agi-10q_20160630.htm

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

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

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

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

The number of shares outstanding of the registrant’s common stock, $0.01 par value, as of July 27, 2016 was 100.

	June 30,			December 31,
	2016			2015

Assets
Current assets:
Cash and cash equivalents	$	44.3		$	51.2
Restricted cash		27.8			29.2
Receivables (net of allowances for doubtful accounts of $3.5 and $3.1, respectively)		119.0			114.0
Profit-sharing receivables from insurance carriers		18.9			19.9
Prepaid commissions		31.4			38.4
Other current assets		63.0			85.6
Total current assets		304.4			338.3
Property and equipment, net		106.8			119.5
Contract rights and list fees, net		15.8			16.6
Goodwill		223.0			225.8
Other intangibles, net		48.9			55.0
Receivables from related parties		28.9			28.9
Other non-current assets		47.2			44.9
Total assets	$	775.0		$	829.0

Liabilities and Deficit
Current liabilities:
Current portion of long-term debt	$	7.8		$	7.8
Accounts payable and accrued expenses		310.0			346.0
Payables to related parties		13.4			10.3
Deferred revenue		58.4			69.3
Income taxes payable		2.2			2.4
Total current liabilities		391.8			435.8
Long-term debt		1,854.1			1,868.4
Deferred income taxes		38.2			35.9
Deferred revenue		5.6			7.7
Other long-term liabilities		25.5			27.1
Total liabilities		2,315.2			2,374.9
Commitments and contingencies

Deficit:
Common stock and additional paid-in capital, $0.01 par value, 1,000 shares authorized, and 100 shares issued and outstanding		210.4			210.4
Accumulated deficit		(1,740.7	)		(1,750.8	)
Accumulated other comprehensive income		(10.6	)		(6.2	)
Total Affinion Group, Inc. deficit		(1,540.9	)		(1,546.6	)
Non-controlling interest in subsidiary		0.7			0.7
Total deficit		(1,540.2	)		(1,545.9	)
Total liabilities and deficit	$	775.0		$	829.0

See accompanying notes to the unaudited condensed consolidated financial statements.

	For the Three Months Ended						For the Six Months Ended
	June 30,			June 30,			June 30,			June 30,
	2016			2015			2016			2015

Net revenues	$	244.0		$	295.0		$	498.9		$	597.3
Expenses:
Cost of revenues, exclusive of depreciation
and amortization shown separately below:
Marketing and commissions		84.7			111.0			172.8			226.7
Operating costs		82.7			99.4			169.5			203.0
General and administrative		27.9			28.8			60.0			63.8
Facility exit costs	—				0.6		—				1.1
Depreciation and amortization		13.9			23.8			28.2			48.0
Total expenses		209.2			263.6			430.5			542.6
Income from operations		34.8			31.4			68.4			54.7
Interest income		0.3			0.2			0.6			0.4
Interest expense		(26.6	)		(47.4	)		(54.7	)		(94.5	)
Other income, net	—				0.1		—				0.6
Income (loss) before income taxes and non-controlling interest		8.5			(15.7	)		14.3			(38.8	)
Income tax expense		(0.9	)		(1.1	)		(4.0	)		(3.1	)
Net income (loss)		7.6			(16.8	)		10.3			(41.9	)
Less: net income attributable to non-controlling interest		(0.1	)		(0.1	)		(0.2	)		(0.3	)
Net income (loss) attributable to Affinion Group, Inc.	$	7.5		$	(16.9	)	$	10.1		$	(42.2	)

Net income (loss)	$	7.6		$	(16.8	)	$	10.3		$	(41.9	)
Currency translation adjustment, net of tax for all periods		(4.4	)		1.5			(4.4	)		(3.5	)
Comprehensive income (loss)		3.2			(15.3	)		5.9			(45.4	)
Less: comprehensive income attributable to non-controlling interest		(0.1	)		(0.1	)		(0.2	)		(0.2	)
Comprehensive income (loss) attributable to Affinion Group, Inc.	$	3.1		$	(15.4	)	$	5.7		$	(45.6	)

See accompanying notes to the unaudited condensed consolidated financial statements.

	Affinion Group, Inc. Deficit
	Common Stock and Additional Paid-in Capital		Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Non- Controlling Interest			Total Deficit
Balance, January 1, 2016	$	210.4	$	(1,750.8	)	$	(6.2	)	$	0.7		$	(1,545.9	)
Net income (loss)	—			10.1		—				0.2			10.3
Currency translation adjustment, net of tax	—		—				(4.4	)	—				(4.4	)
Dividend paid to non-controlling interest	—		—			—				(0.2	)		(0.2	)
Balance, June 30, 2016	$	210.4	$	(1,740.7	)	$	(10.6	)	$	0.7		$	(1,540.2	)


	Affinion Group, Inc. Deficit
	Common Stock and Additional Paid-in Capital		Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Non- Controlling Interest			Total Deficit
Balance, January 1, 2015	$	102.6	$	(1,720.8	)	$	1.2		$	1.1		$	(1,615.9	)
Net income (loss)	—			(42.2	)	—				0.3			(41.9	)
Currency translation adjustment, net of tax	—		—				(3.4	)		(0.1	)		(3.5	)
Balance, June 30, 2015	$	102.6	$	(1,763.0	)	$	(2.2	)	$	1.3		$	(1,661.3	)

See accompanying notes to the unaudited condensed consolidated financial statements.

	For the Six Months Ended
	June 30,			June 30,
	2016			2015
Operating Activities
Net income (loss)	$	10.3		$	(41.9	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		28.2			48.0
Amortization of debt discount and financing costs		3.0			4.7
Recovery of accounts receivable loss provided for		0.4		−−
Facility exit costs	−−				1.1
Amortization of carrying value adjustment		(17.4	)	−−
Share-based compensation		1.7			0.6
Deferred income taxes		1.5			1.5
Net change in assets and liabilities:
Restricted cash		0.5			2.2
Receivables		(6.6	)		1.3
Receivables from related parties	−−				4.2
Profit-sharing receivables from insurance carriers		1.0			11.8
Prepaid commissions		6.6			(3.7	)
Other current assets		21.3			(5.3	)
Contract rights and list fees		0.7			(1.1	)
Other non-current assets		(1.3	)		(8.9	)
Accounts payable and accrued expenses		(27.8	)		(10.2	)
Payables to related parties		1.5			(2.0	)
Deferred revenue		(12.1	)		(6.1	)
Income taxes receivable and payable		(0.4	)	−−
Other long-term liabilities		(2.3	)		(4.7	)
Other, net		0.8			2.5
Net cash provided by (used in) operating activities		9.6			(6.0	)
Investing Activities
Capital expenditures		(11.7	)		(15.2	)
Restricted cash		0.3			(0.1	)
Proceeds from sale of investment	−−				1.5
Net cash used in investing activities		(11.4	)		(13.8	)
Financing Activities
Borrowings under revolving credit facility, net	−−				54.0
Principal payments on borrowings		(4.0	)		(4.1	)
Dividend paid to non-controlling interest		(0.2	)	−−
Receivables from and payables to parent company	−−				(1.9	)
Net cash provided by (used in) financing activities		(4.2	)		48.0
Effect of changes in exchange rates on cash and cash equivalents		(0.9	)		(0.5	)
Net increase (decrease) in cash and cash equivalents		(6.9	)		27.7
Cash and cash equivalents, beginning of period		51.2			28.0
Cash and cash equivalents, end of period	$	44.3		$	55.7
Supplemental Disclosure of Cash Flow Information:
Interest payments	$	65.7		$	89.7
Income tax payments, net of refunds	$	2.6		$	1.3
Non-cash investing and financing activities:
Accrued capital expenditures	$	0.3		$	0.2
Payment of in-kind interest	$	3.9		$	-

See accompanying notes to the unaudited condensed consolidated financial statements.

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

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

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

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

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and following the guidance of Rule 10-01 of Regulation S-X for interim financial statements required to be filed with the U.S. Securities and Exchange Commission (the “SEC”). As permitted under such rules, certain notes and other financial information normally required by accounting principles generally accepted in the United States of America have been condensed or omitted; however, the unaudited condensed consolidated financial statements do include such notes and financial information sufficient so as to make the interim information presented not misleading. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes of the Company, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 filed with the SEC on March 10, 2016 (the “Form 10-K”).

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

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

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

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

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

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. See Note 10 to our unaudited condensed consolidated financial statements for more information concerning our segment results and Note 2 to our unaudited condensed consolidated financial statements for more information concerning the allocation of goodwill among the new segments. Prior period segment amounts throughout the notes to the unaudited condensed consolidated financial statement have been reclassified to the new segment structure. The reclassification of historical business segment information had no impact on our basic financial statements.

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

believe that adoption of the new guidance will have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

On August 27, 2014, the FASB issued an Accounting Standards Update (“ASU”) that provides guidance on determining when and how reporting entities must disclose going concern uncertainties in their financial statements. The new standard requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date of issuance of the financial statements (or within one year after the date on which the financial statements were available to be issued, when applicable). Further, an entity must provide certain disclosures if there is “substantial doubt about the entity’s ability to continue as a going concern.” The ASU is effective for annual periods ending after December 15, 2016, and interim periods thereafter, with early adoption permitted. When adopted, the new guidance is not expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

On April 7, 2015, the FASB issued an ASU that requires debt issuance costs to be presented in the balance sheet as a direct deduction from the carrying amount of the debt liability consistent with debt discounts and premiums, rather than as a separate asset. On August 16, 2015, the FASB issued an ASU clarifying the SEC staff’s position on presenting and measuring debt issuance costs incurred in connection with line-of-credit arrangements. The SEC staff announced that it would not object to the deferral and presentation of debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement. The new guidance is effective for financial statements issued for fiscal years beginning after December 31, 2015 and interim periods within those fiscal years. As of January 1, 2016, the Company adopted the new guidance, which did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows, and re-cast the December 31, 2015 balances, resulting in a $15.1 million reduction of other non-current assets and long-term debt.

On November 20, 2015, the FASB issued ASU 2015-17, which requires entities to present deferred tax assets and deferred tax liabilities as non-current in a classified balance sheet. It simplifies the current guidance, which requires entities to separately present deferred tax assets and deferred tax liabilities as current or non-current in a classified balance sheet. Netting of deferred tax assets and deferred tax liabilities by tax jurisdiction is still required under the new guidance. For public business entities, the ASU is effective for annual periods beginning after December 15, 2016 and interim periods within those annual periods. Early adoption is permitted. The Company adopted the new guidance as of the beginning of the second quarter of 2016 on a prospective basis. The December 31, 2015 financial statements were not retrospectively adjusted. The adoption of this standard did not have a material impact on our financial statements.

On February 25, 2016, the FASB issued ASU 2016-02, its new standard on accounting for leases. The new standard introduces a lessee model that brings most leases on the balance sheet. The new lease standard also addresses other concerns related to the current leases model. For public business entities, the new guidance will be effective for annual periods beginning after December 31, 2018 and all interim periods within those annual periods. The Company is in the process of performing an initial evaluation of the impact of the new guidance.

	June 30, 2016
	Gross Carrying		Accumulated			Net Carrying
	Amount		Amortization			Amount
	(in millions)
Amortizable intangible assets:
Member relationships	$	935.0	$	(932.4	)	$	2.6
Affinity relationships		638.2		(601.8	)		36.4
Proprietary databases and systems		59.7		(57.9	)		1.8
Trademarks and tradenames		28.5		(21.1	)		7.4
Patents and technology		47.6		(47.1	)		0.5
Covenants not to compete		2.6		(2.4	)		0.2
	$	1,711.6	$	(1,662.7	)	$	48.9


	December 31, 2015
	Gross Carrying		Accumulated			Net Carrying
	Amount		Amortization			Amount
	(in millions)
Amortizable intangible assets:
Member relationships	$	936.9	$	(933.8	)	$	3.1
Affinity relationships		639.3		(598.6	)		40.7
Proprietary databases and systems		59.7		(57.7	)		2.0
Trademarks and tradenames		28.7		(20.8	)		7.9
Patents and technology		47.6		(46.5	)		1.1
Covenants not to compete		2.5		(2.3	)		0.2
	$	1,714.7	$	(1,659.7	)	$	55.0

Foreign currency translation resulted in a decrease in intangible assets and accumulated amortization of $3.0 million and $3.2 million, respectively, from December 31, 2015 to June 30, 2016.

Based on the Company’s amortizable intangible assets as of June 30, 2016, the Company expects the related amortization expense for fiscal year 2016 and the four succeeding fiscal years to be approximately $12.5 million in 2016, $8.3 million in 2017, $7.4 million in 2018, $6.2 million in 2019 and $5.7 million in 2020.

At January 1, 2016 and June 30, 2016, the Company had gross goodwill of $654.7 million and $652.0 million, respectively, and accumulated impairment losses of $429.0 million at both dates. The accumulated impairment losses represent the $15.5 million impairment loss recognized in 2006 impairing all of the goodwill assigned to the Global Loyalty segment (previously included in the Global Loyalty Products segment) related to the Apollo Transactions, the $31.5 million impairment loss recognized in 2012 impairing all of the goodwill assigned in connection with the acquisition of Prospectiv Direct, Inc. included in the Legacy Membership and Package segment (previously included in the Membership Products segment) and the $292.4 million and the $89.6 million impairment losses recognized in 2014 and 2015, respectively, impairing all of the goodwill assigned to the former Membership Products segment, which has been allocated to the Legacy Membership and Package segment.

The changes in the Company’s carrying amount of goodwill for the year ended December 31, 2015 and the six months ended June 30, 2016 are as follows:

	Balance at											Balance at					Balance at
	January 1,								Currency			December 31,		Currency			June 30,
	2015		Acquisition			Impairment			Translation			2015		Translation			2016
	(in millions)

Global Loyalty	$	106.2	$	(0.2	)	$	-		$	(0.9	)	$	105.1	$	0.1		$	105.2
Global Customer Engagement		68.1	—			—				(5.7	)		62.4		(2.9	)		59.5
Insurance Solutions		58.3	—			—			—				58.3	—				58.3
Legacy Membership and Package		89.6	—				(89.6	)	—				-	—			—
Total	$	322.2	$	(0.2	)	$	(89.6	)	$	(6.6	)	$	225.8	$	(2.8	)	$	223.0

During the fourth quarter of 2015, the Company performed its annual goodwill impairment test for those reporting units that had goodwill recorded. Key assumptions used in the goodwill impairment test were long-term growth rates ranging from no growth to 2.0% and discount rates ranging from 10.5% to 14.5%. In 2015, the fair value of each of the reporting units that have goodwill exceeded its respective carrying amount by more than 25% of the carrying amount, with the exception of the former Membership Products segment, for which carrying value exceeded its fair value, based on an assumed long-term growth rate of no growth and a discount rate of 13.5%.

During the fourth quarter of 2015, the Company reflected these assumptions for the former Membership Products in its annual test for goodwill impairment as of December 1. Based on the impairment test, which utilized a combination of the income and market approaches and incorporated assumptions that the Company believes marketplace participants would utilize to determine the fair value of the former Membership Products segment, the Company recorded an impairment loss during the fourth quarter of 2015 of $89.6 million, representing all of the remaining goodwill ascribed to the former Membership Products segment.

Amortization expense for the three and six months ended June 30, 2016 was $1.2 million and $2.5 million, respectively, of which $1.2 million and $2.4 million, respectively, is included in marketing expense and less than $0.1 million and $0.1 million, respectively, is included in depreciation and amortization expense in the unaudited condensed consolidated statement of comprehensive income (loss). Amortization expense for the three and six months ended June 30, 2015 was $1.4 million and $2.9 million, respectively, of which $1.3 million and $2.5 million, respectively, is included in marketing expense and $0.1 million and $0.2 million, respectively, is included in depreciation and amortization expense in the unaudited condensed consolidated statement of comprehensive income (loss). Based on the Company’s contract rights and list fees as of June 30, 2016, the Company expects the related amortization expense for fiscal year 2016 and the four succeeding fiscal years to be approximately $4.6 million in 2016, $3.7 million in 2017, $3.0 million in 2018, $2.3 million in 2019 and $1.8 million in 2020.

On April 9, 2010, the Company, as Borrower, and Affinion Holdings entered into a $1.0 billion amended and restated senior secured credit facility with its lenders (“Affinion Credit Facility”). On November 20, 2012, the Company, as Borrower, and Affinion Holdings entered into an amendment to the Affinion Credit Facility, which (i) increased the margins on LIBOR loans from 3.50% to 5.00% and on base rate loans from 2.50% to 4.00%, (ii) replaced the financial covenant requiring the Company to maintain a maximum consolidated leverage ratio with a financial covenant requiring Affinion to maintain a maximum senior secured leverage ratio, and (iii) adjusted the ratios under the financial covenant requiring Affinion to maintain a minimum interest coverage ratio. On December 12, 2013, in connection with the refinancing of the Company’s 11 ½ % senior subordinated notes due 2015 (Affinion’s “2006 senior subordinated notes”) and Affinion Holdings’ 11.625% senior notes due 2015 (the “Affinion Holdings’ 2010 senior notes”), the Company, as Borrower, and Affinion Holdings entered into an amendment to the Affinion Credit Facility, which (i) provided permission for the consummation of the exchange offers for the Company’s 2006 senior subordinated notes and Affinion Holdings’ 2010 senior notes; (ii) removed the springing maturity provisions applicable to the term loan facility; (iii) modified the senior secured leverage ratio financial covenant in the Affinion Credit Facility; (iv) provided additional flexibility to make dividends to Affinion Holdings to be used by Affinion Holdings to make certain payments with respect to its indebtedness and to repay, repurchase or redeem subordinated indebtedness of Affinion; and (v) increased the interest rate margins by 0.25%, to 5.25% on LIBOR loans and 4.25% on base rate loans. The amendment became effective upon the satisfaction of the conditions precedent set forth therein, including the payment by Affinion of the consent fee equal to 0.25% of the sum of (i) the aggregate principal amount of all term loans and (ii) the revolving loan commitments in effect, in each case, held by each lender that entered into the amendment on the date of effectiveness of the amendment. On May 20, 2014, the Company, as Borrower, and Affinion Holdings entered into an amendment to the Affinion Credit Facility, which (i) extended the maturity to April 30, 2018 of $775.0 million in aggregate principal amount of existing senior secured term loans and existing senior secured revolving loans, which loans were designated as first lien term loans (the “First Lien Term Loans”), (ii) extended the maturity to October 31, 2018 of $377.9 million in aggregate principal amount of existing senior secured term loans on a second lien senior secured basis, which, together with additional borrowings obtained on the same terms, total $425.0 million (the “Second Lien Term Loans”), (iii) extended the maturity to January 29, 2018 of $80.0 million of the commitments (and related obligations) under the existing senior secured revolving credit facility on a first lien senior secured basis, (iv) reduced the commitments under the existing senior secured revolving credit facility by $85.0 million and (v) removed the existing financial covenant requiring the Company to maintain a minimum interest coverage ratio.

