Affinion Group, Inc. Announces Results For The Second Quarter Ended June 30,
2008
Achieves Second Quarter Adjusted EBITDA Of $76.5 Million
NORWALK, Conn., July 31 /PRNewswire/ -- Affinion Group, Inc. ("Affinion"
or the "Company"), a leading global affinity marketer of
value-added membership, insurance and package enhancement programs and
services to consumers, today announced its financial results for the three
month period ended June 30, 2008.
"In spite of one of the most challenging economic environments our
affinity partners and their customers have experienced in some time, our
results for the quarter were strong, and confirm the resiliency of our
business model and strategy" said Nathaniel J. Lipman, Affinion's President
and Chief Executive Officer. Commenting further on the results, Lipman added,
"While we don't project any near-term improvements in the macro economic
environment, we are comfortable with the attainability of our targets, and,
accordingly, we reaffirm our 2008 Adjusted EBITDA guidance of $305 to $315
million."
Results Highlights
Note: readers are urged to review the section entitled "Important Notes"
at the end of this release for a description of certain items affecting the
results, including a definition of the term "Transactions".
Net Revenues
-- Net revenues for the second quarter of 2008 were $354.3 million as
compared to $333.3 million for the second quarter of 2007.
-- The increase in net revenues was due to growth in both the
International and North American regions. The increase in North American
revenue was primarily attributable to double digit revenue growth in Loyalty
and a modest increase in Membership revenue.
-- Net revenues excluding the impact of the Transactions increased $18.7
million, or 5.6% greater than the second quarter of 2007.
-- Net revenues benefited $2.3 million in the quarter as compared to the
second quarter of 2007 from a reduced impact of the non-cash adjustments in
purchase accounting as part of the Transactions.
Operating Results
-- Segment EBITDA for the second quarter of 2008 was $75.8 million as
compared to $62.9 million for the second quarter of 2007. Segment EBITDA
increased $0.8 million related to non-cash purchase accounting adjustments.
-- Excluding the impact of the Transactions, Segment EBITDA increased
$12.1 million, primarily due to higher net revenues, lower commissions and
lower general and administrative expenses, partially offset by higher global
marketing costs.
-- Adjusted EBITDA (as defined in Note (d) of Table 7) was $76.5 million
as compared to $65.4 million for the second quarter of 2007. The trailing
twelve month Adjusted EBITDA of $304.0 million as of the second quarter 2008
reflects an increase of $31.4 million from the $272.6 million reported for the
second quarter of 2007, and an increase of $19.7 million from the $284.3
million reported for the year ended December 31, 2007.
Segment Commentary
North America:
Membership products revenue for the second quarter increased $2.8 million
as higher revenue per retail member and higher wholesale revenue from programs
that were formerly retail were only partially offset by lower retail member
volumes. Excluding the impact of purchase accounting, net revenue increased
$2.2 million, as the Company continues to pursue its strategy of increasing
the lifetime value of its overall member base. Membership Segment EBITDA
increased $8.2 million in the quarter, primarily due to lower general and
administrative costs, as well as lower marketing and commissions as the
Company continued to reduce commission expenses as a percentage of revenue.
Insurance and Package products revenue were virtually unchanged in the quarter
as the 8.7% increase in net revenue per supplemental insured for the quarter
was offset by lower Package revenues, primarily due to fewer Package members.
Insurance and Package Segment EBITDA declined $0.5 million in the quarter
primarily due to higher marketing and commissions. Loyalty products revenue
increased $2.0 million, or 14.6%, due to growth in programs with existing and
new clients. Loyalty Segment EBITDA grew $1.5 million due primarily to the
increase in revenue.
International:
International revenue, excluding the impacts from purchase accounting,
increased 27.4% primarily due to new retail memberships, growth in other
retail programs, growth in package, and a favorable currency impact. For the
quarter, International Segment EBITDA increased $4.1 million over 2007,
principally due to the increase in revenue net of higher marketing and
commissions, and other costs to support new retail programs, along with $0.6
million as a result of purchase accounting adjustments.
Selected Liquidity Data
Affinion has several debt instruments outstanding, including senior notes,
senior subordinated notes, and senior secured credit facilities, which consist
of a term loan facility and revolving credit facility. For a more complete
description of Affinion's debt instruments, see the note on Table 2.
