UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

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

For the fiscal year ended December 31, ~~2014~~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)

Securities registered pursuant to section 12(b) of the Act: None

Securities registered pursuant to section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No T

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes T No ¨

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 T

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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes T No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. T

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	T (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 Act). Yes ¨ No T

The aggregate market value of the voting and non-voting common equity held by non-affiliates as of the close of business on June 30, ~~2014~~2015 was zero.

The number of shares outstanding of the registrant’s common stock, $0.01 par value, as of ~~March~~February 1823, ~~2015~~2016 was 100.

DOCUMENTS INCORPORATED BY REFERENCE: None

TABLE OF CONTENTS

		Page
PART I		3
Item 1.	Business	3
Item 1A.	Risk Factors	23
Item 1B.	Unresolved Staff Comments	36
Item 2.	Properties	37
Item 3.	Legal Proceedings	37
Item 4.	Mine Safety Disclosures	40
PART II		41
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	41
Item 6.	Selected Financial Data	4142
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	43
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	7075
Item 8.	Financial Statements and Supplementary Data	7276
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	7276
Item 9A.	Controls and Procedures	7276
Item 9B.	Other Information	7579
PART III		7579
Item 10.	Directors, Executive Officers and Corporate Governance	7579
Item 11.	Executive Compensation	8083
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	98104
Item 13.	Certain Relationships and Related Transactions, and Director Independence	~~102~~107
Item 14.	Principal Accounting Fees and Services	~~108~~118
Item 15.	Exhibits, Financial Statement Schedules	~~108~~119

PART I

Unless the context otherwise requires or indicates,

all references to “Affinion,” the “Company,” “we,” “our” and “us” refer to Affinion Group, Inc., a Delaware corporation, and its subsidiaries on a consolidated basis after giving effect to the consummation on October 17, 2005 of the acquisition (the “Acquisition”) by Affinion Group, Inc. of Affinion Group, LLC (known as Cendant Marketing Group, LLC prior to the consummation of the Acquisition) (“AGLLC”) and Affinion International Holdings Limited (known as Cendant International Holdings Limited prior to the consummation of the Acquisition) (“AIH”) and the other transactions described in this Annual Report on Form 10-K under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—The Transactions,” but for periods prior to the Acquisition, refer to the historical operations of Cendant Marketing Services Division (a division of Cendant Corporation) (the “Predecessor”) that we acquired in the Acquisition,

all references to our consolidated subsidiaries include (i) Affinion Investments, LLC, Affinion Investments II, LLC and Affinion Developments, LLC, all of which are unrestricted subsidiaries under the indentures governing our senior notes and senior subordinated notes (as such terms are defined below) and (ii) for periods after January 14, 2011, Webloyalty (as defined below),

all references to “Affinion Holdings” refer to our parent company, Affinion Group Holdings, Inc., a Delaware corporation, and

all references to “fiscal year” are to the twelve months ended December 31 of the year referenced. In addition, a glossary of terms used in this Report to describe our business has been provided. See “Glossary.”

Item 1.

Business

The following description of our business is current as of December 31, ~~2014~~2015 and does not give effect to or incorporate any subsequent events unless otherwise noted.

Overview

~~Affinion~~We isare 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, ~~positions~~position us to deliver consistent results in a variety of market conditions.

Our comprehensive portfolio of customer engagement and loyalty solutions include:

development of customized and relevant products and services that address fundamental consumer needs and fulfill the expectations consumers have of the services and offers they expect to receive from our marketing partners;

marketing strategy and management of customized marketing programs;

data analysis utilizing our proprietary technology and databases to target customers most likely to value, and therefore respond to, our products and services;

· design and implementation of marketing campaigns in various types of media including direct mail, online marketing, point-of-sale marketing, direct response ~~television~~ marketing, ~~inbound~~ and ~~outbound~~inbound telephony ~~and voice response unit marketing~~;

fulfillment, customer service, website and mobile application development;

loyalty program design and administration; and

disaggregated loyalty redemption options, such as gift cards, cash back, travel and merchandise.

Our business model is characterized by substantial recurring revenues, strong ~~operating~~segment EBITDA margins and significant operating cash flows before interest payments. We generate revenues primarily through the sale of our value-added subscription-based products and services to the end-customers of our marketing partners and customers whom we bill on a monthly, quarterly or annual basis. Further, we generate revenues from our marketing partners that choose to directly market our products and services to their customers on a wholesale basis and typically pay us a monthly fee per enrolled customer. We also generate revenues through our loyalty customer engagement business by designing and administering points-based loyalty programs on a contractual, fee-for-service basis. As a result, a substantial portion of our revenues consists of subscription payments and service fees that are recurring in nature or otherwise highly predictable given the terms of our contracts with marketing partners. ~~Revenue~~For each of the last five years, revenue from our existing customer base and long-term marketing partner relationships has historically generated approximately 80% of our next twelve months net revenue. For example, net revenues generated in 2015 from customers who were active as of December 31, 2014 represented approximately 80% of our total net revenues in 2015, and net revenues generated in 2014 from customers who were active as of December 31, 2013 represented approximately 82% of our total net revenues in 2014. We structure our contractual relationships with our marketing partners to support our strategy of pursuing the most profitable opportunities for our marketing, and related commission, expenditures.

For the year ended December 31, ~~2014~~2015, we had net revenues, net loss attributable to us and Adjusted EBITDA (as defined below) of $1,~~242~~169.8 million, $~~374~~30.40 million and $~~292~~268.26 million, respectively.

Business

We seek to address the needs of three primary parties in developing and implementing our customer engagement and loyalty solutions:

Marketing partners, which are the companies for whom we develop and manage customer engagement and loyalty programs;

Customers, which are the end-customers of our marketing partners and who subscribe to one or more of our programs or who are eligible to receive rewards for their transaction activity with the marketing partner; and

Vendors, which are the third-party suppliers who provide components for our products and services as needed.

Marketing Partners:

Our marketing partners are many of the leading companies in the United States and Europe. They enter into agreements with us to:

offer products and services that both appeal to their customers and fulfill the expectations those customers have of the types of products and services they expected to receive from the partner, thereby engaging those customers in a deeper, more meaningful, longer and more profitable relationship with them;

develop customized marketing programs that leverage their brand names in offering these programs and services to their customers; and

· design, implement and administer points-based loyalty programs that provide customers with desirable rewards for performing certain behaviors that are beneficial to our marketing ~~partner~~partners, such as repeat buying.

Our marketing partners value our services because we enhance their customer relationships and strengthen customer loyalty, promote their brands and provide them with incremental, high-margin revenue because we often bear the costs of marketing and servicing these programs. Given the extent of our competencies in direct response media and the efficiencies in our marketing, we believe that we implement and operate our customer engagement and loyalty programs more effectively than a typical partner could on a stand-alone basis, thereby allowing our marketing partners to focus on their core businesses.

As of December 31, ~~2014~~2015, we had more than 5,~~500~~600 marketing partners in a variety of industries including financial services, retail, travel, telecommunications and utilities. Some of our leading marketing partners, based on revenues for the year ended December 31, ~~2014~~2015, include Wells Fargo, Citibank, JPMorgan Chase, Transworld Entertainment and Royal Bank of Scotland. Revenues generated from our largest marketing partner, Wells Fargo, and its customers, accounted for 11approximately 10.2% of total revenues in ~~2014~~2015. We have several contracts with Wells Fargo and in ~~2014~~2015, 7679% of the revenues from these contracts were attributable to the individual subscribers who paid us directly. By providing services directly to the end-customers of our marketing partners, we become an important part of our marketing partners’ businesses. Many of our marketing partners have been working with us for over ten years.

Customers:

Our customers value participation in our programs because of the attractive benefits we provide either to address their fundamental needs in lifestyle and protection services at a reasonable price or to reward them for continued activity with our marketing partners, the ease of use and the wide range of benefits available with our products and the high level of service we deliver. Depending on the nature of the relationship we have with a given marketing partner, customers may either purchase our programs directly from us or receive the program from our marketing partner. We derived approximately 3533.5% of our net revenues in 2015 from members and end-customers we obtained through our 10 largest marketing partners.

As of December 31, ~~2014~~2015, we had approximately 5954 million subscribers and end-customers enrolled in our membership, insurance and package programs worldwide and approximately 6240 million customers who received credit or debit card enhancement services or loyalty points-based management services.

Vendors:

When we are unable to provide a benefit or service with our in-house capabilities, we contract with one or more of our many third-party vendors to provide components for our products and services, such as credit reports, supplemental insurance coverage, travel discounts, gift cards and merchandise. Our vendors value their relationships with us because we provide them with significant incremental revenue by bundling their content with our own and offering these solutions through unique and supplementary marketing channels. Generally, our relationships with key vendors are governed by long-term contracts (typically with initial terms of up to five years that renew automatically unless notice of non-renewal is given by either party prior to renewal). By combining the services of our vendors with our in-house capabilities, in 2015 we ~~are~~were able to offer 1413 core products and services on a subscription basis with ~~351~~344 unique benefits, support almost 54,~~200~~900 versions of products and services representing different combinations of pricing, benefits configurations and branding and provide a wide range of desirable options for the redemption of loyalty rewards points.

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.

·Business 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.Segments

·For ~~Global~~the ~~Loyalty~~periods ~~Products.~~ending Weon ~~design,~~or ~~implement~~prior ~~and~~to ~~administer points-based loyalty programs and, as of~~ December 31, ~~2014~~2015, ~~managed~~we ~~programs~~organized ~~representing an aggregate estimated redemption value of approximately $2.85 billion for financial, travel, auto and other companies. We provide~~ our ~~clients~~business ~~with~~into ~~solutions that meet~~ the ~~most~~following ~~popular~~four ~~redemption~~business ~~options~~segments. ~~desired by their program points holders~~However, ~~including~~as ~~travel~~described ~~services,~~under ~~gift~~“—Global ~~cards,~~Reorganization” ~~cash back and merchandise~~below, ~~and, in 2014,~~ we ~~facilitated~~will ~~approximately~~have $2changed ~~billion~~our inbusiness ~~redemption~~segment ~~volume.~~reporting ~~We also provide enhancement benefits to major financial institutions in connection with their credit~~ and ~~debit~~operations ~~card~~beginning ~~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~~first quarter of ~~redemption transactions~~2016.

· ~~International~~Membership Products. ~~International~~We ~~Products~~design, ~~comprises~~implement ~~our Membership~~ and ~~Package~~market ~~customer~~subscription ~~engagement~~programs ~~businesses~~that ~~outside~~provide ~~North America and also includes a discrete loyalty program benefit provider. We expect to leverage~~ our ~~current~~members ~~international~~in ~~operational~~North ~~platform~~America towith ~~expand~~personal ~~our~~protection ~~range~~benefits ~~of products~~ and value-added services, ~~develop~~including ~~new~~credit ~~marketing~~monitoring ~~partner relationships in various industries~~ and ~~grow~~identity-theft ~~our~~resolution ~~geographical footprint. In 2012~~services, weas ~~expanded~~well ~~into~~as ~~Turkey~~access ~~through~~to ~~the~~a ~~acquisition~~variety of ~~existing~~discounts ~~marketing capabilities~~ and ~~also~~shop-at-home ~~launched~~conveniences ~~business~~in ~~operations~~such inareas ~~Brazil.~~as Inretail ~~2015~~merchandise, wetravel, ~~undertook~~automotive ~~business~~and ~~activities~~home ~~in Australia~~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 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, 2015, managed programs representing an aggregate estimated redemption value of approximately $2.25 billion for financial, travel, auto and other companies. We provide our clients with solutions that meet the most popular redemption options desired by their program points holders, including travel services, gift cards and merchandise, and, in 2015, we facilitated approximately $2.05 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 and Mexico.

See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Operating Segment Results” and Note 16 to our audited consolidated financial statements included elsewhere herein for additional financial information about these business segments. In addition, see Note 16 to our audited consolidated financial statements included elsewhere herein for additional financial information by geographic area.

Except as discussed under “—Global Reorganization,” all references to our business segments in this Report shall refer to the four business segments described above, which were in effect through December 31, 2015.

Global Reorganization

Effective January 1, 2016, we implemented a new globalized organizational structure (the “Global Reorganization”) to better support our key strategic initiatives and enhance long-term revenue growth. This new organizational structure allows us to combine similar lines of business on common platforms and shared infrastructures on a global basis to drive best practices and efficiencies with meaningful cost savings. In addition, we intend to no longer materially invest in lines of business that we believe are not essential to our long-term growth prospects. We remain committed to our business strategy of pursuing initiatives that maintain and enhance our position as a global leader in loyalty and customer engagement solutions. The implementation of the new global organizational structure marks another major step in our strategic plan and ongoing transformation.

Starting in the first quarter of 2016, we have the following four new operating segments:

Global Loyalty. This segment consists of all of our loyalty assets globally in which we are a provider of end-to-end loyalty solutions that help clients reward, motivate and retain customers, including program design, points management and administration, and broad-based fulfilment and redemption.

Global Customer Engagement. This segment combines all global customer engagement programs in which we or our partners expect to actively market. Through our Global Customer Engagement business, we expect that we will continue to be a leading global solutions provider that delivers a flexible mix of benefits and services for our clients that meet customers’ needs, including products that are designed to help consumers save money and gain peace of mind.

Insurance Solutions. This segment consists of the domestic insurance business, in which we are a leading third-party agent, administrator and marketer of certain Accident and Health insurance products.

Legacy Membership and Package. This segment combines all global membership programs in which we no longer expect to actively market and also includes the domestic Package business (which, through December 31, 2015, was reported in our Insurance and Package segment). This segment includes membership programs that were marketed with many of our large domestic financial institutions partners. Although we will continue to service these members, we expect that cash flows and revenues will decrease over time due to the anticipated attrition of the member base in this operating segment.

Our Market Opportunity and Competitive Strengths

We offer our products and services through our affinity marketing partners or through affinity marketing relationships and through direct-to-consumer marketing. Affinity marketing is a subset of the larger direct marketing industry and involves marketing products and services to a marketing partner’s base of customers. This generally results in higher customer receptiveness as those customers recognize and trust products that are offered through the marketing partner and its brands. In addition, incorporating our marketing partners’ logos and trademarks in our marketing materials, or co-branding with our marketing partners, provides customers with additional assurances and validation as to the quality of the program or service we are offering. We believe that products approved by, and marketing associated with, well-known brands of leading, well-respected companies provides a significant advantage over other forms of direct marketing. We also market to consumers directly through internet ~~and television~~ advertising. By leveraging our vast expertise in direct response media and campaign strategy and execution, we believe that marketing directly to consumers provides us with an effective alternate distribution channel for our programs and services and at attractive returns, as we are able to retain the full value of the subscription fee as compared to affinity marketing, where we enter into revenue-sharing agreements with our marketing partners.

We attribute our success and competitive advantage in providing comprehensive customer engagement and loyalty solutions and marketing services to our ability to leverage a number of key strengths, including:

Expertise in Various Marketing Methods and Types of Media. We have conducted ~~more~~approximately ~~than 53~~44,000 customer engagement and loyalty program marketing campaigns over the last five years. We utilize a variety of direct engagement media to market our programs and services, including direct mail, online marketing, point-of-sale marketing, direct response ~~and television~~ marketing, ~~inbound~~ and ~~outbound~~inbound telephony ~~and voice response unit marketing~~. To promote awareness of our programs and services when we are marketing directly to the consumer, we employ various methods, including search engine marketing and search engine optimization, which ensures our programs are exposed to consumers who have conducted a search for such services, and affiliate networking, all of which generates incremental traffic directly to our direct-branded product sites. We operate a full-service creative agency with expertise in utilizing a wide variety of customer acquisition media.

We believe that our expertise allows us to provide our marketing partners with substantial flexibility in managing and enhancing their customer relationships and also provides us with superior returns on our marketing expenditures.

Strong, Long-Term Relationships with Marketing Partners. We have a long history of providing comprehensive customer engagement and loyalty solutions and marketing services to leading companies in the U.S. and Europe. We believe that the strength and breadth of our relationships with our marketing partners provide us with a competitive advantage in maintaining stable, diversified and predictable sources of revenue. Because our services have broad consumer appeal and are relevant to any industry looking to enhance and extend the quality of their relationship across large-scale populations, our marketing partner relationships span a wide variety of industries, such as financial services, retail, travel, telecommunications and utilities, among others.

We believe that our strong network of marketing partner relationships, together with our success in delivering customized, revenue enhancing customer engagement and loyalty programs, will enable us to continue to grow our business and generate new marketing partner relationships.

Proprietary Technology, Models and Databases. Based on the length of our operating history, we believe our database of actual customer interactions, with approximately 1.1 billion unique records, is the largest and most comprehensive in the industry and cannot be replicated. We track the performance of all of our marketing campaigns across all different media and measure consumer preferences, response rates, and other engagement-related performance and profitability data while adhering to the highest standards of consumer data protection and privacy. We utilize this data to develop highly targeted, individualized marketing programs across multiple media and product offerings for each partner with the goal of strengthening their customer relationships and more precisely identifying types of customers likely to find our products and services of value.

We believe our proprietary database increases the efficacy of our marketing, enhances the profitability of our marketing expenditures, allows us to better engage with customers, and helps us to continue to secure and maintain long-term relationships with marketing partners.

Expertise in Developing Valuable, Relevant Products. We manage a broad range of benefits that are embedded into the customer engagement and loyalty solutions we market to the customers of our marketing partners. Our products are designed to address fundamental consumer needs or reward consumers for performing certain behaviors, such as increasing their spending with our marketing partners, and incorporate a range of lifestyle and valuable protection benefits related to insurance, travel, health care, automotive, identity theft protection, entertainment, shopping and merchandise or gift card rewards, among other things. We continually research, develop and test new products and benefits that are relevant to customers and build loyalty and value for our marketing partners. We market both our own customer engagement and loyalty solutions as well as those of our marketing partners, where appropriate, to meet customer needs.

We believe that our ability to customize products utilizing the broad range of benefits that we provide enables us to better meet the complex and highly specialized customer engagement needs of our marketing partners and our customers. We believe that our ability to identify and successfully enter new product and growth areas is a key competitive advantage and we will continue to seek new opportunities to expand the range of our proprietary product offerings.

Range of Capabilities for Loyalty Program Solutions. We monitor changing patterns of consumer preference to better understand the options consumers are more likely to respond to when redeeming points that have been awarded by a credit card issuer, travel service provider, retailer or other sponsor of a loyalty points program for rewards. We are able to fulfill consumers’ most preferential options because we have established direct relationships with hundreds of merchandise and gift card providers, representing ~~more~~nearly ~~than~~ 1,000 brands and we operate one of the largest travel agencies in the United States. Our clients are able to leverage these abilities to ensure that their loyalty programs are providing rewards that the consumer finds relevant and meaningful, which increases the likelihood that the program will positively influence consumer behavior.

We believe that the range of the services we are able to provide to support our clients’ loyalty programs provides us with a sustainable advantage over competitors who are not able to offer an advanced solution.

Diversified, Global Marketing Platform. Because we have marketing capabilities in 18 countries outside of the U.S., with a significant and long-standing presence in the majority of Europe’s largest markets, including the United Kingdom, the Nordic countries, Spain, Italy, France and Germany, we are able to provide our customer engagement and loyalty solutions on a global basis to better serve our marketing partners who may have operations and customers in multiple countries. We benefit from the substantial synergies generated across all of our operations, including the ability to leverage our customer engagement, marketing, loyalty and product expertise by sharing the knowledge and experience we gain from one country into a new territory, thereby improving the efficiency of our overall global operations.

We believe that our ability to focus our business development and marketing expenditures on our most profitable marketing opportunities in the most attractive markets, media and industries, domestically and internationally, is a key advantage that allows us to maximize our profitability and cash flows.

7Attractive Operating Model with Significant Free Cash Flow Generation. We derive a substantial portion of our revenues on a recurring basis from our marketing partners and their customers. Subscribers who have been acquired through previous marketing efforts become a part of our membership base. The performance of our existing base typically follows a pattern that is consistent with our historical observations, providing us with insight with respect to planning our future business activities. Our business requires very little capital to support our growth, and annual capital expenditures typically represent a small percentage of our revenues. In addition, we benefit from certain tax attributes under §338(h)(10) of the Internal Revenue Code that will reduce our cash taxes in the future and further enhance our ability to generate strong, recurring cash flows. Tax deductions remaining under this provision as of December 31, 2015 amounted to approximately $0.6 billion and are expected to result in deductions of up to approximately $119.0 million per year for the next five years. Consequently, we benefit from high predictability in the operation of our business, low volatility in our revenues and earnings, and enhanced ability to manage our business, service our indebtedness and pay dividends to stockholders.

~~Attractive~~Committed ~~Operating~~and ~~Model~~Experienced ~~with~~Management ~~Significant Free Cash Flow Generation~~Team. We ~~derive~~believe athat ~~substantial portion of~~ our ~~revenues~~senior onmanagement aand ~~recurring basis from~~ our ~~marketing~~talented ~~partners~~ and ~~their~~experienced ~~customers.~~professionals ~~Subscribers~~are ~~who~~a ~~have~~principal ~~been~~reason ~~acquired~~why ~~through~~we ~~previous~~have ~~marketing~~achieved ~~efforts~~significant ~~become~~success ain ~~part~~all of our ~~membership base~~businesses. ~~The~~Led ~~performance~~by of our ~~existing~~Chief ~~base~~Executive ~~typically~~Officer, ~~follows~~Todd aSiegel, ~~pattern~~who ~~that~~has isbeen ~~consistent~~ with ~~our historical observations, providing~~ us ~~with~~for ~~insight~~over ~~with~~sixteen ~~respect~~years, ~~to planning~~ our ~~future~~nine ~~business~~senior ~~activities.~~executives ~~Our~~have ~~business requires very little capital to support our growth, and annual capital expenditures typically represent~~ a ~~small~~combined ~~percentage~~ninety-four ofyears ~~our revenues. In addition, we benefit from certain tax attributes under §338(h)(10)~~ of ~~the~~experience ~~Internal~~with ~~Revenue~~Affinion. ~~Code~~We believe that ~~will reduce our cash taxes in~~ the ~~future~~extensive ~~and~~experience ~~further enhance our ability to generate strong, recurring cash flows. Tax deductions remaining under this provision as of December 31, 2014 amounted to approximately $0.7 billion~~ and ~~are~~financial ~~expected~~acumen ~~to result in deductions~~ of ~~up to approximately $119.0 million per year for the next six years. Consequently, we benefit from high predictability in the operation of~~ our ~~business,~~management ~~low volatility in our revenues~~ and ~~earnings,~~marketing ~~and~~professionals ~~enhanced~~provide ~~ability~~us towith ~~manage~~a ~~our~~significant ~~business,~~competitive ~~service our indebtedness and pay dividends to stockholders~~advantage.

Committed and Experienced Management Team. We believe that our senior management and our talented and experienced professionals are a principal reason why we have achieved significant success in all of our businesses. Led by our Chief Executive Officer, Todd Siegel, who has been with us for over fifteen years, our ten senior executives have a combined seventy years of experience with Affinion. We believe that the extensive experience and financial acumen of our management and marketing professionals provide us with a significant competitive advantage. 8

Our Business Strategy

In 2014, we appointed discrete leaders for each of our four business segments in an effort to provide the specialized focus each segment requires to pursue growth initiatives; each business is supported by shared services for operations, information technology, human resources and finance. We believe the specialized focus will ensure that each segment has the right resources in place to execute on our strategic plans, which include the development of new markets for our loyalty redemption programs, geographic expansion, the expansion of our insurance portfolio, and the roll-out of our domestic subscription-based services in our newest channels.

Our strategy is to pursue initiatives that maintain and enhance our position as 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 our marketing partners by creating and/or delivering valuable products and services that generate incremental loyalty and to focus on attractive opportunities that will increase our profitability and cash flows. The key elements of our strategy are to:

Optimize Our Marketing Investment. Our ability to adjust and optimize the allocation of our marketing expenditures across all of our marketing partners, media channels, products and geographic regions based on the available opportunities will help us continue to maximize the returns on each customer engagement and loyalty services marketing campaign. We target minimum returns on investment for all of our marketing expenditures, incorporating the expected revenues, persistency of customer tenure, commission rates and servicing and other variable costs for those customers who subscribe to our programs. Our goal is to maximize the average contribution per customer over the lifetime of that customer relationship, which we expect will maximize the growth of our cash flows, even though the aggregate number of customers we serve may grow at a slower rate or decline. For example, in the past three years we have grown the average revenue per member in our global membership business at a compound annual rate of approximately 4.3%, from $7980.7484 in ~~2012~~2013 to $8687.2090 in ~~2014~~2015.

Grow Our International Operations. We believe that we are well positioned to provide our marketing partners with comprehensive customer engagement and loyalty solutions offerings on a global basis. We have grown our international retail membership operations by leveraging our significant U.S. experience to offer subscription products similar to existing U.S. subscription products to the customers of our international marketing partners. In addition, our European package business has continued its evolution through unique product offerings, enhanced customer services and delivery of benefits and, as loyalty points programs continue to become more widely available throughout the world, we believe we have opportunities to extend our U.S.-style loyalty program services across our international footprint with both new and existing clients. We are also continuing to execute on our plan to extend our operations into new countries and geographic regions, including, most recently, ~~Brazil~~Australia and ~~Australia~~Mexico. We intend to continue our growth in the international markets through both organic initiatives, including geographic expansion, as well as the continued evaluation of strategic acquisitions that strengthen our customer engagement solutions, grow our distribution capabilities or enhance our scale.

8Grow Our Loyalty Operations. We believe there are additional opportunities to expand our loyalty business as both current and prospective clients increasingly determine that a loyalty program is a meaningful way to differentiate their services in highly-competitive industries and as consumers continue to respond to these programs as a cost-effective method of acquiring travel services and other rewards. We believe we have opportunities to increase the range of administrative and redemption services we currently provide to our clients, and we intend to leverage our experience and capabilities to broaden the addressable market to include other industries where rewards programs can be used to favorably influence consumer behavior. In July 2014, we acquired Propp Corp., a provider of one-time use incentives for customer acquisition and retention. In September 2014, we completed the acquisition of SkyMall Ventures LLC (now known as Connexions SM Ventures, LLC) (“SkyMall”), a provider of loyalty solutions for well-established brands in the financial services, hospitality and gaming industries.

~~Grow~~Expand Our ~~Loyalty~~Vertical ~~Operations~~Market Penetration and Range of Marketing Media. We believe there are ~~additional~~substantial opportunities to ~~expand~~add ~~our~~new ~~loyalty~~marketing ~~business~~partners asin ~~both~~the ~~current~~retail, ~~and~~financial, ~~prospective~~travel, ~~clients~~Internet, ~~increasingly~~cable, ~~determine~~telecom ~~that~~and autilities ~~loyalty~~industries, ~~program is a meaningful way to differentiate their services~~ in ~~highly-competitive~~both ~~industries~~North America and asinternationally, ~~consumers~~where ~~continue~~prospective topartners ~~respond~~desire to ~~these~~add ~~programs~~incremental asrevenue aand ~~cost-effective~~strengthen ~~method~~and ofenhance ~~acquiring~~the ~~travel~~loyalty ~~services~~of ~~and~~their ~~other~~customer ~~rewards~~relationships. We also believe wethere ~~have~~are significant opportunities to ~~increase~~expand ~~the~~our ~~range~~marketing ofchannels. ~~administrative~~This ~~and~~includes ~~redemption~~(1) direct-to-consumer ~~services~~marketing wevia ~~currently~~internet ~~provide to our clients~~advertising, ~~and~~in which we ~~intend~~market toproprietarily ~~leverage~~branded ~~our~~products ~~experience~~ and ~~capabilities~~services tothat ~~broaden~~are ~~the~~comparable ~~addressable market~~ to ~~include~~what ~~other~~we ~~industries~~offer ~~where~~through ~~rewards~~our ~~programs~~affinity ~~can~~marketing bechannels, ~~used~~and to(2) point-of-sale ~~favorably~~marketing ~~influence~~with ~~consumer~~retailers, ~~behavior.~~in Inwhich ~~July 2014,~~ we ~~acquired~~leverage ~~Propp~~the ~~Corp.,~~benefits aand ~~provider~~services offrom ~~one-time~~our ~~use~~existing ~~incentives~~product ~~for~~portfolio ~~customer~~to ~~acquisition~~create and ~~retention.~~market Ina ~~September~~uniquely ~~2014,~~customized weconfiguration ~~completed~~that ~~the~~is ~~acquisition~~relevant ofand ~~SkyMall~~meaningful ~~Ventures~~to ~~LLC,~~ a ~~provider~~particular ofretail ~~loyalty~~marketing ~~solutions~~partner’s ~~for well-established brands in the financial services, hospitality and gaming industries~~customers.

Expand Our Vertical Market Penetration and Range of Marketing Media. We believe there are substantial opportunities to add new marketing partners in the retail, financial, travel, Internet, cable, telecom and utilities industries, in both North America and internationally, where prospective partners desire to add incremental revenue and strengthen and enhance the loyalty of their customer relationships. We also believe there are significant opportunities to expand our marketing channels. This includes (1) direct-to-consumer marketing via internet and television advertising, in which we market proprietarily branded products and services that are comparable to what we offer through our affinity marketing channels, and (2) point-of-sale marketing with retailers, in which we leverage the benefits and services from our existing product portfolio to create and market a uniquely customized configuration that is relevant and meaningful to a particular retail marketing partner’s customers. 9

Focus on New Program Development. We continually develop and test new programs to identify consumer trends that can be converted into revenue-enhancing and customer engagement-building opportunities. These programs may include loyalty and enhancement services, identity theft protection products, fully underwritten insurance programs, and purchase warranty offerings. We also consider acquisitions of new and complementary products and technology to further enhance our offerings and generate additional revenue. In addition, we believe we have opportunities to grow our existing services by expanding the ways that consumers may access their program benefits, thereby enhancing the value of the underlying service. For instance, many of our programs, such as roadside assistance, loyalty rewards redemptions, leisure and travel discounts, and identity theft resolution are well-suited for consumer use via mobile applications due to the real-time availability of the information the consumer desires to employ the service.

Leverage Best Practices for Growth and Acquisitions. We intend to leverage the integration of our businesses globally by applying best practices and cross-selling products and services across business lines and geographical regions. For instance, we intend to continue expanding our loyalty services by bringing the capabilities we enjoy in the U.S. to those international markets where the issuance and acceptance of points as a reward currency provide us with opportunities to provide our points management and redemption capabilities. We will continue to consider acquisitions of selected assets, businesses and companies to enhance our scale and market share.

Industry Overview

Loyalty programs and services provide incentives and benefits to major brands to support their loyalty and customer experience objectives. Businesses use loyalty programs to further integrate their relationships with existing customers and to attract new customers. Loyalty programs offer many redemption options, including gift card, travel, merchandise, cash back and various other options. We believe the market for loyalty program services is substantial and growing, and we also believe redemption volumes continue to grow. In the United States, the number of loyalty program memberships was approximately 2.65 billion in 2012, increasing by 26.7% since 2010, according to the 2013 Colloquy Loyalty Consensus report. Internationally, we believe the market for loyalty program and redemption management is largely untapped and offers significant growth opportunities.

Direct marketing is any direct communication to a consumer or business that is designed to generate a response in the form of an order. Affinity marketing is a subset of the larger direct marketing industry which involves direct marketing to the customers of institutions, such as financial service providers and retailers, using the brand name and customer contacts of such institution. We believe that marketing products and services that are associated with the brand of a marketing partner can provide a significant advantage over other forms of direct marketing. Affinity marketing provides us with access to our marketing partners’ large customer base, which generally results in higher response rates as customers recognize and trust our marketing partners’ brands and provides additional credibility and validation as to the quality of the program or service we are offering. Marketing partners benefit as they are able to promote their brands while offering additional programs and services that are relevant and meaningful to their customers, which strengthens their relationships with their customers and generates incremental revenue.

Company History

We have 40 years of operational history. The business started with membership products in 1973 through the formation of Comp-U-Card of America, Inc. (“CUC”). Between 1985 and 1986, CUC acquired the insurance and package enhancement products of Financial Institution Services, Inc. and Madison Financial Corporation, both of which were formed in 1971. In 1988, CUC acquired National Card Control, Inc., which was formed in 1981 and provided loyalty solutions and package enhancement programs. Our international products were started by CUC in the early 1990s. In 1997, CUC merged with HFS Incorporated to form Cendant Corporation (“Cendant”). The international products were rebranded as Cendant International Membership Services after the formation of Cendant. In 2001, the U.S. membership products were rebranded as Trilegiant and the loyalty solutions products were rebranded as Trilegiant Loyalty Solutions. The insurance and U.S. package enhancement products were rebranded as Progeny in 2002. In 2004, we realigned our organizational structure and began integrating the historically separate businesses in order to have a unified approach to the marketplace.

In 2005, we entered into a purchase agreement with Cendant pursuant to which we purchased from Cendant all of the equity interests of Affinion Group, LLC or AGLLC (known as Cendant Marketing Services Group, LLC prior to the consummation of the Apollo Transactions (as defined in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations”)) and all of the share capital of Affinion International Holdings Limited or(“Affinion ~~AIH~~International”) (known as Cendant International Holdings Limited prior to the consummation of the Apollo Transactions). See “Item 137. Certain Relationships and Related Transactions and Director Independence—The Acquisition—Purchase Agreement.”

In 2011, we entered into a merger agreement that resulted in the Webloyalty Acquisition (as defined in “Item 13. Certain Relationships and Related Transactions, and Director Independence—Agreements with Certain Investors—Affinion Holdings Stockholder Agreement”). As a result of the Webloyalty Acquisition, (i) Affinion Group Holdings, LLC (“Parent LLC”), which is an affiliate of Apollo, and Affinion Holdings’ existing management investors collectively owned approximately 70.4% of Affinion Holdings’ issued and outstanding common stock; (ii) General Atlantic owned approximately 20.6% of Affinion Holdings’ issued and outstanding common stock; and (iii) other holders of Webloyalty common stock collectively owned approximately 9.0% of Affinion Holdings’ issued and outstanding common stock. See “Item 13. Certain Relationships and Related Transactions, and Director Independence—Agreements with Certain Investors—Affinion Holdings Stockholder Agreement.”

On November 9, 2015, we consummated the 2015 Exchange Offers, 2015 Rights Offering and Reclassification, each as defined and described below under “Item 7. Management’s Discussion And Analysis of Financial Condition And Results Of Operations—2015 Exchange Offers, Rights Offering and Reclassification.” Upon consummation of the 2015 Exchange Offers, investment funds affiliated with Apollo Global Management, LLC (such investment funds, the “Apollo Funds”) and investment funds affiliated with General Atlantic LLC (such investment funds referred to as “General Atlantic”) ceased to have beneficial ownership of any Common Stock.

Marketing

We provide our customer engagement and loyalty solutions through retail and wholesale arrangements, or combinations of both, with our marketing partners, in addition to our direct to consumer marketing efforts. Under a retail arrangement, we usually market our products to a marketing partner’s customers by leveraging that marketing partner’s brand name and customer contacts. In retail arrangements, we typically bear or share the acquisition marketing costs. Under structures where we bear all or most of the acquisition marketing costs, we typically incur higher up-front expenses related to the customer solicitation and acquisition but share a lower amount of the related revenue (which we generally call a “commission”) with our marketing partners. Insurance programs are typically marketed under such arrangements, either through direct mail or through an offer placed on a marketing partner’s website. Under structures where our marketing partners share more of the acquisition marketing costs, we typically have lower up-front expenses, but pay higher commissions on related revenue to such partners. While the negotiated commission rates may vary considerably by marketing partner, the range of rates also varies based on the media that is used in the acquisition of the member, and are generally structured to compensate the marketing partner when its own resources are used in the marketing solicitation. For example, commission rates associated with direct mail campaigns are typically lower than those associated with in-branch campaigns.

Under a wholesale arrangement, the marketing partner bears the expense to market our products and services to its customers, collects revenue from the customer, and typically pays us a monthly fee per end-customer. Under this type of arrangement, we may also provide other services to our marketing partners, including enrollment, fulfillment, customer service, website and mobile application development.

We utilize a variety of media to offer our customer engagement solutions, including direct mail, online marketing, point-of-sale marketing, direct response ~~television and~~ internet marketing, ~~inbound~~ and ~~outbound~~inbound telephony ~~and voice response unit marketing~~. We have a full-service, in-house creative agency with expertise in utilizing all varieties of customer acquisition media. We use a network of third-party operators for inbound and outbound telemarketing and develop all direct mail programs in-house, utilizing third parties only for limited services such as printing. In addition, we use standardized scripts for any person-to-person interactions in the solicitation or servicing of a member and direct mail materials that are repeatedly tested and updated to ensure regulatory compliance, consistency of quality and the maximum effectiveness for each marketing campaign.

We utilize financial models that are designed to target and predict returns over a five-year period for marketing expenditures related to membership programs and a seven-year period for marketing expenditures related to insurance programs. These models are used to determine the minimum response rate required to attain a targeted return per marketing campaign, net of attrition, applying an appropriate cost of capital. Our marketing systems model individual customer engagement and loyalty program marketing campaigns across multiple media and product offerings utilizing extensive data, customer contacts and the results of ~~over~~approximately 5344,000 marketing campaigns conducted over the last five years. We typically target a minimum profitability return after all costs for all marketing expenditures related to our customer engagement solutions have been taken into account.

Direct Mail. We have developed considerable expertise in direct mail marketing. Our direct mail experience includes a variety of mailing types, including solo direct mail, detachable inserts, credit card inserts, statement inserts, promotion inserts, and other printed media. We have extensively tested variations of these forms of direct mail solicitations to help drive higher customer response rates.

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Online Marketing. We use the Internet for the marketing of our products and services, both with marketing partners and via direct to consumer marketing, in both North America and internationally, and for the delivery of certain product benefits where it is relevant and beneficial to the consumer’s experience to do so. Our online marketing initiatives include pursuing new marketing partnerships (e.g. online retailers, travel providers, and service providers), offering our products and services directly to customers, and expanding relationships with traditional marketing partners via the Internet (notably financial institutions who allow us to market to their online banking customers). We use advertising, search engine optimization and marketing techniques (SEO and SEM) and email marketing methods to enhance our online customer acquisition techniques.

Point-of-Sale Marketing. Point-of-sale marketing is offered at our retail marketing partners’ stores, and the branch networks are the primary distribution medium for our checking account package enhancement as well as certain membership products with our financial institution marketing partners. Point-of-sale marketing utilizes a variety of promotional and display materials at these locations to create interest and drive program inquiries and enrollments, such as the discount of various purchasing activities with the marketing partner. Customer service representatives of our marketing partners may coordinate sales with the opening of new accounts and sale transactions. We also train our marketing partners’ point-of-sale personnel in the sales for our programs.

Live Operator Inbound Telemarketing (“Transfer Plus” and “Customer Service Marketing”). Transfer Plus is a live-operator call transfer program which operates out of our marketing partners’ call centers, and has proven successful in converting customer service calls into revenue opportunities. In Transfer Plus, qualified callers of a marketing partner are invited to hear about a special offer, and those callers who express interest in that offer are transferred to our representatives to hear more about the product or service. Customer Service Marketing is similar to Transfer Plus, however, our marketing partner’s or other third party’s representative continues with the sales process instead of transferring the call to us. We handle all training and promotions for these programs. It also provides a no-cost employee retention program for our marketing partners as agents earn cash/awards from us for every call handled or transferred.

