		1.1			—			60.9			—
Share-based compensation		1.4			—			—			—			1.4
Deferred income taxes		0.2			1.8			(0.5	)		—			1.5
Equity in (income) loss of subsidiaries		(111.5	)		(1.9	)		—			113.4			—
Deferred income taxes		0.3			1.9			(0.7	)		—			1.5
Net change in assets and liabilities:
Restricted cash		1.67			0.78			~~(0.~~1.6	)		—			24.21
Receivables		(0.68	)		(71.96	)		97.89			—			18.37
Receivables from related parties		(012.48	)		4.20			012.48			—			4.20
Profit-sharing receivables from insurance carriers		—			114.83			—			—			114.83
Prepaid commissions		—			(31.53	)		(0.21	)		—			(31.72	)
Other current assets		(936.64	)		417.61			(0.35	)		—			(518.38	)
Contract rights and list fees		—			(10.14	)		—			—			(10.14	)
Other non-current assets		—0.1			(813.61	)		(0.3	)		—			(813.93	)
Accounts payable and accrued expenses		620.0			(93.93	)		(631.31	)		—			(107.28	)
Payables to related parties		(1.97	)		(0.19	)		—			—			(2.0.8	)
Deferred revenue		0.54			(7.10	)		0.53			—			(6.13	)
Income taxes receivable and payable		(0.34	)		~~(0.1~~-	)		(0.41	)		—			—(0.5	)
Other long-term liabilities		0.1			(56.45	)		0.67			—			(45.7	)
Other, net		01.93			(0.78	)		2.37			—			23.52
Net cash used in operating activities		(~~102~~182.96	)		~~108~~206.3			(1124.4	)		—			(6.0.7	)
Investing Activities
Capital expenditures		0.75			(711.92	)		(812.06	)		—			(1523.23	)
Restricted cash		—			—			(01.1	)		—			(01.1	)
Proceeds from sale of investment		—			—			1.5			—			1.5
Intercompany receivables and payables		—			(99193.79	)		—			99193.79			—
Net cash used in investing activities		0.75			(~~107~~205.61	)		(612.62	)		99193.79			(1322.89	)
Financing Activities
Borrowings under revolving credit facility, net		5461.0			—			—			—			5461.0
Principal payments on borrowings		(35.8	)		(0.38	)		—			—			(46.16	)
Receivables from and payables to parent company		(1.9	)		—			—			—			(1.9	)
Intercompany receivables and payables		~~102~~195.76			—			(31.07	)		(99193.79	)		—
Intercompany loans		(32.6	)		—			32.6			—			—
Capital contribution to subsidiary		(0.1	)		—			0.1			—			—
Net cash provided by financing activities		118.4			(0.3	)		29.6			(99.7	)		48.0
Intercompany loans		(45.8	)		—			45.8			—			—
Effect of changes in exchange rates on cash and cash equivalents		—			—			(0.5	)		—			(0.5	)
Net cash provided by financing activities		203.0			(0.8	)		44.2			(193.9	)		52.5
Net increase in cash and cash equivalents		16.2			0.4			11.1			—			27.7
Effect of changes in exchange rates on cash and cash equivalents		—			—			(1.2	)		—			(1.2	)
Net increase in cash and cash equivalents		20.9			0.4			6.4			—			27.7
Cash and cash equivalents, beginning of period		7.8			2.5			17.7			—			28.0
Cash and cash equivalents, end of period	$	2428.07		$	2.9		$	2824.81		$	—		$	55.7

3234

UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE ~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2014

(In millions)