At June 30, 2008, Affinion had $302.4 million outstanding under its senior
notes (net of discounts and premiums), $655.0 million outstanding under its
term loan facility, $351.6 million outstanding under the senior subordinated
notes (net of discounts), and $24.0 million outstanding under its revolving
credit facility with $74.5 million available for borrowing under the same
revolving credit facility (after giving effect to the issuance of $1.5 million
in letters of credit). A portion of the revolving credit facility was used to
partially finance the approximately $50 million cash acquisition of a credit
card registration membership business completed late in the fourth quarter of
2007, and the balance of the revolving credit facility has been reduced by $27
million since March 31, 2008.
In addition, at June 30, 2008, Affinion had $18.4 million of unrestricted
cash on hand.
Since October 17, 2005, Affinion has prepaid $205.0 million, or
approximately 23.8% of its original term loan balance. As previously
announced, the Company expects to accomplish additional deleveraging in 2008.
Guidance
Affinion reaffirms its full year 2008 Adjusted EBITDA guidance of $305 -
$315 million.
Call-In Information
Affinion will hold an informational call to discuss the results for the
three month period ended June 30, 2008 at 10:00 am (EDT) on Thursday, July 31,
2008. The conference call will be broadcast live and can be accessed by
dialing 1-866-394-8483 (domestic) or 1-706-758-1455 (international) and
entering passcode 56431269. Interested parties should call at least ten (10)
minutes prior to the call to register. The Company will also provide an on-
line Web simulcast of its conference call at www.affinion.com/ir. A replay of
the call will be available through midnight (EDT) August 7, 2008 by dialing 1-
800-642-1687 (domestic) or 1-706-645-9291 and entering passcode 56431269.
Important Notes
On October 17, 2005, Affinion Group Inc. completed the acquisition (the
"Transactions") of the marketing services division (the "Predecessor") of
Cendant Corporation ("Cendant") pursuant to a purchase agreement dated July
26, 2005, as amended. Substantially all of the assets and liabilities of the
Predecessor were acquired by Affinion in the Transactions.
The information presented in this release is a comparison of the unaudited
consolidated results of operations for the three month period ended June 30,
2008 and unaudited consolidated results of operations for the three month
period ended June 30, 2007.
Purchase accounting adjustments made in 2005 as a result of the
Transactions had a modest impact on Affinion's results of operations for the
three month periods ended June 30, 2008 and 2007. For example, because
deferred revenues were reduced in purchase accounting, net revenues recognized
for periods following the Transactions were less than they otherwise would
have been, with the majority of the impact of the purchase accounting
adjustments recognized in 2005 through 2007. The effect of purchase
accounting adjustments on Affinion's results of operations for the three month
period ended June 30, 2008 as compared to the three month period ended June
30, 2007 was to increase net revenues by $2.3 million and to increase Segment
EBITDA by $0.8 million.
About Affinion Group
As a global leader with nearly 35 years of experience, Affinion Group
(www.affinion.com) enhances the value of its partners' customer relationships
by developing and marketing valuable loyalty, membership, checking account,
insurance and other relevant products and services. Leveraging its expertise
in product development and targeted marketing, Affinion helps generate
significant incremental revenue for more than 5,300 affinity partners
worldwide, including many of the largest and most respected companies in
financial services, retail, travel, and Internet commerce. Based in Norwalk,
Conn., the company has approximately 3,300 employees throughout the United
States and in 10 countries across Europe. Affinion holds the prestigious ISO
27001 certification for the highest information security practices, is PCI
compliant and Cybertrust certified.
Safe Harbor Statement Under the U.S. Private Securities Litigation Reform
Act of 1995
This press release may contain statements that are forward looking, as
that term is defined by the Private Securities Litigation Reform Act of 1995
or by the Securities and Exchange Commission in its rules, regulations and
releases. These statements include, but are not limited to, discussions
regarding industry outlook, Affinion's expectations regarding the performance
of its business, its liquidity and capital resources, its guidance for 2008
and the other non-historical statements in the discussion and analysis. These
forward-looking statements are based on management's beliefs, as well as
assumptions made by, and information currently available to, management. When
used in this release, the words "believe", "anticipate", "estimate", "expect",
"intend" and similar expressions are intended to identify forward-looking
statements. Although management believes that the expectations reflected in
these forward-looking statements are reasonable, it can give no assurance that
these expectations will prove to have been correct. These statements are
subject to certain risks, uncertainties and assumptions, including risks
related to general economic and business conditions and international and
geopolitical events, a downturn in the credit card industry or changes in the
techniques of credit card issuers, market place consolidation among financial
institution partners, industry trends, the effects of a decline in travel on
Affinion's travel fulfillment business, termination or expiration of one or
more agreements with its affinity partners or a reduction of the marketing of
its services by one or more of its affinity partners, its substantial
leverage, restrictions contained in its debt agreements, its inability to
compete effectively and other risks identified and discussed under the caption
"Item 1A. Risk Factors" in Affinion's Annual Report on Form 10-K for the year
ended December 31, 2007 and the other periodic reports filed by Affinion with
the SEC from time to time.