Outbound Telemarketing. We use extensive modeling to target calling efforts to likely responders. Calls are fully scripted, and our representatives market only to those who are interested in hearing about our products and services. Our outbound telemarketing programs are designed to comply with the “Do-Not-Call” Registry and other privacy rules and requirements.

Voice Response Unit Marketing. When a consumer contacts a marketing partner’s call center to make an inquiry that can be handled electronically, the automated voice response system offers our product while the customer is waiting for, or after the completion of, the transaction or inquiry. The consumer then has the opportunity to accept or decline the offer.

Products and Services

Membership Products. We market various membership products and services in North America, primarily to the customers of our domestic marketing partners, but also through direct to consumer initiatives. These products are typically offered on a subscription basis and may be categorized generally as addressing one of two broad categories of fundamental consumer needs: (1) protection and peace-of-mind services or (2) savings on lifestyle oriented purchases and loyalty solutions. For example, our products offer members benefits and value-added services in the growing market of credit monitoring and identity-theft resolution services, which are intended to improve the member’s sense of security and well-being, or discounts on many brand categories along with shop-at-home convenience in such areas as retail merchandise travel, automotive and home improvement.

At December 31, 2014, our principal membership products included:

Product	Description	Key Features
	Complete credit security solution with advanced monitoring and proactive management tools that enable members to retain more control over their personal data and prevent fraudulent activity	• Access to credit reports, credit monitoring, fraud resolution • Online monitoring of social security numbers, credit cards and other personal data • Identity-theft expense reimbursement
	Access and monitoring of credit report, credit score and credit history to help members manage their credit and prevent identity-theft	• Access to credit data from all three credit bureaus • Credit monitoring from one or all three credit bureaus • Fraud resolution • Identity-theft expense reimbursement
	Credit card and document registration	• Cancellation/replacement of credit cards with fraud liability, sales price and return guarantee protection • Emergency cash advance and airline ticket replacement
	Discount travel service program offering a low-price guarantee on booking airline, hotel and car rental reservations	• 5% cash back • Full service website provides access to over 130,000 hotel properties
	Discount shopping program offering savings of 10%-50% off manufacturers’ suggested retail price on brand name consumer products	• 200% low price guarantee for 60 days; automatic two-year warranty on most items • Discount on over 5,100 items from 600 brand name manufacturers • 3.5% cash back on online orders of most items
	Discount program with preferred prices on new cars and discounts on maintenance, tires and parts	• Emergency roadside assistance • Up to 15% in service center network savings
	Discount program offering everyday savings on dining, shopping, and admission to individual and family-oriented entertainment	• Over 340,000 savings offers nationwide • Coupons from national retailers and local merchants • Dining discount at more than 70,000 U.S. restaurants
	Discount program offering savings on home improvement and repair	• Discounts on home-related purchases and services • Approximately 80,000 pre-screened contractors • Over 150 home related How-to-Guides • Real estate and moving discounts
	Customer service that extends manufacturers’ warranties	• Automatic five-year warranty extension • 50% off repair costs • 60 day price protection • 90 day return policy
	Discount program offering everyday savings and cash back rewards on dining, shopping, entertainment and travel	• Over 340,000 savings offers nationwide • Online cash rewards at over 900 retailers • Travel discounts at over 30,000 hotels and 24,000 car rental locations

WeAt ~~utilize all forms of direct marketing to acquire new members and end-customers in the Membership business segment including direct mail~~December 31, ~~telemarketing~~2015, ~~customer service marketing, voice response unit marketing, direct response internet and television marketing, point-of-sale marketing and~~ our ~~online~~principal ~~initiatives. In the affinity channel,~~ membership programs are mostly offered on a retail basis, where customers directly pay us a subscription fee. In return, we usually pay our marketing partners’ commissions on initial and renewal subscriptions based on a percentage of the subscription fees we collect. The existing subscriber base contains members who originally enrolled and subsequently renewed under annual or monthly subscription terms, but our new subscribers enroll principally on monthly subscription terms. We also offer our membership products ~~and~~included: services under wholesale arrangements in which our marketing partners incur the marketing expense and risk of campaign performance and pay us a monthly fee and other fees for the administration and fulfillment of these programs. In the direct to consumer channel, we fund the marketing and retain the full value of the subscription fee.

Product	Description	Key Features

	Complete credit security solution with advanced monitoring and proactive management tools that enable members to retain more control over their personal data and prevent fraudulent activity	• Access to credit reports, credit monitoring, fraud resolution • Online monitoring of social security numbers, credit cards and other personal data • Identity-theft expense reimbursement

	Access and monitoring of credit report, credit score and credit history to help members manage their credit and prevent identity-theft	• Access to credit data from all three credit bureaus • Credit monitoring from one or all three credit bureaus • Fraud resolution • Identity-theft expense reimbursement

	Discount travel service program offering a low-price guarantee on booking airline, hotel and car rental reservations	• 5% cash back • Full service website provides access to over 190,000 hotel properties

	Discount shopping program offering savings of 10%-50% off manufacturers’ suggested retail price on brand name consumer products	• 200% low price guarantee for 60 days; automatic two-year warranty on most items • Discount on over 6,000 items from 600 brand name manufacturers • 3.5% cash back on online orders of most items

	Discount program with preferred prices on new cars and discounts on maintenance, tires and parts	• Emergency roadside assistance • Up to 15% in service center network savings

	Discount program offering everyday savings on dining, shopping, and admission to individual and family-oriented entertainment	• Over 347,000 savings offers nationwide • Coupons from national retailers and local merchants • Dining discount at more than 74,000 U.S. restaurants

	Customer service that extends manufacturers’ warranties	• Automatic five-year warranty extension • 50% off repair costs • 60 day price protection • 90 day return policy

We utilize all forms of direct marketing to acquire new members and end-customers in the Membership business segment including direct mail, telemarketing, customer service marketing, direct response internet marketing, point-of-sale marketing and our online initiatives. In the affinity channel, membership programs are mostly offered on a retail basis, where customers directly pay us a subscription fee. In return, we usually pay our marketing partners’ commissions on initial and renewal subscriptions based on a percentage of the subscription fees we collect. The existing subscriber base contains members who originally enrolled and subsequently renewed under annual or monthly subscription terms, but our new subscribers enroll principally on monthly subscription terms. We also offer our membership products and services under wholesale arrangements in which our marketing partners incur the marketing expense and risk of campaign performance and pay us a monthly fee and other fees for the administration and fulfillment of these programs. In the direct to consumer channel, we fund the marketing and retain the full value of the subscription fee.

Merchant-Funded Programs and Solutions. We provide our clients with online performance marketing, lead acquisition and consumer acquisition services. Our services result in qualified marketing leads and customers for our clients, as well as incremental revenue streams for our online publisher clients. We also provide a program that offers our marketing partners’ customers with relevant and robust cash-back savings, points that can be used across our extensive network of merchants and gift card providers, and individualized promotional offers generated from our proprietary modeling and data analytical capabilities, which are then distributed to customers through our patented technologies.

Our campaign management tools allow our clients to track campaign performance, consumer engagement metrics, consumer demographics and conversion rates through a web-based dashboard which provides real-time reporting.

Insurance. We offer three primary insurance programs that pertain to supplemental health or life insurance. These programs, including AD&D, represent our core insurance offerings and the majority of our annual insurance revenue.

At December 31, ~~2014~~2015, our principal insurance products included:

Product	Description	Key Features
AD&D	Provides coverage for accidental ~~deathor~~death or serious injury	$1,000 initial complimentary coverage; up to $300,000 in additional coverage
Hospital Accident Plan	Pays cash directly to the insured ~~ifhospitalized~~if hospitalized due to a covered accident	Up to $1,800 per day hospitalized
Recuperative Care	Provides cash directly to the insured ~~ifhospitalized~~if hospitalized due to a covered accident or illness	Up to $400 per day hospitalized
Graded Benefit Whole Life	Provides lump sum life insurance benefit	Up to $25,000 of coverage

We market our insurance products primarily by direct mail and the Internet. We use retail arrangements with our marketing partners when we market our insurance products to their customers. We earn revenue in the form of commissions from premiums collected, and in some cases, from economic sharing arrangements with the insurance carriers that underwrite the policies that we market. While these economic sharing arrangements have a loss-sharing feature that is triggered in the event that the claims made against an insurance carrier exceed the premiums collected over a specified period of time, historically, we have never had to make a payment to insurance carriers under such loss-sharing feature.

Package. We design and provide checking account enhancement programs to approximately 1,~~650~~550 financial institutions in the United States at December 31, 2015. WeIn ~~provide~~2015, we provided these marketing partners with a portfolio of approximately 48 benefits in such areas as travel and shopping discounts, insurance and identity-theft resolution to create customized package offerings for their customers which are generally embedded in our marketing partners’ checking or deposit account and which enhance the value proposition for the growing trend of “fee-based” checking. For example, a financial institution can bundle enhancements such as cash back rewards, medical emergency data cards, discounted gift cards, telephone shopping services, car rental discounts, pharmacy discounts, hotel savings, dining discounts, and other benefits, with a standard checking or deposit account and offer these packages to its customers at no additional cost or for an additional monthly fee.

13At December 31, 2015, our principal package products included:

AtProduct ~~December 31,~~Description ~~2014,~~Key ~~our~~Features ~~principal~~Package ~~package~~of ~~products~~benefits ~~included:~~tied to customer checking accounts in the U.S. Broad array of features includes shopping, travel and security benefits

Product Description Key Features Package of benefits tied to customer checking accounts in the U.S. Broad array of features includes shopping, travel and security benefits Health savings package includesdiscounts on prescriptions, dentaland vision care and AD&Dinsurance Health-oriented programs

A customer service representative at a marketing partner’s branch site offers package enhancement programs to checking account, deposit account and credit card customers at the time of enrollment. We typically offer package enhancement products, such as Enhanced Checking, under wholesale arrangements where we earn an upfront fee for implementing the package enhancement program and a monthly fee based on the number of customers enrolled in the program.

Global Loyalty Products. We manage loyalty solutions products for points-based loyalty programs for many large financial institutions and other significant businesses. As of December 31, 2014, we managed programs representing an aggregate estimated redemption value of approximately $2.85 billion for financial, travel, auto, gaming and other companies. We provide our clients with solutions that meet the most popular redemption options desired by their program points holders, including travel, gift cards and merchandise, and, in 2014, we facilitated approximately $2 billion in redemption volume. Our loyalty programs are private-label, customizable, full-service rewards solutions that consist of a variety of configurations that are offered on a stand-alone and/or bundled basis depending on customer requirements. 14

Global Loyalty Products. We manage loyalty solutions products for points-based loyalty programs for many large financial institutions and other significant businesses. As of December 31, 2015, we managed programs representing an aggregate estimated redemption value of approximately $2.25 billion for financial, travel, auto, gaming and other companies. We provide our clients with solutions that meet the most popular redemption options desired by their program points holders, including travel, gift cards and merchandise, and, in 2015, we facilitated approximately $2.05 billion in redemption volume. Our loyalty programs are private-label, customizable, full-service rewards solutions that consist of a variety of configurations that are offered on a stand-alone and/or bundled basis depending on customer requirements.

In 2008, we assumed all of the liabilities and obligations of certain ex-Cendant entities relating to a loyalty program operated by these ex-Cendant entities for a major financial institution in exchange for an administrative fee. The obligations that we assumed included the fulfillment of the then-outstanding loyalty program points. With the exception of the loyalty program points assumed in connection with that transaction and the loyalty points earned by credit card holders under this program, we do not typically retain any loyalty points-related liabilities, although we expect this may be a source of incremental growth for our business in the future given that our predictive modeling capabilities provide us with opportunities to fairly value the economics of such programs. We typically charge a per-member and/or a per-activity administrative fee to clients for our services.

The following table illustrates the services provided to our clients:

Service	Description
Program Design	Establishes parameters for earning, redeeming, fulfilling, communicating and analyzing points
Program Management	Provides loyalty industry research, including consumer behavior and competitive program trends across various industries
Technology Platform	Scalable, customizable and flexible proprietary loyalty accounting and data management platform to meet marketing partners’ needs over the life of the programs
Rewards Fulfillment	Ownership of vendor management, inventory and fulfillment of program rewards Works directly with over ~~500~~645 vendors to obtain rewards and provides loyalty clients with access to more than 13,~~200~~000 available merchandise models
Points Administration	Tracks and maintains customer account records and customer activities upon which point awarding business rules are based
Customer Experience Management	Provides a full-service, in-house contact center as an extension of the partner’s existing contact center
Program Communications	Produces HTML-based email newsletters and surveys which increase readership and are typically less expensive than direct mail campaigns for these programs Hosts many of its partners’ loyalty websites
Performance Monitoring	Provides internal and external access to its data warehousing environment, including a dashboard of critical program performance metrics and allows for standard ad-hoc reporting

We also provide credit card enhancements, such as travel insurance and concierge services. The enhancement product line, which has been offered by us for approximately 20 years, addresses the same categories of consumer needs as our subscription-based programs, offering both protection (such as travel accident insurance) and lifestyle (such as concierge services) benefits. The benefits are sold wholesale to our marketing partners, who then provide the benefits at no cost to their customers as an added value of doing business with them. Historically, these benefits have been predominantly offered within the financial services industry as credit card enhancements.

Global Loyalty Fulfillment. We provide and manage ~~travel~~ reward products for loyalty programs through Connexions Loyalty, Inc. (“Connexions”), our wholly -owned subsidiary, which is a service provider for points-based loyalty programs such as Chase Ultimate Rewards and Citibank’s ThankYou Rewards. We believe we are a leader in online and offline ~~travel~~ reward fulfillment as we fulfilled approximately 2.68 million ~~travel~~ redemptions in 2015 on an annualized basis. Connexions’ loyalty program services are private-label, customizable, full-service ~~travel~~ rewards solutions that consist of a variety of configurations that are offered on a stand-alone and/or bundled basis depending on our customer’s requirements. We do not retain any loyalty points-related liabilities. We typically charge a per-member and/or a per-activity administrative fee to clients for our services.

The following table illustrates the services provided to Connexions’ clients:

Service	Description
Program Design	Establishes selection of loyalty program ~~travel~~ rewards and the parameters for redemption fulfillment
Program Management	Provides loyalty and travel industry comparative data, ~~including~~ travel analysis, fulfillment best practices and competitive program trends across various industries
Rewards Fulfillment	Provides ~~travel~~ content and fulfillment of ~~travel~~ inventory for program rewards. Works directly with approximately ~~160~~143 ~~travel~~ suppliers to obtain rewards and provide clients with access to worldwide ~~travel~~ content
Points Administration	Documents program member points for selected ~~travel~~ rewards. Tracks and maintains program member’s redemption records based on client’s business rules
Customer Experience Management	Provides a full-service, in-house contact center as an extension of the client’s existing contact center
Program Communications	Produces HTML-based email newsletters and surveys Integrates private label travel redemption web sites into clients’ loyalty program web site
Performance Monitoring	Provides client redemption usage reports, including a dashboard of critical program performance metrics and allows for standard ad-hoc reporting

Connexions also provides clients with the ability to offer leisure travel as a member benefit in a purchase environment, and a travel gift card which can be used on all travel components, including airfare, rental car, hotel stays and cruise vacations.

International Products. Through our Affinion International operations, we market our membership and package enhancement product lines internationally. Based upon the wide range of international membership and package enhancement programs we offer under retail and wholesale arrangements, we believe we are the largest provider of membership programs and package enhancement products in Europe. These membership services and package enhancement products are offered under retail and wholesale arrangements comparable to those in the U.S.

15At December 31, 2015, our principal international products included:

AtProduct ~~December 31~~Description Key Features DataPal A combination of benefits that secures users’ internet connection, ~~2014~~simplifies password and document storage and scans the web for personal data • Online Data Monitor: a monitoring service that scans the web for important personal, ~~our~~contact ~~principal~~and ~~international~~financial ~~products~~details ~~included~~and provides clear and simple instructions on what actions to take • E-Safe: multi-purpose, secure documents and passwords cloud storage accessible across devices • PC and Mobile Secure Browser: protects users from key logging, add-ins and phishing threats that target confidential information Enjoymore Access to discounts • Access to dining discounts • Access to cinema discounts • Cash back on tickets and other events Privacy Guard & My Credit Tracker Access to and monitoring of credit report, credit score and credit history to help prevent identity-theft • Online and offline single bureau reporting • Credit monitoring • Full fraud resolution • Identity-theft insurance

Product	Description	Key Features
Sentinel Gold	Protection for personal money and handbag after loss or theft of credit and debitcards. Assistance services in the event of card theft or loss	• Services including cancelling of lost or stolen cards, change of address and luggage and key retrieval • Emergency services including medical, airline ticket replacement and hotel bill payment • Lost cash and wallet/purse insurance
Privacy Guard & My Credit Tracker	Access to and monitoring ofcredit report, credit score andcredit history to help preventidentity-theft	• Online and offline single bureau reporting • Credit monitoring • Full fraud resolution • Identity-theft insurance
Disfruta y ahorra (Spain)	Discount program offering savings on leisure and lifestyle products	• 25% discount on restaurant bills • 25% cash back on movie theatres, concerts and other event tickets • Discounts on travel, hotels, and wine
Complete Savings (UK) Remises et Reductions (France) Privilegios en Compras (Spain)	Online shopping and access todiscounts	• 10% cash back at hundreds of retailers • Monthly cash back on purchases from the website where members enrolled • Access to discounted gift cards
Concierge Vitalis Bienestar (Spain)	Concierge service Health and Wellness	• Features include assistance with travel arrangements, dinner reservations, booking concert tickets, and ordering flowers • Access to network of discounted medical treatments • Second medical opinion for critical illness • Hospital accident cash plan • Medical advice helpline • Online medical store

Product	Description	Key Features
Complete Savings (UK), Remises et Reductions (France), Privilegios en Compras (Spain) and CompraVolta (Brazil)	Online shopping and access to discounts	• 10% cash back at hundreds of retailers • Monthly cash back on purchases from the website where members enrolled • Access to discounted gift cards

Concierge	Concierge service	• Features include assistance with travel arrangements, dinner reservations, booking concert tickets, and ordering flowers

Vitalis Bienestar (Spain)	Health and Wellness	• Access to network of discounted medical treatments • Second medical opinion for critical illness • Hospital accident cash plan • Medical advice helpline • Online medical store

Our principal package enhancement products are marketed through our financial institution marketing partners and provide a broad array of benefits, including shopping, travel and security, to checking account customers in Europe. In addition to the identity-theft resolution and credit monitoring programs launched in the U.K., Affinion International markets its travel program, its shopping program and its dining and leisure programs in the U.K. and across our international footprint.

Marketing Partners

We are able to provide our customer engagement and loyalty solutions by utilizing the brand names and customer contacts of our marketing partners. Our diversified base of marketing partners includes more than 5,~~500~~ 600 companies in a wide variety of industries, including financial services, retail, travel, telecommunications, utilities and Internet. Select marketing partners include Wells Fargo, Citibank, JPMorgan Chase, Transworld Entertainment and Royal Bank of Scotland. In ~~2014~~2015, we derived approximately 3533.5% of our net revenues from members and end-customers obtained through our 10 largest marketing partners.

Typically, our agreements with our marketing partners for the marketing and servicing of our retail membership products are for fixed terms (typically one to three years, in the case of membership, and three to five years, in the case of insurance and package), which automatically renew for one-year periods and may be terminated at any time upon at least 90 days’ written notice. Our marketing partners are not subject to minimum marketing commitments that are material, individually or in the aggregate. While we generally do not have continued marketing rights following the termination of any marketing agreements, the vast majority of our marketing agreements allow us to extend or renew existing memberships and bill and collect associated subscription fees following any termination. While we usually do not have rights to use marketing partner branding in new marketing following termination of a marketing agreement, the products we provide to subscribers are either our standard products, which do not require our marketing partner’s branding, or are co-branded products for which we typically have the ability to continue to service as co-branded products. With respect to our loyalty operations, many of our principal partner agreements have a term of at least two years, which automatically renew for one-year periods and may be terminated at any time upon at least 90 days’ written notice, and we typically charge a per-member and/or a per-activity administrative fee to clients for our services. Generally, our marketing partners agree not to solicit our subscribers for substantially similar services both during the term of our agreement and following any termination thereof.

16Membership Products. We had approximately 1,100 marketing partners in multiple industries at December 31, 2015. Our relationships with our largest partners typically encompass multiple products and/or types of marketing media. In general, we have long-standing relationships with our partners.

~~partner’s~~Insurance ~~branding,~~and orPackage ~~are~~Products. ~~co-branded~~Our ~~products~~insurance ~~for~~marketing ~~which~~partners weconsist ~~typically~~of ~~have~~approximately ~~the~~3,270 financial ~~ability~~institutions toincluding ~~continue~~national tofinancial ~~service~~institutions, asregional ~~co-branded~~financial ~~products.~~institutions ~~With~~and ~~respect~~credit tounions ~~our~~at ~~loyalty operations~~December 31, ~~many~~2015. Customers of our ~~principal~~top ~~partner~~10 ~~agreements~~marketing ~~have~~partners agenerated ~~term~~approximately 27% of atour ~~least~~gross ~~two~~insurance ~~years,~~revenue ~~which~~in ~~automatically~~2015. ~~renew~~Our ~~for~~package ~~one-year~~enhancement ~~periods~~marketing ~~and~~partners ~~may~~are becomprised ~~terminated~~of atapproximately ~~any~~1,550 national ~~time~~financial ~~upon~~institutions, atregional ~~least~~financial 90institutions ~~days’~~and ~~written~~credit ~~notice,~~unions ~~and~~at weDecember 31, ~~typically~~2015. ~~charge~~Customers aof ~~per-member~~our ~~and/or~~top a10 ~~per-activity~~U.S. ~~administrative~~marketing ~~fee~~partners togenerated ~~clients~~approximately ~~for~~21% of our ~~services~~U.S. ~~Generally,~~package ~~our~~enhancement ~~marketing~~revenue ~~partners~~in ~~agree~~2015. ~~not~~In toaddition, ~~solicit~~we ~~our~~have ~~subscribers~~held ~~for~~the ~~substantially~~endorsement ~~similar~~of ~~services~~the ~~both~~American ~~during~~Bankers ~~the~~Association ~~term~~ of our ~~agreement~~account ~~and~~enhancement ~~following~~programs ~~any~~in ~~termination~~the ~~thereof~~U.S. for over 15 years.

~~Membership~~Global Loyalty Products. We ~~have~~had ~~approximately~~79 ~~1,000~~clients ~~marketing~~at ~~partners~~December in31, ~~multiple~~2015, ~~industries.~~which ~~Our~~include ~~relationships~~leading ~~with~~financial ~~our~~institutions, ~~largest~~gaming ~~partners~~companies, ~~typically~~brokerage ~~encompass~~houses, ~~multiple~~automotive ~~products and/or types of marketing media. In general~~companies, wepremier ~~have~~hotels ~~long~~and travel-~~standing~~related ~~relationships with our partners~~companies.

Insurance and Package Products. Our insurance marketing partners consist of approximately 3,350 financial institutions including national financial institutions, regional financial institutions and credit unions at December 31, 2014. Customers of our top 10 marketing partners generated approximately 29% of our gross insurance revenue in 2014. Our package enhancement marketing partners are comprised of approximately 1,650 national financial institutions, regional financial institutions and credit unions at December 31, 2014. Customers of our top 10 U.S. marketing partners generated approximately 23% of our U.S. package enhancement revenue in 2014. In addition, we have held the endorsement of the American Bankers Association of our account enhancement programs in the U.S. for over 15 years.

Global Loyalty Products. We have over 50 clients, which include leading financial institutions, gaming companies, brokerage houses, automotive companies, premier hotels and travel-related companies.

International Products. Our international marketing partners include some of Europe’s most prominent retail banks and telecommunications companies.

Customers

As of December 31, ~~2014~~2015, we had approximately 5954 million membership, insurance and package subscribers and end-customers enrolled in our programs worldwide and approximately 6240 million customers who received credit or debit card enhancement services and loyalty points-based management services. We offer our programs and services to our customers through more than 5,~~500~~600 marketing partners as of December 31, ~~2014~~2015. We market to customers using direct mail, online marketing, point-of-sale marketing, telemarketing and other marketing methods.

Membership Products. As of December 31, ~~2014~~2015, we had approximately 9.7.8 million subscribers and end-customers in the U.S. We target customers of our marketing partners who are willing to pay a fee to gain access to a multitude of discount programs or want to improve their sense of security and well-being.

Insurance and Package Products. As of December 31, ~~2014~~2015, we had approximately ~~23.5~~22 million insurance customers in the U.S. We rely on access to our marketing partners’ large customer bases to market our insurance programs. The insurance products we market, such as AD&D, provide customers with peace of mind benefits should they suffer a serious injury or loss.

As of December 31, ~~2014~~2015, we provided our U.S. package products to approximately 31.47 million members and end-customers. Approximately 1,~~800~~550 financial institutions utilize our package products to increase customer affinity, increase response and retention rates and generate additional fee income.

Global Loyalty Products. As of December 31, ~~2014~~2015, we provided enhancement and loyalty products to approximately 6240 million customers. We provide points-based loyalty products and benefit package enhancement products to our clients, who in turn, offer those products to their customers.

International Products. As of December 31, ~~2014~~2015, we had approximately 19.7 million international package customers and approximately 2.75 million members and end-customers in 18 countries, primarily in Europe.

Third-Party Vendors

We partner with a large number of third-party vendors to provide fulfillment of ~~many~~at least 75% of our programs and services. Generally, our relationships with key vendors are governed by long-term contracts (typically, with initial terms of up to five years that renew automatically unless notice of non-renewal is given by either party prior to renewal). As we have a large number of vendors, we are generally not dependent on any one vendor and have alternative vendors should we need to replace an existing vendor. We believe we have very good relationships with our vendors who value their relationship with us as we are able to provide them with access to a large customer base through our marketing partners, many of whom are leaders in their respective industries. In addition, because we purchase large volumes of services across our various businesses, we are able to achieve significant price discounts from our vendors.

Membership Products. We partner with a variety of third-party vendors to provide services, benefits and fulfillment for many of our membership programs. Some of our largest vendor relationships relate to the provisions of certain benefits embedded in our PrivacyGuard^R membership product and AutoVantage membership product.

Insurance and Package Products. As of December 31, ~~2014~~2015, our carriers for our insurance programs were Transamerica Premier Life Insurance Company, Minnesota Life Insurance Company, ~~Chubb &~~Federal ~~Son~~Insurance Company, a ~~division~~member insurer of ~~Federal~~the Chubb Group of Insurance ~~Company~~Companies, Mutual of Omaha and The Hartford, Inc.

Our package enhancement products combine both insurance and membership products to create a unique enhancement package that our marketing partners provide to their end-customers. Generally, programs include travel discounts and AD&D insurance that are supplied by our loyalty and insurance benefit vendors, respectively.

Global Loyalty Products. Connexions acts as a business process outsourcer for points-based loyalty products and provides enhancement benefits to credit and debit card issuers. While many of the services Connexions provides are sourced in-house as a result of Connexions’ proprietary technology platform and program design support, third-party suppliers are used to provide additional benefit enhancements. These benefit enhancements are supplied by our loyalty and insurance benefits vendors.

International Products. Affinion International services its marketing partners using a variety of third-party vendors to provide benefits, fulfillment and delivery for some of our programs. In addition, Affinion International also has key supplier relationships with third parties for its benefits related to sports and entertainment events as well as the provision of certain benefits embedded in our identity theft protection products. Affinion International also uses third-party suppliers for its print and fulfillment products.

Product Development

Product development is integral to our ability to maximize value from each of our marketing campaigns and marketing partner relationships. In developing our products, we focus on maximizing margins and cash flows, leveraging marketplace trends and increasing loyalty, with a critical key focus on the needs of the consumer.

When we develop new products, we take into account not only the combination of benefits that will make up the product, but the characteristics of the customers to whom we will market the product and the marketing channel that will be used to reach these customers. Developing new products involves the creation of test products and feasibility studies to evaluate their potential value, as well as bundling existing products and benefits into new packages.

We also research, build and launch custom partner programs that we create uniquely for marketing partners to address the specific needs of these marketing partners and their customers.

Operations

Our operations group provides global operational support for all of our customer engagement and loyalty solution initiatives, including management of our internal and outsourced contact centers, as well as certain key third-party relationships. The group is charged with improving cost performance across our operations while enhancing revenue and bottom-line profitability through increased customer satisfaction and retention.

Processing

The processing responsibilities of the operations group can be divided into: (1) enrollments; (2) fulfillment packages; (3) billing; (4) merchandise delivery; and (5) travel fulfillment.

Enrollments. Enrollment information is sent to us through a variety of different media, including mail, electronic file transfer from marketing partners and telemarketing vendors and the Internet. Average turnaround time from receipt to enrollment is approximately 24 hours.

Fulfillment Packages. Fulfillment packages, which include enrollment materials and premiums (e.g., coupons and “hard” premiums such as MP3 players) sent to customers via mail and electronically, are produced in thousands of combinations for our membership, insurance and package enhancement programs. Fulfillment orders are generally transmitted to the appropriate fulfillment vendor by the next business day following receipt of the order. Physical fulfillment assembly and distribution in North America totals around 139.39 million pieces per year. Approximately 9875% of these pieces are completed by our facility in Franklin, Tennessee, with the remainder completed by outsourced vendors.

18Physical fulfillment assembly and distribution in Europe is completed in eight locations across Europe and totals around 5.1 million pieces per year. Approximately 5% of these pieces are completed by third-party vendors with the remainder being completed in-house by Affinion International employees. We are increasingly employing electronic delivery of membership materials and fulfillment packages, which drives further cost reductions.

~~Physical~~Billing. ~~fulfillment~~We ~~assembly~~have ~~and~~the ~~distribution~~ability into ~~Europe~~accept isa ~~completed~~variety inof ~~six~~different ~~locations~~payment ~~across~~account ~~Europe~~types, including Visa (debit and ~~totals~~credit), ~~around~~MasterCard ~~5.4 million~~(debit ~~pieces~~and ~~per~~credit), ~~year.~~Discover, ~~Approximately~~American 6%Express, ofretail ~~these~~company ~~pieces~~proprietary ~~are~~cards, ~~completed~~PayPal, byand ~~third-party~~checking ~~vendors~~and ~~with~~savings ~~the~~accounts. ~~remainder~~Domestically, ~~being~~we ~~completed~~process ~~in-house~~approximately by51.5 million ~~Affinion~~billing ~~International~~transactions ~~employees~~each year for our membership, insurance and package products. We ~~are~~use ~~increasingly~~both ~~employing~~generic ~~electronic~~and ~~delivery~~direct processing methods and work closely with a variety of ~~membership~~payment ~~materials~~processors and ~~fulfillment~~our ~~packages,~~marketing ~~which~~partners ~~drives~~to ~~further~~maximize ~~cost~~our ~~reductions~~ultimate collection rates.

~~Billing~~Merchandise Delivery. WeShoppers ~~have~~Advantage ~~the~~maintains ~~ability to accept~~ a ~~variety~~virtual inventory of ~~different~~more ~~payment~~than ~~account~~8,000 ~~types~~items, ~~including~~covering ~~Visa~~more ~~(debit~~than ~~and~~660 brands ~~credit),~~sourced ~~MasterCard~~through ~~(debit~~a ~~and~~best-in-class ~~credit),~~direct-ship ~~Discover,~~network ~~American~~of ~~Express,~~60 ~~retail~~direct-ship ~~company~~vendors. ~~proprietary~~We ~~cards,~~manage ~~PayPal~~the process of customers purchasing these products, ~~and~~but ~~checking~~we ~~and~~outsource ~~savings~~delivery ~~accounts~~logistics to back-end suppliers. ~~Domestically,~~While we manage the fulfillment process, ~~approximately~~we ~~78 million~~generally ~~billing~~do ~~transactions~~not ~~each~~take ~~year~~ownership ~~for~~or physical possession of any of the products being delivered. By pooling the purchasing power of our membership, ~~insurance~~products and ~~package~~other products., Weincluding ~~use~~our ~~both~~loyalty ~~generic~~programs, ~~and~~we ~~direct~~achieve ~~processing~~price ~~methods~~reductions on the products we offer, and ~~work~~deliver ~~closely~~value ~~with~~to aour ~~variety~~customers. ofMerchandise ~~payment~~sales ~~processors~~between our merchandise vendors and our ~~marketing~~customers ~~partners~~was tomore ~~maximize~~than 200,000 units and over $18 million in 2015. Related commissions on merchandise revenue totaled approximately $0.86 million which is included in our ~~ultimate~~2015 ~~collection~~net ~~rates~~revenues.

~~Merchandise~~Travel ~~Delivery~~Fulfillment. ~~Shoppers~~Loyalty ~~Advantage~~Travel ~~maintains~~Agency ~~a virtual inventory of more than 6~~LLC,~~500~~ ~~items,~~our ~~covering more than 650 brands sourced through a best~~full-~~in-class~~service ~~direct-ship~~travel ~~network of 60 direct-ship vendors. We manage the process of customers purchasing these products~~agency, ~~but~~is wededicated ~~outsource~~primarily ~~delivery logistics~~ to ~~back-end~~servicing ~~suppliers.~~our ~~While~~customers; ~~we manage the fulfillment process~~however, weit ~~generally~~also doprovides ~~not~~travel ~~take~~agency ~~ownership~~services orto ~~physical possession of any of the products being delivered. By pooling the purchasing power of~~ our ~~membership products and other products~~clients, ~~including~~mainly ~~our~~for loyalty ~~programs,~~rewards weredemptions ~~achieve price reductions on the products we offer,~~ and ~~deliver~~related ~~value to our customers~~services. Merchandise sales between our merchandise vendors and our customers was more than 126,500 units and almost $11 million in 2014. Related commissions on merchandise revenue totaled approximately $0.5 million which is included in our 2014 net revenues.

Travel Fulfillment. Loyalty Travel Agency LLC (“LTA”), our full-service travel agency, is dedicated primarily to servicing our customers; however, it also provides travel agency services to our clients, mainly for loyalty rewards redemptions and related services. 19

LTA travel consultants use Travelport’s Worldspan GDS booking system, which offers 288 airlines, 11 car rental companies, and over 215,000 hotel properties. This system provides us with access to online fares and electronic ticketing capability with the air carriers. Reservation and support services are provided by a combination of internally managed call centers, outsourcing relationships, and branded websites.

Contact Call Centers

Our contact call centers provide high-quality customer service, retention support and inbound telemarketing services. We are committed to using internally managed and outsourced contact call centers to effectively handle peak service levels while achieving a semi-variable cost structure. As of December 31, ~~2014~~2015, 2924 facilities handled the call volume, of which 1817 are internally managed (76 in North America and 11 in Europe) and 117 are outsourced.

Our contact call centers handle approximately 2017 million customer contacts per year, 98 million of which are related to our North American business and 119 million to our international business. The contact call centers provide a primary point of interaction with our customers. To this end, we are focused on implementing ways to improve service levels and set the necessary quality benchmarks to assure third-party vendors are performing at high levels. At the same time, we have reduced the number of our internally managed contact call centers and increased the use of outsourcers, producing significant cost reductions and an improved variable cost structure.

Competition

We are a leading affinity marketer of value-added membership, insurance and package enhancement programs and services with a network of more than 5,~~500~~600 marketing partners as of December 31, ~~2014~~2015, approximately 5954 million membership, insurance and package members and end-customers enrolled in our programs worldwide and approximately 62 40 million customers who received credit or debit card enhancement services and loyalty points-based management services as of December 31, ~~2014~~2015. Our leadership position in the affinity marketing and loyalty points program management industries is due to our nearly 40-year track record, our experience from ~~over~~approximately 5344,000 customer engagement and loyalty program marketing campaigns conducted over the last five years and our core strengths in the areas of multi-media marketing, data analytics, customer service and operations. We also believe our portfolio of programs and benefits is the broadest in the industry, and that we are capable of providing the full range of administrative services for loyalty points programs. At December 31, ~~2014~~2015, we offered 1413 core products and services with ~~351~~344 unique benefits and supported almost 54,~~200~~900 versions of products and services representing different combinations of pricing, benefit configurations and branding.

Our competitors include any company seeking direct and regular access to large groups of customers through any affinity-based direct media contact, as well as any company capable of managing loyalty points programs or providing redemption options for those programs. Our products and services compete with those marketed by financial institutions and other third parties who have marketing relationships with our competition, including large, fully integrated companies that have financial, marketing and product development resources that are greater than ours. We face competition in all areas of our business, including price, product offerings and product performance. As a whole, the direct marketing services industry is extremely fragmented, while competition in loyalty points program administration is somewhat more concentrated. Most companies in the direct marketing services industry are relatively small and provide a limited array of products and services. In general, competition for the consumer’s attention is intense, with a wide variety of players competing in different segments of the direct marketing industry. More specifically, competition within our business lines comes from companies that vary significantly in size, scope and primary core competencies.

Membership Products. The membership services industry is characterized by a high degree of competition. Participants in this industry include membership services companies, such as United Marketing Group, Encore, Synapse, AAA, LifeLock and Intersections, as well as the credit bureaus, Experian, Equifax and TransUnion, and large retailers, travel agencies, insurance companies and financial service institutions.

Insurance and Package Products. Participants in the U.S. in the direct marketing of insurance programs include AIG, ~~Assurant,~~ CUNA Mutual Group, New York Life, Securian, Transamerica, and marketing firms who, in some instances, utilize our insurance underwriters.

The U.S. package enhancement operation faces competition from both direct marketing companies and financial institutions that choose to provide package enhancement programs in-house. Some of the direct marketers that participate in this space include Sisk, Generations Gold, Econocheck and Strategy Corp.

Global Loyalty Products. ~~Examples~~Participants ~~of participants~~ in the loyalty arena provide in-house rewards programs and utilize third-party providers. Such third-party providers design, market and manage rewards-based loyalty programs for businesses that either have no desire to manage such programs or lack the core competencies necessary to compete in the industry effectively. Key industry participants include Maritz Loyalty Marketing, Epsilon and Orbitz.

International Products. In our international operations, on the membership side of the business, competitors include Card Protection Plan, LV8, Plebicom S.A., as well as large retailers, travel agencies, insurance companies and financial service institutions. Key competitors in the package business include Card Protection Plan, MobileServ Limited, and Lifestyle Service Group in the United Kingdom, Serisystem and Jakala in Italy, MehrWert Servicegesellschaft in Germany and Falck in Norway.

Information Technology

Our information technology team, comprised of approximately ~~500~~440 employees worldwide, operates and supports approximately 240 individual applications at December 31, ~~2014~~2015. Membership, package and insurance products and services are distributed through a multiple media approach, which allows us to interface with our marketing partners’ customers in a variety of ways to enhance file penetration in a cost effective manner. Our systems are able to manage marketing campaigns across all media. Servicing and enrollment requests are processed through a workflow and messaging interface with our vendors and are stored within our subscriber management platform. This framework allows us to keep a virtual inventory of programs and services, as well as store customer information for future marketing analysis. Customer servicing and billing information is fed into the financial ledger and business intelligence platform for billing and future marketing analysis.

