aghi-10q_20180930.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 ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period

for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) 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 ☒

As of November 13, 2018, the number of shares outstanding of the registrant’s (1) Common Stock, $0.01 par value, was 9,157,071, (2) Class C Common Stock, $0.01 par value, was 433,813, and (3) Class D Common Stock, $0.01 par value, was 456,643.

	September 30,			December 31,
	2018			2017
Assets
Current assets:
Cash and cash equivalents	$	50.0		$	39.5
Restricted cash		60.1			9.9
Receivables (net of allowances for doubtful accounts of $8.1 and $7.5, respectively)		155.9			153.4
Prepaid commissions		35.6			33.7
Other current assets		86.9			69.6
Current assets held for sale		—			46.0
Total current assets		388.5			352.1
Property and equipment, net		95.1			103.5
Goodwill		172.8			166.4
Other intangibles, net		31.0			34.0
Other non-current assets		39.7			27.6
Non-current assets held for sale		—			83.3
Total assets	$	727.1		$	766.9

Liabilities and Deficit
Current liabilities:
Current portion of long-term debt	$	13.8		$	13.9
Accounts payable and accrued expenses		359.6			292.7
Deferred revenue		36.6			35.2
Income taxes payable		3.9			3.2
Current liabilities held for sale		—			49.1
Total current liabilities		413.9			394.1
Long-term debt		1,467.3			1,887.3
Deferred income taxes		3.0			5.5
Deferred revenue		3.4			4.1
Other long-term liabilities		33.6			25.9
Non-current liabilities held for sale		—			7.6
Total liabilities		1,921.2			2,324.5

Commitments and contingencies

Deficit
Common Stock, $0.01 par value, 520,000,000 shares authorized, 9,157,071 shares issued and outstanding		0.1			0.1
Class C Common Stock, $0.01 par value, 10,000,000 shares authorized, 434,897 shares issued and 433,813 shares outstanding		—			—
Class D Common Stock, $0.01 par value, 10,000,000 shares authorized, 457,784 shares issued and 456,643 shares outstanding		—			—
Additional paid in capital		413.7			412.5
Warrants		31.1			31.1
Accumulated deficit		(1,625.8	)		(1,991.7	)
Accumulated other comprehensive income		(13.6	)		(9.5	)
Treasury stock, at cost, 1,084 Class C and 1,141 Class D shares		(1.1	)		(1.1	)
Total Affinion Group Holdings, Inc. deficit		(1,195.6	)		(1,558.6	)
Non-controlling interest in subsidiary		1.5			1.0
Total deficit		(1,194.1	)		(1,557.6	)
Total liabilities and deficit	$	727.1		$	766.9

See accompanying notes to the unaudited condensed consolidated financial statements.

	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2018			2017			2018			2017
Net revenues	$	177.1		$	183.3		$	545.4		$	549.1
Expenses:
Cost of revenues, exclusive of depreciation and amortization shown separately below:
Marketing and commissions		36.8			42.5			103.3			130.5
Operating costs		82.3			81.1			249.4			271.6
General and administrative		26.2			21.2			88.1			68.1
Facility exit costs		1.0			(1.2	)		1.8			0.2
Depreciation and amortization		12.7			11.8			36.2			33.7
Total expenses		159.0			155.4			478.8			504.1
Income from continuing operations		18.1			27.9			66.6			45.0
Interest income		—			—			0.1			0.1
Interest expense		(50.5	)		(44.3	)		(145.1	)		(97.0	)
Gain (loss) on extinguishment of debt		(31.6	)		(2.8	)		(31.6	)		3.5
Other expense, net		—			(0.1	)		(0.3	)		(0.3	)
Loss from continuing operations before income taxes		(64.0	)		(19.3	)		(110.3	)		(48.7	)
Income tax benefit (provision)		24.5			(1.7	)		23.6			0.4
Loss from continuing operations, net of tax		(39.5	)		(21.0	)		(86.7	)		(48.3	)
Income from discontinued operations, net of tax		456.9			10.2			452.0			20.5
Net income (loss)		417.4			(10.8	)		365.3			(27.8	)
Less: net income attributable to non-controlling interest		(0.3	)		(0.1	)		(1.0	)		(0.7	)
Net income (loss) attributable to Affinion Group Holdings, Inc.	$	417.1		$	(10.9	)	$	364.3		$	(28.5	)

Earnings (loss) per share attributable to holders of Common Stock
Basic earnings (loss) per share
Continuing operations	$	(2.91	)	$	(1.54	)	$	(6.43	)	$	(4.32	)
Discontinued operations	$	33.51		$	0.74		$	33.16		$	1.81
Net earnings (loss) per share	$	30.60		$	(0.80	)	$	26.73		$	(2.51	)

Diluted earnings (loss) per share
Continuing operations	$	(2.91	)	$	(1.54	)	$	(6.43	)	$	(4.32	)
Discontinued operations	$	33.51		$	0.74		$	33.16		$	1.81
Net earnings (loss) per share	$	30.60		$	(0.80	)	$	26.73		$	(2.51	)

Weighted average common shares outstanding
Basic		13,628,871			13,522,890			13,628,871			11,356,425
Diluted		13,628,871			13,522,890			13,628,871			11,356,425

Net income (loss)	$	417.4		$	(10.8	)	$	365.3		$	(27.8	)
Currency translation adjustment, net of tax for all periods		(1.8	)		2.4			(4.1	)		6.0
Comprehensive income (loss)		415.6			(8.4	)		361.2			(21.8	)
Less: comprehensive income attributable to non-controlling interest		(0.3	)		(0.3	)		(1.0	)		(0.7	)
Comprehensive income (loss) attributable to Affinion Group Holdings, Inc.	$	415.3		$	(8.7	)	$	360.2		$	(22.5	)

See accompanying notes to the unaudited condensed consolidated financial statements.

			Affinion Group Holdings, Inc. Deficit
	Common Shares		Common Stock and Additional Paid-in Capital		Warrants		Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Non- Controlling Interest			Total Deficit
Balance, January 1, 2018		9,157,071	$	412.6	$	31.1	$	(1,991.7	)	$	(9.5	)	$	(1.1	)	$	1.0		$	(1,557.6	)
Impact of change in accounting policy			—			—		1.6			—			—			—			1.6
Adjusted balance, January 1, 2018				412.6		31.1		(1,990.1	)		(9.5	)		(1.1	)		1.0			(1,556.0	)
Net income				—		—		364.3			—			—			1.0			365.3
Currency translation adjustment				—		—		—			(4.1	)		—			—			(4.1	)
Dividend to non-controlling interest				—		—		—			—			—			(0.5	)		(0.5	)
Share-based compensation				1.2	—		—			—			—			—				1.2
Balance, September 30, 2018		9,157,071	$	413.8	$	31.1	$	(1,625.8	)	$	(13.6	)	$	(1.1	)	$	1.5		$	(1,194.1	)

			Affinion Group Holdings, Inc. Deficit
	Common Shares		Common Stock and Additional Paid-in Capital		Warrants		Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Non- Controlling Interest			Total Deficit
Balance, January 1, 2017		9,093,330	$	409.6	$	—	$	(1,966.5	)	$	(15.7	)	$	(1.1	)	$	0.8		$	(1,572.9	)
Net income (loss)				—		—		(28.5	)		—			—			0.7			(27.8	)
Currency translation adjustment				—		—		—			6.0			—			—			6.0
Issuance of warrants in connection with debt refinancing				—		31.1		—			—			—			—			31.1
Exercise of warrants		63,741		0.4		—		—			—			—			—			0.4
Dividend to non-controlling interest				—	—		—			—			—				(0.2	)		(0.2	)
Share-based compensation				1.8	—		—			—			—			—				1.8
Balance, September 30, 2017		9,157,071	$	411.8	$	31.1	$	(1,995.0	)	$	(9.7	)	$	(1.1	)	$	1.3		$	(1,561.6	)

See accompanying notes to the unaudited condensed consolidated financial statements.

	For the Nine Months Ended September 30,
	2018			2017
Operating Activities
Net income (loss)	$	365.3		$	(27.8	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		36.9			34.9
Payment in kind interest		64.8			32.9
Amortization of debt discount, financing costs and carrying value adjustment		12.7			(4.5	)
Provision for accounts receivable loss		1.2			3.0
Loss (gain) on extinguishment of debt		31.6			(3.5	)
Gain on sale of business		(473.1	)		—
Facility exit costs		1.8			0.3
Share-based compensation		1.2			1.8
Deferred income taxes		(1.9	)		2.7
Net change in assets and liabilities:
Receivables		(5.8	)		(16.8	)
Prepaid commissions		(2.3	)		(1.5	)
Other current assets		(11.1	)		(7.0	)
Other non-current assets		(13.9	)		6.6
Accounts payable and accrued expenses		47.3			24.8
Deferred revenue		9.9			(5.2	)
Income taxes receivable and payable		1.0			1.2
Other long-term liabilities		(1.2	)		(0.1	)
Other, net		2.0			(3.4	)
Net cash provided by operating activities		66.4			38.4
Investing Activities
Capital expenditures		(23.8	)		(30.1	)
Acquisition-related payments, net of cash acquired		(5.8	)		(0.4	)
Proceeds from sale of business, net of cash transferred		517.3			—
Net cash provided by (used in) investing activities		487.7			(30.5	)
Financing Activities
Proceeds from borrowings		—			1,539.6
Borrowings (repayments) under revolving credit facility, net		(15.0	)		40.0
Principal payments on borrowings		(491.0	)		(1,531.4	)
Financing costs		(0.1	)		(28.1	)
Dividend paid to non-controlling interest		(0.5	)		(0.2	)
Proceeds from sale of warrants		—			0.5
Net cash provided by (used in) financing activities		(506.6	)		20.4
Effect of changes in exchange rates on cash, cash equivalents and restricted cash		(2.0	)		3.3
Net increase in cash, cash equivalents and restricted cash		45.5			31.6
Cash, cash equivalents and restricted cash, beginning of period		64.6			63.8
Cash, cash equivalents and restricted cash, end of period		110.1			95.4
Less: cash, cash equivalents and restricted cash of discontinued operations, end of period		—			(15.8	)
Cash, cash equivalents and restricted cash of continuing operations, end of period	$	110.1		$	79.6
Supplemental Disclosure of Cash Flow Information:
Interest payments	$	111.7		$	87.6
Income tax payments, net of refunds	$	3.6		$	3.4
Non-cash investing and financing activities:
Accrued capital expenditures	$	1.1		$	0.7
Payment of in-kind interest	$	41.7		$	3.4
Exchange of notes and accrued interest for new notes	$	—		$	295.3
Payment of debt discount	$	—		$	25.9

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— The accompanying unaudited condensed consolidated financial statements include the accounts and transactions of Affinion Group Holdings, Inc. (the “Company” or “Affinion Holdings”), the parent of Affinion Group, Inc. (“Affinion”). 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, 2017 filed with the SEC on March 1, 2018 and amended on March 16, 2018 (as amended, the “Form 10-K”).

Business Description— The Company develops programs and solutions that motivate and inspire loyalty. Through our proprietary technology platforms and end-to-end customer service capabilities, we design, administer and fulfill loyalty and customer engagement programs and solutions that strengthen and expand the value of customer relationships for many of the world’s largest and most respected companies. Our programs and solutions include:

In 2016, we implemented a globalized organizational structure (the “Global Reorganization”) to better support our key strategic initiatives and enhance long-term revenue growth. This 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 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 Global Reorganization marks a major step in our strategic plan and ongoing transformation. See Note 14 to these unaudited condensed consolidated financial statements for more information concerning our segment results.

The Company had a fourth operating segment, Insurance Solutions, which consisted of the domestic insurance business, which served as a leading third-party agent, administrator and marketer of certain accident and life insurance solutions. On August 15, 2018, the Company completed the sale of the domestic insurance business, which comprised substantially all of the Company’s Insurance Solutions operating segment. See Note 3 to these unaudited condensed consolidated financial statements for more information on the sale of the domestic insurance business. The divestiture of the domestic insurance business marks an additional step in our strategic plan and ongoing transformation into a pure-play loyalty solutions company.

Liquidity— During the third quarter of 2018 and as previously disclosed in a Current Report on Form 8-K filed on October 5, 2018, one of the Company’s top five Global Loyalty clients commenced the process of transferring their business to another loyalty provider. As of October 26, 2018, consistent with the expectations disclosed in the aforementioned Form 8-K, this client transitioned substantially all of their existing business to an alternative provider. In accordance with U.S. GAAP, the Company is required to perform an assessment of its ability to continue as a going concern. Further, when management identifies conditions or events that raise substantial doubt about an entity’s ability to continue as a going concern, management must then consider whether its plans that are intended to mitigate those relevant conditions or events will alleviate the substantial doubt. As a result of this requirement, the Company has concluded that substantial doubt exists relating to the Company’s ability to continue as a going concern within one year after the date these financial statements are issued. The Company continues to make progress on expanding an existing partner relationship that, if implemented, would mitigate or offset entirely the impact of the lost revenue from the loss of the above-mentioned key client. The Company currently anticipates that any such implementation would occur in the early part of the first quarter of 2019.

In May 2014, the Financial Accounting Standards Board (“FASB”) issued new accounting guidance related to revenue recognition. The new standard, Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“ASC 606”), 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 entities 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 an entity expects to receive for the goods and services provided. The guidance permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (modified retrospective). We adopted the new guidance effective January 1, 2018 using the modified retrospective method, focusing on contracts not yet completed as of December 31, 2017. We recognized the cumulative effect of applying ASC 606 as of January 1, 2018 as an adjustment to the opening balance of retained earnings. The comparative information for the three and nine months ended September 30, 2017 has not been restated and continues to be reported under the accounting standards in effect for that period. As required by ASC 606, results for the three and nine months ended September 30, 2018 includes dual reporting, presenting operating results under both the previous and current standards. See Note 2 to these unaudited condensed consolidated financial statements for additional information relating to the adoption of ASC 606 and its impact on the Company.

In February 2016, the FASB issued ASU 2016-02, its new standard on accounting for leases. The new standard requires lessees to recognize right-of-use assets and lease liabilities for operating leases on the balance sheet and disclose key information about leasing arrangements. The new standard is effective for the Company on January 1, 2019 with early adoption permitted. The Company expects to adopt the new lease standard on January 1, 2019 and recognize a cumulative-effect adjustment to the opening balance of accumulated deficit as of that date, as permitted by FASB ASU 2018-11. The Company has formed a project implementation team with representatives from each of its operating segments. The team continues to work on compiling a lease database containing all of the relevant information required to implement the new standard and has held training on the application of the new standard. The Company has licensed third-party software to automate lease accounting calculations and compile disclosures required by the new standard. The Company has also engaged a third-party consultant to assist in the implementation of the new standard. The new standard is expected to have a material impact on the Company’s condensed consolidated balance sheets, but is not expected to have a material impact on the Company’s condensed consolidated statements of comprehensive income (loss) or cash flows.

In August 2016, the FASB issued ASU 2016-15, which addresses eight specific cash flow issues, including presentation of debt prepayments or debt extinguishment costs, with the objective of reducing the existing diversity in practice. For public business entities, the new guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, and the new guidance must be adopted using the full retrospective method. The adoption of the new guidance by the Company as of January 1, 2018 did not have any impact on the Company’s consolidated financial position, results of operations or cash flows.

In November 2016, the FASB issued ASU 2016-18, which requires an entity’s reconciliation of the beginning-of-period and end-of-period total amounts shown on the statement of cash flows to include in cash and cash equivalents amounts generally described as restricted cash and restricted cash equivalents. For public business entities, the new guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company’s restricted cash amounts relate primarily to amounts to collateralize certain bonds and letters of credit issued on the Company’s behalf and amounts held in escrow. The Company’s restricted cash amounts presented in current assets held for sale on the unaudited condensed consolidated balance sheet as of December 31, 2017 relate primarily to insurance premiums collected from members that are held pending remittance to third-party insurance carriers. These amounts are not available for general operations under state insurance laws or under the terms of the agreements with the carriers that underwrite and issue insurance policies to the members. The adoption of the new guidance by the Company as of January 1, 2018 did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows. The unaudited condensed consolidated statement of cash flows for the nine months ended September 30, 2017 was revised to exclude the $(3.9) million and $0.6 million change in restricted cash from net cash used in operating activities and net cash used in investing activities, respectively, and to include $26.1 million and $30.1 million in cash, cash equivalents and restricted cash, beginning of period and cash, cash equivalents and restricted cash, end of period, respectively.

In January 2017, the FASB issued ASU 2017-04 to simplify the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Under the new guidance, an impairment charge, if triggered, is calculated as the difference between a reporting unit’s carrying value and fair value, but is limited to the carrying value of the goodwill. Current guidance, however, requires an impairment charge to be calculated as the excess of the carrying value of goodwill over its implied fair value. The new guidance is effective for annual and interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. 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.

In response to the Tax Cuts and Jobs Act (the “TCJA”), which was signed into law on December 22, 2017, the Securities and Exchange Commission’s Office of the Chief Accountant published Staff Accounting Bulletin No. 118 (“SAB 118”). SAB 118 addresses the requirements to account for the impact of a change in tax law or tax rates in the period of enactment. Specifically, SAB 118 provides guidance for issuers that are not able to complete the accounting for the income tax effects of the TCJA by the time financial statements are issued for the reporting period that includes the enactment date (“enactment period financials”).

Pursuant to SAB 118, if the accounting for specific income tax effects of the TCJA is incomplete at the time the financial statements are issued, a company should provide a provisional amount for specific income tax effects for which a reasonable estimate can be determined. For any specific income tax effects of the TCJA for which a reasonable estimate cannot be determined because additional information, data, analysis or preparation is required, a company should not report a provisional amount but continue to apply the rules in effect immediately prior to enactment. For income tax effects for which a company was not able to determine a reasonable estimate in the enactment period financials, a provisional amount must be recorded in the first reporting period in which a reasonable estimate can be determined.

Under SAB 118, the measurement period for accounting for the TCJA begins in the period of enactment and ends when an entity has obtained, prepared and analyzed the information necessary to complete the accounting requirements under ASC 740 (the “measurement period”), but in no event can the measurement period extend beyond December 22, 2018. Any provisional amount or adjustment to a provisional amount included in a company’s financial statements during the measurement period should be included in income from continuing operations as an adjustment to tax expense or benefit in the reporting period the amounts are determined.

The Company has not finalized accounting for the income tax effects of TCJA. This includes the provisional amounts recorded for the remeasurement of deferred taxes and the transition tax. While we do not expect other aspects of the TCJA to have a material impact, additional guidance or changes in the law could have an impact on the financial statements and therefore we consider the accounting for amounts related to these items to be provisional. The Company will continue to review the technical tax interpretations associated with the underlying law, monitor state legislative changes, and review U.S. federal and state guidance as it is issued.

The adoption of ASC 606 affected the Company’s Global Loyalty, Global Customer Engagement and Legacy Membership and Package segments. Within the Global Loyalty segment, the Company has contracts with certain clients that have annual revenue-sharing and tiered pricing components (variable consideration arrangements) based on transaction volumes. Under prior guidance, revenue was recognized as the Company achieved those contractual tiers. Under the new guidance, revenue derived from these revenue-sharing and tiered pricing contracts will be recognized based upon an estimate of the Company’s ability to achieve those contractual tiers during each annual measurement period. Based on the Company’s estimates of reaching different contractual tiers, a portion of the estimated annual revenue will be deferred to a future period within the annual measurement period as these contract

features provide a material right to the Company’s clients. Within the Company’s Global Customer Engagement segment, payments made by our customers for the provision of services were amortized over the length of the contract under prior guidance. Under the new guidance, the Company has reduced its amortization period to include only the non-cancellable period of the contract, though where the cancellation of a contract would be cost prohibitive to the customer, the Company may amortize its revenue beyond the non-cancellable period. Lastly, within the Legacy Membership and Package segment, certain members are entitled to a full membership refund throughout their entire membership term, regardless of when they cancel. Under the prior guidance, the Company would defer revenue recognition for these members until their term is complete. As discussed below under “─Impact of New Standard”, under the new guidance, revenue will be recognized over time in a manner that reflects the timing of transfer of goods and services to these customers.

The cumulative effect of the changes made to the Company’s unaudited condensed consolidated balance sheet as of January 1, 2018 to reflect the adoption of ASC 606 was as follows:

The impact of adoption on the Company’s unaudited condensed consolidated statements of comprehensive income for the three and nine months ended September 30, 2018 and on the unaudited condensed consolidated balance sheet as of September 30, 2018 was as follows:

	Three Months Ended			Balances Without
	September 30, 2018			Adoption of			Effect of
	As Reported			ASC 606			Change
	(in millions)
Statement of Comprehensive Income
Revenues
Net revenues	$	177.1		$	174.4		$	2.7

Net loss		417.4			414.7			2.7

	Nine Months Ended			Balances Without
	September 30, 2018			Adoption of			Effect of
	As Reported			ASC 606			Change
	(in millions)
Statement of Comprehensive Income
Revenues
Net revenues	$	545.4		$	548.8		$	(3.4	)

Net loss		365.3			368.7			(3.4	)

				Balances Without
	September 30, 2018			Adoption of			Effect of
	As Reported			ASC 606			Change
	(in millions)
Balance Sheet
Liabilities
Deferred revenue	$	40.0		$	36.6		$	3.4

Equity
Accumulated deficit		(1,625.8	)		(1,622.4	)		(3.4	)

Within the Global Loyalty segment, we provide end-to-end loyalty solutions that help our clients reward, enrich, motivate and retain customers, including program design, points management and administration, and broad-based fulfillment and redemption across multiple channels. For our fulfillment and redemption services, our clients typically pay us on a cost-per-transaction basis for which we recognize revenue at a point in time as a transaction occurs. For our administrative services, our clients typically pay a fixed fee for which we recognize revenue over time as the services rendered are consistent throughout the performance period. The different services we provide are a single performance obligation covering a series of distinct goods or services that are substantially the same and that have the same pattern of transfer to the customer. Hence, we have determined that the nature of our promise is to provide one overall end-to-end loyalty service and, as such, each day of service is substantially the same. Accordingly, revenue is recognized ratably over time.

For our travel and gift card fulfillment services we typically act as an agent, as our performance obligation is to ensure the transfer of goods or services on behalf of our clients. Under these arrangements, we earn revenue in the form of commissions. We are required to estimate variable consideration for any contracts with our clients that have revenue-sharing or tiered pricing components related to transaction volumes. In these cases, we defer recognizing a portion of our revenue to a future period as these contract features provide a material right to our clients in the form of an accumulating benefit. In deriving our estimates, we consider client-specific historical trends, the economic environment, industry trends and other objective evidence to support our conclusions. As a significant change in one or more of these estimates could affect the amount of revenue we recognize in a given period, we review and update our contract-related estimates each reporting period and recognize any adjustments in estimated profit on contracts utilizing the cumulative catch-up method. Under this method, the impact of the adjustment on profit recorded to date on a contract is recognized in the period the adjustment is identified.

In addition, certain clients may receive credits, which are also accounted for as variable consideration and as a reduction in the transaction price. We estimate these credit amounts as of each reporting date based on the expected amount to be provided to these clients and the revenue recognized over the subscription period is appropriately constrained to reflect the expectation that the client will utilize the credit.

Our Global Customer Engagement segment and our Legacy Membership and Package segment are each categorized in two ways: (1) revenue enhancement, which is a traditional subscription-based model and (2) engagement solutions, which is primarily a fee-for-service based model. For revenue enhancement, we typically require payment of a subscription fee at the beginning of the term, recognizing revenue ratably over time as we provide leisure and protection services to our members. For engagement solutions, we work with our clients to develop leisure and protection programs that will resonate with their customers. For these arrangements, we typically recognize revenue at a point in time as a transaction occurs or on a per-member basis. As part of their benefit package, certain members may receive a cash back benefit to reward them for using our services. We consider this cash back benefit a form of consideration payable to the customer and, as such, account for that payment as a reduction of the transaction price and, therefore, revenue. Within engagement solutions, we also provide administrative support services to certain clients for a fixed fee and recognize this revenue over time, as these services are rendered consistently throughout the performance period. In addition, in some cases, we charge implementation fees to our clients for establishing new programs. We amortize these fees over time, based on the non-cancellable portion of the contract using a systematic basis consistent with the pattern of the transfer of the service. However, if cancellation of a contract is deemed to be cost prohibitive to the client, we may extend amortization into the cancellable period of the contract. For engagement solutions revenue, each contract is evaluated to determine whether we act as principal or agent. In cases where we control the good or service before it is provided to the customer or are the primary party responsible for fulfilling the contract and maintain a degree of inventory risk and pricing discretion, we record revenue on a gross basis.

The following table represents a disaggregation of revenue from contracts with customers for the three and nine months ended September 30, 2018 and 2017, along with the reportable segment for each category:

Within the Global Loyalty, Global Customer Engagement and Legacy Membership and Package segments, we have contracts with different maturity dates for which we receive variable consideration based on volumes that we transact related to the services we render. These services include travel, gift card and benefit fulfillment and contact center servicing which typically result in revenue recognition upon occurrence of the transaction. Where these contracts provide a material right to our clients in the form of an accumulating benefit, we defer recognizing a portion of this revenue to a future period. Where future variable consideration results from a wholly unsatisfied service that forms part of a single performance obligation, we have elected, as a practical expedient, to not disclose the value of the remaining performance obligations associated with these contracts. As of September 30, 2018, the Company has remaining performance obligations under fixed consideration arrangements of $0.1 million in 2018, $0.3 million in 2019 and $0.3 million in 2020, for a total of $0.7 million, all of which relate to the Global Customer Engagement Segment.

Within each of our reportable segments, we may incur costs in obtaining a contract, which typically consist of sales commissions. To the extent these costs are deemed material and meet the criteria for capitalization, we capitalize them. Within the Global Loyalty segment, we pay commissions to internal salespeople which we generally expense as incurred because these expenses do not have a material impact on our financial statements. Within the Global Customer Engagement and Legacy Membership and Package segments, we occasionally pay advance commissions to our partners, with the advance commission earned down by the partner based on the initial and renewal membership revenue realized by the Company and the commission rate specified in the marketing arrangement, with the partner having the ability to continue to earn commissions in excess of the advance if sufficient revenue is realized by the Company. These commission costs are capitalized as prepaid commissions and recognized as expense as earned down by the partner. These assets are continually monitored for impairment. We had a balance of $52.2 million in prepaid commissions as of September 30, 2018 and recognized $14.5 million and $51.9 million of amortization for the three and nine months ended September 30, 2018, respectively.

Within the Global Loyalty segment, we incur costs to fulfill a contract. Such costs are typically incurred during the implementation phase of a new contract with a client. To the extent these costs are deemed material and meet the criteria for capitalization, we capitalize and amortize the costs over the term of the contract on a systematic basis consistent with the pattern of the transfer of goods or services to the customer. These assets are continually monitored for impairment. We had a balance of $1.5 million in deferred costs as of September 30, 2018 and recognized $0.1 million and $0.4 million of amortization for the three and nine months ended September 30, 2018, respectively. Within the Global Customer Engagement and Legacy Membership and Package segments, we do not incur costs to fulfill contracts.

The following table reflects the balances of our contract liabilities, which we classify as deferred revenue, as of September 30, 2018 and December 31, 2017:

The change in the total contract liabilities balances from December 31, 2017 to September 30, 2018 of $0.7 million, or 1.8%, is primarily recognition of blended revenue share rates for contracts with tiered revenue share pricing ($3.5 million) and a call center stabilization payment received from a client ($4.5 million), partially offset by the impact of the expected attrition of legacy members in Legacy Membership and Package, foreign exchange and amortization of up-front payments.