TABLE 1
AFFINION GROUP, INC.
UNAUDITED SUPPLEMENTAL DATA FOR SELECTED
BUSINESS SEGMENTS
The following table provides data for selected business segments.
Member and insured amounts in thousands, except dollars and percentages.
Three Months Ended Six Months Ended
June 30, June 30,
2008 2007 2008 2007
Affinion North America:
Membership Products -
Retail
Average Members(1) 7,954 8,244 8,025 8,388
% Monthly Members 41.5 % 37.2 % 40.7 % 36.8 %
% Annual Members 58.5 % 62.8 % 59.3 % 63.2 %
Annualized Net Revenue Per
Average Member(2) $75.56 $70.79 $73.92 $69.83
Wholesale
Average Members(1) 3,149 3,597 3,199 3,706
Portion for service
formerly retail and other(3) 2,293 2,220 2,302 2,188
Average Retail Members
including wholesale formerly retail
and other(3) 10,247 10,464 10,327 10,576
Insurance and Package Products -
Insurance
Average Basic Insured(1) 23,501 25,986 23,846 26,350
Average Supplemental Insured 4,803 5,138 4,872 5,174
Annualized Net Revenue per
Supplemental Insured(2) $60.25 $55.43 $56.95 $52.65
Package
Average Members(1) 5,535 6,270 5,599 6,330
Annualized Net Revenue Per
Average Member(2) $13.61 $13.58 $13.58 $13.57
Affinion International:
International Products -
Package
Average Members(1) 16,214 16,647 16,060 16,467
Annualized Net Revenue Per
Average Package Member(2) $9.55 $8.14 $9.31 $7.85
Other Retail Membership
Average Members(1) 1,759 2,345 1,785 2,382
Annualized Net Revenue Per
Average Member(2) $38.58 $23.51 $38.23 $22.65
New Retail Membership
Average Members(1) 447 212 417 202
Annualized Net Revenue Per
Average Member(2) $103.40 $115.09 $102.29 $112.27
Global Membership Products:
Retail
Average Members(1)(4) 8,401 8,456 8,442 8,590
Annualized Net Revenue
Per Average Member(2) $77.04 $71.90 $75.32 $70.83
Average Retail Members
including wholesale formerly
retail and other(3)(4) 10,694 10,676 10,744 10,778
(1) Average Members and Average Basic Insured for the period are each
calculated by determining the average members or insureds, as applicable, for
each month (adding the number of members or insureds, as applicable, at the
beginning of the month with the number of members or insureds, as applicable,
at the end of the month and dividing that total by two) for each of the months
in the period and then averaging that result for the period. A member's or
insured's, as applicable, count is removed in the period in which the member
or insured, as applicable, has cancelled.
(2) Annualized Net Revenue Per Average Member and Annualized Net Revenue
Per Supplemental Insured are each calculated by taking the revenues as
reported for the period and dividing it by the average members or insureds, as
applicable, for the period. Quarterly periods are then multiplied by four to
annualize this amount for comparative purposes. Upon cancellation of a member
or an insured, as applicable, the member's or insured's, as applicable,
revenues, are no longer recognized in the calculation.
(3) Certain programs historically offered as retail arrangements are
currently offered as wholesale arrangements where the Company receives lower
annualized price points and pays no related commission expense. Additionally,
more recently, the Company has entered into other relationships with new and
existing affinity partners, including arrangements where the affinity partner
offers the Company's membership programs at point of sale retail locations to
their customers and the Company receives lower annualized price points and
pays no related commission expense. (4) Includes International Operations
New Retail Average Members.