Intellectual Property

We own or have licenses to use a large number of patents relating to a significant number of programs and processes. We also have certain significant material trademarks including, but not limited to Affinion Group, Affinion Benefits Group, Connexions Loyalty, Affinion International, AutoVantage, Buyers Advantage, CompleteHome, Enhanced Checking, HealthSaver, Hot-Line, NHPA, PrivacyGuard, Shoppers Advantage, Small Business Solutions, Travelers Advantage, Trilegiant and Wellness Extras. We use our trademarks in the marketing of our services and products offerings. We renew our trademarks on a regular basis. No individual patent or trademark is considered to be material to our business; however, our overall portfolio of patents and trademarks are valuable assets.

Employees

As of December 31, ~~2014~~2015, we employed approximately 3,~~700~~150 people, of which approximately 5455% are located in North America and the remaining 4645% are in our international offices.

Governmental and Regulatory Matters

The direct marketing industry is subject to U.S. federal and state regulation as well as regulation by governments and authorities in foreign jurisdictions. Certain regulations that govern our operations include: federal, state and foreign marketing laws; federal, state and foreign privacy laws; and federal, state and foreign insurance and consumer protection regulations. Federal regulations are primarily enforced by the Federal Trade Commission (“FTC”), the Federal Communications Commission (“FCC”) and the Consumer Financial Protection ~~Board~~Bureau (“CFPB”). State regulations are primarily enforced by individual state attorneys general. Foreign regulations are enforced by a number of regulatory bodies in the relevant jurisdictions.

Federal and State Marketing Laws. The FTC and each of the states have enacted consumer protection statutes designed to ensure that consumers are protected from unfair and deceptive marketing practices. We review all of our marketing materials for compliance with applicable FTC regulations and state marketing laws.

In 2003, the FTC amended its Telemarketing Sales Rule to establish a National “Do-Not-Call” Registry. As of December ~~2014~~2015, the “Do-Not-Call” Registry included more than ~~219~~223 million phone numbers. To comply with the rule, companies are required to match their call lists against the “Do-Not-Call” Registry prior to conducting outbound telemarketing and remove the names of consumers who have requested they not be called. In addition, the amended Telemarketing Sales Rule requires additional disclosures and sales practices for goods and services sold over the phone. We match our call lists with the “Do Not Call” Registry” and implement telemarketing scripts to comply with this regulation.

On December 29, 2010, legislation entitled the “Restore Online Shoppers’ Confidence Act” was enacted (“ROSCA”). The legislation prohibits the acquisition of consumers’ credit or debit card account numbers automatically from our partners when a consumer enrolls in one of our programs immediately after making a purchase through one of our partners’ web sites (“Online Data-pass Marketing”), and requires additional disclosure relating to the online marketing of, and billing for, membership programs in the online post-transaction environment. The Company ceased Online Data-pass Marketing in January 2010, more than eleven months prior to the enactment of such legislation, and we have put procedures in place to ensure compliance with ROSCA.

Effective October 2011, Florida passed legislation similar to ROSCA, but with some additional requirements, and effective January 2012, Oregon passed legislation regulating free trial offers. The Florida law, like ROSCA, requires that an ~~on-line~~online post-transaction third party seller must obtain the express informed consent of the consumer to the sale by obtaining from the consumer the full account number of the account to be charged. The Florida law also requires that ~~on-line~~online post-transaction third party sellers must send a written notice confirming the transaction to the consumer by first class U.S. mail or by email. The Oregon legislation prohibits a person from causing a consumer to incur a financial obligation as a result of accepting a free offer unless the person obtains the consumer’s billing information directly from the consumer. We have put procedures in place to ensure compliance with these laws.

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 was signed into law on July 21, 2010, and is in the process of being fully implemented. Dodd-Frank provides a regulatory framework and requires that regulators draft, review and approve, and implement numerous regulations and conduct studies that are likely to lead to more regulations. As part of this, Dodd-Frank created the CFPB that became operational on July 21, 2011, and has been given authority to regulate all consumer financial products sold by banks and non-bank companies.

Billing Regulations. In 1978, Regulation E was issued by the Federal Reserve Board of Governors to implement the Electronic Fund Transfer Act (the “EFT”). The EFT provides for rights and duties of consumers and financial institutions in connection with debit or credit “electronic fund transfers”- transfers to or from demand, savings, or other deposit accounts initiated through computer or magnetic tape, telephones, point-of-sale terminals, ATMs, or any other electronic device. It includes all transfers resulting from debit card transfers, whether or not they involve an electronic terminal. We have implemented billing solutions across our businesses to comply with the EFT.

Additionally, in connection with the sale of its products and services, the Company permits customers to make payment by means of automated clearing house (“ACH”) funds transfers from bank accounts, direct bank account debits, credit cards and debit cards. The Company accepts authorizations for these customer payments by means of the telephone, the Internet and postal mail. In connection with its payment acceptance activities, the Company is subject to the operating rules and procedures of the card associations and card networks (including Visa and MasterCard) and the payment rules governing ACH payments and electronic funds transfers. The Company is also subject to federal and state laws that impose certain requirements on merchants when accepting payments, including recurring payments, from customers. These payment system rules and laws are subject to amendment and new interpretations from time to time which may impose new costs on the Company’s operations and materially impact the services we provide. The Company has adopted policies and procedures across our businesses to comply with these payment system rules and laws.

Federal Privacy Laws. The Financial Modernization Act of 1999, also known as the Gramm-Leach-Bliley Act (“GLB”), includes provisions to protect consumers’ personal financial information held by financial institutions. GLB places restrictions on the ability of financial institutions to disclose non-public personal information about their customers to non-affiliated third parties and also prohibits financial institutions from disclosing account numbers to any non-affiliated third parties for use in telemarketing, direct mail marketing or other marketing to consumers. We have implemented privacy solutions across our businesses designed to comply with GLB.

Additionally, several bills have been proposed in Congress that could restrict the collection and dissemination of personal information for marketing purposes. If any such legislation is passed, we would implement appropriate procedures and practices to comply with such laws.

State Privacy Laws. In addition to federal legislation, some states are considering or have passed laws restricting the sharing of customer information. For example, the California Financial Information Privacy Act (“SB 1”) places restrictions on financial institutions’ ability to share the personal information of their California customers. We have established a privacy solution that is designed to comply with the requirements of SB 1.

Domestic and International Insurance Regulations. As a marketer of insurance programs, we are subject to state and foreign rules and regulations governing the business of insurance including, without limitation, laws governing the administration, underwriting, marketing, solicitation and/or sale of insurance programs. Domestically, the insurance carriers that underwrite the programs that we sell are required to file their rates for approval by state regulators. Additionally, certain state laws and regulations govern the form and content of certain disclosures that must be made in connection with the sale, advertising or offer of any insurance program to a consumer. We review all marketing materials we disseminate to the public for compliance with applicable insurance regulations. We are required to maintain certain licenses and approvals in order to market insurance programs. In addition, our international products are regulated by various national and international entities, including the Financial Conduct Authority in the United Kingdom (the “FCA”), in the sale of insurance programs and consumer credit related products. The FCA is the United Kingdom’s financial services regulator responsible for the conduct of organizations authorized under the Financial Services and Markets Act 2000 which, among other things, implements the European Union’s (the “EU”) Insurance Mediation Directive.

Other Foreign Regulations. Our European operations are subject to privacy and consumer protection regulations. Many of these regulations are based on EU Directives which are adopted as laws by countries within the EU in which Affinion International conducts its operations. These include:

Data Protection regulation: imposing security obligations and restrictions on the processing, use and transmission of customers’ personal data;

Privacy and Electronic Communications regulation: regulating unsolicited marketing activities carried out by telephone, fax and e-mail to users/subscribers;

Electronic Commerce regulation: imposing certain disclosure and operational requirements in relation to websites and internet marketing and sales activities;

Distance Selling regulation: requiring information disclosure and “cooling off periods” in contracts for goods or services (other than financial services) supplied to a consumer where the contract is made exclusively by means of distance communication;

Insurance Mediation Directive: requiring information disclosure and related obligations (including authorization and reporting) on entities that arrange, advise on, administer or otherwise engage in insurance intermediary activities;

Distance Marketing regulation: requiring information disclosure and “cooling off periods” in contracts for financial services supplied to a consumer where the contract is made exclusively by means of distance communication;

Unfair Terms and other consumer protection regulation: requiring that consumer terms and conditions be fair and reasonable and not misleading, and that certain information be made available to consumers and setting basic rules on responding to complaints;

Consumer Credit regulations: requiring licensing for the provision of credit information services;

Travel services regulations: requiring licensing and bonding for travel agency and tour operators, and regulations governing the conduct of such services including contractual liability between parties, terms and conditions and resolution of disputes; and;

Consumer Rights Directive: harmonizing certain consumer rights across Europe, including, requiring that consumers receive certain pre-contract information, clarifying cancellation rights for distance and off-premises contracts and digital products contracts, and prohibiting excessive surcharges on payment cards and telephone lines.

In addition, there are various self-regulatory codes of advertising and direct marketing practice. We have established procedures designed to comply with the requirements of these codes and practices. Further, the FCA and other international regulators and competent authorities may change or introduce new laws or regulations that materially impact the membership, package enhancement and other services we provide.

Insurance

We believe we carry sufficient insurance coverage to protect us from material losses incurred by any of our operations due to an insurance recoverable circumstance.

Corporate Information

We are a Delaware corporation formed in July 2005 and are a holding company whose assets consist of the capital stock of our direct subsidiaries.

Our headquarters and principal executive offices are located at 6 High Ridge Park, Stamford, Connecticut 06905. Our telephone number is (203) 956-1000.

Item 1A.

Risk Factors

You should carefully consider the risk factors set forth below as well as the other information contained in this Report. The risks described below are not the only risks facing us. Additional risks and uncertainties not currently known to us or those we currently deem to be immaterial may also materially and adversely affect our business, financial condition, cash flow, or results of operations and prospects. The following is a description of the most significant factors that might cause the actual results of operations in future periods to differ materially from those currently desired or expected. Any of the following risks could materially and adversely affect our business, financial condition or results of operations and prospects.

Our substantial indebtedness could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry and prevent us from servicing our debt.

We are a highly leveraged company. As of December 31, ~~2014~~2015, we had approximately $21.08 billion principal amount of outstanding indebtedness. Our annual debt service payment obligations, exclusive of capital lease obligations, require quarterly principal payments on our first lien term loan equal to 1% per annum and annual required repayments based on excess cash flow. As of December 31, ~~2014~~2015, our estimated annual ~~2015~~2016 principal and interest payments on our debt will be approximately $~~183~~142.24 million. Our ability to generate sufficient cash flow from operations to make scheduled payments on our debt will depend on a range of economic, competitive and business factors, many of which are outside our control. Our business may not generate sufficient cash flow from operations to meet our debt service and other obligations. If we are unable to meet our expenses, debt service obligations and other obligations, we may need to refinance all or a portion of our indebtedness on or before maturity, sell assets and/or raise equity. We may not be able to refinance any of our indebtedness, sell assets or raise equity on commercially reasonable terms or at all, which could cause us to default on our obligations.

Our substantial indebtedness could have important consequences, including the following:

· it may materially limit our ability to borrow money or sell stock for our working capital, capital expenditures, debt service requirements, strategic initiatives or other purposes, such as marketing expenditures;

a substantial portion of our cash flow from operations will be dedicated to the repayment of our indebtedness and will not be available for other purposes;

· it may materially limit our flexibility in planning for, or reacting to, changes in our operations or business;

· we are ~~and will be~~ more highly leveraged than some of our competitors, which may place us at a material competitive disadvantage and may have a negative impact on our ability to attract and retain clients;

· it may make us more vulnerable to downturns in our business or the economy or requests from our clients and vendors for more favorable business terms;

· it may materially restrict us from making strategic acquisitions, introducing new technologies or exploiting business opportunities; and

· it may materially limit, along with the financial and other restrictive covenants in our indebtedness, among other things, our ability to borrow additional funds or dispose of assets.

23All of the debt under our senior secured credit facility (as defined below) is variable-rate debt, subject to a minimum LIBOR floor.

~~All~~The terms of ~~the debt under~~ our senior secured credit facility isand ~~variable-rate~~the ~~debt~~indentures governing Affinion’s 7.875% senior notes due 2018 (Affinion’s “2010 senior notes”) and Affinion International’s 7.5% Cash/PIK Senior Notes due 2018 (the “International Notes”) may restrict our current and future operations, ~~subject~~particularly our ability to arespond ~~minimum~~to ~~LIBOR~~changes ~~floor~~in our business or to take certain actions.

The terms of our senior secured credit facility and the indentures governing ~~our~~Affinion’s ~~7.875% senior notes due 2018 (the “~~2010 senior notes”) and ~~our~~the ~~13.50%~~International ~~senior~~Notes ~~subordinated~~contain ~~notes~~a ~~due~~number ~~2018~~of ~~(the~~restrictive ~~“2013~~covenants ~~senior~~that ~~subordinated~~impose ~~notes”)~~significant ~~may~~operating ~~restrict~~and ~~our~~financial ~~current~~restrictions ~~and~~on ~~future operations~~us, ~~particularly~~including ~~our~~restrictions ~~ability~~on ~~to respond to changes in~~ our ~~business~~ability or to, ~~take~~among ~~certain~~other ~~actions.~~ things:

The terms of our senior secured credit facility and the indentures governing our 2010 senior notes and our 2013 senior subordinated notes contain a number of restrictive covenants that impose significant operating and financial restrictions on us, including restrictions on our ability to, among other things:

incur or guarantee additional debt;

sell preferred stock of a restricted subsidiary;

pay dividends and make other restricted payments (including payments of certain junior debt);

create or incur certain liens;

make certain investments;

engage in sales of assets and subsidiary stock;

enter into transactions with affiliates; and

transfer all or substantially all of our assets or enter into merger or consolidation transactions.

In addition, our senior secured credit facility requires us to maintain a maximum senior secured leverage ratio. As a result of these covenants, we will be limited in the manner in which we conduct our business and we may be unable to engage in favorable business activities or finance future operations or capital needs.

If we fail to comply with the covenants contained in our senior secured credit facility, an event of default, if not cured or waived, could result under our senior secured credit facility, and the lenders thereunder:

will not be required to lend any additional amounts to us;

could elect to declare all borrowings outstanding, together with accrued and unpaid interest and fees, to be due and payable and could proceed against the collateral securing our senior secured credit facility; and

could require us to apply all of our available cash to repay these borrowings;

any of which could result in an event of default under ~~our~~Affinion’s 2010 senior notes and ~~our~~the ~~2013~~International ~~senior subordinated notes~~Notes.

If the indebtedness under our senior secured credit facility, ~~our~~Affinion’s 2010 senior notes orand ~~our~~the ~~2013~~International ~~senior~~Notes ~~subordinated notes~~ were to be accelerated, there can be no assurance that our assets would be sufficient to repay such indebtedness in full.

Despite our substantial indebtedness, we may still be able to incur significantly more debt. This could intensify the risks described above.

The terms of the indentures governing ~~our~~Affinion’s 2010 senior notes and ~~2013~~the ~~senior~~International ~~subordinated~~Notes ~~notes~~ and our senior secured credit facility contain restrictions on ~~our~~the ~~and~~applicable ~~our subsidiaries~~issuer’s ability and that of any of its subsidiaries to incur additional indebtedness. However, these restrictions are subject to a number of important qualifications and exceptions and the indebtedness incurred in compliance with these restrictions could be substantial. Accordingly, we or our subsidiaries could incur significant additional indebtedness in the future, much of which could constitute secured or senior indebtedness. As of December 31, ~~2014~~2015, we had $6167.7 0 million available for additional borrowing under the revolving loan commitments under our senior secured credit facility, after giving effect to $13.30 million of outstanding letters of credit. In addition, the covenants under our existing debt agreements would allow us to borrow a significant amount of additional debt. The more we become leveraged, the more we, and in turn our security holders, become exposed to the risks described above under “—Our substantial indebtedness could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry and prevent us from servicing our debt.”

24The more we become leveraged, the more we, and in turn our security holders, become exposed to the risks described above under “—Our substantial indebtedness could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry and prevent us from servicing our debt.”

We may not be able to generate sufficient cash to service all of our indebtedness and may be forced to take other actions to satisfy our obligations under our indebtedness that may not be successful.

Our ability to satisfy our debt obligations will depend upon, among other things:

our future financial and operating performance, which will be affected by prevailing economic conditions and financial, business, regulatory and other factors, many of which are beyond our control; and

the future availability of borrowings under our senior secured credit facility, the availability of which depends on, among other things, our complying with the covenants in our senior secured credit facility.

We cannot assure you that our business will generate sufficient cash flow from operations, or that future borrowings will be available to us under our senior secured credit facility or otherwise, in an amount sufficient to fund our liquidity needs. ~~See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Cautionary Statements for Forward-Looking Information.”~~

If our cash flows and capital resources are insufficient to service our indebtedness, we may be forced to reduce or delay marketing spend and/or capital expenditures, sell assets, seek additional capital or restructure or refinance our indebtedness. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations. In addition, the terms of existing or future debt agreements, including our senior secured credit facility and the indentures governing ~~our~~Affinion’s 2010 senior notes and ~~our~~the ~~2013~~International ~~senior~~Notes ~~subordinated notes~~ may restrict us from adopting some of these alternatives. In the absence of sufficient operating results and resources, we could face substantial liquidity problems and might be required to dispose of material assets or operations and/or reduce or delay marketing spend and/or capital expenditures to meet our debt service and other obligations. WeIn the case of dispositions, we may not be able to consummate ~~those~~them ~~dispositions~~ for fair market value or at all. Furthermore, any proceeds that we could realize from any such dispositions may not be adequate to meet our debt service obligations then due. Furthermore, none of Affinion Holdings’ equityholders, ~~including Apollo (as defined below), General Atlantic, the holders of warrants and their respective affiliates,~~ have any continuing obligation to provide us with debt or equity financing.

We are a holding company with no direct operations and no significant assets other than the direct and indirect ownership of ~~its~~our subsidiaries and all of ~~its~~our net revenues are earned by our direct and indirect subsidiaries. Our ability to service our indebtedness depends upon the performance of these subsidiaries and their ability to make distributions.

We are a holding company and all of our operations are conducted by our subsidiaries. Therefore, our cash flows and our ability to service indebtedness will be dependent upon cash dividends and distributions or other transfers from our subsidiaries. Payments to us by our subsidiaries will be contingent upon our subsidiaries’ earnings.

Our subsidiaries are separate and distinct legal entities and, except for the existing and future subsidiaries that are or will be subsidiary guarantors of our 2010 senior notes and 2013 senior subordinated notes or our senior secured credit facility, they will have no obligation, contingent or otherwise, to pay amounts due under our indebtedness or to make any funds available to pay those amounts, whether by dividend, distribution, loan or other payments.

We have historically experienced net losses and negative working capital.

Since the consummation of the Acquisition, we have had a history of net losses and negative working capital. For the years ended December 31, 2014, 2013 and 2012, we had net losses attributable to us of $374.4 million, $89.6 million and $99.3 million, respectively. We cannot assure you that we will not continue to report net losses in future periods. Our working capital deficit as of December 31, 2014, 2013 and 2012 was $195.2 million, $171.8 million and $163.7 million, respectively.

Our ability to utilize our net operating loss carryforwards and certain other tax attributes may be limited.

As part of the Acquisition, we made a special tax election referred to as a “338(h)(10) election” with respect to the companies constituting Cendant Marketing Services (“Predecessor”), a division of Cendant Corporation (“Cendant”). Under the 338(h)(10) election, the companies constituting the Predecessor were deemed for U.S. federal income tax purposes to have sold and repurchased their assets at fair market value. By adjusting the tax basis in such assets to fair market value for U.S. federal income tax purposes, the aggregate amount of our tax deductions for depreciation and amortization increased, which we expect to reduce our cash taxes in the future. We expect that tax deductions attributable to the 338(h)(10) election to be up to approximately $119 million per year ending in 2020. However, our ability to utilize these deductions in any taxable period will be limited by the amount of taxable income we earn in such period. In addition, pursuant to Section 382 of the Internal Revenue Code, if we undergo an “ownership change” (generally defined as a greater than 50% change (by value) in our stock ownership within a three-year period), our ability to use our pre-change net operating loss carryforwards (including those attributable to the 338(h)(10) election) and certain other pre-change tax attributes to offset our post-change income may be limited. Similar rules and limitations may apply for state tax purposes as well. The rules under Section 382 are highly complex, and we cannot give you any assurance that any transfers of our stock will not trigger an “ownership change” and cause such limitation to apply.

WeOur ~~provide~~subsidiaries ~~periodic~~are ~~reports~~separate asand adistinct ~~“voluntary~~legal ~~filer”~~entities ~~pursuant~~and, toexcept ~~our~~for ~~contractual~~the ~~obligations~~existing inand ~~the~~future ~~indentures~~subsidiaries ~~governing~~that ~~the~~are or will be subsidiary guarantors of Affinion’s 2010 senior notes or our senior secured credit facility, ~~which~~they ~~contractual~~will ~~obligations~~have ~~may~~no beobligation, ~~amended~~contingent ~~without~~or ~~your~~otherwise, ~~consent.~~to pay amounts due under our indebtedness or to make any funds available to pay those amounts, whether by dividend, distribution, loan or other payments.

~~Our~~We obligation to file periodic reports pursuant to Section 15(d) of the Exchange Act was automatically terminated when our 2010 senior notes were held by fewer than 300 persons on January 1, 2014 and our 2013 senior subordinated notes have ~~not~~historically ~~been,~~experienced ~~and~~net ~~are~~losses not required to be, registered under the Securities Act. Notwithstanding this automatic suspension of our reporting obligations pursuant to Section 15(d) of the Exchange Act, we intend to continue filing periodic reports with the SEC and tonegative ~~provide~~working holders of our 2010 senior notes and our 2013 senior subordinated notes with copies of any filed reports as a “voluntary filer” in compliance with the indentures governing the 2010 senior notes and the 2013 senior subordinated notescapital. We expect that such periodic reports filed by us as a voluntary filer will comply fully with all applicable rules and regulations of the SEC. However, we could eliminate the periodic reporting covenant in the indentures governing the 2010 senior notes and the 2013 senior subordinated notes with the consent of the holders of at least a majority of each series of the notes, in which case we would no longer be obligated to file periodic reports with the SEC and may cease doing so.

Since the consummation on October 17, 2005 of the acquisition (the “2005 Acquisition”) by Affinion of Affinion Group, LLC (known as Cendant Marketing Group, LLC prior to the consummation of the 2005 Acquisition) and Affinion International (known as Cendant International Holdings Limited prior to the consummation of the 2005 Acquisition), we have had a history of net losses and negative working capital. For the years ended December 31, 2015, 2014 and 2013, we had net losses attributable to us of $30.0 million, $374.4 million and $89.6 million, respectively. We cannot assure you that we will not continue to report net losses in future periods. Our working capital deficit as of December 31, 2015, 2014 and 2013 was $97.5 million, $195.2 million and $171.8 million, respectively.

Our ability to utilize our net operating loss carryforwards and certain other tax attributes will be limited.

Affinion had $0.7 billion of “net operating losses” for U.S. federal income taxes as of December 31, 2015. However, pursuant to the consummation of the 2015 Exchange Offers and the 2015 Rights Offering, an “ownership change” resulted for the Company in accordance with Section 382 of the Internal Revenue Code. These transactions produced cancelation of debt income and, when combined with our expected limitation on the future use of our pre-change net operating loss carryforwards, has reduced the Company’s December 31, 2015 federal net operating loss to $0.5 billion. Similar rules and limitations may apply for state tax purposes as well. Nevertheless, we would expect our net operating losses to reduce our cash taxes in the future. Further, if we undergo an “ownership change” in the future, we could experience additional limitations on our ability to utilize our “net operating losses” and other attributes.

We provide periodic reports as a “voluntary filer” pursuant to our contractual obligations in the indentures governing Affinion’s 2010 notes and the International Notes, which contractual obligations may be amended without your consent.

Our obligation to file periodic reports pursuant to Section 15(d) of the Exchange Act was automatically terminated when Affinion’s 2010 senior notes were held by fewer than 300 persons on January 1, 2014. Notwithstanding this automatic suspension of our reporting obligations pursuant to Section 15(d) of the Exchange Act, we intend to continue filing periodic reports with the SEC and to provide holders of Affinion’s 2010 senior notes and the International Notes with copies of any filed reports as a “voluntary filer” in compliance with the indentures governing Affinion’s 2010 senior notes and the International Notes. We expect that such periodic reports filed by us as a voluntary filer will comply fully with all applicable rules and regulations of the SEC. However, we could eliminate the periodic reporting covenant in the indentures governing the 2010 senior notes and the International Notes with the consent of the holders of at least a majority of each series of the notes, in which case we would no longer be obligated to file periodic reports with the SEC and may cease doing so.

We must replace the clients, including marketing partners, and customers we lose in the ordinary course of business and if we fail to do so our revenue may decline and our client and customer base will decline, resulting in material adverse effects to our financial condition.

We lose a substantial number of our customers each year in the ordinary course of business. The loss of clients, including marketing partners, or customers has occurred historically, and in the future may occur, due to numerous factors, including:

changing customer preferences;

competitive price pressures;

general economic conditions;

customer dissatisfaction;

credit or debit card holder turnover; and

client and customer turnover.

Further, we also have experienced a net loss of members and end-customers due to the regulatory issues at our financial institution marketing partners, which have and may continue to cause, such partners to cancel the membership of certain members and end-customers. 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. Additionally, we expect to continue to see a net loss of members and end-customers as we continue our ongoing strategy to focus on overall profitability and generating higher revenue from each member rather than the size of our member base and as we increase our level of marketing investment with non-financial clients and in media where we have less response history from prior marketing efforts, which could result in lower overall consumer response and longevity than what we historically observed from our financial clients or through direct mail. Failure to obtain new customers who produce revenue at least equivalent to the revenue from the lost customers would result in a reduction in our revenue as well as a decrease in the number of our customers. Because of the large number of customers we need to replace each year, there can be no assurance that we can successfully replace them. In addition, even if we are successful in adding new customers to replace lost revenues, our profitability may still decline. 26

Further, we also have experienced a net loss of members and end-customers due to the regulatory issues at our financial institution marketing partners, which have and may continue to cause, such partners to cancel the membership of certain members and end-customers. Partially as a result of these factors, we have experienced a decline in our domestic membership customer base and domestic membership revenues. We anticipate this decline will continue at an accelerated rate in 2016, as compared to historical periods, before returning to historical attrition rates in 2017. Additionally, we expect to continue to see a net loss of members and end-customers as we continue our ongoing strategy to focus on overall profitability and generating higher revenue from each member rather than the size of our member base and as we increase our level of marketing investment with non-financial clients and in media where we have less response history from prior marketing efforts, which could result in lower overall consumer response and longevity than what we historically observed from our financial clients or through direct mail. Failure to obtain new customers who produce revenue at least equivalent to the revenue from the lost customers would result in a reduction in our revenue as well as a decrease in the number of our customers. Because of the large number of customers we need to replace each year, there can be no assurance that we can successfully replace them. In addition, even if we are successful in adding new customers to replace lost revenues, our profitability may still decline.

If we fail to implement our business strategy successfully, our financial performance could be harmed.

Our future financial performance and success are dependent in large part upon our ability to implement our business strategy successfully. Our business strategy is to pursue initiatives that maintain and enhance our position as 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 our marketing partners by creating and/or delivering valuable products and services that generate incremental loyalty and to focus on attractive opportunities that will increase our profitability and cash flows. We may not be able to implement our business strategy successfully or achieve the anticipated benefits. If we are unable to do so, our long-term growth, profitability and ability to service our debt may be materially adversely affected. Even if we are able to implement some or all of the key elements of our business plan successfully, our operating results may not improve to the extent we anticipate, or at all. Implementation of our business strategy could also be affected by a number of factors beyond our control, such as legal developments, government regulation, general economic conditions or increased operating costs or expenses.

We derive a substantial amount of our revenue from the members and end-customers we obtain through only a few of our marketing partners. If one or more of our agreements with our marketing partners were to be terminated or expire, or one or more of our marketing partners were to reduce the marketing of our services, we would lose access to prospective members and end-customers and could lose sources of revenue.

We derive a substantial amount of our net revenue from the customers we obtain through only a few of our marketing partners. In ~~2014~~2015, we derived approximately 3533.5% of our net revenues from members and end-customers we obtained through the 10 largest marketing partners of our more than 5,~~500~~600 marketing partners.

Many of our key marketing partner relationships are governed by agreements that may be terminated at any time without cause by our marketing partners upon notice of as few as 90 days without penalty. Some of our agreements may be terminated at any time by our marketing partners upon notice of as few as 30 days without penalty. Our marketing partners are not subject to minimum marketing commitments that are material, individually or in the aggregate. Moreover, under many of these agreements, our marketing partners may cease or reduce their marketing of our services without terminating or breaching our agreements. Further, in the ordinary course of business, at any given time, one or more of our contracts with key marketing partners may be selected for bidding through a request for proposal process. As a result of the regulatory supervisory audits and inquiries of certain of our financial institution marketing partners, certain partners have terminated their agreements with us or ceased marketing our services to, or ceased billing, their customers. The loss of such marketing partners, the cessation of their marketing of our services or the billing of their customers or a decline in their businesses could have a material adverse effect on our future revenue from existing services of which such marketing partner’s customers are customers of ours and could adversely affect our ability to further market new or existing services through such marketing partner to prospective customers. There can be no assurance that more of our ~~or other~~ marketing partners will not terminate their relationship with us, cease or reduce their marketing of our services, cease the billing of their customers or suffer a decline in their business. If other marketing partners terminate or do not renew their relationships with us and we are required to cease providing our services to, or cease billing, their customers, then we could lose significant sources of revenue and there can be no assurances that we will be able to replace such lost revenue, which could have a material adverse effect on our revenues and profitability.

Our typical membership products agreements with marketing partners provide that after termination of the contract we may continue to provide our services to existing members under the same economic arrangements that existed before termination. However, in some cases, our marketing partners have violated, and others may in the future nonetheless violate, their contractual obligations and cease facilitating the billing of such existing members. Under certain of our insurance products agreements, however, marketing partners may require us to cease providing services to existing customers after time periods ranging from 90 days to five years after termination of the agreement. Also, under agreements with our marketing partners for which we market under a wholesale arrangement and have not incurred any marketing expenditures, our marketing partners generally may require us to cease providing services to existing customers upon termination of the wholesale arrangement. Further, marketing partners under certain agreements also have required, and may continue to require, us to cease providing services to their customers under existing arrangements if the contract is terminated for material breach by us or due to a change in the law or regulations. If more of these marketing partners were to terminate our agreements with them, and require us to cease providing our services to, or cease billing, their customers, then we could continue to lose significant sources of revenue and there can be no assurances that we will be able to replace such lost revenue, which could have a material adverse effect on our revenues and profitability.

services to existing customers upon termination of the wholesale arrangement. Further, marketing partners under certain agreements also have required, and may continue to require, us to cease providing services to their customers under existing arrangements if the contract is terminated for material breach by us or due to a change in the law or regulations. If more of these marketing partners were to terminate our agreements with them, and require us to cease providing our services to, or cease billing, their customers, then we could continue to lose significant sources of revenue and there can be no assurances that we will be able to replace such lost revenue, which could have a material adverse effect on our revenues and profitability.

Our profitability depends on members and end-customers continuing their relationship with us. Increased loss of customers could impair our profitability.

We generally incur losses and negative cash flow during the initial year of an individual member or end-customer relationship, as compared to renewal years. This is due primarily to the fact that the costs associated with obtaining and servicing a new retail member and end-customer often exceed the fee paid to us for the initial year. In addition, we experience a higher percentage of cancellations during the initial membership period compared to renewal periods. Members and end-customers may cancel their arrangement at any time during the program period and, for our annual bill customers, we are typically obligated to refund the unused portion of their annual program fee. Additionally, an increase in cancellations of our members’ credit and debit cards by their card issuers as a result of payment delinquencies or for any other reason could result in a loss of members and end-customers and reduce our revenue and profitability. Accordingly, our profitability depends on recurring and sustained renewals and an increase in the loss of members or end-customers could result in a loss of significant revenues and reduce our profitability.

We depend on various third-party vendors to supply certain products and services that we market and to market certain of our products and services on our behalf. The failure of these vendors for any reason to provide these products or services or market these products and services in accordance with our requirements could result in customer dissatisfaction, expose us to increased liability and harm our business, financial condition and reputation.

We depend on various third-party vendors, including travel and hospitality suppliers, credit content providers, and insurance carriers, to supply the products and services that we market, and the quality of service they provide is not entirely within our control. If any third-party vendor were to cease operations, or terminate, breach or not renew its contract with us, we may not be able to substitute a comparable third-party vendor on a timely basis or on terms as favorable to us. Additionally, if any third party vendor suffers interruptions, delays or quality problems, it could result in negative publicity and customer dissatisfaction which could reduce our revenues and profitability. With respect to the insurance programs that we offer, we are dependent on the insurance carriers that underwrite the insurance to obtain appropriate regulatory approvals and maintain compliance with insurance regulations. If such carriers do not obtain appropriate state regulatory approvals or comply with such changing regulations, we may be required to use an alternative carrier or change our insurance products or cease marketing certain insurance related products in certain states, as a result of which our revenue and profitability could be adversely affected. If we are required to use an alternative insurance carrier or change our insurance related products, it may materially increase the time required to bring an insurance related product to market. As we are generally obligated to continue providing our products and services to our customers even if we lose a third-party vendor, any disruption in our product offerings could harm our reputation and result in customer dissatisfaction.

Furthermore, we utilize third-party vendors to market certain of our products and services on our behalf. The failure of any of our third- party vendors to satisfy our contractual or other requirements, including the failure to comply with applicable laws or regulations, could subject us to private lawsuits or governmental investigations or proceedings, may result in our liability for damages and fines, and/or harm our reputation. If any third- party vendor marketing our products and services on our behalf suffers interruptions, delays or quality problems, it could reduce our revenues and profitability.

With respect to both vendors that supply certain products and services and vendors that market certain of our products and services, replacing existing third-party vendors with more expensive third-party vendors could increase our costs and reduce our profitability. Additionally, if third-party vendors increase their prices for their services, it would increase our costs and could result in a reduction of our profitability.

We depend, in part, on payment processors to obtain payments for us. If our payment processors are interrupted or negatively affected in any way it could result in delays in collecting payments or loss of future business and negatively impact our revenues and profitability.

We depend, in part, on payment processors to obtain payments for us. The payment processors operate pursuant to agreements that may be terminated with limited prior notice. In the event a payment processor ceases operations or terminates its agreement with us, there can be no assurance a replacement payment processor could be retained on a timely basis, if at all. Any service interruptions, delays or quality problems could result in delays in our collection of payments, which would reduce our revenues and profitability. Changes to the Visa and MasterCard Rules, the American Express Rules, or other rules and regulations governing card issuers or our marketing partners that negatively impact payment processors’ operations or ability to obtain payments for us, could adversely affect our revenues and profitability. Further, to the extent payment processors or issuing banks suffer a loss of revenues or business as a result of internal policy changes or any future enacted regulations or legislation, our revenues and profitability may be adversely affected.

The increase in the share of monthly payment programs in our program mix may adversely affect our cash flows.

We have traditionally marketed membership programs which have up-front annual membership fees. However, over the last six years, we expanded our marketing of membership programs for which membership fees are payable in monthly installments. In excess of 95% of our domestic new member and end-customer enrollments for the year ended December 31, ~~2014~~2015 were in monthly payment programs. Our increased emphasis on monthly payment programs adversely affects our cash flow in the short term because the membership fee is collected over the course of the year rather than at the beginning of the membership term as with annual billing.

We have experienced recent declines in our Adjusted EBITDA and may be unable to achieve annual Adjusted EBITDA growth in future periods.

In ~~2014~~2015, we experienced a decline in our Adjusted EBITDA compared to ~~2013~~2014. WeOur Adjusted EBITDA may continue to decline, and we may not be able to achieve annual Adjusted EBITDA growth in future periods ~~and our Adjusted EBITDA may continue to decline~~. A variety of risks and uncertainties could cause us to not achieve Adjusted EBITDA growth, including, among others, business, economic and competitive risks and uncertainties. ~~discussed~~In ~~under~~order ~~“Item~~to ~~1A.~~achieve ~~Risk~~Adjusted ~~Factors”~~EBITDA ~~and~~growth ~~“Item~~in 7.future ~~Management’s~~periods, ~~Discussion~~we must continue to implement our business strategy, achieve our target minimum returns on investment for our marketing expenditures, maintain or exceed the renewal rate and ~~Analysis~~profitability of ~~Financial~~our ~~Condition~~customer base, retain key marketing partners and ~~Results~~loyalty ofclients ~~Operations—Cautionary~~and ~~Statements~~expand ~~for~~those ~~Forward-Looking~~relationships, ~~Information~~develop relationships with new key marketing partners and loyalty clients, grow our loyalty and international operations, and experience no material adverse developments that would impact our cost structure, or material adverse developments in the regulatory environment in which we operate, among other things.” InAccordingly, ~~order~~we cannot assure you that we will be able to achieve Adjusted EBITDA growth infor any future period.

28Increases in insurance claim costs will likely have a negative impact on the revenues and profitability of our Insurance business.

periods, we must continue to implement our business strategy, achieve our target minimum returns on investment for our marketing expenditures, maintain or exceed the renewal rate and profitability of our customer base, retain key marketing partners and loyalty clients and expand those relationships, develop relationships with new key marketing partners and loyalty clients, grow our loyalty and international operations, and experience no material adverse developments that would impact our cost structure, or material adverse developments in the regulatory environment in which we operate, among other things. Accordingly, we cannot assure you that we will be able to achieve Adjusted EBITDA growth for any future period.

Increases in insurance claim costs will negatively impact the revenues and profitability of our Insurance business.

Our commission revenue from insurance programs is reported net of insurance cost. The major component of insurance cost represents claim costs, which are not within our control. While we seek to limit our exposure on any single insured and to recover a portion of benefits paid by ceding reinsurance to reinsurers, significant unfavorable claims experience will reduce our revenues and profitability.

Our business is highly competitive. We may be unable to compete effectively with other companies in our industry that have financial or other advantages and increased competition could lead to reduced market share, a decrease in margins and a decrease in revenue.

We believe that the principal competitive factors in our industry include the ability to identify, develop and offer innovative membership, insurance, package enhancement and loyalty programs, products and services, the quality and breadth of the programs, products and services offered, competitive pricing and in-house marketing expertise. Our competitors offer programs, products and services similar to, or which compete directly with, those offered by us. These competitors include, among others, Experian, Equifax, TransUnion, Intersections, Sisk, Epsilon, ~~Assurant~~ and Card Protection Plan. In addition, we could face competition if our current marketing partners were to develop and market their own in-house programs, products and services similar to ours. Furthermore, certain of our marketing partners (who may have greater financial resources and less debt than we do) have attempted, or are attempting, to market and/or provide certain competitive products to their customers, the marketing and servicing of which historically were provided by us.

Some of these existing and potential competitors have substantially larger customer bases and greater financial and other resources than we do. There can be no assurance that:

our competitors will not increase their emphasis on programs similar to those we offer;

our competitors will not provide programs comparable or superior to those we provide at lower costs to customers;

our competitors will not adapt more quickly than we do to evolving industry trends or changing market requirements;

new competitors will not enter the market; or

other businesses (including our current marketing partners) will not themselves introduce in-house programs similar to those we offer.