Within the insurance solutions business and prior to the 2018 Divestiture, we acted as a third-party agent, administrator and marketer of certain accident and life insurance solutions. We earned revenue ratably over time in the form of commissions from insurance carriers based on premiums collected. We believe that our clients simultaneously received and consumed the benefits of our service as it occurred and that a time-based input measure of progress was appropriate because we expected, on the basis of our relevant history with similar contracts, to expend efforts on a generally even basis throughout the contract term. We also acted as an agent in arrangements where our performance obligation ensured the transfer of goods or services on behalf of our clients and where we had no pricing discretion.

The adoption of ASC 606 did not affect the operating results of the insurance solutions business for the three and nine months ended September 30, 2018. Within the insurance solutions business, there were no performance obligations that had a duration of more than one year or costs to obtain or fulfill a contract.

On July 3, 2018, the Company, Affinion Group, LLC, a Delaware limited liability company (the “Seller”) and indirect wholly-owned subsidiary of the Company, and Affinion Benefits Group, LLC, a Delaware limited liability company and wholly owned subsidiary of the Seller (“ABG”), entered into a Membership Interest Purchase Agreement (the “Purchase Agreement”) with AIS Holdco, LLC (the “Purchaser”), an entity controlled by investment funds managed by affiliates of Mill Point Capital Partners, L.P., pursuant to which the Purchaser would acquire the insurance division of the Company by acquiring the outstanding membership interests of ABG as set forth in the Purchase Agreement (the “2018 Divestiture”).

On August 15, 2018, the Seller completed the 2018 Divestiture pursuant to the Purchase Agreement. The consideration paid by the Purchaser, subject to a working capital adjustment as set forth in the Purchase Agreement, and the net gain recognized in connection with the 2018 Divestiture was as follows:

Immediately following the closing of the 2018 Divestiture, the Company repaid $466.7 million principal amount of long-term debt plus an associated repayment premium of $14.0 million under the 2017 Credit Facility. See Note 6 to these unaudited condensed consolidated financial statements for more information on the 2017 Credit Facility and amendments thereto.

The Purchase Agreement contained customary representations, warranties and covenants, including a covenant that Affinion will not compete with the business of ABG for a period of five years. The Purchaser also agreed not to compete with certain businesses of Affinion and Seller for five years. The Purchase Agreement also contained mutual indemnification for breaches of representations and warranties and failure to perform covenants or obligations contained in the Purchase Agreement, subject to certain limitations, as well as indemnities related to taxes. As contemplated by the Purchase Agreement, the Company, Seller and certain of the Seller’s affiliates entered into related transition services agreements, whereby the Company will provide various services to the Purchaser, including but not limited to, certain general and administrative activities and the Purchaser or ABG will provide various services to the Company and its affiliates, including, but not limited to, certain data support and insurance services. The transition services agreements are not expected to have a material effect on the Company’s unaudited condensed consolidated statements of comprehensive income (loss).

The parties to the Purchase Agreement also executed certain separate and distinct long-term arrangements related to information technology support, call center operation and packaging services, to be provided for five years. The effect of providing the services in the long-term arrangements from August 15, 2018 through September 30, 2018 totaled $0.3 million of net expenses and is recorded in Other expense, net on the unaudited condensed consolidated statements of comprehensive income (loss) for the three and nine month periods ended September 30, 2018.

The following table includes the carrying amounts of assets and liabilities that have been reclassified from their historical balance sheet presentation to current and non-current assets and liabilities held for sale as of December 31, 2017.

The 2018 Divestiture represented a strategic shift that will have a major effect on the Company’s operations and financial results, and therefore, is presented as discontinued operations.

The following table includes the major financial statement line items that comprise income from discontinued operations, net of tax for the three and nine month periods ended September 30, 2018 and 2017.

	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2018 (a)			2017			2018 (a)			2017
Operations	(in millions)
Net revenues	$	26.2		$	59.9		$	127.3		$	172.5
Expenses:
Cost of revenues, exclusive of depreciation and amortization shown separately below:
Marketing and commissions		13.2			33.6			78.8			100.0
Operating costs		1.2			2.3			6.3			7.3
General and administrative (b)		(2.5	)		1.4			5.5			5.1
Facility exit costs		—			—			—			0.1
Depreciation and amortization		—			0.2			0.7			1.2
Total expenses		11.9			37.5			91.3			113.7
Income from operations		14.3			22.4			36.0			58.8
Interest expense		(6.2	)		(12.1	)		(31.2	)		(31.5	)
Income from discontinued operations before income taxes		8.1			10.3			4.8			27.3
Income tax benefit (provision)		1.6			(0.1	)		—			(6.8	)
Income from discontinued operations, net of tax		9.7			10.2			4.8			20.5

Disposal
Gain on sale of business before income taxes		473.1			—			473.1			—
Income tax provision		(25.9	)		—			(25.9	)		—
Gain on sale of business, net of tax		447.2			—			447.2			—

Income from discontinued operations, net of tax	$	456.9		$	10.2		$	452.0		$	20.5

The operating results reflected above do not fully represent the disposal group’s historical operating results, as the results reported within income (loss) from discontinued operations only include expenses that are directly attributable to the disposal group. The allocation of interest to the discontinued operations is based on the specific debt instrument that is required to be repaid as a result of the disposal transaction and is calculated based on the $466.7 million of debt repaid immediately following the closing of the 2018 Divestiture.

The following table provides additional detail related to the net cash used in operating and investing activities of the discontinued operations:

On February 8, 2018, the Company entered into a definitive agreement to acquire 100% of the equity capital of one of its top technology partners, Tavisca Solutions Private Limited (“Tavisca”), a leading provider of innovative technology to the travel industry. Tavisca is headquartered in Pune, India, with a U.S. office in Plano, Texas. The acquisition closed at a purchase price of $8.5 million, comprised of $6.5 million paid at closing and the balance of $2.0 million, with an acquisition date fair value of $1.7 million, to be paid on the first anniversary of the closing date. In addition, the Company may make certain additional payments of up to $13.0 million, with an acquisition date fair value of $9.6 million, based on a discounted cash flow model using a 14.4% discount rate. The amount of additional payments to be paid is dependent on Tavisca achieving certain agreed cost of operations targets for each of the three annual periods following the acquisition date. The additional payments are included in accounts payable and accrued expenses and other long-term liabilities in the unaudited condensed consolidated balance sheet as of September 30, 2018, are measured at fair value on a recurring basis and are considered Level 3 financial instruments.

The acquisition of Tavisca is expected to strengthen and expand the Global Loyalty segment’s loyalty platform capabilities to help our clients improve program efficiency, customer loyalty, and customer lifetime value.

The following table summarizes the estimated acquisition date fair values of the assets acquired and liabilities assumed in the Tavisca transaction. During the three months ended September 30, 2018, the Company updated its provisional estimates of certain acquired assets and assumed liabilities, which increased net assets acquired by $3.7 million. As of September 30, 2018, the estimated fair value of these acquired assets and assumed liabilities had not been finalized as the Company is still finalizing opening working capital balances. Accordingly, the provisional estimates of acquired assets and assumed liabilities and goodwill are subject to change.

The intangible assets assumed are comprised of patents and technology ($4.6 million) and affinity relationships ($0.6 million), which are amortized on a straight-line basis over useful lives of two years and one year, respectively. The goodwill, which will not be deductible for income tax purposes, is attributed to the Global Loyalty segment. In connection with the acquisition of Tavisca, the Company incurred $1.5 million of acquisition costs, of which $1.1 million was recognized for the nine months ended September 30, 2018 and $0.4 million was recognized for the year ended December 31, 2017. Acquisition costs are included in general and administrative expense in the unaudited condensed consolidated statements of comprehensive income (loss). As Tavisca’s pre-acquisition results of operations are not material to the accompanying unaudited condensed consolidated financial statements, no pro forma financial information is provided. As Tavisca’s post-acquisition results of operations are not material to the accompanying unaudited condensed consolidated financial statements, the post-acquisition revenue and earnings of Tavisca have not been provided.

	September 30, 2018
	Gross Carrying		Accumulated			Net Carrying
	Amount		Amortization			Amount
	(in millions)
Amortizable intangible assets:
Member relationships	$	586.0	$	(584.7	)	$	1.3
Affinity relationships		587.5		(564.8	)		22.7
Proprietary databases and systems		45.7		(44.8	)		0.9
Trademarks and tradenames		26.3		(23.3	)		3.0
Patents and technology		52.2		(49.1	)		3.1
Covenants not to compete		1.3		(1.3	)		—
Total	$	1,299.0	$	(1,268.0	)	$	31.0

	December 31, 2017
	Gross Carrying		Accumulated			Net Carrying
	Amount		Amortization			Amount
	(in millions)
Amortizable intangible assets:
Member relationships	$	636.1	$	(634.4	)	$	1.7
Affinity relationships		590.5		(564.1	)		26.4
Proprietary databases and systems		45.8		(44.6	)		1.2
Trademarks and tradenames		27.9		(23.4	)		4.5
Patents and technology		47.7		(47.6	)		0.1
Covenants not to compete		2.5		(2.4	)		0.1
Total	$	1,350.5	$	(1,316.5	)	$	34.0

Foreign currency translation resulted in a decrease in intangible assets and accumulated amortization of $6.7 million and $6.0 million, respectively, from December 31, 2017 to September 30, 2018.

Based on the Company’s amortizable intangible assets as of September 30, 2018, the Company expects the related amortization expense for fiscal year 2018 and the four succeeding fiscal years to be approximately $10.1 million in 2018, $8.5 million in 2019, $5.7 million in 2020, $3.7 million in 2021 and $3.4 million in 2022.

At September 30, 2018 and December 31, 2017, the Company had gross goodwill of $601.8 million and $595.4 million, respectively, and accumulated impairment losses of $429.0 million at each date. 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 (as defined in Note 12 to these unaudited condensed consolidated financial statements), 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 former 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, 2017 and the nine months ended September 30, 2018 are as follows:

Under current accounting guidance, there is a requirement to assess goodwill for impairment at least annually. Accordingly, the Company performs its annual impairment test during the fourth quarter of each calendar year. If an event occurs or circumstances change between annual tests that could more likely than not reduce the fair value of a reporting unit below its carrying amount, the goodwill of that reporting unit should be tested for impairment. As a result of the loss of one of the Company’s top five Global Loyalty clients, management evaluated whether it is more likely than not that the fair value of the Global Loyalty reporting unit is less than its carrying value. As a result of this evaluation, no potential impairment was identified. If the timing or extent of key assumptions and estimates differs significantly from management’s expectations, the Company will reassess its conclusion.

On May 10, 2017, Affinion entered into a new Credit Facility (as amended, the “2017 Credit Facility”) having a five year maturity with a lender, pursuant to which the lender provided term loans in an aggregate principal amount equal to approximately $1.3 billion and committed to provide revolving loans in an aggregate principal amount at any one time outstanding not to exceed $110.0 million, decreasing to $80.0 million on May 10, 2018 (which has now been extended to May 10, 2021, as discussed below).

The term loans provide for quarterly amortization payments totaling (i) for the first two years after May 10, 2017, 1% per annum, (ii) for the third year after May 10, 2017, 2.5% per annum, and (iii) for each year thereafter, 5% per annum, in each case, payable quarterly, with the balance due upon the final maturity date, subject in each case, to reduction of such amortization payments for certain prepayments. The 2017 Credit Facility also requires mandatory prepayments of the outstanding term loans based on excess cash flow (as defined in the 2017 Credit Facility), if any, and the proceeds from certain specified transactions.

The interest rates with respect to the term loans and revolving loans under the 2017 Credit Facility are based on, at Affinion’s option, (x) the higher of (i) adjusted LIBOR and (ii) 1.00%, in each case, plus 7.75%, or (y) the highest of (i) the prime rate, (ii) the Federal Funds Effective Rate plus 0.5%, and (iii) 2.00% (“ABR”) in each case plus 6.75%.

Affinion’s obligations under the 2017 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 are, guaranteed by Affinion Holdings and by each of Affinion’s existing and subsequently acquired or organized domestic subsidiaries, subject to certain exceptions. The 2017 Credit Facility is secured on a first-priority basis 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) 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. The 2017 Credit Facility also contains financial, affirmative and negative covenants. The negative covenants in the 2017 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 Affinion’s 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 assets; and enter into transactions with affiliates. The 2017 Credit Facility requires Affinion to comply with (a) a maximum ratio of senior secured debt to EBITDA (as defined in the 2017 Credit Facility) and (y) a minimum ratio of EBITDA to consolidated fixed charges. During the three and nine months ended September 30, 2018, the maximum ratio of senior secured debt to EBITDA was 6.75:1.0 and the minimum ratio of EBITDA to consolidated fixed charges was 1.075:1.0. As of September 30, 2018, Affinion was in compliance with the restrictive covenants under the 2017 Credit Facility.

On November 30, 2017 Affinion, as borrower, entered into the First Amendment to the 2017 Credit Facility, pursuant to which the parties (i) revised the terms of the 2017 Credit Facility in order for certain of the lenders under the revolving facility established thereunder to act as issuing banks in respect of letters of credit and as swingline lenders, (ii) modified certain provisions relating to the mechanics surrounding letters of credit and swingline loans, and (iii) set aggregate sub-limits for both letter of credit commitments and swingline commitments at $20.0 million.

On May 4, 2018, Affinion, as borrower, entered into the Second Amendment to its 2017 Credit Facility (the “Second Amendment”), pursuant to which Affinion amended its 2017 Credit Facility. The Second Amendment was entered into among Affinion, HPS Investment Partners, LLC, as administrative agent, the Revolving Facility Lenders (as defined therein), and for purposes of certain provisions contained therein, each other loan party party thereto, including the Company, as guarantor.

Pursuant to the Second Amendment, the parties revised the 2017 Credit Facility in order to modify the date upon which the aggregate Revolving Facility Commitment (as defined in the 2017 Credit Facility) is reduced from $110.0 million to $80.0 million. As a result of the Second Amendment, the date of such reduction was not to occur until August 10, 2018.

On July 16, 2018, Affinion, as borrower, entered into the Third Amendment to the 2017 Credit Facility (the “Third Amendment”), pursuant to which Affinion amended its 2017 Credit Facility. The Third Amendment was entered into among Affinion, HPS Investment Partners, LLC, as administrative agent, the Revolving Facility Lenders, and for purposes of certain provisions contained therein, each other loan party party thereto, including the Company, as guarantor.

Pursuant to the Third Amendment, the parties revised the 2017 Credit Facility in order to (i) allow the Total Secured Leverage Ratio (as defined in the 2017 Credit Facility), for the purposes of the requirement of a 5.275x Total Secured Leverage Ratio for the contemplated sale of ABG (the “ABG Sale”), to be calculated net of cash received by Affinion from the ABG Sale, (ii) modify certain provisions relating to mandatory prepayments in order to allow for the application of the proceeds from the ABG Sale towards existing amortization payments such that amortization equals 0.25% per quarter through March 31, 2020, then increases to 0.625% per quarter through March 31, 2021 and finally increases to 1.25% per quarter thereafter, with remainder of the proceeds being applied to the bullet payment at maturity, (iii) modify the provision which contemplates an automatic reduction in the available revolving credit amount from $110.0 million to $80.0 million to delay such automatic reduction until May 10, 2021, (iv) create a permitted reinvestments basket which would allow for up to $50.0 million of the proceeds from the ABG Sale to be retained, subject to certain restrictions, including the requirement that such proceeds be held in a segregated account subject to the sole control of administrative agent, which shall only be released to Affinion (A) with the agent’s consent or (B) if used to prepay Term Loans (as defined in the 2017 Credit Facility) at 103% (with any such proceeds remaining after 9 months to be used to prepay Term Loans at 103%), (v) increase general call protection (for prepayments/acceleration not related to a change of control) to 2% upon the fourth anniversary of the closing of the 2017 Credit Facility, (vi) revise certain addbacks and Pro Forma Basis (as defined in the 2017 Credit Facility) adjustments to reflect the projected change in EBITDA following the ABG Sale, (vii) reduce and / or delete certain negative covenant baskets and (viii) reduce certain material indebtedness and cross-default thresholds.

The proceeds of the term loans under the 2017 Credit Facility were used by Affinion to refinance its 2014 Credit Facility, as defined below (the “Credit Agreement Refinancing”), to redeem in full the International Notes, as defined below (the “International Notes Redemption”), to pay transaction fees and expenses and for general corporate purposes.

On May 20, 2014, Affinion, as borrower, and Affinion Holdings entered into an amendment to its amended and restated senior secured credit facility (as so amended, the “2014 Credit Facility”). The 2014 Credit Facility consisted of (i) $775.0 million in aggregate principal amount of first lien secured term loans, (ii) $425.0 million in aggregate principal amount of second lien secured term loans and (iii) an $80.0 million first lien senior secured revolving credit facility, which included a letter of credit subfacility and a swingline loan subfacility.

On May 10, 2017, Affinion International Holdings Limited (“Affinion International”) (i) elected to redeem all of its outstanding $118.5 million in aggregate principal amount of 7.5% Cash/Pay-in-Kind (“PIK”) Senior Notes due 2018 (the “International Notes”) on June 9, 2017 at a redemption price of 100% of the principal amount of the International Notes, plus accrued and unpaid interest to the redemption date, (ii) irrevocably deposited sufficient funds received from borrowings under the 2017 Credit Facility to effect such redemption with the trustee under the indenture governing the International Notes and (iii) entered into a satisfaction and discharge agreement to discharge its obligations under the indenture governing the International Notes. The International Notes were originally issued by Affinion International on November 9, 2015 in an original principal amount of $110.0 million and bore interest at 7.5% per annum, of which 3.5% per annum was payable in cash and 4.0% per annum was payable in kind; 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 in kind. Interest on the International Notes was payable semi-annually on May 1 and November 1 of each year, commencing on May 1, 2016. The International Notes Redemption was consummated on June 9, 2017.

In connection with the Credit Agreement Refinancing and International Notes Redemption, the Company recognized a gain of approximately $5.3 million during the year ended December 31, 2017, which consisted of the write-off of unamortized troubled debt restructuring carrying value adjustments from 2015 of $21.0 million associated with the Company’s prior senior secured credit facility and the International Notes, reduced by deferred financing costs associated with the Company’s prior senior secured credit facility and the International Notes of $6.3 million and prepayment premiums incurred of $9.4 million. Transaction fees and expenses of approximately $17.1 million and $3.4 million related to the term loans and revolving facility, respectively, under the 2017 Credit Facility have been capitalized and are being amortized over the term of the term loans and revolving facility, respectively. The Company also incurred lender transaction fees of $36.3 million, which have been accounted for as a debt discount and are being amortized over the term of the term loans and revolving financing facility.

As of September 30, 2018 and December 31, 2017, there were outstanding borrowings of $40.0 million and $55.0 million, respectively, under the revolving facility under the 2017 Credit Facility. During the three months ended September 30, 2018, Affinion had borrowings and repayments under the revolving facility under the 2017 Credit Facility of $58.0 million and $65.0 million, respectively. During the nine months ended September 30, 2018, Affinion had borrowings and repayments under the revolving facility under the 2017 Credit Facility of $172.7 million and $187.7 million, respectively. During the period from May 10, 2017 to September 30, 2017, Affinion had borrowings and repayments under the revolving facility under the 2017 Credit Facility of $122.2 million and $82.2 million, respectively. During the period from January 1, 2017 to May 9, 2017, Affinion had borrowings of $99.0 million and repayments of $99.0 million under the revolving facility under the 2014 Credit Facility. As of September 30, 2018, Affinion had $65.0 million available for borrowing under the revolving facility under the 2017 Credit Facility, after giving effect to the issuance of $5.0 million of letters of credit.

2017 Exchange Offers, Issuance of 2017 Notes and 2017 Warrants and Redemptions of Other Existing Notes

cash. Pursuant to the AGI Exchange Offer, approximately $269.7 million of Affinion’s 2010 senior notes plus accrued and unpaid interest were exchanged for approximately $277.8 million of 2017 Notes, 2017 Warrants to purchase 1,103,203 shares of Common Stock and approximately $417,386 in cash, including $238.0 million of Affinion’s 2010 senior notes plus accrued and unpaid interest exchanged by related parties in exchange for $245.5 million of 2017 Notes and 2017 Warrants to purchase 985,438 shares of Common Stock; pursuant to the Holdings Exchange Offer, approximately $4.6 million of Affinion Holdings’ 2013 senior notes plus accrued and unpaid interest were exchanged by a related party for approximately $4.7 million of 2017 Notes and 2017 Warrants to purchase 18,539 shares of Common Stock; and pursuant to the Investments Exchange Offer, approximately $12.4 million of the Investments senior subordinated notes plus accrued and unpaid interest were exchanged for approximately $12.8 million of 2017 Notes, 2017 Warrants to purchase 51,005 shares of Common Stock and approximately $912 in cash, including $12.2 million of the Investments senior subordinated notes plus accrued and unpaid interest exchanged by related parties in exchange for $12.6 million of 2017 Notes and 2017 Warrants to purchase 49,894 shares of Common Stock. Affinion used the proceeds of the 2017 Notes issued pursuant to the Investor Purchase Agreement (as defined below) to pay the cash tender consideration to participating holders in the Exchange Offers.

Previously, in connection with the Exchange Offers, on March 31, 2017, affiliates of Elliott Management Corporation (“Elliott”), Franklin Mutual Quest Fund, an affiliate of Franklin Mutual Advisers, LLC (“Franklin”), affiliates of Empyrean Capital Partners, LP (“Empyrean”) and Metro SPV LLC, an affiliate of ICG Strategic Secondaries Advisors LLC (“ICG”) (collectively, in such capacity, the “Investors”), all of whom were, at the time of the closing, or became, as a result of the Exchange Offers, issuance of 2017 Notes and 2017 Warrants and redemption of Affinion’s 2010 senior notes, related parties, entered into an investor purchase agreement (the “Investor Purchase Agreement”) with Affinion Holdings, Affinion and Affinion Investments, in which they agreed to purchase 2017 Notes and 2017 Warrants in an aggregate principal amount sufficient to pay all holders that participate in the Exchange Offers and elect to receive cash. Further, pursuant to the Investor Purchase Agreement, if Affinion Holdings, Affinion or Affinion Investments exercised its option to redeem any of Affinion’s 2010 senior notes, Affinion Holdings’ 2013 senior notes and/or the Investments senior subordinated notes not tendered in the Exchange Offers, the Company could obligate the Investors to purchase an aggregate principal amount of 2017 Notes and 2017 Warrants that would yield sufficient cash proceeds to fund any such redemptions. In addition, pursuant to the terms of the Investor Purchase Agreement, Affinion was required to pay to the Investors upon the closing of the Exchange Offers a commitment premium of $17.5 million and a funding premium of $7.4 million in aggregate principal amount of 2017 Notes and the same number of 2017 Warrants that such principal amount of 2017 Notes would have been issued as part of the Exchange Offers.

Also, on May 10, 2017, Affinion exercised its option to redeem Affinion’s 2010 senior notes that were not tendered in the AGI Exchange Offer and to fund such redemption with proceeds from the Investors pursuant to the terms of the Investor Purchase Agreement. As a result, on May 10, 2017, Affinion (i) elected to redeem all of its outstanding $205.3 million aggregate principal amount of Affinion’s 2010 senior notes on May 15, 2017 at a redemption price of 100% of the principal amount, plus accrued and unpaid interest to the redemption date, (ii) irrevocably deposited sufficient funds received from the Investors pursuant to the Investor Purchase Agreement to effect such redemption with the trustee under the indenture governing Affinion’s 2010 senior notes and (iii) entered into a satisfaction and discharge agreement to discharge its obligations under the indenture governing Affinion’s 2010 senior notes. Affinion’s 2010 senior notes were originally issued by Affinion on November 19, 2010 in an aggregate principal amount of $475.0 million and bore interest at 7.875% per annum. The redemption of Affinion’s 2010 senior notes was consummated on May 15, 2017.

Accordingly, on May 10, 2017, Affinion issued approximately $532.6 million aggregate principal amount of 2017 Notes and Affinion Holdings issued 2017 Warrants to purchase 3,974,581 shares of Common Stock, of which (i) approximately $295.3 million in aggregate principal amount of 2017 Notes and 2017 Warrants to purchase 1,172,747 shares of Common Stock were issued to participating holders (including the Investors) in the Exchange Offers, including $262.8 million of 2017 Notes and 2017 Warrants to purchase 1,053,871 shares of Common Stock issued to related parties, and (ii) approximately $237.3 million in aggregate principal amount of 2017 Notes and 2017 Warrants to purchase 2,801,834 shares of Common Stock were issued, including all of the 2017 Notes and 2017 Warrants to purchase 2,791,475 shares of Common Stock issued to the Investors, all of whom are related parties, pursuant to the Investor Purchase Agreement to fund the cash consideration payable in the Exchange Offers and the cash redemption price for the balance of Affinion’s 2010 senior notes that were not exchanged or tendered in the AGI Exchange Offer and to pay the commitment premium and funding premium under the Investor Purchase Agreement. The 2017 Warrants received by the Investors on May 10, 2017, represented approximately 26.7% of the pro forma fully diluted ownership of Affinion Holdings after giving effect to issuances pursuant to the Exchange Offers and the Investor Purchase Agreement, but without giving effect to options and restricted stock units granted under Affinion Holdings’ management compensation and incentive plans. The number of shares of Common Stock issuable upon the exercise of the 2017 Warrants, as described herein, reflects the application of the anti-dilution protections of the 2017 Warrants issued in the Exchange Offers and pursuant to the Investor Purchase Agreement (other than the 2017 Warrants issued as part of the funding premium) that are triggered by the issuance of 2017 Warrants as part of the funding premium.

On June 13, 2017, (i) Affinion Holdings exercised its option to redeem the $11.5 million in aggregate principal amount of Affinion Holdings’ 2013 senior notes that were not tendered in the Holdings Exchange Offer and to fund such redemption with proceeds from the Investors pursuant to the terms of the Investor Purchase Agreement and (ii) Affinion Investments exercised its option to redeem the $10.2 million in aggregate principal amount of the Investments senior subordinated notes that were not tendered in the Investments Exchange Offer and to fund such redemption with proceeds from the Investors pursuant to the terms of the Investor Purchase Agreement. Affinion Holdings’ 2013 senior notes were redeemed on July 17, 2017 at a redemption price of 103.4375% of the principal amount, plus accrued and unpaid interest to the redemption date and the Investments senior subordinated notes were redeemed on July 17, 2017 at a redemption price of 103.375% of the principal amount, plus accrued and unpaid interest to the redemption date. Affinion Holdings’ 2013 senior notes were originally issued by Affinion Holdings on December 12, 2013 in an aggregate principal amount of $292.8 million and bore interest at 13.75% per annum in cash, or at Affinion Holdings’ option, in payment-in-kind interest at 13.75% per annum plus 0.75%. The Investments senior subordinated notes were originally issued by Affinion Investments on December 12, 2013 in an aggregate principal amount of $360.0 million and bore interest at 13.50% per annum.

On July 17, 2017, pursuant to the Investor Purchase Agreement, Affinion issued approximately $23.7 million aggregate principal amount of 2017 Notes to the Investors and Affinion Holdings issued 2017 Warrants to the Investors. Pursuant to the Investor Purchase Agreement, the Investors paid a purchase price of approximately $23.5 million to Affinion, which amount includes the payment of pre-issuance accrued interest of approximately $0.6 million from May 10, 2017. The 2017 Notes and 2017 Warrants issued by Affinion and Affinion Holdings, respectively, to the Investors include the funding premium payable under the Investor Purchase Agreement. The 2017 Notes constitute a further issuance of, and form a single series with, the $532.6 million in aggregate principal amount of 2017 Notes that Affinion issued on May 10, 2017.