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

highest of (i) Deutsche Bank Trust Company Americas’ prime rate, (ii) the Federal Funds Effective Rate plus 0.5% and (iii) 2.50% (“ABR”), in each case plus 4.25%. The interest rates with respect to Second Lien Term Loans under the amended Affinion Credit Facility are based on, at the Company’s option, (a) the higher of (i) adjusted LIBOR and (ii) 1.50%, in each case plus 7.00%, or (b) the highest of (i) Deutsche Bank Trust Company Americas’ prime rate, (ii) the Federal Funds Effective Rate plus 0.5% and (iii) 2.50% (“ABR”), in each case plus 6.00%. The weighted average interest rate on the First Lien Term Loan for each of the three and six month periods ended June 30, 2016 and 2015 was 6.75% and the weighted average interest rate on the Second Lien Term Loan for each of the three and six month periods ended June 30, 2016 and 2015 was 8.50%. The weighted average interest rate on revolving credit facility borrowings for the three months ended June 30, 2016 and 2015 was 7.8%, and 7.1%, respectively and for the six months ended June 30, 2016 and 2015 was 7.8%, and 7.2%, respectively. The Company’s obligations under the credit facility are, and the Company’s obligations under any interest rate protection or other hedging arrangements entered into with a lender or any of its affiliates will be, guaranteed by Affinion Holdings and by each of the Company’s existing and subsequently acquired or organized domestic subsidiaries, subject to certain exceptions. The Affinion Credit Facility is secured to the extent legally permissible by substantially all of the assets of (i) Affinion Holdings, which consists of a pledge of all the Company’s capital stock and (ii) the Company and the subsidiary guarantors, including but not limited to: (a) a pledge of substantially all capital stock held by the Company or any subsidiary guarantor and (b) security interests in substantially all tangible and intangible assets of the Company and each subsidiary guarantor, subject to certain exceptions. The Affinion Credit Facility also contains financial, affirmative and negative covenants. The negative covenants in the Affinion Credit Facility include, among other things, limitations (all of which are subject to certain exceptions) on the Company’s (and in certain cases, Affinion Holdings’) ability to: declare dividends and make other distributions, redeem or repurchase the Company’s capital stock; prepay, redeem or repurchase certain of the Company’s subordinated indebtedness; make loans or investments (including acquisitions); incur additional indebtedness (subject to certain exceptions); enter into agreements that would restrict the ability of the Company’s subsidiaries to pay dividends; merge or enter into acquisitions; sell assets; and enter into transactions with affiliates. The Affinion Credit Facility also requires the Company to comply with a financial maintenance covenant with a maximum ratio of senior secured debt (as defined) to EBITDA (as defined) of 4.25:1.00.

As of June 30, 2016 and December 31, 2015, there were no outstanding borrowings under the revolving credit facility. During the six months ended June 30, 2016 and 2015, the Company had borrowings of $67.0 million and $74.0 million, respectively, under the revolving credit facility. During the six months ended June 30, 2016 and 2015, the Company had repayments of $67.0 million and $20.0 million, respectively, under the revolving credit facility. As of June 30, 2016, the Company had $69.2 million available for borrowing under the Affinion Credit Facility after giving effect to the issuance of $10.8 million of letters of credit.

On November 9, 2015, (a) Affinion Holdings completed a private offer to exchange (the “2015 Holdings Exchange Offer”) its outstanding 13.75%/14.50% senior secured PIK/toggle notes due 2018 (Affinion Holdings’ “2013 senior notes”) for shares of its Common Stock, par value $0.01 per share (Affinion Holdings’ “Common Stock”), (b) Affinion Investments, LLC (“Affinion Investments”) completed a private offer to exchange (the “2015 Investments Exchange Offer” and, together with the 2015 Holdings Exchange Offer, the “2015 Exchange Offers”) its outstanding 13.50% senior subordinated notes due 2018 (the “Investments senior subordinated notes”) for shares of Common Stock, and (c) Affinion Holdings and Affinion International Holdings Limited (“Affinion International”), a wholly-owned subsidiary of Affinion, jointly completed a rights offering giving holders of Affinion Holdings’ 2013 senior notes and the Investments senior subordinated notes the right to purchase an aggregate principal amount of $110.0 million of 7.5% Cash/PIK Senior Notes due 2018 (the “International Notes”) of Affinion International and 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 Affinion Holdings’ 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 Affinion Holdings’ Common Stock. Under certain circumstances, certain holders would have received non-participating penny warrants (the “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.

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 (as defined below) 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 a rights offering (the “2015 Rights Offering”) for International Notes and shares of Affinion Holdings’ 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 Affinion Holdings’ 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 were 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 used 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 (as defined below).

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 was 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 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, LLC (“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.

The carrying value of the aggregate debt instruments held by the participants to the 2015 Exchange Offers and 2015 Rights Offering (including associated debt discounts, deferred financing, and accrued interest), was $728.5 million. This was compared to the fair value of the equity issued in the 2015 Exchange Offers and 2015 Rights Offering for such debt instruments, which were valued at $107.8 million as of the date of the 2015 Exchange Offers. This exceeded the undiscounted cash flows of the aggregate lending. The Company recognized a gain in the consolidated statement of operations of $115.8 million on the 2015 Exchange Offers in 2015, which represented the write-down of the carrying value of the aggregate debt instruments to the undiscounted cash flows of the continuing debt instruments. The 2015 Exchange Offers contemplated a portion of the overall debt instruments held by the participants to the 2015 Exchange Offers.

In connection with the recognition of the 2015 Exchange Offers and 2015 Rights Offering, the impact of these transactions is summarized as follows, including the aforementioned gain of $115.8 million (in millions).

The adjustment to the carrying value of the debt is the net impact of the aforementioned transaction and represents an adjustment of the carrying value of the First Lien Term Loans, the Second Lien Term Loans, Affinion’s 2010 senior notes (defined below) and the International Notes of $103.3 million. This amount represents the interest to be paid in cash on the continuing debt instruments held by those who participated in the exchange but were not subject to the exchange itself through the scheduled maturity of those instruments. This amount, net of amortization, increases the carrying value of the Company’s recorded long term debt at June 30, 2016 and December 31, 2015 by $80.5 million and $97.8 million, respectively. Such amounts have been and will continue to be reduced in future years as scheduled interest is paid on those remaining instruments.

On December 12, 2013, the Company completed a private offer to exchange the Company’s 2006 senior subordinated notes for Investments senior subordinated notes, pursuant to which $360.0 million aggregate principal amount of Investments senior

subordinated notes were issued in exchange for $352.9 million aggregate principal amount of the Company’s 2006 senior subordinated notes. Under the terms of the exchange offer, for each $1,000 principal amount of the Company’s 2006 senior subordinated notes tendered at or prior to the consent time, holders received $1,020 principal amount of Investments senior subordinated notes. For each $1,000 principal amount of the Company’s 2006 senior subordinated notes tendered during the offer period but after the consent period, holders received $1,000 principal amount of Investments senior subordinated notes. The Investments senior subordinated notes bear interest at 13.50% per annum, payable semi-annually on February 15 and August 15 of each year, commencing on February 15, 2014. The Investments senior subordinated notes will mature on August 15, 2018. Affinion Investments may redeem some or all of the Investments senior subordinated notes at any time on or after December 12, 2016 at redemption prices (generally at a premium) set forth in the indenture governing the Investments senior subordinated notes. In addition, prior to December 12, 2016, up to 35% of the outstanding Investments senior subordinated notes are redeemable at the option of Affinion Investments, with the net proceeds raised by the Company or Affinion Holdings in one or more equity offerings, at 113.50% of their principal amount. In addition, prior to December 12, 2016, the Investments senior subordinated notes are redeemable, in whole or in part, at a redemption price equal to 100% of the principal amount of the Investments senior subordinated notes redeemed plus a “make-whole” premium. The indenture governing the Investments senior subordinated notes contains negative covenants which restrict the ability of Affinion Investments, any future restricted subsidiaries of Affinion Investments and one of the Company’s other wholly-owned subsidiaries that guarantees the Investments senior subordinated notes to engage in certain transactions and also contains customary events of default. Affinion Investments’ obligations under the Investments senior subordinated notes are guaranteed on an unsecured senior subordinated basis by Affinion Investments II. Each of Affinion Investments and Affinion Investments II is an unrestricted subsidiary of the Company and guarantees the Company’s indebtedness under its senior secured credit facility but does not guarantee the Company’s other indebtedness. The Investments senior subordinated notes and guarantee thereof are unsecured senior subordinated obligations of Affinion Investments, as issuer, and Affinion Investments II, as guarantor, and rank junior in right of payment to their respective guarantees of the Company’s senior secured credit facility. As a result of the consent solicitations consummated on November 9, 2015, substantially all of the restrictive covenants and certain of the default provisions were removed from the indenture governing the Investments senior subordinated notes.

On December 12, 2013, Affinion Investments exchanged with the Company all of the 2006 senior subordinated notes received by it in the exchange offer for Affinion’s 13.50% senior subordinated notes due 2018 (Affinion’s “2013 senior subordinated notes”). Affinion’s 2013 senior subordinated notes bear interest at 13.50% per annum payable semi-annually on February 15 and August 15 of each year, commencing on February 15, 2014. The 2013 senior subordinated notes will mature on August 15, 2018. The 2013 senior subordinated notes are redeemable at the Company’s option prior to maturity. The indenture governing the 2013 senior subordinated notes contains negative covenants which restrict the ability of Affinion and its restricted subsidiaries to engage in certain transactions and also contains customary events of default. Affinion’s obligations under the 2013 senior subordinated notes are jointly and severally and fully and unconditionally guaranteed on an unsecured senior subordinated basis by each of Affinion’s existing and future domestic subsidiaries that guarantee Affinion’s indebtedness under its senior secured credit facility (other than Affinion Investments and Affinion Investments II). The 2013 senior subordinated notes and guarantees thereof are unsecured senior subordinated obligations of Affinion’s and rank junior to all of Affinion’s and the guarantors’ existing and future senior indebtedness, pari passu with Affinion’s 2006 senior subordinated notes and senior to Affinion’s and the guarantors’ future subordinated indebtedness. Although Affinion Investments is the only holder of Affinion’s 2013 senior subordinated notes, the trustee for the Investments senior subordinated notes, and holders of at least 25% of the principal amount of the Investments senior subordinated notes will have the right as third party beneficiaries to enforce the remedies available to Affinion Investments against Affinion, and Affinion Investments will not be able to amend the covenants in the note agreement governing 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. As a result of the consent solicitations consummated on November 9, 2015, substantially all of the restrictive covenants and certain of the default provisions were removed from the note agreement governing Affinion’s 2013 senior subordinated notes, and 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 Affinion Investments’ exchange offer, was permitted.

On November 19, 2010, the Company completed a private offering of $475.0 million aggregate principal amount of 7.875% senior notes due 2018 (Affinion’s “2010 senior notes”). The 2010 senior notes bear interest at 7.875% per annum payable semi-annually on June 15 and December 15 of each year, commencing on June 15, 2011. The 2010 senior notes will mature on December 15, 2018. The 2010 senior notes are redeemable at the Company’s option prior to maturity. The indenture governing the 2010 senior notes contains negative covenants which restrict the ability of the Company and its restricted subsidiaries to engage in certain transactions and also contains customary events of default. The Company’s obligations under the 2010 senior notes are jointly and severally and fully and unconditionally guaranteed on a senior unsecured basis by each of the Company’s existing and future domestic subsidiaries that guarantee the Company’s indebtedness under the Affinion Credit Facility, other than Affinion Investments and Affinion Investments II. The 2010 senior notes and guarantees thereof are senior unsecured obligations of the Company and rank equally with all of the Company’s and the guarantors’ existing and future senior indebtedness and senior to the Company’s and the guarantors’ existing and future subordinated indebtedness. The 2010 senior notes are therefore effectively subordinated to the Company’s and the guarantors’ existing and future secured indebtedness, including the Company’s obligations under the Affinion Credit Facility, to the extent of the value of the collateral securing such indebtedness. The 2010 senior notes are structurally

subordinated to all indebtedness and other obligations of each of the Company’s existing and future subsidiaries that are not guarantors, including the Investments senior subordinated notes. On August 24, 2011, pursuant to the registration rights agreement entered into in connection with the issuance of the 2010 senior notes, the Company completed a registered exchange offer and exchanged all of the then-outstanding 2010 senior notes for a like principal amount of 2010 senior notes that have been registered under the Securities Act of 1933, as amended (the “Securities Act”).

On April 26, 2006, the Company issued $355.5 million aggregate principal amount of 2006 senior subordinated notes and applied the gross proceeds of $350.5 million to repay $349.5 million of outstanding borrowings under a then-outstanding $383.6 million senior subordinated loan facility (the “Bridge Loan”), plus accrued interest, and used cash on hand to pay fees and expenses associated with such issuance. The 2006 senior subordinated notes bore interest at 11¹/₂% per annum, payable semi-annually on April 15 and October 15 of each year. The 2006 senior subordinated notes matured on October 15, 2015. The Company could have redeemed some or all of the 2006 senior subordinated notes at any time on or after October 15, 2010 at redemption prices (generally at a premium) set forth in the indenture governing the 2006 senior subordinated notes. The 2006 senior subordinated notes were unsecured obligations of the Company and ranked junior in right of payment with the Company’s existing and future senior obligations and senior to the Company’s future subordinated indebtedness. On December 12, 2013, $352.9 million aggregate principal amount of 2006 senior subordinated notes were exchanged for $360.0 million of Investments senior subordinated notes. The remaining outstanding 2006 senior subordinated notes matured on October 15, 2015.

The amended Affinion Credit Facility and the indenture governing the 2010 senior notes both contain restrictive covenants related primarily to the Company’s ability to distribute dividends, redeem or repurchase capital stock, sell assets, issue additional debt or merge with or acquire other companies. Under the Affinion Credit Facility, payment of additional dividends requires the satisfaction of various conditions, including meeting defined leverage ratios and a defined fixed charge coverage ratio, and the total dividend paid cannot exceed a calculated amount of defined available free cash flow, or requires availability under specified baskets. The covenants in the Affinion Credit Facility also require compliance with a senior secured leverage ratio. During the six months ended June 30, 2016 and the year ended December 31, 2015, the Company did not pay any cash dividends to Affinion Holdings. The Company was in compliance with the covenants referred to above as of June 30, 2016. Payment under each of the debt agreements may be accelerated in the event of a default. Events of default include the failure to pay principal and interest when due, covenant defaults (unless cured within applicable grace periods, if any), events of bankruptcy and, for the amended Affinion Credit Facility, a material breach of representation or warranty and a change of control.

The Company is included as a member of Affinion Holdings’ consolidated federal income tax return and as a member of certain of Affinion Holdings’ unitary or combined state income tax returns. Income taxes are presented in the Company’s consolidated financial statements using the asset and liability approach based on the separate return method for the consolidated group. Under this method, current and deferred tax expense or benefit for the period is determined for the Company and its subsidiaries as a separate group on a standalone basis. Deferred tax assets and liabilities are calculated based upon the temporary differences between the financial statements and income tax bases of assets and liabilities using currently enacted tax rates. Deferred tax assets are recorded net of a valuation allowance when, based on the weight of available evidence, it is more likely than not that some portion, or all, of the recorded deferred tax assets will not be realized in future periods. Decreases to the valuation allowance are recorded as reductions to the income tax provision, while increases to the valuation allowance result in additional income tax provision. The realization of deferred tax assets is primarily dependent on estimated future taxable income. As of June 30, 2016 and December 31, 2015, the Company has recorded a full valuation allowance for its U.S. federal net deferred tax assets. As of June 30, 2016 and December 31, 2015, the Company has also recorded valuation allowances against the deferred tax assets related to certain state and foreign tax jurisdictions.

The Company’s effective income tax rates for the three and six months ended June 30, 2016 were 10.0% and 27.8%, respectively, and the Company’s effective income tax rates for the three and six months ended June 30, 2015 were (6.7)% and (7.9)%, respectively. The difference in the effective tax rates for the three months ended June 30, 2016 and 2015 is primarily a result of the change from a loss before income taxes and non-controlling interest of $15.7 million for the three months ended June 30, 2015 to income before income taxes and non-controlling interests of $8.5 million for the three months ended June 30, 2016 and a decrease in the income tax provision from $1.1 million for the three months ended June 30, 2015 to $0.9 million for the three months ended June 30, 2016. The difference in the effective tax rates for the six months ended June 30, 2016 and 2015 is primarily a result of the change from a loss before income taxes and non-controlling interest of $38.8 million for the six months ended June 30, 2015 to income before income taxes and non-controlling interests of $14.3 million for the six months ended June 30, 2016 and an increase in the income tax provision from $3.1 million for the six months ended June 30, 2015 to $4.0 million for the six months ended June 30, 2016. The Company’s tax rate is affected by recurring items, such as tax rates in foreign jurisdictions and the relative amount of income it earns in those jurisdictions. It is also affected by discrete items that may occur in any given year, but are not consistent from year to year. In addition to state and foreign income taxes, the requirement to maintain valuation allowances had the most significant impact on the difference between the Company’s effective tax rate and the statutory U.S. federal income tax rate of 35%.

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. The Company recognized less than $0.1 million and $0.1 million, respectively, of interest related to uncertain tax positions in the three and six month periods ended June 30, 2016. The Company recognized less than $0.1 million and $0.1 million, respectively, of interest related to uncertain tax positions in the three and six month periods ended June 30, 2015. The interest has been included in income tax expense for the current period. The Company’s gross unrecognized tax benefits for the six months ended June 30, 2016 decreased by $0.8 million as a result of tax positions taken during the current period, which was offset by a valuation allowance.

The Company’s income tax returns are periodically examined by various tax authorities. In connection with these and future examinations, certain tax authorities, including the Internal Revenue Service, may raise issues and impose additional assessments. The Company regularly evaluates the likelihood of additional assessments resulting from these examinations and establishes liabilities, through the provision for income taxes, for potential amounts that may result therefrom. The recognition of uncertain tax benefits are not expected to have a material impact on the Company’s effective tax rate or results of operations. Federal, state and local jurisdictions are subject to examination by the taxing authorities for all open years as prescribed by applicable statute. For significant foreign jurisdictions, tax years in Germany, France, Turkey, Switzerland and the United Kingdom remain open as prescribed by applicable statute. The Company does not believe that it is reasonably possible that the total amount of unrecognized tax benefits will change significantly within the next 12 months.