In order to compete effectively with all of these competitors, we must be able to provide superior programs and services at competitive prices. In addition, we must be able to adapt quickly to evolving industry trends, a changing market, and increased regulatory requirements. Our ability to grow our business may depend on our ability to develop new programs and services that generate consumer interest. Failure to do so could result in our competitors acquiring additional market share in areas of consumer interest. Any increase in competition could result in price reductions, reduced gross margin and loss of market share.

Additionally, because contracts between marketing partners and program providers are often exclusive with respect to a particular program, potential marketing partners may be prohibited for a period of time from contracting with us to promote a new program if the benefits and services included in our program are similar to, or overlap with, the programs and services provided by an existing program of a competitor.

Internationally, package programs similar to ours are offered by some of the largest financial institutions in Europe. As these banks attempt to increase their own net revenues and margins by offering such programs in-house, we have been required to significantly reduce our prices when our agreements with these financial institutions come up for renewal in order to remain competitive. This pricing pressure on our international package offerings may continue in the future, thereby lowering the contribution to our operating results from such programs in the future.

Our business is increasingly subject to U.S. and foreign government regulation, which could impede our ability to market and provide our programs and services and reduce our profitability.

We market our programs and services through various distribution media, including direct mail, point-of-sale marketing, telemarketing, online marketing and other methods. These media are regulated by state, federal and foreign laws and we believe that these media will be subject to increasing regulation. Such regulation may limit our ability to solicit or sign up new customers or to provide products or services to existing customers.

Our U.S. programs and services are subject to extensive regulation and oversight by the FTC, the FCC, the CFPB, state attorneys general and/or other state regulatory agencies, including state insurance regulators. Our programs and services involve the use of non-public personal information that is subject to federal consumer privacy laws, such as the ~~Financial Modernization Act of 1999~~GLB, ~~also known as the Gramm-Leach-Bliley Act,~~ and various state laws governing consumer privacy, such as California’s SB 1, SB 1386 and others. Additionally, telemarketing related to our programs and services is subject to federal and state telemarketing regulations, including the FTC’s Telemarketing Sales Rule, the FCC’s Telephone Consumer Protection Act and related regulations, as well as various state telemarketing laws and regulations. Furthermore, our insurance products are subject to various state laws and regulations governing the business of insurance, including, without limitation, laws and regulations governing the administration, underwriting, marketing, solicitation or sale of insurance programs. Our travel products and services are subject to regulation by the U.S. Department of Transportation, as well as other U.S. laws and regulations governing the offer and sale thereof. The gift cards that we provide to our clients, their customers and members are subject to the Credit Card Accountability Responsibility and Disclosure Act of 2009 and similar state laws, which contain specific disclosure requirements, prohibitions or limitations on the use of expiration dates and the ability to impose certain fees. Additional federal or state laws, including subsequent amendments to existing laws, could impede our ability to market and/or provide our programs and services and reduce our revenues and profitability.

Similarly our operations in the European Economic Area are also often subject to strict regulation and oversight by regulatory agencies, including the ~~Financial~~FCA ~~Conduct Authority~~ in the ~~United Kingdom (the “FCA”)~~U.K. These laws include, in particular, restrictions on our insurance intermediary activities as a regulated financial service requiring prior authorization and adherence to various rules on management and controls, documentation, complaints handling, minimum financial resources and the contracting process with consumers. In addition, our European and international business, as a whole, is subject to regulation including data protection legislation requiring notification and obtaining consent for certain marketing limitations on the transfer of personal data from and within the European Economic Area and advertising rules regarding the content of marketing. “Distance selling” information and cancellation rules must also be followed in the ~~European~~EU ~~Union~~ and other international countries when we contract with consumers at a distance including via post, phone, email, text or website. In the latter case, electronic commerce rules also come into play. In the ~~European Union~~EU, these distance selling and e-commerce rules had to be implemented by each member state no later than June 13, 2014, and ~~which~~ include requirements regarding the purchase of goods and services on the internet or by phone. Some of our products in the U.K. also involve the provision of services classified as consumer credit and therefore require additional licenses to be applied for and maintained. Additionally, individuals in the U.K. and other European countries have rights to prevent direct marketing to them by telephone, fax or email. Other rules to which we are subject in the European Economic Area include restrictions on what are considered to be unfair or misleading commercial practices and general rules on providing services involving information and basic complaint handling rules to be followed. While many of these rules are based on European Directives, different member states have varying implementation and enforcement approaches which can be difficult to navigate. New rules or changes in existing ones at a European or Member State level in countries where we operate could restrict our current practices resulting in a reduction in our revenues and profitability.

Our global operations are also subject to trade sanctions administered by the U.S. Department of the Treasury’s Office of Foreign Assets Control. These trade sanctions generally prohibit U.S. persons, including our controlled international subsidiaries, from engaging in certain types of transactions, such as travel bookings, with designated foreign countries, nationals, organizations, and others, which prohibitions may conflict with laws of other jurisdictions in which we operate. We are also subject to U.S. and international anti-corruption laws and regulations, including the U.S. Foreign Corrupt Practices Act, the UK Bribery Act and other laws in other jurisdictions that prohibit the making, receiving or offering of improper payments or other benefits for the purpose of influencing decisions, obtaining or retaining business, or obtaining preferential treatment and require us to maintain adequate record-keeping and internal controls to ensure that our books and records accurately reflect our transactions. We have implemented policies, training and compliance programs designed to prevent such prohibited practices and transactions, as well as detect such prohibited practices and transactions if they were to occur. However, there can be no assurance that our policies, training and compliance programs will effectively prevent violation of such laws and regulations. Any such violation may subject us to criminal and/or civil penalties, prohibit or limit the conduct of our business in such jurisdictions, and/or disrupt our operations as we develop new compliance procedures, any of which could adversely affect our business, our reputation and our profitability.

based on European Directives, different member states have varying implementation and enforcement approaches which can be difficult to navigate. New rules or changes in existing ones at a European or Member State level in countries where we operate could restrict our current practices resulting in a reduction in our revenues and profitability.

Our global operations are also subject to trade sanctions administered by the U.S. Department of the Treasury’s Office of Foreign Assets Control. These trade sanctions generally prohibit U.S. persons, including our controlled international subsidiaries, from engaging in certain types of transactions, such as travel bookings, with designated foreign countries, nationals, organizations, and others, which prohibitions may conflict with laws of other jurisdictions in which we operate. We are also subject to U.S. and international anti-corruption laws and regulations, including the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act and other laws in other jurisdictions that prohibit the making, receiving or offering of improper payments or other benefits for the purpose of influencing decisions, obtaining or retaining business, or obtaining preferential treatment and require us to maintain adequate record-keeping and internal controls to ensure that our books and records accurately reflect our transactions. We have implemented policies, training and compliance programs designed to prevent such prohibited practices and transactions, as well as detect such prohibited practices and transactions if they were to occur. However, there can be no assurance that our policies, training and compliance programs will effectively prevent violation of such laws and regulations. Any such violation may subject us to criminal and/or civil penalties, prohibit or limit the conduct of our business in such jurisdictions, and/or disrupt our operations as we develop new compliance procedures, any of which could adversely affect our business, our reputation and our profitability.

Some of our products, including our insurance products, require us to apply for, renew, and maintain licenses issued by state, federal or foreign regulatory authorities. Such regulatory authorities have relatively broad discretion to grant, renew and revoke such licenses. Accordingly, any failure by us to comply with the then current licensing requirements, which may include any determination of financial instability by such regulatory authorities, could result in such regulators denying our initial or renewal applications for such licenses, modifying the terms of licenses or revoking licenses we currently possess, which could severely inhibit our ability to market and/or provide these products.

Our marketing partners are subject to a wide variety of federal, state and foreign laws and regulations, including banking, insurance and privacy laws and supervisory audits and inquiries. Changes in the laws or regulations applicable to our marketing partners or the failure of our marketing partners to comply with such laws and regulations or the outcome of supervisory audits and inquiries have resulted in some of our financial institution marketing partners terminating, and may cause others to in the future to terminate, their contracts with us, to cease facilitating payment processing or to cease marketing our services to their members or end-consumers, all of which could have a material adverse impact on our business. In addition, our marketing partners are subject to various federal and state consumer protection laws designed to ensure that consumers are protected from unfair and deceptive marketing practices. Moreover, our financial institution marketing partners are subject to oversight by the Office of the Comptroller of the Currency (the “OCC”), Federal Deposit Insurance Corporation, the CFPB and the FCA as described below. Pursuant to such oversight, the financial institutions are required to oversee their service providers, vendors or products sold to customers of such financial institutions. As a result, our financial institution marketing partners may impose requirements and processes that could impede our ability to market our programs and services and reduce our revenues and profitability.

The enactment of Dodd-Frank and the regulations promulgated thereunder, including those implemented by the CFPB, have imposed additional reporting, supervisory and regulatory requirements on, as well as resulted in inquiries of, us and our marketing partners. In addition, the CFPB or other bank oversight federal agencies, such as the OCC and FCA, have issued and may continue to issue rulings or findings or enter into a settlement or consent orders with one or more of our financial institution marketing partners that relate to the products or services we provide to such financial institution, which could adversely affect our marketing with those marketing partners or require changes to our products or services to consumers and could have a material adverse effect on our business, financial condition and results of operations. Moreover, other financial institutions may view such existing or future rulings, findings, settlements or consent orders as imposing a standard they will comply with. As a result of these regulations, supervisory audits and inquiries, settlements and consent orders, 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 have a material adverse effect on our business, financial condition and results of operations. In addition, even an inadvertent failure to comply with these laws and regulations, as well as rapidly evolving expected standards, could adversely affect our business or our reputation.

Compliance with these federal, state and foreign regulations is generally our responsibility, and we could be subject to a variety of enforcement and/or private actions by consumers or industry associations for any failure to comply with such regulations. Consumer complaints with respect to our industry have resulted in, and may in the future result in, state, federal and foreign regulatory and other investigations. Any changes to applicable regulations could materially increase our compliance costs. The risk of our noncompliance with any rules and regulations enforced by a federal or state consumer protection authority or an enforcement agency in a foreign jurisdiction may subject us (and in some cases our management) to fines, consumer restitution, or various forms of civil or criminal prosecution, any of which could impede our ability to market our programs and services and reduce our revenues and profitability. Certain types of noncompliance may also result in giving our marketing partners the right to terminate certain of our contracts or assert claims under our contracts. Also, the media often publicizes perceived noncompliance with consumer protection regulations and violations of notions of fair dealing with customers, and our industry is susceptible to peremptory charges by the media and others of regulatory noncompliance and unfair dealing. For further discussion of current legal and regulatory actions against us, see “—We are subject to legal actions and governmental investigations that could require us to incur significant expenses and, if resolved adversely to us, could impede our ability to market our programs and services, result in a loss of members and end-customers, reduce revenues and profitability and damage our reputation.”

Over the past several years, there has also been proposed legislation in several states and the European Economic Area that may impact our business. For example, various state insurance commissions are reviewing the various health insurance model acts and regulations, which could change the manner in which certain supplemental insurance products may be offered to consumers. Several bills also have been proposed in Congress that could restrict the collection and dissemination of personal information for marketing purposes. If such legislation is passed in one or more states or by Congress, it could impede our ability to market our programs and services and reduce our revenues and profitability. Legislation relating to consumer privacy may also affect our ability to collect data that we use in providing our services, which, among other things, could negatively affect our ability to satisfy our clients’ needs.

violations of notions of fair dealing with customers, and our industry is susceptible to peremptory charges by the media and others of regulatory noncompliance and unfair dealing. For further discussion of current legal and regulatory actions against us, see “—We are subject to legal actions and governmental investigations that could require us to incur significant expenses and, if resolved adversely to us, could impede our ability to market our programs and services, result in a loss of members and end-customers, reduce revenues and profitability and damage our reputation.”

We are subject to legal actions and governmental investigations that could require us to incur significant expenses and, if resolved adversely to us, could impede our ability to market our programs and services, result in a loss of members and end-customers, reduce revenues and profitability and damage our reputation.

We are, or have been, involved in claims, legal proceedings and state, federal and foreign governmental inquiries related to employment matters, contract disputes, business and marketing practices, trademark and copyright infringement claims and other commercial matters. Additionally, certain of our marketing partners have become, and others may become, involved in legal proceedings or governmental inquiries relating to our products or marketing practices. As a result, we may be subject to indemnification obligations under our marketing agreements. For example, on April 7, 2014 and April 9, 2014, Bank of America, N.A. and FIA Card Services, N.A. entered into consent orders (the “OCC and CFPB Consent Orders”) with the ~~Office of the Comptroller of the Currency (the “~~OCC”) and the ~~Consumer Financial Protection Bureau (the “~~CFPB”), respectively, relating to their credit protection products and identity theft protection products (which included certain of our identity theft protection products). On April 18, 2014, Bank of America, N.A. and FIA Card Services, N.A. notified us that they have commenced an arbitration proceeding against us seeking, among other things, indemnification for losses, costs, and liabilities that Bank of America and FIA Card Services, N.A. incurred relating to our identity theft protection products that were the subject of the OCC and CFPB Consent Orders, which losses include customer refunds and reasonable attorneys’ fees and expenses. ~~For~~On ~~additional~~May ~~information~~16, ~~regarding~~2014, ~~this~~we ~~matter~~commenced two separate arbitration proceedings against Bank of America, ~~see~~asserting ~~“Item~~that 3Bank of America breached the parties’ servicing agreements. ~~Legal~~On ~~Proceedings~~July 7, 2014, the parties agreed to stay one of the arbitrations initiated by us and to dismiss the other arbitrations without prejudice, pending mediation.” On September 22, 2014, Bank of America and the Company 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 completed by the first quarter of 2016. The parties intend to submit post-hearing memoranda, such that a decision is not expected until mid-2016.

The Company has received in the past, and may receive in the future, inquiries from numerous state attorneys general and U.S. federal agencies and U.K. regulatory agencies relating to the marketing of its membership programs and its compliance with consumer protection statutes. The Company responded to these regulatory bodies’ requests for documents and information and is in active discussions with them regarding their investigations and, in some cases, the resolution of these matters. For example, 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 ~~Dodd-Frank~~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 was approved by the court on October 27, 2015. The Consent Order requires a payment by the Company ~~has~~of ~~responded~~$1.9 million to the ~~NORA~~CFPB’s ~~letter~~civil penalty fund and approximately $6.75 million in consumer restitution, ~~but~~as ~~has~~well as injunctive provisions against the Company related to certain of its billing and retention practices, which are not ~~yet~~expected ~~commenced~~to ~~discussions~~have a material effect on the Company. The Company is in full compliance with the ~~CFPB~~Consent ~~regarding~~Order ~~settlement~~requirements. By way of further example, in January 2015, following voluntary discussions with the FCA ~~during which no formal investigation was required~~, Affinion International Limited (“AIL”), one of our UKU.K. subsidiaries, and 11 UKU.K. retail banks and credit card issuers, announced a proposed joint arrangement, which ~~will~~is ~~allow~~allowing eligible consumers to make claims for compensation in relation to a discontinued benefit in one of AIL’s products. The proposed arrangement ~~must~~has bebeen approved by a majority of ~~those~~ affected consumers who ~~vote~~voted at a creditors’ meeting ~~due to be~~ held on June 30, 2015, and ~~must~~has ~~then~~also bebeen approved by the High Court in London aton aJuly ~~hearing~~9, ~~due~~2015. toThe beproposed ~~held~~arrangement, which will not result in ~~July~~the imposition of any fines on AIL or the Company, became effective on August 17, 2015 and customers affected are now able to submit their claims until March 18, 2016 (and in exceptional circumstances, until September 18, 2016). 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. Settlement or other final resolution of other such governmental regulatory matters may include payment by the Company of the costs of the investigation, restitution to consumers and injunctive relief. For example, as reported in our Current Report on Form 8-K filed with the SEC on October 10, 2013, we entered into a settlement agreement with 47 state attorneys general with respect to the legacy marketing practices in our membership business known as “online data pass” and “live-check marketing.”

While we cannot predict the outcome of pending suits, claims, investigations and inquiries, the cost of responding to and defending such suits, as well as the ultimate resolution of any of these matters, could require us to incur significant expenses and, if resolved adversely to us, could impede our ability to market our programs and services, result in a loss of members and end-customers, reduce revenues and profitability and damage our reputation and otherwise have a material effect on our business, financial condition and results of operations. There can be no assurance that our accruals for legal actions or governmental investigations will be sufficient to satisfy all related claims and expenses.

We rely on our marketing partners to provide limited customer information to us for certain marketing purposes and to approve our marketing materials. If our marketing partners make significant changes to the materials that decrease results or if they limit the information that they provide to us, our ability to generate new customers may be adversely affected.

Certain of our marketing efforts depend in part on certain limited customer information being made available to us by our marketing partners. There can be no assurance that our marketing partners will, or will be able to, continue to provide us with the use of such customer information.

Our marketing efforts are largely dependent on obtaining approval of the solicitation materials from our marketing partners. We market our programs and services based on tested marketing materials, and any significant changes to those materials that are required by our marketing partners could negatively affect our results. The material terms of each marketing campaign must be mutually agreed upon by the parties. There can be no assurance that we will obtain approvals of our marketing materials from our marketing partners, and the failure to do so could impede our ability to market our programs and services, result in a loss of members and end-customers, and reduce our revenues and profitability.

A significant portion of our business is conducted with financial institution marketing partners. A prolonged downturn in the financial institution industry may have an adverse impact on our business.

Our future success is dependent on continued demand for our programs and services within our marketing partners’ industries. In particular, the customers of our financial institution marketing partners accounted for a significant amount of our members and end-customers and revenues in ~~2014~~2015. A significant and prolonged downturn in the financial institution industry, or the continued trend in that industry to reduce or eliminate its use of our programs, products and services, could result in a further loss of members and end-customers and could continue to reduce our revenues and profitability. Additionally, our financial institution marketing partners are subject to extensive regulations, such as Dodd-Frank. The Dodd-Frank regulatory framework included the creation of the CFPB which has the authority to regulate all consumer financial products sold by banks and non-bank companies. These regulations have subjected our financial institution marketing partners to increased regulatory oversight and scrutiny regarding their compliance with consumer laws and regulations that could adversely affect 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.

We may lose members or end-customers and significant revenue if we reduce our planned expenditures to grow our business (including in connection with the Global Reorganization), our existing services become obsolete, or if we fail to introduce new services with broad consumer appeal or fail to do so in a timely or cost-effective manner.

Our growth depends upon investing in our business. Although revenue from our existing customer base has historically generated approximately 80% of our next twelve months net revenue, we cannot assure you that this will continue. Accordingly, our growth will depend on our developing and successfully introducing new products and services that generate member and end-customer interest. ~~Our~~In ~~failure~~connection towith ~~invest~~the inGlobal ~~our business~~Reorganization, ~~introduce~~we ~~these~~no ~~products~~longer oractively ~~services~~market orcertain toglobal ~~develop~~membership ~~new products or services~~programs, orwhich ~~the~~is ~~introduction~~reflected orin ~~announcement~~our of new ~~products~~Legacy orMembership ~~services~~and byPackage ~~competitors, could render our existing offerings non-competitive or obsolete~~segment. ~~There~~This ~~can~~segment beincludes nomembership ~~assurance~~programs that wewere ~~will~~marketed bewith ~~successful~~many inof ~~developing~~our orlarge ~~introducing~~domestic ~~new~~financial ~~products~~institution ~~and services~~partners. Although ~~Our~~we ~~failure~~will continue to ~~develop~~service these members, ~~introduce~~we orexpect ~~expand~~that ~~our~~cash ~~products~~flows and ~~services~~revenues orwill todecrease ~~make~~over ~~other~~time ~~investments~~due into ~~our~~the ~~business,~~anticipated ~~such~~attrition asof ~~marketing~~the ormember ~~capital~~base ~~expenditures, could result~~ in athis ~~loss~~operating ~~of members and end-customers and reduce our revenues and profitability~~segment.

Our failure to invest in our business, introduce these products or services or to develop new products or services, or the introduction or announcement of new products or services by competitors, could render our existing offerings non-competitive or obsolete. There can be no assurance that we will be successful in developing or introducing new products and services or that such new products and services will generate sufficient cash flows and revenues to offset the expected decrease in our Legacy Membership and Package segment. Our failure to develop, introduce or expand our products and services or to make other investments in our business (including in connection with the Global Reorganization), such as marketing or capital expenditures, could result in a material loss of members and end-customers and materially reduce our revenues, cash flow from operations and profitability.

We have recently recorded a significant impairment to goodwill and may record future impairment charges that could materially adversely impact our consolidated financial statements.

We perform our annual impairment assessment of goodwill as of December 1, or more frequently if impairment indicators exist. We determine the estimated fair value of each reporting unit utilizing a combination of the income and market approaches and incorporate assumptions that we believe marketplace participants would utilize. Based on the impairment test, which utilized a combination of the income and market approaches and incorporated assumptions that we believe marketplace participants would utilize to determine the fair value of our Membership Products segment, we recorded an impairment loss during the fourth quarter of 2014 of $292.4 million, representing approximately 76.6% of the goodwill ascribed to our Membership Products segment and an impairment loss during the fourth quarter of 2015 of $89.6 million, representing all of the remaining goodwill ascribed to our Membership Products segment.

We have experienced a net loss of members and end-customers due to the regulatory issues at our financial institution marketing partners and we anticipate this trend will continue. We may not be successful in adding new members from our large financial institutional marketing partners or retail marketing partners as estimated, or even if we do add new members as estimated, that such new members will be as profitable as estimated. To the extent that net revenues in our Membership Products segment continue to deteriorate in the near future, or we do not meet our expected performance in our Membership Products segment or our other reporting units, additional goodwill impairment charges may be required in future periods. ~~If we are required to record additional impairment charges in the future, this could have a material adverse impact on our consolidated financial statements.~~

Our failure to protect private data could damage our reputation and cause us to expend capital and other resources to protect against future security breaches.

Certain of our services are based upon the collection, distribution and protection of sensitive private data. Such data is maintained by the Company, as well as by certain of our third-party vendors that provide components for our products and services or assist in the billing for membership programs. Although we maintain a global risk management program to minimize the risks of a data breach, including conducting periodic audits of the security risk programs of our third-party vendors, unauthorized users might access or disrupt that data, and human error or technological failures might cause the wrongful dissemination or disruption of that data. If we experience a security breach, the integrity of certain of our services may be affected and such a breach could violate certain of our marketing partner agreements. We have incurred, and may incur in the future, significant costs to protect against the threat of a security breach. Although we maintain insurance coverage for certain computer network security and privacy-related risks, we may also incur significant costs to alleviate problems that may be caused by future breaches. Any breach or perceived breach could subject us to legal claims from marketing partners or customers under laws (such as California’s SB 1386 and regulations promulgated by the FCA and European data protection regimes) that govern breaches of electronic data systems containing non-public personal information. There is no assurance that we would prevail in such litigation. Moreover, any public perception that we have engaged in the unauthorized release of, or have failed to adequately protect, private information could adversely affect our ability to attract and retain marketing partners, members and end-customers. In addition, unauthorized third parties might alter information in our databases, which would adversely affect both our ability to market our services and the credibility of our information.

information. There is no assurance that we would prevail in such litigation. Moreover, any public perception that we have engaged in the unauthorized release of, or have failed to adequately protect, private information could adversely affect our ability to attract and retain marketing partners, members and end-customers. In addition, unauthorized third parties might alter information in our databases, which would adversely affect both our ability to market our services and the credibility of our information.

Our success and growth depends to a significant degree upon intellectual property rights.

We have a significant intellectual property portfolio and have allocated considerable resources toward intellectual property maintenance, prosecution and enforcement. We may be unable to deter infringement or misappropriation of our data and other proprietary information, detect unauthorized use or take appropriate steps to enforce our intellectual property rights. Any unauthorized use of our intellectual property could make it more expensive for us to do business and consequently harm our business. Failure to protect our existing intellectual property rights may result in the loss of valuable technologies or having to pay other companies for infringing on their intellectual property rights. We rely on patent, trade secret, trademark and copyright law as well as judicial enforcement to protect such technologies. Some of our technologies are not covered by any patent or patent application. In addition, our patents could be successfully challenged, invalidated, circumvented or rendered unenforceable. Furthermore, pending patent applications may not result in an issued patent, or if patents are issued to us, such patents may not provide meaningful protection against competitors or against competitive technologies. We also license patent rights from third parties. To the extent that such third parties cannot protect and enforce the patents underlying such licenses or, to the extent such licenses are cancelled or not renewed, our competitive position and business prospects may be harmed.

We could face patent infringement claims from our competitors or others alleging that our processes or programs infringe on their proprietary technology. If we were subject to an infringement suit, we may be required to (1) incur significant costs to license the use of proprietary technology, (2) change our processes or programs or (3) stop using certain technologies or offering the infringing program entirely. Even if we ultimately prevail in an infringement suit, the existence of the suit could cause our customers to seek other programs that are not subject to infringement suits. Any infringement suit could result in significant legal costs and damages, impede our ability to market or provide existing programs or create new programs, reduce our revenues and profitability and damage our reputation.

In addition, effective patent, trademark, copyright and trade secret protection may be unavailable or limited in some foreign countries. In some countries we do not apply for patent, trademark, or copyright protection. We also rely upon unpatented proprietary expertise, continuing technological innovation and other trade secrets to develop and maintain our competitive position. While we generally enter into confidentiality agreements with our employees and third parties to protect our intellectual property, such confidentiality agreements could be breached and may not provide meaningful protection for our trade secrets or proprietary expertise. Adequate remedies may not be available in the event of an unauthorized use or disclosure of our trade secrets and expertise. In addition, others may obtain knowledge of our trade secrets through independent development or other access by legal means. The failure of our patents or confidentiality agreements to protect our processes, apparatuses, technology, trade secrets and proprietary expertise and methods could jeopardize our critical intellectual property, which could give our competitors an advantage in the marketplace, reduce our revenues and profitability and damage our reputation.

Our business is highly dependent on our existing computer, billing, communications and other technological systems. Any temporary or permanent loss of any of our systems could have a negative effect on our business, financial condition and results of operations.

Our business depends upon ongoing investments in advanced computer database and telecommunications technology as well as our ability to protect our telecommunications and information technology systems against damage or system interruptions from natural disasters, technical failures and other events beyond our control. In order to compete effectively and to meet our marketing partners’ and customers’ needs, we must maintain our systems as well as invest in improved technology. A temporary or permanent loss of any of our systems or networks could cause significant damage to our reputation and could result in a loss of revenue.

In addition, we receive data electronically, and this delivery method is susceptible to damage, delay or inaccuracy. A significant portion of our business involves telephonic customer service as well as mailings, both of which depend upon the data generated from our computer systems. Unanticipated problems with our telecommunications and information technology systems may result in a significant system outage or data loss, which could interrupt our operations. Our infrastructure may also be vulnerable to computer viruses, hackers or other disruptions entering our systems from the credit reporting agencies, our marketing partners and members and end-customers or other authorized or unauthorized sources. Any damage to our telecommunications and information technology systems, failure of communication links or other loss that causes interruption in, or damage to, our operations could impede our ability to market our programs and services, result in a loss of members and end-customers and reduce our revenues and profitability.

If we are unable to meet the rapid changes in technology, our services and proprietary technology and systems may become obsolete.

Due to the cost and management time required to introduce new services and enhancements, we may not be able to respond in a timely manner to avoid becoming uncompetitive. To remain competitive, we must meet the challenges of the introduction by our competitors of new services using new technologies or the introduction of new industry standards and practices. Additionally, the vendors we use to support our technology may not provide the level of service we expect or may not be able to provide their product or service on commercially reasonable terms or at all.

We depend, in part, on the postal and telephone services we utilize to market and service our programs. An interruption of, or an increase in the billing rate for, such services could adversely affect our business.

We market and service our programs by various means, including through mail and via telephone. Accordingly, our business is dependent on the postal and telephone services provided by the U.S. Postal Service and international postal service, and various local and long distance telephone companies. Any significant interruption of such services or any limitations in their ability to provide us with increased capacity could impede our ability to market our programs and services, result in a loss of members and end-customers and reduce our revenues and profitability. In addition, the U.S. Postal Service and international postal service increase rates periodically and significant increases in rates could adversely impact our business.

We may not realize anticipated benefits from recent or future acquisitions or have the ability to complete future acquisitions.

From time to time, we pursue acquisitions as a means of enhancing our scale and market share. In general, the success of our acquisition strategy will depend upon our ability to find suitable acquisition candidates on favorable terms and to finance and complete these transactions. In addition, upon completion of an acquisition, we may encounter a variety of difficulties, including trouble integrating the acquired business into our operations, the possible defection of key employees or of a significant number of employees, the loss in value of acquired intangibles, the diversion of management’s attention and unanticipated problems or liabilities. These difficulties may adversely affect our ability to realize anticipated cost savings and revenue growth from our acquisitions. In addition, acquisitions we have made in the past such as Prospectiv Direct, Inc. (“Prospectiv”) and any future acquisitions may not be as accretive to our earnings as we expect or at all, and may negatively impact our results of operations through, among other things, the incurrence of debt to finance any acquisition, non-cash write-offs of goodwill or intangibles and increased amortization expenses in connection with intangible assets. Acquisition integration activities can also put further demands on management, which could negatively impact operating results.

as accretive to our earnings as we expect or at all, and may negatively impact our results of operations through, among other things, the incurrence of debt to finance any acquisition, non-cash write-offs of goodwill or intangibles and increased amortization expenses in connection with intangible assets. Acquisition integration activities can also put further demands on management, which could negatively impact operating results.

We expect to realize cancellation of indebtedness income for tax purposes and may incur U.S. federal income tax liability as a result.

As a result of consummation of the 2015 Exchange Offers, we expect to realize cancellation of indebtedness income for tax purposes. Cancellation of indebtedness income may be excluded from taxable income, if, and to the extent, the relevant obligor is insolvent immediately before consummation of the 2015 Exchange Offers, in which case, certain tax attributes of Affinion will be reduced. Even if the 2015 Exchange Offers give rise to taxable cancellation of indebtedness income, we believe that our net operating losses available to be carried forward from the taxable year ended December 31, 2014, together with the losses we may recognize in 2015, will significantly reduce but may not fully eliminate our tax liabilities resulting from the transaction.

Our international operations are subject to additional risks not encountered when doing business in the U.S., and our exposure to these risks will increase as we expand our international operations.

We have a limited history of conducting certain of our international operations, which involve risks that may not exist when doing business in the U.S. In order to achieve widespread acceptance in each country we enter, we must tailor our services to the unique customs and cultures of that country. Learning the customs and cultures of various countries, particularly with respect to consumer preferences, is a difficult task and our failure to do so could slow our growth in international markets.

In addition, we are subject to certain risks as a result of having international operations, and from having operations in multiple countries generally, including:

fluctuations in foreign currency exchange rates;

delays in the development of the Internet as a broadcast, advertising and commerce medium in overseas markets;

difficulties in staffing and managing operations due to distance, time zones, language and cultural differences, including issues associated with establishing management systems infrastructure in various countries;

differences and unexpected changes in regulatory requirements and exposure to local economic conditions;

preference of local populations for local providers;

· restrictions on the withdrawal of non-U.S. investment and earnings, including potentially substantial tax liabilities if we repatriate any of the cash generated by our international operations back to the U.S.;

diminished ability to legally enforce our contractual rights;

currency exchange restrictions;

withholding and other taxes on remittances and other payments by subsidiaries; and

changes to tax laws or regulations in countries where our international businesses operate.

We cannot assure you that one or more of these factors will not have a material adverse effect on our international operations and consequently on our business, financial condition and results of operations.

Our future success depends on our ability to retain our key employees.

We are dependent on the services of Todd H. Siegel, our Chief Executive Officer, and other members of our senior management team to remain competitive in our industry. The loss of Mr. Siegel or any other member of our senior management team could have an adverse effect on us. There is a risk that we will not be able to retain or replace these key employees. All of our current executive officers are subject to employment conditions or arrangements that contain post-employment non-competition provisions. However, these arrangements permit the employees to terminate their employment.

We are controlled by Apollo who will be able to make important decisions about our business and capital structure.

Approximately 68% of the common stock of Affinion Holdings is beneficially owned by investment funds affiliated with Apollo, and 20.6% is beneficially owned by investment funds affiliated with General Atlantic (44.5% and 13.5%, respectively, of Affinion Holdings’ common stock after giving effect to the exercise of the outstanding Series A warrants, but before giving effect to outstanding vested options and the outstanding Series B warrants). As a result, investment funds affiliated with Apollo control us and have the power to elect a majority of the members of our board of directors, appoint new management and approve any action requiring the approval of the holders of Affinion Holdings’ stock, including approving acquisitions or sales of all or substantially all of our assets, subject to the terms of the Affinion Holdings Stockholder Agreement (as defined in “Item 13. Certain Relationships and Related Transactions, and Director Independence—Agreements with Certain Investors”), as amended. Under the Affinion Holdings Stockholder Agreement, as amended, and the Warrantholder Rights Agreement, as amended, investment funds affiliated with Apollo have the right to nominate seven of our directors, certain limited partnerships sponsored by General Atlantic have the right to nominate three of our directors, and the holders of Series A warrants (together with the holders of any shares of Class B common stock issued upon the exercise thereof) have the right to nominate one of our directors until the fourth anniversary of the issuance of the Series A warrants. Our Board of Directors currently consists of nine directors; however, pursuant to the Affinion Holdings Stockholder Agreement, upon the demand of either the investment funds affiliated with Apollo or the limited partnerships sponsored by General Atlantic, we will be required to increase the size of our Board of Directors in order to permit such demanding part(ies) to fully exercise their rights to nominate directors under the Affinion Holdings Stockholder Agreement. If a Control Event shall have occurred, thereafter, subject to applicable law and the Warrantholder Rights Agreement, the holders of Class B common stock will have the right to nominate and elect a majority of our directors. See “Item 13. Certain Relationships and Related Transactions, and Director Independence—Agreements with Certain Investors” for a more detailed summary of the terms of the Warrantholder Rights Agreement. In addition, the Affinion Holdings Stockholder Agreement, as amended, provides for the nomination of Mr. Todd Siegel as a director in his capacity as our Chief Executive Officer and for the nomination of Mr. Nathaniel J. Lipman as a director. The directors elected by Apollo have the ability to control decisions affecting our capital structure, including the issuance of additional capital stock, the implementation of stock repurchase programs, the declaration of dividends and the purchase of our indebtedness or Affinion Holdings’ indebtedness, in each case, subject to the terms of our senior secured credit facility and the indentures governing the Affinion Holdings 2013 senior notes, our 2010 senior notes and our senior subordinated notes. Additionally, Apollo is in the business of investing in companies and may, from time to time, acquire and hold interests in businesses that compete directly or indirectly with us. Apollo may also pursue acquisition opportunities that may be complementary to our business and, as a result, those acquisition opportunities may not be available to us.

Item 1B.

Unresolved Staff Comments

Not applicable.

Item 2.

Properties

We are currently headquartered in Stamford, Connecticut in a 140,000 square foot facility that houses management offices as well as the marketing and sales operations for our largest customers. Our corporate data center is in Trumbull, Connecticut, with disaster recovery operations provided by a backup site in Westerville, Ohio. Some applications are also housed in Centennial, Colorado, Slough, U.K., and Oslo, Norway. The table below lists all of our facilities as of December 31, ~~2014~~2015, all of which are leased.

Location		Function
U.S. Facilities
Stamford, CT		Global Headquarters
Boise, ID		Call Center
Chicago, IL		Sales, Marketing and Call Center
Dublin, OH		~~Software Development, vacant~~Vacant
Eden Prairie, MN		Connexions Headquarters
Franklin, TN (2 sites)		Insurance and Package Sales, Marketing and Administration, Print Fulfillment Center and Call Center
Phoenix, AZ		Sales and Marketing
Richmond, VA		Loyalty Products Operations and Call Center
San Carlos, CA		Sales and Support
St. Louis, MO		Call Center
Trumbull, CT		Call Center/ Data ~~Ops~~Operations Center
Wakefield, MA		Data ~~Ops~~Operations Center
Westerville, OH		Call Center and Software Development
International Facilities
Slough, United Kingdom		International Headquarters, Data Operations Center, Administration, Sales and Marketing
Amsterdam, Holland		~~Administration,~~ Sales and Marketing
Berlin, Germany		~~Call Center~~Vacant
Brussels, Belgium		Sales and ~~Marketing~~Call Center
Copenhagen, Denmark		Sales and Marketing
Cuneo, Italy		Sales
Ennis, Ireland		Administration, Sales, Marketing and Call Center
Hamburg, Germany		Sales, Marketing and Call Center
Helsinki, Finland		Sales and Marketing
Hong Kong, China		Loyalty Products, Sales and Marketing
Istanbul, Turkey		Sales, Marketing and Call Center
Johannesburg, South Africa		Administration, Sales and Marketing
Kettering, United Kingdom		Administration, Sales and Call Center
London, United Kingdom		Sales and Marketing
Madrid, Spain		Sales, Marketing and Call Center
Milan, Italy		Sales, Marketing and Call Center
Mexico City, Mexico		Sales and Marketing
Milan, Italy		Sales and Call Center
Nyon, Switzerland		Administration, Sales, Marketing and Call Center
Oslo, Norway		Sales, Marketing and Call Center
Paris, France (2 sites)		Sales, Marketing and Call Center
Portsmouth, United Kingdom (2 sites)		Administration, Sales, Print, Data Operations Center and Call Center
São Paulo, Brazil		Sales and Marketing
Stockholm, Sweden		Sales and Marketing
Sydney, Australia		Sales and Marketing

We have non-cancelable operating leases covering various facilities and equipment. Our rent expense for the years ended December 31, ~~2014~~2015, ~~2013~~2014 and ~~2012~~2013 was $1817.56 million, $2118.85 million and $2021.08 million, respectively.

Item 3.

Legal Proceedings

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~~district ~~Court~~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~~court entered an order staying the date for all Defendants to respond to the Complaint until 21 days after the ~~Court~~court ruled on the motion to consolidate. On March 28, 2014, the ~~Court~~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. ~~The~~On ~~Company~~March ~~does~~26, ~~not~~2015, ~~know~~the ~~when~~court denied Plaintiff’s motion for interlocutory appeal. On May 29, 2015, the ~~Court~~court ~~will~~issued ~~rule~~a onscheduling 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. Plaintiffs filed their motion for class certification on September 15, 2015, and Defendants filed an opposition brief on December 15, 2015. Plaintiffs filed a reply brief on December 22, 2015, and Defendants filed a sur-reply on December 29, 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~~EFT, ~~Electronic Communications Privacy Act~~ECPA, unjust enrichment, civil theft, negligent misrepresentation, fraud and ~~Connecticut~~CUTPA ~~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~~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

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 iswas ~~currently~~ stayed in the case. The July 17, 2014 order indicated that the ~~Court~~court ~~will~~would 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’s filed his opposition brief ~~is due~~ on March 24, 2015, and on April 24, 2015, the defendants’ filed their reply briefs in response to that opposition. ~~are~~On ~~due~~October on15, ~~April~~2015, 24the court entered a judgment dismissing all of the plaintiff’s claims with prejudice and without further leave to amend. On November 13, 2015~~. The~~, ~~Court~~the ~~has~~plaintiff ~~not~~filed ~~yet~~a notice of appeal of the dismissal decision, but no further dates for that appeal have been scheduled. aPlaintiff’s ~~hearing~~opening appeals brief was filed on ~~the~~February ~~defendants~~10, 2016. The Company’s ~~motions~~answering brief must be filed by April 15, 2016. Plaintiff will then have 14 days in which to ~~dismiss~~file ~~the~~a ~~second~~reply ~~amended~~brief ~~complaint~~if he chooses. The Court has not scheduled a date for a hearing.