TABLE 2
AFFINION GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2008 AND DECEMBER 31, 2007
(In millions, except share amounts)
June 30, December 31,
2008 2007
Assets
Current assets:
Cash and cash equivalents $18.4 $14.2
Restricted cash 28.4 29.1
Receivables (net of allowance for
doubtful accounts of $1.3 and $1.3,
respectively) 77.0 73.3
Receivables from related parties 46.2 12.1
Profit-sharing receivables from
insurance carriers 67.0 58.8
Prepaid commissions 60.2 62.1
Deferred income taxes 1.0 0.9
Other current assets 51.3 39.4
Total current assets 349.5 289.9
Property and equipment, net 87.6 90.8
Contract rights and list fees, net 53.9 63.2
Goodwill 302.8 302.0
Other intangibles, net 702.6 809.1
Other non-current assets 65.4 46.2
Total assets $1,561.8 $1,601.2
Liabilities and Stockholder's Equity
(Deficit)
Current liabilities:
Current portion of long-term debt $0.2 $0.2
Accounts payable and accrued expenses 305.1 264.2
Payables to related parties 7.3 13.3
Deferred revenue 252.9 255.1
Income taxes payable 2.1 3.0
Total current liabilities 567.6 535.8
Long-term debt 1,333.1 1,347.3
Deferred income taxes 23.2 20.2
Deferred revenue 41.4 41.6
Other long-term liabilities 68.7 61.2
Total liabilities 2,034.0 2,006.1
Minority interests 0.4 0.6
Commitments and contingencies
Stockholder's Equity (Deficit):
Common stock and additional paid-in
capital, $0.01 par value, 1,000 shares
authorized, and 100 shares issued and
outstanding 328.1 348.7
Accumulated deficit (816.5) (766.5)
Accumulated other comprehensive income 15.8 12.3
Total stockholder's equity (deficit) (472.6) (405.5)
Total liabilities and stockholder's equity
(deficit) $1,561.8 $1,601.2
Note: The information presented in this release reflects the financial
statement data and the results of operations of Affinion Group, Inc.,
("Affinion") and its consolidated subsidiaries, and does not include the $350
million senior unsecured term loan facility incurred by Affinion Group
Holdings, Inc., as described in the Liquidity and Capital Resources section of
the Form 10-K filed for the fiscal year ended December 31, 2007. As part of
the financing for the Transactions, Affinion (a) issued $270.0 million in
principal amount of 10 1/8% senior notes maturing on October 15, 2013 ($266.4
million net of discount), (b) entered into new senior secured credit
facilities consisting of a term loan facility in the principal amount of
$860.0 million and a revolving credit facility in an aggregate amount of up to
$100.0 million, and (c) entered into a senior subordinated bridge loan
facility in the principal amount of $383.6 million. On April 26, 2006, $349.5
million of principal borrowings under the senior subordinated bridge loan
facility were repaid using the proceeds from a private offering of $355.5
million aggregate principal amount of 11 1/2% senior subordinated notes
maturing on October 15, 2015. Subsequently, on May 3, 2006, the remaining
$34.1 million of principal borrowings under the senior subordinated bridge
loan facility were repaid using the proceeds from another private offering of
$34.0 million aggregate principal amount of 10 1/8% senior notes maturing on
October 15, 2013. The senior notes were issued as additional notes under the
indenture dated as of October 17, 2005.