							Non-
	Parent			Guarantor			Guarantor
	Company			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Operating Activities
Net loss	$	(84115.89	)	$	85140.18		$	(4359.29	)	$	(4180.75	)	$	(84115.65	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		0.69			3756.8			1523.76			—			5481.13
Amortization of debt discount and financing costs		4.6.4			—			01.94			—			57.58
Financing costs		5.5			—			—			—			5.5
Facility exit costs		—			01.67			—			—			01.67
Loss on extinguishment of debt		6.0			—			—			—			6.0
Share-based compensation		6.18			—			—			—			6.18
Equity in (income) loss of subsidiaries		(3368.8	)		(711.97	)		—			4180.75			—
Deferred income taxes		0.24			68.1			(01.91	)		—			57.4
Net change in assets and liabilities:
Restricted cash		—			01.63			(4.12	)		—			(32.59	)
Receivables		(0.7	)		(64.56	)		(13.6	)		—			(70.43	)
Receivables from related parties		154.10			—			(154.10	)		—			—
Profit-sharing receivables from insurance carriers		—			2535.3			—			—			2535.3
Prepaid commissions		—			(0.8.2	)		0.69			—			(07.23	)
Other current assets		(0.98	)		1315.34			(36.51	)		—			820.97
Contract rights and list fees		—			1.13			—			—			1.13
Other non-current assets		(0.1	)		(30.64	)		(0.45	)		—			~~(4.1~~-	)
Accounts payable and accrued expenses		(210.98	)		(1846.87	)		3824.03			—			(223.72	)
Payables to related parties		(32.16	)		—(0	)		—			—			(32.17	)
Deferred revenue		—			(810.54	)		(3.75	)		—			(1213.29	)
Income taxes receivable and payable		(0.42	)		0.31			0.53			—			0.42
Other long-term liabilities		(0.53	)		(35.29	)		1.80			—			(05.92	)
Other, net		(03.24	)		01.28			~~(0.6~~—	)		—			(05.62	)
Net cash used in operating activities		(~~105~~156.96	)		~~121~~184.16			(1519.62	)		—			(08.48	)
Investing Activities
Capital expenditures		42.19			(1422.27	)		(1316.65	)		—			(2336.73	)
Intercompany receivables and payables		—			(107.3	)		—			107.3			—
Restricted cash		—			—			(0.3	)		—			(0.3	)
Net cash used in investing activities		4.1			(121.5	)		(13.6	)		107.3			(23.7	)
Acquisition-related payments, net of cash acquired		—			(19.4	)		—			—			(19.4	)
Intercompany receivables and payables		—			(142.1	)		—			142.1			—
Net cash used in investing activities		2.9			(184.2	)		(16.8	)		142.1			(56.0	)
Financing Activities
Repayments under revolving credit facility, net		(4634.0	)		—			—			—			(4634.0	)
Proceeds from issuance of debt		425.0			—			—			—			425.0
Financing costs		(1821.9	)		—			—			—			(1821.9	)
Principal payments on borrowings		(~~311~~313.6	)		(0.34	)		—			—			(~~311~~314.90	)
Intercompany loan		(1927.68	)		—			1927.68			—			—
Intercompany dividend		0.78			—			(0.78	)		—			—
Receivables from and payables to parent company		(3.0	)		—			—			—			(3.0	)
Intercompany receivables and payables		88127.52			—			1814.89			(~~107~~142.31	)		—
Net cash provided by financing activities		~~115~~152.17			(0.34	)		3741.79			(~~107~~142.31	)		4552.21
Effect of changes in exchange rates on cash and cash equivalents		—			—			0(1.31	)		—			0(1.31	)
Net increase in cash and cash equivalents		13(1.30	)		(0.7	)		84.8			—			213.48
Cash and cash equivalents, beginning of period		1.7			2.9			15.0			—			19.6
Cash and cash equivalents, end of period	$	~~15.~~0.7		$	2.29		$	2319.8		$	—		$	4123.04

3335

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-Q (this “Form 10-Q”) is prepared by Affinion Group, Inc. Unless otherwise indicated or the context otherwise requires, in this Form 10-Q all references to “Affinion,” the “Company,” “we,” “our” and “us” refer to Affinion Group, Inc. and its subsidiaries on a consolidated basis; and all references to “Affinion Holdings” refer to Affinion Group Holdings, Inc., the parent company of Affinion Group, Inc.

The following discussion and analysis of our results of operations and financial condition should be read in conjunction with our audited consolidated financial statements as of December 31, 2014 and 2013, and for the years ended December 31, 2014, 2013 and 2012, included in our Annual Report on Form 10-K for the year ended December 31, 2014 (the “Form 10-K”) and with the unaudited condensed consolidated financial statements and related notes thereto presented in this Form 10-Q.

Disclosure Regarding Forward-Looking Statements

Our disclosure and analysis in this Form 10-Q may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and the Private Securities Litigation Reform Act of 1995, that are subject to risks and uncertainties. Forward-looking statements give our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. You can identify these statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe” and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. All statements other than statements of historical facts included in this Form 10-Q that address activities, events or developments that we expect, believe or anticipate will or may occur in the future are forward-looking statements.

These forward-looking statements are largely based on our expectations and beliefs concerning future events, which reflect estimates and assumptions made by our management. These estimates and assumptions reflect our best judgment based on currently known market conditions and other factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control.

Although we believe our estimates and assumptions to be reasonable, they are inherently uncertain and involve a number of risks and uncertainties that are beyond our control. In addition, management’s assumptions about future events may prove to be inaccurate. Management cautions all readers that the forward-looking statements contained in this Form 10-Q are not guarantees of future performance, and we cannot assure any reader that those statements will be realized or the forward-looking events and circumstances will occur. Actual results may differ materially from those anticipated or implied in the forward-looking statements due to the factors listed under “Item 1A. Risk Factors” in our Form 10-K and this Form 10-Q and this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section, or MD&A. All forward-looking statements speak only as of the date of this Form 10-Q. We do not intend to publicly update or revise any forward-looking statements as a result of new information, future events or otherwise, except as required by law. These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf.