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

On June 17, 2010, a class action complaint was filed against the Company and Trilegiant Corporation (“Trilegiant”) in the United States District Court for the District of Connecticut. The complaint asserts various causes of action on behalf of a putative nationwide class and a California-only subclass in connection with the sale by Trilegiant of its membership programs, including claims under the Electronic Communications Privacy Act (“ECPA”), the Connecticut Unfair Trade Practices Act (“CUTPA”), the Racketeer Influenced Corrupt Organizations Act (“RICO”), the California Consumers Legal Remedies Act, the California Unfair Competition Law, the California False Advertising Law, and for unjust enrichment. On September 29, 2010, the Company filed a motion to compel arbitration of all of the claims asserted in this lawsuit. On February 24, 2011, the court denied the Company’s motion. On March 28, 2011, the Company and Trilegiant filed a notice of appeal in the United States Court of Appeals for the Second Circuit, appealing the district court’s denial of their motion to compel arbitration. On September 7, 2012, the Second Circuit affirmed the decision of the district court denying arbitration. While that issue was on appeal, the matter proceeded in the district court. There was written discovery and depositions. Previously, the court had set a briefing schedule on class certification that called for the completion of class certification briefing on May 18, 2012. However, on March 28, 2012, the court suspended the briefing schedule on the motion due to the filing of two other overlapping class actions in the United States District Court for the District of Connecticut. The first of those cases was filed on March 6, 2012, against the Company, Trilegiant, Chase Bank USA, N.A., Bank of America, N.A., Capital One Financial Corp., Citigroup, Inc., Citibank, N.A., Apollo Global Management, LLC, 1-800-Flowers.Com, Inc., United Online, Inc., Memory Lane, Inc., Classmates Int’l, Inc., FTD Group, Inc., Days Inn Worldwide, Inc., Wyndham Worldwide Corp., People Finderspro, Inc., Beckett Media LLC, Buy.com, Inc., Rakuten USA, Inc., IAC/InteractiveCorp., and Shoebuy.com, Inc. The second of those cases was filed on March 25, 2012, against the same defendants as well as Adaptive Marketing, LLC, Vertrue, Inc., Webloyalty.com, Inc., and Wells Fargo & Co. These two cases assert similar claims as the claims asserted in the earlier-filed lawsuit in connection with the sale by Trilegiant of its membership programs. On April 26, 2012, the court consolidated these three cases. The court also set an initial status conference for May 17, 2012. At that status conference, the court ordered that Plaintiffs file a consolidated amended complaint to combine the claims in the three previously separate lawsuits. The court also struck the class certification briefing schedule that had been set previously. On September 7, 2012, the Plaintiffs filed a consolidated amended complaint asserting substantially the same legal claims. The consolidated amended complaint added Priceline, Orbitz, Chase Paymentech, Hotwire, and TigerDirect as Defendants and added three new Plaintiffs; it also dropped Webloyalty and Rakuten as Defendants. On December 7, 2012, all Defendants filed motions seeking to dismiss the consolidated amended complaint and to strike certain portions of the complaint. Plaintiff’s response brief was filed on February 7, 2013, and Defendants’ reply briefs were filed on April 5, 2013. On September 25, 2013, the court held oral argument on the motions to dismiss. On March 28, 2014, the court ruled on the motions to dismiss, granting them in part and denying them in part. The court dismissed the Plaintiffs’ RICO claims and claims under the California Automatic Renewal Statute as to all defendants. The court also dismissed certain named Plaintiffs as their claims were barred either by the statute of limitations and/or a prior settlement agreement. Certain Defendants were also dismissed from the case. The court also struck certain allegations from the consolidated amended complaint, including certain of Plaintiffs’ class action allegations under CUTPA. As to the Company and Trilegiant, the court denied the motion to dismiss certain Plaintiffs’ claims under ECPA and for unjust enrichment, as well as certain other claims of Plaintiffs under CUTPA.

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

On May 12, 2014, remaining Defendants in the consolidated cases filed answers in which they denied the material allegations of the consolidated amended complaint. On April 28, 2014, Plaintiffs filed a motion seeking interlocutory appellate review of portions of the court’s order of March 28, 2014. Briefing on the motion was completed on June 5, 2014. On March 26, 2015, the court denied Plaintiff’s motion for interlocutory appeal. On May 29, 2015, the court issued a scheduling order indicating that discovery was to commence immediately and be completed by December 31, 2015. On May 29, 2015, the court also set deadlines for dispositive motions, which are due February 29, 2016. If no dispositive motions are filed, a joint trial memorandum would be due by April 1, 2016, and jury selection would take place on May 3, 2016. If dispositive motions are filed, the joint trial memorandum would be due by October 3, 2016, and jury selection would take place on November 1, 2016. On June 16, 2015, the court set a schedule for class certification, with Plaintiffs’ motion for class certification due on September 15, 2015, and with briefing to be completed by November 30, 2015. 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 February 29, 2016, the Company filed a Motion for Summary Judgment on the individual claims of the remaining named Plaintiffs. Plaintiffs filed a response on March 21, 2016, and the Company filed its response on April 4, 2016. The Company does not know when the court will rule on the motion for class certification or the motion for Summary Judgment.

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 EFT, ECPA, unjust enrichment, civil theft, negligent misrepresentation, fraud and CUTPA violation (the “Connecticut Action”). This lawsuit relates to Webloyalty’s alleged conduct occurring on and after October 1, 2008. On November 1, 2010, the Defendants moved to dismiss the initial complaint, which Plaintiff then amended on November 19, 2010. On December 23, 2010, Webloyalty filed a second motion to dismiss this lawsuit. On May 15, 2014, the court heard oral argument on Plaintiff’s motion to strike the Company’s request for judicial notice of the Plaintiff’s membership enrollment documents filed in support of the Company’s second motion to dismiss. On July 17, 2014, the court denied Plaintiff’s motion to strike. The court, at the same time, dismissed those claims grounded in fraud, but reserved until further proceedings the determination as to whether all of Plaintiff’s claims are grounded in fraud and whether those claims not grounded in fraud are dismissible. The court permitted the Plaintiff until August 15, 2014 to amend his complaint and allowed the parties the opportunity to conduct limited discovery, to be completed by September 26, 2014, concerning the issues addressed in its dismissal order. All other discovery was stayed in the case. The July 17, 2014 order indicated that the court 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 filed his opposition brief on March 24, 2015, and on April 24, 2015, the Defendants filed their reply briefs in response to that opposition. On October 15, 2015, the court entered a judgment dismissing all of the Plaintiff’s claims with prejudice and without further leave to amend. On November 13, 2015, the Plaintiff filed a notice of appeal of the dismissal decision, but no further dates for that appeal have been scheduled. Plaintiff’s opening appeals brief was filed on February 10, 2016. The Company’s answering brief was filed on April 15, 2016 and the Plaintiff filed a reply brief on May 11, 2016. The court has scheduled oral arguments for Plaintiff’s appeal for September 14, 2016.

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 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 ROSCA. On September 25, 2012, Webloyalty filed a motion to dismiss the complaint in its entirety and the court scheduled a hearing on the motion for January 14, 2013. Webloyalty also sought judicial notice of the enrollment page and related enrollment and account documents. Plaintiff filed his opposition on December 12, 2012, and Webloyalty filed its reply submission on January 7, 2013. Thereafter, on January 10, 2013, the court cancelled the previously scheduled January 14, 2013 hearing and indicated that it would rule based on the parties’ written submissions without the need for a hearing. On August 28, 2013, the court sua sponte dismissed Plaintiff’s complaint without prejudice with leave to amend by September 30, 2013. The Plaintiff filed his amended complaint on September 30, 2013, adding purported claims under the ECPA and for unjust enrichment, money had and received, conversion, civil theft, and invasion of privacy. On December 2, 2013, the Company moved to dismiss Plaintiff’s amended complaint. Plaintiff responded to the motion on January 27, 2014. On February 6, 2014, the court indicated that it would review the submissions and issue a decision on Plaintiff’s motion without oral argument. On September 29, 2014, the court dismissed the Plaintiff’s claims on substantive grounds and/or statute of limitations grounds. The court has allowed

the Plaintiff 28 days to file a motion demonstrating why a further amendment of the complaint would not be futile. On October 27, 2014, the Plaintiff filed a motion for leave to amend the complaint and attached a proposed amended complaint. The Company responded to the motion on November 10, 2014. On June 22, 2015, the court entered a final order and judgment denying Plaintiff’s motion to amend, dismissing all federal claims with prejudice, and dismissing all state claims without prejudice. On July 10, 2015, Plaintiff filed a notice appealing the dismissal decision and denial of his request to further amend his complaint to the U.S. Court of Appeals for the Ninth Circuit. The 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. Plaintiff filed a reply brief on February 2, 2016. The court has not yet scheduled a hearing for this appeal.

On May 11, 2016, Kohl’s Department Stores, Inc. (“Kohl’s”) filed a third-party complaint against Trilegiant in the United States District Court for the Eastern District of Pennsylvania, alleging claims for indemnification, contribution and breach of contract. The third-party complaint arises in a case filed in the same court on February 13, 2015, in which a putative class action has been brought against Kohl’s and the issuer of Kohl’s credit cards alleging breach of the covenant of good faith and fair dealing and unjust enrichment. Kohl’s third-party complaint alleges that Trilegiant breached alleged obligations to Kohl’s under a marketing agreement between Trilegiant and Kohl’s through which a Trilegiant membership program was offered to Kohl’s credit card customers, including Trilegiant’s purported obligation under that agreement to indemnify Kohl’s and participate in its defense of the class action. Kohl’s third-party complaint seeks damages from Trilegiant, including amounts for which Kohl’s may be liable to the named plaintiffs or the putative class in the class action relating to their claims pertaining to Trilegiant’s membership program and Kohl’s costs, including attorney fees, of defending against such claims. On July 5, 2016, Trilegiant filed a motion to dismiss or, in the alternative, to stay Kohl’s third-party complaint. We intend to defend ourselves vigorously against these claims.

From time to time, the Company receives inquiries from federal and state agencies which may include the FTC, the FCC, the CFPB, state attorneys general and other state regulatory agencies, including state insurance regulators. The Company responds to these matters and requests for documents, some of which may lead to further investigations and proceedings.

From time to time, our international operations also receive inquiries from consumer protection, insurance or data protection agencies. The Company responds to these matters and requests for documents, some of which may lead to further investigations and proceedings. On January 27, 2015, following voluntary discussions with the FCA, AIL, one of our UK subsidiaries, and 11 UK retail banks and credit card issuers, announced a proposed joint arrangement, which allows eligible consumers to make claims for compensation in relation to a discontinued benefit in one of AIL’s products. The proposed arrangement has been approved by a majority of those affected consumers who voted at a creditors’ meeting held on June 30, 2015, and has also been approved by the High Court in London at a hearing held on July 9, 2015. The proposed arrangement, which will not result in the imposition of any fines on AIL or the Company, became effective on August 17, 2015 and eligible customers had until March 18, 2016 to claim compensation (in exceptional circumstances, they will have until September 18, 2016). As of June 30, 2016, substantially all of the compensation to consumers had been paid and, based on the information currently available, the Company has recorded an estimated liability that represents any additional potential consumers’ refunds to be paid by the Company as part of such arrangement.

On April 18, 2014, Bank of America, N.A. (“Bank of America”) and FIA Card Services, N.A. (“FIA Card Services”) commenced an arbitration proceeding against Trilegiant and Affinion pursuant to the terms of the parties’ servicing agreements. In the arbitration proceeding, Bank of America asserted various causes of action and requests for monetary and other relief, including a demand for contractual indemnification of the losses and costs, including in particular customer refunds and reasonable attorneys’ fees that Bank of America incurred related to consent orders entered into by Bank of America with the Office of the Comptroller of the Currency on April 7, 2014 and with the CFPB on April 9, 2014. On May 16, 2014, Trilegiant commenced two separate arbitration proceedings against Bank of America, asserting that Bank of America breached the parties’ servicing agreements. On July 7, 2014, the parties agreed to stay one of the arbitrations initiated by Trilegiant and to dismiss the other arbitrations without prejudice, pending mediation. On September 22, 2014, Bank of America and Trilegiant participated in a mediation to attempt to resolve their outstanding disputes. The mediation process was ultimately unsuccessful in resolving the parties’ disputes. As such, the parties have resumed the arbitration process. The arbitration hearing commenced on October 12, 2015 and concluded on March 4, 2016. The parties submitted post-hearing memoranda in April 2016 and a decision is expected by the end of July 2016.

In September 2014, the Company received a NORA letter indicating that the CFPB was considering taking legal action against the Company for violations of Sections 1031 and 1036 of the Consumer Financial Protection Act relating to the Company’s identity theft protection products. In July 2015, the Company entered into a Stipulated Final Judgment and Order (“Consent Order”) settling allegations regarding unfair billing practices related to certain of the Company’s protection products and deceptive retention practices related to these same products. The Consent Order was approved by the court on October 27, 2015. The Consent Order requires a payment by the Company of $1.9 million to the CFPB’s civil penalty fund, which was paid in November 2015, and approximately

$6.75 million in consumer restitution, as well as injunctive provisions against the Company related to certain of its billing and retention practices, which are not expected to have a material effect on the Company. The Company is in full compliance 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, the Company understands 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 parties have scheduled a non-binding mediation for September 13, 2016.

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.

In the ordinary course of business, the Company is required to provide surety bonds to various state authorities in order to operate its membership, insurance and travel agency programs. As of June 30, 2016, the Company provided guarantees for surety bonds totaling approximately $10.4 million and issued letters of credit totaling $12.5 million.

In connection with the closing of the Apollo Transactions on October 17, 2005, Affinion Holdings adopted the 2005 Stock Incentive Plan (the “2005 Plan”). The 2005 Plan authorizes the Board of Directors (the “Board”) of Affinion Holdings to grant non-qualified, non-assignable stock options and rights to purchase shares of Affinion Holdings’ common stock to directors and employees of, and consultants to, Affinion Holdings and its subsidiaries. Options granted under the 2005 Plan have an exercise price no less than the fair market value of a share of the underlying common stock on the date of grant. Stock awards have a purchase price determined by the Board. The Board was authorized to grant up to 4.9 million shares of Affinion Holdings’ common stock under the 2005 Plan over a ten year period. As discussed below, no additional grants may be made under Affinion Holdings’ 2005 Plan on or after November 7, 2007, the effective date of the 2007 Plan, as defined below. As discussed below, on November 9, 2015, the effective date of the Reclassification (as defined below), existing option awards under the 2005 Plan were adjusted in accordance with their terms. Generally, existing options for Class A Common Stock (as defined below) under the 2005 Plan have been converted into options for shares of Affinion Holdings’ Class C Common Stock, $0.01 par value per share (the “Class C Common Stock”), and Affinion Holdings’ Class D Common Stock, $0.01 par value per share (the “Class D Common Stock” and , together with the Class C Common Stock, the “Class C/D Common Stock”), and both the exercise price and the number of shares of Class C Common Stock and Class D Common Stock underlying such options have been adjusted.

In November 2007, Affinion Holdings adopted the 2007 Stock Award Plan (the “2007 Plan”). The 2007 Plan authorizes the Board to grant awards of non-qualified stock options, incentive stock options, stock appreciation rights, restricted stock awards, RSUs, stock bonus awards, performance compensation awards (including cash bonus awards) or any combination of these awards to directors and employees of, and consultants to, Affinion Holdings and its subsidiaries. Unless otherwise determined by the Board of Directors, options granted under the 2007 Plan have an exercise price no less than the fair market value of a share of the underlying common stock on the date of grant. Stock awards have a purchase price determined by the Board. The Board was authorized to grant up to 10.0 million shares of Affinion Holdings’ common stock under the 2007 Plan over a ten year period. As discussed below, no additional grants may be made under Affinion Holdings’ 2007 Plan on or after November 9, 2015, the effective date of the Reclassification, as defined below, and all outstanding options granted under the 2007 Plan were cancelled for no consideration, effective November 9, 2015.

In connection with the acquisition of Webloyalty in January 2011, the Company assumed the Webloyalty Holdings, Inc. 2005 Equity Award Plan (the “Webloyalty 2005 Plan”). The Webloyalty 2005 Plan, adopted by Webloyalty’s board of directors in May 2005, authorized Webloyalty’s board of directors to grant awards of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, RSUs, stock bonuses and performance compensation awards or any combination of these awards to directors and employees of, and consultants to, Webloyalty. Unless otherwise determined by Webloyalty’s board of directors, incentive stock options granted under the Webloyalty 2005 Plan were to have an exercise price no less than the fair market value of a share of the underlying common stock on the date of grant and nonqualified stock options granted under the Webloyalty 2005 Plan were to have an exercise price no less than the par value of a share of Webloyalty’s common stock on the date of grant. The

Webloyalty board of directors was authorized to grant shares of Webloyalty’s common stock under the Webloyalty 2005 Plan over a ten year period. In connection with the Reclassification, as defined below, all outstanding options granted under the Webloyalty 2005 Plan were cancelled for no consideration, effective November 9, 2015.

On November 9, 2015, in conjunction with the 2015 Exchange Offers, the 2015 Consent Solicitations and the 2015 Rights Offering, Affinion Holdings effected the 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. Immediately prior to the Reclassification, Affinion Holdings’ Series A Warrants (the “Series A Warrants”) were mandatorily cashlessly exercised for shares of Affinion Holdings’ then existing Class A Common Stock, par value $0.01 per share (the “Class A Common Stock”), and Affinion Holdings’ Series B Warrants (the “Series B Warrants”) were cancelled for no additional consideration. In addition, all issued and outstanding options under the Webloyalty 2005 Plan and the 2007 Plan were cancelled for no additional consideration. Stock options issued and outstanding under the 2005 Plan were not affected by the cancellation. In accordance with the Reclassification, Affinion Holdings’ Class A Common Stock was converted into shares of Affinion Holdings’ Class C/D Common Stock. Issued and outstanding options under the 2005 Plan were converted into options to acquire shares of Affinion Holdings’ Class C Common Stock and shares of Affinion Holdings’ Class D Common Stock. The number of shares of Class C/D Common Stock subject to the issued and outstanding options were adjusted based on the conversion ratio utilized for the conversion of the Class A Common Stock, and the exercise price was correspondingly adjusted. As of June 30, 2016, there were outstanding options to acquire approximately 1,900 shares of Affinion Holdings’ Class C Common Stock and approximately 2,000 shares of Affinion Holdings Class D Common Stock. The weighted average exercise price of the outstanding options, all of which were vested at June 30, 2016, is $154.20 and the issued and outstanding options granted to employees have a weighted average contractual life of 7.8 years and the issued and outstanding options granted to directors have a weighted average contractual life of 3.7 years.

On November 9, 2015, the Board of Directors adopted the 2015 Equity Incentive Plan (the “2015 Plan”), which authorizes the Compensation Committee to grant stock options, restricted stock, RSUs and other equity-based awards. Under the 2015 Plan, 10% of the outstanding shares of common stock have been reserved for issuance pursuant to awards. On March 9, 2016, the Compensation Committee awarded 859,500 options to employees under the 2015 Plan, all of which are outstanding as of June 30, 2016.

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

During the three and six months ended June 30, 2016 and 2015, there were no stock options granted to employees from the 2005 Plan. All options previously granted were granted with an exercise price equal to the estimated fair market value of a share of the underlying common stock on the date of grant.

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

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

During the three and six months ended June 30, 2016 and 2015, there were no stock options granted to employees from the 2007 Plan. All options granted were granted with an exercise price equal to the estimated fair market value of a share of the underlying common stock on the date of grant.

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

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

November 9, 2015, in conjunction with the Reclassification, all issued and outstanding options under the 2007 Plan were cancelled for no additional consideration.