In connection with the Exchange Offers and the redemption of Affinion’s 2010 senior notes, Affinion Holdings’ 2013 senior notes and the Investments senior subordinated notes that were not tendered pursuant to the Exchange Offers, the Company determined that the debt had been extinguished and the Company recognized a loss of approximately $1.8 million during the year ended December 31, 2017, which represented the excess of the fair value of 2017 Notes and 2017 Warrants issued over the carrying value of the notes exchanged in the Exchange Offers and Affinion’s 2010 senior notes, Affinion Holdings’ 2013 senior notes and the Investments senior subordinated notes that were redeemed, including all associated unamortized fees, discounts and 2015 troubled debt restructuring carrying value adjustments. Transaction fees and expenses of approximately $8.4 million related to the issuance of the 2017 Notes have been capitalized and are being amortized over the term of the 2017 Notes using the effective interest method.

In connection with the Exchange Offers and the Investor Purchase Agreement, and in accordance with Affinion Holdings’ obligations under the Shareholders Agreement, due to the issuance of the 2017 Warrants in the Exchange Offers and pursuant to the Investor Purchase Agreement, Affinion Holdings offered to each Pre-Emptive Rights Holder the right to purchase with cash up to such Pre-Emptive Rights Holder’s pro rata share (as determined in accordance with the Shareholders Agreement) of 2017 Warrants at an exercise price of $0.01 per 2017 Warrant pursuant to the Pre-Emptive Rights Offer.

On July 12, 2017, Affinion Holdings issued 2017 Warrants to purchase 63,741 shares of Common Stock to participants in the Pre-Emptive Rights Offer. The Company performed an accounting analysis and determined that the 2017 Warrants represent in substance common stock and that the 2017 Warrants issued pursuant to the Exchange Offers and the Investor Purchase Agreement required anti-dilution provisions and commitment premiums and funding premiums representing a debt discount of $16.1 million. Fees associated with new lenders of $4.6 million were recorded as debt discount. Fees related to existing lenders who continued to be lenders in connection with the Exchange Offers were expensed.

For any interest payment period ending on or prior to the date that is the 18 month anniversary of the settlement date of the Exchange Offers (the “Settlement Date”), Affinion may, at its option, elect to pay interest on the 2017 Notes (1) entirely in cash (“Cash Interest”) at a rate per annum of 12.50% or (2) entirely by increasing the principal amount of the outstanding 2017 Notes or by issuing PIK notes (“PIK Interest”) at a rate per annum of 14.00%, provided that interest for the first interest period commencing on the Settlement Date shall be payable entirely in PIK Interest. The interest for each of the first and second interest periods was paid in PIK Interest on November 10, 2017 and May 10, 2018, respectively.

For any interest payment period ending after the date that is the 18 month anniversary of the Settlement Date, (i) if immediately after giving effect to such interest payment, on a pro forma basis, Affinion’s Senior Secured Leverage Ratio (as defined in the indenture governing the 2017 Notes (the “2017 Notes Indenture”)) would be less than or equal to 4.375 to 1.000, Affinion’s Consolidated Fixed Charge Coverage Ratio (as defined in the 2017 Notes Indenture) would be greater than or equal to 1.375 to 1.000, in each case, as of the last day of the most recently completed fiscal quarter of Affinion immediately preceding the scheduled interest payment date for which internal financial statements are available, and Affinion’s Average Liquidity (as defined in the 2017 Notes Indenture) less the amount of the anticipated cash interest payment is equal to or greater than $80.0 million as of the record date for such interest payment, then Affinion shall be required to pay interest on the 2017 Notes for such interest period entirely in Cash Interest at a rate per annum of 12.50%, (ii) if immediately after giving effect to such interest payment, on a pro forma basis, Affinion’s Senior Secured Leverage Ratio would be less than or equal to 4.375 to 1.000, Affinion’s Consolidated Fixed Charge Coverage Ratio would be greater than or equal to 1.250 to 1.000 but less than 1.375 to 1.000, in each case, as of the last day of the most recently completed fiscal quarter of Affinion immediately preceding the scheduled interest payment date for which internal financial statements are available, and Affinion’s Average Liquidity less the amount of the anticipated cash interest payment is equal to or greater than $80.0 million as of the record date for such interest payment, then Affinion shall be required to pay interest on the 2017 Notes for such interest period as a combination (“Combined Interest”) of Cash Interest at a rate per annum of 6.50% and PIK Interest at a rate per annum of 7.50% and (iii) if immediately after giving effect to such interest payment, on a pro forma basis, Affinion’s Senior Secured Leverage Ratio would be greater than 4.375 to 1.000, Affinion’s Consolidated Fixed Charge Coverage Ratio would be less than 1.250 to 1.000, in each case, as of the last day of the most recently completed fiscal quarter of Affinion immediately preceding the scheduled interest payment date for which internal financial statements are available, or Affinion’s Average Liquidity less the amount of the anticipated cash interest payment is less than $80.0 million as of the record date for such interest payment, then Affinion may elect to pay interest on the 2017 Notes for such interest period as PIK Interest at a rate per annum of: (x) 14.75% for any interest payment period ending on or prior to the date that is the 30 month anniversary of the Settlement Date and (y) 15.50% for any interest payment period ending after the date that is the 30 month anniversary of the Settlement Date; provided that, for the avoidance of doubt, if the aforementioned ratios are satisfied and require Affinion to either pay Cash Interest or Combined Interest for any interest period, as applicable, any restriction in the 2017 Credit Facility on the payment of such interest shall not relieve Affinion of such obligation to pay Cash Interest or Combined Interest, as applicable, for such interest period and Affinion shall take all such actions as may be required in order to permit such payment of Cash Interest or Combined Interest, as applicable, for such interest period under the 2017 Credit Facility (including, without limitation, any required repayment of outstanding borrowings under the revolving facility under the 2017 Credit Facility).

Affinion’s obligations under the 2017 Notes are jointly and severally and fully and unconditionally guaranteed on an unsecured senior basis by the same entities that guarantee the 2017 Credit Facility. The 2017 Notes and guarantees thereof are unsecured senior obligations of Affinion and each of the guarantors. The 2017 Notes Indenture contains negative covenants that restrict the ability of Affinion and its restricted subsidiaries to engage in certain transactions and also contains customary events of default. In addition, the covenants restrict Affinion Holdings’ ability to engage in certain businesses or business activities. Affinion will not be required to deliver any separate reports to holders or financial statements or other information of Affinion and its restricted subsidiaries as long as Affinion Holdings is a guarantor of the 2017 Notes and files such reports with the SEC. As of September 30, 2018, Affinion was in compliance with the restrictive covenants under the 2017 Notes.

On November 14, 2018, Affinion, as borrower, entered into the Fourth Amendment to its 2017 Credit Facility (the “Fourth Amendment”). The Fourth Amendment was entered into among Affinion, HPS Investment Partners, LLC, as administrative agent, the Required Lenders (as defined in the 2017 Credit Facility), and for purposes of certain provisions contained therein, and each other Loan Party party thereto, including Affinion Holdings, as guarantor.

Pursuant to the Fourth Amendment, the parties amended the 2017 Credit Facility, to among other things, (x) permit the immediate release of $45.0 million of the $50.0 million of the proceeds from the ABG Sale, (i) $32.0 million of which is able to be used by Affinion for working capital needs and/or to make an investment in one or more businesses, or capital expenditures or assets and (ii) $13.0 million of which will immediately be used to prepay outstanding term loans under the 2017 Credit Facility, together with the required premium in an amount equal to 3.00% of the aggregate principal amount being so prepaid (the “Fourth Amendment Prepayment”) and (y) to modify certain provisions in the 2017 Credit Facility in order to permit the Second Lien Facility Financing (as defined below), which will be secured on a second lien basis on the same collateral that secures the 2017 Credit Facility. In addition, the Fourth Amendment (i) authorizes the administrative agent under the 2017 Credit Facility to enter into an intercreditor agreement with respect to the Second Lien Facility Financing, (ii) provides that the prepayment or repayment of the next approximately $31.0 million in principal amount of term loans, other than regularly scheduled amortization payments, shall be accompanied by a prepayment premium equal to the greater of 3% and the prepayment premium that would otherwise have been payable in connection with such prepayment or repayment, and (iii) makes modifications to certain of the restrictive covenants contained in the 2017 Credit Facility.

The Fourth Amendment was conditioned upon, among other things, receipt of the Commitment Letter (as defined below). We refer to the entry into the Fourth Amendment, the receipt of the Commitment Letter and the transactions contemplated thereby as the “2018 Financing Transactions.”

On November 14, 2018, ICG, Elliott, Empyrean and Jefferies, LLC (“Jefferies”with ICG, Elliott, Empyrean and Jefferies being each a “Lead Lender” and collectively, the “Lead Lenders”) delivered a commitment letter (the “Commitment Letter”) to Affinion and Affinion Holdings. Pursuant to the Commitment Letter, the Lead Lenders have committed to provide revolving loans to Affinion under a revolving credit facility (the “Second Lien Facility”) in the original principal amount of approximately $20.5 million (the “Commitment Financing”), which amount may be increased, on or before June 30, 2019 at the option of Affinion and subject to the consent of the Lead Lenders, by an amount of up to approximately $17.0 million (the “Incremental Financing” and, together with the Commitment Financing, the “Second Lien Facility Financing”), subject to the terms and conditions set forth in the Commitment Letter. Pursuant to the Commitment Letter, on the closing date of the Second Lien Facility the Lead Lenders will be paid an upfront closing fee in an amount equal to 12% of the amount of the Commitment Financing (which at Affinion’s option, may be paid in the form of original issue discount). The Lead Lenders will also be entitled to be paid the closing fee upon an Incremental Financing if consummated within a certain time period.

The Second Lien Facility will be secured on a second lien basis on the same collateral that secures the 2017 Credit Facility and will be guaranteed by Affinion Holdings and each subsidiary of Affinion that guarantees the 2017 Credit Facility. The Second Lien Facility will mature 91 days after the maturity date of the 2017 Credit Facility, but prior to the maturity of the 2017 Notes. The Second Lien Facility will contain substantially the same representations and warranties, covenants and events of default as those in the 2017 Credit Facility, subject to certain exceptions.

Interest will be payable on the Second Lien Facility at the rate of 12.00% per annum while the warrants (described below) that may arise in connection with the Second Lien Facility have not been issued, and at the rate of 9.00% per annum if the warrants that may arise in connection therewith have been issued, in each case solely payable in kind. Affinion will have the right to prepay the Second Lien Facility (x) in whole but not in part if it pays an early termination fee equal to 10.00% of the Commitment Financing plus all accrued interest if such prepayment occurs prior to the issuance of any warrants and (y) in whole or in part without an early termination fee if such prepayment occurs after the issuance of any warrants.

Under the Commitment Letter, if Affinion has not exercised its right to prepay the Second Lien Facility and certain conditions precedent have been met, Affinion Holdings may issue detachable springing warrants (the “warrants”) to acquire common stock of Affinion Holdings. If the warrants are issued, then Affinion Holdings will issue to the Lead Lenders under the Second Lien Facility one warrant for each $5.00 of commitment under the Second Lien Facility (including accrued payable in kind interest). Each warrant will entitle the holder to acquire one share of common stock of Affinion Holdings at an exercise price of $5.00 in cash. The warrants will be exercisable at any time for 5 years following the issuance date. The warrants may be mandatorily exercisable upon the occurrence of (i) the repayment of the Second Lien Facility in full, (ii) the completion of certain qualified equity offerings or (iii) receipt of a direction from lenders holding at least 50.1% of the commitments (funded and unfunded) under the Second Lien Facility. If Affinion Holdings issues such warrants, it will be required to make a pre-emptive rights offer relating to the warrants in accordance with the terms of the Shareholders Agreement (as defined below). Under the Commitment Letter, if Affinion Holdings is required to make such pre-emptive rights offer, such pre-emptive rights offer must be completed prior to May 1, 2019.

Prior to the closing of the Second Lien Facility, Affinion will be required to amend certain terms of the Indenture dated May 10, 2017 (as amended on the date hereof, the “Indenture”) for its Senior Cash 12.5% / PIK Step-Up to 15.5% notes due 2022 (the “2017 Notes”). The proposed amendments to the Indenture will include, among other things, amending the limitation on debt and lien covenants to permit the incurrence of the indebtedness under the Second Lien Facility (including any Incremental Amount and interest paid in kind) and amending the restrictions on activities of Affinion Holdings to permit Affinion Holdings to guarantee the Second Lien Facility and pledge its assets to secure such guarantee. Pursuant to the Commitment Letter, Elliott, which is the beneficial owner of more than 50% of the outstanding principal amount of the 2017 Notes, has agreed to consent to the proposed amendments to the Indenture, and no fee or other consideration will be paid to Elliott for such consent. Affinion expects to enter into a supplemental indenture to the Indenture to effect the proposed amendments to the Indenture as soon as practicable following the receipt of the required majority consent, but the supplemental indenture will not become operative until the closing date of the Second Lien Facility.

The closing of the Second Lien Facility is subject to the satisfaction of the conditions specified in the Commitment Letter, including the execution of definitive documentation for the Second Lien Facility that is consistent with the terms of the Commitment Letter and reasonably satisfactory to the Lead Lenders. In addition, certain of the Lead Lenders own more than 5.0% of the outstanding common stock of Affinion Holdings. Accordingly, prior to Affinion and Affinion Holdings entering into the Commitment Letter, the Second Lien Facility and other documents relating to the Second Lien Facility Financing, such transactions with 5.0% or more holders of common stock must be approved by holders of at least 66 2/3% of the outstanding common stock of Affinion Holdings pursuant to the terms of the shareholders agreement between Affinion Group Holdings and the stockholders party thereto, dated as of November 9, 2015, as amended (the “Shareholders Agreement”). Prior to the execution of the Commitment Letter, certain stockholders representing greater than 66 2/3% of Affinion Holdings’ common stock delivered a written consent (the “Supermajority Stockholder Consent”) approving the transactions contemplated by the Commitment Letter. However, pursuant to Regulation 14C under the Exchange Act and Section 228(e) of the Delaware General Corporation Law, the Company is required to file a definitive information statement on Schedule 14C (the “Information Statement”) to provide notice of the entry into the Supermajority Stockholder Consent. The Company will not be able to take action pursuant to the Supermajority Stockholder Consent for at least 20 days from the filing of the Information Statement.

Assuming the satisfaction of such 20 day notice requirement under the Information Statement and the other conditions set forth in the Commitment Letter, the Company expects that it will enter into the Second Lien Facility and be able to make borrowings thereunder in the second half of December 2018.

As of September 30, 2018 and December 31, 2017, the Company’s capital stock consisted of a total of 550,000,000 authorized shares, of which 520,000,000 shares, $0.01 par value per share, are designated as “Common Stock,” 10,000,000 shares, $0.01 par value per share, are designated as “Class C Common Stock,” 10,000,000 shares, $0.01 par value per share, are designated as “Class D Common Stock” (and, together with the Class C Common Stock, the “Class C/D Common Stock”) and 10,000,000 shares, $0.01 par value per share, are designated as “preferred stock.” As of September 30, 2018 and December 31, 2017, the Company had outstanding (i) 9,157,071 shares of Common Stock, (ii) 433,813 shares of Class C Common Stock and (iii) 456,643 shares of Class D Common Stock. As of September 30, 2018 and December 31, 2017, the Company had outstanding 2017 Warrants (as described further below) to purchase 4,392,936 shares of Common Stock and a Limited Warrant (as described further below) to purchase up to 462,266 shares of Common Stock. As of September 30, 2018 and December 31, 2017, there were no shares of preferred stock outstanding.

On May 10, 2017, in connection with the Exchange Offers and Investor Purchase Agreement, the Company issued 2017 Warrants to purchase 3,974,581 shares of Common Stock, in the aggregate, of which (a) 2017 Warrants to purchase 1,172,747 shares of Common Stock were issued to holders (including certain of the Investors) whose Existing Notes (as defined below) were accepted for exchange in the Exchange Offers, including 1,053,871 issued to related parties, and (b) 2017 Warrants to purchase 2,801,834 shares of Common Stock were issued in connection with the Investor Purchase Agreement, including the funding and commitment premiums under the Investor Purchase Agreement, including 2,791,475 issued to the Investors, all of whom are related parties. In connection with the Exchange Offers and the Investor Purchase Agreement, and in accordance with Affinion Holdings’ obligations under the Shareholders Agreement, dated as of November 9, 2015 (as amended, the “Shareholders Agreement”), due to the issuance of the 2017 Warrants in the Exchange Offers and pursuant to the Investor Purchase Agreement, commencing on June 22, 2017, and expiring on July 7, 2017, Affinion Holdings offered (the “Pre-Emptive Rights Offer”) to each holder of pre-emptive rights (“Pre-Emptive Rights Holder”) the right to purchase with cash up to such Pre-Emptive Rights Holder’s pro rata share (as determined in accordance with the Shareholders Agreement) of 2017 Warrants issued pursuant to the Exchange Offers and the Investor Purchase Agreement at a price of $7.13 per 2017 Warrant. On July 12, 2017, Affinion Holdings issued 2017 Warrants to purchase 63,741 shares of Common Stock, which were subsequently exercised on August 10, 2017, to participants in the Pre-Emptive Rights Offer. On July 17, 2017, Affinion Holdings issued 2017 Warrants to purchase 418,355 shares of Common Stock, including 2017 Warrants to purchase 414,868 shares of Common Stock to the Investors, all of whom are related parties, in connection with the Investor Purchase Agreement, including the funding premium under the Investor Purchase Agreement. In addition, as a result of the anti-dilution protections of the 2017 Warrants, the number of shares of Common Stock underlying the 2017 Warrants issued on May 10, 2017 to holders other than the Investors increased, in the aggregate, by 3,487 shares. The number of shares of Common Stock issuable upon the exercise of the 2017 Warrants, as described herein, reflects the application of the anti-dilution protections of the 2017 Warrants issued in the Exchange Offers and pursuant to the Investor Purchase Agreement that are triggered by the issuance of 2017 Warrants as part of the funding premium and in the Pre-Emptive Rights Offer.

The 2017 Warrants are immediately exercisable upon issuance and will terminate on the earlier to occur of (i) November 10, 2022 and (ii) five business days following the consummation of a sale of Affinion Holdings or other similar fundamental transaction. Each 2017 Warrant is exercisable for one share of Common Stock at a price equal to $0.01. The 2017 Warrants will not be exercisable if the recipient of the Common Stock to be issued upon exercise has failed to obtain any required consents or waivers from, or failed to file any required notices with, any applicable governmental agency.

The 2017 Warrants contain customary provisions for the adjustment of the number of shares of Common Stock issuable upon exercise in the event of the occurrence of any organic dilutive (or anti-dilutive) events, including, but not limited to, splits, combinations, stock dividends and similar transactions, as well as in the event of dividends or distributions in respect of Common Stock to the extent that holders of 2017 Warrants are not permitted to participate on an as-exercised basis. The 2017 Warrants were all subject to anti-dilution adjustments (the “Adjustment Feature”) in connection with the issuance of 2017 Warrants pursuant to the Investor Purchase Agreement in respect of the funding premium thereunder and pursuant to the Pre-Emptive Rights Offer that expired on July 7, 2017. As a result of the application of these anti-dilution adjustments, the 2017 Warrants offered in the Exchange Offers and pursuant to the Investor Purchase Agreement (excluding the 2017 Warrants to be issued in respect of the funding premium) represented, as of July 17, 2017, approximately 15% of the fully diluted ownership of Affinion Holdings and the 2017 Warrants issued as part of the commitment premium under the Investor Purchase Agreement represented, as of July 17, 2017, approximately 14.3% of the fully diluted ownership of Affinion Holdings, in each case without giving effect to options and restricted stock units granted under Affinion Holdings’ management compensation and incentive plans.

All Holders of exercisable 2017 Warrants will be entitled to participate in dividends on an as-exercised basis, subject to any regulatory restrictions. Holders will not be entitled to any other rights of holders of Common Stock until, and to the extent, they have validly exercised their 2017 Warrants. Upon exercise, such holders will be entitled to execute joinders to the Shareholders Agreement, dated as of November 9, 2015, as amended, by and among Affinion Holdings and the stockholders from time to time party thereto and the Amended and Restated Registration Rights Agreement, dated as of March 31, 2017, and effective as of May 10, 2017, by and among Affinion Holdings and the investors from time to time party thereto.

The Company performed an accounting analysis and determined that the 2017 Warrants represent in substance common stock and that the 2017 Warrants issued pursuant to the Exchange Offers and the Investor Purchase Agreement required anti-dilution provisions and commitment premium and funding premium represent a debt discount of $16.1 million. Fees associated with new lenders of $4.6 million were recorded as debt discount. Fees related to existing lenders who continued to be lenders in connection with the Exchange Offers were expensed.

The consummation of the AGI Exchange Offer as of May 10, 2017 resulted in an “ownership change” for the Company pursuant to Section 382 of the Internal Revenue Code. This may further limit our ability to use our pre-change net operating loss carryforwards (including those attributable to the 2005 acquisition of the Cendant Marketing Services Division by the Company and an affiliate of Apollo Global Management, LLC (together with its subsidiaries, “Apollo”)) and certain other pre-change tax attributes to offset our post-change income. Similar rules and limitations may apply for state tax purposes as well. It is not expected at this time that any potential limitation will have a material impact on either the tax provision or the operating results.

On November 9, 2015, concurrent with certain debt exchanges and a subscription rights offering, the Company mandatorily cashlessly converted the then-outstanding Series A Warrants (as defined below) to shares of Class A Common Stock (as defined below). The 130,133,055 shares of Class A Common Stock then-outstanding were converted into 490,083 shares of Class C Common Stock and 515,877 shares of Class D Common Stock. In connection with the debt exchanges and subscription rights offering, 9,093,330 shares of Common Stock were issued. In addition, in lieu of issuing Common Stock to an investor that would otherwise have beneficially owned more than 19.9% of the Common Stock, the Company issued a Limited Warrant to purchase up to 462,266 shares of Common Stock, which Limited Warrant may only be exercised upon the receipt of requisite regulatory approval.

Basic earnings per share (“EPS”) attributable to holders of Common Stock is computed by dividing net income attributable to holders of Common Stock for the three and nine months ended September 30, 2018 and 2017 by the weighted average number of shares of Common Stock, warrants and restricted stock units (“RSUs”) outstanding. Diluted EPS attributable to holders of Common Stock reflects the potential dilution of Class C/D Common Stock, stock options and incentive awards that could be exercised or converted into shares of Common Stock, and is computed by dividing net income attributable to holders of Common Stock for the three and nine months ended September 30, 2018 and 2017 by the weighted average number of shares of Common Stock, warrants and RSUs outstanding plus the effect of potentially dilutive securities.

As discussed in Note 9. Income Taxes, the income tax provision on continuing operations was overstated by $7.6 million and the income tax benefit on discontinued operations was overstated by $7.6 million for the three months ended June 30, 2017 and the income tax provision on continuing operations was overstated by $5.0 million and the income tax provision on discontinued operations was understated by $5.0 million for the six months ended June 30, 2017 and the Company has revised the unaudited condensed consolidated statements of comprehensive income (loss) for the three and six months ended June 30, 2017 to reflect the correction of these errors. The revised basic earnings (loss) per share for continuing operations and discontinued operations for the three months ended June 30, 2017 were $(2.31) and $0.08, respectively, and the revised diluted earnings (loss) per share for continuing operations and discontinued operations for the three months ended June 30, 2017 were ($2.31) and $0.08, respectively. The revised basic earnings (loss) per share for continuing operations and discontinued operations for the six months ended June 30, 2017 were $(2.75) and $1.03, respectively, and the revised diluted earnings (loss) per share for continuing operations and discontinued operations for the six months ended June 30, 2017 were $(2.75) and $1.03, respectively

The computation of basic and diluted earnings (loss) per share is set forth below (in millions, except share and per share amounts):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Numerator:
Loss from continuing operations, net of tax	$	(39.5	)	$	(21.0	)	$	(86.7	)	$	(48.3	)
Less: net income attributable to non-controlling interest		(0.3	)		(0.1	)		(1.0	)		(0.7	)
Loss from continuing operations attributable to Affinion Group Holdings, Inc.		(39.8	)		(21.1	)		(87.7	)		(49.0	)
Net income from discontinued operations, net of tax		456.9			10.2			452.0			20.5
Net income (loss) attributable to Affinion Group Holdings, Inc.	$	417.1		$	(10.9	)	$	364.3		$	(28.5	)

Denominator:
Weighted average shares of Common Stock		9,157,071			9,129,357			9,157,071			9,105,471
Weighted average shares for warrants		4,392,936			4,373,493			4,392,936			2,230,914
Weighted average shares for vested RSUs		78,864			20,040			78,864			20,040
Basic weighted average shares of Common Stock		13,628,871			13,522,890			13,628,871			11,356,425
Weighted average effect of dilutive securities		—			—			—			—
Diluted weighted average shares of Common Stock		13,628,871			13,522,890			13,628,871			11,356,425

Basic earnings (loss) per share attributable to holders of Common Stock:
Continuing operations	$	(2.91	)	$	(1.54	)	$	(6.43	)	$	(4.32	)
Discontinued operations	$	33.51		$	0.74		$	33.16		$	1.81
Net earnings (loss) per share	$	30.60		$	(0.80	)	$	26.73		$	(2.51	)

Diluted earnings (loss) per share attributable to holders of Common Stock:
Continuing operations	$	(2.91	)	$	(1.54	)	$	(6.43	)	$	(4.32	)
Discontinued operations	$	33.51		$	0.74		$	33.16		$	1.81
Net earnings (loss) per share	$	30.60		$	(0.80	)	$	26.73		$	(2.51	)

The income tax provision is determined using the asset and liability method, under which deferred tax assets and liabilities are calculated based upon the temporary differences between the financial statements and income tax bases of assets and liabilities using currently enacted tax rates. Deferred tax assets are recorded net of a valuation allowance when, based on the weight of available evidence, it is more likely than not that some portion, or all, of the recorded deferred tax assets will not be realized in future periods. Decreases to the valuation allowance are recorded as reductions to the income tax provision, while increases to the valuation allowance result in additional income tax provision. The realization of deferred tax assets is primarily dependent on estimated future taxable income. As of September 30, 2018 and December 31, 2017, the Company has recorded a full valuation allowance for its U.S. federal net deferred tax assets. As of September 30, 2018 and December 31, 2017, the Company has also recorded valuation allowances against the deferred tax assets related to certain state and foreign tax jurisdictions.

During the quarter ended September 30, 2018, the Company identified errors related to the allocation of its income tax provision between continuing operations and discontinued operations included in the unaudited condensed consolidated financial statements for the three and six month periods ended June 30, 2017 as presented in the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2018. The income tax provision on continuing operations was overstated by $7.6 million and the income tax benefit on discontinued operations was overstated by $7.6 million for the three months ended June 30, 2017 and the income tax provision on continuing operations was overstated by $5.0 million and the income tax provision on discontinued operations was understated by $5.0 million for the six months ended June 30, 2017. These errors had no impact on the consolidated tax provision or net loss for the three and six months ended June 30, 2017 as presented in the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2018. The Company assessed the materiality of these errors based on an analysis of quantitative and qualitative factors and concluded that they were not material to the quarterly unaudited condensed consolidated financial statements for the three and six months ended June 30, 2017. The Company has revised its results of operations for the three and six months ended June 30, 2017 to correct these errors and any subsequent presentation of the Company’s unaudited condensed consolidated statement of comprehensive income (loss) for the three and six months ended June 30, 2017 will reflect the correction of these errors. The revision had no impact on the Company’s unaudited condensed consolidated balance sheet at June 30, 2018 and December 31, 2017 or its unaudited condensed consolidated statement of cash flows for the six months ended June 30, 2018 and 2017.