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~~CUTPA. 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~~ROSCA. On September 25, 2012, Webloyalty filed a motion to dismiss the complaint in its entirety and the ~~Court~~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~~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~~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~~ECPA ~~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~~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~~court dismissed the plaintiff’s claims on substantive grounds and/or statute of limitations grounds. The ~~Court~~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. ~~However~~On June 22, 2015, the ~~Court~~court ~~has~~entered ~~not~~a ~~yet~~final ~~decided~~order orand ~~scheduled~~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 ~~hearing~~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 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 filed his opening appeal brief on November 19, 2015, and the Company’s answering brief was filed on January 19, 2016.

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~~EFT ~~Fund Transfer Act~~ and ~~Electronic Communications Privacy Act~~ECPA, 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. ByOn ~~rule~~March 25, 2015, the Company ~~has~~filed ~~until~~objections ~~March~~to 25the magistrate judge’s report and recommendation. Briefing on the objections concluded on April 9, 2015. On June 4, to2015, ~~object~~the tocourt accepted and adopted the report and recommendation of the magistrate judge over the Company’s ~~recommendation~~objections. ~~Any~~ The ~~objection~~Company ~~will~~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 ~~decided~~completed by ~~district~~March 31, 2016. On October 2, 2015, plaintiff’s counsel filed a motion to withdraw as counsel. On October 20, 2015, the court ~~judge~~granted the motion of plaintiff’s counsel to withdraw as counsel. On October 21, 2015, plaintiff and the Company ~~intends~~agreed to ~~pursue~~settle ~~such~~plaintiff’s claims on an ~~objection~~individual, non-class basis for a payment of $25,000. 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. On November 12, 2015, the parties filed a joint stipulation of dismissal.

On May 12, 2014, a class action lawsuit was filed against the Company and one of its clients in the United States District Court, Northern District of California – San Francisco Division. The complaint alleges plaintiff was unknowingly enrolled in and charged for an Identity Theft Protection program. The defendants moved to compel individual arbitration of the case or in the alternative to dismiss the case, and briefing on that motion concluded on September 26, 2014. On October 31, 2014, the court granted the Company’s motion to compel individual arbitration of the case. There has been no activity in the matter since that time.

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.

~~Between~~Other ~~December~~Contingencies 2008 and February 2011, the Company and its subsidiaries, Trilegiant Corporation and Webloyalty.com, Inc. received inquiries from numerous state attorneys general relating to the legacy marketing practices in their membership business known as “online data pass” and “live-check marketing” and their compliance with state consumer protection statutes. On October 10, 2013, the Company reached a settlement with the following 47 states and the District of Columbia: Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Georgia, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin, and Wyoming. Under the settlement, the Company admitted no wrong-doing with respect to such legacy marketing practices and agreed to refrain from engaging in such marketing practices, which the Company voluntarily eliminated in early 2010. In addition, it agreed to fund a $19.4 million restitution program covering eligible consumers in all 48 jurisdictions participating in the settlement and reimburse the participating jurisdictions for their investigatory costs in an amount of $13.5 million. At December 31, 2014, all payments to the jurisdictions and consumers had been made. The settlement did not include any fine or penalty payments.

From time to time, ~~our~~the ~~international~~Company ~~operations~~receives ~~also receive~~ inquiries from ~~consumer~~federal ~~protection,~~and ~~insurance~~state ~~or data protection~~ agencies. ~~The Company responds to these matters and requests for documents, some of~~ which may ~~lead~~include tothe ~~further investigations and proceedings. On January 27~~FTC, ~~2015, following voluntary discussions with~~ the ~~FCA during which no formal investigation was required~~FCC, ~~and~~the ~~from which no fines or finding of fault will result~~CFPB, ~~Affinion~~state ~~International~~attorneys ~~Limited~~general ~~(“AIL”), one of our UK subsidiaries,~~ and 11other UKstate ~~retail~~regulatory ~~banks and credit card issuers~~agencies, ~~announced~~including astate ~~proposed~~insurance ~~joint arrangement, which will allow eligible consumers to make claims for compensation in relation to a discontinued benefit in one of AIL’s products~~regulators. The ~~proposed~~Company ~~arrangement~~responds ~~must be approved by a majority of those affected consumers who vote at a creditors’ meeting due~~ to bethese ~~held~~matters ~~on June 30, 2015,~~ and ~~must~~requests ~~then~~for ~~be approved by the High Court in London at a hearing due to be held in July 2015. Based on the information currently available~~documents, ~~the~~some ~~Company has recorded an estimated liability that represents AIL’s portion~~ of ~~potential~~which ~~consumers’~~may ~~refunds~~lead to befurther ~~paid~~investigations asand ~~part of such joint arrangement~~proceedings.

OnFrom ~~April~~time ~~18,~~to ~~2014~~time, ~~Bank~~our ofinternational ~~America,~~operations ~~N.A.~~also ~~(“Bank~~receive ofinquiries ~~America”)~~from ~~and~~consumer ~~FIA Card Services~~protection, ~~N.A.~~insurance ~~(“FIA~~or ~~Card~~data ~~Services”)~~protection ~~commenced~~agencies. anThe ~~arbitration~~Company ~~proceeding~~responds ~~against Trilegiant and Affinion pursuant~~ to ~~the~~these ~~terms~~matters ofand ~~the~~requests ~~parties’~~for ~~servicing agreements. In the arbitration proceeding~~documents, ~~Bank~~some of ~~America~~which ~~asserted~~may ~~various~~lead ~~causes~~to offurther ~~action~~investigations and ~~requests~~proceedings. ~~for~~On ~~monetary~~January ~~and~~27, ~~other relief~~2015, ~~including~~following avoluntary ~~demand~~discussions ~~for~~with ~~contractual indemnification of~~ the ~~losses~~FCA, ~~and costs~~AIL, ~~including~~one inof ~~particular~~our ~~customer~~UK ~~refunds~~subsidiaries, and ~~reasonable~~11 ~~attorneys’~~UK ~~fees~~retail ~~that~~banks ~~Bank~~and ofcredit ~~America~~card ~~incurred~~issuers, ~~related~~announced toa ~~consent~~proposed ~~orders~~joint ~~entered~~arrangement, ~~into~~which byallows ~~Bank~~eligible ofconsumers ~~America~~to ~~with~~make ~~the~~claims ~~Office~~for ofcompensation ~~the~~in ~~Comptroller~~relation ofto ~~the~~a ~~Currency~~discontinued onbenefit ~~April~~in 7,one ~~2014~~of ~~and~~AIL’s ~~with the CFPB on April 9, 2014~~products. OnThe ~~May~~proposed ~~16,~~arrangement ~~2014,~~has ~~Trilegiant~~been ~~commenced~~approved ~~two~~by ~~separate~~a ~~arbitration~~majority ~~proceedings against Bank~~ of ~~America,~~those ~~asserting~~affected ~~that~~consumers ~~Bank~~who ofvoted ~~America~~at ~~breached~~a ~~the parties~~creditors’ ~~servicing~~meeting ~~agreements.~~held Onon ~~July~~June 730, ~~2014~~2015, ~~the~~and ~~parties~~has ~~agreed~~also tobeen ~~stay~~approved ~~one~~by of the ~~arbitrations~~High ~~initiated~~Court byin ~~Trilegiant~~London ~~and~~at toa ~~dismiss~~hearing ~~the~~held ~~other~~on ~~arbitrations~~July ~~without prejudice~~9, ~~pending mediation~~2015. The Onproposed ~~September 22~~arrangement, ~~2014,~~which ~~Bank~~will ofnot ~~America~~result ~~and Trilegiant participated~~ in athe ~~mediation~~imposition toof ~~attempt~~any tofines ~~resolve~~on ~~their~~AIL ~~outstanding~~or ~~disputes.~~the ~~The~~Company, ~~mediation~~became ~~process~~effective ~~was~~on ~~ultimately~~August ~~unsuccessful~~17, in2015 ~~resolving~~and ~~the~~eligible ~~parties’~~customers ~~disputes. As such, the parties~~ have ~~resumed~~until ~~the~~March ~~arbitration~~18, ~~process. Dispositive~~2016 ~~motions~~to ~~will~~claim becompensation ~~briefed~~(and, in ~~August~~exceptional ~~2015~~circumstances, ~~and~~until ~~assuming~~September ~~those~~18, ~~are~~2016). ~~unsuccessful~~Based inon ~~resolving~~the ~~all~~information ~~outstanding~~currently ~~disputes between the parties~~available, the ~~final~~Company ~~arbitration~~has ~~hearing~~recorded isan ~~scheduled~~estimated toliability ~~take~~that ~~place~~represents inpotential ~~mid-October~~consumers’ ~~2015. Assuming~~refunds ~~the~~to ~~parties~~be ~~submit~~paid ~~post-hearing~~by ~~memoranda,~~the aCompany ~~decision~~as ispart ~~not~~of ~~expected~~such ~~until late 2015 or early 2016~~arrangement.

InOn ~~September~~April 18, 2014, ~~the~~Bank ~~Company~~of ~~received~~America, aN.A. ~~Notice~~(“Bank ~~and~~of ~~Opportunity~~America”) toand ~~Respond~~FIA ~~and~~Card ~~Advise~~Services, N.A. (~~"NORA"~~“FIA Card Services”) ~~letter~~commenced ~~indicating~~an ~~that~~arbitration proceeding against Trilegiant and Affinion pursuant to the ~~CFPB~~terms ~~was~~of ~~considering~~the ~~taking~~parties’ ~~legal~~servicing ~~action~~agreements. ~~against~~In the ~~Company~~arbitration ~~for~~proceeding, ~~violations~~Bank of ~~Sections~~America ~~1031~~asserted various causes of action and ~~1036~~requests for monetary and other relief, including a demand for contractual indemnification of the ~~Consumer~~losses ~~Financial~~and ~~Protection~~costs, ~~Act~~including ~~relating~~in toparticular ~~the~~customer ~~Company’s~~refunds ~~identity~~and ~~theft~~reasonable ~~protection~~attorneys’ ~~products.~~fees ~~The~~that ~~Company~~Bank ~~has~~of ~~responded~~America incurred related to consent orders entered into by Bank of America with the ~~NORA~~Office ~~letter,~~of ~~but~~the ~~has~~Comptroller ~~not~~of ~~yet~~the ~~commenced~~Currency ~~discussions~~on April 7, 2014 and with the CFPB ~~regarding~~on ~~settlement~~April 9, 2014. ~~Based~~ onOn May 16, 2014, Trilegiant commenced two separate arbitration proceedings against Bank of America, asserting that Bank of America breached the ~~information~~parties’ ~~currently~~servicing ~~available~~agreements. On July 7, 2014, the ~~Company~~parties ~~has~~agreed ~~recorded~~to anstay ~~estimated~~one ~~liability~~of ~~that~~the ~~represents~~arbitrations ~~potential~~initiated ~~consumer~~by ~~refunds~~Trilegiant and ~~civil~~to ~~monetary~~dismiss ~~penalties~~the toother bearbitrations ~~paid~~without asprejudice, ~~part~~pending mediation. On September 22, 2014, Bank of America and Trilegiant participated in a ~~potential~~mediation ~~future~~to ~~settlement~~attempt ofto ~~the~~resolve ~~CFPB’s~~their ~~allegations~~outstanding disputes. InThe ~~connection~~mediation ~~with~~process was ultimately unsuccessful in resolving the ~~contemplated~~parties’ ~~action~~disputes. As such, the ~~CFPB~~parties ~~may~~have ~~also~~resumed ~~seek~~the ~~injunctive~~arbitration ~~relief~~process. At The ~~this~~arbitration ~~time~~hearing commenced on October 12, it2015 isand has not ~~possible~~yet concluded. The arbitration hearing is expected to ~~predict~~be ~~what,~~concluded ifby ~~any~~the first quarter of 2016. The parties intend to submit post-hearing memoranda, ~~injunctive~~such ~~relief~~that ~~will~~a bedecision ~~sought~~is not expected until mid-2016.

~~The~~In September 2014, the Company ~~believes~~received a NORA letter indicating that the ~~amount~~CFPB ~~accrued~~was ~~for~~considering taking legal action against the ~~above~~Company ~~litigation~~for violations of Sections 1031 and ~~contingencies~~1036 ~~matters,~~of ~~including~~the Consumer Financial Protection Act relating to the ~~CFPB~~Company’s ~~matter,~~identity istheft ~~adequate~~protection products. In July 2015, the Company entered into a Stipulated Final Judgment and ~~the~~Order ~~reasonably~~(“Consent ~~possible~~Order”) ~~loss~~settling ~~beyond~~allegations regarding unfair billing practices related to certain of the ~~amounts~~Company’s ~~accrued~~protection ~~will~~products ~~not~~and ~~have~~deceptive aretention ~~material~~practices ~~effect~~related onto ~~its~~these ~~consolidated~~same ~~financial~~products. ~~statements,~~The ~~taken~~Consent asOrder awas ~~whole,~~approved ~~based~~by the court on ~~information~~October ~~currently~~27, ~~available~~2015. ~~However,~~The ~~litigation~~Consent isOrder ~~inherently~~requires ~~unpredictable~~a ~~and,~~payment ~~although~~by the Company ~~believes~~of ~~that~~$1.9 ~~accruals~~million ~~are~~to ~~adequate~~the CFPB’s civil penalty fund and itapproximately ~~intends~~$6.75 tomillion ~~vigorously~~in ~~defend~~consumer ~~itself~~restitution, as well as injunctive provisions against ~~such~~the ~~matters,~~Company ~~unfavorable~~related ~~resolution~~to ~~could~~certain ~~occur~~of its billing and retention practices, which ~~could~~are not expected to have a material effect on the Company’s. ~~consolidated~~The ~~financial~~Company ~~statements,~~is ~~taken~~in asfull acompliance ~~whole~~with the Consent Order requirements.

On November 30, 2015, PNC Bank, N.A. (“PNC”) filed a pleading called a Praecipe for Writ of Summons (the “Writ”) in the Court of Common Pleas of Allegheny County, Pennsylvania, naming as defendants Trilegiant Corporation, Affinion Benefits Group, LLC, Affinion and/or Affinion Holdings. The Writ does not include a complaint or any specific factual allegations, and does not allege any claims. However, based on a December 4, 2015 letter from PNC’s counsel, we understand that PNC may seek indemnification for (i) certain payments made to PNC customers and (ii) a civil money penalty assessed against PNC by the Office of the Comptroller of the Currency pursuant to consent orders dated October 6, 2014. If PNC files a complaint, Affinion intends to defend itself vigorously against any claims that PNC may assert.

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.

Item 4.

Mine Safety Disclosures

Not applicable.

PART II

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

We are a wholly-owned subsidiary of Affinion Holdings, and there is no established trading market for our common stock. AsAffinion ofHoldings ~~February 25,~~will ~~2015,~~seek ~~approximately~~to ~~68%~~make ofits ~~the~~Common ~~common~~Stock ~~stock~~eligible offor ~~Affinion~~quotation ~~Holdings~~on ~~was~~the ~~beneficially~~OTC ~~owned~~Bulletin byBoard. ~~investment~~As ~~funds~~of ~~affiliated~~February ~~with~~23, ~~our~~2016, ~~principal~~there ~~equity~~were ~~sponsor,~~49 ~~Apollo.~~holders ~~There~~of ~~were~~record ~~approximately~~of 90Affinion Holdings’ Common Stock, 164 holders of record of Affinion Holdings’ Class AC ~~common~~Common ~~stock~~Stock and no164 holders of ~~its~~record of Affinion Holdings’ Class BD ~~common~~Common ~~stock~~Stock.

Dividends

During ~~2012~~2015, 2014 and 2013 we made no cash distributions. toAny ~~Affinion~~declaration ~~Holdings~~and ~~aggregating~~payment ~~$37.0~~of ~~million~~any ~~and~~future ~~during~~dividends ~~2014~~will ~~and~~be ~~2013~~at wethe ~~made~~sole nodiscretion of our board of directors after taking into account various factors, including legal requirements, contractual restrictions contained in our equity-related documents, our financial condition, operating results, free cash ~~distributions~~flow, available cash and current and anticipated cash needs. Our senior secured credit facility and the ~~indentures~~indenture governing ~~our~~Affinion’s 2010 senior notes ~~and 2013 senior subordinated notes~~ contain covenants that limit our ability to pay dividends. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Financial Condition, Liquidity and Capital Resources.”

Recent Sales of Unregistered Securities

None.

Issuer Purchases of Equity Securities

None.

Item 6.

Selected Financial Data

The following table presents our selected historical consolidated financial data for the periods indicated. The following information should be read in conjunction with, and is qualified by reference to, the section entitled “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our audited consolidated financial statements and the notes thereto included elsewhere herein.

The consolidated balance sheet data of Affinion as of December 31, ~~2014~~2015 and ~~2013~~2014 and the related consolidated statements of comprehensive income data and cash flows data of Affinion for each of the three years in the period ended December 31, ~~2014~~2015, are derived from our audited consolidated financial statements and the notes thereto included elsewhere herein. The consolidated balance sheet data of Affinion as of December 31, ~~2012~~2013, ~~2011~~2012 and ~~2010~~2011 has been derived from the audited balance sheet of Affinion as of December 31, ~~2012~~2013, ~~2011~~2012 and ~~2010~~2011, respectively, and the related consolidated statements of comprehensive income data and cash flow data of Affinion for the years ended December 31, ~~2011~~2012 and ~~2010~~2011 have been derived from the audited consolidated financial statements of Affinion for the years ended December 31, ~~2011~~2012 and ~~2010~~2011, respectively, none of which is included herein.

	For the Years Ended December 31,
	2015			2014 (1)			2013			2012 (2)			2011 (3)
	(in millions)
Consolidated Statement of Comprehensive Income Data:
Net revenues	$	1,169.8		$	1,242.8		$	1,334.7		$	1,494.6		$	1,535.2
Expenses:
Cost of revenues, exclusive of depreciation and amortization shown separately below:
Marketing and commissions		448.7			481.9		533.2			600.1			637.7
Operating costs		385.2			411.9		439.4			459.5			441.5
General and administrative		115.5			171.5		156.7			150.4			167.6
Impairment of goodwill and other long-lived assets		93.2			292.4		1.6			39.7				—
Facility exit costs		1.8			2.7		0.5				(0.9	)	6.2
Depreciation and amortization		89.8			109.7		113.9			184.5			238.7
Total expenses		1,134.2			1,470.1			1,245.3			1,433.3			1,491.7
Income (loss) from operations		35.6			(227.3	)		89.4			61.3			43.5
Interest income	2.5			1.1			0.5			0.8				1.0
Interest expense		(178.6	)		(180.2	)		(165.6	)		(150.3	)		(148.3	)
Gain (loss) on extinguishment of debt		115.8			(6.0	)		—			—			—
Other income (expense), net		1.2			—		0.1				(0.2	)	0.2
Loss before income taxes and non-controlling interest		(23.5	)		(412.4	)		(75.6	)		(88.4	)		(103.6	)
Income tax benefit (expense)		(5.9	)		38.5			(13.6	)		(10.2	)		(5.2	)
Net loss		(29.4	)		(373.9	)		(89.2	)		(98.6	)		(108.8	)
Less: net income attributable to non-controlling interest		(0.6	)		(0.5	)		(0.4	)		(0.7	)		(0.9	)
Net loss attributable to Affinion Group, Inc.	$	(30.0	)	$	(374.4	)	$	(89.6	)	$	(99.3	)	$	(109.7	)
Consolidated Balance Sheet Data (at period end):
Cash and cash equivalents (excludes restricted cash)	$	51.2		$	28.0		$	19.6		$	32.5		$	86.3
Working capital deficit		(97.5	)		(195.2	)		(171.8	)		(163.7	)		(160.1	)
Total assets		844.1			1,037.7			1,384.5			1,473.1			1,651.0
Total debt		1,891.3			2,029.2			1,958.8			1,923.6			1,934.4
Total Affinion Group, Inc. deficit		(1,546.6	)		(1,617.0	)		(1,238.1	)		(1,147.7	)		(1,012.7	)
Consolidated Cash Flows Data:
Net cash provided by (used in):
Operating activities	$	14.1		$	40.8		$	41.5		$	68.9		$	107.0
Investing activities		(32.2	)		(70.9	)		(51.1	)		(68.3	)		(61.0	)
Financing activities		43.2			40.5			(3.3	)		(55.1	)		(80.0	)
Other Financial Data:
Capital expenditures	$	31.4		$	51.0		$	46.3		$	51.7		$	56.9
Ratio of earnings to fixed charges (4)		—			—			—			—			—

	For the Years Ended December 31,
	2014 (1)			2013			2012 (2)			2011 (3)			2010 (4)
	(in millions)
Consolidated Statement of Comprehensive Income Data:
Net revenues	$	1,242.8		$	1,334.7		$	1,494.6		$	1,535.2		$	1,376.3
Expenses:
Cost of revenues, exclusive of depreciation and amortization shown separately below:
Marketing and commissions		481.9		533.2			600.1			637.7			583.3
Operating costs		411.9		439.4			459.5			441.5			375.8
General and administrative		171.5		156.7			150.4			167.6			157.6
Impairment of goodwill and other long-lived assets		292.4		1.6			39.7				—			—
Facility exit costs		2.7		0.5				(0.9	)	6.2				8.0
Depreciation and amortization		109.7		113.9			184.5			238.7			195.2
Total expenses		1,470.1			1,245.3			1,433.3			1,491.7			1,319.9
Income (loss) from operations		(227.3	)		89.4			61.3			43.5			56.4
Interest income	1.1			0.5			0.8				1.0		11.6
Interest expense		(180.2	)		(165.6	)		(150.3	)		(148.3	)		(158.0	)
Loss on extinguishment of debt		(6.0	)		—			—			—			(37.0	)
Other income (expense), net		—		0.1				(0.2	)	0.2				(1.8	)
Loss before income taxes and non-controlling interest		(412.4	)		(75.6	)		(88.4	)		(103.6	)		(128.8	)
Income tax benefit (expense)		38.5			(13.6	)		(10.2	)		(5.2	)		(12.8	)
Net loss		(373.9	)		(89.2	)		(98.6	)		(108.8	)		(141.6	)
Less: net income attributable to non-controlling interest		(0.5	)		(0.4	)		(0.7	)		(0.9	)		(1.0	)
Net loss attributable to Affinion Group, Inc.	$	(374.4	)	$	(89.6	)	$	(99.3	)	$	(109.7	)	$	(142.6	)
Consolidated Balance Sheet Data (at period end):
Cash and cash equivalents (excludes restricted cash)	$	28.0		$	19.6		$	32.5		$	86.3		$	121.1
Working capital deficit		(195.2	)		(171.8	)		(163.7	)		(160.1	)		(76.9	)
Total assets		1,037.7			1,384.5			1,473.1			1,651.0			1,515.2
Total debt		2,029.2			1,958.8			1,923.6			1,934.4			1,694.3
Total Affinion Group, Inc. deficit		(1,617.0	)		(1,238.1	)		(1,147.7	)		(1,012.7	)		(866.2	)
Consolidated Cash Flows Data:
Net cash provided by (used in):
Operating activities	$	40.8		$	41.5		$	68.9		$	107.0		$	121.8
Investing activities		(70.9	)		(51.1	)		(68.3	)		(61.0	)		(131.3	)
Financing activities		40.5			(3.3	)		(55.1	)		(80.0	)	63.4
Other Financial Data:
Capital expenditures	$	51.0		$	46.3		$	51.7		$	56.9		$	39.9
Ratio of earnings to fixed charges (5)		—			—			—			—			—

(1)

Includes the results of Propp Corp., a provider of one-time use incentives for customer acquisition and retention, and SkyMall, a provider of merchandise, gift cards and experiential rewards for loyalty programs, from their acquisition dates, which were July 1, 2014 and September 9, 2014, respectively. Additional information about the SkyMall acquisition can be found in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 3 to our audited consolidated financial statements included elsewhere herein.

(1) Includes the results of Propp Corp., a provider of one-time use incentives for customer acquisition and retention, and SkyMall Ventures LLC (“SkyMall”), a provider of merchandise, gift cards and experiential rewards for loyalty programs, from their acquisition dates, which were July 1, 2014 and September 9, 2014, respectively. Additional information about the SkyMall acquisition can be found in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 3 to our audited consolidated financial statements included elsewhere herein.

(2) Includes the results of Boyner Bireysel Urunler Satis ve Pazarlama A.S (“Back-Up”), a Turkish provider of assistance and consultancy services to its members, and a sister company, Bofis Turizm ve Ticaret A.S. (“Travel”), a Turkish travel agency, from the acquisition date, which was November 14, 2012. Additional information about the Back-Up and Travel acquisition can be found in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 3 to our audited consolidated financial statements included elsewhere herein.

(3) Includes the results of Webloyalty and Prospectiv from their acquisition dates, which were January 14, 2011 and August 1, 2011, respectively.

(4) Includes the results of Connexions from its acquisition date which was July 1, 2010.

(5) For purposes of computing the ratio of earnings to fixed charges, earnings consist of income before income taxes and noncontrolling interests plus fixed charges. Fixed charges consist of interest expense, amortization of debt issuance costs and a portion of rental expense that management believes is representative of the interest component of rental expense. Our earnings were insufficient to cover fixed charges by $412.4 million, $75.6 million, $88.4 million, $103.6 million and $128.8 million for the years ended December 31, 2014, 2013, 2012, 2011 and 2010, respectively. (See Exhibit 12.1—Statement re: Computation of Ratio of Earnings to Fixed Charges).

(2)

Includes the results of Boyner Bireysel Urunler Satis ve Pazarlama A.S. (“Back-Up”), a Turkish provider of assistance and consultancy services to its members, and a sister company, Bofis Turizm ve Ticaret A.S. (“Travel”), a Turkish travel agency, from the acquisition date, which was November 14, 2012.

(3)	Includes the results of Webloyalty and Prospectiv from their acquisition dates, which were January 14, 2011 and August 1, 2011, respectively.

(4)

For purposes of computing the ratio of earnings to fixed charges, earnings consist of income before income taxes and noncontrolling interests plus fixed charges. Fixed charges consist of interest expense, amortization of debt issuance costs and a portion of rental expense that management believes is representative of the interest component of rental expense. Our earnings were insufficient to cover fixed charges by $23.5 million, $412.4 million, $75.6 million, $88.4 million and $103.6 million for the years ended December 31, 2015, 2014, 2013, 2012 and 2011, respectively. (See Exhibit 12.1—Statement re: Computation of Ratio of Earnings to Fixed Charges).

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our results of operations and financial condition should be read in conjunction with our audited consolidated financial statements included in “Item 8. Financial Statements and Supplementary Data.” This discussion contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those described in “Item 1A. Risk Factors.” Actual results may differ materially from those contained in any forward-looking statements. See “Cautionary Statements for Forward-Looking Information.”

Introduction

Management’s discussion and analysis of results of operations and financial condition (“MD&A”) is provided as a supplement to and should be read in conjunction with our audited consolidated financial statements and the related notes thereto included elsewhere herein to help provide an understanding of our financial condition, changes in financial condition and results of our operations. 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 years ended December 31, ~~2014~~2015 to ~~2013~~2014 and December 31, ~~2013~~2014 to ~~2012~~2013. 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 years ended December 31, ~~2014~~2015, ~~2013~~2014 and ~~2012~~2013, and our financial condition as of December 31, ~~2014~~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, all of our significant accounting policies, including our critical accounting policies, are summarized in Note 2 to our audited consolidated financial statements included elsewhere herein.

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 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, and 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.

WeFor ~~organize~~the periods ending on or prior to December 31, 2015, we organized our business into the following four business segments:. However, as described below, we will have changed our business segment reporting and operations beginning with the first quarter of 2016.

· 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~~2015, managed programs representing an aggregate estimated redemption value of approximately $2.8525 billion for financial, travel, auto and other companies. We provide our 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, and, in ~~2014~~2015, we facilitated approximately $2.005 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 and Mexico.

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.

Global Reorganization

Starting in the first quarter of 2016, we have the following four new operating segments:

Legacy Membership and Package. This segment combines all global membership programs in which we no longer expect to actively market and also includes the domestic Package business (which, through December 31, 2015, was reported in our Insurance and Package segment). This segment includes membership programs that were marketed with many of our large domestic financial institution partners. Although we will continue to service these members, we expect that cash flows and revenues will decrease over time due to the anticipated attrition of the member base in this operating segment. The Legacy Membership and Package segment would have constituted approximately 30% of our total net revenues in 2015 and is expected to continue to run off over time.

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 years ended December 31, ~~2014~~2015, ~~2013~~2014 and ~~2012~~2013, 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 aInternet ~~variety~~marketing ~~of media~~ to generate consumer awareness of our programs and services and stimulate responses from our targeted markets. ~~The~~As ~~media~~part ~~channels~~of ~~we employ in direct-to-consumer include television advertising as well as~~ Internet marketing, ~~such~~we asemploy 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 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 audited 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 audited 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.

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 we anticipate this ~~trend~~decline will continue at an accelerated rate in 2016, as compared to historical periods, before returning to historical attrition rates in 2017.

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.

Direct-to-Consumer

We are allocating an increasing percentage of our domestic marketing investment to the direct-to-consumer channel. We have tested various direct-to-consumer media and we believe we will be able to achieve returns on our investments that are comparable to our traditional channels.

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 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 “Item 3. Legal Proceedings.”

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 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.

Business History

Our business started with our North American membership products in 1973. Over a decade later, we expanded our business to include North American insurance and package products. In 1988, we acquired a loyalty and enhancement programs business and in the early 1990s, we expanded our membership and package products internationally. During these periods, the various products operated independently and were subject to certain non-compete agreements between them which limited their access to new channels, marketing partners, products and markets.

In 2012, we began to organize our internal resources into two broadly-defined areas: customer engagement solutions, which included our relationships with financial institutions, hospitality companies and other traditional marketing partners, and retail solutions, which included our online and point-of-sale retail relationships as well as our direct-to-consumer marketing efforts. We adopted this approach because we believe these channels carry unique requirements with respect to customer acquisition, client servicing and marketing services.

The Apollo Transactions

On October 17, 2005, Cendant Corporation (“Cendant”) completed the sale of the Cendant Marketing Services Division (the “Predecessor”) to Affinion Group, Inc. (the “Company” or “Affinion”), an affiliate of Apollo Global Management, LLC (together with its subsidiaries, “Apollo”), pursuant to a purchase agreement dated July 26, 2005 for approximately $1.8 billion. The purchase price consisted of approximately $1.7 billion of cash, net of estimated closing adjustments, plus $125 million face value of 125,000 shares of newly issued preferred stock (with a fair value at issuance of $80.4 million) of Affinion Group Holdings, Inc. (“Affinion Holdings”), our parent company, and a warrant (with a fair value at issuance of $16.7 million) that was exercisable for 4,437,170 shares of Affinion Holdings’ common stock, subject to customary anti-dilution adjustments, and $38.1 million of transaction related costs (collectively, the “Apollo Transactions”). The warrants expired in 2011 and the remaining outstanding shares of preferred stock were redeemed in 2011.

As part of the Apollo Transactions, we made a special tax election referred to as a “338(h)(10) election” with respect to the Predecessor. Under the 338(h)(10) election, the companies constituting the Predecessor were deemed to have sold and repurchased their assets at fair market value. By adjusting the tax basis in such assets to fair market value for U.S. federal income tax purposes, the aggregate amount of our tax deductions for depreciation and amortization have increased, which has reduced our cash taxes and further enhanced our free cash flow generation. We expect these tax deductions for U.S. federal income tax purposes to continue until 2020.

~~Acquisitions~~2015 Exchange Offers, Rights Offering and Reclassification

On November 14 9, ~~2012~~2015, ~~the~~(a) ~~Company~~Affinion ~~entered~~Holdings ~~into,~~completed ~~and consummated,~~ a ~~Share~~private ~~Sale~~offer ~~and~~to ~~Purchase~~exchange ~~Agreement~~ (the “~~Agreement~~2015 Holdings Exchange Offer”) ~~that~~its ~~resulted~~outstanding in13.75%/14.50% ~~the~~senior ~~acquisition~~secured PIK/toggle notes due 2018 (Affinion Holdings’ “2013 senior notes”) for shares of ~~Boyner~~Common ~~Bireysel~~Stock ~~Urunler~~and ~~Satis~~(b) veAffinion ~~Pazarlama~~Investments, ~~A.S~~LLC (“~~Back-Up~~Affinion Investments”), completed a ~~Turkish~~private ~~provider~~offer ofto ~~assistance~~exchange ~~and~~(the ~~consultancy~~“2015 ~~services~~Investments toExchange ~~its~~Offer” ~~members~~and, ~~and~~together awith ~~sister~~the ~~company~~2015 Holdings Exchange Offer, ~~Bofis~~the ~~Turizm~~“2015 veExchange ~~Ticaret~~Offers”) Aits outstanding 13.S.50% senior subordinated notes due 2018 (the “~~Travel~~Investments senior subordinated notes”) for shares of Common Stock of Affinion Holdings and (c) Affinion Holdings and Affinion International, a ~~Turkish~~wholly-owned ~~travel~~subsidiary ~~agency.~~of InAffinion, ~~accordance~~jointly ~~with~~completed a rights offering (the ~~Agreement,~~“2015 onRights ~~November~~Offering”) giving holders of Affinion Holdings’ 2013 ~~14,~~senior ~~2012,~~notes and the ~~Company~~Investments ~~acquired~~senior ~~90%~~subordinated ofnotes the ~~outstanding~~right ~~capital~~to ~~stock~~purchase ofan ~~Back-Up~~aggregate ~~and~~principal 99amount of $110.~~99%~~0 million of ~~the~~International ~~outstanding~~Notes ~~capital~~and ~~stock~~up to 2,483,333 shares of ~~Travel~~Common Stock for an ~~upfront~~aggregate cash ~~payment~~purchase price of $110.0 million. Pursuant to the 2015 Holdings Exchange Offer, approximately $12247.54 million ~~and~~of ~~contingent~~Affinion ~~consideration~~Holdings’ ~~payable~~2013 ~~ratably~~senior onnotes ~~each~~were exchanged for 1,769,104 shares of Common Stock and pursuant to the ~~first~~2015 Investments ~~three~~Exchange ~~anniversaries~~Offer, approximately $337.3 million of Investments senior subordinated notes were exchanged for 5,236,517 shares of Common Stock. Upon closing of the ~~acquisition~~2015 ~~date~~Exchange ~~aggregating~~Offers, there remained outstanding approximately $813.41 million aggregate principal amount of Affinion Holdings’ 2013 senior notes and $22.6 million aggregate principal amount of Investments senior subordinated notes.

Back-Up and Travel were owned by Turkey’s largest retail group at that time and the Company believes that Back-Up’s and Travel’s assistance and concierge service model fits well with the Company’s global product offerings. The acquisition enabled the Company to expand into Turkey, which the Company deems a key market, given both its size as well as the attractive demographics of its population, and enables the expansion of the Company’s product offerings to a new customer base.

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 is expected to enhance the Company’s position as a leading loyalty program administrator and incentives provider, as well as solidify the Company’s position within certain current verticals and provide access to certain new verticals.

Upon consummation of the 2015 Exchange Offers, the 2015 Consent Solicitations (as defined below) and the 2015 Rights Offering, Affinion Holdings effected a reclassification (the “Reclassification” and, together with the 2015 Exchange Offers, the 2015 Consent Solicitations, the 2015 Rights Offering and the related transactions, the “2015 Transactions”) as follows. All of Affinion Holdings’ then existing Class A Common Stock, par value $0.01 per share (the “Class A Common Stock”) (including Class A Common Stock issued as a result of a mandatory cashless exercise of all of its Series A Warrants (the “Series A Warrants”)), consisting of 84,842,535 outstanding shares of Class A Common Stock and 45,003,196 shares of Class A Common Stock underlying the Series A Warrants, was converted into (i) 490,083 shares of Affinion Holdings’ Class C Common Stock, par value $0.01 per share (the “Class C Common Stock”), that upon conversion will represent 5% of the outstanding shares of Common Stock on a fully diluted basis, and (ii) 515,877 shares of Affinion Holdings’ Class D Common Stock, par value $0.01 per share (the “Class D Common Stock” and, together with the Class C Common Stock, the “Class C/D Common Stock”), that upon conversion will represent 5% of the outstanding shares of Common Stock on a fully diluted basis. In addition, Affinion Holdings’ Series A Warrants and Affinion Holdings’ Class B Common Stock, par value $0.01 per share (the “Class B Common Stock”) were eliminated from Affinion Holdings’ certificate of incorporation and Affinion Holdings’ Series B Warrants (the “Series B Warrants”) were cancelled for no additional consideration. In connection with the Reclassification, (i) the Apollo Funds received 218,002 shares of the Class C Common Stock and 229,476 shares of the Class D Common Stock, or 4.7% of the outstanding Common Stock on a beneficial ownership basis after giving effect to the conversion of the Class C/D Common Stock held by the Apollo Funds, and (ii) General Atlantic received 65,945 shares of the Class C Common Stock and 69,415 shares of the Class D Common Stock, or 1.5% of the outstanding Common Stock on a beneficial ownership basis after giving effect to the conversion of the Class C/D Common Stock held by General Atlantic.

Upon consummation of the 2015 Exchange Offers, the Apollo Funds and General Atlantic ceased to have beneficial ownership of any Common Stock.

The consummation of the exchange offers and the rights offering resulted in an “ownership change” for the Company pursuant to Section 382 of the Internal Revenue Code. This substantially limits our ability to use our pre-change net operating loss carryforwards (including those attributable to the 2005 Acquisition) and certain other pre-change tax attributes to offset our post-change income. Similar rules and limitations may apply for state tax purposes as well.

Acquisition

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, 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.

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				Year Ended
	December 31,				December 31,
	2014		2013		2014		2013		2012
	2015		2014		2015		2014		2013
Global Average Subscribers, excluding Basic Insureds		3835,~~666~~447		3938,~~242~~666		3937,~~334~~181		4039,~~692~~334		4340,~~855~~692
Annualized Net Revenue Per Global Average Subscriber, excluding Basic Insureds (1)	$	2726.6168	$	27.6261	$	2726.0072	$	2827.6600	$	3028.3066
Global Membership Subscribers
Average Global Retail Subscribers (2)		75,~~429~~966		87,~~122~~429		76,~~606~~829		87,~~851~~606		108,~~563~~851
Annualized Net Revenue Per Global Average Subscriber (1)	$	8394.4281	$	7983.8142	$	8687.2090	$	8086.8420	$	7980.7484
Global Package Subscribers and Wholesale
Average Global Package Subscribers and Wholesale (2)		2726,~~539~~030		27,~~268~~539		2726,~~972~~814		27,~~902~~972		2927,~~147~~902
Annualized Net Revenue Per Global Average Package and Wholesale Subscriber (1)	$	6.5913	$	76.1759	$	6.6120	$	76.3361	$	7.6133
Global Insureds
Average Supplemental Insureds (2)		3,~~698~~451		3,~~852~~698		3,~~756~~538		3,~~939~~756		43,~~145~~939
Annualized Net Revenue Per Supplemental Insured (1)	$	7263.0291	$	6272.3402	$	5964.0017	$	6259.4600	$	6362.8746
Global Average Subscribers, including Basic Insureds		5854,~~543~~048		5958,~~864~~543		5956,~~461~~211		6159,~~664~~461		6561,~~821~~664

(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 U.S. GAAP (as defined in Note 2 to our audited consolidated financial statements included elsewhere herein), 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.