Introduction

The MD&A is provided as a supplement to the unaudited condensed consolidated financial statements and the related notes thereto included elsewhere herein to help provide an understanding of our financial condition, results of our operations and changes in our financial condition. The MD&A is organized as follows:

●

Overview. This section provides a general description of our business and operating segments, as well as recent developments that we believe are important in understanding our results of operations and financial condition and in anticipating future trends.

● Results of operations. This section provides an analysis of our results of operations for the three and ~~six~~nine months ended ~~June~~September 30, 2015 and 2014. This analysis is presented on both a consolidated basis and on an operating segment basis.

● Financial condition, liquidity and capital resources. This section provides an analysis of our cash flows for the ~~six~~nine months ended ~~June~~September 30, 2015 and 2014 and our financial condition as of ~~June~~September 30, 2015, as well as a discussion of our liquidity and capital resources.

●

Critical accounting policies. This section discusses certain significant accounting policies considered to be important to our financial condition and results of operations and which require significant judgment and estimates on the part of management in their application. In addition, we refer you to our audited consolidated financial statements as of December 31, 2014 and 2013, and for the years ended December 31, 2014, 2013 and 2012, included in the Form 10-K for a summary of our significant accounting policies.

3436

Overview

Description of Business

We are one of the world’s leading customer engagement and loyalty solutions companies. We design, market and service programs that strengthen and extend customer relationships for many of the world’s largest and most respected companies. Our programs and services include:

Loyalty programs that help reward, motivate and retain consumers,

Membership programs that help consumers save money and gain peace of mind,

Package programs that bundle valuable discounts, protection and other benefits to enhance customer relationships, and

Insurance programs that help protect consumers in the event of a covered accident, injury, illness, or death.

We design customer engagement and loyalty solutions with an attractive suite of benefits and ease of usage that we believe are likely to interest and engage consumers based on their needs and interests. For example, we provide discount travel services, credit monitoring and identity-theft resolution, accidental death and dismemberment insurance (“AD&D”), roadside assistance, various checking account and credit card enhancement services, loyalty program design and management, disaggregated loyalty points redemptions for gift cards, travel and merchandise, as well as other products and services.

We are a global leader in the designing, marketing and servicing of comprehensive customer engagement and loyalty solutions that enhance and extend the relationship of millions of consumers with many of the largest and most respected companies in the world. We generally partner with these leading companies in two ways: 1) by developing and supporting programs that are natural extensions of our partner companies’ brand image and that provide valuable services to their end-customers, and 2) by providing the back-end technological support and redemption services for points-based loyalty programs. Using our expertise in customer engagement, product development, creative design and data-driven targeted marketing, we develop and market programs and services that enable the companies we partner with to generate significant, high-margin incremental revenue, enhance our partners’ brands among targeted consumers as well as strengthen and enhance the loyalty of their customer relationships. The enhanced loyalty can lead to increased acquisition of new customers, longer retention of existing customers, improved customer satisfaction rates, and greater use of other services provided by such companies. We refer to the leading companies that we work with to provide customer engagement and loyalty solutions as our marketing partners or clients. We refer to the consumers to whom we provide services directly under a contractual relationship as subscribers, insureds or members. We refer to those consumers that we service on behalf of a third party, such as one of our marketing partners, and with whom we have a contractual relationship as end-customers.

We utilize our substantial expertise in a variety of direct engagement media to market valuable products and services to the customers of our marketing partners on a highly targeted, campaign basis. The selection of the media employed in a campaign corresponds to the preferences and expectations the targeted customers have demonstrated for transacting with our marketing partners, as we believe this optimizes response, thereby improving the efficiency of our marketing investment. Accordingly, we maintain significant capabilities to market through direct mail, point-of-sale, direct response television, the internet, inbound and outbound telephony and voice response unit marketing, as well as other media as needed.

We believe our portfolio of the products and services that are embedded in our engagement solutions is the broadest in the industry. Our scale, combined with the industry’s largest proprietary database, proven marketing techniques and strong marketing partner relationships developed over our 40 year operating history, position us to deliver consistent results in a variety of market conditions.

As of December 31, 2014, we had approximately 59 million subscribers and end-customers enrolled in our membership, insurance and package programs worldwide and approximately 62 million customers who received credit or debit card enhancement services or loyalty points-based management services.

We organize our business into four business segments:

●

Membership Products. We design, implement and market subscription programs that provide our members in North America with personal protection benefits and value-added services including credit monitoring and identity-theft resolution services as well as access to a variety of discounts and shop-at-home conveniences in such areas as retail merchandise, travel, automotive and home improvement.