The Company’s effective income tax rates for the three months ended September 30, 2018 and 2017 were 38.4% and (9.0)%, respectively. The Company’s effective income tax rates for the nine months ended September 30, 2018 and 2017 were 21.4% and 0.7%, respectively. The difference in the effective tax rates for the three months ended September 30, 2018 and 2017 is primarily a result of the increase in the loss from continuing operations from $19.3 million for the three months ended September 30, 2017 to $64.0 million for the three months ended September 30, 2018 and a change from an income tax provision on continuing operations of $1.7 million for the three months ended September 30, 2017 to an income tax benefit on continuing operations of $24.5 million for the three months ended September 30, 2018, determined pursuant to intra-period tax allocation requirements attributable to the 2018 Divestiture. The difference in the effective tax rates for the nine months ended September 30, 2018 and 2017 is primarily a result of the increase in the loss from continuing operations from $48.7 million for the nine months ended September 30, 2017 to $110.3 million for the nine months ended September 30, 2018 and an increase in the income tax benefit on continuing operations from $0.4 million for the nine months ended September 30, 2017 to $23.6 million for the nine months ended September 30, 2018, determined pursuant to intra-period tax allocation requirements attributable to the 2018 Divestiture. The Company’s effective 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, such as the impact of the enactment of the TCJA for tax years 2018 and forward. 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 21%.

In the fourth quarter of 2017, the Company recognized a provisional tax benefit in the amount of approximately $25.5 million as a component of the income tax provision on continuing operations for certain one-time items related to the TCJA for which we were able to determine a reasonable estimate. As of September 30, 2018, the Company did not record any adjustment to the provisional amounts recorded in the fourth quarter of 2017 as the Company, pursuant to SAB 118, continues to obtain, prepare, and analyze information and evaluate legislative and authoritative guidance being issued with respect to the other provisions of the TCJA.

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. The Company recognized less than $0.1 million of interest related to uncertain tax positions for the three months ended September 30, 2018 and recognized a reduction of $0.1 million of interest related to uncertain tax positions for the nine months ended September 30, 2018. The Company recognized less than $0.1 million and $0.2 million of interest related to uncertain tax positions for the three and nine months ended September 30, 2017. The interest has been included in the income tax provision on continuing operations for the three and nine months ended September 30, 2018 and 2017. The Company’s gross unrecognized tax benefits for the nine months ended September 30, 2018 decreased by $0.9 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 April 26, 2012, the court consolidated two additional lawsuits making substantially similar allegations that were filed against the Company, Trilegiant, and numerous other defendants. An additional lawsuit, which was identical in all respects to these cases, was also consolidated on March 28, 2014.

On December 7, 2012, all defendants filed motions seeking to dismiss the consolidated amended complaint. On March 28, 2014, the court entered orders granting in part and denying in part the motions to dismiss. After the motions, claims under the ECPA and CUTPA and for unjust enrichment remained pending against the Company and Trilegiant. On February 29, 2016, the Company filed a Motion for Summary Judgment on the claims of the remaining named plaintiffs. On August 23, 2016, the court granted the Company’s motion for Summary Judgment as to all remaining claims against the defendants. Plaintiffs appealed and the court of appeals held oral arguments on October 27, 2017. On April 27, 2018, the court of appeals issued a decision affirming the judgment of the district court. Plaintiffs filed a petition for rehearing, which the court of appeals denied on June 11, 2018.

On August 27, 2010, a former member of Webloyalty’s membership programs filed a putative class action lawsuit 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 (the “Connecticut District Court”). The plaintiff alleged that Webloyalty’s enrollment of the plaintiff using debit card information obtained from a third party via data pass, and not directly from the plaintiff, was deceptive. The Plaintiff seeks to represent a nationwide class of consumers whose credit or debit card data was transferred to Webloyalty via data pass on or after October 1, 2008. The complaint, which was amended several times, asserted, among others, claims for violations of the Electronic Funds Transfer Act (“EFT”), the ECPA, and CUTPA as well as other common law claims. On October 15, 2015, the Connecticut District Court entered judgment dismissing all claims with prejudice. The plaintiff appealed that judgment to the United States Court of Appeals for the Second Circuit (the “Second Circuit”). On December 20, 2016, the Second Circuit affirmed the District Court of Connecticut’s dismissal in part, but reversed and remanded the dismissal of claims against Webloyalty and its former client under CUTPA and the EFT. The defendants have answered the remaining counts of the complaint and denied any liability. The defendants have also filed a motion for judgment on the pleadings on the Plaintiff’s CUTPA claim, and for summary judgment on his EFT claim. On October 26, 2018, the Court entered summary judgment for defendants on the EFT claim, declined to exercise supplemental jurisdiction over the CUTPA claim, and dismissed the CUTPA claim without prejudice. The Court also directed the clerk to close the file.

On June 7, 2012, a factually similar class action lawsuit was filed against Webloyalty in the U.S. District Court for the Southern District of California (the “District Court of S.C.”). After filing several amended complaints, the plaintiff asserted a variety of claims, including claims under the EFT, the ECPA, California Business and Professional Code § 17200, et seq. (the “CBPC”), CUTPA, various privacy statutes, and common law. The plaintiff did so on behalf of a purported nationwide class of consumers whose credit or debit card information was obtained by Webloyalty via data pass, and had their credit or debit cards charged on or after October 1, 2008. On June 22, 2015, the District Court of S.C. entered judgment dismissing the plaintiff’s federal claims with prejudice, and his state claims without prejudice. The plaintiff appealed that judgement to the United States Court of Appeals for the Ninth Circuit (the “Ninth Circuit”). On March 28, 2017, the Ninth Circuit affirmed the dismissal of the plaintiff’s ECPA and privacy-based state law claims, but reversed and remanded the dismissal of other claims, including the plaintiff’s claims under the EFT, CBPC, and CUTPA. On September 5, 2017, the plaintiff filed a third amended complaint, which asserts the claims that were remanded by the Ninth Circuit. Webloyalty has answered the complaint and denied all liability. On June 29, 2018, the plaintiff moved for class certification on his claims for violation of the EFT on behalf of a nationwide class, and on his claims for conversion, and violation of CBPC on behalf of a California class. The court held a hearing on this motion on October 29, 2018, and has taken it under advisement. Discovery has been stayed pending the outcome of that decision.

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 (the “District Court of E. Pa.”), 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 alleged 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 sought 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 March 1, 2017, the parties entered into a settlement and release wherein Trilegiant agreed to make a payment to Kohl’s of approximately $0.3 million and to pay 30% of Kohl’s on-going legal fees in the putative class action, capped at $0.4 million (excluding Trilegiant’s initial payment of approximately $0.3 million), to resolve Kohl’s indemnification, contribution and breach of contract claims against Trilegiant with respect to fees and expenses that Kohl’s has incurred or will incur in connection with its defense of the putative class action. Kohl’s reserved its right to seek indemnity from Trilegiant for any liability Kohl’s may incur to the plaintiffs in the putative class action relating to Trilegiant’s membership program. The third-party complaint was dismissed without prejudice by stipulation of the parties on March 10, 2017.

On August 18, 2016, Lion Receivables 2004 Trust (“Lion”) served Long Term Preferred Care, Inc. (“LTPC”), a subsidiary of ABG, with a complaint (the “Lion Litigation”), which was filed in the United States District Court for the State of Delaware (the “District Court of Delaware”). In the complaint, Lion alleges that LTPC made certain inaccurate representations and warranties in the Commission Purchase Agreement, dated as of December 30, 2004, between LTPC and Lion. Lion seeks compensatory damages, pre-judgment and post-judgment interest, and attorneys’ fees. LTPC filed a motion to dismiss in response to the complaint on October 24, 2016. On March 20, 2017, a magistrate judge recommended the Court deny LTPC’s motion to dismiss. On August 31, 2017 the District Court of Delaware adopted the magistrate’s recommendation denying LTPC’s motion to dismiss. On September 14, 2017, LTPC filed its Answer and Defenses to the complaint. Pursuant to the Company’s purchase agreement with Cendant, the Cendant Entities (as such terms are defined in Note 12 to these unaudited condensed consolidated financial statements) have agreed to indemnify us for any liability relating to this matter. Plaintiffs served their First Set of Requests for Production of Documents and Things on December 29, 2017.

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, ABG, Affinion and/or Affinion Holdings. The parties participated in a non-binding mediation on September 13, 2016. The parties were unable to resolve their dispute in the mediation. On November 18, 2016, PNC filed a complaint in the Pennsylvania Court of Common Pleas against Trilegiant for indemnification, breach of contract, unjust enrichment and breach of implied covenant of good faith and fair dealing. The complaint also alleges negligence and intentional misconduct by other Affinion entities. These claims arise out of consent orders that PNC entered into with the Office of the Comptroller of the Currency (the “OCC”) to settle the OCC’s Section 5 claim against it. According to PNC, the damages it incurred pursuant to those consent orders were the result of Trilegiant’s failure to properly service PNC’s customers. Trilegiant’s preliminary objections to PNC’s complaint were filed on January 12, 2017. On January 30, 2017, the case was transferred from the Court of Common Pleas to the Commerce Court and Complex Litigation Center. Oral argument on Trilegiant’s preliminary objections was held on May 9, 2017. On May 25, 2017, the Court issued its opinion, dismissing some claims, but keeping the indemnification and unjust enrichment claims. On June 19, 2017, the defendants filed their answer. Discovery is underway.

From time to time, the Company receives inquiries from federal and state agencies, which may include the Federal Trade Commission, the Federal Communications Commission, the Consumer Financial Protection Bureau, state attorneys general and other state regulatory agencies. The Company responds to these matters and requests for documents, some of which may lead to further investigations and proceedings. Additionally, certain of our clients have become, and others may become, involved in legal proceedings or governmental inquiries relating to our programs and solutions or marketing practices. As a result, we may be subject to claims under our marketing agreements, and as of September 30, 2018 we have accrued $6.2 million for certain asserted claims, including claims for which no litigation has been commenced.

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.

During the year ended December 31, 2017, a charge of $23.2 million was recorded relating to an external gift card cyber theft. An insurance claim related to the cyber theft is currently being pursued with the Company’s carriers and we expect a recovery in a future period which will be recorded when realizable.

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 September 30, 2018, the Company provided guarantees for surety bonds totaling $6.2 million and issued letters of credit totaling $6.5 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 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 Class C Common Stock and Class D Common Stock and both the exercise price and the number of shares of Class C Common Stock and Class D Common Stock underlying such options have been adjusted.

In November 2007, Affinion Holdings adopted the 2007 Stock Award Plan (the “2007 Plan”). 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 and all outstanding options granted under the 2007 Plan were cancelled for no consideration, effective November 9, 2015.

On November 9, 2015, in conjunction with the exchange offers (the “2015 Exchange Offers”), the consent solicitations (the “2015 Consent Solicitations”) and a rights offering (the “2015 Rights Offering”) conducted by the Company, Affinion Holdings effected the Reclassification (the “Reclassification”) 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 accordance with the Reclassification, Affinion Holdings’ Class A Common Stock was converted into shares of Affinion Holdings’ Class C/D Common Stock. Stock options issued and outstanding under the 2005 Plan were not affected by the cancellation. 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 was adjusted based on the conversion ratio utilized for the conversion of the Class A Common Stock, and the exercise price was correspondingly adjusted.

On November 9, 2015, the Company’s Board of Directors (the “Board” or “Board of Directors”) adopted the 2015 Equity Incentive Plan (the “2015 Plan”), which authorizes the Human Resources Committee (formerly 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 (now known as the Human Resources Committee) awarded 859,500 options to employees under the 2015 Plan, and subsequently issued another 28,000 options to employees under the 2015 Plan.

For employee stock awards, the Company recognizes compensation expense 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 recognizes forfeitures as they occur. The Company has elected to recognize compensation cost for awards with only a service condition and a graded vesting schedule on a straight-line basis over the requisite service period for the entire award.

During the three and nine months ended September 30, 2018 and 2017, there were no options granted to employees under the 2015 Plan. Options granted under the 2015 Plan 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. 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 activity for options to acquire shares of Class C/D Common Stock under the 2005 Plan during the nine months ended September 30, 2018 is presented below (amounts in thousands, except term and per option amounts):

	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, 2018		2		1		1		1
Granted		—		—		—		—
Exercised		—		—		—		—
Forfeited or expired		—		—		—	—
Outstanding options at September 30, 2018		2		1		1		1
Options vested or expected to vest at September 30, 2018		2		1		1		1
Exercisable options at September 30, 2018		2		1		1		1
Weighted average remaining contractual term (in years)		5.5		5.5		5.5		5.5
Weighted average grant date fair value per option granted in 2018	$	—	$	—	$	—	$	—
Weighted average exercise price of outstanding options at September 30, 2018	$	147.12	$	147.12	$	147.12	$	147.12
Weighted average exercise price of exercisable options at September 30, 2018	$	147.12	$	147.12	$	147.12	$	147.12

A summary of activity for options to acquire shares of Common Stock granted under the 2015 Plan during the nine months ended September 30, 2018 is presented below (amounts in thousands, except term and per option amounts):

Based on the estimated fair values of options granted, stock-based compensation expense for the three months ended September 30, 2018 and 2017 totaled $0.4 million and $0.5 million, respectively. Based on the estimated fair values of options granted, stock-based compensation expense for the nine months ended September 30, 2018 and 2017 totaled $1.3 million and $1.4 million, respectively. As of September 30, 2018, there was $2.3 million of unrecognized compensation cost related to unvested stock options, which will be recognized over a weighted average period of approximately 0.9 years.

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 3/12ths as of the date of grant and an additional 1/12th vested on March 31, 2016 and 1/12th vested on the last day of the next eight months, until November 30, 2016. 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. In connection with the resignation of one of the directors, the RSUs awarded to the resigning director immediately vested. As these awards will be settled in shares of Affinion Holdings’ common stock, the Company has accounted for these RSUs as an equity award.

On October 24, 2017, six of the non-employee directors were granted RSUs under the 2015 Plan as a component of their annual compensation, however one of the non-employee directors waived receipt of such RSUs. Pursuant to the restricted stock unit agreement entered into with each of the directors, each such director was awarded 9,804 restricted stock units, (i) three-fourths (3/4) of which vested on the date of grant and (ii) the remaining one-fourth (1/4) vested in equal installments on each of October 31, 2017, November 30, 2017 and December 31, 2017, respectively. Each vested restricted stock unit will be settled by the delivery of one share of common stock of Affinion Holdings to the applicable director on the earlier to occur of (A) a “Change in Control” or (B) the third anniversary of the date of grant.

On December 18, 2017, RSUs were granted under the 2015 Plan in consideration of the Board service of the non-employee director who waived receipt of the October 24, 2017 award of RSUs as described above. Pursuant to the restricted stock unit agreement entered into, 9,804 restricted stock units were awarded, (i) 11/12ths of which vested on the date of grant and (ii) the remaining 1/12th vested on December 31, 2017. Each vested restricted stock unit will be settled by the delivery of one share of common stock of Affinion Holdings on the earlier to occur of (A) a “Change in Control” or (B) the third anniversary of the date of grant.

There was no stock-based compensation expense related to the RSU awards for the three and nine months ended September 30, 2018 and 2017. As of September 30, 2018, there was no unrecognized compensation cost related to RSU awards.

On March 16, 2015, the Compensation Committee (now known as the Human Resources 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”) under the 2007 Plan 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 entitled 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 were subject to time-based vesting conditions. Upon termination of employment for any reason, an employee forfeited the entire unvested portion of his or her Retention Award. 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 vested in an adjusted number of shares of Class C Common Stock and Class D Common Stock. During the year ended December 31, 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 $2.0 million. During the nine months ended September 30, 2017, 5,904 shares of Class C Common Stock and 6,209 shares of Class D Common Stock vested, in addition to CRAs of approximately $1.8 million. For the nine months ended September 30, 2017, the Company recognized expense related to the 2015 Retention Program of $0.7 million, of which $0.4 million related to the common stock portion of the Retention Awards. There was no expense recognized in relation to the 2015 Retention Program for the three and nine months ended September 30, 2018.

Subsequent Events - On November 14, 2018, upon the recommendation of the Human Resources Committee, the Board approved a repricing (the “Repricing”) of 299,636 unvested stock options (the "Underwater Options") previously issued under the 2015 Plan. Prior to the Repricing, all of the Underwater Options had a per share exercise price in excess of the current fair market value per share of Common Stock and as such the Board determined that the Underwater Options no longer served as adequate incentive or retention tools for the recipients. Pursuant to the Repricing, the per share exercise price of the Underwater Options will be repriced (the “Repriced Options”) to equal $5.00, which will be the same strike price of the warrants that may be issued under certain circumstances by the Company (the “Warrant Strike Price”) in connection with the 2018 Financing Transactions (see Note 6). The Repriced Options will continue to vest in accordance with their existing vesting schedules. All other material terms and conditions of the Repriced Options will remain the same.

The Board previously authorized a number of shares of Common Stock for grants under the 2015 Plan equal to ten percent (10%) of the aggregate number of shares of the Common Stock outstanding as of November 9, 2015, on a fully diluted basis. On November 14, 2018, upon the recommendation of the Human Resources Committee, the Board adopted an amendment to the 2015 Plan (the “Plan Amendment”) to amend the 2015 Plan to increase the aggregate cap on Common Stock that may be issued to employees and directors of the Company from ten percent (10%) of the Company Common Stock to fifteen percent (15%) of the Company Common Stock (on a fully diluted basis, but excluding vested and unvested Company Common Stock and options or other rights to acquire Company Common Stock issued under the 2015 Plan). However, the Plan Amendment will be effective as of, and conditioned upon, the effectiveness of an amendment to a shareholders’ agreement (the “Shareholder Agreement Amendment”).

On November 14, 2018, upon the recommendation of the Human Resources Committee, and subject to the effectiveness of the Plan Amendment and the Shareholder Agreement Amendment, the Board approved grants of 827,500 stock options under the 2015 Plan, as amended by the Plan Amendment at an exercise price equal to the Warrant Strike Price. The options granted become vested in four equal installments on each of the first four anniversaries of the grant date.

On October 17, 2005, Cendant Corporation (“Cendant”) completed the sale of the Cendant Marketing Services Division to the Company and an affiliate of 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. In connection with the Apollo Transactions, Cendant has agreed to indemnify the Company, Affinion 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 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. Of the legal proceedings disclosed in Note 10 to these unaudited condensed consolidated financial statements, the Lion Litigation is a matter that involves the Cendant Entities (as defined below) agreeing to indemnify us for any related liabilities.

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, 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.

Except with respect to the Lion Litigation, in which the Cendant Entities agreed to indemnify us for all losses, for the other matters, Cendant, Affinion and the Company have agreed that losses up to $15.0 million 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.

2017 Exchange Offers, Issuance of 2017 Notes and 2017 Warrants and Redemptions of Other Existing Notes

As discussed in Note 6, on May 10, 2017, the Company completed the Exchange Offers and exercised its option under the Investor Purchase Agreement relating to Affinion’s 2010 senior notes, obligating the Investors to purchase an aggregate principal amount of 2017 Notes and 2017 Warrants that would yield sufficient cash proceeds to fund the redemptions of Affinion’s 2010 senior notes not tendered in the AGI Exchange Offer. On June 13, 2017, the Company exercised its options under the Investor Purchase Agreement relating to Affinion Holdings’ 2013 senior notes and the Investments senior subordinated notes, obligating the Investors to purchase an aggregate principal amount of 2017 Notes and 2017 Warrants that would yield sufficient cash proceeds to fund the redemptions of Affinion Holdings’ senior notes and the Investments senior subordinated notes not tendered in the Holdings Exchange Offer and Investments Exchange Offer, respectively. Prior to the completion of the Exchange Offers, Empyrean was the beneficial owner of 5% or more of the Company’s Common Stock. Upon consummation of the Exchange Offers, each of the Investors was the beneficial owner of 5% or more of the Company’s Common Stock. In connection with the Exchange Offers, issuance of 2017 Notes and 2017 Warrants and redemption of Affinion’s 2010 senior notes, Affinion Holdings’ 2013 senior notes and the Investments senior subordinated notes, the Company issued approximately $515.1 million aggregate principal amount of 2017 Notes and 2017 Warrants to purchase 4,234,335 shares of Common Stock to the Investors, all of whom were related parties as a result of their beneficial ownership of 5% or more of the Company’s Common Stock.

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 September 30, 2018 (in millions, except average interest rate amounts):

For the nine months ended September 30, 2017, the Company recognized a realized loss on the forward contracts of $1.3 million. There was no realized gain or loss recognized for the three months ended September 30, 2017. There was no realized gain or loss recognized for the three and nine months ended September 30, 2018.

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of receivables and prepaid commissions. The Company manages such risk by evaluating the financial position and creditworthiness of such counterparties. Receivables are from various marketing 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.

The following table summarizes financial instruments measured at fair value using Level 3 inputs on a recurring basis as of September 30, 2018.

There were no financial instruments measured at fair value on a recurring basis as of December 31, 2017.

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

The Segment EBITDA of the Company’s three reportable segments does not include general corporate expenses. General corporate expenses include costs and expenses that are of a general corporate nature or managed on a corporate basis. Corporate costs include certain departmental service costs such as human resources, legal, corporate finance and accounting functions 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 three 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 our three 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, 2017.

The 2018 Divestiture, which was completed on August 15, 2018, comprised substantially all of the Company’s Insurance Solutions operating segment. Therefore, the Insurance Solutions operating segment is no longer considered a reportable segment and the operating results of the Insurance Solutions operating segment are not presented below. See Note 3 to these unaudited condensed consolidated financial statements for more information on the 2018 Divestiture.

The following supplemental condensed consolidating financial information presents, in separate columns, the unaudited condensed consolidating balance sheets as of September 30, 2018 and December 31, 2017, the related unaudited condensed consolidating statements of comprehensive income (loss) for the three and nine month periods ended September 30, 2018 and 2017, and the related unaudited condensed consolidating statements of cash flows for the nine month periods ended September 30, 2018 and 2017 for (i) the Company (which is a parent guarantor of the 2017 Notes) on a parent-only basis, with its investment in subsidiaries recorded under the equity method, (ii) the issuer of the 2017 Notes (Affinion) with its investment in subsidiaries recorded under the equity method, (iii) the Guarantor Subsidiaries (the Company’s subsidiaries that guarantee the 2017 Notes) on a combined basis, (iv) the Non-Guarantor Subsidiaries (the Company’s subsidiaries that do not guarantee the 2017 Notes) on a combined basis and (v) the Company on a consolidated basis. The guarantees are full and unconditional and joint and several obligations of (1) the parent guarantor (the Company) and (2) each of the guarantor subsidiaries, all of which are 100% owned by the Company. There are no significant restrictions on the ability of the issuer of the 2017 Notes (Affinion) 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.

				Subsidiary			Guarantor		Non -Guarantor
	Parent			Issuer			Subsidiaries		Subsidiaries		Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	—		$	17.5		$	10.2	$	22.3	$	—		$	50.0
Restricted cash		—			50.9			3.9		5.3		—			60.1
Receivables, net		—			2.8			122.3		30.8		—			155.9
Prepaid commissions		—			—			27.0		8.6		—			35.6
Other current assets		—			37.6			40.8		8.5		—			86.9
Total current assets		—			108.8			204.2		75.5		—			388.5
Property and equipment, net		—			7.3			83.8		4.0		—			95.1
Goodwill		—			—			128.2		44.6		—			172.8
Other intangibles, net		—			—			25.3		5.7		—			31.0
Investment in subsidiaries		—			2,295.9			53.7		—		(2,349.6	)		—
Intercompany loan receivable		—			360.6			—		21.2		(381.8	)		—
Intercompany receivables		35.0			—			1,265.3		—		(1,300.3	)		—
Other non-current assets		—			3.8			34.3		1.6		—			39.7
Total assets	$	35.0		$	2,776.4		$	1,794.8	$	152.6	$	(4,031.7	)	$	727.1
Liabilities and Deficit
Current liabilities:
Current portion of long-term debt	$	—		$	13.4		$	0.4	$	—	$	—		$	13.8
Accounts payable and accrued expenses		4.5			91.6			222.1		41.4		—			359.6
Deferred revenue		—			—			32.0		4.6		—			36.6
Income taxes payable		—			0.7			1.0		2.2		—			3.9
Total current liabilities		4.5			105.7			255.5		48.2		—			413.9
Long-term debt		—			1,466.9			0.4		—		—			1,467.3
Deferred income taxes		—			0.8			1.6		0.6		—			3.0
Deferred revenue		—			0.1			3.2		0.1		—			3.4
Intercompany loans payable		28.9			—			352.9		—		(381.8	)		—
Intercompany payables		—			1,260.3			—		40.0		(1,300.3	)		—
Other long-term liabilities		—			17.7			12.2		3.7		—			33.6
Negative carrying amount of subsidiaries, net		1,197.1			—			—		—		(1,197.1	)		—
Total liabilities		1,230.5			2,851.5			625.8		92.6		(2,879.2	)		1,921.2
Total Affinion Group Holdings, Inc. deficit		(1,195.6	)		(75.0	)		1,169.0		58.5		(1,152.5	)		(1,195.6	)
Non-controlling interest in subsidiary		—			—			—		1.5		—			1.5
Total deficit		(1,195.6	)		(75.0	)		1,169.0		60.0		(1,152.5	)		(1,194.1	)
Total liabilities and deficit	$	34.9		$	2,776.5		$	1,794.8	$	152.6	$	(4,031.7	)	$	727.1