During the three and six months ended June 30, 2016 and 2015, there were no stock options granted to members of the Board of Directors. Generally, options granted to members of the Board of Directors fully vest on the date of grant and have an initial option term of 10 years. On March 28, 2014, the Company modified approximately 0.2 million of the outstanding options granted to members of the Board of Directors, adjusting the exercise price to $1.14 per common share and extending the contractual life of the modified options until April 1, 2024. On November 9, 2015, in conjunction with the Reclassification, all issued and outstanding options granted to members of the Board of Directors under the 2007 Plan were cancelled for no additional consideration.

During the six months ended June 30, 2016, the Compensation Committee granted options to employees under the 2015 Plan to purchase approximately 0.9 million shares of Affinion Holdings’ Common Stock. During the three months ended June 30, 2016, there were no grants to employees under the 2015 Plan. The options have a contractual life of 10 years and vest ratably on each of the first four anniversaries of the grant date. The exercise price of the options is $13.97 per share, the grant date fair value of a share of Affinion Holdings’ Common Stock.

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

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

A summary of option activity for options to acquire shares of Class C/D Common Stock for the six months ended June 30, 2016 is presented below (number of options in thousands):

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

Outstanding options at January 1, 2016		7			3			3			2
Granted	—			—			—			—
Exercised	—			—			—			—
Forfeited or expired		(5	)		(2	)		(2	)	—
Outstanding options at June 30, 2016		2			1			1			2
Vested or expected to vest at June 30, 2016		2			1			1			2
Exercisable options at June 30, 2016		2			1			1			2
Weighted average remaining contractual term (in years)	0			0			0			0
Weighted average grant date fair value per option
granted in 2016	$	-		$	-		$	-		$	-
Weighted average exercise price of exercisable options
at June 30, 2016	$	147.12		$	147.12		$	147.12		$	167.44
Weighted average exercise price of outstanding options
at June 30, 2016	$	147.12		$	147.12		$	147.12		$	167.44

A summary of option activity for options to acquire shares of Common Stock granted under the 2015 Plan for the six months ended June 30, 2016 is presented below (number of options in thousands):

Based on the estimated fair values of options granted, stock-based compensation expense for the three and six months ended June 30, 2016 totaled $0.5 million and $0.6 million, respectively. Based on the estimated fair values of options granted, stock-based compensation expense for the three and six months ended June 30, 2015 totaled $0.3 million and $0.9 million, respectively. As of June 30, 2016, there was $7.4 million of unrecognized compensation cost related to unvested stock options, which will be recognized over a weighted average period of approximately 2.0 years.

On March 30, 2012, the Board’s Compensation Committee approved the 2012 Retention Award Program (the “2012 RAP”), which provides for awards of restricted stock units (“RSUs”) under the 2007 Plan. The RSUs awarded under the 2012 RAP are subject to time-based vesting conditions that generally ran through December 31, 2014. Generally, the number of RSUs awarded to each participant is equal to the quotient of (i) the dollar value of the award, divided by (ii) $8.16, the value per share of Affinion Holdings’ common stock as of the grant date. Upon vesting of the RSUs, participants were able to settle the RSUs in shares of common stock or elect to receive cash in lieu of shares of common stock upon any of the vesting dates for such RSUs. Due to the ability of the participants to settle their awards in cash, the Company accounted for these RSUs as a liability award.

A summary of RSU activity under the 2007 Plan for the six months ended June 30, 2016 is presented below (number of RSUs in thousands):

On March 25, 2016, each of the non-employee members of the Board of Directors was granted RSUs under the 2015 Plan as a component of their annual compensation. The RSUs vested 3/12^ths as of the date of grant and an additional 1/12^th vested on March 31, 2016 and 1/12^th will vest on the last day of the next eight months, subject to the director’s continuing service on each vesting date. Subject to vesting, the RSUs granted to the non-employee directors will be settled in shares of Affinion Holdings’ common stock on the earlier to occur of a Change in Control (as defined in the 2015 Plan) and the third anniversary of the date of grant. As these awards will be settled in shares of Affinion Holdings’ common stock, the Company has accounted for these RSUs as an equity award.

A summary of RSU activity under the 2015 Plan for the six months ended June 30, 2016 is presented below (number of RSUs in thousands):

Based on the estimated fair value of the RSUs granted, stock-based compensation expense for the three and six months ended June 30, 2016 was $0.1 million and $0.2 million, respectively. Based on the estimated fair value of the RSUs granted, stock-based compensation expense for the three and six months ended June 30, 2015 was $0.1 million and $0.2 million, respectively. As of June 30, 2016, there was $0.1 million of unrecognized compensation cost related to the remaining vesting period of RSUs granted under the 2015 Plan. This cost will be recorded in future periods as stock-based compensation expense over a weighted average period of approximately 0.4 years.

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

On March 16, 2015, the Compensation Committee of the Board approved the terms of (i) the Affinion Group Holdings, Inc. 2015 Retention Award Program (the “2015 Retention Program”), an equity and cash incentive award program intended to foster retention of key employees of Affinion Holdings and its subsidiaries, and (ii) the awards (the “Retention Awards”) to each such key employee consisting of retention units (“RUs”) and a cash retention award (“CRA”) to be made by Affinion Holdings under the 2015 Retention Program. Each Retention Award will entitle the employee to one share of Affinion Holdings’ common stock for each RU and a cash payment in respect of the CRA, in each case, subject to applicable withholding taxes, when the applicable vesting conditions for the Retention Awards are met. The Retention Awards are subject to time-based vesting conditions. An employee’s RUs and CRA will vest in two substantially equal installments on each of March 15, 2016 and March 15, 2017 (each, a “Vesting Date”), subject to that employee’s continued service with Affinion Holdings and its subsidiaries on each applicable Vesting Date. An employee’s RUs and the portion of his or her CRA that become vested as of a given Vesting Date in accordance with the above vesting criteria will be settled as follows: (i) for each RU that vests on such Vesting Date, Affinion Holdings will deliver to the employee on the Settlement Date one share of common stock and (ii) for the portion of the CRA that vests on such Vesting Date, Affinion Holdings will pay to the employee on the Settlement Date an amount in cash equal to such vested portion of the CRA, in each case, subject to applicable tax withholding. An employee’s RUs and the portion of his or her CRA that become vested on a given Vesting Date will be settled as soon as practicable following such Vesting Date but in no event later than the sixtieth (60th) day following such Vesting Date (the “Settlement Date”). Upon termination of employment for any reason, an employee will forfeit the entire unvested portion of his or her Retention Award. The aggregate award value granted to participants under the 2015 Retention Program outstanding as of June 30, 2016 was approximately $7.2 million, net of forfeitures of $1.2 million. In conjunction with the

Reclassification, which was effective on November 9, 2015, Retention Awards under the 2015 Retention Program that called for vesting of Class A Common Stock will vest in an adjusted number of shares of Class C Common Stock and Class D Common Stock. During the six months ended June 30, 2016, 6,466 shares of Class C Common Stock and 6,809 shares of Class D Common Stock vested, in addition to CRAs of approximately $3.9 million. During the three and six months ended June 30, 2016, the Company recognized expense related to the 2015 Retention Program of $0.8 million and $1.8 million, respectively, of which $0.4 million and $0.9 million, respectively, related to the common stock portion of the Retention Awards. During the three and six months ended June 30, 2015, the Company recognized expense related to the 2015 Retention Program of $1.0 million and $1.2 million, respectively, of which $0.5 million and $0.6 million, respectively, related to the common stock portion of the Retention Awards.

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

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

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

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

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

Prior to 2009, Cendant (i) distributed the equity interests it previously held in its hospitality services business (“Wyndham”) and its real estate services business (“Realogy”) to Cendant stockholders and (ii) sold its travel services business (“Travelport”) to a third party. Cendant continues as a re-named publicly traded company which owns the vehicle rental business (“Avis Budget,” together with Wyndham and Realogy, the “Cendant Entities”). Subject to certain exceptions, Wyndham and Realogy have agreed to share Cendant’s contingent and other liabilities (including its indemnity obligations to the Company described above and other liabilities to the Company in connection with the Apollo Transactions) in specified percentages. If any Cendant Entity defaults in its payment, when due, of any such liabilities, the remaining Cendant Entities are required to pay an equal portion of the amounts in default. Wyndham held a portion of the preferred stock issued in connection with the Apollo Transactions until the preferred stock was redeemed in 2011, and a portion of the warrants issued in connection with the Apollo Transactions until the warrants expired in 2011, while Realogy was subsequently acquired by an affiliate of Apollo and remained an affiliate of Apollo until July 2013. Therefore, for the three and six months ended June 30, 2016 and 2015, none of the Cendant Entities is a related party.

On October 17, 2005, Apollo entered into a consulting agreement with the Company for the provision of certain structuring and advisory services. The consulting agreement allowed Apollo and its affiliates to provide certain advisory services for a period of twelve years or until Apollo owned less than 5% of the beneficial economic interests of the Company, whichever was earlier. The agreement could be terminated earlier by mutual consent. The Company was required to pay Apollo an annual fee of $2.0 million for

these services commencing in 2006. On January 14, 2011, the Company and Apollo entered into an Amended and Restated Consulting Agreement (“Consulting Agreement”), pursuant to which Apollo and its affiliates would continue to provide Affinion with certain advisory services on substantially the same terms as the previous consulting agreement, except that the annual fee paid by Affinion increased to $2.6 million from $2.0 million, commencing January 1, 2012, with an additional one-time fee of $0.6 million which was paid in January 2011 in respect of calendar year 2011. In connection with the December 2013 refinancing of Affinion’s 2006 senior subordinated notes and Affinion Holdings’ 2010 senior notes, Apollo and the Company further amended the consulting agreement, pursuant to which Apollo would not be paid any fees due under the consulting agreement until such time as none of Affinion Holdings’ 2013 senior notes remained outstanding. If a transaction was consummated involving a change of control or an initial public offering, then, in lieu of the annual consulting fee and subject to certain qualifications, Apollo could have elected to receive a lump sum payment equal to the present value of all consulting fees payable through the end of the term of the consulting agreement.

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

In connection with the 2015 Exchange Offers and 2015 Rights Offering, each of the parties to the Consulting Agreement entered into a termination agreement for no additional consideration. As a result of the termination of the consulting agreement, the Company has no obligation to pay Apollo any previously accrued and unpaid amounts for prior services rendered under the consulting agreement. The amount expensed related to this consulting agreement was $0.6 million and $1.3 million, respectively, for the three and six months ended June 30, 2015, which is included in general and administrative expenses in the accompanying unaudited condensed consolidated statements of comprehensive income (loss) for the three and six months ended June 30, 2015. There was no expense recognized related to this consulting agreement for the three and six months ended June 30, 2016.

In July 2014, Novitex Enterprise Solutions (“Novitex”), a document outsourcing provider owned by affiliates of Apollo, commenced providing administrative services to the Company. In addition, in June 2015, Novitex assumed responsibility for the performance and management of the Company’s domestic print and mailing operations. During the three and six months ended June 30, 2015, the Company recognized expenses of $0.3 million and $0.6 million, respectively, which are included in general and administrative expenses in the accompanying unaudited condensed consolidated statements of comprehensive income (loss) for the three and six months ended June 30, 2015. As a result of the 2015 Exchange Offers and 2015 Rights Offering consummated on November 9, 2015, Novitex was not a related party during the three and six months ended June 30, 2016.

SkyMall, which was acquired by the Company in September 2014, provides fulfillment services to Caesar’s Entertainment Corporation (“Caesar’s”), which is owned by an affiliate of Apollo. During the three and six months ended June 30, 2015, the Company recognized revenues, net of the cost to acquire the merchandise and gift cards, of $0.4 million and $0.8 million, respectively, which are included in net revenues in the accompanying unaudited condensed consolidated statements of comprehensive income (loss) for the three and six months ended June 30, 2015. As a result of the 2015 Exchange Offers and 2015 Rights Offering consummated on November 9, 2015, Caesar’s was not a related party during the three and six months ended June 30, 2016.

During the three months ended September 30, 2015, the Company sold its investment in Prospectiv Direct, LLC for cash proceeds of $0.1 million, shares of common stock of the buyer valued at $0.2 million and receivables of $0.7 million, which was recorded at its estimated net realizable value of $0.4 million. In connection with the sale, the Company recognized a gain of $0.7 million during the three months ended September 30, 2015 and also recognized revenue of $0.2 million related to the settlement of future royalty income due to the Company.

On January 28, 2010, the Company acquired an ownership interest of approximately 5%, subsequently reduced to approximately 2.9%, in Alclear Holdings, LLC (“Alclear”) for $1.0 million. A family member of one of the Company’s directors, at that time, controls and partially funded Alclear and serves as its chief executive officer. In March 2015, the Company sold its ownership interest in Alclear to certain existing members of Alclear who are not related parties or otherwise affiliated with the Company for $1.5 million, and the related gain of $0.5 million is included in other income, net in the accompanying unaudited condensed consolidated statement of comprehensive income (loss) for the six months ended June 30, 2015. The Company continued to provide support services to Alclear and recognized revenue of $0.1 million and $0.2 million, respectively, for the three and six months ended June 30, 2015. The master services agreement was terminated on April 1, 2016. The Company will provide transition services to Alclear until August 1, 2016.

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

agreement also provided for reimbursement of Mr. Fernandes’ out-of-pocket business and travel expenses and for his healthcare insurance costs during the contract period. The consulting agreement was terminated during the fourth quarter of 2015.

On each of May 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.

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

The following table provides information about the Company’s financial instruments that are sensitive to changes in interest rates. The table presents principal cash flows and related weighted-average interest rates by expected maturity for the Company’s long-term debt as of June 30, 2016:

																		Fair Value At
														2021 and				June 30,
	2016			2017			2018			2019		2020		Thereafter		Total		2016
	(in millions)
Fixed rate debt	$	—		$	—		$	622.1		$	—	$	—	$	—	$	622.1	$	324.3
Average interest rate		8.01	%		8.01	%		7.97	%
Variable rate debt	$	3.9		$	7.8		$	1,170.9		$	—	$	—	$	—	$	1,182.6	$	1,001.3
Average interest rate (a)		7.38	%		7.38	%		7.68	%

On a limited basis the Company has entered into 30 day foreign currency forward contracts, and upon expiration of the contracts, entered into successive 30 day foreign currency forward contracts. The contracts have been entered into to mitigate the Company’s foreign currency exposures related to intercompany loans which are not expected to be repaid within the next twelve months and that are denominated in Euros and British pounds. At June 30, 2016, the Company had in place contracts to sell EUR 10.0 million and receive $11.1 million and to sell GBP 13.9 million and receive $18.5 million.

During the three and six months ended June 30, 2016, the Company recognized a realized gain on the forward contracts of $1.4 million and $1.9 million, respectively. During the three and six months ended June 30, 2015, the Company recognized a realized loss on the forward contracts of $1.6 million and a realized gain on the forward contracts of $2.7 million, respectively. As of June 30, 2016, the Company had an immaterial unrealized loss on the foreign currency forward contracts.

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

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

There were no financial instruments measured at fair value on a recurring basis as of June 30, 2016 and December 31, 2015, other than foreign currency forward contracts. Such contracts have historically had a term of approximately thirty days and have been held to maturity. The fair value of the foreign currency forward contracts is measured based on significant observable inputs (Level 2).

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

Management evaluates the operating results of each of its reportable segments based upon several factors, of which the primary factors are revenue and “Segment EBITDA,” which the Company defines as income from operations before depreciation and amortization. The presentation of Segment EBITDA may not be comparable to similarly titled measures used by other companies. The segment information discussed below reflects our new operating segments in effect as of January 1, 2016, as discussed in Note 1 to our unaudited condensed consolidated financial statements.

The Segment EBITDA of the Company’s four reportable segments does not include general corporate expenses. Corporate expenses include certain departmental service costs such as human resources, legal, corporate finance and accounting and unallocated portions of information technology, in addition to expenses previously recorded in corporate such as professional fees related to debt financing activities and stock compensation costs. General corporate expenses have been excluded from the presentation of the Segment EBITDA for the Company’s four reportable segments because they are not reported to the chief operating decision maker for purposes of allocating resources among operating segments or assessing operating segment performance. The accounting policies of the reportable segments are the same as those described in Note 2—Summary of Significant Accounting Policies in the Company’s Form 10-K for the year ended December 31, 2015.

The following supplemental condensed consolidating financial information presents, in separate columns, the condensed consolidating balance sheets as of June 30, 2016 and December 31, 2015, and the related condensed consolidating statements of comprehensive income (loss) for the three and six month periods ended June 30, 2016 and 2015 and the related condensed consolidating statements of cash flows for the six month periods ended June 30, 2016 and 2015 for (i) the Company (Affinion Group, Inc.) on a parent-only basis, with its investment in subsidiaries recorded under the equity method, (ii) the Guarantor Subsidiaries (the Company’s subsidiaries that guarantee the 2010 senior notes) on a combined basis, (iii) the Non-Guarantor Subsidiaries (the Company’s subsidiaries that do not guarantee the 2010 senior notes) on a combined basis and (iv) the Company on a consolidated basis. The guarantees are full and unconditional and joint and several obligations of each of the guarantor subsidiaries, all of which are 100% owned by the Company. There are no significant restrictions on the ability of the Company to obtain funds from any of its guarantor subsidiaries by dividends or loan.

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

The supplemental condensed consolidating financial information presented includes Incentive Networks LLC, a recently formed subsidiary, as a Guarantor Subsidiary. Incentive Networks LLC guarantees the 2010 senior notes and the International Notes, but does not guarantee the 2013 senior subordinated notes.