●

Insurance and Package Products. We market AD&D and other insurance programs and design and provide checking account enhancement programs to financial institutions in North America. These programs allow financial institutions to bundle valuable discounts, protection and other benefits with a standard checking account and offer these packages to customers for an additional monthly fee.

●

Global Loyalty Products. We design, implement and administer points-based loyalty programs and, as of December 31, 2014, managed programs representing an aggregate estimated redemption value of approximately $2.85 billion for financial, travel, auto and other companies. We provide our clients with solutions that meet the

3537

most popular redemption options desired by their program points holders, including travel services, gift cards, cash back and merchandise, and, in 2014, we facilitated approximately $2.0 billion in redemption volume. We also provide enhancement benefits to major financial institutions in connection with their credit and debit card programs. In addition, we provide and manage turnkey travel services that are sold on a private label basis to provide our clients’ customers with direct access to our proprietary travel platform. A marketing partner typically engages us on a fee-for-service contractual basis, where we generate revenue in connection with the volume of redemption transactions.

●

International Products. International Products comprises our Membership and Package customer engagement businesses outside North America and also includes a discrete loyalty program benefit provider. We expect to leverage our current international operational platform to expand our range of products and services, develop new marketing partner relationships in various industries and grow our geographical footprint. In 2012, we expanded into Turkey through the acquisition of existing marketing capabilities and also launched business operations in Brazil. In 2015, we undertook business activities in Australia.

We offer our products and services through both retail and wholesale arrangements with our marketing partners as well as through direct-to-consumer marketing. Currently, we primarily provide wholesale services and benefits derived from our credit card registration, credit monitoring and identity-theft resolution products. In the majority of our retail arrangements, we incur the marketing solicitation expenses to acquire new customers for our subscription-based membership, insurance and package enhancement products with the objective of building a base of highly profitable and predictable recurring future revenue streams and cash flows. For our membership, insurance and package enhancement products, these upfront marketing costs are expensed when the costs are incurred in support of a launched campaign.

Our membership programs are offered under a variety of terms and conditions. Prospective members are usually offered incentives (e.g. free credit reports or other premiums) and one to three month risk-free trial periods to encourage them to evaluate and use the benefits of membership before the first billing period takes effect. We do not recognize any revenue during the trial period and expense the cost of all incentives and program benefits and servicing costs as incurred.

Customers of our membership programs typically pay their subscription fees either annually or monthly. Our membership products may have significant timing differences between the receipt of membership fees for annual members and revenue recognition. Historically, memberships were offered primarily under full money back terms whereby a member could receive a full refund upon cancellation at any time during the current membership term. These revenues were recognized upon completion of the membership term when they were no longer refundable. Depending on the length of the trial period, this revenue may not have been recognized for up to 16 months after the related marketing spend was incurred and expensed. Currently, annual memberships are primarily renewed under pro-rata arrangements in which the member is entitled to a prorated refund for the unused portion of their membership term. This allows us to recognize revenue ratably over the annual membership term. Upon completion of the subscription term, the membership renews under generally the same billing terms in which it originated. Given that we had historically offered a significant amount of subscriptions offering annual terms, our existing base continues to reflect a blend of both monthly and annual terms, and will continue doing so for as long as a substantial percentage of the annual subscribers renew. However, the majority of our recent solicitation activity has been for subscriptions offering monthly terms, and during the ~~six~~nine months ended ~~June~~September 30, 2015 and the year ended December 31, 2014, in excess of 95% of our new member and end-customer enrollments were in monthly payment programs. Revenue is recognized monthly under both annual pro rata and monthly memberships, allowing for a better matching of revenues and related servicing and benefit costs when compared to annual full money back memberships.

When marketing with a marketing partner, we generally utilize the brand names and customer contacts of the marketing partner in our marketing campaigns. We usually compensate our marketing partners either through commissions based on revenues we receive from members (which we expense in proportion to the revenue we recognize) or up-front marketing payments, commonly referred to as “bounties” (which we expense when incurred). In addition, we enter into arrangements with certain marketing partners where we pay the marketing partners advance commissions which provide the potential for recovery from the marketing partners if certain targets are not achieved. These payments are capitalized and amortized over the expected life of the acquired members. The commission rates that we pay to our marketing partners differ depending on the arrangement we have with the particular marketing partner and the type of media we utilize for a given marketing campaign.

In a direct-to-consumer campaign, we invest in a variety of media to generate consumer awareness of our programs and services and stimulate responses from our targeted markets. The media channels we employ in direct-to-consumer include television advertising as well as Internet marketing, such as search engine optimization and related techniques. When marketing directly to the consumer, we generally use our proprietary brands and avoid incurring any commission expense.