				Subsidiary			Guarantor		Non -Guarantor
	Parent			Issuer			Subsidiaries		Subsidiaries		Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	—		$	4.4		$	15.1	$	20.0	$	—		$	39.5
Restricted cash		—			0.8			3.5		5.6		—			9.9
Receivables, net		—			3.0			116.6		33.8		—			153.4
Prepaid commissions		—			—			27.3		6.4		—			33.7
Other current assets		—			23.9			34.6		11.1		—			69.6
Current assets held for sale		—			—			46.0		—		—			46.0
Total current assets		—			32.1			243.1		76.9		—			352.1
Property and equipment, net		—			4.6			93.1		5.8		—			103.5
Goodwill		—			—			129.4		37.0		—			166.4
Other intangibles, net		—			—			29.8		4.2		—			34.0
Investment in subsidiaries		—			2,648.7			54.5		—		(2,703.2	)		—
Intercompany loan receivable		—			355.5			—		5.0		(360.5	)		—
Intercompany receivables		33.7			—			2,663.5		—		(2,697.2	)		—
Other non-current assets		—			0.5			25.8		1.3		—			27.6
Non-current assets held for sale		—			—			83.3		—		—			83.3
Total assets	$	33.7		$	3,041.4		$	3,322.5	$	130.2	$	(5,760.9	)	$	766.9
Liabilities and Deficit
Current liabilities:
Current portion of long-term debt	$	—		$	13.4		$	0.5	$	—	$	—		$	13.9
Accounts payable and accrued expenses		3.7			72.9			167.6		48.5		—			292.7
Deferred revenue		—			—			29.1		6.1		—			35.2
Income taxes payable		—			0.4			0.9		1.9		—			3.2
Current liabilities held for sale		—			7.4			41.7		—		—			49.1
Total current liabilities		3.7			94.1			239.8		56.5		—			394.1
Long-term debt		—			1,886.7			0.6		—		—			1,887.3
Deferred income taxes		—			0.1			4.9		0.5		—			5.5
Deferred revenue		—			0.2			3.6		0.3		—			4.1
Intercompany loans payable		28.9			—			331.6		—		(360.5	)		—
Intercompany payables		—			2,649.3			—		47.9		(2,697.2	)		—
Other long-term liabilities		—			9.1			13.9		2.9		—			25.9
Negative carrying amount of subsidiaries, net		1,559.7			—			—		—		(1,559.7	)		—
Non-current liabilities held for sale		—			—			7.6		—		—			7.6
Total liabilities		1,592.3			4,639.5			602.0		108.1		(4,617.4	)		2,324.5
Total Affinion Group Holdings, Inc. deficit		(1,558.6	)		(1,598.1	)		2,720.5		21.1		(1,143.5	)		(1,558.6	)
Non-controlling interest in subsidiary		—			—			—		1.0		—			1.0
Total deficit		(1,558.6	)		(1,598.1	)		2,720.5		22.1		(1,143.5	)		(1,557.6	)
Total liabilities and deficit	$	33.7		$	3,041.4		$	3,322.5	$	130.2	$	(5,760.9	)	$	766.9

				Subsidiary			Guarantor			Non -Guarantor
	Parent			Issuer			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Net revenues	$	—		$	—		$	148.7		$	28.4		$	—		$	177.1
Expenses:
Cost of revenues, exclusive of depreciation and amortization shown separately below:
Marketing and commissions		—			—			21.9			14.9			—			36.8
Operating costs		—			10.7			59.0			12.6			—			82.3
General and administrative		—			16.1			7.5			2.6			—			26.2
Facility exit costs		—			—			0.8			0.2			—			1.0
Depreciation and amortization		—			0.2			10.5			2.0			—			12.7
Total expenses		—			27.0			99.7			32.3			—			159.0
Income (loss) from continuing operations		—			(27.0	)		49.0			(3.9	)		—			18.1
Interest expense		—			(50.0	)		(0.2	)		(0.3	)		—			(50.5	)
Interest income (expense) - intercompany		(0.2	)		0.3			(0.4	)		0.3			—			—
Loss on extinguishment of debt		—			(31.6	)		—			—			—			(31.6	)
Other income (expense), net		—			(0.3	)		0.5			(0.2	)		—			—
Income (loss) from continuing operations before income taxes		(0.2	)		(108.6	)		48.9			(4.1	)		—			(64.0	)
Income tax benefit (provision)		—			28.4			(2.9	)		(1.0	)		—			24.5
Income (loss) from continuing operations, net of tax		(0.2	)		(80.2	)		46.0			(5.1	)		—			(39.5	)
Income (loss) from discontinued operations, net of tax		—			497.9			(41.0	)		—			—			456.9
Equity in income (loss) of subsidiaries		417.3			(0.4	)		(5.4	)		—			(411.5	)		—
Net income (loss)		417.1			417.3			(0.4	)		(5.1	)		(411.5	)		417.4
Less: net income attributable to non-controlling interest		—			—			—			(0.3	)		—			(0.3	)
Net income (loss) attributable to Affinion Group Holdings, Inc.	$	417.1		$	417.3		$	(0.4	)	$	(5.4	)	$	(411.5	)	$	417.1

Net income (loss)	$	417.1		$	417.3		$	(0.4	)	$	(5.1	)	$	(411.5	)	$	417.4
Currency translation adjustment, net of tax		(1.8	)		(1.8	)		(1.0	)		(1.9	)		4.7			(1.8	)
Comprehensive income (loss)		415.3			415.5			(1.4	)		(7.0	)		(406.8	)		415.6
Less: comprehensive income attributable to non-controlling interest		—			—			—			(0.3	)		—			(0.3	)
Comprehensive income (loss) attributable to Affinion Group Holdings, Inc.	$	415.3		$	415.5		$	(1.4	)	$	(7.3	)	$	(406.8	)	$	415.3

				Subsidiary			Guarantor			Non -Guarantor
	Parent			Issuer			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Net revenues	$	—		$	—		$	461.0		$	84.4		$	—		$	545.4
Expenses:
Cost of revenues, exclusive of depreciation and amortization shown separately below:
Marketing and commissions		—			0.1			72.8			30.4			—			103.3
Operating costs		—			32.5			182.3			34.6			—			249.4
General and administrative		0.1			46.4			32.3			9.3			—			88.1
Facility exit costs		—			—			1.5			0.3			—			1.8
Depreciation and amortization		—			0.5			30.3			5.4			—			36.2
Total expenses		0.1			79.5			319.2			80.0			—			478.8
Income (loss) from continuing operations		(0.1	)		(79.5	)		141.8			4.4			—			66.6
Interest expense, net		—			(143.8	)		(0.5	)		(0.7	)		—			(145.0	)
Interest income (expense) - intercompany		(0.6	)		1.1			(1.3	)		0.8			—			—
Loss on extinguishment of debt		—			(31.6	)		—			—			—			(31.6	)
Other income (expense), net		—			(0.3	)		0.2			(0.2	)		—			(0.3	)
Income (loss) from continuing operations before income taxes		(0.7	)		(254.1	)		140.2			4.3			—			(110.3	)
Income tax benefit (provision)		—			27.8			(1.3	)		(2.9	)		—			23.6
Income (loss) from continuing operations, net of tax		(0.7	)		(226.3	)		138.9			1.4			—			(86.7	)
Income (loss) from discontinued operations, net of tax		—			468.7			(16.7	)		—			—			452.0
Equity in income (loss) of subsidiaries		365.0			122.6			0.4			—			(488.0	)		—
Net income (loss)		364.3			365.0			122.6			1.4			(488.0	)		365.3
Less: net income attributable to non-controlling interest		—			—			—			(1.0	)		—			(1.0	)
Net income (loss) attributable to Affinion Group Holdings, Inc.	$	364.3		$	365.0		$	122.6		$	0.4		$	(488.0	)	$	364.3

Net income (loss)	$	364.3		$	365.0		$	122.6		$	1.4		$	(488.0	)	$	365.3
Currency translation adjustment, net of tax		(4.1	)		(4.1	)		(1.3	)		(2.7	)		8.1			(4.1	)
Comprehensive income (loss)		360.2			360.9			121.3			(1.3	)		(479.9	)		361.2
Less: comprehensive income attributable to non-controlling interest		—			—			—			(1.0	)		—			(1.0	)
Comprehensive income (loss) attributable to Affinion Group Holdings, Inc.	$	360.2		$	360.9		$	121.3		$	(2.3	)	$	(479.9	)	$	360.2

				Subsidiary			Guarantor			Non- Guarantor
	Parent			Issuer			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Net revenues	$	—		$	—		$	153.8		$	29.5		$	—		$	183.3
Expenses:
Cost of revenues, exclusive of depreciation and amortization shown separately below:
Marketing and commissions		—			—			30.3			12.2			—			42.5
Operating costs		—			10.7			55.6			14.8			—			81.1
General and administrative		—			10.0			10.5			0.7			—			21.2
Facility exit costs		—			—			0.2			(1.4	)		—			(1.2	)
Depreciation and amortization		—			0.2			10.5			1.1			—			11.8
Total expenses		—			20.9			107.1			27.4			—			155.4
Income (loss) from continuing operations		—			(20.9	)		46.7			2.1			—			27.9
Interest expense		(0.1	)		(44.1	)		(0.1	)		—			—			(44.3	)
Interest income (expense) - intercompany		(0.2	)		0.3			(0.2	)		0.1			—			—
Loss on extinguishment of debt		—			(2.8	)		—			—			—			(2.8	)
Other expense, net		—			—			(0.1	)		—			—			(0.1	)
Income (loss) from continuing operations before income taxes		(0.3	)		(67.5	)		46.3			2.2			—			(19.3	)
Income tax provision		—			(0.4	)		(0.9	)		(0.4	)		—			(1.7	)
Income (loss) from continuing operations, net of tax		(0.3	)		(67.9	)		45.4			1.8			—			(21.0	)
Income (loss) from discontinued operations, net of tax		—			(11.9	)		22.1			—			—			10.2
Equity in income (loss) of subsidiaries		(10.6	)		69.2			1.7			—			(60.3	)		—
Net income (loss)		(10.9	)		(10.6	)		69.2			1.8			(60.3	)		(10.8	)
Less: net income attributable to non-controlling interest		—			—			—			(0.1	)		—			(0.1	)
Net income (loss) attributable to Affinion Group Holdings, Inc.	$	(10.9	)	$	(10.6	)	$	69.2		$	1.7		$	(60.3	)	$	(10.9	)

Net income (loss)	$	(10.9	)	$	(10.6	)	$	69.2		$	1.8		$	(60.3	)	$	(10.8	)
Currency translation adjustment, net of tax		2.2			2.4			(0.2	)		1.3			(3.3	)		2.4
Comprehensive income (loss)		(8.7	)		(8.2	)		69.0			3.1			(63.6	)		(8.4	)
Less: comprehensive income attributable to non-controlling interest		—			—			—			(0.3	)		—			(0.3	)
Comprehensive income (loss) attributable to Affinion Group Holdings, Inc.	$	(8.7	)	$	(8.2	)	$	69.0		$	2.8		$	(63.6	)	$	(8.7	)

				Subsidiary			Guarantor			Non- Guarantor
	Parent			Issuer			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Net revenues	$	—		$	—		$	463.6		$	85.5		$	—		$	549.1
Expenses:
Cost of revenues, exclusive of depreciation and amortization shown separately below:
Marketing and commissions		—			0.1			97.2			33.2			—			130.5
Operating costs		—			32.3			197.9			41.4			—			271.6
General and administrative		0.1			34.2			28.4			5.4			—			68.1
Facility exit costs		—			—			0.2			—			—			0.2
Depreciation and amortization		—			0.4			30.1			3.2			—			33.7
Total expenses		0.1			67.0			353.8			83.2			—			504.1
Income (loss) from continuing operations		(0.1	)		(67.0	)		109.8			2.3			—			45.0
Interest expense, net		(1.1	)		(93.9	)		(1.4	)		(0.5	)		—			(96.9	)
Interest income (expense) - intercompany		(0.6	)		(0.2	)		0.4			0.4			—			—
Gain (loss) on extinguishment of debt		—			(6.9	)		10.4			—			—			3.5
Other expense, net		—			—			(0.3	)		—			—			(0.3	)
Income (loss) from continuing operations before income taxes		(1.8	)		(168.0	)		118.9			2.2			—			(48.7	)
Income tax benefit (provision)		—			(8.5	)		11.0			(2.1	)		—			0.4
Income (loss) from continuing operations, net of tax		(1.8	)		(176.5	)		129.9			0.1			—			(48.3	)
Income (loss) from discontinued operations, net of tax		—			(23.8	)		44.3			—			—			20.5
Equity in income (loss) of subsidiaries		(26.7	)		173.6			(0.6	)		—			(146.3	)		—
Net income (loss)		(28.5	)		(26.7	)		173.6			0.1			(146.3	)		(27.8	)
Less: net income attributable to non-controlling interest		—			—			—			(0.7	)		—			(0.7	)
Net income (loss) attributable to Affinion Group Holdings, Inc.	$	(28.5	)	$	(26.7	)	$	173.6		$	(0.6	)	$	(146.3	)	$	(28.5	)

Net income (loss)	$	(28.5	)	$	(26.7	)	$	173.6		$	0.1		$	(146.3	)	$	(27.8	)
Currency translation adjustment, net of tax		6.0			6.0			(1.4	)		3.6			(8.2	)		6.0
Comprehensive income (loss)		(22.5	)		(20.7	)		172.2			3.7			(154.5	)		(21.8	)
Less: comprehensive income attributable to non-controlling interest		—			—			—			(0.7	)		—			(0.7	)
Comprehensive income (loss) attributable to Affinion Group Holdings, Inc.	$	(22.5	)	$	(20.7	)	$	172.2		$	3.0		$	(154.5	)	$	(22.5	)

				Subsidiary			Guarantor			Non -Guarantor
	Parent			Issuer			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Operating Activities
Net income (loss)	$	364.3		$	365.0		$	122.6		$	1.4		$	(488.0	)	$	365.3
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		—			0.5			31.0			5.4			—			36.9
Payment-in-kind interest		—			64.8			—			—			—			64.8
Amortization of debt discount, financing costs and carrying value adjustment		—			12.7			—			—			—			12.7
Provision for accounts receivable loss		—			—			0.7			0.5			—			1.2
Loss on extinguishment of debt		—			31.6			—			—			—			31.6
Gain on sale of business		—			(530.2	)		57.1			—			—			(473.1	)
Facility exit costs		—			—			1.5			0.3			—			1.8
Share-based compensation		—			1.2			—			—			—			1.2
Deferred income taxes		—			0.8			(2.7	)		—			—			(1.9	)
Equity in (income) loss of subsidiaries		(365.0	)		(122.6	)		(0.4	)		—			488.0			—
Net change in assets and liabilities:
Receivables		—			0.2			(7.6	)		1.6			—			(5.8	)
Prepaid commissions		—			—			0.2			(2.5	)		—			(2.3	)
Other current assets		—			(13.6	)		0.6			1.9			—			(11.1	)
Other non-current assets		—			(3.3	)		(10.8	)		0.2			—			(13.9	)
Accounts payable and accrued expenses		0.7			(31.3	)		82.7			(4.8	)		—			47.3
Deferred revenue		—			(0.1	)		10.0			—			—			9.9
Income taxes receivable and payable		—			0.3			0.4			0.3			—			1.0
Other long-term liabilities		—			(1.0	)		(0.6	)		0.4			—			(1.2	)
Other, net		—			(20.8	)		45.1			(22.3	)		—			2.0
Net cash provided by (used in) operating activities		—			(245.8	)		329.8			(17.6	)		—			66.4
Investing Activities
Capital expenditures		—			(2.5	)		(20.2	)		(1.1	)		—			(23.8	)
Acquisition-related payments, net of cash acquired		—			(6.5	)		—			0.7			—			(5.8	)
Proceeds from sale of business, net of cash transferred		—			542.5			(25.2	)		—			—			517.3
Intercompany receivables and payables		—			—			(296.2	)		—			296.2			—
Net cash provided by (used in) investing activities		—			533.5			(341.6	)		(0.4	)		296.2			487.7
Financing Activities
Repayments under revolving credit facility, net		—			(15.0	)		—			—			—			(15.0	)
Principal payments on borrowings		—			(490.7	)		(0.3	)		—			—			(491.0	)
Financing costs		—			(0.1	)		—			—			—			(0.1	)
Dividend paid to non-controlling interest		—			—			—			(0.5	)		—			(0.5	)
Intercompany dividend		—			—			(0.7	)		0.7			—			—
Intercompany receivables and payables		—			273.6			—			22.6			(296.2	)		—
Intercompany loans		—			7.7			(6.7	)		(1.0	)		—			—
Net cash provided by (used in) financing activities		—			(224.5	)		(7.7	)		21.8			(296.2	)		(506.6	)
Effect of changes in exchange rates on cash, cash equivalents and restricted cash		—			—			(0.2	)		(1.8	)		—			(2.0	)
Net increase (decrease) in cash, cash equivalents and restricted cash		—			63.2			(19.7	)		2.0			—			45.5
Cash, cash equivalents and restricted cash, beginning of period		—			5.2			33.8			25.6			—			64.6
Cash, cash equivalents and restricted cash, end of period	$	—		$	68.4		$	14.1		$	27.6		$	—		$	110.1

				Subsidiary			Guarantor			Non- Guarantor
	Parent			Issuer			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Operating Activities
Net income (loss)	$	(28.5	)	$	(26.7	)	$	173.6		$	0.1		$	(146.3	)	$	(27.8	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		—			0.3			31.4			3.2			—			34.9
Payment in kind interest		1.1			30.1			1.7			—			—			32.9
Amortization of debt discount, financing costs and carrying value adjustment		—			(1.3	)		(3.2	)		—			—			(4.5	)
Provision for accounts receivable loss		—			0.3			1.1			1.6			—			3.0
Loss (gain) on extinguishment of debt		—			6.9			(10.4	)		—			—			(3.5	)
Facility exit costs		—			—			0.3			—			—			0.3
Share-based compensation		—			1.8			—			—			—			1.8
Deferred income taxes		—			0.3			2.5			(0.1	)		—			2.7
Equity in (income) loss of subsidiaries		26.7			(173.6	)		0.6			—			146.3			—
Net change in assets and liabilities:
Receivables		—			(0.4	)		(10.9	)		(5.5	)		—			(16.8	)
Receivables from related parties		—			(1.1	)		1.1			—			—			—
Prepaid commissions		—			—			0.8			(2.3	)		—			(1.5	)
Other current assets		—			(12.6	)		0.9			4.7			—			(7.0	)
Other non-current assets		—			(0.5	)		6.4			0.7			—			6.6
Accounts payable and accrued expenses		(1.1	)		(14.8	)		35.5			(4.9	)		10.1			24.8
Payables to related parties		11.4			(11.4	)		—			—			—			—
Deferred revenue		—			(0.1	)		(5.1	)		—			—			(5.2	)
Income taxes receivable and payable		—			(0.1	)		0.4			0.9			—			1.2
Other long-term liabilities		—			0.3			(1.1	)		0.7			—			(0.1	)
Other, net		—			(2.5	)		8.8			(9.7	)		—			(3.4	)
Net cash provided by (used in) operating activities		9.6			(205.1	)		234.4			(10.6	)		10.1			38.4
Investing Activities
Capital expenditures		—			(4.0	)		(25.5	)		(0.6	)		—			(30.1	)
Acquisition-related payments, net of cash acquired		—			—			—			(0.4	)		—			(0.4	)
Intercompany receivables and payables		—			—			(313.8	)		—			313.8			—
Net cash provided by (used in) investing activities		—			(4.0	)		(339.3	)		(1.0	)		313.8			(30.5	)
Financing Activities
Proceeds from borrowings		—			1,539.6			—			—			—			1,539.6
Borrowings under revolving credit facility, net		—			40.0			—			—			—			40.0
Principal payments on borrowings		(11.5	)		(1,391.1	)		(128.8	)		—			—			(1,531.4	)
Financing costs		—			(28.1	)		—			—			—			(28.1	)
Other financing activities		0.4			0.3			0.3			(0.7	)		—			0.3
Intercompany receivables and payables		—			224.0			—			99.9			(323.9	)		—
Intercompany loans		—			(151.8	)		234.0			(82.2	)		—			—
Net cash provided by (used in) financing activities		(11.1	)		232.9			105.5			17.0			(323.9	)		20.4
Effect of changes in exchange rates on cash, cash equivalents and restricted cash		—			—			1.5			1.8			—			3.3
Net increase (decrease) in cash, cash equivalents and restricted cash		(1.5	)		23.8			2.1			7.2			—			31.6
Cash, cash equivalents and restricted cash, beginning of period		1.5			9.1			32.9			20.3			—			63.8
Cash, cash equivalents and restricted cash, end of period		—			32.9			35.0			27.5			—			95.4
Less: cash, cash equivalents and restricted cash of discontinued operations, end of period		—			—			(15.8	)		—			—			(15.8	)
Cash, cash equivalents and restricted cash, end of period	$	—		$	32.9		$	19.2		$	27.5		$	—		$	79.6

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 Holdings, Inc. Unless otherwise indicated or the context otherwise requires, in this Form 10-Q all references to “Affinion Holdings,” the “Company,” “we,” “our” and “us” refer to Affinion Group Holdings, Inc. and its subsidiaries on a consolidated basis; and all references to “Affinion” refer to Affinion Group, Inc., our wholly-owned subsidiary.

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, 2017 and 2016, and for the years ended December 31, 2017, 2016 and 2015, included in our Annual Report on Form 10-K for the year ended December 31, 2017 (as amended, 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.

Management’s discussion and analysis of results of operations and financial condition (“MD&A”) is provided as a supplement to and should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes thereto included elsewhere herein to help provide an understanding of our financial condition, changes in financial condition and results of our operations. The MD&A is organized as follows:

The Company develops programs and solutions that motivate and inspire loyalty. Through our proprietary technology platforms and end-to-end customer service capabilities, we design, administer and fulfill loyalty and customer engagement programs and solutions that strengthen and expand the value of customer relationships for many of the world’s largest and most respected companies. Our programs and solutions include:

The Company had a domestic insurance business that served as a leading third-party agent, administrator and marketer of certain accident and life insurance solutions. As discussed further in Note 3. Discontinued Operations in the accompanying unaudited condensed consolidated financial statements we completed the sale of the domestic insurance business, which comprised substantially all of our Insurance Solutions operating segment, on August 15, 2018. The divestiture of the domestic insurance business marks an additional step in our strategic plan and ongoing transformation into a pure-play loyalty solutions company.

Our financial business model is characterized by substantial recurring revenues. We generate revenue primarily in three ways:

In 2016, we implemented a globalized organizational structure (the “Global Reorganization”) to better support our key strategic initiatives and enhance long-term revenue growth. This 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 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 Global Reorganization and planned divestiture of the domestic insurance businesses mark major steps in our strategic plan and ongoing transformation.

In this operating segment, we create and manage any and all aspects of our clients’ loyalty programs including program design, program management, technology platform, data analytics, points administration and rewards fulfillment. We manage loyalty solutions for points-based loyalty programs for many large financial institutions and other significant businesses. We provide our clients with solutions that meet the most popular redemption options desired by their program points holders, including travel, gift cards and merchandise. Our loyalty programs are private-label, customizable, full-service rewards solutions that consist of a variety of configurations that are offered on a stand-alone and/or bundled basis depending on customer requirements.

We provide and manage reward products for loyalty programs through Connexions Loyalty, Inc. (“Connexions”), our wholly-owned subsidiary, which is a service provider for points-based loyalty programs. We typically charge a per-subscriber and/or a per-activity administrative fee to clients for our services. Connexions also provides clients with the ability to offer leisure travel as a subscriber benefit in a purchase environment, and a travel gift card which can be used on all travel components, including airfare, rental car, hotel stays and cruise vacations.

Through our global customer engagement operations, we create and manage innovative programs and solutions that address key consumer needs such as greater peace-of-mind and meaningful savings. We provide our solutions to leading companies in the financial institution, telecommunications, retail and travel sectors globally.

Our customer engagement solutions may be categorized in two ways: (1) revenue enhancement, which is a traditional subscription-based model and (2) engagement solutions, which is a fee-for-service or transactional based model.

In the revenue enhancement model, we provide incremental services for our clients to monetize their customer base. We also partner with clients to customize benefits that resonate with their brand and their customers’ needs.

In the engagement solutions model, we help clients differentiate their products and build strong customer relations. We also bundle appropriate rewards and benefits along the lifecycle of clients’ customers to create intimate, reciprocal connections that drive purchase decisions, interaction and participation over time.

We had a fourth operating segment, Insurance Solutions, which consisted of the domestic insurance business, in which we were a leading third-party agent, administrator and marketer of certain accident and life insurance solutions. On August 15, 2018, we completed the sale of the domestic insurance business, which comprised substantially all of our Insurance Solutions operating segment. See Note 3 to the accompanying unaudited condensed consolidated financial statements for more information on the sale of the domestic insurance business. The divestiture of the domestic insurance business marks an additional step in our strategic plan and ongoing transformation into a pure-play loyalty solutions company.

We are a leading loyalty and customer engagement solutions company with value-added programs and services with a network of almost 3,000 clients, approximately 25 million subscribers and end-customers enrolled in our customer engagement programs worldwide and approximately 43.7 million customers who received credit or debit card enhancement services and loyalty points-based management and redemption services as of December 31, 2017. We believe our portfolio of programs and benefits is the broadest in the industry, and that we are capable of providing the full range of administrative services for loyalty points programs. At December 31, 2017, we offered 13 core products and services with 245 unique benefits and supported more than 4,300 versions of products and services representing different combinations of pricing, benefit configurations and branding.

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

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 clients which have adversely affected our business, financial condition and results of operations. In addition, even an inadvertent failure of our financial institution clients 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 clients have become involved in governmental inquiries that include our products or marketing practices. As a result, certain financial institution clients have, and others could, delay or cease marketing with us, terminate their agreements with us, require us to cease providing services to subscribers, or require changes to our programs or solutions to subscribers that could also have a material adverse effect on our business.

In certain circumstances, our financial institution clients have sought to source and market their own in-house programs and solutions, most notably programs and solutions that are analogous to our credit card registration, credit monitoring and identity-theft resolution programs and solutions. As we have sought to maintain our market share in these areas and to continue these programs and solutions with our clients, in some circumstances, we have shifted from a retail arrangement to a fee for service 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.

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 customers. In addition, new and contemplated regulations enacted by, or client 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 clients that could delay or terminate marketing campaigns with certain clients, impact the programs and solutions we provide to customers, 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 10 to our unaudited condensed consolidated 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 have over 40 years of operational history. We started offering membership products in 1973, and in 1985 began marketing insurance and package enhancement products. In 1988, we entered the loyalty solutions business and in the early 1990s, we started offering certain of our program offerings internationally.

On November 9, 2015, we consummated the 2015 Exchange Offers, 2015 Rights Offering and Reclassification, each as defined and described below under “—2015 Exchange Offers, 2015 Rights Offering and Reclassification.”

On May 10, 2017, we consummated the Credit Agreement Refinancing and International Notes Redemption, each as defined and described under “—2017 Credit Agreement Refinancing and International Notes Redemption” and the Exchange Offers, issuance of 2017 Notes and 2017 Warrants pursuant to the Investor Purchase Agreement and redemption of Affinion’s 2010 senior notes, each as defined and described under “—2017 Exchange Offers, issuance of 2017 Notes and 2017 Warrants and Redemptions of Other Existing Notes.” On July 17, 2017, we consummated the issuance of 2017 Notes and 2017 Warrants pursuant to the Investor Purchase Agreement and redemption of the Investments senior subordinated notes and Affinion Holdings’ 2013 senior notes.

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

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

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 Common Stock and (b) 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 of Affinion Holdings and (c) Affinion Holdings and Affinion International, a wholly-owned subsidiary of Affinion, jointly completed a rights offering (the “2015 Rights Offering”) giving holders of Affinion Holdings’ 2013 senior notes and Investments senior subordinated notes the right to purchase an aggregate principal amount of $110.0 million of International Notes and up to 2,483,333 shares of Common Stock for an aggregate cash purchase price of $110.0 million. 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. 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 the Investments senior subordinated notes.

In connection with the 2015 Exchange Offers, Affinion Holdings and Affinion International jointly conducted the 2015 Rights Offering for International Notes and shares of Common Stock. The 2015 Rights Offering was for an aggregate principal amount of $110.0 million of International Notes and up to 2,483,333 shares of Common Stock. 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 $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 non-participating penny warrant (the “Limited Warrant”) to purchase up to 462,266 shares of Common Stock.

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

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

The consummation of the 2015 Exchange Offers and the 2015 Rights Offering resulted in an “ownership change” for the Company pursuant to Section 382 of the Internal Revenue Code. This substantially limits our ability to use our pre-change net operating loss carryforwards (including those attributable to the Apollo Transactions) and certain other pre-change tax attributes to offset our post-change income. Similar rules and limitations may apply for state tax purposes as well.