TABLE 3
AFFINION GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2008 AND 2007
(In millions)
For the Three For the Six
Months Ended Months Ended
June 30, June 30, June 30, June 30,
2008 2007 2008 2007
Net revenues $354.3 $333.3 $693.5 $653.8
Expenses:
Cost of revenues,
exclusive of
depreciation and
amortization shown
separately below:
Marketing and commissions 161.7 153.6 315.2 303.6
Operating costs 90.7 85.6 180.5 171.6
General and administrative 26.1 31.2 53.8 63.6
Depreciation and amortization 69.3 80.3 137.2 159.2
Total expenses 347.8 350.7 686.7 698.0
Income (loss) from
operations 6.5 (17.4) 6.8 (44.2)
Interest income 0.5 1.5 1.0 2.7
Interest expense
(12.5) (33.0) (51.5) (69.0)
Other expense, net (0.2) - (0.2) -
Loss before income
taxes and minority
interests (5.7) (48.9) (43.9) (110.5)
Income tax expense, net (0.4) (1.1) (5.8) (2.7)
Minority interests,
net of tax (0.1) - (0.3) (0.1)
Net loss $(6.2) $(50.0) $(50.0) $(113.3)
TABLE 4
AFFINION GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007
For the Six Months Ended
June 30, 2008 June 30, 2007
Operating Activities
Net loss $(50.0) $(113.3)
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
Depreciation and amortization 137.2 159.2
Amortization of favorable and unfavorable
contracts (1.5) (1.5)
Amortization of debt discount and financing
costs 2.9 3.0
Unrealized loss (gain) on interest rate swap (12.0) (1.0)
Stock-based compensation 1.5 1.3
Deferred income taxes 2.5 (4.1)
Payment received for assumption of loyalty
points program liability 7.4 -
Net change in assets and liabilities:
Restricted cash 0.9 (2.3)
Receivables (0.9) (0.2)
Receivables from related parties (28.7) 4.3
Profit-sharing receivables from insurance
carriers (8.2) (1.2)
Prepaid commissions 1.9 11.0
Other current assets (10.0) (0.2)
Contract rights and list fees - (0.8)
Other non-current assets (1.1) (3.0)
Accounts payable and accrued expenses 27.7 (27.4)
Payables to related parties (7.6) (6.2)
Deferred revenue (2.7) (2.9)
Income taxes receivable and payable (0.9) 5.1
Other long-term liabilities (2.6) (2.2)
Minority interests and other, net 0.4 (0.5)
Net cash provided by (used in)
operating activities 56.2 17.1
Investing Activities
Capital expenditures (16.4) (11.4)
Restricted cash (0.1) -
Acquisition-related payment, net of cash
acquired - (0.7)
Net cash used in investing activities (16.5) (12.1)
Financing Activities
Repayments under line of credit, net (14.5) -
Principal payments on borrowings (0.1) (50.1)
Dividends paid to parent company (20.6) (8.1)
Distribution to minority shareholder of a
subsidiary - (0.4)
Net cash used in financing activities (35.2) (58.6)
Effect of changes in exchange rates on cash
and cash equivalents (0.3) 0.1
Net increase (decrease) in cash and
cash equivalents 4.2 (53.5)
Cash and cash equivalents, beginning of period 14.2 84.3
Cash and cash equivalents, end of period $18.4 $30.8
Supplemental Disclosure of Cash Flow Information:
Interest payments $59.1 $66.3
Income tax payments $4.6 $3.3
TABLE 5
AFFINION GROUP, INC.
UNAUDITED COMPARISON OF 2008 TO 2007 RESULTS
(In millions)
The following tables summarize our consolidated results of operations for
the three and six months ended June 30, 2008 and 2007.
For the Three Months Ended
Increase
(Decrease) Increase
June 30, June 30, Related to the (Decrease)
2008 2007 Transactions Other
Net revenues $354.3 $333.3 $2.3 $18.7
Expenses:
Cost of revenues,
exclusive of
depreciation and
amortization shown
separately below:
Marketing and
commissions 161.7 153.6 0.6 7.5
Operating costs 90.7 85.6 0.9 4.2
General and
administrative 26.1 31.2 - (5.1)
Depreciation and
amortization 69.3 80.3 (14.8) 3.8
Total expenses 347.8 350.7 (13.3) 10.4
Income (loss) from
operations 6.5 (17.4) 15.6 8.3
Interest income 0.5 1.5 - (1.0)
Interest expense (12.5) (33.0) - 20.5
Other expense, net (0.2) - - (0.2)
Loss before income
taxes and minority
interests (5.7) (48.9) 15.6 27.6
Income tax expense (0.4) (1.1) 11.5 (10.8)
Minority interests,
net of tax (0.1) - - (0.1)
Net loss $(6.2) $(50.0) $27.1 $16.7
For the Six Months Ended
Increase
(Decrease) Increase
June 30, June 30, Related to the (Decrease)
2008 2007 Transactions Other
Net revenues $693.5 $653.8 $6.0 $33.7
Expenses:
Cost of revenues,
exclusive of
depreciation and
amortization shown
separately below:
Marketing and
commissions 315.2 303.6 2.0 9.6
Operating costs 180.5 171.6 1.7 7.2
General and
administrative 53.8 63.6 - (9.8)
Depreciation and
amortization 137.2 159.2 (29.6) 7.6
Total expenses 686.7 698.0 (25.9) 14.6
Income (loss) from
operations 6.8 (44.2) 31.9 19.1
Interest income 1.0 2.7 - (1.7)
Interest expense (51.5) (69.0) - 17.5
Other expense, net (0.2) - - (0.2)
Loss before income
taxes and minority
interests (43.9) (110.5) 31.9 34.7
Income tax expense