We serve as an agent and third-party administrator on behalf of a variety of underwriters for the marketing of AD&D and our other insurance products. Free trial periods and incentives are generally not offered with our insurance programs. Insurance program participants typically pay their insurance premiums either monthly or quarterly. We earn revenue in the form of commissions collected

3638

on behalf of the insurance carriers and participate in profit-sharing relationships with certain of the carriers that underwrite the insurance policies that we market, where profit is measured by the excess amount of premium remitted to the carrier less the cost for claim activities and any related expenses. In 2014, we transitioned a significant portion of our AD&D business from our former primary insurance carrier to new carriers that receive a fixed distribution of collected premiums rather than participating in the profit-sharing arrangement. As a result of the substantial completion of this transition, a significant portion of the business is no longer subject to profit-sharing arrangements. Our estimated share of profits from these arrangements is reflected as profit-sharing receivables from insurance carriers on the accompanying unaudited condensed consolidated balance sheets and any changes in estimated profit sharing in connection with the actual claims activities are periodically recorded as an adjustment to net revenue. Insurance revenues are recognized ratably over the insurance period for which a policy is in effect and there are no significant differences between cash flows and related revenue recognition. Revenue from insurance programs is reported net of insurance costs in the accompanying unaudited condensed consolidated statements of comprehensive income.

In our wholesale arrangements, we provide our products and services as well as customer service and fulfillment related to such products and services to support programs that our marketing partners offer to their customers. In such arrangements, our marketing partners are typically responsible for customer acquisition, retention and collection and generally pay us one-time implementation fees and on-going monthly service fees based on the number of members enrolled in their programs. Implementation fees are recognized ratably over the contract period while monthly service fees are recognized in the month earned. Wholesale revenues also include revenues from transactional activities associated with our programs, such as the sales of additional credit reports, discount shopping or travel purchases by members. The revenues from such transactional activities are recognized in the month earned.

We have a highly variable-cost structure because the majority of our expenses are either discretionary in nature or tied directly to the generation of revenue. In addition, we have achieved meaningful operating efficiencies by combining similar functions and processes, consolidating facilities and outsourcing a significant portion of our call center and other back-office processing, particularly with respect to previously acquired businesses. This added flexibility better enables us to deploy our discretionary marketing expenditures globally across our operations to maximize returns.

Factors Affecting Results of Operations and Financial Condition

Competitive Environment

As a leader in the affinity direct marketing industry, we compete with many other organizations, including certain of our marketing partners as well as other benefit providers, to obtain a share of the end-consumer’s spending in each of our respective product categories. As an affinity direct marketer, we derive our leads from a marketing partner’s contacts, which our competitors also seek access to, and we must therefore generate sufficient earnings per lead for our marketing partners to compete effectively for access to their end-customers.

As direct-to-consumer marketers, we compete with any company who offers comparable benefits and services to what we market from our own product portfolio.

We compete with companies of varying size, financial strength and availability of resources. Our competitors include marketing solutions providers, financial institutions, insurance companies, consumer goods companies, internet companies and others, as well as direct marketers offering similar programs. Some of our competitors are larger than we are, have greater financial and other resources and are able to deploy more resources in their pursuit of the limited target market for our products.

We expect these competitive environments to continue in the foreseeable future.

Acquisitions

In addition to providing merchandise, gift cards and experiential rewards for loyalty programs, SkyMall provides services including strategy, creative, technology and fulfillment. The acquisition of SkyMall enhances the Company’s position as a leading loyalty program administrator and incentives provider, as well as solidifies the Company’s position within certain current verticals and provides access to certain new verticals.

3739

Financial Industry Trends

Historically, financial institutions have represented a significant majority of our marketing partner base. Consumer banking is a highly regulated industry, with various federal, state and international authorities governing various aspects of the marketing and servicing of the products we offer through our financial institution partners.

For instance, the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) mandates the most wide-ranging overhaul of financial industry regulation in decades. Dodd-Frank created the Consumer Financial Protection Bureau (the “CFPB”) which became operational on July 21, 2011, and has been given authority to regulate all consumer financial products sold by banks and non-bank companies. These regulations have imposed additional reporting, supervisory, and regulatory requirements on our financial institution marketing partners which ~~has~~have adversely affected our business, financial condition and results of operations. In addition, even an inadvertent failure of our financial institution marketing partners to comply with these laws and regulations, as well as rapidly evolving social expectations of corporate fairness, could adversely affect our business or our reputation going forward. Some of our marketing partners have become involved in governmental inquiries that include our products or marketing practices. As a result, certain financial institution marketing partners have, and others could, delay or cease marketing with us, terminate their agreements with us, require us to cease providing services to members or end-consumers, or require changes to our products or services to consumers that could also have a material adverse effect on our business. Partially as a result of these factors, we have experienced a decline in our domestic membership customer base and domestic membership revenues, and we anticipate this trend will continue.