						Non-
	Parent			Guarantor		Guarantor
	Company			Subsidiaries		Subsidiaries			Eliminations			Consolidated

Assets
Current assets:
Cash and cash equivalents	$	11.7		$	2.6	$	30.0		$	—		$	44.3
Restricted cash		—			16.7		11.1			—			27.8
Receivables, net		1.9			82.6		34.5			—			119.0
Profit-sharing receivables from insurance carriers		—			18.9		—			—			18.9
Prepaid commissions		—			27.4		4.0			—			31.4
Intercompany interest receivable		—			—		1.1			(1.1	)		—
Other current assets		11.5			26.1		25.4			—			63.0
Total current assets		25.1			174.3		106.1			(1.1	)		304.4
Property and equipment, net		4.6			71.2		31.0			—			106.8
Contract rights and list fees, net		—			15.8		—			—			15.8
Goodwill		—			155.5		67.5			—			223.0
Other intangibles, net		—			40.1		8.8			—			48.9
Receivables from related parties		28.9			—		—			—			28.9
Investment in subsidiaries		2,319.4			57.8		63.9			(2,441.1	)		—
Intercompany loan receivable		163.0			20.3		22.6			(205.9	)		—
Intercompany receivables		—			2,262.7		—			(2,262.7	)		—
Other non-current assets		13.3			27.7		6.2			—			47.2
Total assets	$	2,554.3		$	2,825.4	$	306.1		$	(4,910.8	)	$	775.0
Liabilities and Deficit
Current liabilities:
Current portion of long-term debt	$	7.8		$	—	$	—		$	—		$	7.8
Accounts payable and accrued expenses		84.6			146.5		78.9			—			310.0
Payables to related parties		13.4			—		—			—			13.4
Intercompany interest payable		—			—		1.1			(1.1	)		—
Deferred revenue		0.1			37.1		21.2			—			58.4
Income taxes payable		0.6			-		1.6			—			2.2
Total current liabilities		106.5			183.6		102.8			(1.1	)		391.8
Long-term debt		1,699.1			—		155.0			—			1,854.1
Deferred income taxes		14.2			23.0		1.0			—			38.2
Deferred revenue		0.3			2.3		3.0			—			5.6
Intercompany loans payable		23.8			—		182.1			(205.9	)		—
Intercompany payables		2,248.1			—		14.6			(2,262.7	)		—
Other long-term liabilities		3.2			18.0		4.3			—			25.5
Total liabilities		4,095.2			226.9		462.8			(2,469.7	)		2,315.2
Total Affinion Group, Inc. deficit		(1,540.9	)		2,598.5		(157.4	)		(2,441.1	)		(1,540.9	)
Non-controlling interest in subsidiary		—			—		0.7			—			0.7
Total deficit		(1,540.9	)		2,598.5		(156.7	)		(2,441.1	)		(1,540.2	)
Total liabilities and deficit	$	2,554.3		$	2,825.4	$	306.1		$	(4,910.8	)	$	775.0

						Non-
	Parent			Guarantor		Guarantor
	Company			Subsidiaries		Subsidiaries			Eliminations			Consolidated

Assets
Current assets:
Cash and cash equivalents	$	31.0		$	1.6	$	18.6		$	—		$	51.2
Restricted cash		—			16.0		13.2			—			29.2
Receivables, net		1.9			68.7		43.4			—			114.0
Profit-sharing receivables from insurance carriers		—			19.9		—			—			19.9
Prepaid commissions		—			32.9		5.5			—			38.4
Intercompany interest receivable		1.2			—		1.1			(2.3	)		—
Other current assets		20.4			37.8		27.4			—			85.6
Total current assets		54.5			176.9		109.2			(2.3	)		338.3
Property and equipment, net		3.6			78.5		37.4			—			119.5
Contract rights and list fees, net		—			16.6		—			—			16.6
Goodwill		—			155.6		70.2			—			225.8
Other intangibles, net		—			44.6		10.4			—			55.0
Receivables from related parties		28.9			—		—			—			28.9
Investment in subsidiaries		2,199.4			52.1		63.9			(2,315.4	)		—
Intercompany loan receivable		144.9			20.0		22.6			(187.5	)		—
Intercompany receivables		—			2,150.4		—			(2,150.4	)		—
Other non-current assets		(1.8	)		41.5		5.2			—			44.9
Total assets	$	2,429.5		$	2,736.2	$	318.9		$	(4,655.6	)	$	829.0
Liabilities and Deficit
Current liabilities:
Current portion of long-term debt	$	7.7		$	0.1	$	—		$	—		$	7.8
Accounts payable and accrued expenses		87.6			163.4		95.0			—			346.0
Payables to related parties		10.3			—		—			—			10.3
Intercompany interest payable		1.1			—		1.2			(2.3	)		—
Deferred revenue		0.2			44.9		24.2			—			69.3
Income taxes payable		1.0			0.1		1.3			—			2.4
Total current liabilities		107.9			208.5		121.7			(2.3	)		435.8
Long-term debt		1,713.1			—		155.3			—			1,868.4
Deferred income taxes		—			34.9		1.0			—			35.9
Deferred revenue		0.3			3.7		3.7			—			7.7
Intercompany loans payable		22.6			—		164.9			(187.5	)		—
Intercompany payables		2,128.9			—		21.5			(2,150.4	)		—
Other long-term liabilities		3.3			19.6		4.2			—			27.1
Total liabilities		3,976.1			266.7		472.3			(2,340.2	)		2,374.9
Total Affinion Group, Inc. deficit		(1,546.6	)		2,469.5		(154.1	)		(2,315.4	)		(1,546.6	)
Non-controlling interest in subsidiary		—			—		0.7			—			0.7
Total deficit		(1,546.6	)		2,469.5		(153.4	)		(2,315.4	)		(1,545.9	)
Total liabilities and deficit	$	2,429.5		$	2,736.2	$	318.9		$	(4,655.6	)	$	829.0

							Non-
	Parent			Guarantor			Guarantor
	Company			Subsidiaries			Subsidiaries			Eliminations			Consolidated

Net revenues	$	—		$	167.8		$	76.2		$	—		$	244.0
Expenses:
Cost of revenues, exclusive of depreciation and amortization shown separately below:
Marketing and commissions		—			59.7			25.0			—			84.7
Operating costs		10.8			32.0			39.9			—			82.7
General and administrative		13.8			8.4			5.7			—			27.9
Depreciation and amortization		0.1			8.9			4.9			—			13.9
Total expenses		24.7			109.0			75.5			—			209.2
Income (loss) from operations		(24.7	)		58.8			0.7			—			34.8
Interest income		0.2			—			0.1			—			0.3
Interest expense		(26.5	)		0.9			(1.0	)		—			(26.6	)
Interest income (expense) - intercompany		(0.5	)		—			0.5			—			—
Income (loss) before income taxes and non-controlling interest		(51.5	)		59.7			0.3			—			8.5
Income tax expense		(0.3	)		(0.3	)		(0.3	)		—			(0.9	)
		(51.8	)		59.4			—			—			7.6
Equity in income of subsidiaries		59.3			3.1			—			(62.4	)		—
Net income (loss)		7.5			62.5			—			(62.4	)		7.6
Less: net income attributable to non-controlling interest		—			—			(0.1	)		—			(0.1	)
Net income (loss) attributable to Affinion Group, Inc.	$	7.5		$	62.5		$	(0.1	)	$	(62.4	)	$	7.5

Net income (loss)	$	7.5		$	62.5		$	-		$	(62.4	)	$	7.6
Currency translation adjustment, net of tax		(4.4	)		0.3			1.6			(1.9	)		(4.4	)
Comprehensive income (loss)		3.1			62.8			1.6			(64.3	)		3.2
Less: comprehensive income attributable to non-controlling interest		—			—			(0.1	)		—			(0.1	)
Comprehensive income (loss) attributable to Affinion Group, Inc.	$	3.1		$	62.8		$	1.5		$	(64.3	)	$	3.1

							Non-
	Parent			Guarantor			Guarantor
	Company			Subsidiaries			Subsidiaries			Eliminations			Consolidated

Net revenues	$	—		$	342.4		$	156.5		$	—		$	498.9
Expenses:
Cost of revenues, exclusive of depreciation and amortization shown separately below:
Marketing and commissions		0.1			121.0			51.7			—			172.8
Operating costs		22.4			64.4			82.7			—			169.5
General and administrative		30.4			15.3			14.3			—			60.0
Depreciation and amortization		0.2			18.1			9.9			—			28.2
Total expenses		53.1			218.8			158.6			—			430.5
Income (loss) from operations		(53.1	)		123.6			(2.1	)		—			68.4
Interest income		0.4			—			0.2			—			0.6
Interest expense		(53.3	)		0.7			(2.1	)		—			(54.7	)
Interest income (expense) - intercompany		(1.1	)		—			1.1			—			—
Income (loss) before income taxes and non-controlling interest		(107.1	)		124.3			(2.9	)		—			14.3
Income tax expense		(0.5	)		(1.5	)		(2.0	)		—			(4.0	)
		(107.6	)		122.8			(4.9	)		—			10.3
Equity in income of subsidiaries		117.7			5.7			—			(123.4	)		—
Net income (loss)		10.1			128.5			(4.9	)		(123.4	)		10.3
Less: net income attributable to non-controlling interest		—			—			(0.2	)		—			(0.2	)
Net income (loss) attributable to Affinion Group, Inc.	$	10.1		$	128.5		$	(5.1	)	$	(123.4	)	$	10.1

Net income (loss)	$	10.1		$	128.5		$	(4.9	)	$	(123.4	)	$	10.3
Currency translation adjustment, net of tax		(4.4	)		0.3			1.6			(1.9	)		(4.4	)
Comprehensive income (loss)		5.7			128.8			(3.3	)		(125.3	)		5.9
Less: comprehensive income attributable to non-controlling interest		—			—			(0.2	)		—			(0.2	)
Comprehensive income (loss) attributable to Affinion Group, Inc.	$	5.7		$	128.8		$	(3.5	)	$	(125.3	)	$	5.7

							Non-
	Parent			Guarantor			Guarantor
	Company			Subsidiaries			Subsidiaries			Eliminations			Consolidated

Net revenues	$	—		$	210.9		$	84.1		$	—		$	295.0
Expenses:
Cost of revenues, exclusive of depreciation and amortization shown separately below:
Marketing and commissions		—			77.2			33.8			—			111.0
Operating costs		—			51.0			48.4			—			99.4
General and administrative		1.9			17.6			9.3			—			28.8
Facility exit costs		—			0.6			—			—			0.6
Depreciation and amortization		0.1			17.1			6.6			—			23.8
Total expenses		2.0			163.5			98.1			—			263.6
Income from operations		(2.0	)		47.4			(14.0	)		—			31.4
Interest income		0.1			—			0.1			—			0.2
Interest expense		(34.5	)		(0.1	)		(12.8	)		—			(47.4	)
Interest income (expense) - intercompany		(11.9	)		—			11.9			—			—
Other income, net		—			2.8			(2.7	)		—			0.1
Loss before income taxes and non-controlling interest		(48.3	)		50.1			(17.5	)		—			(15.7	)
Income tax expense		(0.4	)		(0.9	)		0.2			—			(1.1	)
		(48.7	)		49.2			(17.3	)		—			(16.8	)
Equity in income of subsidiaries		31.8			(0.5	)		—			(31.3	)		—
Net loss		(16.9	)		48.7			(17.3	)		(31.3	)		(16.8	)
Less: net income attributable to non-controlling interest		—			—			(0.1	)		—			(0.1	)
Net loss attributable to Affinion Group, Inc.	$	(16.9	)	$	48.7		$	(17.4	)	$	(31.3	)	$	(16.9	)

Net loss	$	(16.9	)	$	48.7		$	(17.3	)	$	(31.3	)	$	(16.8	)
Currency translation adjustment, net of tax		—			—			1.5			—			1.5
Comprehensive loss		(16.9	)		48.7			(15.8	)		(31.3	)		(15.3	)
Less: comprehensive income attributable to non-controlling interest		—			—			(0.1	)		—			(0.1	)
Comprehensive loss attributable to Affinion Group, Inc.	$	(16.9	)	$	48.7		$	(15.9	)	$	(31.3	)	$	(15.4	)

							Non-
	Parent			Guarantor			Guarantor
	Company			Subsidiaries			Subsidiaries			Eliminations			Consolidated

Net revenues	$	—		$	427.0		$	170.3		$	—		$	597.3
Expenses:
Cost of revenues, exclusive of depreciation and amortization shown separately below:
Marketing and commissions		—			156.5			70.2			—			226.7
Operating costs		—			106.3			96.7			—			203.0
General and administrative		11.0			35.5			17.3			—			63.8
Facility exit costs		—			1.1			—			—			1.1
Depreciation and amortization		0.4			34.2			13.4			—			48.0
Total expenses		11.4			333.6			197.6			—			542.6
Income from operations		(11.4	)		93.4			(27.3	)		—			54.7
Interest income		0.3			—			0.1			—			0.4
Interest expense		(68.6	)		(0.1	)		(25.8	)		—			(94.5	)
Interest income (expense) - intercompany		(23.8	)		—			23.8			—			—
Other income, net		—			2.8			(2.2	)		—			0.6
Loss before income taxes and non-controlling interest		(103.5	)		96.1			(31.4	)		—			(38.8	)
Income tax expense		(0.7	)		(1.8	)		(0.6	)		—			(3.1	)
		(104.2	)		94.3			(32.0	)		—			(41.9	)
Equity in income of subsidiaries		62.0			(1.1	)		—			(60.9	)		—
Net loss		(42.2	)		93.2			(32.0	)		(60.9	)		(41.9	)
Less: net income attributable to non-controlling interest		—			—			(0.3	)		—			(0.3	)
Net loss attributable to Affinion Group, Inc.	$	(42.2	)	$	93.2		$	(32.3	)	$	(60.9	)	$	(42.2	)

Net loss	$	(42.2	)	$	93.2		$	(32.0	)	$	(60.9	)	$	(41.9	)
Currency translation adjustment, net of tax		—			—			(3.5	)		—			(3.5	)
Comprehensive loss		(42.2	)		93.2			(35.5	)		(60.9	)		(45.4	)
Less: comprehensive income attributable to non-controlling interest		—			—			(0.2	)		—			(0.2	)
Comprehensive loss attributable to Affinion Group, Inc.	$	(42.2	)	$	93.2		$	(35.7	)	$	(60.9	)	$	(45.6	)

							Non-
	Parent			Guarantor			Guarantor
	Company			Subsidiaries			Subsidiaries			Eliminations			Consolidated

Operating Activities
Net income (loss)	$	10.1		$	128.5		$	(4.9	)	$	(123.4	)	$	10.3
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		0.2			18.1			9.9			—			28.2
Amortization of debt discount and financing costs		3.0			—			—			—			3.0
Recovery of accounts receivable loss provided for		—			0.3			0.1			—			0.4
Amortization of carrying value adjustment		(13.2	)		—			(4.2	)		—			(17.4	)
Share-based compensation		1.7			—			—			—			1.7
Equity in (income) loss of subsidiaries		(117.7	)		(5.7	)		—			123.4			—
Deferred income taxes		0.2			1.4			(0.1	)		—			1.5
Net change in assets and liabilities:
Restricted cash		—			(0.6	)		1.1			—			0.5
Receivables		—			(14.2	)		7.6			—			(6.6	)
Receivables from related parties		1.2			—			(1.2	)		—			—
Profit-sharing receivables from insurance carriers		—			1.0			—			—			1.0
Prepaid commissions		—			5.5			1.1			—			6.6
Other current assets		8.9			11.5			0.9			—			21.3
Contract rights and list fees		—			0.7			—			—			0.7
Other non-current assets		(1.2	)		0.8			(0.9	)		—			(1.3	)
Accounts payable and accrued expenses		(3.0	)		(17.2	)		(7.6	)		—			(27.8	)
Payables to related parties		1.5			—			—			—			1.5
Deferred revenue		(0.1	)		(9.1	)		(2.9	)		—			(12.1	)
Income taxes receivable and payable		(0.4	)		(0.1	)		0.1			—			(0.4	)
Other long-term liabilities		—			(1.0	)		(1.3	)		—			(2.3	)
Other, net		1.2			—			(0.4	)		—			0.8
Net cash provided by (used in) operating activities		(107.6	)		119.9			(2.7	)		—			9.6
Investing Activities
Capital expenditures		(1.2	)		(6.5	)		(4.0	)		—			(11.7	)
Restricted cash		—			—			0.3			—			0.3
Capital contribution to subsidiary		(0.3	)		—			—			0.3			—
Intercompany receivables and payables		—			(112.4	)		—			112.4			—
Net cash provided by (used in) investing activities		(1.5	)		(118.9	)		(3.7	)		112.7			(11.4	)
Financing Activities
Principal payments on borrowings		(4.0	)		—			—			—			(4.0	)
Intercompany receivables and payables		119.3			—			(6.9	)		(112.4	)		—
Capital contribution to subsidiary					—			0.3			(0.3	)		—
Dividend paid to non-controlling interest		—			—			(0.2	)		—			(0.2	)
Intercompany loans		(25.5	)		—			25.5			—			—
Net cash provided by (used in) financing activities		89.8			—			18.7			(112.7	)		(4.2	)
Effect of changes in exchange rates on cash and cash equivalents		—			—			(0.9	)		—			(0.9	)
Net increase (decrease) in cash and cash equivalents		(19.3	)		1.0			11.4			—			(6.9	)
Cash and cash equivalents, beginning of period		31.0			1.6			18.6			—			51.2
Cash and cash equivalents, end of period	$	11.7		$	2.6		$	30.0		$	—		$	44.3

							Non-
	Parent			Guarantor			Guarantor
	Company			Subsidiaries			Subsidiaries			Eliminations			Consolidated

Operating Activities
Net loss	$	(42.2	)	$	93.2		$	(32.0	)	$	(60.9	)	$	(41.9	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		0.4			34.2			13.4			—			48.0
Amortization of debt discount and financing costs		3.8			—			0.9			—			4.7
Facility exit costs		—			1.1			—			—			1.1
Share-based compensation		0.6			—			—			—			0.6
Equity in (income) loss of subsidiaries		(62.0	)		1.1			—			60.9			—
Deferred income taxes		0.2			1.8			(0.5	)		—			1.5
Net change in assets and liabilities:
Restricted cash		1.6			0.7			(0.1	)		—			2.2
Receivables		(0.6	)		(7.9	)		9.8			—			1.3
Receivables from related parties		(0.4	)		4.2			0.4			—			4.2
Profit-sharing receivables from insurance carriers		—			11.8			—			—			11.8
Prepaid commissions		—			(3.5	)		(0.2	)		—			(3.7	)
Other current assets		(9.6	)		4.6			(0.3	)		—			(5.3	)
Contract rights and list fees		—			(1.1	)		—			—			(1.1	)
Other non-current assets		—			(8.6	)		(0.3	)		—			(8.9	)
Accounts payable and accrued expenses		6.0			(9.9	)		(6.3	)		—			(10.2	)
Payables to related parties		(1.9	)		(0.1	)		—			—			(2.0	)
Deferred revenue		0.5			(7.1	)		0.5			—			(6.1	)
Income taxes receivable and payable		(0.3	)		(0.1	)		0.4			—			—
Other long-term liabilities		0.1			(5.4	)		0.6			—			(4.7	)
Other, net		0.9			(0.7	)		2.3			—			2.5
Net cash used in operating activities		(102.9	)		108.3			(11.4	)		—			(6.0	)
Investing Activities
Capital expenditures		0.7			(7.9	)		(8.0	)		—			(15.2	)
Restricted cash		—			—			(0.1	)		—			(0.1	)
Proceeds from sale of an investment		—			—			1.5			—			1.5
Intercompany receivables and payables		—			(99.7	)		—			99.7			—
Net cash used in investing activities		0.7			(107.6	)		(6.6	)		99.7			(13.8	)
Financing Activities
Borrowings under revolving credit facility, net		54.0			—			—			—			54.0
Principal payments on borrowings		(3.8	)		(0.3	)		—			—			(4.1	)
Receivables from and payables to parent company		(1.9	)		—			—			—			(1.9	)
Intercompany receivables and payables		102.7			—			(3.0	)		(99.7	)		—
Intercompany loan		(32.6	)		—			32.6			-			—
Net cash provided by financing activities		118.4			(0.3	)		29.6			(99.7	)		48.0
Effect of changes in exchange rates on cash and cash equivalents		—			—			(0.5	)		—			(0.5	)
Net increase in cash and cash equivalents		16.2			0.4			11.1			—			27.7
Cash and cash equivalents, beginning of period		7.8			2.5			17.7			—			28.0
Cash and cash equivalents, end of period	$	24.0		$	2.9		$	28.8		$	-		$	55.7

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

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

The following discussion and analysis of our results of operations and financial condition should be read in conjunction with our audited consolidated financial statements as of December 31, 2015 and 2014, and for the years ended December 31, 2015, 2014 and 2013, included in our Annual Report on Form 10-K for the year ended December 31, 2015 (the “Form 10-K”) and with the unaudited condensed consolidated financial statements and related notes thereto presented in this Form 10-Q.