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Year Ended December 31, 2015 Compared to Year Ended December 31, 2014

The following table summarizes our consolidated results of operations for the years ended December 31, 2015 and 2014:

	Year Ended			Year Ended
	December 31,			December 31,			Increase
	2015			2014			(Decrease)
	(in millions)
Net revenues	$	1,169.8		$	1,242.8		$	(73.0	)
Expenses:
Cost of revenues, exclusive of depreciation and amortization shown separately below:
Marketing and commissions		448.7		481.9				(33.2	)
Operating costs		385.2		411.9				(26.7	)
General and administrative		115.5		171.5				(56.0	)
Impairment of goodwill and other long-lived assets		93.2		292.4				(199.2	)
Facility exit costs		1.8		2.7				(0.9	)
Depreciation and amortization	89.8			109.7				(19.9	)
Total expenses		1,134.2			1,470.1			(335.9	)
Income (loss) from operations		35.6			(227.3	)		262.9
Interest income	2.5			1.1				1.4
Interest expense		(178.6	)		(180.2	)		1.6
Gain (loss) on extinguishment of debt		115.8			(6.0	)		121.8
Other income (expense), net		1.2		−−				1.2
Loss before income taxes and non-controlling interest		(23.5	)		(412.4	)		388.9
Income tax benefit (expense)		(5.9	)		38.5			(44.4	)
Net loss		(29.4	)		(373.9	)		344.5
Less: net income attributable to non-controlling interest		(0.6	)		(0.5	)		(0.1	)
Net loss attributable to Affinion Group, Inc.	$	(30.0	)	$	(374.4	)	$	344.4

Summary of Operating Results for the Year Ended December 31, 2015

The following is a summary of changes affecting our operating results for the year ended December 31, 2015.

Net revenues decreased $73.0 million, or 5.9%, for the year ended December 31, 2015 as compared to the same period of the prior year primarily from lower retail revenues from a decline in retail member volumes in Membership Products and lower revenue in International Products principally from an unfavorable foreign exchange impact.

Segment EBITDA increased $243.0 million as the impact of the lower net revenues was more than offset by lower marketing and commissions, lower operating costs, lower general and administrative expenses and a reduced impact of impairment charges for the Membership business in 2015 as compared to 2014.

Year Ended December 31, 2015 Compared to Year Ended December 31, 2014

The following section provides an overview of our consolidated results of operations for the year ended December 31, 2015 as compared to the year ended December 31, 2014.

Net Revenues. During the year ended December 31, 2015 we reported net revenues of $1,169.8 million, a decrease of $73.0 million, or 5.9%, as compared to net revenues of $1,242.8 million in the comparable period of 2014. Net revenues in Membership Products decreased $42.4 million primarily due to the continued attrition of legacy members, including those from our large financial institution partners. These decreases were partially offset by increased revenues from new joins acquired through partners with whom we are actively marketing. Insurance and Package Products revenues decreased $1.1 million as a decline in Package revenue primarily from the impact of lower average Package members along with lower revenue from lower supplemental insureds more than offset higher revenues from 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. Global Loyalty Products net revenues decreased $6.8 million as growth with new and existing clients was more than offset by lower revenue from the loss of a key client. International Products net revenues decreased $23.4 million. On a currency consistent basis, International Products net revenues increased $28.6 million primarily due to higher retail membership revenue in our online acquisition channel 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 $52.0 million.

Marketing and Commissions Expense. Marketing and commissions expense decreased by $33.2 million, or 6.9%, to $448.7 million for the year ended December 31, 2015 from $481.9 million for the year ended December 31, 2014. Marketing and commissions expense decreased in International Products by $23.5 million primarily due to the favorable impact of foreign exchange. Costs decreased $8.5 million in Insurance and Package Products primarily from lower commissions. Costs decreased in Membership Products by $1.5 million primarily attributable to the migration of certain partner compensation arrangements from traditional bounty to advance commissions whereby the partner has the potential for additional revenue sharing. Our decision to terminate certain marketing channels in Membership reduced new marketing spend in 2015 the benefit of which was primarily offset by the acceleration of expensing advance commission payments to partners.

Operating Costs. Operating costs decreased by $26.7 million, or 6.5%, to $385.2 million for the year ended December 31, 2015 from $411.9 million for the year ended December 31, 2014. Operating costs decreased $15.5 million in International Products primarily due to the favorable impact of foreign exchange and $8.3 million in Membership Products primarily from lower product and servicing costs associated with the lower retail member volumes along with lower costs from cost savings initiatives.

General and Administrative Expense. General and administrative expense decreased by $56.0 million, or 32.7% to $115.5 million for the year ended December 31, 2015 from $171.5 million for the year ended December 31, 2014. Costs decreased $20.0 million in International Products primarily due to a decrease in charges of $18.6 million for legal reserves and fees related to the FCA inquiry and a benefit from foreign exchange. Costs decreased $17.8 million in Membership Products primarily due to a $12.0 million charge incurred in 2014 related to the CFPB matter. In addition, as a result of a settlement reached with the CFPB in July 2015, we recorded a $3.3 million favorable adjustment to our legal reserve in the second quarter of 2015. Corporate costs decreased by $15.3 million primarily from lower stock compensation costs of $5.5 million, the reversal of management fees of $5.2 million payable to our former owners Apollo and General Atlantic which were forgiven in the debt exchange completed on November 9, 2015, the favorable impact of foreign exchange of $2.2 million related to intercompany financing arrangements and lower professional fees of $1.7 million related to debt refinancing activities. The lower stock compensation costs were principally due to an adjustment in 2014 to modify a portion of the outstanding stock options by adjusting their exercise price and extending their contractual life.

Impairment of Goodwill and Other Long-Lived Assets. Our 2015 operating results include impairment charges of $93.2 million related to goodwill of $89.6 million and $3.6 million related to intangible assets (trademarks and tradenames) based on a failure of the annual goodwill impairment test in our Membership Products business which utilized a combination of the income and market approaches and incorporated assumptions that we believe marketplace participants would utilize in determining the fair value of Membership Products. Our 2014 operating results included an impairment charge related to goodwill of $292.4 million based on a failure of the annual goodwill impairment test in our Membership Products business which utilized a combination of the income and market approaches and incorporated assumptions that we believe marketplace participants would utilize in determining the fair value of Membership Products.

Depreciation and Amortization Expense. Depreciation and amortization expense decreased by $19.9 million for the year ended December 31, 2015 to $89.8 million from $109.7 million for the year ended December 31, 2014, primarily from lower amortization expense recorded in 2015 as compared to 2014 in the amount of $10.2 million related to intangible assets acquired in various acquisitions, principally member relationships which are amortized on an accelerated basis. An additional decrease of $8.9 million relates to lower amortization of intangible assets acquired in connection with Affinion’s 2005 acquisition of the Cendant Marketing Services Division. The majority of these intangible assets are amortized on an accelerated basis.

Interest Expense. Interest expense decreased $1.6 million, or 0.9% to $178.6 million for the year ended December 31, 2015 from $180.2 million for the year ended December 31, 2014, as the impact of higher interest expense associated with higher interest rates and increased principal amount of term loan borrowings associated with the May 2014 Amendment (as defined below) of Affinion’s senior secured credit facility and the absence in 2015 of a favorable reserve adjustment recorded in the third quarter of 2014 was more than offset by lower accrued interest and lower deferred financing costs as a result of the 2015 Exchange Offers whereby approximately 93.7% of the Investments senior subordinated notes were exchanged for Affinion Holdings’ Common Stock as of that date. Interest expense further decreased in our International business primarily due to the favorable impact of foreign exchange.

Gain (Loss) on Extinguishment of Debt. The gain on extinguishment of debt in 2015 in the amount of $115.8 million primarily relates to the 2015 Exchange Offers. The gain primarily represents the difference in the carrying value of the debt exchanged by investors, including unamortized deferred financing costs and debt discounts, and carrying value adjustments, as compared to the value of the new common stock issued in the exchange. The loss on extinguishment of debt in 2014 represents the write-off of $6.0 million, 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 Benefit (Expense). Income tax expense increased by $44.4 million for the year ended December 31, 2015 as compared to the year ended December 31, 2014, primarily due to an increase in the current and deferred federal and state tax provisions for the year ended December 31, 2015, partially offset by a decrease in the current and deferred foreign tax provisions for the same period. The change in the deferred federal and state tax provisions which accounted for the largest movement was attributable to the tax benefit recorded pursuant to the goodwill impairment charge for the year ended December 31, 2014.

The Company’s effective income tax rates for the year ended December 31, 2015 and 2014 were (25.3)% and 9.3%, respectively. The difference in the effective tax rates for the year ended December 31, 2015 and 2014 is primarily a result of the decrease in loss before income taxes from $412.4 million for the year ended December 31, 2014 to $23.5 million for the year ended December 31, 2015 and an increase in the income tax expense from a benefit of $38.5 million for the year ended December 31, 2014 to expense of $5.9 million for the year ended December 31, 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 and related foreign tax credits, 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%.

Operating Segment Results

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

	Year Ended December 31,
	Net Revenues									Segment EBITDA (1)
							Increase									Increase
	2015			2014			(Decrease)			2015			2014			(Decrease)
	(in millions)
Membership Products	$	404.5		$	446.9		$	(42.4	)	$	48.6		$	62.2		$	(13.6	)
Insurance and Package Products		262.9			264.0			(1.1	)		77.6			63.1			14.5
Global Loyalty Products		164.1			170.9			(6.8	)		60.1			68.1			(8.0	)
International Products		339.5			362.9			(23.4	)		38.2			2.6			35.6
Eliminations		(1.2	)		(1.9	)		0.7			-			-			-
Total products		1,169.8			1,242.8			(73.0	)		224.5			196.0			28.5
Corporate		-			-			-			(5.9	)		(21.2	)		15.3
Impairment of goodwill and other long-lived assets		-			-			-			(93.2	)		(292.4	)		199.2
Total	$	1,169.8		$	1,242.8		$	(73.0	)		125.4			(117.6	)		243.0
Depreciation and amortization											(89.8	)		(109.7	)		19.9
Income (loss) from operations										$	35.6		$	(227.3	)	$	262.9

(1)

See “ – Financial Condition, Liquidity and Capital Resources – Covenant Compliance” and “ – Financial Condition, Liquidity and Capital Resources – Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures” below and Note 16 to our audited consolidated financial statements included elsewhere herein for a discussion on Segment EBITDA.

Membership Products. Membership Products net revenues decreased by $42.4 million, or 9.5%, to $404.5 million for the year ended December 31, 2015 as compared to $446.9 million for the year ended December 31, 2014. Net revenues decreased primarily due to the continued attrition of legacy members, including those from our large financial institution partners along with the absence of a favorable reserve adjustment of $6.0 million recorded in 2014. The decrease in net revenues related to our financial institution partners is principally due to the cessation of new marketing campaigns with those partners as a result of the regulatory issues that have negatively impacted these partners and we expect this downward trend in net revenues related to our financial institution partners to continue for the foreseeable future. Net revenues also decreased from lower revenue in our online and retail channels in the U.S. along with lower revenue as a result of the sale of our Prospectiv business in April 2014. These decreases were partially offset by increased revenues from new joins acquired through partners with whom we are actively marketing.

Segment EBITDA decreased by $13.6 million, or 21.9%, for the year ended December 31, 2015 as compared to the year ended December 31, 2014. Segment EBITDA decreased as the impact of the lower net revenues of $42.4 million was partially offset by lower marketing and commissions of $1.5 million, lower operating costs of $8.3 million and lower general and administrative expenses of $17.8 million. The lower marketing and commissions were primarily the result of the migration of certain partner compensation arrangements from traditional bounty to advance commissions whereby the partner has the potential for additional revenue sharing. Our decision to terminate certain marketing channels reduced new marketing spend in 2015 the benefit of which was primarily offset by the acceleration of expensing advance commission payments to partners. The lower operating costs were primarily from lower product and servicing costs associated with the lower retail member volumes along with lower costs from cost savings initiatives. The lower general and administrative costs were primarily due to a $12.0 million charge incurred in 2014 related to the CFPB matter. In addition, as a result of a settlement reached with the CFPB in July 2015, we recorded a $3.3 million favorable adjustment to our legal reserve in the second quarter of 2015.

Insurance and Package Products. Insurance and Package Products net revenues decreased by $1.1 million, or 0.4%, to $262.9 million for the year ended December 31, 2015 as compared to $264.0 million for the year ended December 31, 2014. Insurance revenue increased approximately $5.3 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 partially offset by the negative impact from lower average supplemental insureds. Package revenue decreased approximately $6.4 million primarily due to the impact of lower average Package members.

Segment EBITDA increased by $14.5 million, or 23.0%, for the year ended December 31, 2015 as compared to the year ended December 31, 2014 primarily from lower operating expenses of $15.6 million principally the result of lower marketing and commissions and lower employee related costs.

Global Loyalty Products. Revenues from Global Loyalty Products decreased by $6.8 million, or 4.0%, for the year ended December 31, 2015 to $164.1 million as compared to $170.9 million for the year ended December 31, 2014 as increased revenues from growth with new and existing clients were more than offset by lower revenue from the loss of a key client.

Segment EBITDA decreased by $8.0 million, or 11.7%, for the year ended December 31, 2015 as compared to the year ended December 31, 2014, as the increased contribution associated with existing clients was more than offset by the loss of a key client and additional costs from one-time integration expenses incurred in the first quarter of 2015.

International Products. International Products net revenues decreased by $23.4 million, or 6.4%, to $339.5 million for the year ended December 31, 2015 as compared to $362.9 million for the year ended December 31, 2014. Net revenues increased $28.6 million on a currency consistent basis primarily from higher retail membership revenue in our online acquisition channel associated with increased members and higher price points along with growth in the wholesale sector. These increases were more than offset by the unfavorable impact from foreign exchange of $52.0 million.

Segment EBITDA increased $35.6 million for the year ended December 31, 2015 as compared to the year ended December 31, 2014 as the lower net revenue of $23.4 million was more than offset by lower general and administration costs of $20.0 million, lower marketing and commissions of $23.5 million and lower operating costs of $15.5 million. General and administrative costs decreased primarily due to a decrease in charges of $18.6 million for legal reserves and fees related to the FCA inquiry and a benefit from foreign exchange of $3.7 million. The lower marketing and commissions and lower operating costs were primarily attributable to a favorable impact of foreign exchange of $22.1 million and $20.1 million, respectively.

Corporate

Corporate costs decreased by $15.3 million for the year ended December 31, 2015 as compared to the year ended December 31, 2014 primarily from lower stock compensation costs of $5.5 million as 2014 included an adjustment to modify a portion of the outstanding stock options by adjusting their exercise price and extending their contractual life, the reversal of management fees of $5.2 million payable to our former owners Apollo and General Atlantic which were forgiven in the debt exchange completed on November 9, 2015, a favorable foreign exchange impact of $2.2 million related to intercompany financing arrangements and lower professional fees of $1.7 million related to debt refinancing activities.

Impairment of Goodwill and Other Long-Lived Assets

Our 2015 operating results include an impairment charge of $93.2 million related to goodwill of $89.6 million and $3.6 million related to intangible assets (trademarks and tradenames) based on a failure of the annual goodwill impairment test in our Membership Products business which utilized a combination of the income and market approaches and incorporated assumptions that we believe marketplace participants would utilize in determining the fair value of Membership Products. Our 2014 operating results included an impairment charge of $292.4 million based on a failure of the annual goodwill impairment test in our Membership Products business which utilized a combination of the income and market approaches and incorporated assumptions that we believe marketplace participants would utilize in determining the fair value of Membership Products.

Year Ended December 31, 2014 Compared to Year Ended December 31, 2013

The following table summarizes our consolidated results of operations for the years ended December 31, 2014 and 2013:

	Year Ended			Year Ended
	December 31,			December 31,			Increase
	2014			2013			(Decrease)
	2015			2014			(Decrease)
	(in millions)
Net revenues	$	1,~~242~~169.8		$	1,~~334~~242.78		$	(9173.90	)
Expenses:
Cost of revenues, exclusive of depreciation and amortization shown separately below:
Marketing and commissions	~~481.9~~	448.7		~~533~~481.29				(5133.32	)
Operating costs	~~411.9~~	385.2		~~439~~411.49				(2726.57	)
General and administrative	~~171.5~~	115.5		~~156~~171.75				14(56.80	)
Impairment of goodwill and other long-lived assets	~~292.4~~	93.2		1292.64				~~290~~(199.82	)
Facility exit costs	~~2.7~~	1.8		02.57				2(0.29	)
Depreciation and amortization	~~109~~89.78			~~113~~109.97				(419.29	)
Total expenses		1,~~470~~134.12			1,~~245~~470.31			~~224~~(335.89	)
Income (loss) from operations		~~(227~~35.36	)		89(227.43	)		~~(316~~262.79	)
Interest income	12.15			01.51				01.64
Interest expense		(~~180~~178.26	)		(~~165~~180.62	)		~~(14~~1.6	)
Loss on extinguishment of debt		(6.0	)	−−				(6.0	)
Gain (loss) on extinguishment of debt		115.8			(6.0	)		121.8
Other income (expense), net	−−	1.2		~~0.1~~−−				~~(0.~~1.2	)
Loss before income taxes and non-controlling interest		(~~412~~23.45	)		(75412.64	)		~~(336~~388.89	)
Income tax benefit (expense)		~~38.~~(5.9	)		~~(13~~38.65	)		52(44.14	)
Net loss		(~~373~~29.94	)		(89373.29	)		~~(284~~344.75	)
Less: net income attributable to non-controlling interest		(0.56	)		(0.45	)		(0.1	)
Net loss attributable to Affinion Group, Inc.	$	(~~374~~30.40	)	$	(89374.64	)	$	~~(284~~344.84	)

Summary of Operating Results for the Year Ended December 31, 2014

The following is a summary of changes affecting our operating results for the year ended December 31, 2014.

Net revenues decreased $91.9 million, or 6.9%, for the year ended December 31, 2014 as compared to the same period of the prior year primarily from lower retail revenues from a decline in retail member volumes in our Membership Products business and lower revenue in our Insurance and Package Products business primarily from a higher cost of insurance and lower Package members partially offset by an increase in International net revenues primarily from higher retail membership revenue associated with increased members.

Segment EBITDA decreased $320.9 million as the impact of an impairment charge of $292.4 million recorded in 2014 related to the Membership business, the lower net revenues and higher general and administrative costs were partially offset by lower marketing and commissions and lower operating costs.

5055

Historical 2014 Compared to Historical 2013

The following section provides an overview of our consolidated results of operations for the year ended December 31, 2014 as compared to the year ended December 31, 2013.

Net Revenues. During the year ended December 31, 2014 we reported net revenues of $1,242.8 million, a decrease of $91.9 million, or 6.9%, as compared to net revenues of $1,334.7 million in the comparable period of 2013. Net revenues of our Membership Products decreased $85.0 million primarily due to a decline in retail member volumes related to the continuing regulatory challenges facing our large financial institution partners with respect to new marketing campaign launches. Insurance and Package Products revenues decreased $34.5 million primarily due to a higher cost of insurance from higher claims experience principally in the second and third quarters partially offset by lower claims in the fourth quarter. We continue to believe this is largely due to an acceleration of claims from future periods into this period in connection with the conversion to our new primary insurance carrier. Package revenue declined primarily due to the impact of lower average Package members. Global Loyalty Products net revenues increased $1.1 million as revenue from higher travel volume and the SkyMall ~~Ventures~~ acquisition in mid-September was partially offset by lower revenues due to the slower ramp-up of new client programs. International Products net revenues increased $26.2 million primarily from higher retail membership revenue in both our online and offline acquisition channels associated with increased members and the absence of a non-recurring, non-cash charge of $8.2 million recorded in 2013 in connection with the recognition of retail revenue on a basis consistent with the Membership business.

Marketing and Commissions Expense. Marketing and commissions expense decreased by $51.3 million, or 9.6%, to $481.9 million for the year ended December 31, 2014 from $533.2 million for the year ended December 31, 2013. Marketing and commission expense decreased $43.2 million in Membership primarily due to lower commissions from lower retail member volumes, fewer marketing opportunities and a migration of certain partner compensation arrangements from traditional bounty to advance commissions whereby the partner has the potential for additional revenue sharing. Costs decreased in our Insurance and Package business by $16.2 million primarily due to higher marketing spend incurred in 2013 related to the conversion to our new primary insurance carrier along with lower commissions. These decreases were partially offset by an increase of $7.6 million in our International business primarily from increased spending in our offline retail channel, higher commissions and an increase due to foreign exchange.

Operating Costs. Operating costs decreased by $27.5 million, or 6.3%, to $411.9 million for the year ended December 31, 2014 from $439.4 million for the year ended December 31, 2013. Operating costs decreased $28.5 million in our Membership business primarily due to lower product and servicing costs associated with lower retail member volumes and lower product and servicing costs in our Insurance and Package business of $2.6 million primarily from lower Package members. These decreases were partially offset by an increase of $4.9 million in our International business primarily due to higher product, servicing and employee related costs.

General and Administrative Expense. General and administrative expense increased by $14.8 million, or 9.4% to $171.5 million for the year ended December 31, 2014 from $156.7 million for the year ended December 31, 2013. General and administrative costs increased $20.9 million in our International business primarily due to recording additional legal reserves and fees of $22.4 million related to the FCA inquiry. Costs increased $8.1 million in our Membership business primarily due to an increase in legal reserves of $12.0 million related to the CFPB inquiry, partially offset by lower employee related costs. Corporate costs decreased $1.6 million primarily from a decrease of $5.4 million in professional fees associated with debt amendments partially offset by $3.4 million from the unfavorable impact of unrealized foreign exchange on intercompany borrowings recorded in 2014 as compared to 2013. Costs decreased in our Insurance and Package business by $13.8 million primarily due to the benefit of the absence in 2014 of a charge recorded in 2013 for $14.5 million related to a contract termination settlement with our former primary insurance carrier as part of our decision to transfer a significant portion of our AD&D business to a new carrier.

Impairment of Goodwill and Other Long-Lived Assets. Our 2014 operating results include an impairment charge of $292.4 million based on a failure of the annual goodwill impairment test in our Membership Products business which utilized a combination of the income and market approaches and incorporated assumptions that we believe marketplace participants would utilize in determining the fair value of Membership Products. Our 2013 operating results include an impairment charge of $1.6 million related to Prospectiv’s remaining unamortized intangible assets of $1.3 million and the net book value of property and equipment of $0.3 million, primarily the result of lower projected future cash flows.

5156

Depreciation and Amortization Expense. Depreciation and amortization expense decreased by $4.2 million for the year ended December 31, 2014 to $109.7 million from $113.9 million for the year ended December 31, 2013, primarily from recording lower amortization of $2.4 million on the intangible assets acquired in connection with ~~the Company~~Affinion’s acquisition of the Cendant Marketing Services Division as the majority of those intangibles are amortized on an accelerated basis. This amortization expense is based upon an allocation of values to intangible assets and is being amortized over lives ranging from 3 years to 15 years. In addition, lower amortization expense was recorded in 2014 as compared to 2013 in the amount of $6.7 million related to intangible assets acquired in various acquisitions, principally member relationships which are amortized on an accelerated basis. Depreciation expense increased $4.5 million primarily the result of recent capital expenditures related to various upgrades in international systems.

Interest Expense. Interest expense increased by $14.6 million, or 8.8%, to $180.2 million for the year ended December 31, 2014 from $165.6 million for the year ended December 31, 2013, primarily due to higher interest expense from higher interest rate debt as a result of the debt exchange completed in the fourth quarter of 2013, higher interest expense associated with higher revolving credit facility borrowings and higher interest rates and increased principal amount of term loan borrowings associated with the May 2014 ~~amendment~~Amendment of ~~our~~Affinion’s senior secured credit facility. These increases were partially offset by a favorable reserve adjustment recorded in the third quarter of 2014.

Loss on Extinguishment of Debt. Loss on extinguishment of debt in 2014 ~~includes~~represents the write-off of $6.0 million, the pro rata portion, of unamortized deferred financing costs associated with the May 2014 ~~amendment~~Amendment to ~~our~~Affinion’s senior secured credit facility completed in the second quarter of 2014.

Income Tax Benefit (Expense). The income tax provision decreased by $52.1 million for the year ended December 31, 2014 as compared to the year ended December 31, 2013, primarily due to a decrease in the current state and foreign tax liabilities and the deferred federal and state tax liabilities primarily due to the goodwill impairment charge for the year ended December 31, 2014, partially offset by an increase in the foreign deferred tax liabilities for the same period.

The Company’s effective income tax rates for the year ended December 31, 2014 and 2013 were 9.3% and (18.0)%, respectively. The difference in the effective tax rates for the year ended December 31, 2014 and 2013 is primarily a result of the increase in loss before income taxes from $75.6 million for the year ended December 31, 2013 to $412.4 million for the year ended December 31, 2014 and a decrease in the income tax expense from $13.6 million for the year ended December 31, 2013 to a benefit of $38.5 million for the year ended December 31, 2014. 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 and related foreign tax credits, 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%.

Operating Segment Results

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

	Year Ended December 31,
	Net Revenues									Segment EBITDA (1)
							Increase									Increase
	2014			2013			(Decrease)			2014			2013			(Decrease)
	2015			2014			(Decrease)			2015			2014			(Decrease)
	(in millions)
Membership Products	$	~~446~~404.95		$	~~531~~446.9		$	(8542.04	)	$	6248.26		$	8562.92		$	(2313.76	)
Insurance and Package Products		~~264~~262.09		~~298.5~~	264.0			(341.51	)		6377.16			6563.01			(114.95	)
Global Loyalty Products	~~170.9~~	164.1		~~169.8~~	170.9		~~1.1~~	(6.8	)		6860.1			6768.01			1(8.10	)
International Products	~~362.9~~	339.5		~~336.7~~	362.9		~~26.2~~	(23.4	)	~~2.6~~	38.2		~~9.8~~	2.6			(735.26	)
Eliminations		(1.92	)		(21.29	)		0.37			—-			—-			—-
Total products		1,~~242~~169.8			1,~~334~~242.78			(9173.90	)		~~196~~224.05			~~227~~196.70			~~(31~~28.75	)
Corporate		—-			—-			—-			(215.29	)		(2221.82	)		115.63
Impairment of goodwill and other long-lived assets		—-			—-			—-			(~~292~~93.42	)		(1292.64	)		~~(290~~199.82	)
Total	$	1,~~242~~169.8		$	1,~~334~~242.78		$	(9173.90	)		~~(117~~125.64	)		~~203~~(117.36	)		~~(320~~243.90	)
Depreciation and amortization											(~~109~~89.78	)		(~~113~~109.97	)		419.29
Income (loss) from operations										$	~~(227~~35.36	)	$	89(227.43	)	$	~~(316~~262.79	)

(1)

5257

Membership Products. Membership Products net revenues decreased by $85.0 million, or 16.0%, to $446.9 million for the year ended December 31, 2014 as compared to $531.9 million for the year ended December 31, 2013. Net revenues decreased primarily due to a decline in retail member volumes related to the continuing regulatory challenges facing our large financial institution partners with respect to new marketing campaign launches and we expect this downward trend in net revenues related to our financial institution partners to continue for the foreseeable future. Net revenues also decreased as a result of lower revenue in our online channel in the U.S. and lower revenue as a result of the sale of our Prospectiv business in April 2014. These decreases were partially offset by a favorable reserve adjustment of $6.0 million.

Segment EBITDA decreased by $23.7 million, or 27.6%, for the year ended December 31, 2014 as compared to the year ended December 31, 2013. Segment EBITDA decreased as the impact of the lower net revenues of $85.0 million and higher general and administrative costs of $8.1 million was partially offset by lower marketing and commissions of $43.2 million and lower operating costs of $28.5 million. The lower marketing and commissions were primarily the result of reduced commissions principally from lower retail member volumes, fewer marketing opportunities and a migration of certain partner commission arrangements from traditional bounty to advance commissions whereby the partner has the potential for additional revenue sharing. Operating costs decreased primarily from lower product and servicing costs associated with the lower retail member volumes. General and administrative costs increased primarily due to an increase in legal reserves of $12.0 million related to the CFPB inquiry, partially offset by lower employee related costs.

Insurance and Package Products. Insurance and Package Products net revenues decreased by $34.5 million, or 11.6%, to $264.0 million for the year ended December 31, 2014 as compared to $298.5 million for the year ended December 31, 2013. Insurance revenue decreased approximately $25.2 million primarily due to a higher cost of insurance from higher claims experience principally in the second and third quarters partially offset by lower claims in the fourth quarter. We continue to believe this is largely due to an acceleration of claims from future periods into this period in connection with the conversion to our new primary insurance carrier. Package revenue decreased approximately $9.3 million primarily due to the impact of lower average Package members.

Segment EBITDA decreased by $1.9 million, or 2.9%, for the year ended December 31, 2014 as compared to the year ended December 31, 2013 as the lower net revenue of $34.5 million was partially offset by lower marketing and commissions of $16.2 million, lower general and administrative costs of $13.8 million and lower operating costs of $2.6 million. The lower marketing and commissions was primarily due to higher marketing spend incurred in 2013 related to the conversion to our new primary insurance carrier. General and administrative costs decreased primarily from the absence in 2014 of costs associated with a contract termination settlement with our former primary insurance carrier recorded in 2013 totaling $14.5 million. Operating costs decreased from lower product and servicing costs related to lower Package members.

Global Loyalty Products. Revenues from Global Loyalty Products increased by $1.1 million, or 0.6%, for the year ended December 31, 2014 to $170.9 million as compared to $169.8 million for the year ended December 31, 2013 as increased revenues from higher travel volume and the contributions from the acquisition of SkyMall ~~Ventures~~ on September 9, 2014 were partially offset by lower revenues due to the slower ramp-up of new client programs.

Segment EBITDA increased by $1.1 million, or 1.6%, for the year ended December 31, 2014 as compared to the year ended December 31, 2013, primarily due to the increase in net revenues as total operating expenses were essentially flat in 2014 as compared to 2013.

International Products. International Products net revenues increased by $26.2 million, or 7.8%, to $362.9 million for the year ended December 31, 2014 as compared to $336.7 million for the year ended December 31, 2013. Net revenues increased primarily from higher retail membership revenue in both our online and offline acquisition channels associated with increased members and the absence of a non-recurring, non-cash charge of $8.2 million recorded in 2013 in connection with the recognition of retail revenue on a basis consistent with the Membership business.

Segment EBITDA decreased by $7.2 million, or 73.5%, for the year ended December 31, 2014 as compared to the year ended December 31, 2013 as the positive impact of the higher revenue of $26.2 million was more than offset by higher marketing and commissions of $7.6 million, higher operating costs of $4.9 million and higher general and administrative expenses of $20.9 million. Marketing and commissions increased primarily from increased spending in our offline retail channel, higher commissions and the impact of foreign exchange. Operating costs increased primarily from higher product, servicing and employee related costs. General and administrative costs increased primarily due to recording additional legal reserves and fees of $22.4 million related to the FCA inquiry.

Corporate

Corporate costs decreased by $1.6 million for the year ended December 31, 2014 as compared to the year ended December 31, 2013 primarily from a decrease of $5.4 million in professional fees associated with debt amendments partially offset by $3.4 million from the unfavorable impact of unrealized foreign exchange on intercompany borrowings recorded in 2014 as compared to 2013.

5358

Impairment of Goodwill and Other Long-Lived Assets

Our 2014 operating results include an impairment charge of $292.4 million based on a failure of the annual goodwill impairment test in our Membership Products business which utilized a combination of the income and market approaches and incorporated assumptions that we believe marketplace participants would utilize in determining the fair value of Membership Products. Our 2013 operating results include an impairment charge of $1.6 million related to Prospectiv’s remaining unamortized intangible assets of $1.3 million and the net book value of property and equipment of $0.3 million, primarily the result of lower projected future cash flows.

Year Ended December 31, 2013 Compared to Year Ended December 31, 2012

The following table summarizes our historical consolidated results of operations for the years ended December 31, 2013 and 2012:

	Year Ended			Year Ended
	December 31,			December 31,			Increase
	2013			2012			(Decrease)
	(in millions)
Net revenues	$	1,334.7		$	1,494.6		$	(159.9	)
Expenses:
Cost of revenues, exclusive of depreciation and amortization shown separately below:
Marketing and commissions	533.2			600.1				(66.9	)
Operating costs	439.4			459.5				(20.1	)
General and administrative	156.7			150.4				6.3
Impairment of goodwill and other long-lived assets	1.6			39.7				(38.1	)
Facility exit costs	0.5				(0.9	)		1.4
Depreciation and amortization	113.9			184.5				(70.6	)
Total expenses		1,245.3			1,433.3			(188.0	)
Income from operations		89.4			61.3			28.1
Interest income	0.5			0.8				(0.3	)
Interest expense		(165.6	)		(150.3	)		(15.3	)
Other income (expense), net	0.1				(0.2	)		0.3
Loss before income taxes and non-controlling interest		(75.6	)		(88.4	)		12.8
Income tax expense		(13.6	)		(10.2	)		(3.4	)
Net loss		(89.2	)		(98.6	)		9.4
Less: net income attributable to non-controlling interest		(0.4	)		(0.7	)		0.3
Net loss attributable to Affinion Group, Inc.	$	(89.6	)	$	(99.3	)	$	9.7

Summary of Operating Results for the Year Ended December 31, 2013

The following is a summary of changes affecting our operating results for the year ended December 31, 2013.

Net revenues decreased $159.9 million, or 10.7%, for the year ended December 31, 2013 as compared to the year ended December 31, 2012 primarily from lower retail revenues from a decline in retail member volumes in our Membership Products business and lower revenue in our Insurance and Package Products business primarily from lower supplemental insureds, a higher cost of insurance, and lower package members which was partially offset by growth from existing clients in our Global Loyalty Products business. International Products net revenues increased primarily from higher retail membership revenue associated with increased members.

Segment EBITDA decreased $42.5 million, as the negative impact of the lower net revenues and higher general and administrative costs were partially offset by lower marketing and commissions, lower operating costs and decreased impairment charges of goodwill and certain other intangible assets related to the acquisition of Prospectiv.

Historical 2013 Results Compared to 2012 Results

The following section provides an overview of our consolidated results of operations for the year ended December 31, 2013 as compared to the year ended December 31, 2012.

Net Revenues. During the year ended December 31, 2013 we reported net revenues of $1,334.7 million, a decrease of $159.9 million, or 10.7%, as compared to net revenues of $1,494.6 million for the year ended December 31, 2012. Net revenues of our Membership Products decreased $174.2 million primarily due to a decline in retail member volumes related to the regulatory challenges facing large financial institution marketing partners with respect to new marketing campaign launches and a change in deal structure terms with a large client from traditional retail to a fee-for-service arrangement. Revenue also declined from the continued, but anticipated, attrition of the domestic member base of Webloyalty. Insurance and Package Products revenues decreased $33.5 million primarily from the impact of lower average supplemental insureds along with a higher cost of insurance from higher claims experience. Package revenue decreased from the impact of lower average package members. Global Loyalty Products net revenues increased $14.2 million which was primarily attributable to increased revenues from existing client programs. International Products net revenues increased $33.5 million primarily from higher retail membership revenue associated with increased members, revenue from our Turkish business acquired in the fourth quarter of 2012 and a favorable currency impact from the weaker U.S. dollar of $4.7 million partially offset by a non-recurring, non-cash adjustment in connection with the recognition of retail revenue on a basis consistent with that of the Membership business.

Marketing and Commissions Expense. Marketing and commissions expense decreased by $66.9 million, or 11.1%, to $533.2 million for the year ended December 31, 2013 from $600.1 million for the year ended December 31, 2012. Marketing and commissions expense decreased $89.9 million in our Membership business primarily due to lower commissions from lower retail member volumes, a change in deal structure terms with a large client from traditional retail to a fee-for-service arrangement and fewer marketing opportunities with our large financial institution marketing partners. Marketing and commission cost increases of $32.4 million in our International business, primarily from increased spending in our offline retail channel along with higher commissions, were partially offset by cost decreases of $10.2 million in our Insurance and Package business primarily the result of lower commissions due to the reduction of the supplemental insured base.

Operating Costs. Operating costs decreased by $20.1 million, or 4.4%, to $439.4 million for the year ended December 31, 2013 from $459.5 million for the year ended December 31, 2012. Operating costs decreased $39.6 million in our Membership business primarily due to lower product and servicing costs associated with lower retail member volumes and were partially offset by increased costs in our International business of $20.3 million primarily due to higher product and servicing costs in response to the higher member base.

General and Administrative Expense. General and administrative expense increased by $6.3 million, or 4.2%, to $156.7 million for the year ended December 31, 2013 from $150.4 million for the year ended December 31, 2012. Insurance and Package costs increased $15.8 million primarily due to a contract termination related to our decision to transfer a significant portion of our AD&D business to a new carrier by 2014. The contract termination required payments totaling $14.5 million for a settlement with our primary insurance carrier which relieved us of our obligation to maintain certain business volume commitments with that carrier that will no longer be met as a result of the migration of the AD&D insureds to a replacement carrier, and payments for estimated premium refunds owed to certain insureds as specified in the terminated carrier agreement. In our Membership business, general and administrative costs decreased $6.7 million as the benefit realized from lower employee related costs and lower professional fees more than offset the negative impact from the absence in 2013 of a 2012 reversal of a liability of $14.6 million in connection with anticipated earn-out payments originally recorded for the Prospectiv acquisition in 2011. Expenses in our International business decreased by $9.4 million primarily from lower restructuring costs (primarily severance and professional fees) and lower costs associated with certain legal matters. Corporate costs increased $5.0 million as higher professional fees associated with corporate financing activities of $7.6 million were partially offset by lower stock compensation costs recorded in 2013 as compared to 2012 and a favorable impact in foreign exchange on intercompany borrowings totaling $2.3 million.

Impairment of Goodwill and Other Long-Lived Assets. An impairment charge for goodwill and certain intangible assets in the amount of $39.7 million related to our 2011 Prospectiv acquisition was recorded in the year ended December 31, 2012, primarily the result of lower projected future cash flows and other negative marketplace events in the daily deals business. The impairment charge included $31.5 million related to all of the goodwill for Prospectiv and $8.2 million related to certain intangible assets ascribed in the August 1, 2011 acquisition, primarily tradenames and technology. An additional charge of $1.6 million for Prospectiv’s remaining unamortized intangible assets of $1.3 million and the net book value of property and equipment of $0.3 million was recorded during the year ended December 31, 2013, primarily the result of continued lower projected future cash flows.