(5.8) (2.7) 10.5 (13.6)
Minority interests,
net of tax (0.3) (0.1) - (0.2)
Net loss $(50.0) $(113.3) $42.4 $20.9
Purchase accounting adjustments made in the Transactions had a less
significant impact on the Company's consolidated results of operations for the
three and six months ended June 30, 2008 compared to June 30, 2007. These
entries, which are non-cash in nature, increased net revenues by $2.3 million
and $6.0 million and income from operations by $15.6 million and $31.9 million
for the three and six months ended June 30, 2008, respectively, as compared to
the three and six months ended June 30, 2007, respectively. Because deferred
revenues were reduced in purchase accounting, net revenues recognized for
periods following the Transactions are less than they otherwise would have
been, and such impact will decline in future periods. Also, the Company
recorded a liability in purchase accounting for the fair value of servicing
the Company's members existing at the date of the Transactions for which no
revenue will be recognized in the future. Because the liability recorded in
purchase accounting is used to offset future servicing costs for such members,
the Company's operating costs are lower for periods following the Transactions
than they otherwise would have been. Also, because prepaid commissions were
reduced in purchase accounting, marketing and commissions expense for periods
following the Transactions are less than they otherwise would have been. The
effect of these and other purchase accounting adjustments on the Company's
consolidated results of operations for the three and six months ended June 30,
2008 as compared to June 30, 2007 was to increase net revenues by $2.3 million
and $6.0 million, respectively, marketing and commissions by $0.6 million and
$2.0 million, respectively, and operating costs by $0.9 million and $1.7
million, respectively. Additionally, the Company recorded $14.8 million and
$29.6 million less depreciation and amortization expense for the three and six
months ended June 30, 2008, respectively, as compared to the three and six
months ended June 30, 2007, respectively, which positively affected results of
operations.
TABLE 6
AFFINION GROUP, INC.
UNAUDITED OPERATING SEGMENT RESULTS
(In millions)
Net revenues and Segment EBITDA by operating segment are as follows:
Net Revenues
Increase
For the (Decrease)
Three Months Related Other
Ended June 30, to the Increase
2008 2007 Transactions (Decrease)
Affinion North America
Membership products $174.8 $172.0 $0.6 $2.2
Insurance and package products 96.4 96.2 0.2 -
Loyalty products 15.7 13.7 - 2.0
Eliminations (1.1) (1.2) - 0.1
Total North America 285.8 280.7 0.8 4.3
Affinion International
International products 68.5 52.6 1.5 14.4
Total products 354.3 333.3 2.3 18.7
Corporate - - - -
Total $354.3 $333.3 $2.3 $18.7
Depreciation and amortization
Income (loss) from operations
Segment EBITDA (1)
Increase
For the (Decrease)
Three Months Related Other
Ended June 30, to the Increase
2008 2007 Transactions (Decrease)
Affinion North America
Membership products $26.9 $18.7 $- $8.2
Insurance and package products 36.6 37.1 0.2 (0.7)
Loyalty products 4.9 3.4 - 1.5
Eliminations - - - -
Total North America 68.4 59.2 0.2 9.0
Affinion International
International products 9.0 4.9 0.6 3.5
Total products 77.4 64.1 0.8 12.5
Corporate (1.6) (1.2) - (0.4)
Total 75.8 62.9 0.8 12.1
Depreciation and amortization (69.3) (80.3) 14.8 (3.8)
Income (loss) from operations $6.5 $(17.4) $15.6 $8.3
Net Revenues
Increase
For the (Decrease)
Six Months Related Other
Ended June 30, to the Increase
2008 2007 Transactions (Decrease)
Affinion North America
Membership products $346.6 $342.5 $2.7 $1.4
Insurance and package products 186.8 186.6 0.4 (0.2)
Loyalty products 30.6 26.2 - 4.4
Eliminations (2.1) (2.4) - 0.3
Total North America 561.9 552.9 3.1 5.9
Affinion International
International products 131.6 100.9 2.9 27.8
Total products 693.5 653.8 6.0 33.7
Corporate - - - -
Total $693.5 $653.8 $6.0 $33.7
Depreciation and amortization
Income (loss) from operations
Segment EBITDA (1)
Increase
For the (Decrease)
Six Months Related Other
Ended June 30, to the Increase
2008 2007 Transactions (Decrease)
Affinion North America
Membership products $55.3 $38.0 $0.7 $16.6
Insurance and package products 69.5 70.9 0.4 (1.8)
Loyalty products 9.1 6.3 - 2.8
Eliminations - - - -
Total North America 133.9 115.2 1.1 17.6
Affinion International
International products 13.3 8.1 1.2 4.0
Total products 147.2 123.3 2.3 21.6
Corporate (3.2) (8.3) - 5.1
Total 144.0 115.0 2.3 26.7
Depreciation and amortization (137.2) (159.2) 29.6 (7.6)
Income (loss) from operations $6.8 $(44.2) $31.9 $19.1
(1) See Reconciliation of Non-GAAP Financial Measures on Table 7 below for
a discussion on Segment EBITDA.