On May 10, 2017, Affinion entered into a new credit facility (as amended, the “2017 Credit Facility”) having a five year maturity with a lender, pursuant to which the lender provided term loans in an aggregate principal amount equal to approximately $1.3 billion and committed to provide revolving loans in an aggregate principal amount at any one time outstanding not to exceed $110.0 million, decreasing to $80.0 million on May 10, 2018. Pursuant to the Third Amendment to the 2017 Credit Facility (the “Third Amendment”), such reduction in commitments has been extended, and will now occur on May 10, 2021. The term loans provide for quarterly amortization payments totaling (i) for the first two years after May 10, 2017, 1% per annum, (ii) for the third year after May 10, 2017, 2.5% per annum, and (iii) for each year thereafter, 5% per annum, in each case, payable quarterly, with the balance due upon the final maturity date, subject in each case, to reduction of such amortization payments for certain prepayments. The 2017 Credit Facility also requires mandatory prepayments of the outstanding term loans based on excess cash flow (as defined in the 2017 Credit Facility), if any, and the proceeds from certain specified transactions.

The proceeds of the term loans under the 2017 Credit Facility were used by Affinion to refinance its credit facility, which was amended and restated in May 2014, to redeem in full the International Notes, to pay transaction fees and expenses and for general corporate purposes.

On November 30, 2017, Affinion entered into the First Amendment to the 2017 Credit Facility, pursuant to which the parties (i) revised the 2017 Credit Facility in order for certain of the lenders under the revolving facility established thereunder to act as issuing banks in respect of letters of credit and as swingline lenders, (ii) modified certain provisions relating to the mechanics surrounding letters of credit and swingline loans, and (iii) set aggregate sub-limits for both letter of credit commitments and swingline commitments at $20.0 million.

On May 4, 2018, Affinion, as borrower, entered into the Second Amendment to its 2017 Credit Facility, pursuant to which Affinion amended its 2017 Credit Facility. Pursuant to the Second Amendment, the parties revised the 2017 Credit Facility in order to modify the date upon which the aggregate Revolving Facility Commitment is reduced from $110.0 million to $80.0 million. As a result of the Second Amendment, the date of such reduction was not to occur until August 10, 2018.

On July 16, 2018, Affinion, as borrower, entered into the Third Amendment, pursuant to which Affinion amended its 2017 Credit Facility. Pursuant to the Third Amendment, the parties revised the 2017 Credit Facility in order to (i) allow the Total Secured Leverage Ratio, for the purposes of the requirement of a 5.275x Total Secured Leverage Ratio for the sale of Affinion Benefits Group, LLC (“ABG”) (the “ABG Sale”), to be calculated net of cash received by Affinion from the ABG Sale, (ii) modify certain provisions relating to mandatory prepayments in order to allow for the application of the proceeds from the ABG Sale towards existing amortization payments such that amortization equals 0.25% per quarter through March 31, 2020, then increases to 0.625% per quarter through March 31, 2021 and finally increases to 1.25% per quarter thereafter, with remainder of the proceeds being applied to the bullet payment at maturity, (iii) modify the provision which contemplates an automatic reduction in the available revolving credit amount from $110.0 million to $80.0 million to delay such automatic reduction until May 10, 2021, (iv) create a permitted reinvestments basket which would allow for up to $50.0 million of the proceeds from the ABG Sale to be retained, subject to certain restrictions, including the requirement that such proceeds be held in a segregated account subject to the sole control of administrative agent, which shall only be released to Affinion (A) with the agent’s consent or (B) if used to prepay Term Loans at 103% (with any such proceeds remaining after 9 months to be used to prepay Term Loans at 103%), (v) increase general call protection (for prepayments/acceleration not related to a change of control) to 2% upon the fourth anniversary of the closing of the 2017 Credit Facility, (vi) revise certain addbacks and Pro Forma Basis adjustments to reflect the projected change in EBITDA following the ABG Sale, (vii) reduce and / or delete certain negative covenant baskets and (viii) reduce certain material indebtedness and cross-default thresholds.

On May 10, 2017, Affinion International Holdings Limited (“Affinion International”) (i) elected to redeem all of its outstanding $118.5 million in aggregate principal amount of 7.5% Cash/PIK Senior Notes due 2018 (the “International Notes”) on June 9, 2017 at a redemption price of 100% of the principal amount of the International Notes, plus accrued and unpaid interest to the redemption date, (ii) irrevocably deposited sufficient funds received from borrowings under the 2017 Credit Facility to effect such redemption with the trustee under the indenture governing the International Notes, and (iii) entered into a satisfaction and discharge agreement to discharge its obligations under the indenture governing the International Notes. The International Notes were originally issued by Affinion International on November 9, 2015 in an original principal amount of $110.0 million and bore interest at 7.5% per annum, of which 3.5% per annum was payable in cash and 4.0% per annum was payable in kind; 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 in kind. Interest on the International Notes was payable semi-annually on May 1 and November 1 of each year, commencing on May 1, 2016. The International Notes Redemption was consummated on June 9, 2017.

2017 Exchange Offers, Issuance of 2017 Notes and 2017 Warrants and Redemptions of Other Existing Notes

On May 10, 2017, (a) Affinion completed a private offer to exchange or repurchase at the holder’s election (collectively, the “AGI Exchange Offer”) Affinion’s 7.875% senior notes due 2018 (Affinion’s “2010 senior notes”) for (i) new Senior Cash 12.5%/ PIK Step-Up to 15.5% Notes due 2022 of Affinion (the “2017 Notes”) and new warrants (the “2017 Warrants”) to acquire shares of Common Stock or (ii) cash; (b) Affinion Holdings completed a private offer to exchange or repurchase at the holder’s election (collectively, the “Holdings Exchange Offer”) Affinion Holdings’ 2013 senior notes for (i) 2017 Notes and 2017 Warrants or (ii) cash; and (c) Affinion Investments completed a private offer to exchange or repurchase at the holder’s election (collectively, the “Investments Exchange Offer” and, together with the AGI Exchange Offer and the Holdings Exchange Offer, the “Exchange Offers”) Affinion Investments’ senior subordinated notes (the Investments senior subordinated notes together with Affinion’s 2010 senior notes and Affinion Holdings’ 2013 senior notes, the “Existing Notes”) for (i) 2017 Notes and 2017 Warrants or (ii) cash. Under the terms of the AGI Exchange Offer, for each $1,000 principal amount of Affinion’s 2010 senior notes accepted in the AGI Exchange Offer, holders could elect to receive (i)(A) $1,000 principal amount of 2017 Notes and 2017 Warrants to purchase 3.37 shares of Common Stock or (B) $930 in cash. Under the terms of the Holdings Exchange Offer, for each $1,000 principal amount of Affinion Holdings’ 2013 senior notes accepted in the Holdings Exchange Offer, holders could elect to receive (i)(A) $1,000 principal amount of 2017 Notes and 2017 Warrants to purchase 3.37 shares of Common Stock or (B) $700 in cash. Under the terms of the Investments Exchange Offer, for each $1,000 principal amount of the Investments senior subordinated notes accepted in the Investments Exchange Offer, holders could elect to receive (i)(A) $1,000 principal amount of 2017 Notes and 2017 Warrants to purchase 3.37 shares of Common Stock or (B) $880 in cash. Pursuant to the AGI Exchange Offer, approximately $269.7 million of Affinion’s 2010 senior notes plus accrued and unpaid interest were exchanged for approximately $277.8 million of 2017 Notes, 2017 Warrants to purchase 1,103,203 shares of Common Stock and approximately $417,386 in cash, including $238.0 million of Affinion’s 2010 senior notes plus accrued and unpaid interest exchanged by related parties in exchange for $245.5 million of 2017 Notes and 2017 Warrants to purchase 985,438 shares of Common Stock; pursuant to the Holdings Exchange Offer, approximately $4.6 million of Affinion Holdings’ 2013 senior notes plus accrued and unpaid interest were exchanged by a related party for approximately $4.7 million of 2017 Notes and 2017 Warrants to purchase 18,539 shares of Common Stock; and pursuant to the Investments Exchange Offer, approximately $12.4 million of Investments senior subordinated notes plus accrued and unpaid interest were exchanged for approximately $12.8 million of 2017 Notes, 2017 Warrants to purchase 51,005 shares of Common Stock and approximately $912 in cash, including $12.2 million of Investments senior subordinated notes plus accrued and unpaid interest exchanged by related parties in exchange for $12.6 million of 2017 Notes and 2017 Warrants to purchase 49,894 shares of Common Stock. Affinion used the proceeds of the 2017 Notes issued pursuant to the Investor Purchase Agreement (as defined below) to pay the cash tender consideration to participating holders in the Exchange Offers.

Previously, in connection with the Exchange Offers, on March 31, 2017, affiliates of Elliott Management Corporation (“Elliott”), Franklin Mutual Quest Fund, an affiliate of Franklin Mutual Advisers, LLC (“Franklin”), affiliates of Empyrean Capital Partners, LP (“Empyrean”) and Metro SPV LLC, an affiliate of ICG Strategic Secondaries Advisors LLC (“ICG”) (collectively, in such capacity, the “Investors”), all of whom were, at the time of the closing, or became, as a result of the Exchange Offers, issuance of 2017 Notes and 2017 Warrants and redemption of Affinion’s 2010 senior notes, related parties, entered into an investor purchase agreement (the “Investor Purchase Agreement”) with Affinion Holdings, Affinion and Affinion Investments, in which they agreed to purchase 2017 Notes and 2017 Warrants in an aggregate principal amount sufficient to pay all holders that participate in the Exchange Offers and elect to receive cash. Further, pursuant to the Investor Purchase Agreement, if Affinion Holdings, Affinion or Affinion Investments exercised its option to redeem any of Affinion’s 2010 senior notes, Affinion Holdings’ 2013 senior notes and/or Investments senior subordinated notes not tendered in the Exchange Offers, the Company could obligate the Investors to purchase an aggregate principal amount of 2017 Notes and 2017 Warrants that would yield sufficient cash proceeds to fund any such redemptions. In addition, pursuant to the terms of the Investor Purchase Agreement, Affinion was required to pay to the Investors upon the closing of the Exchange Offers a commitment premium of $17.5 million and a funding premium of $7.4 million in aggregate principal amount of 2017 Notes and the same number of 2017 Warrants that such principal amount of 2017 Notes would have been issued as part of the Exchange Offers, as described in more detail in Note 6 to the unaudited condensed consolidated financial statements.

On May 10, 2017, Affinion exercised its option to redeem Affinion’s 2010 senior notes that were not tendered in the AGI Exchange Offer and to fund such redemption with proceeds from the Investors pursuant to the terms of the Investor Purchase Agreement. As a result, on May 10, 2017, Affinion (i) elected to redeem all of its outstanding $205.3 million aggregate principal amount of Affinion’s 2010 senior notes on May 15, 2017 at a redemption price of 100% of the principal amount, plus accrued and unpaid interest to the redemption date, (ii) irrevocably deposited sufficient funds received from the Investors pursuant to the Investor Purchase Agreement to effect such redemption with the trustee under the indenture governing Affinion’s 2010 senior notes, and (iii) entered into a satisfaction and discharge agreement to discharge its obligations under the indenture governing Affinion’s 2010 senior notes. Affinion’s 2010 senior notes were originally issued by Affinion on November 19, 2010 in an aggregate principal amount of $475.0 million and bore interest at 7.875% per annum. The redemption of Affinion’s 2010 senior notes was consummated on May 15, 2017.

On June 13, 2017, (i) Affinion Holdings’ exercised its option to redeem the $11.5 million in aggregate principal amount of Affinion Holdings’ 2013 senior notes that were not tendered in the Holdings Exchange Offer and to fund such redemption with proceeds from the Investors pursuant to the terms of the Investor Purchase Agreement and (ii) Affinion Investments exercised its option to redeem the $10.2 million in aggregate principal amount of the Investments senior subordinated notes that were not tendered in the Investments Exchange Offer and to fund such redemption with proceeds from the Investors pursuant to the terms of the Investor Purchase Agreement. Affinion Holdings’ 2013 senior notes were redeemed on July 17, 2017 at a redemption price of 103.4375% of the principal amount, plus accrued and unpaid interest to the redemption date and the Investments senior subordinated notes were redeemed on July 17, 2017 at a redemption price of 103.375% of the principal amount, plus accrued and unpaid interest to the redemption date. Affinion Holdings’ 2013 senior notes were originally issued by Affinion Holdings on December 12, 2013 in an aggregate principal amount of $292.8 million and bore interest at 13.75% per annum in cash, or at Affinion Holdings’ option, in payment-in-kind interest at 13.75% per annum plus 0.75%. The Investments senior subordinated notes were originally issued by Affinion Investments on December 12, 2013 in an aggregate principal amount of $360.0 million and bore interest at 13.50% per annum.

In connection with the Exchange Offers and the Investor Purchase Agreement, and in accordance with Affinion Holdings’ obligations under the Shareholders Agreement, dated as of November 9, 2015 (as amended, the “Shareholders Agreement”), due to the issuance of the 2017 Warrants in the Exchange Offers and pursuant to the Investor Purchase Agreement, Affinion Holdings offered (the “Pre-Emptive Rights Offer”) to each holder of pre-emptive rights (“Pre-Emptive Rights Holder”) the right to purchase with cash up to such Pre-Emptive Rights Holder’s pro rata share (as determined in accordance with the Shareholders Agreement) of 2017 Warrants at an exercise price of $0.01 per 2017 Warrant pursuant to the Pre-Emptive Rights Offer. On July 12, 2017, Affinion Holdings issued 2017 Warrants to purchase 63,741 shares of Common Stock to participants in the Pre-Emptive Rights Offer.

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

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

Segment EBITDA consists of income from operations before depreciation and amortization. Segment EBITDA is the measure management uses to evaluate segment performance and we present Segment EBITDA to enhance your understanding of our operating performance. We use Segment EBITDA as one criterion for evaluating our performance relative to that of our peers. We believe that Segment EBITDA is an operating performance measure, and not a liquidity measure, that provides investors and analysts with a measure of operating results unaffected by differences in capital structures, capital investment cycles and ages of related assets among otherwise comparable companies. However, Segment EBITDA is not a measurement of financial performance under U.S. generally accepted accounting principles (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.

We believe that Adjusted EBITDA 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. We believe Adjusted EBITDA also provides additional supplemental information to compare results among our segments. However, Adjusted EBITDA by segment is not a measurement of financial performance under U.S. GAAP, and Adjusted EBITDA by segment may not be comparable to similarly titled measures of other companies. You should not consider Adjusted EBITDA by segment as an alternative to operating or net income determined in accordance with U.S. GAAP, as an indicator of operating performance or as an alternative to cash flows from operating activities, determined in accordance with U.S. GAAP, or as an indicator of cash flows, or as a measure of liquidity.

Three Months Ended September 30, 2018 Compared to Three Months Ended September 30, 2017

The following table summarizes our consolidated results of operations for the three months ended September 30, 2018 and 2017:

	Three Months Ended September 30,
							Increase
	2018			2017			(Decrease)
	(in millions)
Net revenues	$	177.1		$	183.3		$	(6.2	)
Expenses:
Cost of revenues, exclusive of depreciation and amortization shown separately below:
Marketing and commissions		36.8			42.5			(5.7	)
Operating costs		82.3			81.1			1.2
General and administrative		26.2			21.2			5.0
Facility exit costs		1.0			(1.2	)		2.2
Depreciation and amortization		12.7			11.8			0.9
Total expenses		159.0			155.4			3.6
Income from continuing operations		18.1			27.9			(9.8	)
Interest expense		(50.5	)		(44.3	)		(6.2	)
Loss on extinguishment of debt		(31.6	)		(2.8	)		(28.8	)
Other expense, net		—			(0.1	)		0.1
Loss from continuing operations before income taxes		(64.0	)		(19.3	)		(44.7	)
Income tax benefit (provision)		24.5			(1.7	)		26.2
Loss from continuing operations, net of tax		(39.5	)		(21.0	)		(18.5	)
Income (loss) from discontinued operations, net of tax		456.9			10.2			446.7
Net income (loss)		417.4			(10.8	)		428.2
Less: net income attributable to non-controlling interest		(0.3	)		(0.1	)		(0.2	)
Net income (loss) attributable to Affinion Group Holdings, Inc.	$	417.1		$	(10.9	)	$	428.0

The following is a summary of changes affecting our operating results for the three months ended September 30, 2018.

Net revenues decreased $6.2 million, or 3.4%, for the three months ended September 30, 2018 as compared to the same period of the prior year primarily due to lower retail revenues from a decline in retail member volumes in Legacy Membership and Package. This decrease was partially offset by higher net revenue in Global Loyalty primarily due to increased growth with existing clients and launches with new clients.

Segment EBITDA decreased $8.9 million, or 22.4%, for the three months ended September 30, 2018 as compared to the same period of the prior year as the impact of lower net revenues and higher general and administrative expenses was partially offset by lower marketing and commissions expense. Under the prior revenue recognition guidance, Segment EBITDA would have decreased $11.6 million, or 29.2%.

Three Months Ended September 30, 2018 Compared to Three Months Ended September 30, 2017

The following section provides an overview of our consolidated results of operations for the three months ended September 30, 2018 as compared to the three months ended September 30, 2017.

Net Revenues. For the three months ended September 30, 2018, we reported net revenues of $177.1 million, a decrease of $6.2 million, or 3.4%, as compared to net revenues of $183.3 million for the three months ended September 30, 2017. Global Loyalty net revenues increased $9.0 million primarily due to increased growth with existing clients and launches with new clients. Net revenues decreased $3.8 million in Global Customer Engagement primarily from the unfavorable impact of foreign exchange. Net revenues in Legacy Membership and Package decreased $11.4 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.

Marketing and Commissions Expense. Marketing and commissions expense decreased $5.7 million, or 13.4%, to $36.8 million for the three months ended September 30, 2018 from $42.5 million for the three months ended September 30, 2017. Marketing and commissions expense decreased $2.9 million in Legacy Membership and Package primarily due to lower commissions principally due to the decline in the member base. Global Customer Engagement marketing and commissions expense decreased $2.0 million primarily due to lower employee related costs.

Operating Costs. Operating costs increased $1.2 million, or 1.5%, to $82.3 million for the three months ended September 30, 2018 from $81.1 million for the three months ended September 30, 2017. Costs increased $3.5 million in Global Loyalty primarily due to higher servicing costs in 2018. Costs decreased $3.4 million in Legacy Membership and Package primarily due to lower product and servicing costs associated with the lower retail member volumes.

General and Administrative Expense. General and administrative expense increased $5.0 million, or 23.6% to $26.2 million for the three months ended September 30, 2018 from $21.2 million for the three months ended September 30, 2017, primarily due to higher corporate costs of $6.7 million principally from higher employee related expenses.

Depreciation and Amortization Expense. Depreciation and amortization expense increased $0.9 million, or 7.6%, to $12.7 million for the three months ended September 30, 2018 from $11.8 million for the three months ended September 30, 2017, primarily due to an increase in amortization expense of $0.6 million primarily attributable to the intangible assets acquired in the Tavisca acquisition in the first quarter of 2018.

Interest Expense. Interest expense increased $6.2 million, or 14.0% to $50.5 million for the three months ended September 30, 2018 as compared to $44.3 million for the three months ended September 30, 2017 primarily due to differences in the amounts of allocated interest expense to discontinued operations.

Gain (Loss) on Extinguishment of Debt. For the three months ended September 30, 2018, we recorded a loss in the amount of $31.6 million as a result of the prepayment of long-term debt immediately following the closing of the 2018 Divestiture. For the three months ended September 30, 2017, we recorded a loss in the amount of $2.8 million from redeeming the remaining Investments senior subordinated notes and Affinion Holdings’ 2013 senior notes.

Income Tax Benefit (Provision). Income tax expense for continuing operations decreased $26.2 million for the three months ended September 30, 2018 as compared to the three months ended September 30, 2017, primarily due to a decrease in the federal and state deferred tax provisions for the three months ended September 30, 2018, partially offset by an increase in the foreign and state current tax provisions and the deferred foreign tax provision for the same period.

The Company’s effective income tax rates for the three months ended September 30, 2018 and 2017 were 38.4% and (9.0)%, respectively. The difference in the effective tax rates for the three months ended September 30, 2018 and 2017 is primarily a result of the increase in the loss from continuing operations from $19.3 million for the three months ended September 30, 2017 to $64.0 million for the three months ended September 30, 2018 and a change from an income tax provision on continuing operations of $1.7 million for the three months ended September 30, 2017 to an income tax benefit on continuing operations of $24.5 million for the three months ended September 30, 2018, determined pursuant to intra-period tax allocation requirements attributable to the 2018 Divestiture. The Company’s tax rate for continuing operations 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, such as the impact of the enactment of the TCJA for tax years 2018 and forward. In addition to state and foreign income taxes, the requirement to maintain valuation allowances for continuing operations 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 21%.

Income (Loss) from Discontinued Operations, net of tax. Income (loss) from discontinued operations, net of tax increased $446.7 million to $456.9 million for the three months ended September 30, 2018 as compared to $10.2 million for the three months ended September 30, 2017, primarily due to a gain on sale, net of tax of $447.2 million recorded upon completion of the 2018 Divestiture.

Net revenues, Segment EBITDA and Adjusted EBITDA by operating segment, including a reconciliation of Segment EBITDA and Adjusted EBITDA to income from continuing operations, are as follows:

	Three Months Ended September 30,
	Net Revenues							Segment EBITDA (1)									Adjusted EBITDA
					Increase									Increase									Increase
	2018		2017		(Decrease)			2018			2017			(Decrease)			2018			2017			(Decrease)
	(in millions)
Global Loyalty	$	67.3	$	58.3	$	9.0		$	29.4		$	22.8		$	6.6		$	30.0		$	22.7		$	7.3
Global Customer Engagement		86.8		90.6		(3.8	)		13.5			17.0			(3.5	)		14.5			17.3			(2.8	)
Subtotal		154.1		148.9		5.2			42.9			39.8			3.1			44.5			40.0			4.5
Legacy Membership and Package		23.0		34.4		(11.4	)		7.7			11.8			(4.1	)		7.9			11.8			(3.9	)
Corporate		—		—		—			(19.8	)		(11.9	)		(7.9	)		(11.3	)		(11.3	)		—
Total - Continuing operations	$	177.1	$	183.3	$	(6.2	)		30.8			39.7			(8.9	)		41.1			40.5			0.6
Business optimization expenses and restructuring charges or expenses																		(1.8	)		(0.9	)		(0.9	)
Extraordinary or nonrecurring or unusual losses, expenses or charges																		(6.7	)		(0.5	)		(6.2	)
Other, net																		(1.8	)		0.6			(2.4	)
Depreciation and amortization									(12.7	)		(11.8	)		(0.9	)		(12.7	)		(11.8	)		(0.9	)
Income from continuing operations								$	18.1		$	27.9		$	(9.8	)	$	18.1		$	27.9		$	(9.8	)

The following tables summarize the adjustments between income from operations and Adjusted EBITDA for the three months ended September 30, 2018 and 2017 by reportable segment.

	Three Months Ended September 30, 2018
	Global Loyalty			Global Customer Engagement			Legacy Membership and Package			Corporate			Total - Continuing Operations
	(in millions)
Business optimization expenses and restructuring charges or expenses	$	0.3		$	0.9		$	—		$	0.6		$	1.8
Extraordinary or nonrecurring or unusual losses, expenses or charges		0.3			—			0.2			6.2			6.7
Other, net		—			0.1			—			1.7			1.8
Total	$	0.6		$	1.0		$	0.2		$	8.5		$	10.3

	Three Months Ended September 30, 2017
	Global Loyalty			Global Customer Engagement			Legacy Membership and Package			Corporate			Total - Continuing Operations
	(in millions)
Business optimization expenses and restructuring charges or expenses	$	0.1		$	0.5		$	(0.3	)	$	0.6		$	0.9
Extraordinary or nonrecurring or unusual losses, expenses or charges		(0.2	)		—			0.3			0.4			0.5
Other, net		—			(0.2	)		—			(0.4	)		(0.6	)
Total	$	(0.1	)	$	0.3		$	—		$	0.6		$	0.8

Global Loyalty. Global Loyalty net revenues increased $9.0 million, or 15.4%, for the three months ended September 30, 2018 to $67.3 million as compared to $58.3 million for the three months ended September 30, 2017 primarily due to increased growth with existing clients and launches with new clients. Net revenues include a $2.7 million increase as a result of the January 1, 2018 adoption of the new revenue recognition guidance. Under the prior revenue recognition guidance, net revenues would have increased $6.3 million or 10.8%.

Segment EBITDA increased $6.6 million, or 28.9%, for the three months ended September 30, 2018 as compared to the three months ended September 30, 2017. The three months ended September 30, 2018 includes a $2.7 million increase from the adoption of the new revenue recognition guidance. Excluding the effects of the new revenue recognition guidance, Segment EBITDA would have increased $3.9 million, or 17.1%, and was primarily due to increased revenue growth with existing clients and launches with new clients partially offset by higher servicing costs.

Global Customer Engagement. Global Customer Engagement net revenues decreased $3.8 million, or 4.2%, to $86.8 million for the three months ended September 30, 2018 as compared to $90.6 million for the three months ended September 30, 2017. Net revenues decreased $2.1 million due to the unfavorable impact of foreign exchange and decreased $1.7 million on a currency consistent basis.

Segment EBITDA decreased $3.5 million, or 20.6%, for the three months ended September 30, 2018 as compared to the three months ended September 30, 2017 primarily due to lower net revenues.

Legacy Membership and Package. Legacy Membership and Package net revenues decreased $11.4 million, or 33.1%, to $23.0 million for the three months ended September 30, 2018 as compared to $34.4 million for the three months ended September 30, 2017. 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 such 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 due to lower average package members.

Segment EBITDA decreased $4.1 million, or 34.7%, for the three months ended September 30, 2018 as compared to the three months ended September 30, 2017. Segment EBITDA decreased as the impact from the lower net revenues of $11.4 million was partially offset by lower marketing and commissions expense of $2.9 million, lower operating costs of $3.4 million and lower general and administrative expenses of $1.0 million. The decrease in marketing and commissions expense was primarily due to lower commissions principally due to the decline in the member base. The decrease in operating costs was primarily due to lower product and servicing costs related to lower net revenues. The decrease in general and administrative costs was primarily due to cost savings initiatives.

Corporate. Corporate costs include certain departmental service costs such as human resources, legal, corporate finance and accounting functions and unallocated portions of information technology. Corporate costs also include professional fees related to debt financing activities and stock compensation costs. Corporate costs increased $7.9 million for the three months ended September 30, 2018 as compared to the three months ended September 30, 2017 primarily due to higher employee related costs.

Nine Months Ended September 30, 2018 Compared to Nine Months Ended September 30, 2017

The following table summarizes our consolidated results of operations for the nine months ended September 30, 2018 and 2017:

	Nine Months Ended September 30,
							Increase
	2018			2017			(Decrease)
	(in millions)
Net revenues	$	545.4		$	549.1		$	(3.7	)
Expenses:
Cost of revenues, exclusive of depreciation and amortization shown separately below:
Marketing and commissions		103.3			130.5			(27.2	)
Operating costs		249.4			271.6			(22.2	)
General and administrative		88.1			68.1			20.0
Facility exit costs		1.8			0.2			1.6
Depreciation and amortization		36.2			33.7			2.5
Total expenses		478.8			504.1			(25.3	)
Income from continuing operations		66.6			45.0			21.6
Interest income		0.1			0.1			—
Interest expense		(145.1	)		(97.0	)		(48.1	)
Gain (loss) on extinguishment of debt		(31.6	)		3.5			(35.1	)
Other expense, net		(0.3	)		(0.3	)		—
Loss from continuing operations before income taxes		(110.3	)		(48.7	)		(61.6	)
Income tax benefit		23.6			0.4			23.2
Loss from continuing operations, net of tax		(86.7	)		(48.3	)		(38.4	)
Income from discontinued operations, net of tax		452.0			20.5			431.5
Net income (loss)		365.3			(27.8	)		393.1
Less: net income attributable to non-controlling interest		(1.0	)		(0.7	)		(0.3	)
Net income (loss) attributable to Affinion Group Holdings, Inc.	$	364.3		$	(28.5	)	$	392.8

The following is a summary of changes affecting our operating results for the nine months ended September 30, 2018.