Depreciation and Amortization Expense. Depreciation and amortization expense decreased by $70.6 million for the year ended December 31, 2013 to $113.9 million from $184.5 million for the year ended December 31, 2012, primarily from recording lower amortization of $45.0 million on the intangible assets acquired in connection with the Company’s acquisition of the Cendant Marketing Services Division as the majority of those intangibles are amortized on an accelerated basis. This amortization expense is based upon an allocation of values to intangible assets and is being amortized over lives ranging from 3 years to 15 years. In addition, lower amortization expense was recorded in 2013 as compared to 2012 in the amount of $14.2 million related to intangible assets acquired in the Webloyalty acquisition, principally member relationships which were amortized on an accelerated basis. Depreciation expense decreased $9.8 million primarily due to higher depreciation expense recorded in 2012 in our International business principally the result of a reduction in the estimated useful lives of certain computer systems.

Interest Expense. Interest expense increased by $15.3 million, or 10.2%, to $165.6 million for the year ended December 31, 2013 from $150.3 million for the year ended December 31, 2012 primarily due to higher interest accrued on our term loan as a result of the amendment to the Affinion Credit Facility in the fourth quarter of 2012 which increased the interest rates on LIBOR and base rate loans.

Income Tax Expense. Income tax expense increased by $3.4 million for the year ended December 31, 2013 as compared to the year ended December 31, 2012, primarily due to an increase in the current state tax liabilities and the deferred state and foreign tax liabilities for the year ended December 31, 2013, partially offset by a decrease in the current foreign tax liabilities for the same period.

Our effective income tax rates for the year ended December 31, 2013 and 2012 were (18.0)% and (11.5)%, respectively. The difference in the effective tax rates for the year ended December 31, 2013 and 2012 is primarily a result of the decrease in loss before income taxes and non-controlling interest from $88.4 million for the year ended December 31, 2012 to $75.6 million for the year ended December 31, 2013 and an increase in income tax expense from $10.2 million for the year ended December 31, 2012 to $13.6 million for the year ended December 31, 2013. Our tax rate is affected by recurring items, such as tax rates in foreign jurisdictions and the relative amount of income we earn 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, 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%.

Operating Segment Results

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

	Year Ended December 31,
	Net Revenues									Segment EBITDA (1)
							Increase									Increase
	2013			2012			(Decrease)			2013			2012			(Decrease)
	(in millions)
Membership Products	$	531.9		$	706.1		$	(174.2	)	$	85.9		$	125.2		$	(39.3	)
Insurance and Package Products	298.5				332.0			(33.5	)		65.0		103.9				(38.9	)
Global Loyalty Products	169.8			155.6				14.2			67.0		54.6				12.4
International Products	336.7			303.2				33.5		9.8			19.6				(9.8	)
Eliminations		(2.2	)		(2.3	)		0.1			—		—				-
Total products		1,334.7			1,494.6			(159.9	)		227.7			303.3			(75.6	)
Corporate	—			—			—				(22.8	)		(17.8	)		(5.0	)
Impairment of goodwill and other long-lived assets	—			—			—				(1.6	)		(39.7	)		38.1
Total	$	1,334.7		$	1,494.6		$	(159.9	)	$	203.3		$	245.8			(42.5	)
Depreciation and amortization											(113.9	)		(184.5	)		70.6
Income from operations										$	89.4		$	61.3		$	28.1

(1) See “ – Financial Condition, Liquidity and Capital Resources – Covenant Compliance” and “ – Financial Condition, Liquidity and Capital Resources – Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures” below and Note 16 to our audited consolidated financial statements included elsewhere herein for a discussion on Segment EBITDA.

Membership Products. Membership Products net revenues decreased by $174.2 million, or 24.7%, to $531.9 million for the year ended December 31, 2013 as compared to $706.1 million for the year ended December 31, 2012. Net revenues decreased primarily due to a decline in retail member volumes related to the regulatory challenges facing large financial institution marketing partners with respect to new marketing campaign launches and a change in deal structure terms with a large client from traditional retail to a fee-for-service arrangement. Net revenues also declined from the continued, but anticipated, attrition of the domestic member base of Webloyalty.

Segment EBITDA decreased by $39.3 million, or 31.4%, for the year ended December 31, 2013 as compared to the year ended December 31, 2012. Segment EBITDA decreased as the impact of the lower net revenues of $174.2 million was partially offset by lower marketing and commissions of $89.9 million, lower operating costs of $39.6 million and lower general and administrative costs of $6.7 million. The lower marketing and commissions were primarily the result of reduced commissions principally from lower retail member volumes, a change in deal structure terms with a large client from retail to fee-for-service and fewer marketing opportunities with our large financial institution marketing partners. Operating costs decreased primarily from lower product and servicing costs associated with the lower retail member volumes. General and administrative costs decreased as the absence in 2013 of a reversal of a liability recorded in 2012 of $14.6 million in connection with potential earn-out payments related to the Prospectiv acquisition was more than offset by lower employee related costs and lower professional fees.

Insurance and Package Products. Insurance and Package Products net revenues decreased by $33.5 million, or 10.1%, to $298.5 million for the year ended December 31, 2013 as compared to $332.0 million for the year ended December 31, 2012. Insurance revenue decreased approximately $19.7 million primarily due to the impact of lower average supplemental insureds and a higher cost of insurance from higher claims experience. Package revenue decreased approximately $13.8 million primarily due to the impact of lower average Package members.

Segment EBITDA decreased by $38.9 million, or 37.4%, for the year ended December 31, 2013 as compared to the year ended December 31, 2012, as the lower net revenues of $33.5 million and higher general administrative costs of $15.8 million were partially offset by lower marketing and commissions expense of $10.2 million, primarily lower commissions expense due to the reduction of the supplemental insured base. The higher general and administrative costs were primarily attributable to payments required as part of a contract termination with our primary insurance carrier. The contract termination required payments totaling $14.5 million which included a termination settlement which relieved us of business volume commitments with that carrier that will no longer be met as a result of the migration of the AD&D insureds to a replacement carrier, and an additional payment for estimated premium refunds owed to certain insureds as specified in the terminated carrier agreement.

Global Loyalty Products. Revenues from Global Loyalty Products increased by $14.2 million, or 9.1%, for the year ended December 31, 2013 to $169.8 million as compared to $155.6 million for the year ended December 31, 2012 primarily due to growth from existing clients.

Segment EBITDA increased by $12.4 million, or 22.7%, for the year ended December 31, 2013 as compared to the year ended December 31, 2012, primarily due to the increase in net revenue.

International Products. International Products net revenues increased by $33.5 million, or 11.0%, to $336.7 million for the year ended December 31, 2013 as compared to $303.2 million for the year ended December 31, 2012. Net revenues increased primarily from $30.4 million of higher retail membership revenue in both our online and offline acquisition channels associated with increased members along with $9.2 million of revenues from our business in Turkey which was acquired in the fourth quarter of 2012. Net revenues were also positively impacted by $4.7 million from the weakness in the U.S. dollar. Net revenue declined $8.2 million primarily from a non-recurring, non-cash adjustment in connection with the recognition of retail revenue on a basis consistent with that of the North American business.

Segment EBITDA decreased by $9.8 million, or 50.0%, for the year ended December 31, 2013 as compared to the year ended December 31, 2012 as the positive impact of the higher revenue and lower general administrative costs was more than offset by higher marketing and commissions and higher operating costs. Marketing and commissions expense increased $32.4 million primarily from higher spending in our offline retail channel and higher commissions expense. Operating costs increased $20.3 million primarily from higher product and servicing costs associated with the higher membership base. General and administrative expenses decreased $9.4 million primarily due to lower restructuring costs (primarily severance and professional fees) and lower costs associated with certain legal matters.

Corporate

Corporate costs increased by $5.0 million for the year ended December 31, 2013 as compared to the year ended December 31, 2012, as higher professional fees associated with corporate financing activities of $7.6 million were partially offset by lower stock compensation costs recorded in 2013 as compared to 2012 and a favorable impact in foreign exchange on intercompany borrowings totaling $2.3 million.

Impairment of Goodwill and Other Long-Lived Assets

An impairment charge for goodwill and certain intangible assets in the amount of $39.7 million related to our 2011 Prospectiv acquisition was recorded during the year ended December 31, 2012, primarily the result of lower projected future cash flows and other negative marketplace events in the daily deals business. The impairment charge included $31.5 million related to all of the goodwill for Prospectiv and $8.2 million related to certain intangible assets ascribed in the August 1, 2011 acquisition, primarily tradenames and technology. An additional charge of $1.6 million for Prospectiv’s remaining unamortized intangible assets of $1.3 million and the net book value of property and equipment of $0.3 million was recorded during the year ended December 31, 2013, primarily the result of continued lower projected future cash flows.

Financial Condition, Liquidity and Capital Resources

Financial Condition – December 31, ~~2014~~2015 and December 31, ~~2013~~2014

	December 31,			December 31,			Increase
	2014			2013			(Decrease)
	2015			2014			(Decrease)
	(in millions)
Total assets	$	~~1,037~~844.71		$	1,~~384~~037.57		$	(~~346~~193.86	)
Total liabilities		2,~~653~~390.60			2,~~621~~653.56			32(263.16	)
Total deficit		(1,~~615~~545.9	)		(1,~~237~~615.09	)		~~(378~~70.90	)

Total assets decreased by $~~346~~193.86 million principally due to (i) a decrease in goodwill of $~~284~~96.14 million, principally due to the write-off of $~~292~~89.46 million of goodwill attributed to Membership Products, ~~partially offset by acquired goodwill of $15.8 million,~~ (ii) a decrease in other intangibles, net of $5048.53 million, principally due to amortization expense of $6242.74 million, ~~partially offset by acquired intangibles of $15.0 million,~~ and (iii) a decrease in ~~profit-sharing~~property ~~receivables~~and ~~from~~equipment ~~insurance carriers~~ of $3619.05 million, asprincipally ~~the~~due ~~Company substantially completed its transition from its former primary insurance carrier~~ to ~~other~~depreciation ~~insurance~~expense ~~carriers and a significant portion~~ of ~~the~~$47.1 ~~business~~million, ispartially nooffset ~~longer~~by ~~subject~~additions toof ~~profit-sharing~~$31.7 ~~arrangements~~million.

Total liabilities ~~increased~~decreased by $32263.16 million, primarily due to ana ~~increase~~decrease in long-term debt of $70137.49 million in connection with the ~~refinancing~~extinguishment of ~~the~~$337.3 ~~Company~~million of Affinion’s ~~term~~13.50% ~~loan~~senior subordinated notes due 2018 (Affinion’s “2013 senior subordinated notes”), partially offset by ~~net~~issuance ~~repayments~~ of ~~the~~$110.0 ~~Company’s~~million ~~revolving~~of ~~credit~~International ~~facility~~Notes ~~(see~~by “–Affinion ~~Credit~~International, ~~Facilities~~one ~~and~~of ~~Long-term~~the ~~Debt).~~Company’s ~~This~~wholly-owned ~~increase~~subsidiaries, ~~was~~and ~~partially~~the ~~offset~~recognition byof a ~~decrease~~carrying invalue ~~deferred~~adjustment ~~income~~in ~~taxes~~connection ofwith ~~$41.5~~the ~~million~~debt ~~due~~restructuring related to the ~~tax~~outstanding ~~impact~~debt instruments of ~~the~~ $~~292~~97.49 million ~~goodwill~~(see ~~write~~“– Credit Facilities and Long-~~off~~term Debt).

Total deficit ~~increased~~decreased by $~~378~~70.90 million, principally due to a capital contribution of $107.8 million in the form of Affinion Holdings Common Stock that the Company used to complete the 2015 Exchange Offers, partially offset by a net loss attributable to the Company of $~~374~~30.40 million.

Liquidity and Capital Resources

Our primary sources of liquidity on both a short-term and long-term basis are cash on hand and cash generated through operating and financing activities. Our primary cash needs are to service our indebtedness and for working capital, capital expenditures and general corporate purposes. Many of the Company’s significant costs are variable in nature, including marketing and commissions. The Company has a great degree of flexibility in the amount and timing of marketing expenditures and focuses its marketing expenditures on its most profitable marketing opportunities. Commissions correspond directly with revenue generated and have been decreasing as a percentage of revenue over the last several years. In addition, the 2015 Exchange Offers and 2015 Rights Offering provided us with significant cash flow benefits, by reducing overall net debt by approximately $337 million, reducing annual cash interest payments by approximately $50 million, and improving overall liquidity by approximately $95 million. We believe ~~that~~, based on our current operations and ~~anticipated~~new ~~growth~~business prospects, coupled with our ~~cash~~flexibility onin ~~hand~~the amount and timing of marketing expenditures, ~~cash~~that ~~flows~~our ~~from~~cash ~~operating~~on ~~activities~~hand and borrowing availability under our revolving credit facility will be sufficient to meet our liquidity needs for the next twelve months and in the foreseeable future, including the $1.9 million quarterly amortization payments on our first lien term loan facility under our ~~$1.3 billion amended and restated~~ senior secured credit facility. ~~The~~In ~~first~~addition, ~~lien~~we ~~term~~do ~~loan~~not ~~facility~~expect ~~also~~to ~~requires~~be ~~mandatory~~required ~~prepayments~~to ~~based~~make onany excess cash ~~flows~~flow asor ~~defined~~other mandatory prepayments in ~~our~~the ~~amended~~near ~~and~~future ~~restated~~under ~~senior~~our ~~secured~~first ~~credit~~lien term loan facility.

The Company is a holding company, with no direct operations and no significant assets other than the direct and indirect ownership of its subsidiaries. Because we conduct our operations through our subsidiaries, our cash flows and our ability to service our indebtedness is dependent upon cash dividends and distributions or other transfers from our subsidiaries. Payments to us by our subsidiaries are contingent upon our subsidiaries’ earnings, but are not limited by our debt agreements, including our senior secured credit facility and the indentures governing our 2010 senior notes and our 2013 senior subordinated notes. 59

~~Although~~In weaddition ~~historically~~to ~~have~~quarterly aamortization ~~working~~payments, ~~capital~~the ~~deficit~~first lien term loan facility requires mandatory prepayments under certain conditions. First, a ~~major~~prepayment ~~factor~~may ~~included~~be required based on excess cash flows as defined in ~~this~~our ~~deficit~~senior issecured ~~deferred~~credit ~~revenue~~facility. ~~resulting~~For ~~from~~this ~~the~~purpose, excess cash ~~collected~~flow ~~from~~for any annual ~~memberships~~accounting ~~that~~period is ~~deferred~~defined ~~until~~as ~~the~~Affinion’s ~~appropriate~~adjusted ~~refund~~EBITDA ~~period~~reduced ~~has~~by ~~concluded.~~debt Inservice, ~~spite~~increases to working capital, capital expenditures and business acquisitions net of ~~our~~external ~~historical~~funding and certain other uses of cash. Increases to excess cash flow include decreases to working capital ~~deficit~~and certain other receipts of cash. If the excess cash flow calculation for any annual accounting period is positive, wea ~~have~~prepayment ~~been~~of ~~able~~the tofirst ~~operate~~lien ~~effectively~~term ~~primarily~~loan ~~due~~facility in an amount equal to ~~our~~a percentage of the excess cash ~~flows~~flow ~~from~~may ~~operations~~be required. Such percentage is determined based upon the senior secured leverage ratio as of the end of the applicable annual accounting period. The excess cash flow computations for 2013, 2014 and ~~our~~2015 ~~available~~did ~~revolving~~not ~~credit~~result ~~facility~~in a mandatory prepayment of principal for such annual periods. Second, a prepayment may be required with the net proceeds of certain asset sales. However, assuch ~~the~~net ~~membership~~proceeds ~~base~~will ~~continues~~not be required to ~~shift~~be ~~away~~applied ~~from~~to ~~memberships~~prepay ~~billed~~Affinion’s ~~annually~~senior secured credit facility if they are applied to ~~memberships~~acquire, ~~billed~~maintain, ~~monthly~~develop, itconstruct, ~~will~~improve ~~have~~or arepair ~~negative~~assets ~~effect~~useful onin our ~~operating~~business ~~cash~~or ~~flow.~~to Wemake ~~anticipate~~acquisitions ~~that~~or ~~our~~other ~~working~~permitted ~~capital~~investments ~~deficit~~within ~~will~~12 ~~continue~~months, ~~for~~or, ~~the~~if ~~foreseeable~~committed ~~future.~~to be so applied within 12 months, within 18 months.

OnUnder ~~April 9,~~Affinion’s ~~2012,~~2010 ~~the~~senior ~~Company~~notes ~~declared,~~ and onthe ~~April 10,~~International ~~2012~~Notes, the ~~Company~~net ~~paid~~cash aproceeds ~~dividend~~ of ~~$37.0~~certain ~~million~~asset sales may also be required to ~~Affinion~~be ~~Holdings,~~applied ~~utilizing~~to ~~available~~prepay ~~cash~~certain onof ~~hand~~our indebtedness. However, ~~Affinion~~such ~~Holdings~~net ~~utilized~~proceeds ~~the~~will ~~proceeds~~not ofbe ~~the~~required ~~dividend~~to be applied to prepay indebtedness if they are applied to make ~~interest~~an ~~payments~~investment onin ~~its~~one ~~2010~~or ~~senior~~more ~~notes.~~businesses or capital expenditures or to acquire assets that are useful to our business within 365 days, or, if committed to be so applied within 365 days, within 545 days.

58Affinion is a holding company, with no direct operations and no significant assets other than the direct and indirect ownership of its subsidiaries. Because we conduct our operations through our subsidiaries, our cash flows and our ability to service our indebtedness is dependent upon cash dividends and distributions or other transfers from our subsidiaries. Payments to us by our subsidiaries are contingent upon our subsidiaries’ earnings, but are not limited by our debt agreements, including Affinion’s senior secured credit facility and the indenture governing Affinion’s 2010 senior notes.

OnAlthough ~~November~~we ~~13,~~historically ~~2013~~have a working capital deficit, a major factor included in this deficit is deferred revenue resulting from the ~~Company~~cash ~~loaned~~collected ~~$18~~from annual memberships that is deferred until the appropriate refund period has concluded.9 ~~million~~As tothe ~~Affinion~~membership ~~Holdings~~base continues to beshift ~~utilized~~away byfrom ~~Affinion~~memberships ~~Holdings~~billed annually to ~~make~~memberships ~~the~~billed ~~November~~monthly, ~~2013~~it ~~interest~~will ~~payments~~have a negative effect on ~~its~~our ~~2010~~operating ~~senior~~cash ~~notes~~flow. OnHowever, ~~December~~we ~~11,~~anticipate ~~2013,~~that in future periods the ~~Company~~reduced ~~loaned~~cash ~~$2.6~~interest ~~million~~expense towill ~~Affinion~~favorably ~~Holdings~~impact tothe beoperating ~~utilized~~cash byand ~~Affinion~~offset ~~Holdings~~the toworking ~~make~~capital ~~interest~~deficit ~~payments~~that onwill ~~its~~continue ~~2010~~for ~~senior~~the ~~notes~~foreseeable tofuture. ~~tendering~~In ~~debt~~spite ~~holders~~of ~~participating~~our inhistorical ~~Affinion~~working ~~Holdings’~~capital ~~debt~~deficit, ~~exchange.~~we Onhave ~~May~~been ~~13,~~able ~~2014~~to operate effectively primarily due to our cash flows from operations and ~~November~~our 14available revolving credit facility. In addition, ~~2014~~during 2016 and 2017, ~~the~~our ~~Company~~required ~~loaned~~quarterly ~~$1.9~~amortization ~~million~~payments tounder ~~Affinion~~the ~~Holdings~~first tolien term loan facility will be ~~utilized~~nominal byand ~~Affinion~~we ~~Holdings~~also todo ~~make~~not ~~interest~~anticipate ~~payments~~any onother ~~its~~mandatory ~~2010~~principal ~~senior~~prepayments ~~notes~~under the first lien term loan facility.

On November 13, 2013, the Company loaned $18.9 million to Affinion Holdings to be utilized by Affinion Holdings to make the November 2013 interest payments on its 11.625% senior notes due 2015 (Affinion Holdings’ “2010 senior notes”). On December 11, 2013, the Company loaned $2.6 million to Affinion Holdings to be utilized by Affinion Holdings to make interest payments on its 2010 senior notes to tendering debt holders participating in Affinion Holdings’ debt exchange. 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 each of May 14, 2015 and November 13, 2015, the Company loaned $1.9 million to Affinion Holdings to be utilized to make interest payments on its 2010 senior notes.

Cash Flows – Years Ended December 31, 2015 and 2014

At December 31, 2015, we had $51.2 million of cash and cash equivalents on hand, an increase of $23.2 million from $28.0 million at December 31, 2014. The following table summarizes our cash flows and compares changes in our cash and cash equivalents on hand to the same period in the prior year.

	Year Ended December 31,
	2015			2014			Change
	(in millions)
Cash provided by (used in):
Operating activities	$	14.1		$	40.8		$	(26.7	)
Investing activities		(32.2	)		(70.9	)		38.7
Financing activities		43.2			40.5			2.7
Effect of exchange rate changes		(1.9	)		(2.0	)		0.1
Net change in cash and cash equivalents	$	23.2		$	8.4		$	14.8

Operating Activities

During the year ended December 31, 2015, we generated $26.7 million less cash from operating activities than during the year ended December 31, 2014. Segment EBITDA, excluding non-cash impairment charges, increased $43.8 million for the year ended December 31, 2015 as compared to the year ended December 31, 2014. This increase was more than offset by several unfavorable working capital changes including payments totaling $21.5 million incurred in 2015 for customer refunds under the FCA settlement arrangement, higher interest payments of $12.6 million primarily related to the Affinion 2013 senior subordinated notes as a result of the timing of payments whereby we paid lower interest in 2014 under the terms of the note agreement governing such notes, lower deferred revenue of $6.8 million primarily from the decrease in the membership base and an unfavorable impact of $27.1 million from the profit sharing receivable which was primarily due to the timing of cash settlements as a result of the termination of our agreement with our primary insurance carrier that shifted a significant portion of our AD&D business to carriers that do not have a profit sharing arrangement.

Investing Activities

We used $38.7 million less cash in investing activities during the year ended December 31, 2015 as compared to the year ended December 31, 2014. During the year ended December 31, 2015, we used $31.4 million for capital expenditures and $1.7 million for acquisition-related payments, and also received $1.5 million in connection with the sale of an investment. During the year ended December 31, 2014, we used $51.0 million for capital expenditures and $22.0 million for acquisition-related payments.

Financing Activities

We generated $2.7 million more cash from financing activities during the year ended December 31, 2015 as compared to the year ended December 31, 2014. During the year ended December 31, 2015, we issued the International Notes and shares of Common Stock for $110.0 million, had net repayments under Affinion’s revolving credit facility and first lien term loan of $5.0 million and $7.8 million, respectively, and paid $2.6 million upon maturity of Affinion’s 11.5% senior subordinated notes due 2015 (Affinion’s “2006 senior subordinated notes”). We also paid financing costs related to the debt exchange and issuance of the International Notes of $14.7 million. During the year ended December 31, 2014, we had net repayments under our revolving credit facility of $41.0 million, refinanced a portion of our debt resulting in new second lien term loan borrowings of $425.0 million and repayments of our term loan debt of $311.6 million, paid financing costs of $21.9 million and made other principal payments on our debt of $4.5 million.

Cash Flows – Years Ended December 31, 2014 and 2013

At December 31, 2014, we had $28.0 million of cash and cash equivalents on hand, an increase of $8.4 million from $19.6 million at December 31, 2013. The following table summarizes our cash flows and compares changes in our cash and cash equivalents on hand to the same period in the prior year.

	Year Ended December 31,
	2014			2013			Change
	(in millions)
Cash provided by (used in):
Operating activities	$	40.8		$	41.5		$	(0.7	)
Investing activities		(70.9	)		(51.1	)		(19.8	)
Financing activities		40.5			(3.3	)		43.8
Effect of exchange rate changes		(2.0	)		—			(2.0	)
Net change in cash and cash equivalents	$	8.4		$	(12.9	)	$	21.3

Operating Activities

During the year ended December 31, 2014, we generated $0.7 million ~~more~~less cash from operating activities than during the year ended December 31, 2013. Segment EBITDA decreased by $320.9 million for the year ended December 31, 2014 as compared to the year ended December 31, 2013, which includes the impact in 2014 of the $292.4 million charge for the impairment of goodwill attributed to Membership Products (see “—Results of Operations”). In addition, Segment EBITDA for the year ended December 31, 2013 was adversely impacted by $11.7 million of general and administrative expenses related to the refinancing of ~~the~~Affinion’s 2006 senior subordinated notes. Profit sharing receivables from insurance carriers generated cash flows in 2014 that were $26.0 million more favorable than in 2013, primarily due to the transition of a portion of the insurance business to carriers with whom the Company does not have profit sharing arrangements.

Investing Activities

We used $19.8 million more cash in investing activities during the year ended December 31, 2014 as compared to the year ended December 31, 2013. During the year ended December 31, 2014, we used $51.0 million for capital expenditures and $22.0 million for acquisition-related payments. During the year ended December 31, 2013, we used $46.3 million for capital expenditures and $3.6 million for acquisition-related payments.

Financing Activities

We generated $43.8 million more cash from financing activities during the year ended December 31, 2014 as compared to the year ended December 31, 2013. During the year ended December 31, 2014, we had net repayments under our revolving credit facility of $41.0 million, refinanced a portion of our debt resulting in new second-lien term loan borrowings of $425.0 million and repayments of our term loan debt of $311.6 million, paid financing costs of $21.9 million and made other principal payments on our debt of $4.5 million. During the year ended December 31, 2013, we had net borrowings under our revolving credit facility of $46.0 million, made principal payments on our debt of $11.8 million and paid financing costs of $10.7 million in connection with the exchange of our 2006 senior subordinated notes. In addition, during the year ended December 31, 2013, we made payments to our parent company of $26.2 million.

Cash Flows – Years Ended December 31, 2013 and 2012

At December 31, 2013, we had $19.6 million of cash and cash equivalents on hand, a decrease of $12.9 million from $32.5 million at December 31, 2012. The following table summarizes our cash flows and compares changes in our cash and cash equivalents on hand to the same period in the prior year.

	Year Ended December 31,
	2013			2012			Change
	(in millions)
Cash provided by (used in):
Operating activities	$	41.5		$	68.9		$	(27.4	)
Investing activities		(51.1	)		(68.3	)		17.2
Financing activities		(3.3	)		(55.1	)		51.8
Effect of exchange rate changes		—		0.7				(0.7	)
Net change in cash and cash equivalents	$	(12.9	)	$	(53.8	)	$	40.9

Operating Activities

During the year ended December 31, 2013, we generated $27.4 million less cash from operating activities than during the year ended December 31, 2012. Segment EBITDA decreased by $42.5 million for the year ended December 31, 2013 as compared to the year ended December 31, 2012, which includes the favorable impact of the absence in 2013 of the impairment of goodwill and other long-lived assets of Prospectiv of $39.7 million recorded in 2012 and the unfavorable impact of the absence in 2013 of the reversal of the liability for additional consideration for the Prospectiv acquisition based on the earn-out of $14.6 million recorded in 2012 (see “—Results of Operations”). In addition, Segment EBITDA for the year ended December 31, 2013 was adversely impacted by $11.7 million of general and administrative expenses related to the refinancing of the 2006 senior subordinated notes. During the year ended December 31, 2013, deferred revenue generated cash flows that were $28.1 million more favorable due to the lessening impact of the continued shift from annual memberships to monthly memberships and lower membership levels, and receivables generated cash flows that were $18.5 million more favorable, due to a decline in the December 31, 2013 receivable balance resulting from a reduction in the global retail membership base.

Investing Activities

We used $17.2 million less cash in investing activities during the year ended December 31, 2013 as compared to the year ended December 31, 2012. During the year ended December 31, 2013, we used $46.3 million for capital expenditures and $3.6 million for acquisition-related payments. During the year ended December 31, 2012, we used $51.7 million for capital expenditures and $13.5 million for acquisition-related payments.

Financing Activities

We used $51.8 million less cash in financing activities during the year ended December 31, 2013 as compared to the year ended December 31, 2012. During the year ended December 31, 2013, we had net borrowings under our revolving credit facility of $46.0 million, made principal payments on our debt of $11.8 million and paid financing costs of $10.7 million in connection with the exchange of our 2006 senior subordinated notes. In addition, during the year ended December 31, 2013, we made payments to our parent company of $26.2 million. During the year ended December 31, 2012, we paid dividends to our parent company of $37.0 million, made principal payments on borrowings of $11.8 million and paid financing costs in connection with a debt amendment to our senior secured credit facility of $6.3 million.

Credit Facilities and Long-Term Debt

As a result of the Apollo Transactions, we became a highly leveraged company, and we have incurred additional indebtedness and refinancing indebtedness since the Apollo Transactions. In April 2010, we entered into an amended and restated senior secured credit facility comprised of an $875.0 million term loan and a $125.0 million revolving credit facility. In December 2010, we entered into an agreement with two of our lenders resulting in an increase in the revolving credit facility to $165.0 million. In February 2011, we incurred incremental borrowings of $250.0 million under our term loan facility. In May 2014, we entered into an amendment to our senior secured credit facility that resulted in decreasing our revolving credit facility to $80.0 million and increasing our term loan borrowings to approximately $1.2 billion.General

InAs ~~December~~a ~~2013,~~result ~~we and Affinion Holdings completed exchange offers and consent solicitations pursuant to which, among other things, (i) $352.9 million principal amount~~ of ~~our 2006 senior subordinated notes were exchanged by~~ the ~~holders~~Apollo ~~thereof~~Transactions, ~~for~~we ~~$360.0~~became ~~million~~a ~~principal~~highly ~~amount~~leveraged ~~of Investments 2013 senior subordinated notes issued by our wholly-owned subsidiary~~company, ~~Affinion~~and ~~Investments, LLC (“Affinion Investments”), (ii)~~ we ~~issued~~continue ~~$360.0 million principal amount of 2013 senior subordinated notes~~ to ~~Affinion~~be ~~Investments~~a inhighly ~~exchange~~leveraged ~~for~~company. ~~all~~As of ~~our~~December ~~2006~~31, ~~senior subordinated notes received by it in the exchange offer~~2015, ~~and (iii)~~ we ~~entered~~had ~~into~~approximately a$1.8 ~~supplemental~~billion ~~indenture pursuant to which substantially all of the restrictive covenants were eliminated~~ in ~~the indenture governing our 2006 senior subordinated notes~~indebtedness.

60At December 31, 2015, on a consolidated basis, Affinion had $761.4 million outstanding under Affinion’s first lien term loan ($780.0 million, including carrying value adjustment), $425.0 million outstanding under Affinion’s second lien term loan ($428.1 million including carrying value adjustment), $475.0 million ($528.6 million including discount and carrying value adjustment) outstanding under Affinion’s 2010 senior notes, $22.6 million outstanding under Affinion’s 2013 senior subordinated notes and $110.0 million outstanding under the International Notes ($132.0 million including carrying value adjustment). At December 31, 2015, there were no borrowings outstanding under Affinion’s revolving credit facility and Affinion had $67.0 million available under the revolving credit facility after giving effect to the issuance of $13.0 million of letters of credit.

As of December 31, ~~2014~~2015, weAffinion’s ~~had~~senior ~~approximately~~secured ~~$2.0~~credit ~~billion~~facility inand ~~indebtedness.~~the ~~Payments~~indentures ~~required~~governing toAffinion’s ~~service~~2010 ~~this~~senior ~~indebtedness~~notes ~~have~~and ~~substantially~~the ~~increased~~International ~~our~~Notes ~~liquidity~~contained ~~requirements~~various asrestrictive ~~compared~~covenants tothat ~~prior~~apply ~~years~~to ~~due~~Affinion. toAs ~~higher~~of ~~principal~~December ~~amounts~~31, ~~and~~2015, ~~higher~~Affinion ~~interest~~was ~~rates~~in ~~associated~~compliance with the ~~new~~restrictive ~~indebtedness~~covenants ~~incurred~~under inAffinion’s ~~December~~debt ~~2013~~agreements. ~~and~~In ~~the~~connection ~~related~~with ~~amendment~~the to2015 ~~our~~Exchange ~~senior~~Offers, ~~secured~~the ~~credit~~holders ~~facility~~consented ~~that~~to ~~increased~~ the ~~applicable~~removal ~~margins~~of ~~and~~all of the ~~May~~restrictive ~~2014~~covenants ~~amendment~~and tocertain ~~our~~of ~~senior~~the ~~secured~~default ~~credit~~provisions ~~facility~~from ~~that~~the ~~included~~indenture governing the ~~issuance~~Investments ofsenior ~~second~~subordinated ~~lien~~notes ~~term~~and ~~debt~~the asnote ~~well~~agreement asgoverning ~~first~~Affinion’s ~~lien~~2013 ~~term~~senior ~~debt~~subordinated notes.

AsAffinion’s ~~part~~Senior ofSecured ~~the~~Credit Apollo Transactions, we (a) issued $270.0 million principal amount of 10 1/8% senior notes due October 15, 2013 ($266.4 million net of discount) on October 17, 2005 and an additional $34.0 million aggregate principal amount of follow on senior notes on May 3, 2006 (collectively, the “2005 senior notes”), (b) entered into our senior secured credit facility, consisting of a term loan facility in the principal amount of $860.0 million (which amount does not reflect the $231.0 million in principal prepayments that we made prior to amendment and restatement of the senior secured credit facility in April 2010) and a revolving credit facility in an aggregate amount of up to $100.0 million and (c) entered into a senior subordinated bridge loan facility in the principal amount of $383.6 million. Facility

~~Our senior subordinated bridge loan facility was refinanced in part with the proceeds from the offering of 2006 senior subordinated notes.~~ On April 269, ~~2006~~2010, weAffinion, ~~issued~~as ~~$355.5~~borrower, ~~million aggregate principal amount of 2006 senior subordinated notes~~ and ~~applied~~Affinion ~~the~~Holdings, ~~gross~~as ~~proceeds~~a ofguarantor, ~~$350.5~~entered ~~million~~into toa ~~repay~~ $~~349~~1.50 ~~million~~billion ofamended ~~outstanding~~and ~~borrowings~~restated ~~under our~~ senior ~~subordinated~~secured ~~loan~~credit facility, ~~plus accrued interest, and used cash on hand to pay fees and expenses associated~~ with ~~such~~its ~~issuance.~~lenders ~~The~~(consisted ~~interest on our 2006 senior subordinated notes is payable semi-annually. We may redeem some or all~~ of ~~the 2006 senior subordinated notes at the redemption prices (generally at~~ a ~~premium)~~five-year ~~set forth in the agreement governing the 2006 senior subordinated notes~~$125.0 million ~~The~~revolving ~~2006~~credit ~~senior~~facility ~~subordinated~~and ~~notes~~an ~~are unsecured obligations~~$875.0 Atmillion ~~December~~term ~~31,~~loan ~~2014~~facility), ~~the~~which ~~2006~~amended ~~senior~~and ~~subordinated~~restated ~~notes~~its ~~were~~prior ~~guaranteed by certain, but not all, subsidiaries that guarantee our 2010~~ senior ~~notes~~secured ascredit ~~discussed~~facility. inWe ~~Note~~refer 18 to ~~our audited consolidated financial statements included elsewhere herein. In December 2013,~~ Affinion’s ~~Investments~~amended ~~exchanged~~and ~~$352.9~~restated ~~million face amount of our outstanding 2006~~ senior ~~subordinated~~secured ~~notes~~credit ~~for~~facility, ~~$360.0~~as ~~million~~amended ~~face~~from ~~amount~~time ~~Investments~~to ~~2013~~time, ~~senior~~including ~~subordinated~~by ~~notes.~~the ~~Affinion~~Incremental ~~Investments~~Assumption ~~then~~Agreements ~~exchanged~~(as ~~with~~defined ~~the~~below) ~~Company~~and ~~all of~~ the ~~2006~~May ~~senior~~2014 ~~subordinated~~Amendment ~~notes~~(as ~~received~~defined bybelow) itas ~~in the exchange offer for the Company~~“Affinion’s ~~2013~~ senior ~~subordinated~~secured ~~notes~~credit facility.”