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

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

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

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

We are one of the world’s leading loyalty and customer engagement 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:

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

We are a global leader in the designing, marketing and servicing of comprehensive loyalty and customer engagement 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 improved customer satisfaction rates, longer retention of existing customers, increased acquisition of new customers, and greater use of other services provided by such companies. We refer to the leading companies that we work with to provide loyalty and customer engagement solutions as our clients or marketing partners. We refer to the consumers to whom we provide services directly under a contractual relationship as subscribers or insureds. 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, 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.

As of December 31, 2015, we had approximately 54 million subscribers and end-customers enrolled in our membership, insurance and package programs worldwide and approximately 40 million customers who received credit or debit card enhancement services or loyalty points-based management services.

Effective January 1, 2016, we organize our business into four operating segments:

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

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

Customers of our membership programs typically pay their subscription fees either annually or monthly. Our membership products may have significant timing differences between the receipt of membership fees for annual members and revenue recognition. Historically, memberships were offered primarily under full money back terms whereby a member could receive a full refund upon cancellation at any time during the current membership term. These revenues were recognized upon completion of the membership term when they were no longer refundable. Depending on the length of the trial period, this revenue may not have been recognized for up to 16 months after the related marketing spend was incurred and expensed. Currently, annual memberships are primarily renewed under pro-rata arrangements in which the member is entitled to a prorated refund for the unused portion of their membership term. This allows us to recognize revenue ratably over the annual membership term. Upon completion of the subscription term, the membership renews under generally the same billing terms in which it originated. Given that we had historically offered a significant amount of subscriptions offering annual terms, our existing base continues to reflect a blend of both monthly and annual terms, and will continue doing so for as long as a substantial percentage of the annual subscribers renew. However, the majority of our recent solicitation activity has been for subscriptions offering monthly terms, and during the six months ended June 30, 2016 and the year ended December 31, 2015, 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 Internet marketing to generate consumer awareness of our programs and services and stimulate responses from our targeted markets. As part of Internet marketing, we employ 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 unaudited consolidated balance sheets and any changes in estimated profit sharing in connection with the actual claims activities are periodically recorded as an adjustment to net revenue. Insurance revenues are recognized ratably over the insurance period for which a policy is in effect and there are no significant differences between cash flows and related revenue recognition. Revenue from insurance programs is reported net of insurance costs in the accompanying unaudited consolidated statements of comprehensive income (loss).

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.

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.

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 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. 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.

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.

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 Note 6 to our unaudited condensed consolidated financial statements in “Item 1. Financial Statements.”

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.

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 (amounts in thousands, except dollars per unit).


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015

Global Loyalty
Gross Transactional Sales Volume (1)	$	493,450	$	463,523	$	974,530	$	951,767
Gross Transactional Sales Volume per Transaction (1)	$	151.66	$	146.47	$	150.98	$	154.24
Total Transactions		3,254		3,165		6,455		6,171
Global Customer Engagement
Average Subscribers (2)		2,637		2,734		2,681		2,749
Annualized Net Revenue per Average Subscriber (3)	$	104.31	$	102.25	$	104.30	$	101.25
Engagement Solutions Platform Revenue	$	29,925	$	32,886	$	62,445	$	67,624
Insurance Solutions
Average Supplemental Insureds (2)		3,350		3,560		3,385		3,606
Annualized Net Revenue per Supplemental Insured (3)	$	64.71	$	64.95	$	65.30	$	64.47
Legacy Membership and Package
Average Legacy Members (2)		1,679		3,760		1,821		3,792
Annualized Net Revenue per Legacy Member	$	98.81	$	83.45	$	96.89	$	82.69

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

Adjusted EBITDA consists of Segment EBITDA adjusted to exclude the financial impact of certain transactions as specified in the Company’s senior secured credit facility. Adjusted EBITDA is a supplemental measure of our performance that is neither required by, or presented in accordance with, U.S. GAAP. The Company believes that Adjusted EBITDA on a consolidated basis and for each

segment provides supplemental information useful to investors as it is frequently used by the financial community to analyze performance period to period, to analyze a company’s ability to service its debt and to facilitate comparisons among companies. The Company believes Adjusted EBITDA also provides additional supplemental information to compare results among our segments. However, Adjusted EBITDA is not a measurement of 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 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.

The following table summarizes our consolidated results of operations for the three months ended June 30, 2016 and 2015:

	Three Months Ended			Three Months Ended
	June 30,			June 30,			Increase
	2016			2015			(Decrease)
	(in millions)
Net revenues	$	244.0		$	295.0		$	(51.0	)
Expenses:
Cost of revenues, exclusive of depreciation and amortization shown separately below:
Marketing and commissions		84.7			111.0			(26.3	)
Operating costs		82.7			99.4			(16.7	)
General and administrative		27.9			28.8			(0.9	)
Facility exit costs	—				0.6			(0.6	)
Depreciation and amortization		13.9			23.8			(9.9	)
Total expenses		209.2			263.6			(54.4	)
Income from operations		34.8			31.4			3.4
Interest income		0.3			0.2			0.1
Interest expense		(26.6	)		(47.4	)		20.8
Other income, net	—				0.1			(0.1	)
Income (loss) before income taxes and non-controlling interest		8.5			(15.7	)		24.2
Income tax expense		(0.9	)		(1.1	)		0.2
Net income (loss)		7.6			(16.8	)		24.4
Less: net income attributable to non-controlling interest		(0.1	)		(0.1	)	—
Net income (loss) attributable to Affinion Group, Inc.	$	7.5		$	(16.9	)	$	24.4

The following is a summary of changes affecting our operating results for the three months ended June 30, 2016.

Net revenues decreased $51.0 million, or 17.3%, for the three months ended June 30, 2016 as compared to the same period of the prior year primarily the result of lower retail revenues from a decline in retail member volumes in Legacy Membership and Package, lower revenue in Global Loyalty primarily from the loss of a key client in 2015, lower revenue in Global Customer Engagement primarily from a change in deal structure with a client and the unfavorable impact of foreign exchange and lower revenue in Insurance Solutions primarily from lower supplemental insureds.

Segment EBITDA decreased $6.5 million for the three months ended June 30, 2016 as compared to the same period of the prior year as the impact of the lower net revenues was partially offset by lower marketing and commissions, lower operating costs and lower general and administrative expense.

The following section provides an overview of our consolidated results of operations for the three months ended June 30, 2016 as compared to the three months ended June 30, 2015.

Net Revenues. During the three months ended June 30, 2016 we reported net revenues of $244.0 million, a decrease of $51.0 million, or 17.3%, as compared to net revenues of $295.0 million in the comparable period of 2015. Global Loyalty net revenues decreased $3.9 million as growth with existing clients was more than offset by lower revenue from the loss of a key client in 2015. Excluding the impact from the loss of a key client, net revenues would have increased during the same time frame. Global Customer

Engagement net revenues decreased $4.0 million. On a currency consistent basis, net revenues decreased $2.3 million as a change in deal structure with a client (which impacted our net revenue but had a limited impact on Segment EBITDA) more than offset higher revenue from growth with our online partnerships in our revenue enhancement business. Net revenues declined $1.7 million from the unfavorable impact of foreign exchange. Insurance Solutions net revenues decreased $3.7 million primarily due to the impact from lower average supplemental insureds. Net revenues in Legacy Membership and Package decreased $39.3 million primarily due to the expected attrition of legacy members, including those from our large financial institution partners, principally due to the cessation of new marketing campaigns and terminated programs with those partners as a result of the regulatory issues that have negatively impacted these partners. We expect this downward trend in net revenues related to our financial institution partners to continue for the foreseeable future. Net revenues further decreased from lower Package revenue primarily the result of lower average Package members and an unfavorable foreign exchange impact of $0.2 million.

Marketing and Commissions Expense. Marketing and commissions expense decreased by $26.3 million, or 23.7%, to $84.7 million for the three months ended June 30, 2016 from $111.0 million for the three months ended June 30, 2015. Marketing and commissions expense decreased in Legacy Membership and Package by $18.6 million primarily due to our decision in the latter part of 2015 to terminate certain marketing channels resulting in lower marketing spend. Costs decreased $2.9 million in Insurance Solutions primarily due to lower marketing spend. Costs decreased $4.2 million in Global Customer Engagement primarily due to the timing of campaign launches.

Operating Costs. Operating costs decreased by $16.7 million, or 16.8%, to $82.7 million for the three months ended June 30, 2016 from $99.4 million for the three months ended June 30, 2015. Operating costs decreased $11.8 million in Legacy Membership and Package primarily from lower product and servicing costs associated with the lower retail member volumes along with lower costs of $1.6 million in Global Loyalty primarily from lower product and servicing costs related to the lower revenue. Costs decreased $3.6 million in Global Customer Engagement primarily due to lower product and servicing costs.

General and Administrative Expense. General and administrative expense decreased by $0.9 million, or 3.1% to $27.9 million for the three months ended June 30, 2016 from $28.8 million for the three months ended June 30, 2015. Costs decreased $2.3 million in Global Customer Engagement primarily due to the favorable impact of foreign exchange. Corporate costs decreased by $0.7 million primarily from lower professional fees from debt refinancing transactions. Costs increased $1.8 million in Legacy Membership and Package primarily due to higher professional fees related to ongoing legal matters.

Depreciation and Amortization Expense. Depreciation and amortization expense decreased by $9.9 million for the three months ended June 30, 2016 to $13.9 million from $23.8 million for the three months ended June 30, 2015, primarily from a decrease of $7.9 million related 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. In addition, amortization expense recorded in 2016 decreased $1.2 million for intangible assets acquired in various acquisitions, principally member relationships which are amortized on an accelerated basis.

Interest Expense. Interest expense decreased $20.8 million, or 43.9% to $26.6 million for the three months ended June 30, 2016 from $47.4 million for the three months ended June 30, 2015, primarily from lower interest expense accrued as a result of the 2015 Exchange Offers and 2015 Rights Offering.

Income Tax Expense. Income tax expense decreased by $0.2 million for the three months ended June 30, 2016 as compared to the three months ended June 30, 2015, primarily due to a decrease in the current state tax provision and deferred federal and state tax provisions for the three months ended June 30, 2016, partially offset by an increase in the current and deferred foreign tax provisions for the same period.

The Company’s effective income tax rates for the three months ended June 30, 2016 and 2015 were 10.0% and (6.7)%, respectively. The difference in the effective tax rates for the three months ended June 30, 2016 and 2015 is primarily a result of a change from a loss before income taxes and non-controlling interest of $15.7 million for the three months ended June 30, 2015 to income before income taxes and non-controlling interest of $8.5 million for the three months ended June 30, 2016 and a decrease in the income tax provision from $1.1 million for the three months ended June 30, 2015 to $0.9 million for the three months ended June 30, 2016. The Company’s tax rate is affected by recurring items, such as tax rates in foreign jurisdictions and the relative amount of income it earns in those jurisdictions. It is also affected by discrete items that may occur in any given year, but are not consistent from year to year. In addition to state and foreign income taxes, the requirement to maintain valuation allowances had the most significant impact on the difference between the Company’s effective tax rate and the statutory U.S. federal income tax rate of 35%.

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

	Three Months Ended June 30,
	Net Revenues									Segment EBITDA (1)									Adjusted EBITDA (1)
							Increase									Increase									Increase
	2016			2015			(Decrease)			2016			2015			(Decrease)			2016			2015			(Decrease)
	(in millions)
Global Loyalty	$	40.0		$	43.9		$	(3.9	)	$	12.8		$	14.9		$	(2.1	)	$	13.4		$	15.0		$	(1.6	)
Global Customer Engagement		98.7			102.7			(4.0	)		18.1			12.0			6.1			19.4			14.4			5.0
Insurance Solutions		55.3			59.0			(3.7	)		17.2			18.4			(1.2	)		17.1			18.4			(1.3	)
Subtotal		194.0			205.6			(11.6	)		48.1			45.3			2.8			49.9			47.8			2.1
Legacy Membership and Package		50.4			89.7			(39.3	)		14.4			24.4			(10.0	)		17.5			26.7			(9.2	)
Eliminations		(0.4	)		(0.3	)		(0.1	)		—			—			—			—			—			—
Corporate		—			—			—			(13.8	)		(14.5	)		0.7			(10.4	)		(12.3	)		1.9
Total	$	244.0		$	295.0		$	(51.0	)		48.7			55.2			(6.5	)		57.0			62.2			(5.2	)
Effect of purchase accounting, reorganizations and non-recurring revenues and gains																				—			—			—
Certain legal costs																				(1.5	)		(0.9	)		(0.6	)
Net cost savings																				(2.7	)		(1.6	)		(1.1	)
Other, net																				(4.1	)		(4.5	)		0.4
Depreciation and amortization											(13.9	)		(23.8	)		9.9			(13.9	)		(23.8	)		9.9
Income from operations										$	34.8		$	31.4		$	3.4		$	34.8		$	31.4		$	3.4

	Three Months Ended June 30, 2016
	Global Loyalty		Global Customer Engagement		Insurance Solutions			Legacy Membership and Package		Corporate		Total
	(in millions)
Effect of purchase accounting, reorganizations and non-recurring revenues and gains	$	—	$	—	$	—		$	—	$	—	$	—
Certain legal costs		—		—		—			1.5		—		1.5
Net cost savings		—		0.6		—			1.4		0.7		2.7
Other, net		0.6		0.7		(0.1	)		0.2		2.7		4.1
Total	$	0.6	$	1.3	$	(0.1	)	$	3.1	$	3.4	$	8.3


	Three Months Ended June 30, 2015
	Global Loyalty		Global Customer Engagement		Insurance Solutions			Legacy Membership and Package		Corporate		Total
	(in millions)
Effect of purchase accounting, reorganizations and non-recurring revenues and gains	$	—	$	—	$	—		$	—	$	—	$	—
Certain legal costs		—		—		—			0.9		—		0.9
Net cost savings		—		1.6		—			—		—		1.6
Other, net		0.1		0.8		—			1.4		2.2		4.5
Total	$	0.1	$	2.4	$	—		$	2.3	$	2.2	$	7.0

Global Loyalty. Net revenues from Global Loyalty decreased by $3.9 million, or 8.9%, for the three months ended June 30, 2016 to $40.0 million as compared to $43.9 million for the three months ended June 30, 2015 as increased revenues from growth with existing clients were more than offset by lower revenue from the loss of a key client in 2015. Excluding the impact from the loss of a key client, net revenues would have increased during the same time frame.

Segment EBITDA decreased by $2.1 million, or 14.1%, for the three months ended June 30, 2016 as compared to the three months ended June 30, 2015, as the increased contribution associated with new and existing clients was more than offset by the loss of a key client in 2015.

Global Customer Engagement. Global Customer Engagement net revenues decreased by $4.0 million, or 3.9%, to $98.7 million for the three months ended June 30, 2016 as compared to $102.7 million for the three months ended June 30, 2015. On a currency consistent basis, net revenues decreased $2.3 million as a change in deal structure with a client (which impacted our net revenue but had a limited impact on Segment EBITDA) more than offset higher revenue from growth with our online partnerships in our revenue enhancement business. Net revenues declined $1.7 million from the unfavorable impact of foreign exchange.

Segment EBITDA increased $6.1 million, or 50.8%, for the three months ended June 30, 2016 as compared to the three months ended June 30, 2015 primarily from lower marketing and commissions of $4.2 million, lower operating costs of $3.6 million and lower general and administrative costs of $2.3 million. The lower marketing and commissions were primarily attributable to the timing of campaign launches. The lower operating costs were primarily related to lower product and servicing costs. The lower general and administrative costs were primarily due to the favorable impact of foreign exchange.

Insurance Solutions. Insurance Solutions net revenues decreased by $3.7 million, or 6.3%, to $55.3 million for the three months ended June 30, 2016 as compared to $59.0 million for the three months ended June 30, 2015. Net revenues decreased primarily due to the impact of lower average supplemental insureds.

Segment EBITDA decreased by $1.2 million, or 6.5%, for the three months ended June 30, 2016 as compared to the three months ended June 30, 2015 as the impact of lower net revenues of $3.7 million was partially offset by lower operating expenses of $2.5 million, primarily from reduced marketing and commissions and lower employee related costs.

Legacy Membership and Package. Legacy Membership and Package net revenues decreased by $39.3 million, or 43.8%, to $50.4 million for the three months ended June 30, 2016 as compared to $89.7 million for the three months ended June 30, 2015. Net revenues decreased primarily from the expected attrition of legacy members, including those from our large financial institution partners, principally due to the cessation of new marketing campaigns and terminated programs with those partners as a result of the regulatory issues that have negatively impacted these partners. We expect this downward trend in net revenues related to our financial institution partners to continue for the foreseeable future. Net revenues further decreased from lower Package revenue primarily the result of lower average Package members and an unfavorable foreign exchange impact of $0.2 million.

Segment EBITDA decreased by $10.0 million, or 41.0%, for the three months ended June 30, 2016 as compared to the three months ended June 30, 2015. Segment EBITDA decreased as the impact of the lower net revenues of $39.3 million and increased general and administrative costs of $1.8 million was partially offset by lower marketing and commissions expense of $18.6 million and lower operating costs of $11.8 million. The lower marketing and commissions expense was primarily the result of our decision in the latter part of 2015 to terminate certain marketing channels resulting in lower marketing spend. The lower operating costs are the result of lower product and servicing costs related to the lower revenue. The higher general and administrative costs were primarily due to higher professional fees related to ongoing legal matters.

Corporate costs now also include certain departmental service costs such as human resources, legal, corporate finance and accounting functions and unallocated portions of information technology. Expenses such as professional fees related to debt financing activities and stock compensation costs are also recorded in corporate. Corporate costs decreased by $0.7 million for the three months ended June 30, 2016 as compared to the three months ended June 30, 2015 primarily from lower professional fees from debt refinancing transactions.

The following table summarizes our consolidated results of operations for the six months ended June 30, 2016 and 2015:

	Six Months Ended			Six Months Ended
	June 30,			June 30,			Increase
	2016			2015			(Decrease)
	(in millions)
Net revenues	$	498.9		$	597.3		$	(98.4	)
Expenses:
Cost of revenues, exclusive of depreciation and amortization shown separately below:
Marketing and commissions		172.8			226.7			(53.9	)
Operating costs		169.5			203.0			(33.5	)
General and administrative		60.0			63.8			(3.8	)
Facility exit costs	—				1.1			(1.1	)
Depreciation and amortization		28.2			48.0			(19.8	)
Total expenses		430.5			542.6			(112.1	)
Income from operations		68.4			54.7			13.7
Interest income		0.6			0.4			0.2
Interest expense		(54.7	)		(94.5	)		39.8
Other income, net	—				0.6			(0.6	)
Income (loss) before income taxes and non-controlling interest		14.3			(38.8	)		53.1
Income tax expense		(4.0	)		(3.1	)		(0.9	)
Net income (loss)		10.3			(41.9	)		52.2
Less: net income attributable to non-controlling interest		(0.2	)		(0.3	)		0.1
Net income (loss) attributable to Affinion Group, Inc.	$	10.1		$	(42.2	)	$	52.3

The following is a summary of changes affecting our operating results for the six months ended June 30, 2016.