Net revenues decreased $3.7 million, or 0.7%, for the nine months ended September 30, 2018 as compared to the same period of the prior year due to lower net revenues in Legacy Membership and Package primarily due to lower retail revenues and from the expected decline in retail member volumes partially offset by increased net revenues in Global Loyalty primarily due to increased growth with existing clients and launches with new clients.

Segment EBITDA increased $24.1 million, or 30.6%, for the nine months ended September 30, 2018 as compared to the same period of the prior year as the impact of the lower net revenues and higher general and administrative costs were more than offset by lower marketing and commissions expense. Under the prior revenue recognition guidance, Segment EBITDA would have increased $27.5 million, or 34.9%.

Nine Months Ended September 30, 2018 Compared to Nine Months Ended September 30, 2017

The following section provides an overview of our consolidated results of operations for the nine months ended September 30, 2018 as compared to the nine months ended September 30, 2017.

Net Revenues. For the nine months ended September 30, 2018, we reported net revenues of $545.4 million, a decrease of $3.7 million, or 0.7%, as compared to net revenues of $549.1 million for the nine months ended September 30, 2017. Global Loyalty net revenues increased $24.1 million primarily due to increased growth with existing clients and launches with new clients. Net revenues increased $3.5 million in Global Customer Engagement primarily due to the favorable impact of foreign exchange. Net revenues in Legacy Membership and Package decreased $31.3 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. Under the prior revenue recognition guidance, net revenues would have decreased $0.3 million, or 0.1%.

Marketing and Commissions Expense. Marketing and commissions expense decreased $27.2 million, or 20.8%, to $103.3 million for the nine months ended September 30, 2018 from $130.5 million for the nine months ended September 30, 2017. Marketing and commissions expense decreased $15.9 million in Legacy Membership and Package primarily due to lower commissions principally due to the decline in the member base. Global Customer Engagement marketing and commissions expense decreased $8.9 million primarily due to lower employee related costs.

Operating Costs. Operating costs decreased $22.2 million, or 8.2%, to $249.4 million for the nine months ended September 30, 2018 from $271.6 million for the nine months ended September 30, 2017. Operating costs decreased $9.3 million in Global Loyalty primarily due to a charge of $23.3 million recorded in 2017 in relation to the remediation of an external gift card inventory cyber theft partially offset by higher servicing costs in 2018. Operating costs decreased $10.2 million in Legacy Membership and Package primarily due to lower product and servicing costs associated with the lower retail member volumes. Costs decreased $4.2 million in Global Customer Engagement primarily due to lower employee related costs.

General and Administrative Expense. General and administrative expense increased $20.0 million, or 29.4%, to $88.1 million for the nine months ended September 30, 2018 from $68.1 million for the nine months ended September 30, 2017, primarily due to higher corporate costs of $17.8 million driven by higher employee related costs and professional fees.

Depreciation and Amortization Expense. Depreciation and amortization expense increased $2.5 million, or 7.4%, to $36.2 million for the nine months ended September 30, 2018 from $33.7 million for the nine months ended September 30, 2017, primarily from an increase in depreciation expense of $1.2 million and higher amortization expense of $1.3 million primarily attributable to the intangible assets acquired in the Tavisca acquisition in the first quarter of 2018.

Interest Expense. Interest expense increased $48.1 million, or 49.6% to $145.1 million for the nine months ended September 30, 2018 as compared to $97.0 million for the nine months ended September 30, 2017 as a result of the restructuring of our debt on May 10, 2017 whereby we entered into the 2017 Credit Facility, which included term loans totaling $1.34 billion and revolving loans. The proceeds were used to refinance our existing senior secured credit facility and redeem in full our outstanding International Notes. We also completed the Exchange Offers. The new debt issued was for higher principal amounts with associated higher interest rates than those of our previously outstanding debt.

Gain (Loss) on Extinguishment of Debt. For the nine months ended September 30, 2018, we recorded a loss in the amount of $31.6 million as a result of the prepayment of long-term debt immediately following the closing of the 2018 Divestiture. For the nine months ended September 30, 2017, we recorded a gain in the amount of $3.5 million as a result of restructuring our debt on May 10, 2017 and July 17, 2017.

Income Tax Benefit. Income tax benefit for continuing operations increased $23.2 million for the nine months ended September 30, 2018 as compared to the nine months ended September 30, 2017, primarily due to a decrease in the current foreign and deferred federal and state tax provisions for the nine months ended September 30, 2018, partially offset by an increase in the current state tax provision and deferred foreign tax provisions for the same period.

The Company’s effective income tax rates for continuing operations for the nine months ended September 30, 2018 and 2017 were 21.4% and 0.7%, respectively. The difference in the continuing operations effective tax rates for the nine months ended September 30, 2018 and 2017 is primarily a result of the increase in the loss from continuing operations from $48.7 million for the nine months ended September 30, 2017 to $110.3 million for the nine months ended September 30, 2018 and an increase in the income tax benefit on continuing operations from $0.4 million for the nine months ended September 30, 2017 to $23.6 million for the nine months ended September 30, 2018, determined pursuant to intra-period tax allocation requirements attributable to the 2018 Divestiture. The Company’s tax rate for continuing operations 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, such as the impact of the enactment of the TCJA for tax years 2018 and forward. In addition to state and foreign income taxes, the requirement to maintain valuation allowances for continuing operations 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 21%.

Income from Discontinued Operations, net of tax. Income (loss) from discontinued operations, net of tax increased $431.5 million to $452.0 million for the nine months ended September 30, 2018 as compared to $20.5 million for the nine months ended September 30, 2017, primarily due to a gain on sale, net of tax of $447.2 million recorded upon completion of the 2018 Divestiture, partially offset by a decrease in income from operations of $22.8 million. Net revenues decreased $45.2 million due to the timing of the closing of the 2018 Divestiture in addition to higher cost of insurance and marketing and commissions expense decreased $21.2 million due to the timing of the closing of the 2018 Divestiture.

Net revenues, Segment EBITDA and Adjusted EBITDA by operating segment, including a reconciliation of Segment EBITDA and Adjusted EBITDA to income from continuing operations, are as follows:

	Nine Months Ended September 30,
	Net Revenues							Segment EBITDA (1)									Adjusted EBITDA
					Increase									Increase									Increase
	2018		2017		(Decrease)			2018			2017			(Decrease)			2018			2017			(Decrease)
	(in millions)
Global Loyalty	$	194.9	$	170.8	$	24.1		$	79.1		$	46.4		$	32.7		$	80.2		$	69.3		$	10.9
Global Customer Engagement		272.3		268.8		3.5			49.8			39.9			9.9			53.6			47.2			6.4
Subtotal		467.2		439.6		27.6			128.9			86.3			42.6			133.8			116.5			17.3
Legacy Membership and Package		78.2		109.5		(31.3	)		29.9			29.1			0.8			30.2			33.8			(3.6	)
Corporate		—		—		—			(56.0	)		(36.7	)		(19.3	)		(37.8	)		(34.1	)		(3.7	)
Total - Continuing operations	$	545.4	$	549.1	$	(3.7	)		102.8			78.7			24.1			126.2			116.2			10.0
Business optimization expenses and restructuring charges or expenses																		(8.2	)		(10.5	)		2.3
Extraordinary or nonrecurring or unusual losses, expenses or charges																		(7.1	)		(26.9	)		19.8
Other, net																		(8.1	)		(0.1	)		(8.0	)
Depreciation and amortization									(36.2	)		(33.7	)		(2.5	)		(36.2	)		(33.7	)		(2.5	)
Income from continuing operations								$	66.6		$	45.0		$	21.6		$	66.6		$	45.0		$	21.6

The following tables summarize the adjustments between income from operations and Adjusted EBITDA for the nine months ended September 30, 2018 and 2017 by reportable segment.

	Nine Months Ended September 30, 2018
	Global Loyalty			Global Customer Engagement		Legacy Membership and Package			Corporate		Total - Continuing Operations
	(in millions)
Business optimization expenses and restructuring charges or expenses	$	1.0		$	3.4	$	(0.2	)	$	4.0	$	8.2
Extraordinary or nonrecurring or unusual losses, expenses or charges		0.1			—		0.5			6.5		7.1
Other, net		—			0.4		—			7.7		8.1
Total	$	1.1		$	3.8	$	0.3		$	18.2	$	23.4

	Nine Months Ended September 30, 2017
	Global Loyalty			Global Customer Engagement		Legacy Membership and Package			Corporate		Total - Continuing Operations
	(in millions)
Business optimization expenses and restructuring charges or expenses	$	0.1		$	7.1	$	1.3		$	2.0	$	10.5
Extraordinary or nonrecurring or unusual losses, expenses or charges		23.1			0.1		3.3			0.4		26.9
Other, net		(0.3	)		0.1		0.1			0.2		0.1
Total	$	22.9		$	7.3	$	4.7		$	2.6	$	37.5

Global Loyalty. Global Loyalty net revenues increased $24.1 million, or 14.1%, for the nine months ended September 30, 2018 to $194.9 million as compared to $170.8 million for the nine months ended September 30, 2017 primarily due to increased growth with existing clients and launches with new clients. Net revenues include a $3.4 million reduction as a result of the January 1, 2018 adoption of the new revenue recognition guidance. Under the prior revenue recognition guidance, net revenues would have increased $27.5 million, or 16.1%.

Segment EBITDA increased $32.7 million, or 70.5%, for the nine months ended September 30, 2018 as compared to the nine months ended September 30, 2017. The nine months ended September 30, 2017 included a charge of $23.3 million recorded in relation to the remediation of an external gift card inventory cyber theft. The nine months ended September 30, 2018 includes a $3.4 million reduction from the adoption of the new revenue recognition guidance. Excluding the effects of the gift card cyber theft and the adoption of the new revenue recognition guidance, Segment EBITDA would have increased $12.8 million, or 18.4%, and was primarily due to increased revenue growth with existing clients and launches with new clients partially offset by higher servicing costs in 2018.

Global Customer Engagement. Global Customer Engagement net revenues increased $3.5 million, or 1.3%, to $272.3 million for the nine months ended September 30, 2018 as compared to $268.8 million for the nine months ended September 30, 2017. Net revenues increased $8.6 million due to the favorable impact of foreign exchange and decreased $5.1 million on a currency consistent basis.

Segment EBITDA increased $9.9 million, or 24.8%, for the nine months ended September 30, 2018 as compared to the nine months ended September 30, 2017 from higher net revenues of $3.5 million and lower operating expenses of $6.4 million primarily due to lower employee related costs.

Legacy Membership and Package. Legacy Membership and Package net revenues decreased $31.3 million, or 28.6%, to $78.2 million for the nine months ended September 30, 2018 as compared to $109.5 million for the nine months ended September 30, 2017. Net revenues decreased 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 such partners. We expect this downward trend in net revenues related to our financial institution partners to continue for the foreseeable future.

Segment EBITDA increased $0.8 million, or 2.7%, for the nine months ended September 30, 2018 as compared to the nine months ended September 30, 2017. Segment EBITDA increased as the impact from the lower net revenues of $31.3 million was more than offset by lower marketing and commissions expense of $15.9 million, lower operating costs of $10.2 million and lower general and administrative expenses of $6.0 million. The decrease in marketing and commissions expense was primarily due to lower commissions principally due to the decline in the member base. The decrease in operating costs was due to lower product and servicing costs related to lower net revenues. The decrease in general and administrative costs was primarily due to cost savings initiatives and lower fees related to certain legal matters.

Corporate. Corporate costs include certain departmental service costs such as human resources, legal, corporate finance and accounting functions and unallocated portions of information technology. Corporate costs also include professional fees related to debt financing activities and stock compensation costs. Corporate costs increased $19.3 million for the nine months ended September 30, 2018 as compared to the nine months ended September 30, 2017 primarily due to higher employee related costs and professional fees.

Total assets decreased $39.8 million, primarily due to decreases in current assets held for sale and non-current assets held for sale of $46.0 million and $83.3 million, respectively, due to the August 15, 2018 sale of the domestic insurance business. These decreases were partially offset by (a) an increase in restricted cash of $50.2 million due to the retention of $50.0 million of the net proceeds from the sale of the domestic insurance business, (b) an increase in other current assets of $17.3 million due to increases in prepaid credit card charges and gift card inventory in our Global Loyalty business, and (c) an increase in other non-current assets of $12.1 million due to unamortized client fees in our Global Loyalty business.

Total liabilities decreased $403.3 million, primarily due to (a) a decrease in long-term debt of $420.0 million principally due to the repayment of $466.7 million ($455.0 million net of discounts) of term loan debt from the net proceeds from the sale of the domestic insurance business, quarterly repayments of term loan debt of $10.1 million, and net repayments under the revolving credit facility of $15.0 million, partially offset by $41.7 million of PIK interest converted to debt and amortization of debt discounts of $8.6 million and (b) decreases in current liabilities held for sale and non-current liabilities held for sale of $49.1 million and $7.6 million, respectively, due to the August 15, 2018 sale of the domestic insurance business. These decreases were partially offset by an increase in accounts payable and accrued expenses of $66.9 million, principally due to the planned pay down of accounts payable as of December 31, 2017.

Total deficit decreased $363.5 million, principally due to (a) net income of $365.3 million, (b) the impact of the January 1, 2018 adoption of the new revenue recognition guidance of $1.6 million and (c) share-based compensation of $1.2 million. These increases were partially offset by (a) the change in currency translation adjustment of $4.1 million and (b) a dividend to non-controlling interest of $0.5 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. Many of the Company’s significant costs are variable in nature, including marketing and commissions. The Company has a great degree of flexibility in the amount and timing of marketing expenditures and focuses its marketing expenditures on its most profitable marketing opportunities. Commissions correspond directly with revenue generated and have been decreasing as a percentage of revenue over the last several years.

One of our key loyalty clients had indicated to us that they might move a significant portion of their business with us to an alternative provider beginning as early as the second quarter of 2018. On October 4, 2018, this key loyalty client transitioned approximately one-third of their existing business with us to the alternative provider. On October 26, 2018, the key loyalty client migrated substantially all of the remainder of their business with us to the alternative provider. As previously disclosed, this key client is one of our top five partners in the Global Loyalty Segment.

On November 14, 2018, the Company entered into the Fourth Amendment to the 2017 Credit Facility and received a Commitment Letter from certain lenders to provide Affinion Group with a second lien senior secured revolving credit facility. Upon completion of the series of transactions contemplated by these agreements, which we refer to as the 2018 Financing Transactions, the Company will be provided with at least $50.0 million. See Note 6 to the unaudited condensed consolidated financial statements for more information on the 2018 Financing Transactions. Additionally, the Company continues to make progress on expanding an existing partner relationship that, if implemented, would mitigate or offset entirely the impact of the lost revenue from the loss of the above-mentioned key client. The Company currently anticipates that any such implementation would occur in the early part of the first quarter of 2019.

See Note 1 to the unaudited condensed consolidated financial statements for additional information regarding the Company’s assessment of its liquidity.

In addition to quarterly amortization payments, the term loan facility requires mandatory prepayments under certain conditions. First, a prepayment may be required based on excess cash flows as defined in the 2017 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 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. Second, a prepayment may be required with the net proceeds of certain asset sales. However, certain of such net proceeds will not be required to be applied to prepay the 2017 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.

On July 16, 2018, Affinion, as borrower, entered into the Third Amendment, pursuant to which Affinion amended its 2017 Credit Facility. Pursuant to the Third Amendment, among other revisions, the parties revised the 2017 Credit Facility in order to (i) modify certain provisions relating to mandatory prepayments in order to allow for the application of the proceeds from the ABG Sale towards existing amortization payments such that amortization equals 0.25% per quarter through March 31, 2020, then increases to 0.625% per quarter through March 31, 2021 and finally increases to 1.25% per quarter thereafter, with remainder of the proceeds being applied to the bullet payment at maturity, (ii) modify the provision which contemplates an automatic reduction in the available revolving credit amount from $110 million to $80 million to delay such automatic reduction until May 10, 2021, (iii) create a permitted reinvestments basket which would allow for up to $50 million of the proceeds from the ABG Sale to be retained, subject to certain restrictions, and (iv) revise certain addbacks and Pro Forma Basis (as defined in the 2017 Credit Facility) adjustments to reflect the projected change in EBITDA following the ABG Sale.

Affinion Holdings is a holding company, with no direct operations and no significant assets other than the ownership of 100% of the stock of Affinion. 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 Affinion’s debt agreements following the 2017 Transactions consisting of the 2017 Credit Facility and the indenture governing the 2017 Notes.

Although we historically have a working capital deficit, we anticipate that in future periods the reduction in cash interest payments compared to those under our prior financing arrangements 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 expect that we will continue to be able to operate effectively primarily due to our cash flows from operations and our available funds under the revolving credit facility under our 2017 Credit Facility. In addition, during 2018, our required quarterly amortization payments under the term loan under our 2017 Credit Facility are not significant and we do not currently anticipate any other mandatory principal prepayments under the term loan.

At September 30, 2018, we had $110.1 million of cash and cash equivalents and restricted cash on hand, an increase of $14.7 million from $95.4 million of cash and cash equivalents and restricted cash on hand at September 30, 2017.

The following table summarizes our cash flows and compares the $45.5 million increase in our cash and cash equivalents on hand and restricted cash during the period from December 31, 2017 to September 30, 2018 to the $31.6 million increase in our cash and cash equivalents on hand and restricted cash during the period from December 31, 2016 to September 30, 2017.

During the nine months ended September 30, 2018, we generated $28.0 million more cash from operating activities than during the nine months ended September 30, 2017. During the nine months ended September 30, 2018, net income (loss) increased $393.1 million from a net loss of $27.8 million for the nine months ended September 30, 2017 to net income of $365.3 million for the nine months ended September 30, 2018. In addition, the loss on extinguishment of debt increased $35.1 million from a gain of $3.5 million for the nine months ended September 30, 2017 to a loss of $31.6 million for the nine months ended September 30, 2018, payment-in-kind interest increased $31.9 million as compared to the nine months ended September 30, 2017 and operating liabilities increased $57.0 million for the nine months ended September 30, 2018 as compared to $20.7 million for the nine months ended September 30, 2017, partially offset by the $473.1 million gain on sale of the domestic insurance business during the nine months ended September 30, 2018.

We generated $518.2 million more cash in investing activities during the nine months ended September 30, 2018 as compared to the nine months ended September 30, 2017. During the nine months ended September 30, 2018, we received proceeds, net of cash transferred, of $517.3 million from the 2018 Divestiture, used $23.8 million for capital expenditures and made $5.8 million of acquisition-related payments, net of cash acquired. During the nine months ended September 30, 2017, we used $30.1 million for capital expenditures and made $0.4 million of acquisition-related payments.

We used $527.0 million more cash in financing activities during the nine months ended September 30, 2018 as compared to the nine months ended September 30, 2017. During the nine months ended September 30, 2018, we made term loan payments of $491.0 million, including $14.0 million in repayment premiums and had a net repayment under our revolving credit facility of $15.0 million. During the nine months ended September 30, 2017, we made payments on our first-lien and second-lien term loans of $753.8 million and $425.0 million, respectively, redeemed the International Notes for $118.5 million, and redeemed Affinion’s 2010 senior notes, Affinion Holdings’ 2013 senior notes and the Investments senior subordinated notes for $227.4 million and made payments on our term loan under the 2017 Credit Facility of $6.7 million. Affinion also issued the 2017 Notes for $235.9 million, received $1,303.7 million and $40.0 million of term loans and revolving credit facility under the 2017 Credit Facility and incurred $28.1 million of financing costs related to the 2017 Notes and 2017 Credit Facility.

As a result of the Apollo Transactions, we became a highly leveraged company, and we continue to be a highly leveraged company. As of September 30, 2018, we had approximately $1.5 billion in indebtedness.

At September 30, 2018, on a consolidated basis, Affinion had $853.3 million outstanding term loans under Affinion’s 2017 Credit Facility ($840.4 million, net of discount) and $637.0 million outstanding under Affinion’s 2017 Notes, as defined below ($617.7 million, net of discount). At September 30, 2018, there were borrowings of $40.0 million ($38.0 million, net of discount) outstanding under Affinion’s revolving credit facility and Affinion had $65.0 million available under the revolving credit facility, after giving effect to the issuance of $5.0 million of letters of credit.

As of September 30, 2018, Affinion’s 2017 Credit Facility and the indenture governing Affinion’s 2017 Notes contained various restrictive covenants that apply to Affinion. As of September 30, 2018, Affinion was in compliance with the restrictive covenants under Affinion’s debt agreements.

On May 10, 2017, Affinion entered into the 2017 Credit Facility having a five-year maturity with a lender, pursuant to which the lender provided term loans in an aggregate principal amount equal to approximately $1.3 billion and committed to provide revolving loans in an aggregate principal amount at any one time outstanding not to exceed $110.0 million, decreasing to $80.0 million on May 10, 2018. The proceeds of the term loans under the 2017 Credit Facility were used by Affinion to refinance its existing senior secured credit facility (the “Credit Agreement Refinancing”), to redeem in full the International Notes (the “International Notes Redemption”), to pay transaction fees and expenses and for general corporate purposes. The term loans provide for quarterly amortization payments totaling (i) for the first two years after May 10, 2017, 1% per annum, (ii) for the third year after May 10, 2017, 2.5% per annum, and (iii) for each year thereafter, 5% per annum, in each case, payable quarterly, with the balance due upon the final maturity date, subject in each case, to reduction of such amortization payments for certain prepayments. The 2017 Credit Facility also requires mandatory prepayments of the outstanding term loans based on excess cash flow (as defined in the 2017 Credit Facility), if any, and the proceeds from certain specified transactions.

Affinion’s obligations under the 2017 Credit Facility and any interest rate protection or other hedging arrangements entered into with a lender or any of its affiliates are guaranteed by Affinion Holdings and by each of Affinion’s existing and subsequently acquired or organized domestic subsidiaries, subject to certain exceptions. The 2017 Credit Facility is secured on a first-priority basis 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) 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. The 2017 Credit Facility also contains financial, affirmative and negative covenants. The negative covenants in the 2017 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 Affinion’s 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 assets; and enter into transactions with affiliates. The 2017 Credit Facility requires Affinion to comply with (a) a maximum ratio of senior secured debt to EBITDA (as defined in the 2017 Credit Facility) and (y) a minimum ratio of EBITDA to consolidated fixed charges. As of September 30, 2018, the maximum ratio of senior secured debt to EBITDA was 6.75:1.0 and the minimum ratio of EBITDA to consolidated fixed charges was 1.075:1.0.

On May 10, 2017, Affinion International (i) elected to redeem all of its outstanding $118.5 million in aggregate principal amount of International Notes on June 9, 2017 at a redemption price of 100% of the principal amount of the International Notes, plus accrued and unpaid interest to the redemption date, (ii) irrevocably deposited sufficient funds received from borrowings under the 2017 Credit Facility to effect such redemption with the trustee under the indenture governing the International Notes and (iii) entered into a satisfaction and discharge agreement to discharge its obligations under the indenture governing the International Notes. The International Notes were originally issued by Affinion International on November 9, 2015 in an original principal amount of $110.0 million and bore interest at 7.5% per annum, of which 3.5% per annum was payable in cash and 4.0% per annum was payable in kind; 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 in kind. Interest on the International Notes was payable semi-annually on May 1 and November 1 of each year, commencing on May 1, 2016. The International Notes Redemption was consummated on June 9, 2017.

On May 10, 2017, (a) Affinion completed the AGI Exchange Offer; (b) Affinion Holdings completed the Holdings Exchange Offer; and (c) Affinion Investments completed the Investments Exchange Offer. Under the terms of the AGI Exchange Offer, for each $1,000 principal amount of Affinion’s 2010 senior notes accepted in the AGI Exchange Offer, holders could elect to receive (i)(A) $1,000 principal amount of 2017 Notes and 2017 Warrants to purchase 3.37 shares of Common Stock or (B) $930 in cash. Under the terms of the Holdings Exchange Offer, for each $1,000 principal amount of Affinion Holdings’ 2013 senior notes accepted in the Holdings Exchange Offer, holders could elect to receive (i)(A) $1,000 principal amount of 2017 Notes and 2017 Warrants to purchase 3.37 shares of Common Stock or (B) $700 in cash. Under the terms of the Investments Exchange Offer, for each $1,000 principal amount of the Investments senior subordinated notes accepted in the Investments Exchange Offer, holders could elect to receive (i)(A) $1,000 principal amount of 2017 Notes and 2017 Warrants to purchase 3.37 shares of Common Stock or (B) $880 in cash. Pursuant to the AGI Exchange Offer, approximately $269.7 million of Affinion’s 2010 senior notes plus accrued and unpaid interest were exchanged for approximately $277.8 million of 2017 Notes, 2017 Warrants to purchase 1,103,203 shares of Common Stock and approximately $417,386 in cash, including $238.0 million of Affinion’s 2010 senior notes plus accrued and unpaid interest exchanged by related parties in exchange for $245.5 million of 2017 Notes and 2017 Warrants to purchase 985,438 shares of Common Stock; pursuant to the Holdings Exchange Offer, approximately $4.6 million of Affinion Holdings’ 2013 senior notes plus accrued and unpaid interest were exchanged by a related party for approximately $4.7 million of 2017 Notes and 2017 Warrants to purchase 18,539 shares of Common Stock; and pursuant to the Investments Exchange Offer, approximately $12.4 million of the Investments senior subordinated notes plus accrued and unpaid interest were exchanged for approximately $12.8 million of 2017 Notes, 2017 Warrants to purchase 51,005 shares of Common Stock and approximately $912 in cash, including $12.2 million of the Investments senior subordinated notes plus accrued and unpaid interest exchanged by related parties in exchange for $12.6 million of 2017 Notes and 2017 Warrants to purchase 49,894 shares of Common Stock. Affinion used the proceeds of the 2017 Notes issued pursuant to the Investor Purchase Agreement to pay the cash tender consideration to participating holders in the Exchange Offers.

Concurrently with the Exchange Offers, Affinion and Affinion Investments successfully solicited consents (the “Consent Solicitations”) from holders to certain amendments to (a) the indenture governing Affinion’s 2010 senior notes to remove substantially all of the restrictive covenants and certain of the default provisions and to reduce from 30 days to three business days the minimum notice period for optional redemptions, and (b) the indenture governing the Investments senior subordinated notes to reduce from 30 days to three business days the minimum notice period for optional redemptions.