On ~~April~~December 913, 2010, ~~the Company~~Affinion, as borrower, Affinion Holdings and certain of Affinion’s ~~Holdings~~subsidiaries entered into an Incremental Assumption Agreement with two of Affinion’s lenders (the “Revolver Incremental Assumption Agreement,” asand together with the Term Loan Incremental Assumption Agreement, the “Incremental Assumption Agreements”) which resulted in an increase in the revolving credit facility from $125.0 million to $160.0 million, with a ~~guarantor~~further increase to $165.0 million in January 2011. On February 11, 2011, Affinion, as borrower, Affinion Holdings and certain of Affinion’s subsidiaries entered into, aand simultaneously closed under, the Term Loan Incremental Assumption Agreement, which resulted in an increase in the term loan facility from $1875.0 million to $1.125 billion. ~~amended~~On November 20, 2012, Affinion, as Borrower, and ~~restated~~Affinion Holdings entered into an amendment to Affinion’s senior secured credit facility, ~~with~~which ~~its~~(i) increased ~~lenders,~~the ~~amending~~margins ~~our~~on ~~senior~~LIBOR ~~secured~~loans ~~credit~~from ~~facility~~3.50% Weto ~~refer~~5.00% and on base rate loans from 2.50% to 4.00%, (ii) replaced the ~~amended~~financial ~~and~~covenant ~~restated~~requiring Affinion to maintain a maximum consolidated leverage ratio with a financial covenant requiring Affinion to maintain a maximum senior secured ~~credit~~leverage ~~facility~~ratio, asand ~~amended~~(iii) adjusted ~~from~~the ~~time~~ratios under the financial covenant requiring Affinion to ~~time~~maintain a minimum interest coverage ratio. On December 12, ~~including~~2013, byin connection with the ~~Incremental~~refinancing ~~Assumption~~of ~~Agreements~~Affinion’s ~~(as~~2006 ~~defined~~senior ~~below)~~subordinated notes and ~~the~~Affinion ~~May~~Holdings’ ~~2014~~2010 ~~amendment~~senior notes, Affinion, as ~~“our~~Borrower, ~~senior~~and ~~secured~~Affinion ~~credit~~Holdings, ~~facility.”~~entered ~~Our~~into an amendment to Affinion’s senior secured credit facility, ~~initially~~which ~~consisted~~(i) provided permission for the consummation of athe ~~five-year~~exchange ~~$125.0 million~~offers ~~revolving~~for ~~credit~~Affinion’s ~~facility~~2006 senior subordinated notes and anAffinion ~~$875.0~~Holdings’ ~~million~~2010 senior notes, (ii) removed the springing maturity provisions applicable to the term loan facility., (iii) modified the senior secured leverage ratio

On December 13, 2010, the Company, as borrower, Affinion Holdings and certain of the Company’s subsidiaries entered into an Incremental Assumption Agreement with two of its lenders (the “Revolver Incremental Assumption Agreement,” and together with the Term Loan Incremental Assumption Agreement, the “Incremental Assumption Agreements”) which resulted in an increase in the revolving credit facility from $125.0 million to $160.0 million, with a further increase to $165.0 million in January 2011. On February 11, 2011, the Company, as borrower, and Affinion Holdings, and certain of the Company’s subsidiaries entered into, and simultaneously closed under, the Term Loan Incremental Assumption Agreement, which resulted in an increase in the term loan facility from $875.0 million to $1.125 billion. On November 20, 2012, the Company, as borrower, and Affinion Holdings entered into an amendment to our senior secured 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 our 2006 senior subordinated notes and Affinion Holdings’ 2010 senior notes, the Company, as Borrower, and Affinion Holdings, entered into an amendment to our senior secured credit facility, which (i) provided permission for the consummation of the exchange offers for our 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 our senior secured credit facility, (iv) provided additional flexibility for us to make dividends to Affinion Holdings to be used to make certain payments with respect to Affinion Holdings’ indebtedness and to repay, repurchase or redeem subordinated indebtedness of the Company, and (v) increased the interest 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 the Company 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 our senior secured credit facility, which (i) extended the maturity to April 30, 2018 of $775.0 million in aggregate principal amount of existing senior secured term loan 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. Our senior secured 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% , in each case plus 6.00%. The weighted average interest rate on the term loan for the period from January 1, 2014 through May 20, 2014 and years ended December 31, 2013 and 2012 was 6.8%, 6.6% and 5.2% per annum, respectively. The weighted average interest rate on the First Lien Term Loan and Second Lien Term Loan for the period from May 20, 2014 through December 31, 2014 was 6.8% and 8.5%, respectively. The weighted average interest rate on revolving credit facility borrowings for the years ended December 31, 2014, 2013 and 2012 was 7.2%, 7.1% and 5.7%, respectively. Our obligations under our senior secured credit facility are, and our 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 our existing and subsequently acquired or organized domestic subsidiaries, subject to certain exceptions. Our senior secured credit facility is secured to the extent legally permissible by substantially all the assets of (i) Affinion Holdings, which consists of a pledge of all our capital stock and (ii) us and the subsidiary guarantors, including but not limited to: (a) a pledge of substantially all capital stock held by us or any subsidiary guarantor and (b) security interests in substantially all tangible and intangible assets of us and each subsidiary guarantor, subject to certain exceptions. Our senior secured credit facility also contains financial, affirmative and negative covenants. The negative covenants in our senior secured credit facility include, among other things, limitations (all of which are subject to certain exceptions) on our (and in certain cases, Affinion Holdings’) ability to declare dividends and make other distributions, redeem or repurchase our capital stock; prepay, redeem or repurchase certain of our subordinated indebtedness; make loans or investments (including acquisitions); incur additional indebtedness (subject to certain exceptions); enter into agreements that would restrict the ability of our subsidiaries to pay dividends; merge or enter into acquisitions; sell our assets; and enter into transactions with our affiliates. The senior secured credit facility also requires us to comply with a financial maintenance covenant with a maximum ratio of senior secured debt (as defined in our senior secured credit facility) to EBITDA (as defined in our senior secured credit facility) of 4.25:1.00. A portion of the April 2010 proceeds of the term loan under our senior secured credit facility were utilized to repay the outstanding balance of the then existing senior secured term loan, including accrued interest, of $629.7 million and pay fees and expenses of approximately $27.0 million. Any borrowings under the revolving credit facility are available to fund our working capital requirements, capital expenditures and for other general corporate purposes.

On November 19, 2010, the Company completed a private offering of $475.0 million aggregate principal amount of 2010 senior notes providing net proceeds of $471.5 million. 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 its senior secured 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 its senior secured 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 2013 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. The Company used substantially all of the net proceeds of the offering of the 2010 senior notes to repay all of the 2005 senior notes and the 2009 senior notes.

Onfinancial ~~December~~covenant ~~12,~~in ~~2013, the Company completed a private offer to exchange the Company~~Affinion’s ~~2006~~ senior ~~subordinated~~secured ~~notes~~credit ~~for Investments 2013 senior subordinated notes~~facility, ~~pursuant~~(iv) toprovided ~~which~~additional ~~$360.0~~flexibility ~~million aggregate principal amount of Investments 2013 senior subordinated notes were issued in exchange~~ for ~~$352.9~~Affinion ~~million~~to ~~aggregate~~make ~~principal~~dividends ~~amount~~to ofAffinion ~~2006~~Holdings ~~senior~~to ~~subordinated~~be ~~notes.~~used ~~Under~~to ~~the~~make ~~terms~~certain ofpayments ~~the~~with ~~exchange~~respect ~~offer,~~to ~~for~~Affinion ~~each~~Holdings’ ~~$1,000~~indebtedness ~~principal~~and ~~amount of 2006 senior subordinated notes tendered at or prior~~ to ~~the consent time~~repay, ~~holders~~repurchase ~~received~~or ~~$1,020~~redeem ~~principal~~subordinated ~~amount~~indebtedness of ~~Investments 2013 senior subordinated notes. For each $1~~Affinion,~~000~~ ~~principal~~and ~~amount~~(v) ofincreased ~~2006 senior subordinated notes tendered during~~ the ~~offer~~interest ~~period~~margins ~~but~~by ~~after the consent period, holders received $1,000 principal amount of Investments 2013 senior subordinated notes~~0.25% ~~The~~to ~~Investments 2013 senior subordinated notes bear interest at 13~~5.5025% ~~per~~ ~~annum, payable semi-annually~~ on ~~February 15~~LIBOR loans and ~~August 15~~4.25% ~~of each year, commencing~~ on ~~February 15,~~base ~~2014~~rate loans. The ~~Investments~~amendment ~~2013~~became ~~senior~~effective ~~subordinated~~upon ~~notes~~the ~~will~~satisfaction ~~mature on August 15, 2018. Affinion Investments may redeem some or all~~ of the ~~Investments~~conditions ~~2013~~precedent ~~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 2013 senior subordinated notes. In addition~~therein, ~~prior~~including ~~to December 12, 2016, up to 35% of~~ the ~~outstanding~~payment ~~Investments 2013 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~~consent ~~2013~~fee ~~senior subordinated notes are redeemable, in whole or in part, at a redemption price~~ equal to ~~100~~0.25% of the ~~principal~~sum ~~amount~~ of ~~the~~(i) ~~Investments 2013 senior subordinated notes redeemed plus a “make-whole” premium. The indenture governing~~ the ~~Investments~~aggregate ~~2013~~principal ~~senior~~amount ~~subordinated notes contains negative covenants which restrict the ability~~ of ~~Affinion~~all ~~Investments,~~term ~~any~~loans ~~future restricted subsidiaries of Affinion Investments~~ and ~~one~~(ii) of the ~~Company’s~~revolving ~~other~~loan ~~wholly-owned~~commitments ~~subsidiaries~~in ~~that~~effect, ~~guarantees the Investments 2013 senior subordinated notes to engage~~ in ~~certain~~each ~~transactions~~case, ~~and~~held ~~also~~by ~~contains~~each ~~customary~~lender ~~events~~that ofentered ~~default.~~into ~~Affinion Investments’ obligations under~~ the ~~Investments~~amendment ~~2013 senior subordinated notes are guaranteed~~ on ~~an unsecured senior subordinated basis by Affinion Investments II, LLC (“Affinion Investments II”). Each of Affinion Investments and Affinion Investments II is an unrestricted subsidiary of~~ the ~~Company~~date and guarantees the Company’s indebtedness under its senior secured credit facility but does not guarantee the Company’s other indebtedness. The Investments 2013 senior subordinated notes and guarantee thereof are unsecured senior subordinated obligations of ~~Affinion~~effectiveness ~~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~~amendment.

On ~~December~~May 1220, ~~2013~~2014, Affinion, ~~Investments~~as ~~exchanged~~borrower, ~~with~~and ~~the~~Affinion ~~Company~~Holdings ~~all~~entered ofinto ~~the~~an ~~2006~~amendment ~~senior~~to ~~subordinated notes received by it in the exchange offer for~~ Affinion’s ~~2013~~ senior ~~subordinated~~secured ~~notes.~~credit ~~Affinion’s~~facility ~~2013~~(the ~~senior~~“May ~~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~~Amendment”), ~~2018.~~which ~~The~~(i) ~~2013~~extended ~~senior subordinated notes are redeemable at~~ the ~~Company’s~~maturity ~~option prior~~ to ~~maturity.~~April ~~The~~30, ~~indenture~~2018 ~~governing the 2013 senior subordinated notes contains negative covenants which restrict the ability~~ of ~~Affinion~~$775.0 million ~~and its restricted subsidiaries to engage~~ in ~~certain~~aggregate ~~transactions~~principal ~~and~~amount ~~also contains customary events~~ of ~~default.~~existing ~~Affinion’s obligations under the 2013~~ senior ~~subordinated~~secured ~~notes~~term ~~are~~loan ~~jointly~~ and ~~severally~~existing ~~and fully and unconditionally guaranteed on an unsecured~~ senior ~~subordinated~~secured ~~basis~~revolving byloans, ~~each~~which ofloans ~~Affinion’s~~were ~~existing~~designated ~~and~~as ~~future~~first ~~domestic~~lien ~~subsidiaries~~term ~~that~~loans, ~~guarantee Affinion’s indebtedness under its senior secured credit facility~~ (~~other than Affinion Investments and Affinion Investments II~~ii). ~~The~~extended ~~2013~~the ~~senior~~maturity ~~subordinated~~to ~~notes~~October ~~and~~31, ~~guarantees~~2018 ~~thereof are unsecured senior subordinated obligations~~ of ~~Affinion’s~~$377.9 ~~and~~million ~~rank~~in ~~junior~~aggregate toprincipal ~~all~~amount of ~~Affinion’s and the guarantors’~~ existing ~~and future~~ senior ~~indebtedness,~~secured ~~pari~~term ~~passu~~loans ~~with~~on ~~Affinion’s~~a ~~2006~~second ~~senior~~lien ~~subordinated notes and~~ senior tosecured ~~Affinion’s~~basis, ~~and~~which, ~~the~~together ~~guarantors’~~with ~~future~~additional ~~subordinated~~borrowings ~~indebtedness.~~obtained ~~Although~~on ~~Affinion Investments is~~ the ~~only~~same ~~holder~~terms, oftotal ~~the~~$425.0 ~~Affinion 2013 senior subordinated notes~~million, ~~the~~(iii) ~~trustee~~extended ~~for~~ the ~~Investments~~maturity ~~2013~~to ~~senior~~January ~~subordinated notes~~29, ~~and~~2018 ~~holders~~ of at$80.0 million ~~least 25%~~ of the ~~principal~~commitments ~~amount~~(and ofrelated ~~the Investments~~obligations) ~~2013~~under ~~senior subordinated notes will have~~ the ~~right~~existing assenior ~~third~~secured ~~party~~revolving ~~beneficiaries~~credit tofacility ~~enforce~~on ~~the~~a ~~remedies~~first ~~available~~lien tosenior ~~Affinion~~secured ~~Investments against Affinion~~basis, ~~and~~(iv) reduced ~~Affinion Investments will not be able to amend~~ the ~~covenants~~commitments inunder the ~~note~~existing ~~agreement governing the Investments 2013~~ senior ~~subordinated~~secured ~~notes~~revolving incredit ~~favor~~facility ofby ~~Affinion~~$85.0 ~~unless~~million itand ~~has~~(v) removed ~~received consent from~~ the ~~holders~~existing offinancial acovenant ~~majority~~requiring ofAffinion ~~the~~to ~~aggregate~~maintain ~~principal~~a ~~amount~~minimum ofinterest ~~the~~coverage ~~outstanding Investments 2013 senior subordinated notes~~ratio.

InAffinion’s ~~connection~~revolving credit facility includes a letter of credit subfacility and a swingline loan subfacility. Affinion’s first lien term loan facility matures in April 2018 and Affinion’s second lien term loan facility matures in October 2018. Affinion’s first lien term loan facility provides for quarterly amortization payments totaling 1% per annum, with the ~~exchange~~balance ~~offer~~payable upon the final maturity date. Affinion’s second lien term loan facility does not provide for quarterly amortization payments. Affinion’s senior secured credit facility also requires mandatory prepayments of the outstanding term loans based on excess cash flow (as defined), if any, and ~~consent~~the ~~solicitation~~proceeds ~~relating~~from certain specified transactions. The interest rates with respect to ~~the~~Affinion’s ~~2006~~first ~~senior~~lien ~~subordinated~~term ~~notes~~loan and revolving loans under Affinion’s senior secured credit facility are based on, at Affinion’s option, (a) the ~~issuance~~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 Affinion’s ~~2013~~second lien term loan under Affinion’s senior ~~subordinated~~secured ~~notes~~credit facility are based on, at Affinion’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 ~~incurred~~Americas’ $prime rate, (ii) the Federal Funds Effective Rate plus 0.5% and (iii) 2.950%, ~~million~~in each case plus 6.00%. The weighted average interest rate on the term loan for the period from January 1, 2014 through May 20, 2014 and for the year ended December 31, 2013 was 6.75% per annum. The weighted average interest rate on the first lien term loan and second lien term loan for the year ended December 31, 2015 and for the period from May 20, 2014 through December 31, 2014 was 6.75% and 8.50%, respectively. The weighted average interest rate on revolving credit facility borrowings for the years ended December 31, 2015, 2014 and 2013 was 7.2%, 7.2% and 7.1%, respectively. Affinion’s obligations under its senior secured credit facility are, and Affinion’s obligations under any interest rate protection or other hedging arrangements entered into with a lender or any of ~~financing~~its ~~costs~~affiliates will be, guaranteed by Affinion Holdings and by each of Affinion’s existing and subsequently acquired or organized domestic subsidiaries, subject to certain exceptions. Affinion’s senior secured credit facility is secured to the extent legally permissible by substantially all the assets of (i) Affinion Holdings, which ~~have~~consists ~~been~~of ~~included~~a pledge of all of Affinion’s capital stock and (ii) Affinion and the subsidiary guarantors, including but not limited to: (a) a pledge of substantially all capital stock held by Affinion or any subsidiary guarantor and (b) security interests in ~~general~~substantially all tangible and ~~administrative~~intangible ~~expenses~~assets of Affinion and each subsidiary guarantor, subject to certain exceptions. Affinion’s senior secured credit facility also contains financial, affirmative and negative covenants. The negative covenants in Affinion’s senior secured credit facility include, among other things, limitations (all of which are subject to certain exceptions) on Affinion’s (and in certain cases, Affinion Holdings’) ability to declare dividends and make other distributions, redeem or repurchase its capital stock; prepay, redeem or repurchase certain of Affinion’s subordinated indebtedness; make loans or investments (including acquisitions); incur additional indebtedness (subject to certain exceptions); enter into agreements that would restrict the ~~accompanying~~ability ~~consolidated~~of ~~statement~~Affinion’s subsidiaries to pay dividends; merge or enter into acquisitions; sell Affinion’s assets; and enter into transactions with its affiliates. Affinion’s senior secured credit facility also requires Affinion to comply with a financial maintenance covenant with a maximum ratio of ~~comprehensive~~senior ~~income~~secured debt (as defined in Affinion’s senior secured credit facility) to EBITDA (as defined in Affinion’s senior secured credit facility) of 4.25:1.00. A portion of the April 2010 proceeds of the term loan under Affinion’s senior secured credit facility were utilized to repay the outstanding balance of its then existing senior secured term loan, including accrued interest, of $629.7 million and pay fees and expenses of approximately $27.0 million. Any borrowings under the revolving credit facility are available to fund Affinion’s working capital requirements, capital expenditures and for other general corporate purposes.

AtAffinion’s December 31, 2014, on a consolidated basis, the Company had $769.2 million outstanding under the First Lien Term Loans, $425.0 million outstanding under the Second Lien Term Loans, $475.0 million ($473.3 million net of discount) outstanding under the 2010 ~~senior~~Senior notes, $2.6 million outstanding under the 2006 senior subordinated notes and $360.0 million ($353.3 million net of discount) outstanding under the 2013 senior subordinated notes. At December 31, 2014, there was $5.0 million outstanding under the revolving credit facility and the Company had $61.7 million available under the revolving credit facility after giving effect to the issuance of $13.3 million of letters of credit. Notes

On November 19, 2010, Affinion completed a private offering of $475.0 million aggregate principal amount of Affinion’s 2010 senior notes providing net proceeds of $471.5 million. Affinion’s 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. Affinion’s 2010 senior notes will mature on December 15, 2018. Affinion’s 2010 senior notes are redeemable at Affinion’s option prior to maturity. The indenture governing Affinion’s 2010 senior 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 Affinion’s 2010 senior notes are jointly and severally and fully and unconditionally guaranteed on a senior unsecured basis by each of Affinion’s existing and future domestic subsidiaries that guarantee Affinion’s indebtedness under Affinion’s senior secured credit facility (other than Affinion Investments and Affinion Investments II, LLC (“Affinion Investments II”)). Affinion’s 2010 senior notes and guarantees thereof are senior unsecured obligations of Affinion and rank equally with all of Affinion’s and the guarantors’ existing and future senior indebtedness and senior to Affinion’s and the guarantors’ existing and future subordinated indebtedness. Affinion’s 2010 senior notes are therefore effectively subordinated to Affinion’s and the guarantors’ existing and future secured indebtedness, including Affinion’s obligations under Affinion’s senior secured credit facility, to the extent of the value of the collateral securing such indebtedness. Affinion’s 2010 senior notes are structurally subordinated to all indebtedness and other obligations of each of Affinion’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 Affinion’s 2010 senior notes, Affinion completed a registered exchange offer and exchanged all of Affinion’s then-outstanding 2010 senior notes for a like principal amount of Affinion’s 2010 senior notes that have been registered under the Securities Act of 1933, as amended (the “Securities Act”).

December 2013 Exchange Offers

In December 2013, Affinion Holdings and Affinion completed exchange offers and consent solicitations pursuant to which, among other things, (i) $292.8 million principal amount of Affinion Holdings’ 2010 senior notes were exchanged by the holders thereof for $292.8 million principal amount of Affinion Holdings’ 2013 senior notes, 13.5 million Series A Warrants and 70.2 million Series B Warrants, (ii) $352.9 million principal amount of Affinion’s 2006 senior subordinated notes were exchanged by the holders thereof for $360.0 million principal amount of the Investments senior subordinated notes issued by its wholly-owned subsidiary, Affinion Investments, (iii) Affinion issued $360.0 million principal amount of Affinion’s 2013 senior subordinated notes to Affinion Investments in exchange for all of Affinion’s 2006 senior subordinated notes received by it in the exchange offer, (iv) Affinion Holdings entered into a supplemental indenture pursuant to which substantially all of the restrictive covenants were eliminated in the indenture governing Affinion Holdings’ 2010 senior notes, and (v) Affinion entered into a supplemental indenture pursuant to which substantially all of the restrictive covenants were eliminated in the indenture governing Affinion’s 2006 senior subordinated notes.

Prior to the consummation of the 2015 Exchange Offers, (a) the Series A Warrants were exercisable at any time at the option of the holders at an exercise price of $0.01 per share of Class B Common Stock and would have expired on December 12, 2023 and (b) the Series B Warrants were not exercisable until and unless on December 12, 2017, 5% or more in aggregate principal amount of Affinion Holdings’ 2013 senior notes were then outstanding and unpaid, whereupon, if it were ever to occur, the Series B Warrants would have been exercisable from December 12, 2017 through December 12, 2023 at an exercise price of $0.01 per share of Class B Common Stock.

In connection with the December 2013 exchange, Affinion Holdings recognized a loss of $4.6 million, representing the write-off of unamortized debt issuance costs and discounts of $2.8 million and $1.8 million, respectively. In connection with the exchange offer and consent solicitation relating to Affinion Holdings’ 2010 senior notes and the issuance of the Affinion Holdings’ 2013 senior notes, Affinion Holdings incurred financing costs of $4.7 million. In connection with the exchange offer and consent solicitation relating to Affinion’s 2006 senior subordinated notes and the issuance of Affinion’s 2013 senior subordinated notes, Affinion incurred financing costs of $5.9 million, which are included in other non-current assets on the accompanying consolidated balance sheet and are being amortized over the term of Affinion’s 2013 senior subordinated notes.

Payments required to service the additional indebtedness incurred in December 2013 substantially increased our liquidity requirements as compared to prior years due to higher principal amounts and higher interest rates associated with the new indebtedness incurred in December 2013 and the related amendment to Affinion’s senior secured credit facility that increased the applicable margins and the May 2014 Amendment to Affinion’s senior secured credit facility that included the issuance of second lien term debt as well as first lien term debt.

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 Affinion 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 contained negative covenants which restrict the ability of Affinion Investments, any future restricted subsidiaries of Affinion Investments and one of Affinion’s other wholly-owned subsidiaries that guarantees the Investments senior subordinated notes to engage in certain transactions

and also contained 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 Affinion and guarantees Affinion’s indebtedness under its senior secured credit facility but does not guarantee Affinion’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 Affinion’s senior secured credit facility. Following the consummation of the 2015 Investments Exchange Offer, approximately $22.6 million principal amount of Investments senior subordinated notes were outstanding. In connection with the 2015 Investments Exchange Offer, the holders consented to the removal of all of the restrictive covenants and certain of the default provisions in the indenture governing the Investments senior subordinated notes.

Affinion’s 2013 Senior Subordinated Notes

On December 12, 2013, Affinion Investments exchanged with Affinion all of Affinion’s 2006 senior subordinated notes received by it in the exchange offer for 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. Affinion’s 2013 senior subordinated notes will mature on August 15, 2018. Affinion’s 2013 senior subordinated notes are redeemable at Affinion’s option prior to maturity. The indenture governing Affinion’s 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 Affinion’s 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). Affinion’s 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 Affinion’s 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. In connection with the 2015 Exchange Offers, the holders consented to the removal of all of the restrictive covenants and certain of the default provisions from the note agreement governing Affinion’s 2013 senior subordinated notes.

June 2014 Exchange Offer

On June 9, 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 Series A Warrants to purchase up to approximately 30.3 million shares of Affinion Holdings’ Class B Common Stock. In addition, on June 9, 2014, in connection with a pre-emptive rights offer, Affinion Holdings issued Series A Warrants to purchase up to approximately 1.2 million shares of Affinion Holdings’ Class B Common Stock in exchange for cash proceeds of approximately $3.8 million.

2015 Exchange Offers and 2015 Rights Offering

On November 9, 2015, (a) Affinion Holdings completed the 2015 Holdings Exchange Offer to exchange its outstanding 2013 senior notes for shares of Common Stock of Affinion Holdings, (b) Affinion Investments completed the 2015 Investments Exchange Offer to exchange its outstanding Investments senior subordinated notes for shares of Common Stock of Affinion Holdings, and (c) Affinion Holdings and Affinion International, a wholly-owned subsidiary of Affinion, jointly completed the 2015 Rights Offering giving holders of Affinion Holdings’ 2013 senior notes and the Investments senior subordinated notes who fully participated in the 2015 Exchange Offers the right to purchase an aggregate principal amount of $110.0 million of International Notes and up to 2,483,333 shares of Common Stock for an aggregate cash purchase price of $110.0 million. Under the terms of the 2015 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 Common Stock. Under the terms of the 2015 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 Common Stock. Under certain circumstances, certain holders would have received Limited Warrants of Affinion Holdings that would have been convertible into shares of Common Stock upon certain conditions. Pursuant to the 2015 Holdings Exchange Offer, approximately $247.4 million of Affinion Holdings’ 2013 senior notes were exchanged for 1,769,104 shares of Common Stock and pursuant to the 2015 Investments Exchange Offer, approximately $337.3 million of Investments senior subordinated notes were exchanged for 5,236,517 shares of Common Stock. No Limited Warrants were issued in the 2015 Exchange Offers. Upon closing of the 2015 Exchange Offers, there remained outstanding approximately $13.1 million aggregate principal amount of Affinion Holdings’ 2013 senior notes and $22.6 million aggregate principal amount of Investments senior subordinated notes. In connection with the 2015 Investments Exchange Offer, Affinion paid $14.7 million for financing costs.

Immediately after the consummation of the 2015 Holdings Exchange Offer, (i) Affinion Holdings contributed to Affinion a number of shares of Common Stock sufficient to pay the consideration for the Investments senior subordinated notes in the 2015 Investments Exchange Offer; (ii) Affinion then used such shares of Common Stock to repurchase for cancellation its Affinion 2013 senior subordinated notes from Affinion Investments in the same principal amount as the principal amount of Investments senior subordinated notes accepted for exchange in the 2015 Investments Exchange Offer; and (iii) Affinion Investments then used such shares of Common Stock to repurchase for cancellation the tendered Investments senior subordinated notes.

Concurrently with the 2015 Exchange Offers, Affinion Holdings and Affinion Investments successfully solicited consents (the “2015 Consent Solicitations”) from holders to certain amendments to (a) the indenture governing Affinion Holdings’ 2013 senior notes to remove substantially all of the restrictive covenants and certain of the default provisions and to release the collateral securing Affinion Holdings’ 2013 senior notes, (b) the indenture governing the Investments senior subordinated notes to remove substantially all of the restrictive covenants and certain of the default provisions, and (c) the note agreement governing Affinion’s 2013 senior subordinated notes to remove substantially all of the restrictive covenants and certain of the default provisions and to permit the repurchase and cancellation of Affinion’s 2013 senior subordinated notes by Affinion in the same aggregate principal amount as the aggregate principal amount of the Investments senior subordinated notes repurchased or redeemed by Affinion Investments at any time, including pursuant to the 2015 Investments Exchange Offer.

In connection with the 2015 Exchange Offers, Affinion Holdings and Affinion International jointly conducted the 2015 Rights Offering for International Notes and shares of Common Stock. The 2015 Rights Offering was for an aggregate principal amount of $110.0 million of International Notes and up to 2,483,333 shares of Common Stock. Each unit sold in the 2015 Rights Offering consisted of (1) $1,000 principal amount of International Notes and (2) 22.57576 shares of Common Stock, and was sold at a purchase price per unit of $1,000. Each holder that properly tendered for exchange, and did not validly withdraw, all of their Affinion Holdings’ 2013 senior notes and the Investments senior subordinated notes in the 2015 Exchange Offers received non-certificated rights to subscribe for rights offering units. In connection with the 2015 Rights Offering, Empyrean Capital Partners, L.P. agreed to purchase any rights offering units that were unpurchased in the 2015 Rights Offering (the “Backstop”). Pursuant to the 2015 Rights Offering and the Backstop, Affinion International received cash of approximately $110.0 million in exchange for $110.0 million aggregate principal amount of International Notes and 2,021,042 shares of Common Stock and a Limited Warrant to purchase up to 462,266 shares of Common Stock. The net cash proceeds from the 2015 Rights Offering will be used for working capital purposes of Affinion International and the Foreign Guarantors (as defined below) and to repay certain intercompany loans owed by Affinion International to Affinion and its domestic subsidiaries. Affinion will use such intercompany loan repayment proceeds for general corporate purposes, including to repay borrowings under its revolving credit facility and to pay fees and expenses related to the 2015 Transactions.

Upon consummation of the 2015 Exchange Offers, 2015 Consent Solicitations and 2015 Rights Offering, Affinion Holdings effected the Reclassification as follows. Affinion Holdings’ existing Class A Common Stock (including Class A Common Stock issued as a result of a mandatory cashless exercise of all of its Series A Warrants) was converted into (i) shares of Affinion Holdings’ Class C Common Stock, that upon conversion will represent 5% of the outstanding shares of Common Stock on a fully diluted basis, and (ii) shares of Affinion Holdings’ Class D Common Stock, that upon conversion will represent 5% of the outstanding shares of Common Stock on a fully diluted basis. In addition, Affinion Holdings’ Series A Warrants and Affinion Holdings’ Class B Common Stock were eliminated from Affinion Holdings’ certificate of incorporation and Affinion Holdings’ Series B Warrants were cancelled for no additional consideration.

Upon consummation of the 2015 Exchange Offers, the Apollo Funds and General Atlantic ceased to have beneficial ownership of any Common Stock.

International Notes

The International Notes bear interest at 7.5% per annum, of which 3.5% per annum will be payable in cash (“International Cash Interest”) and 4.0% per annum will be payable by increasing the principal 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 International Notes will mature on July 30, 2018. The International Notes are redeemable at Affinion International’s option prior to maturity. The indenture governing the International Notes contains negative covenants which restrict the ability of Affinion International, Affinion and their respective restricted subsidiaries to engage in certain transactions and also contains customary events of default. Affinion International’s obligations under the International Notes are jointly and severally and fully and unconditionally guaranteed on an unsecured senior 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, and additionally including (such additional guarantors, the “Foreign Guarantors”) Affinion International Limited, Affinion International Travel HoldCo Limited, Webloyalty 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.

Covenant Compliance

Our senior secured credit facility and the indentures that govern ~~our~~Affinion’s 2010 senior notes and ~~our~~the ~~2013~~International ~~senior~~Notes ~~subordinated notes~~ contain various restrictive covenants. They prohibit us from prepaying indebtedness that is junior to such debt (subject to certain exceptions). Our senior secured credit facility requires us to maintain a specified maximum senior secured leverage ratio. The senior secured leverage ratio as defined in our senior secured credit facility (senior secured debt, as defined, to Adjusted EBITDA, as defined) must be equal to or less than 4.25 to 1.0 at December 31, ~~2014~~2015. In addition, our senior secured credit facility, among other things, restricts our ability to incur indebtedness or liens, make investments or declare or pay any dividends to our parent. The ~~indentures~~indenture governing ~~the~~Affinion’s 2010 senior notes ~~and the 2013 senior subordinated notes~~, among other things: (a) ~~limit~~limits our ability and the ability of our subsidiaries to incur additional indebtedness, incur liens, pay dividends or make certain other restricted payments and enter into certain transactions with affiliates; (b) ~~limit~~limits our ability to enter into agreements that would restrict the ability of our subsidiaries to pay dividends or make certain payments to us; and (c) ~~place~~places restrictions on our ability and the ability of our subsidiaries to merge or consolidate with any other person or sell, assign, transfer, convey or otherwise dispose of all or substantially all of our assets. However, all of these covenants are subject to significant exceptions. The indenture governing the International Notes contains covenants that, among other things, limit Affinion’s ability and the ability of its restricted subsidiaries to make certain asset sales or create liens. As of December 31, ~~2014~~2015, ~~the~~Affinion ~~Company~~ was in compliance with the restrictive covenants under its debt agreements and expects to be in compliance over the next twelve months.

We have the ability to incur additional debt, subject to limitations imposed by our senior secured credit facility and the indentures governing ~~our~~Affinion’s 2010 senior notes and ~~2013~~the ~~senior~~International ~~subordinated notes~~Notes. Under the ~~indentures~~indenture governing ~~our~~Affinion’s 2010 senior notes ~~and our 2013 senior subordinated notes~~, in addition to specified permitted indebtedness, we will be able to incur additional indebtedness as long as on a pro forma basis our fixed charge coverage ratio (the ratio of Adjusted EBITDA to consolidated fixed charges, as computed under such indentures) is at least 2.0 to 1.0.

Affinion International and its subsidiaries and the Foreign Guarantors and their subsidiaries had combined net revenues and EBITDA of $335.6 million and $41.8 million, respectively for the year ended December 31, 2015, which represented 28.7% and 33.4% of Affinion Group’s total net revenues and EBITDA, respectively, for the year ended December 31, 2015, compared to combined net revenues and EBITDA of $361.0 million and $7.4 million, respectively for the year ended December 31, 2014. Net revenues increased $25.0 million on a currency consistent basis primarily from higher retail membership revenue in our online acquisition channel associated with increased members and higher price points along with growth in the wholesale sector. These increases were more than offset by the unfavorable impact from foreign exchange of $50.4 million. EBITDA increased for the year ended December 31, 2015 as the lower net revenue of $25.4 million was more than offset by lower general and administration costs, lower marketing and commissions and lower operating costs. General and administrative costs decreased primarily due to a decrease in charges for legal reserves and fees related to the FCA inquiry and a benefit from foreign exchange. The lower marketing and commissions and lower operating costs were primarily attributable to a favorable impact of foreign exchange. The only reconciliation item between EBITDA of Affinion International and its subsidiaries and of the Foreign Guarantors and their subsidiaries of $41.8 million and the income from operations of Affinion International and its subsidiaries and of the Foreign Guarantors and their subsidiaries of $14.6 million is depreciation and amortization of $27.2 million.

At December 31, 2015, the Foreign Subsidiaries of Affinion (as defined in the indenture governing Affinion’s 2010 senior notes) had Indebtedness (as defined in the indenture governing the International Notes) of $422.6 million, of which $163.1 million was owed to Affinion and its Restricted Subsidiaries (other than Foreign Subsidiaries (as such terms are defined in the indenture governing Affinion’s 2010 senior notes) and $259.5 million was owed to unrelated third parties.

Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures

Adjusted EBITDA consists of income from operations before depreciation and amortization further adjusted to exclude non-cash and unusual items and other adjustments permitted in our debt agreements to test the permissibility of certain types of transactions, including debt incurrence. We believe that the inclusion of Adjusted EBITDA is appropriate as a liquidity measure. Adjusted EBITDA is not a measurement of liquidity or financial performance under U.S. GAAP and Adjusted EBITDA may not be comparable to similarly titled measures of other companies. You should not consider Adjusted EBITDA as an alternative to cash flows from operating activities determined in accordance with U.S. GAAP, as an indicator of cash flows, as a measure of liquidity, as an alternative to operating or net income determined in accordance with U.S. GAAP or as an indicator of operating performance.

~~Set forth below is a reconciliation of our consolidated net cash provided by operating activities for the twelve months ended December 31, 2014 to Adjusted EBITDA.~~ 67

	Twelve Months
	Ended
	December 31,
	2014
	(in millions)
Net cash provided by operating activities	$	40.8
Interest expense, net		179.1
Income tax expense		(38.5	)
Amortization of debt discount and financing costs		(10.1	)
Provision for loss on accounts receivable		(0.3	)
Deferred income taxes		43.4
Changes in assets and liabilities		(22.7	)
Effect of purchase accounting, reorganizations, certain legal costs and net cost savings (a)		66.1
Other, net (b)		24.0
Adjusted EBITDA, excluding pro forma adjustments (c)		281.8
Effect of the pro forma adjustments (d)		10.4
Adjusted EBITDA, including pro forma adjustments (e)	$	292.2

Set forth below is a reconciliation of our consolidated net cash provided by operating activities for the twelve months ended December 31, 2015 to Adjusted EBITDA.

(a) Eliminates the effect of purchase accounting related to the Apollo Transactions and Back-Up and Travel acquisition, legal costs for certain legal matters and costs associated with severance incurred.

	Twelve Months
	Ended
	December 31,
	2015
	(in millions)
Net cash provided by operating activities	$	14.1
Interest expense, net		176.1
Income tax expense		5.9
Amortization of debt discount and financing costs		(3.4	)
Provision for loss on accounts receivable		4.3
Deferred income taxes		(1.2	)
Changes in assets and liabilities		28.8
Effect of purchase accounting, reorganizations, certain legal costs and net cost savings (a)		22.1
Other, net (b)		21.9
Adjusted EBITDA, excluding pro forma adjustments (c)		268.6
Effect of the pro forma adjustments (d)		4.3
Adjusted EBITDA, including pro forma adjustments (e)	$	272.9

(ba) Eliminates ~~(i)~~the ~~net~~effect ~~changes~~of inpurchase ~~certain~~accounting ~~reserves, (ii) foreign currency gains and losses~~ related to ~~unusual,~~the ~~non-recurring~~Apollo ~~intercompany transactions~~Transactions, ~~(iii)~~legal ~~the~~costs ~~loss from an investment accounted~~ for ~~under~~certain ~~the~~legal ~~equity~~matters ~~method,~~and ~~(iv)~~ costs associated with ~~certain~~severance strategic and corporate development activities, including business optimization, (v) consulting fees payable to Apollo and (vi) the impact of an adjustment related to the recognition of International retail revenueincurred.

64(b) Eliminates (i) net changes in certain reserves, (ii) foreign currency gains and losses related to unusual, non-recurring intercompany transactions, (iii) costs associated with certain strategic and corporate development activities, including business optimization and (iv) consulting fees payable to Apollo.

(c) Adjusted EBITDA, excluding pro forma adjustments, does not give pro forma effect to ~~(i)~~ the ~~acquisition of Propp Corp. that was completed in the third quarter of 2014, (ii) the acquisition of SkyMall that was completed in the third quarter of 2014, or (iii)~~ projected annualized benefits of restructurings and other cost savings initiatives. However, we do make such accretive pro forma adjustments as if such ~~acquisitions,~~ restructurings and cost savings initiatives had occurred on January 1, ~~2014~~2015 in calculating the Adjusted EBITDA under ~~the~~Affinion’s ~~amended and restated~~ senior secured credit facility and the ~~indentures~~indenture governing ~~our~~Affinion’s 2010 senior notes ~~and 2013 senior subordinated notes~~.

(d) Gives effect to the projected annualized benefits of the ~~acquisitions of Propp Corp. and SkyMall,~~ restructurings and other cost savings initiatives as if such ~~acquisitions,~~ restructurings and cost savings initiatives had occurred on January 1, ~~2014~~2015.

(e)	Adjusted EBITDA, including pro forma adjustments, gives pro forma effect to the adjustments discussed in (d) above.

Set forth below is a reconciliation of our consolidated net loss attributable to Affinion Group, Inc. for the twelve months ended December 31, 2014 to Adjusted EBITDA as required by our senior secured credit facility and the indentures governing our 2010 senior notes and 2013 senior subordinated notes. 68

	Twelve Months
	Ended
	December 31,
	2014
	(in millions)
Net loss attributable to Affinion Group, Inc.	$	(374.4	)
Interest expense, net		179.1
Income tax expense		(38.5	)
Non-controlling interest		0.5
Loss on extinguishment of debt		6.0
Depreciation and amortization		109.7
Effect of purchase accounting, reorganizations and non-recurring revenues and gains (a)		0.1
Certain legal costs (b)		40.1
Net cost savings (c)		25.9
Other, net (d)		333.3
Adjusted EBITDA, excluding pro forma adjustments (e)		281.8
Effect of the pro forma adjustments (f)		10.4
Adjusted EBITDA, including pro forma adjustments (g)	$	292.2
Senior secured leverage ratio (h)		2.57
Fixed charge coverage ratio (i)		1.71

Set forth below is a reconciliation of our consolidated net loss attributable to Affinion Group, Inc. for the twelve months ended December 31, 2015 to Adjusted EBITDA as required by our senior secured credit facility and the indenture governing our 2010 senior notes.

(a) Eliminates the effect of purchase accounting related to the Apollo Transactions and Back-Up and Travel acquisition.

	Twelve Months
	Ended
	December 31,
	2015
	(in millions)
Net loss attributable to Affinion Group, Inc.	$	(30.0	)
Interest expense, net		176.1
Income tax expense		5.9
Non-controlling interest		0.6
Other income, net		(1.2	)
Gain on extinguishment of debt		(115.8	)
Depreciation and amortization		89.8
Effect of purchase accounting, reorganizations and non-recurring revenues and gains (a)		0.1
Certain legal costs (b)		7.1
Net cost savings (c)		14.9
Other, net (d)		121.1
Adjusted EBITDA, excluding pro forma adjustments (e)		268.6
Effect of the pro forma adjustments (f)		4.3
Adjusted EBITDA, including pro forma adjustments (g)

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