Net revenues decreased $98.4 million, or 16.5%, for the six months ended June 30, 2016 as compared to the same period of the prior year primarily the result of lower retail revenues from a decline in retail member volumes in Legacy Membership and Package, lower revenue in Global Loyalty primarily from the loss of a key client in 2015, lower revenue in Global Customer Engagement primarily due to the unfavorable impact of foreign exchange and lower revenue in Insurance Solutions primarily from lower supplemental insureds.

Segment EBITDA decreased $6.1 million for the six months ended June 30, 2016 as compared to the same period of the prior year as the impact of the lower net revenues was partially offset by lower marketing and commissions, lower operating costs and lower general and administrative expense.

The following section provides an overview of our consolidated results of operations for the six months ended June 30, 2016 as compared to the six months ended June 30, 2015.

Net Revenues. During the six months ended June 30, 2016 we reported net revenues of $498.9 million, a decrease of $98.4 million, or 16.5%, as compared to net revenues of $597.3 million in the comparable period of 2015. Global Loyalty net revenues decreased $11.1 million as growth with existing clients was more than offset by lower revenue from the loss of a key client in 2015. Excluding the impact from the loss of a key client, net revenues would have increased during the same time frame. Global Customer Engagement net revenues decreased $4.5 million. On a currency consistent basis, net revenues increased $1.0 million as higher revenue from growth with our online partnerships in our revenue enhancement business was partially offset by lower net revenue from a change in deal structure with a client (which impacted our net revenue but had a limited impact on Segment EBITDA). Net revenues declined $5.5 million from the unfavorable impact of foreign exchange. Insurance Solutions net revenues decreased $6.0 million as the impact from lower average supplemental insureds was partially offset by an increase in the average revenue per supplemental insured. Net revenues in Legacy Membership and Package decreased $76.9 million primarily due to the expected attrition of legacy members, including those from our large financial institution partners, principally due to the cessation of new marketing campaigns and terminated programs with those partners as a result of the regulatory issues that have negatively impacted these partners. We

expect this downward trend in net revenues related to our financial institution partners to continue for the foreseeable future. Net revenues further decreased from lower Package revenue primarily the result of lower average Package members and an unfavorable foreign exchange impact of $0.6 million.

Marketing and Commissions Expense. Marketing and commissions expense decreased by $53.9 million, or 23.8%, to $172.8 million for the six months ended June 30, 2016 from $226.7 million for the six months ended June 30, 2015. Marketing and commissions expense decreased in Legacy Membership and Package by $38.4 million primarily due to our decision in the latter part of 2015 to terminate certain marketing channels resulting in lower marketing spend. Costs decreased $8.0 million in Insurance Solutions primarily due to lower marketing spend. Costs decreased $6.8 million in Global Customer Engagement primarily due to the timing of campaign launches and the favorable impact of foreign exchange.

Operating Costs. Operating costs decreased by $33.5 million, or 16.5%, to $169.5 million for the six months ended June 30, 2016 from $203.0 million for the six months ended June 30, 2015. Operating costs decreased $23.0 million in Legacy Membership and Package primarily from lower product and servicing costs associated with the lower retail member volumes along with lower costs of $5.2 million in Global Loyalty primarily from lower product and servicing costs related to the lower revenue. Costs decreased $6.0 million in Global Customer Engagement primarily related to lower product and servicing costs and the favorable impact of foreign exchange.

General and Administrative Expense. General and administrative expense decreased by $3.8 million, or 6.0% to $60.0 million for the six months ended June 30, 2016 from $63.8 million for the six months ended June 30, 2015. Costs decreased $5.4 million in Global Customer Engagement primarily due to lower employee related costs and the favorable impact of foreign exchange and $1.6 million in Global Loyalty primarily due to lower employee related costs. Corporate costs increased by $2.8 million primarily from higher stock compensation costs and expenses for employee incentive awards principally due to favorable adjustments recorded in the first quarter of 2015.

Depreciation and Amortization Expense. Depreciation and amortization expense decreased by $19.8 million for the six months ended June 30, 2016 to $28.2 million from $48.0 million for the six months ended June 30, 2015, primarily from a decrease of $15.6 million related 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. In addition, amortization expense recorded in 2016 decreased $3.1 million for intangible assets acquired in various acquisitions, principally member relationships which are amortized on an accelerated basis.

Interest Expense. Interest expense decreased $39.8 million, or 42.1% to $54.7 million for the six months ended June 30, 2016 from $94.5 million for the six months ended June 30, 2015, primarily from lower interest expense accrued as a result of the 2015 Exchange Offers and 2015 Rights Offering.

Income Tax Expense. Income tax expense increased by $0.9 million for the six months ended June 30, 2016 as compared to the six months ended June 30, 2015, primarily due to an increase in the current and deferred foreign tax provision for the six months ended June 30, 2016, partially offset by a decrease in the current state tax provision and deferred federal and state tax provisions for the same period.

The Company’s effective income tax rates for the six months ended June 30, 2016 and 2015 were 27.8% and (7.9)%, respectively. The difference in the effective tax rates for the six months ended June 30, 2016 and 2015 is primarily a result of a change from a loss before income taxes and non-controlling interest of $38.8 million for the six months ended June 30, 2015 to income before income taxes and non-controlling interest of $14.3 million for the six months ended June 30, 2016 and an increase in the income tax provision from $3.1 million for the six months ended June 30, 2015 to $4.0 million for the six months ended June 30, 2016. The Company’s tax rate is affected by recurring items, such as tax rates in foreign jurisdictions and the relative amount of income it earns in those jurisdictions. It is also affected by discrete items that may occur in any given year, but are not consistent from year to year. In addition to state and foreign income taxes, the requirement to maintain valuation allowances had the most significant impact on the difference between the Company’s effective tax rate and the statutory U.S. federal income tax rate of 35%.

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

	Six Months Ended June 30,
	Net Revenues									Segment EBITDA (1)									Adjusted EBITDA (1)
							Increase									Increase									Increase
	2016			2015			(Decrease)			2016			2015			(Decrease)			2016			2015			(Decrease)
	(in millions)
Global Loyalty	$	79.9		$	91.0		$	(11.1	)	$	26.4		$	30.5		$	(4.1	)	$	26.9		$	31.5		$	(4.6	)
Global Customer Engagement		202.3			206.8			(4.5	)		37.7			24.0			13.7			40.7			27.5			13.2
Insurance Solutions		112.7			118.7			(6.0	)		38.9			37.2			1.7			38.6			37.2			1.4
Subtotal		394.9			416.5			(21.6	)		103.0			91.7			11.3			106.2			96.2			10.0
Legacy Membership and Package		104.6			181.5			(76.9	)		24.5			38.9			(14.4	)		35.7			48.6			(12.9	)
Eliminations		(0.6	)		(0.7	)		0.1			—			—			—			—			—			—
Corporate		—			—			—			(30.9	)		(28.1	)		(2.8	)		(25.4	)		(24.4	)		(1.0	)
Total	$	498.9		$	597.3		$	(98.4	)		96.6			102.5			(5.9	)		116.5			120.4			(3.9	)
Effect of purchase accounting, reorganizations and non-recurring revenues and gains																				-			0.1			(0.1	)
Certain legal costs																				(7.8	)		(2.3	)		(5.5	)
Net cost savings																				(6.9	)		(8.4	)		1.5
Other, net																				(5.2	)		(7.3	)		2.1
Depreciation and amortization											(28.2	)		(48.0	)		19.8			(28.2	)		(48.0	)		19.8
Income from operations										$	68.4		$	54.5		$	13.9		$	68.4		$	54.5		$	13.9

	Six Months Ended June 30, 2016
	Global Loyalty		Global Customer Engagement			Insurance Solutions			Legacy Membership and Package		Corporate		Impairment of goodwill and other long-lived assets		Total
	(in millions)
Effect of purchase accounting, reorganizations and non-recurring revenues and gains	$	—	$	—		$	—		$	—	$	—	$	—	$	—
Certain legal costs		—		—			—			7.2		0.6		—		7.8
Net cost savings		—		2.3			—			3.2		1.4		—		6.9
Other, net		0.5		0.7			(0.3	)		0.8		3.5		—		5.2
Total	$	0.5	$	3.0		$	(0.3	)	$	11.2	$	5.5	$	—	$	19.9


	Six Months Ended June 30, 2015
	Global Loyalty		Global Customer Engagement			Insurance Solutions			Legacy Membership and Package		Corporate		Impairment of goodwill and other long-lived assets		Total
	(in millions)
Effect of purchase accounting, reorganizations and non-recurring revenues and gains	$	—	$	(0.1	)	$	—		$	—	$	—	$	—	$	(0.1	)
Certain legal costs		—		—			—			2.3		—		—		2.3
Net cost savings		—		2.3			—			4.1		2.0		—		8.4
Other, net		1.0		1.3			—			3.3		1.7		—		7.3
Total	$	1.0	$	3.5		$	—		$	9.7	$	3.7	$	—	$	17.9

Global Loyalty. Net revenues from Global Loyalty decreased by $11.1 million, or 12.2%, for the six months ended June 30, 2016 to $79.9 million as compared to $91.0 million for the six months ended June 30, 2015 as increased revenues from growth with existing clients were more than offset by lower revenue from the loss of a key client in 2015. Excluding the impact from the loss of a key client, net revenues would have increased during the same time frame.

Segment EBITDA decreased by $4.1 million, or 13.4%, for the six months ended June 30, 2016 as compared to the six months ended June 30, 2015, as the increased contribution associated with new and existing clients was more than offset by the loss of a key client in 2015.

Global Customer Engagement. Global Customer Engagement net revenues decreased by $4.5 million, or 2.2%, to $202.3 million for the six months ended June 30, 2016 as compared to $206.8 million for the six months ended June 30, 2015. On a currency consistent basis, net revenues increased $1.0 million as higher revenue from growth with our online partnerships in our revenue enhancement business was partially offset by lower net revenue from a change in deal structure with a client (which impacted our net revenue but had a limited impact on Segment EBITDA). Net revenues declined $5.5 million from the unfavorable impact of foreign exchange.

Segment EBITDA increased $13.7 million, or 57.1%, for the six months ended June 30, 2016 as compared to the six months ended June 30, 2015 as the lower net revenues of $4.5 million were more than offset by lower marketing and commissions of $6.8 million, lower operating costs of $6.0 million and lower general and administrative costs of $5.4 million. The lower marketing and commissions were primarily attributable to the timing of campaign launches and the favorable impact of foreign exchange. The lower operating costs were primarily related to lower product and servicing costs and the favorable impact of foreign exchange. The lower general and administrative costs were primarily due to lower employee related costs and the favorable impact of foreign exchange.

Insurance Solutions. Insurance Solutions net revenues decreased by $6.0 million, or 5.1%, to $112.7 million for the six months ended June 30, 2016 as compared to $118.7 million for the six months ended June 30, 2015. Net revenues decreased as the impact from lower average supplemental insureds was partially offset by an increase in the average revenue per supplemental insured.

Segment EBITDA increased by $1.7 million, or 4.6%, for the six months ended June 30, 2016 as compared to the six months ended June 30, 2015 as the impact of lower net revenues of $6.0 million was more than offset by lower operating expenses of $7.7 million, primarily from reduced marketing and commissions and lower employee related costs.

Legacy Membership and Package. Legacy Membership and Package net revenues decreased by $76.9 million, or 42.4%, to $104.6 million for the six months ended June 30, 2016 as compared to $181.5 million for the six months ended June 30, 2015. Net revenues decreased primarily from the expected attrition of legacy members, including those from our large financial institution partners, principally due to the cessation of new marketing campaigns and terminated programs with those partners as a result of the regulatory issues that have negatively impacted these partners. We expect this downward trend in net revenues related to our financial institution partners to continue for the foreseeable future. Net revenues further decreased from lower Package revenue primarily the result of lower average Package members and an unfavorable foreign exchange impact of $0.6 million.

Segment EBITDA decreased by $14.4 million, or 37.0%, for the six months ended June 30, 2016 as compared to the six months ended June 30, 2015. Segment EBITDA decreased as the impact of the lower net revenues of $76.9 million was partially offset by lower marketing and commissions expense of $38.4 million and lower operating costs of $23.0 million. The lower marketing and commissions expense was primarily the result of our decision in the latter part of 2015 to terminate certain marketing channels resulting in lower marketing spend. The lower operating costs are the result of lower product and servicing costs related to the lower revenue.

Corporate costs now also include certain departmental service costs such as human resources, legal, corporate finance and accounting functions and unallocated portions of information technology. Expenses such as professional fees related to debt financing activities and stock compensation costs are also recorded in corporate. Corporate costs increased by $2.8 million for the six months ended June 30, 2016 as compared to the six months ended June 30, 2015 primarily from higher stock compensation costs and expenses for employee incentive awards principally due to favorable adjustments recorded in the first quarter of 2015.

Total assets decreased by $54.0 million principally due to (i) a decrease in other current assets of $22.6 million, principally due to a reduction in gift card inventory levels and a reduction in gift card prepayments to vendors and (ii) a decrease in property and equipment, net of $12.7 million, primarily due to depreciation expense of $21.8 million partially offset by additions of $11.8 million.

Total liabilities decreased by $59.7 million, principally due to (i) a decrease in accounts payable and accrued expenses of $36.0 million due to lower gift card prepayments by marketing partners and lower payroll-related accruals, and (ii) a decrease in long-term debt of $14.3 million, principally due to payments of $4.0 million and amortization of the carrying value adjustment related to the continuing debt held by participants in the 2015 Exchange Offers and 2015 Rights Offering of $17.4 million, partially offset by additional debt of $3.9 million related to PIK interest and amortization of deferred financing costs of $2.9 million.

Total deficit decreased by $5.7 million, due to net income of $10.3 million, partially offset by currency translation adjustment of $4.4 million.

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. The globalization of the business is expected to generate meaningful cost savings by eliminating duplicate infrastructure. 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. Our Global Customer Engagement and Global Loyalty segments, based upon recent client wins, are more focused on platform based services that require less marketing investment and are more reliant on licensing and utilization of these platforms. Further, our Legacy Membership and Package segment no longer requires material marketing investment. 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, based on our current operations and new business prospects, coupled with our flexibility in the amount, timing and reduced requirements of marketing expenditures based on our new focus, that our cash on hand and borrowing availability under Affinion’s revolving credit facility will be sufficient to meet our liquidity needs for the next twelve months, including the $1.9 million quarterly amortization payments on Affinion’s first lien term loan facility under Affinion’s senior secured credit facility. In addition, we do not expect to be required to make any excess cash flow or other mandatory prepayments in the near future under Affinion’s first lien term loan facility.

In addition to quarterly amortization payments, the first lien term loan facility requires mandatory prepayments under certain conditions. First, a prepayment may be required based on excess cash flows as defined in Affinion’s senior secured credit facility. For this purpose, excess cash flow for any annual accounting period is defined as Affinion’s Adjusted EBITDA reduced by debt service, increases to working capital, capital expenditures and business acquisitions net of external funding and certain other uses of cash. Increases to excess cash flow include decreases to working capital and certain other receipts of cash. If the excess cash flow calculation for any annual accounting period is positive, a prepayment of the first lien term loan facility in an amount equal to a percentage of the excess cash flow may 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 computation for 2015 did not result in a mandatory prepayment of principal. Second, a prepayment may be required with the net proceeds of certain asset sales. However, such net proceeds will not be required to be applied to prepay Affinion’s senior secured credit facility if they are applied to acquire, maintain, develop, construct, improve or repair assets useful in our business or to make acquisitions or other permitted investments within 12 months, or, if committed to be so applied within 12 months, within 18 months.

Under Affinion’s 2010 senior notes and the International Notes, the net cash proceeds of certain asset sales may also be required to be applied to prepay certain of our indebtedness. However, such net proceeds will not be required to be applied to prepay indebtedness if they are applied to make an investment in one or more 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.

Affinion 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.

Although we historically have a working capital deficit, a major factor included in this deficit is deferred revenue resulting from the cash collected from annual memberships that is deferred until the appropriate refund period has concluded. As the membership base continues to shift away from memberships billed annually to memberships billed monthly, it will have a negative effect on our operating cash flow. However, we anticipate that in future periods the reduced cash interest expense will favorably impact the operating cash and offset the working capital deficit that will continue for the foreseeable future. In spite of our historical working capital deficit, we have been able to operate effectively primarily due to our cash flows from operations and Affinion’s available revolving credit facility. In addition, during 2016 and 2017, our required quarterly amortization payments under the first lien term loan facility will be nominal and we also do not anticipate any other mandatory principal prepayments under the first lien term loan facility.

On each of May 14, 2015 and November 13, 2015, the Company loaned $1.9 million to Affinion Holdings to be utilized by Affinion Holdings to make interest payments on its 11.625% senior notes due 2015.

At June 30, 2016, we had $44.3 million of cash and cash equivalents on hand, a decrease of $11.4 million from $55.7 million at June 30, 2015. 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.

During the six months ended June 30, 2016, we generated $15.6 million more cash from operating activities than during the six months ended June 30, 2015. Segment EBITDA decreased $5.9 million for the six months ended June 30, 2016 as compared to the six months ended June 30, 2015. Several working capital changes contributed to the increased cash from operating activities as lower interest payments of $24.0 million, primarily from the 2015 Exchange Offers and 2015 Rights Offering, were partially offset by payments totaling $5.8 million incurred in 2016 for customer refunds under the FCA settlement arrangement.

We used $2.4 million less cash in investing activities during the six months ended June 30, 2016 as compared to the six months ended June 30, 2015. During the six months ended June 30, 2016, we used $11.7 million for capital expenditures. During the six months ended June 30, 2015, we used $15.2 million for capital expenditures and received $1.5 million in connection with the sale of an investment.

We used $52.2 million more cash in financing activities during the six months ended June 30, 2016 as compared to the six months ended June 30, 2015. During the six months ended June 30, 2016, we made principal payments on our debt of $4.0 million. During the six months ended June 30, 2015, we had net borrowings under Affinion’s revolving credit facility of $54.0 million and made principal payments on our debt of $4.1 million.

As a result of the Apollo Transactions, we became a highly leveraged company, and we continue to be a highly leveraged company. As of June 30, 2016, we had approximately $1.8 billion in indebtedness.