In certain circumstances, our financial marketing partners have sought to source and market their own in-house programs, most notably programs that are analogous to our credit card registration, credit monitoring and identity-theft resolution services. As we have sought to maintain our market share in these areas and to continue these programs with our marketing partners, in some circumstances, we have shifted from a retail marketing arrangement to a wholesale arrangement which results in lower net revenue, but unlike our retail arrangement, has no related commission expense, thereby preserving our ability to earn a suitable rate of return on the campaign. During periods of increased interest from our marketing partners for wholesale activity, partially as a result of this trend, we have experienced a revenue reduction in our membership business.

Internationally, our package products have been primarily offered by some of the largest financial institutions in Europe. As these banks attempt to increase their own net revenues and margins, we have experienced significant price reductions when our agreements come up for renewal from what we had previously been able to charge these institutions for our programs. We expect this pricing pressure on our international package offerings to continue in the future.

Regulatory Environment

We are subject to federal and state regulation as well as regulation by foreign authorities in other jurisdictions. Certain laws and regulations that govern our operations include: federal, state and foreign marketing and consumer protection laws and regulations; federal, state and foreign privacy and data protection laws and regulations; federal, state and foreign insurance and insurance mediation laws and regulations; and federal, state and foreign travel laws and regulations. Federal regulations are primarily enforced by the Federal Trade Commission, the Federal Communications Commission and the CFPB. State regulations are primarily enforced by individual state attorneys general and insurance departments. Foreign regulations are enforced by a number of regulatory bodies in the relevant jurisdictions.

These regulations primarily impact the means we use to market our programs, which can reduce the acceptance rates of our solicitation efforts, impact our ability to obtain information from our members and end-customers and impact the benefits we provide and how we service our members and end-customers. In addition, new and contemplated regulations enacted by, or marketing partner settlement agreements or existing and any future consent orders with, the CFPB could impose additional reporting, supervisory and regulatory requirements on, as well as result in inquiries of, us and our marketing partners that could delay or terminate marketing campaigns with certain marketing partners, impact the services and products we provide to consumers, and adversely affect our business, financial condition and results of operations.

We incur significant costs to ensure compliance with these regulations; however, we are party to lawsuits, including class action lawsuits, and regulatory investigations involving our business practices which also increase our costs of doing business. See Note 7 to our unaudited condensed consolidated financial statements in “Item 1. Financial Statements.”

Seasonality

Historically, seasonality has not had a significant impact on our business. Our revenues are more affected by the timing of marketing programs that can change from year to year depending on the opportunities available and pursued. More recently, in connection with the growth in our loyalty business, we have experienced increasing seasonality in the timing of our cash flows, particularly with respect to working capital. This has been due primarily to the consumer’s increasing acceptance and use of certain categories for points redemptions, such as travel services and gift cards. These categories typically present a delay from the time we

3840

incur a cash outlay to provision the redemption until we are reimbursed by the client for the activity, and in certain instances, these delays may extend across multiple reporting periods. Redemptions for some categories, such as gift cards, have been weighted more heavily to the end of the year due to consumers’ increasing usage of points in connection with seasonal gift giving.

Results of Operations

Supplemental Data

We manage our business using a portfolio approach, meaning that we allocate and reallocate our marketing investments in the ongoing pursuit of the highest and best available returns, allocating our resources to whichever products, geographies and programs offer the best opportunities. With the globalization of our clients, the continued evolution of our programs and services and the ongoing refinement and execution of our marketing allocation strategy, we have developed the following table that we believe captures the way we look at the businesses (subscriber and insured amounts in thousands except per average subscriber and insured amounts).

	Three Months Ended				~~Six~~Nine Months Ended
	June 30,				June 30,
	September 30,				September 30,
	2015		2014		2015		2014
Global Average Subscribers, excluding Basic Insureds		3836,~~155~~932		3938,~~571~~905		3837,~~173~~759		39,~~884~~557
Annualized Net Revenue Per Global Average Subscriber, excluding Basic Insureds (1)	$	2627.3925	$	2526.9893	$	26.4974	$	26.7480
Global Membership Subscribers
Average Global Retail Subscribers (2)		76,~~256~~709		7,~~633~~457		7,~~321~~117		7,~~770~~665
Annualized Net Revenue Per Global Average Subscriber (1)	$	8491.2091	$	8689.3797	$	8385.2597	$	8587.7109
Global Package Subscribers and Wholesale
Average Global Package Subscribers and Wholesale (2)		2726,~~339~~733		2827,~~164~~712		27,~~246~~075		28,~~318~~116
Annualized Net Revenue Per Global Average Package and Wholesale Subscriber (1)	$	6.0225	$	6.4957	$	6.2122	$	6.6361
Global Insureds
Average Supplemental Insureds (2)		3,~~560~~490		3,~~774~~736		3,~~606~~567		3,~~796~~776
Annualized Net Revenue Per Supplemental Insured (1)	$	6463.9578	$	4952.3411	$	64.4725	$	5654.0475
Global Average Subscribers, including Basic Insureds		5755,~~271~~706		59,~~730~~015		5756,~~546~~932		6059,~~143~~767

(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.