Also, on May 10, 2017, Affinion exercised its option to redeem Affinion’s 2010 senior notes that were not tendered in the Exchange Offers and to fund such redemption with proceeds from the Investors pursuant to the terms of the Investor Purchase Agreement. As a result, on May 10, 2017, Affinion (i) elected to redeem all of its outstanding $205.3 million in aggregate principal amount of Affinion’s 2010 senior notes on May 15, 2017 at a redemption price of 100% of the principal amount, plus accrued and unpaid interest to the redemption date, (ii) irrevocably deposited sufficient funds received from the Investors pursuant to the Investor Purchase Agreement to effect such redemption with the trustee under the indenture governing Affinion’s 2010 senior notes and (iii) entered into a satisfaction and discharge agreement to discharge its obligations under the indenture governing Affinion’s 2010 senior notes. Affinion’s 2010 senior notes were originally issued by Affinion on November 19, 2010 in an aggregate principal amount of $475.0 million and bore interest at 7.875% per annum. The redemption of the Affinion 2010 senior notes was consummated on May 15, 2017.

Interest on the 2017 Notes is payable semi-annually on May 10 and November 10 of each year, commencing on November 10, 2017. The 2017 Notes will mature on November 10, 2022. Under certain circumstances, the 2017 Notes are redeemable at Affinion’s option prior to maturity. If the 2017 Notes are not so redeemed by Affinion, under certain circumstances, Affinion may be required to make an offer to purchase 2017 Notes. The 2017 Notes Indenture contains negative covenants that restrict the ability of Affinion and its restricted subsidiaries to engage in certain transactions and also contains customary events of default. In addition, the covenants restrict Affinion Holdings’ ability to engage in certain businesses or business activities. Affinion is not required to deliver any separate reports to holders or financial statements or other information of Affinion and its restricted subsidiaries as long as Affinion Holdings is a guarantor of the 2017 Notes and files such reports with the SEC. Affinion’s obligations under the 2017 Notes are jointly and severally and fully and unconditionally guaranteed on an unsecured senior basis by the same entities that guarantee the 2017 Credit Facility. The 2017 Notes and guarantees thereof are unsecured senior obligations of Affinion and each of the guarantors and rank equally with all of Affinion’s and the guarantors’ existing and future senior indebtedness, including obligations under the 2017 Credit Facility, and senior to Affinion’s and the guarantors’ existing and future senior indebtedness.

Previously, in connection with the Exchange Offers, on March 31, 2017, Elliott, Franklin, Empyrean, and ICG, all of whom were, or became as a result of the Exchange Offers, issuance of 2017 Notes and 2017 Warrants and redemptions of Affinion’s 2010 senior notes, related parties, entered into the Investor Purchase Agreement with Affinion Holdings, Affinion and Affinion Investments, in which they agreed to purchase 2017 Notes in an aggregate principal amount sufficient to pay all holders that participate in the Exchange Offers and elect to receive cash. Further, pursuant to the Investor Purchase Agreement, if Affinion Holdings, Affinion or Affinion Investments exercised its option to redeem any of Affinion’s 2010 senior notes, Affinion Holdings’ 2013 senior notes and/or the Investments senior subordinated notes not tendered in the Exchange Offers, the Company could obligate the Investors to purchase an aggregate principal amount of 2017 Notes and 2017 Warrants that would yield sufficient cash proceeds to fund any such redemptions. On May 10, 2017, Affinion exercised its option to redeem Affinion’s 2010 senior notes and irrevocably deposited the cash redemption price on such date in order to satisfy and discharge its obligations under the indenture governing Affinion’s 2010 senior notes. In addition, pursuant to the terms of the Investor Purchase Agreement, Affinion was required to pay to the Investors upon the closing of the Exchange Offers a commitment premium of $17.5 million and a funding premium of $7.4 million in aggregate principal amount of 2017 Notes and the same number of 2017 Warrants that such principal amount of 2017 Notes would have been issued as part of the Exchange Offers.

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, which were subsequently registered under the Securities Act. Prior to their redemption in May 2017, Affinion’s 2010 senior notes bore 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 were scheduled to mature on December 15, 2018. Affinion’s 2010 senior notes were redeemable at Affinion’s option prior to maturity. The indenture governing Affinion’s 2010 senior notes contained negative covenants which restricted the ability of Affinion and its restricted subsidiaries to engage in certain transactions and also contained customary events of default. Affinion’s obligations under Affinion’s 2010 senior notes were jointly and severally and fully and unconditionally guaranteed on a senior unsecured basis by each of Affinion’s existing and future domestic subsidiaries that guaranteed Affinion’s indebtedness under Affinion’s senior secured credit facility (other than Affinion Investments and Affinion Investments II, LLC (“Affinion Investments II”)). Affinion’s 2010 senior notes and guarantees thereof were senior unsecured obligations of Affinion and ranked 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 were 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 were structurally subordinated to all indebtedness and other obligations of each of Affinion’s existing and future subsidiaries that were not guarantors, including the Investments senior subordinated notes. In May 2017, $269.3 million of Affinion’s senior notes were exchanged for 2017 Notes and 2017 Warrants and $205.7 million of Affinion’s senior notes were redeemed for $212.3 million, including accrued interest.

Until their redemption in May 2017, the International Notes bore interest at 7.5% per annum, of which 3.5% per annum was payable in cash (“International Cash Interest”) and 4.0% per annum was 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 was payable semi-annually on May 1 and November 1 of each year, commencing on May 1, 2016. The International Notes were scheduled to mature on July 30, 2018. The International Notes were redeemable at Affinion International’s option prior to maturity. The indenture governing the International Notes contained negative covenants which restricted the ability of Affinion International, Affinion and their respective restricted subsidiaries to engage in certain transactions and also contained customary events of default. Affinion International’s obligations under the International Notes were jointly and severally and fully and unconditionally guaranteed on an unsecured senior basis by each of Affinion’s existing and future domestic subsidiaries that guaranteed 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 were unsecured senior obligations of Affinion International’s and ranked 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. In May 2017, the International Notes were fully redeemed.

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 Affinion’s debt agreements to test the permissibility of certain types of transactions, including debt incurrence. We use Adjusted EBITDA to evaluate our operating performance and as a basis for determining payment of bonuses under our annual incentive plan. We present Adjusted EBITDA to enhance your understanding of our operating performance. We believe that Adjusted 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, 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 as an indicator of cash flows, or as a measure of liquidity.

Set forth below is a reconciliation of our consolidated net loss attributable to Affinion Group Holdings, Inc. for the twelve months ended September 30, 2018 to Adjusted EBITDA.

We or our affiliates have, in the past, and may, from time to time in the future, purchase portions of Affinion’s 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 as of December 31, 2017 and 2016, and for the years ended December 31, 2017, 2016 and 2015, included in our Form 10-K for a summary of our significant accounting policies.

We generally do not utilize foreign currency forward contracts as we do not consider our foreign currency risk to be material, although the Company continues to evaluate its foreign currency exposures in light of the current volatility in the foreign currency markets.

Through April 30, 2017, on a limited basis the Company 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 were entered into to mitigate the Company’s foreign currency exposures related to intercompany loans which were not expected to be repaid within the next twelve months and that were denominated in Euros and British pounds. The Company has not entered into such contracts subsequent to April 2017. For the nine months ended September 30, 2017, the Company recognized a realized loss on the forward contracts of $1.3 million. There was no realized gain or loss recognized for the three months ended September 30, 2017. There was no realized gain or loss recognized for the three and nine months ended September 30, 2018.

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 that are designed to provide reasonable assurances that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. The disclosure controls and procedures include, without limitation, controls and procedures designed to provide reasonable assurance 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 and procedures or our “internal control over financial reporting” will prevent all error 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 September 30, 2018, 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, as amended. Based upon their evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that as of September 30, 2018, 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 10 to our unaudited condensed consolidated financial statements within Part I of this Form 10-Q.

The following risk factors supplement and/or update the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2017.

The disclosure included in our unaudited condensed consolidated financial statements for the nine months ended September 30, 2018 relating to management’s evaluation of our ability to continue as a going concern within one year after the date that the unaudited condensed consolidated financial statements are issued could adversely affect our ability to attract new clients and our relationships with third parties with whom we do business.

The unaudited condensed consolidated financial statements for the nine months ended September 30, 2018 included in our Form 10-Q for the quarter ended September 30, 2018, include disclosure relating to management’s evaluation of our ability to continue as a going concern within one year after the date that the unaudited condensed consolidated financial statements are issued and that substantial doubt exists. The disclosure references one of our Global Loyalty segment’s top five partners’ transition of substantially all of its existing business to an alternative provider and our progress on expanding an existing partner relationship.

In response to the loss of this key client, the Company has taken a number of steps to alleviate this substantial doubt. On November 14, 2018, the Company entered into the Fourth Amendment to the 2017 Credit Facility and received a Commitment Letter from certain lenders to provide Affinion Group with a second lien senior secured revolving credit facility. Upon completion of the series of transactions contemplated by these agreements, which we refer to as the 2018 Financing Transactions, the Company will be provided with at least $50.0 million. See Note 6 to these unaudited condensed consolidated financial statements for more information on the 2018 Financing Transactions. In addition, the Company continues to make progress on expanding an existing partner relationship into additional offerings that if implemented, would mitigate the impact of the lost revenue from the loss of the above mentioned client. However, there can be no assurance at this time that we will be able to expand such existing partner relationship within the anticipated timeline or at all.

Notwithstanding the Company’s steps to alleviate this substantial doubt, such included disclosure in the unaudited condensed consolidated financial statements relating to management’s evaluation may negatively impact our ability to attract new clients and retain existing clients and our relationships with third parties with whom we do business, including our vendors, and employees, all of which could have a material adverse impact on our business, financial condition and results of operations. See “Item 1A. Risk Factors—We derive a substantial amount of our revenue from the customers we obtain through only a few of our clients.”

We derive a substantial amount of our revenue from the customers we obtain through only a few of our clients.

We derive a substantial amount of our net revenue from the customers we obtain through only a few of our clients. In 2017, we derived approximately 34% of our net revenues from customers we obtained through the 10 largest clients of our nearly 6,150 clients.

With respect to our loyalty and engagement solutions operations, many of our key client relationships are governed by agreements that may be terminated at any time without cause by our clients upon notice of as few as 90 days without penalty. Some of our agreements may be terminated at any time by our clients upon notice of as few as 30 days without penalty. Our clients are not subject to minimum volume or marketing commitments that are material, individually or in the aggregate. Moreover, under many of these agreements, our clients may cease or reduce the value of loyalty points or their marketing of our programs and solutions without terminating or breaching our agreements. Further, in the ordinary course of business, at any given time, one or more of our contracts with key clients may be selected for bidding through a request for proposal process. As a result of the regulatory supervisory audits and inquiries of certain of our financial institution clients, certain clients have terminated their agreements with us or ceased marketing our programs and solutions to, or ceased billing, their customers. The loss of such clients or, with regard to our largest clients, the loss of any substantial portion of the business derived from such client, the cessation of support of their loyalty programs or their marketing of our programs and solutions or the billing of their customers or a decline in their businesses could have a material adverse effect on our future revenue from existing programs and solutions of which such client’s customers are customers of ours and could adversely affect our ability to further market new or existing programs and solutions through such client to prospective customers. For example, one of our key loyalty clients had indicated to us that they might move a significant portion of their business with us to an alternative provider beginning as early as the second quarter of 2018. On October 4, 2018, this key loyalty client transitioned approximately one-third of their existing business with us to the alternative provider. On October 26, 2018, the key loyalty client migrated substantially all of the remainder of their business with us to the alternative provider. If we are unable to replace the lost

revenues from such client, it would have a material adverse impact on our results of operations and financial condition. There can be no assurance that more of our clients or any of our largest clients, who individually represent a material portion of our revenues, will not terminate their relationship with us, cease or reduce support of their loyalty program or their marketing of our programs and solutions, cease the billing of their customers or suffer a decline in their business. If other clients terminate or do not renew their relationships with us and we are required to cease providing our programs and solutions to, or cease billing, their customers, then we could lose significant sources of revenue and there can be no assurances that we will be able to replace such lost revenue, which could have a material adverse effect on our revenues and profitability.

Our typical global customer engagement and legacy membership product agreements with clients provide that after termination of the contract we may continue to provide our programs and solutions to existing customers under the same economic arrangements that existed before termination. However, in some cases, our clients have violated, and others may in the future nonetheless violate, their contractual obligations and cease facilitating the billing of such existing subscribers. Also, under agreements with our clients for which we market under a fee for service arrangement and have not incurred any marketing expenditures, our clients generally may require us to cease providing programs and solutions to existing subscribers upon termination of the fee for service arrangement. Further, clients under certain agreements also have required, and may continue to require, us to cease providing programs and solutions to their customers under existing arrangements if the contract is terminated for material breach by us or due to a change in the law or regulations. If more of these clients were to terminate our agreements with them, and require us to cease providing our programs and solutions to, or cease billing, their customers, then we could continue to lose significant sources of revenue and there can be no assurances that we will be able to replace such lost revenue, which could have a material adverse effect on our revenues and profitability.

On November 14, 2018, the Board of Directors (the “Board”) approved the appointment of Gregory S. Miller to the position of Chief Operating Officer of the Company in addition to his roles as Executive Vice President and Chief Financial Officer, effective immediately.

Mr. Miller, 48, was appointed Executive Vice President and Chief Financial Officer of the Company as of January 20, 2014. From July 2011 until January 17, 2014, Mr. Miller served as Senior Vice President, Financial Planning and Divisional Operations, for The Madison Square Garden Company with responsibility for all financial matters of its operating divisions as well as its corporate strategic and financial planning divisions. From May 2007 until June 2011, Mr. Miller served as the Senior Vice President and Chief Financial Officer for the North American Division of Affinion with responsibility for all financial matters for North American Operating Business Units. Mr. Miller served as Senior Vice President of Finance of Affinion from June 2005 until May 2007, the Vice President of Financial Planning and Analysis of Trilegiant from June 2003 until June 2005, the Director of Financial Planning and Analysis of Trilegiant from October 2000 until June 2003, and the Senior Manager of Accounting of Cendant Membership Services from December 1999 until October 2000. Prior to his tenure at Affinion, he held various positions at Citizens Communications and The Coca Cola Bottling Company of New York. From 1992 until 1994, Mr. Miller was employed with Coopers & Lybrand.

James C. Daly, Jr., our Executive Vice President and Chief Human Resources Officer, will be leaving the Company prior to April 1, 2019 to pursue other opportunities. Upon his departure, Mr. Daly will be entitled to receive severance in accordance with the Separation Agreement (as defined below). We expect that Mr. Daly and the Company will enter into a separation agreement prior to his departure (the “Separation Agreement”). Under the Separation Agreement, we will agree that Mr. Daly is entitled to the sum of his annual base salary and target bonus, which will be paid over a period of 24 months, in accordance with his employment agreement, and $100,000 of his awarded 2016 Long Term Incentive Program (“LTIP”) payment at such time as the other LTIP award recipients receive their payments.

On November 14, 2018, upon the recommendation of the Human Resources Committee (formerly the Compensation Committee), the Board approved a repricing (the “Repricing”) of 299,636 unvested stock options (the "Underwater Options") previously issued under the Company's 2015 Equity Incentive Plan (the “2015 Plan”). Prior to the Repricing, all of the Underwater Options had a per share exercise price in excess of the current fair market value per share of Common Stock and as such the Board determined that the Underwater Options no longer served as adequate incentive or retention tools for the recipients. Pursuant to the Repricing, the per share exercise price of the Underwater Options will be repriced (the “Repriced Options”) to equal $5.00, which will be the same strike price of the warrants that may be issued under certain circumstances by the Company in connection with the 2018 Financing Transactions (as defined below).

The Repriced Options will continue to vest in accordance with their existing vesting schedules. All other material terms and conditions of the Repriced Options will remain the same.

Underwater Options held by the following named executive officers are subject to the Repricing: Todd H. Siegel (95,500 stock options issued under the 2015 Plan), Gregory S. Miller (33,425 stock options issued under the 2015 Plan), Michele Conforti (33,425 stock options issued under the 2015 Plan) and Scott Lazear (33,425 stock options issued under the 2015 Plan).

On November 14, 2018, upon the recommendation of the Human Resources Committee (formerly the Compensation Committee), the Board approved the terms and establishment of a savings success bonus program (the “Success Bonus Program”), a cash incentive award program intended to reward the successful accomplishment of certain cost savings initiatives and foster retention of key employees of the Company. The Success Bonus Program awards (the “Awards”) will be granted to certain employees of the Company, including the following named executive officers of the Company: Gregory S. Miller, Michele Conforti and Scott Lazear.

The Awards will vest in three (3) equal parts upon the accomplishment of certain milestones based on cost savings initiatives to be established by the Human Resources Committee. The Board shall have discretion to make such Awards in the event such milestones established by the Human Resources Committee are not achieved. The Awards to be granted to each of Messrs. Miller, Conforti and Lazear will have Award values of $1,500,000, $750,000 and $750,000, respectively, in each case subject to the terms described above.

On November 14, 2018, the Company, together with the requisite investors, entered into Amendment No. 3 (the “Shareholders Agreement Amendment”) to that certain Shareholders Agreement, dated as of November 9, 2015 (the “Shareholders Agreement”), by and among the Company and the investors party thereto. Prior to entering into the Shareholders Agreement Amendment, the Company received written consents approving the Shareholders Agreement Amendment from greater than sixty-six and two-thirds percent (66 2/3%) of the issued and outstanding Common Stock entitled to vote. The Shareholders Agreement Amendment will become effective as of, and will be conditioned upon, the filing and effectiveness of a definitive Information Statement on Schedule 14C (the “Information Statement”), and the mailing of the Information Statement to holders of Common Stock of the Company at least 20 calendar days prior to the effective date. When effective, the Shareholders Agreement Amendment will amend the terms of the Shareholders Agreement to allow the Board to increase the aggregate cap on Common Stock that may be issued to employees and directors of the Company from ten percent (10%) of the Company Common Stock to fifteen percent (15%) of the Company Common Stock (on a fully diluted basis, but excluding vested and unvested Company Common Stock and options or other rights to acquire Company Common Stock issued under the 2015 Plan).

The foregoing description of the Shareholders Agreement Amendment does not purport to be complete and is qualified in its entirety by reference to the full text of the Shareholders Agreement Amendment, a form of which is filed as Exhibit 10.1 to this Quarterly Report on Form 10-Q and is incorporated herein by reference.

The Board previously authorized a number of shares of Common Stock for grants under the 2015 Plan equal to ten percent (10%) of the aggregate number of shares of the Common Stock outstanding as of November 9, 2015, on a fully diluted basis. On November 14, 2018, upon the recommendation of the Human Resources Committee, the Board adopted an amendment to the 2015 Plan (the “Plan Amendment”) to amend the 2015 Plan to increase the aggregate cap on Common Stock that may be issued to employees and directors of the Company from ten percent (10%) of the Company Common Stock to fifteen percent (15%) of the Company Common Stock (on a fully diluted basis, but excluding vested and unvested Company Common Stock and options or other rights to acquire Company Common Stock issued under the 2015 Plan). However, the Plan Amendment will be effective as of, and conditioned upon, the effectiveness of the Shareholder Agreement Amendment discussed above.

On November 14, 2018, upon the recommendation of the Human Resources Committee and subject to the effectiveness of the Plan Amendment and Shareholder Agreement Amendment, the Board approved grants of stock options under the 2015 Plan, as amended by the Plan Amendment, to the Company’s named executive officers and other employees of the Company (the “New Option Grant”). Pursuant to the New Option Grant, Messrs. Siegel, Miller, Conforti and Lazear will receive options to purchase 150,000, 150,000, 75,000 and 75,000, respectively, at an exercise price equal to the Warrant Strike Price. The options granted to our named executive officers become vested in four (4) equal installments on each of the first four (4) anniversaries of the grant date.

Pursuant to the Fourth Amendment, the parties amended the 2017 Credit Facility, to among other things, (x) permit the immediate release of $45 million of the $50 million of the proceeds from the ABG Sale, (i) $32 million of which is able to be used by Affinion for working capital needs and/or to make an investment in one or more businesses, or capital expenditures or assets and (ii) $13 million of which will immediately be used to prepay outstanding term loans under the 2017 Credit Facility, together with the required premium in an amount equal to 3.00% of the aggregate principal amount being so prepaid (the “Fourth Amendment Prepayment”) and (y) to modify certain provisions in the 2017 Credit Facility in order to permit the Second Lien Facility Financing (as defined below), which will be secured on a second lien basis on the same collateral that secures the 2017 Credit Facility. In addition, the Fourth Amendment (i) authorizes the administrative agent under the 2017 Credit Facility to enter into an intercreditor agreement with respect to the Second Lien Facility Financing, (ii) provides that the prepayment or repayment of the next $31,070,000 in principal amount of term loans, other than regularly scheduled amortization payments, shall be accompanied by a prepayment premium equal to the greater of 3% and the prepayment premium that would otherwise have been payable in connection with such prepayment or repayment, and (iii) makes modifications to certain of the restrictive covenants contained in the 2017 Credit Facility.

On November 14, 2018, Metro SPV LLC (“ICG”), Elliott Management Corporation (together with its affiliates, “Elliott”), an affiliate of Empyrean Capital Partners, LP (“Empyrean,”) and Jefferies LLC (“Jefferies,” with ICG, Elliott, Empyrean and Jefferies being each a “Lead Lender” and collectively, the “Lead Lenders”) delivered a commitment letter (the “Commitment Letter”) to Affinion and Affinion Holdings. Pursuant to the Commitment Letter, the Lead Lenders have committed to provide revolving loans to Affinion under a revolving credit facility (the “Second Lien Facility”) in the original principal amount of $20,455,000 (the “Commitment Financing”), which amount may be increased, on or before June 30, 2019 at the option of Affinion and subject to the consent of the Lead Lenders, by an amount of up to $17,045,500 (the “Incremental Financing” and, together with the Commitment Financing, the “Second Lien Facility Financing”), subject to the terms and conditions set forth in the Commitment Letter. Pursuant to the Commitment Letter, on the closing date of the Second Lien Facility the Lead Lenders will be paid an upfront closing fee in an amount equal to 12% of the amount of the Commitment Financing (which at Affinion’s option, may be paid in the form of original issue discount). The Lead Lenders will also be entitled to be paid the closing fee upon an Incremental Financing if consummated within a certain time period.

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.

	Page
Part I. FINANCIAL INFORMATION
Item 1.	3
Financial Statements	3
Unaudited Condensed Consolidated Balance Sheets as of September 30, 2018 and December 31, 2017	3
Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2018 and 2017	4
Unaudited Condensed Consolidated Statements of Changes in Deficit for the Nine Months Ended September 30, 2018 and 2017	5
Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2018 and 2017	6
Notes to Unaudited Condensed Consolidated Financial Statements	7
Item 2.	47
Management’s Discussion and Analysis of Financial Condition and Results of Operations	47
Item 3.	73
Quantitative and Qualitative Disclosures about Market Risk	73
Item 4.	74
Controls and Procedures	74
Part II. OTHER INFORMATION
Item 1.	75
Legal Proceedings	75
Item 1A.	75
Risk Factors	75
Item 2.	76
Unregistered Sales of Equity Securities and Use of Proceeds	76
Item 3.	76
Defaults Upon Senior Securities	76
Item 4.	76
Mine Safety Disclosure	76
Item 5.	76
Other Information	76
Item 6.	80
Exhibits	80
SIGNATURES	S-1

	Fair Value Measurements at September 30, 2018
	Fair Value at September 30, 2018		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in millions)
Contingent consideration	$	10.5	$	—	$	—	$	10.5

	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Global Loyalty
Gross Transactional Sales Volume (1)	$	884,026	$	787,307	$	2,713,607	$	2,400,274
Gross Transactional Sales Volume per Transaction (1)	$	265.09	$	255.47	$	280.11	$	248.65
Total Transactions		3,335		3,082		9,688		9,653
Global Customer Engagement
Average Subscribers (2)		2,367		2,411		2,403		2,468
Annualized Net Revenue per Average Subscriber (3)	$	108.64	$	107.75	$	109.61	$	104.36
Engagement Solutions Platform Revenue	$	22,407	$	25,642	$	74,961	$	75,584
Legacy Membership and Package
Average Legacy Members (2)		705		1,063		748		1,145
Annualized Net Revenue per Legacy Member (3)	$	104.80	$	108.25	$	103.75	$	106.52

	For the Twelve
	Months Ended
	September 30, 2018 (a)
	(in millions)
Net income attributable to Affinion Group Holdings, Inc.	$	367.6
Less: Income from discontinued operations, net of tax		(6.0	)
Less: Gain on sale of business, net of tax		(447.2	)
Loss from continuing operations attributable to Affinion Group Holdings, Inc.		(85.6	)
Interest expense, net		190.9
Income tax benefit		(50.5	)
Net income attributable to non-controlling interest		1.1
Other expense, net		0.4
Loss on extinguishment of debt		31.6
Depreciation and amortization		47.8
Business optimization expenses and restructuring charges or expenses (b)		12.4
Extraordinary or nonrecurring or unusual losses, expenses or charges (c)		8.0
Other, net (d)		10.4
Adjusted EBITDA, excluding pro forma adjustments (e)		166.5
Effect of pro forma adjustments (f)		3.7
Adjusted EBITDA, including pro forma adjustments (g)	$	170.2

Exhibit Number		Description

10.1*		Form of Amendment No. 3 to the Shareholders Agreement, dated as of November 9, 2015, among the Company and the investors party thereto.

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

Large accelerated filer	☐	Accelerated filer	☐

Non-accelerated filer	☒	Smaller reporting company	☐
		Emerging growth company	☐

	Balance at			Adjustments Due to			Balance at
	December 31, 2017			Adoption of ASC 606			January 1, 2018
	(in millions)
Balance Sheet
Liabilities
Deferred revenue	$	39.3		$	(1.6	)	$	37.7

Equity
Accumulated deficit		(1,991.7	)		1.6			(1,990.1	)


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2018		2017 (a)		2018		2017 (a)
	(in millions)
Global Loyalty	$	67.3	$	58.3	$	194.9	$	170.8
Global Customer Engagement:
Revenue Enhancements		64.4		64.9		197.3		193.2
Engagement Solutions		22.4		25.7		75.0		75.6
Subtotal		154.1		148.9		467.2		439.6
Legacy Membership and Package		23.0		34.4		78.2		109.5
Total	$	177.1	$	183.3	$	545.4	$	549.1

	(in millions)
Cash received	$	542.5
Net assets sold		(58.9	)
Direct costs to sell		(10.5	)
Gain on sale of business before income taxes	$	473.1

																				Fair Value At
																2023 and				September 30,
	2018			2019			2020			2021			2022			Thereafter		Total		2018
Fixed rate debt	$	0.1		$	0.3		$	0.4		$	—		$	637.0		$	—	$	637.8	$	578.9
Average interest rate (a)		14.11	%		14.86	%		15.50	%		15.50	%		15.50	%
Variable rate debt	$	3.4		$	13.4		$	28.5		$	58.6		$	789.4		$	—	$	893.3	$	914.6
Average interest rate (a)		9.91	%		9.91	%		9.91	%		9.91	%		9.91	%

Segment EBITDA	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2018			2017			2018			2017
	(in millions)
Global Loyalty	$	29.4		$	22.8		$	79.1		$	46.4
Global Customer Engagement		13.5			17.0			49.8			39.9
Subtotal		42.9			39.8			128.9			86.3
Legacy Membership and Package		7.7			11.8			29.9			29.1
Corporate		(19.8	)		(11.9	)		(56.0	)		(36.7	)
Total	$	30.8		$	39.7		$	102.8		$	78.7

	AFFINION GROUP HOLDINGS, INC.

Date: November 14, 2018	By:	/S/ Gregory S. Miller
		Gregory S. Miller
		Executive Vice President and Chief Financial Officer