At June 30, 2016, on a consolidated basis, Affinion had $757.6 million outstanding under Affinion’s first lien term loan ($772.2 million, including carrying value adjustment), $425.0 million outstanding under Affinion’s second lien term loan ($427.6 million including carrying value adjustment), $475.0 million outstanding under Affinion’s 2010 senior notes ($519.7 million including discount and carrying value adjustment), $22.6 million outstanding under Affinion’s 2013 senior subordinated notes and $113.9 million outstanding under the International Notes ($131.9 million including carrying value adjustment). At June 30, 2016, there were no borrowings outstanding under Affinion’s revolving credit facility and Affinion had $69.2 million available under the revolving credit facility after giving effect to the issuance of $10.8 million of letters of credit.

As of June 30, 2016, Affinion’s senior secured credit facility and the indentures governing Affinion’s 2010 senior notes and the International Notes contained various restrictive covenants that apply to Affinion. As of June 30, 2016, Affinion was in compliance with the restrictive covenants under Affinion’s debt agreements. 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 indenture governing the Investments senior subordinated notes and the note agreement governing Affinion’s 2013 senior subordinated notes.

On April 9, 2010, Affinion, as borrower, and Affinion Holdings, as a guarantor, entered into a $1.0 billion amended and restated senior secured credit facility with its lenders (consisted of a five-year $125.0 million revolving credit facility and an $875.0 million term loan facility), which amended and restated its prior senior secured credit facility. We refer to Affinion’s amended and restated senior secured credit facility, as amended from time to time, including by the Incremental Assumption Agreements (as defined below) and the May 2014 Amendment (as defined below) as “Affinion’s senior secured credit facility.”

On December 13, 2010, Affinion, as borrower, Affinion Holdings and certain of Affinion’s subsidiaries entered into an Incremental Assumption Agreement with two of Affinion’s 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, Affinion, as borrower, Affinion Holdings and certain of Affinion’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, Affinion, as Borrower, and Affinion Holdings entered into an amendment to Affinion’s 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 Affinion 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 Affinion’s 2006 senior subordinated notes and Affinion Holdings’ 2010 senior notes, Affinion, as Borrower, and Affinion Holdings, entered into an amendment to Affinion’s senior secured credit facility, which (i) provided permission for the consummation of the exchange offers for Affinion’s 2006 senior subordinated notes and Affinion Holdings’ 2010 senior notes, (ii) removed the springing maturity provisions applicable to the term loan facility, (iii) modified the senior secured leverage ratio financial covenant in Affinion’s senior secured credit facility, (iv) provided additional flexibility for Affinion 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 Affinion, 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 Affinion of the consent fee equal to 0.25% of the sum of (i) the aggregate principal amount of all term loans and (ii) the revolving loan commitments in effect, in each case, held by each lender that entered into the amendment on the date of effectiveness of the amendment.

On May 20, 2014, Affinion, as borrower, and Affinion Holdings entered into an amendment to Affinion’s senior secured credit facility (the “May 2014 Amendment”), 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, (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, (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 Affinion to maintain a minimum interest coverage ratio.

Affinion’s 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 balance 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 the proceeds from certain specified transactions. The interest rates with respect to Affinion’s first lien term loan and revolving loans under Affinion’s senior secured credit facility are based on, at Affinion’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 Affinion’s second lien term loan under Affinion’s senior secured 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 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 first lien term loan for the six months ended June 30, 2016 and 2015 was 6.75%. The weighted average interest rate on the second lien term loan for the six months ended June 30, 2016 and 2015 was 8.50%. The weighted average interest rate on revolving credit facility borrowings for the six months ended June 30, 2016 and 2015 was 7.8% and 7.2%, 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 its 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 consists of 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 substantially all tangible and intangible 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 ability of 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 senior 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.

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). 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.

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 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 unaudited condensed 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.

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.

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.

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 of Affinion Holdings 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 of Affinion Holdings. 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 of Affinion Holdings. Under certain circumstances, certain holders would have received Limited Warrants of Affinion Holdings that would have been convertible into shares of Common Stock of Affinion Holdings upon satisfaction of 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 of Affinion Holdings 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 of Affinion Holdings. 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 of Affinion Holdings 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 of Affinion Holdings 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 of Affinion Holdings 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 of Affinion Holdings. 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 of Affinion Holdings. 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 of Affinion Holdings, 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 of Affinion Holdings 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. All of Affinion Holdings’ then 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), 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, 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, 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. In connection with the Reclassification, (i) the investment funds affiliated with Apollo Global Management, LLC (such investment funds, 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) investment funds affiliated with General Atlantic LLC (such investment funds referred to as “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 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 was 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.

Our senior secured credit facility and the indentures that govern Affinion’s 2010 senior notes and the International 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 June 30, 2016. 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 indenture governing Affinion’s 2010 senior notes, among other things: (a) 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) 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) 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 June 30, 2016, Affinion

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 Affinion’s 2010 senior notes and the International Notes. Under the indenture governing Affinion’s 2010 senior 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 $73.5 million and $17.8 million, respectively for the three months ended June 30, 2016, which represented 30.1% and 36.5% of Affinion Group’s total net revenues and EBITDA, respectively, for the three months ended June 30, 2016, compared to combined net revenues and EBITDA of $82.9 million and $8.2 million, respectively for the three months ended June 30, 2015. Net revenues decreased $7.5 million on a currency consistent basis primarily due to a change in deal structure with a client (which impacted our net revenue but had a limited impact on Segment EBITDA) and the lower revenue due to attrition in our International credit card protection business, which more than offset higher revenue from growth with our online partnerships. In addition, revenue decreased by the unfavorable impact from foreign exchange of $1.9 million. EBITDA increased for the three months ended June 30, 2016 as the lower net revenue of $9.4 million was more than offset by lower marketing and commissions, lower operating costs and lower general and administrative expenses. The lower marketing and commissions were primarily attributable to the timing of campaign launches. The lower operating costs were primarily related to lower product and servicing costs. The lower general and administrative expenses were primarily related to lower employee-related costs. The only reconciliation item between EBITDA of Affinion International and its subsidiaries and of the Foreign Guarantors and their subsidiaries of $17.8 million and the income from operations of Affinion International and its subsidiaries and of the Foreign Guarantors and their subsidiaries of $13.0 million is depreciation and amortization of $4.8 million.

At June 30, 2016, 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 $307.0 million, of which $172.9 million was owed to Affinion and its Restricted Subsidiaries (other than Foreign Subsidiaries), $132.4 million was owed to unrelated third parties and $1.7 million represented letters of credit. At March 31, 2016, the Foreign Subsidiaries of Affinion had Indebtedness of $299.6 million, of which $167.3 million was owed to Affinion and its Restricted Subsidiaries (other than Foreign Subsidiaries), $130.6 million was owed to unrelated third parties and $1.7 million represented letters of credit. The previously reported amount for Indebtedness of Foreign Subsidiaries of Affinion at March 31, 2016 of $433.7 million incorrectly included $134.1 million of intercompany and third-party liabilities that did not represent Indebtedness.

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 June 30, 2016 to Adjusted EBITDA.

Set forth below is a reconciliation of our consolidated net loss attributable to Affinion Group, Inc. for the twelve months ended June 30, 2016 to Adjusted EBITDA as required by our senior secured credit facility and the indenture governing our 2010 senior notes.

On December 12, 2013, Affinion Holdings issued $292.8 million aggregate principal amount of Affinion Holdings 2013 senior notes, together with 13.5 million Series A Warrants and 70.2 million Series B Warrants, in exchange for $292.8 million aggregate principal amount of Affinion Holdings’ 2013 senior notes. The Affinion Holdings 2013 senior notes bear interest at 13.75% per annum, payable semi-annually on March 15 and September 15 of each year, commencing on September 15, 2014. At Affinion Holdings’ option, it may elect to pay interest (i) entirely in cash (“Cash Interest”), (ii) entirely by increasing the principal amount of the outstanding Affinion Holdings 2013 senior notes or by issuing PIK notes (“PIK Interest”), or (iii) 50% as Cash Interest and 50% as PIK Interest; provided that if (i) no Default or Event of Default (each as defined in Affinion’s senior secured credit facility) shall have occurred and be continuing or would result from such interest payment, (ii) immediately after giving effect to such interest payment, on a pro forma basis, the Consolidated Leverage Ratio (as defined in Affinion’s senior secured credit facility) of Affinion is less than or equal to 5.0:1.0 as of the last day of the most recently completed fiscal quarter preceding the interest payment date for which financial statements have been delivered to the agent under Affinion’s senior secured credit facility and (iii) immediately after giving effect to such interest payment, on a pro forma basis, the Adjusted Consolidated Leverage Ratio (as defined in the note agreement governing the Investments senior subordinated notes) of Affinion is less than or equal to 5.0:1.0, then Affinion Holdings shall be required to pay interest on the Affinion Holdings 2013 senior notes for such interest period in cash. PIK Interest accrues at 13.75% per annum plus 0.75%. The Affinion Holdings 2013 senior notes will mature on September 15, 2018. The Affinion Holdings 2013 senior notes are senior secured obligations of Affinion Holdings and rank pari passu in right of payment to all existing and future senior indebtedness of Affinion Holdings, junior in right of payment to all secured indebtedness of Affinion Holdings secured by liens having priority to the liens securing the Affinion Holdings 2013 senior notes up to the value of the assets subject to such liens, and senior in right of payment to unsecured indebtedness of Affinion Holdings to the extent of the security of the collateral securing the Affinion Holdings 2013 senior notes and all future subordinated indebtedness of Affinion Holdings.

senior notes were exchanged for 1,769,104 shares of Common Stock of Affinion Holdings 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 of Affinion Holdings. 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.

As described above, we expect that Affinion Holdings will rely on distributions from us (including loans) in order to pay any cash amounts due in respect of Affinion Holdings 2013 senior notes. However, our ability to make distributions to Affinion Holdings is restricted by covenants contained in our amended and restated senior secured credit facility and the indenture governing our 2010 senior notes and by Delaware law. To the extent we make distributions to Affinion Holdings, the amount of cash available to us to pay principal of, and interest on, our outstanding debt, including our amended and restated senior secured credit facility, our 2010 senior notes and our 2013 senior subordinated notes, will be reduced, and we would have less cash available for other purposes, which could negatively impact our financial condition, our results of operations and our ability to maintain or expand our business. A failure to pay principal of, or interest on, our debt, including our senior secured credit facility, our 2010 senior notes, and our 2013 senior subordinated notes, would constitute an event of default under the applicable debt agreements, giving the holders of that debt the right to accelerate its maturity. In addition, to the extent we are not able to make distributions to Affinion Holdings because of the restrictions in our debt agreements or otherwise, then Affinion Holdings may not have sufficient cash on hand to service its obligations under the Affinion Holdings 2013 senior notes. Any failure by Affinion Holdings to pay principal of, or interest on, the Affinion Holdings 2013 senior notes would constitute an event of default under our amended and restated senior secured credit facility, giving the lenders thereunder the right to accelerate the repayment of all borrowings thereunder, which acceleration would also give rise to an event of default under our 2010 senior notes and 2013 senior subordinated notes. If any of our debt is accelerated, we may not have sufficient cash available to repay it in full and we may be unable to refinance such debt on satisfactory terms or at all.

We or our affiliates have, in the past, and may, from time to time in the future, purchase any of our or Affinion Holdings’ indebtedness. Any such future purchases may be made through open market or privately negotiated transactions with third parties or pursuant to one or more tender or exchange offers or otherwise, upon such terms and at such prices as we or any such affiliates may determine.

In presenting our unaudited condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, we are required to make estimates and assumptions that affect the amounts reported therein. We believe that the estimates, assumptions and judgments involved in the accounting policies related to revenue recognition, accounting for marketing costs, stock-based compensation, valuation of goodwill and intangible assets, and valuation of tax assets and liabilities could potentially affect our reported results and as such, we consider these to be our critical accounting policies. Several of the estimates and assumptions we are required to make relate to matters that are inherently uncertain, as they pertain to future events. However, certain events outside our control cannot be predicted and, as such, they cannot be contemplated in evaluating such estimates and assumptions. We believe that the estimates and assumptions used when preparing our unaudited condensed consolidated financial statements were the most appropriate at the time. Significant estimates include accounting for profit sharing receivables from insurance carriers, accruals and income tax valuation allowances, litigation accruals, estimated fair value of stock based compensation, estimated fair values of assets and liabilities acquired in business combinations and estimated fair values of financial instruments. In addition, we refer you to our audited consolidated financial statements, included in our Annual Report on Form 10-K for the year ended December 31, 2015, for a summary of our significant accounting policies.

																		Fair Value At
														2021 and				June 30,
	2016			2017			2018			2019		2020		Thereafter		Total		2016
	(in millions)
Fixed rate debt	$	—		$	—		$	622.1		$	—	$	—	$	—	$	622.1	$	324.3
Average interest rate		8.01	%		8.01	%		7.97	%
Variable rate debt	$	3.9		$	7.8		$	1,170.9		$	—	$	—	$	—	$	1,182.6	$	1,001.3
Average interest rate (a)		7.38	%		7.38	%		7.68	%

During the three and six months ended June 30, 2016, the Company recognized a realized gain on the forward contracts of $1.4 million and $1.9 million, respectively. During the three and six months ended June 30, 2015, the Company recognized a realized loss on the forward contracts of $1.6 million and a realized gain on the forward contracts of $2.7 million, respectively. As of June 30, 2016, the Company had a de minimis unrealized loss on the foreign currency forward contracts.

At June 30, 2016, the Company’s estimated fair values of its foreign currency forward contracts are based upon available market information. The fair value of a foreign currency forward contract is based on significant other observable inputs, adjusted for contract restrictions and other terms specific to the foreign currency forward contracts. The fair values have been determined after consideration of foreign currency exchange rates and the creditworthiness of the parties to the foreign currency forward contracts. The counterparty to the foreign currency forward contracts is a major financial institution. The Company does not expect any losses from non-performance by the counterparty.

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

Evaluation of Disclosure Control and Procedures. The Company, under the direction of the Chief Executive Officer and the Chief Financial Officer, has established disclosure controls and procedures (“Disclosure Controls”) that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. The Disclosure Controls are also intended to ensure that such information is accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

Our management, including the Chief Executive Officer and Chief Financial Officer, does not expect that our Disclosure Controls or our “internal controls over financial reporting” (“Internal Controls”) will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations

include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. Notwithstanding the foregoing, our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives.

As of June 30, 2016, an evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934. Based upon their evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that as of June 30, 2016, the Company’s disclosure controls and procedures are effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting. There have not been any changes in the Company’s internal control over financial reporting that occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting.

Information required by this Item is contained in Note 6 to our unaudited condensed consolidated financial statements within Part I of this Form 10-Q.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Large accelerated filer	¨	Accelerated filer	¨

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

	Page
Part I. FINANCIAL INFORMATION
Item 1.	1
Financial Statements	1
Unaudited Condensed Consolidated Balance Sheets as of June 30, 2016 and December 31, 2015	1
Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2016 and 2015	2
Unaudited Condensed Consolidated Statements of Changes in Deficit for the Six Months Ended June 30, 2016 and 2015	3
Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2016 and 2015	4
Notes to Unaudited Condensed Consolidated Financial Statements	5
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations	36
Item 3.
Quantitative and Qualitative Disclosures about Market Risk	60
Item 4.
Controls and Procedures	61
Part II. OTHER INFORMATION
Item 1.
Legal Proceedings	63
Item 1A.
Risk Factors	63
Item 2.
Unregistered Sales of Equity in Securities and Use of Proceeds	63
Item 3.
Defaults Upon Senior Securities	63
Item 4.
Mine Safety Disclosure	63
Item 5.
Other Information	63
Item 6.
Exhibits	64
SIGNATURES	S-1

Reduction of carrying value of debt exchanged	$	(337.3	)
Reduction of accrued interest associated with debt exchanged		(10.6	)
Write-off of debt discount and deferred financing costs, plus professional fees		21.0
Fair value of equity issued in the debt exchange and rights offering		107.8
Gain recorded as noted above		115.8
Adjustment to carrying value of debt	$	(103.3	)

Vesting period		Ratably over 4 years
Initial option term		10 years

	2016 Grants

Expected volatility		75	%
Expected life (in years)	6.3
Risk-free interest rate		1.64	%
Expected dividends	—

	Number of			Weighted Average
	Restricted			Grant Date
	Stock Units			Fair Value

Outstanding restricted unvested awards at January 1, 2016		261		$	1.14
Granted	—
Vested		(261	)	1.14
Forfeited	—
Outstanding restricted unvested awards at June 30, 2016		-
Weighted average remaining contractual term (in years)		-

Segment EBITDA
	For the Three Months Ended						For the Six Months Ended
	June 30,			June 30,			June 30,			June 30,
	2016			2015			2016			2015
	(in millions)

Global Loyalty	$	12.8		$	14.9		$	26.4		$	30.5
Global Customer Engagement		18.1			12.0			37.7			24.0
Insurance Solutions		17.2			18.4			38.9			37.2
Subtotal		48.1			45.3			103.0			91.7
Legacy Membership and Package		14.4			24.4			24.5			38.9
Corporate		(13.8	)		(14.5	)		(30.9	)		(27.9	)
	$	48.7		$	55.2		$	96.6		$	102.7

	For the Twelve
	Months Ended
	June 30, 2016 (a)
	(in millions)
Net cash provided by operating activities	$	29.7
Interest expense, net		136.1
Income tax expense		6.8
Amortization of debt discount, financing costs and carrying value adjustment		15.7
Provision for loss on accounts receivable		4.3
Deferred income taxes		(1.2	)
Changes in assets and liabilities		26.4
Effect of purchase accounting, reorganizations, certain legal costs and net cost savings (b)		26.2
Other, net (c)		20.5
Adjusted EBITDA, excluding pro forma adjustments (d)		264.5
Effect of the pro forma adjustments (e)		8.9
Adjusted EBITDA, including pro forma adjustments (f)	$	273.4

Exhibit Number		Description

4.1*		Supplemental Indenture No.7, dated as of July 14, 2016, by and among Incentive Networks LLC, Affinion Group, Inc. and Wells Fargo, National Association, as Trustee.

4.2*		Supplemental Indenture No.1, dated as of July 14, 2016, by and among Incentive Networks LLC, Affinion International Holdings Limited and Wilmington Trust, National Association, as Trustee.

10.1*		Agreement and General Release, dated as of July 5, 2016, by and among Affinion Group Holdings, Inc., Affinion Group, Inc. and Sloane Levy.

31.1*		Certification of the Chief Executive Officer Pursuant to Rule 13a-14(a) or 15d-14(a).

31.2*		Certification of the Chief Financial Officer Pursuant to Rule 13a-14(a) or 15d-14(a).

32.1**		Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350.

32.2**		Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350.

101.INS XBRL*		Instance Document

101.SCH XBRL*		Taxonomy Extension Schema

101.CAL XBRL*		Taxonomy Extension Calculation Linkbase

101.DEF XBRL*		Taxonomy Extension Definition Linkbase

101.LAB XBRL*		Taxonomy Extension Label Linkbase

101.PRE XBRL*		Taxonomy Extension Presentation Linkbase

		AFFINION GROUP, INC.
Date:	July 27, 2016	By:	/S/ Gregory S. Miller
			Gregory S. Miller
			Executive Vice President and Chief Financial Officer