Wholesale members include end-customers where we typically receive a monthly service fee to support programs offered by our marketing partners. Certain programs historically offered as retail arrangements have switched to wholesale arrangements with lower annualized price points and no commission expense.

Basic insureds typically receive $1,000 of AD&D coverage at no cost to the consumer since the marketing partner pays the cost of this coverage. Supplemental insureds are customers who have elected to pay premiums for higher levels of coverage.

Segment EBITDA

Segment EBITDA consists of income from operations before depreciation and amortization. Segment EBITDA is the measure management uses to evaluate segment performance, and we present Segment EBITDA to enhance your understanding of our operating

performance. We use Segment EBITDA as one criterion for evaluating our performance relative to that of our peers. We believe that Segment EBITDA is an operating performance measure, and not a liquidity measure, that provides investors and analysts with a measure of operating results unaffected by differences in capital structures, capital investment cycles and ages of related assets among otherwise comparable companies. However, Segment EBITDA is not a measurement of financial performance under accounting principles generally accepted in the United States (“U.S. GAAP”), and Segment EBITDA may not be comparable to similarly titled measures of other companies. You should not consider Segment EBITDA as an alternative to operating or net income determined in accordance with U.S. GAAP, as an indicator of operating performance or as an alternative to cash flows from operating activities determined in accordance with U.S. GAAP, or as an indicator of cash flows, or as a measure of liquidity.

Three Months Ended June 30, 2015 Compared to Three Months Ended June 30, 2014

The following table summarizes our consolidated results of operations for the three months ended June 30, 2015 and 2014:

	Three Months Ended			Three Months Ended
	June 30,			June 30,			Increase
	2015			2014			(Decrease)
	(in millions)
Net revenues	$	295.0		$	303.8		$	(8.8	)
Expenses:
Cost of revenues, exclusive of depreciation and amortization shown separately below:
Marketing and commissions		111.0			120.1			(9.1	)
Operating costs		99.4			106.0			(6.6	)
General and administrative		28.8			40.3			(11.5	)
Facility exit costs		0.6			0.7			(0.1	)
Depreciation and amortization		23.8			29.1			(5.3	)
Total expenses		263.6			296.2			(32.6	)
Income from operations		31.4			7.6			23.8
Interest income		0.2			0.3			(0.1	)
Interest expense		(47.4	)		(46.3	)		(1.1	)
Loss on extinguishment of debt		-			(6.0	)		6.0
Other income, net		0.1			-			0.1
Loss before income taxes and non-controlling interest		(15.7	)		(44.4	)		28.7
Income tax expense		(1.1	)		(4.1	)		3.0
Net loss		(16.8	)		(48.5	)		31.7
Less: net income attributable to non-controlling interest		(0.1	)		(0.1	)		-
Net loss attributable to Affinion Group, Inc.	$	(16.9	)	$	(48.6	)	$	31.7

Summary of Operating Results for the Three Months Ended June 30, 2015

The following is a summary of changes affecting our operating results for the three months ended June 30, 2015.

Net revenues decreased $8.8 million, or 2.9%, for the three months ended June 30, 2015 as compared to the same period of the prior year primarily as lower retail revenues from a decline in retail member volumes in Membership Products and lower revenue in International Products primarily from an unfavorable foreign exchange impact were partially offset by higher net revenues in Insurance and Package Products principally from a lower cost of insurance.

Segment EBITDA increased $18.5 million as the impact of the lower net revenues was more than offset by lower marketing and commissions, lower operating costs and lower general and administrative expense.

Three Months Ended June 30, 2015 Compared to Three Months Ended June 30, 2014

The following section provides an overview of our consolidated results of operations for the three months ended June 30, 2015 as compared to the three months ended June 30, 2014.

Net Revenues. During the three months ended June 30, 2015 we reported net revenues of $295.0 million, a decrease of $8.8 million, or 2.9%, as compared to net revenues of $303.8 million in the comparable period of 2014. Net revenues in Membership Products decreased $11.3 million primarily due to the continued attrition of legacy members, including those from our large financial institution partners, partially offset by increased revenues from new joins acquired through partners with whom we are actively marketing. Insurance and Package Products revenues increased $10.0 million primarily due to a lower cost of insurance principally from an acceleration of claims in 2014 as a result of the conversion to a new primary insurance carrier and the impact of lower average Package members. Global Loyalty Products net revenues decreased $0.7 million as growth with existing and new clients was more than offset by lower revenue from the loss of a key client in the travel space in the second quarter of 2015 and the absence in 2015 of programming fee-based revenue from the second quarter of 2014. International Products net revenues decreased $6.9 million. On a currency consistent basis, International Products net revenues increased $8.6 million due to higher retail membership revenue in both our online and offline channels associated with increased members and higher price points along with growth in the wholesale sector. These increases were more than offset by an unfavorable foreign exchange impact of $15.5 million.