TABLE 7
AFFINION GROUP, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
TO GAAP FINANCIAL MEASURES (UNAUDITED)
(In millions, except ratios)
Set forth below is a reconciliation of our consolidated net cash provided
by operating activities for the twelve months ended June 30, 2008 and the
three and six months ended June 30, 2008 and 2007 to our Adjusted EBITDA.
For the For the For the
Twelve Months Three Months Six Months
Ended June Ended June Ended June
30, 30, 30,
2008(a) 2008 2007 2008 2007
Net cash provided by operating
activities $140.9 $30.7 $22.8 $56.2 $17.1
Interest expense, net 124.5 12.0 31.5 50.5 66.3
Income tax expense 7.8 0.4 1.1 5.8 2.7
Amortization of favorable and
unfavorable contracts 3.0 0.7 0.8 1.5 1.5
Amortization of debt discount and
financing costs (6.4) (1.4) (1.5) (2.9) (3.0)
Unrealized gain (loss) on interest
rate swap 5.9 18.0 1.9 12.0 1.0
Deferred income taxes (0.7) 0.4 3.6 (2.5) 4.1
Payment received for assumption
of loyalty points program
liability (7.4) (7.4) - (7.4) -
Changes in assets and liabilities 28.6 22.8 3.2 31.8 26.5
Effect of the Transaction,
reorganizations, certain legal
costs, and net cost savings (b) 4.7 (0.6) 1.2 (0.3) 3.4
Other, net (c) 3.1 0.9 0.8 1.8 7.2
Adjusted EBITDA(d)(e) $304.0 $76.5 $65.4 $146.5 $126.8
(a) Represents consolidated financial data for the year ended December
31, 2007, minus consolidated financial data for the six months ended June 30,
2007 plus consolidated financial data for the six months ended June 30, 2008.
(b) Effect of the Transactions, reorganizations, certain legal costs and
net cost savings - eliminates the effects of the Transactions, prior business
reorganizations, non-recurring revenues and gains, legal expenses for certain
legal matters, and certain severance costs. See Table 5 for additional
information regarding the effect of the Transactions.
(c) Other, net-represents the elimination of stock-based compensation
incurred in connection with the January 2007 special dividend, non-recurring
Sarbanes-Oxley implementation costs, a $2.0 million annual consulting fee paid
to Apollo and certain other costs.
(d) Adjusted EBITDA consists of income from operations before
depreciation and amortization further adjusted to exclude non-cash and unusual
items and other adjustments permitted in our debt agreements to test the
permissibility of certain types of transactions, including debt incurrence. We
believe that the inclusion of Adjusted EBITDA is appropriate as a liquidity
measure. Adjusted EBITDA is not a measurement of liquidity or financial
performance under U.S. GAAP and Adjusted EBITDA may not be comparable to
similarly titled measures of other companies. You should not consider Adjusted
EBITDA as an alternative to cash flows from operating activities determined in
accordance with U.S. GAAP, as an indicator of cash flows, as a measure of
liquidity, as an alternative to operating or net income determined in
accordance with U.S. GAAP or as an indicator of operating performance.
(e) Adjusted EBITDA does not give pro forma effect to our acquisition of
a base of approximately half a million members and the associated fee revenue
stream from a US-based financial institution that was completed in December
2007. However, we would be permitted to make such pro forma adjustment as if
such acquisition had occurred on July 1, 2007 in calculating the Adjusted
EBITDA under our credit facility and the indentures governing our senior notes
and senior subordinated notes.