Marketing and Commissions Expense. Marketing and commissions expense decreased by $9.1 million, or 7.6%, to $111.0 million for the three months ended June 30, 2015 from $120.1 million for the three months ended June 30, 2014. Marketing and commissions expense decreased in International Products by $6.9 million primarily due to the favorable impact of foreign exchange. Costs decreased $2.5 million in Insurance and Package Products primarily due to lower commissions.

Operating Costs. Operating costs decreased by $6.6 million, or 6.2%, to $99.4 million for the three months ended June 30, 2015 from $106.0 million for the three months ended June 30, 2014. Operating costs decreased $4.5 million in International Products primarily due to the favorable impact of foreign exchange and $2.7 million in Membership Products primarily from lower product and servicing costs associated with the lower retail member volumes.

General and Administrative Expense. General and administrative expense decreased by $11.5 million, or 28.5% to $28.8 million for the three months ended June 30, 2015 from $40.3 million for the three months ended June 30, 2014. Corporate costs decreased by $5.6 million primarily from lower professional fees of $5.6 million principally due to the absence in 2015 of costs related to the May 2014 amendment to our senior secured credit facility completed during the second quarter of 2014. Costs decreased $6.1 million in Membership Products primarily due to lower legal reserves of $3.3 million related to the settlement reached with the CFPB in July 2015 and benefits realized from cost savings initiatives.

Depreciation and Amortization Expense. Depreciation and amortization expense decreased by $5.3 million for the three months ended June 30, 2015 to $23.8 million from $29.1 million for the three months ended June 30, 2014, primarily from lower amortization expense recorded in 2015 as compared to 2014 in the amount of $2.2 million related to intangible assets acquired in various acquisitions, principally member relationships which are amortized on an accelerated basis. Depreciation expense decreased by $2.4 million primarily the result of higher depreciation recorded in the second quarter of 2014 related to legacy international systems.

Interest Expense. Interest expense increased $1.1 million, or 2.4% to $47.4 million for the three months ended June 30, 2015 from $46.3 million for the three months ended June 30, 2014, primarily from higher interest expense associated with higher interest rates and increased principal amount of term loan borrowings associated with the May 2014 amendment of our senior secured credit facility.

Loss on Extinguishment of Debt. Loss on extinguishment of debt in 2014 includes $6.0 million of the pro rata portion of the unamortized deferred financing costs associated with the May 2014 amendment to our senior secured credit facility completed in the second quarter of 2014.

Income Tax Expense. Income tax expense decreased by $3.0 million for the three months ended June 30, 2015 as compared to the three months ended June 30, 2014, primarily due to a decrease in the current foreign and state and deferred federal and state tax liabilities for the three months ended June 30, 2015, partially offset by an increase in the deferred foreign tax liabilities for the same period.

The Company’s effective income tax rates for the three months ended June 30, 2015 and 2014 were (6.7)% and (9.1)%, respectively. The difference in the effective tax rates for the three months ended June 30, 2015 and 2014 is primarily a result of a decrease in loss before income taxes and non-controlling interest from $44.4 million for the three months ended June 30, 2014 to $15.7 million for the three months ended June 30, 2015 and a decrease in the income tax provision from $4.1 million for the three months ended June 30, 2014 to $1.1 million for the three months ended June 30, 2015. The Company’s tax rate is affected by recurring items, such as tax rates in foreign jurisdictions and the relative amount of income it earns in those jurisdictions. It is also affected by discrete items that may occur in any given year, but are not consistent from year to year. In addition to state and foreign income taxes, the requirement to maintain valuation allowances had the most significant impact on the difference between the Company’s effective tax rate and the statutory U.S. federal income tax rate of 35%.

Three Months Ended September 30, 2015 Compared to Three Months Ended September 30, 2014

The following table summarizes our consolidated results of operations for the three months ended September 30, 2015 and 2014:

	Three Months Ended		Three Months Ended
	September 30,		September 30,		Increase
	2015		2014		(Decrease)
	(in millions)
Net revenues	$	291.3	$	303.0	$	(11.7	)
Expenses:
Cost of revenues, exclusive of depreciation and amortization shown separately below:
Marketing and commissions		104.7		114.8		(10.1	)
Operating costs		95.1		96.7		(1.6	)
General and administrative		29.3		50.6		(21.3	)
Facility exit costs		0.1		1.1		(1.0	)
Depreciation and amortization		23.7		27.2		(3.5	)
Total expenses		252.9

Filing Compare · Affinion Group, Inc.