Set forth below is a reconciliation of our consolidated net loss for the
twelve months ended June 30, 2008 and the three and six months ended June 30,
2008 and 2007 to our Adjusted EBITDA.
TABLE 7-cont'd
For the For the For the
Twelve Months Three Months Six Months
Ended June Ended June Ended June
30, 30, 30,
2008(a) 2008 2007 2008 2007
Net loss $(127.8) $(6.2) $(50.0) $(50.0)$(113.3)
Interest expense, net 124.5 12.0 31.5 50.5 66.3
Income tax expense benefit 7.8 0.4 1.1 5.8 2.7
Minority interests, net of tax 0.5 0.1 - 0.3 0.1
Other expense, net 0.3 0.2 - 0.2 -
Depreciation and
amortization 288.8 69.3 80.3 137.2 159.2
Effect of the Transactions,
reorganizations, and
non-recurring
revenues and gains (b) 3.2 (0.1) 0.5 0.3 2.1
Certain legal costs (c) (0.9) (0.8) 0.1 (1.3) 0.2
Net cost savings (d) 2.4 0.3 0.6 0.7 1.1
Other, net (e) 5.2 1.3 1.3 2.8 8.4
Adjusted EBITDA(f)(g) $304.0 $76.5 $65.4 $146.5 $126.8
Interest coverage ratio(h) 2.47
Consolidated leverage ratio(i) 4.34
Fixed charge coverage ratio(j) 2.56
(a) Represents consolidated financial data for the year ended December
31, 2007, minus consolidated financial data for the six months ended June 30,
2007 plus consolidated financial data for the six months ended June 30, 2008.
(b) Effect of the Transactions, reorganizations and non-recurring
revenues and gains - eliminates the effects of the Transactions, prior
business reorganizations and non-recurring revenues and gains. For the periods
presented, the amounts relate entirely to the effect of the Transactions. See
Table 5 for additional information regarding the effect of the Transactions.
(c) Certain legal costs-represents legal costs for certain litigation
matters.
(d) Net cost savings-represents: the elimination of costs associated
with severance.
(e) Other, net-represents: (i) net changes in other reserves, (ii) the
elimination of stock-based compensation, and (iii) consulting fees paid to
Apollo.
(f) Adjusted EBITDA consists of income from operations before
depreciation and amortization further adjusted to exclude non-cash and unusual
items and other adjustments permitted in our debt agreements to test the
permissibility of certain types of transactions, including debt incurrence. We
believe that the inclusion of Adjusted EBITDA is appropriate as a liquidity
measure. Adjusted EBITDA is not a measurement of liquidity or financial
performance under U.S. GAAP and Adjusted EBITDA may not be comparable to
similarly titled measures of other companies. You should not consider Adjusted
EBITDA as an alternative to cash flows from operating activities determined in
accordance with U.S. GAAP, as an indicator of cash flows, as a measure of
liquidity, as an alternative to operating or net income determined in
accordance with U.S. GAAP or as an indicator of operating performance.
(g) Adjusted EBITDA does not give pro forma effect to our acquisition of
a base of approximately half a million members and the associated fee revenue
stream from a US-based financial institution that was completed in December
2007. However, we would be permitted to make such pro forma adjustment as if
such acquisition had occurred on July 1, 2007 in calculating the Adjusted
EBITDA under our credit facility and the indentures governing our senior notes
and senior subordinated notes.
(h) The interest coverage ratio is defined in our senior secured credit
facility (Adjusted EBITDA, as defined, to interest expense, as defined). The
calculation presented is annualized. The interest coverage ratio must be
greater than 1.60 to 1.0 at June 30, 2008.
(i) The consolidated leverage ratio is defined in our senior secured
credit facility (total debt, as defined, to Adjusted EBITDA, as defined). The
consolidated leverage ratio must be less than 6.50 to 1.0 at June 30, 2008.
(j) The fixed charge coverage ratio is defined in the indentures
governing our senior notes and our senior subordinated notes (consolidated
cash flows, as defined, which is equivalent to Adjusted EBITDA (as defined in
the senior secured credit facility) to fixed charges, as defined).
Set forth below is a reconciliation of our consolidated net loss for the
twelve months ended June 30, 2008 and the three and six months ended June 30,
2008 and 2007 to our Segment EBITDA.
For the For the For the
Twelve Months Three Months Six Months
Ended June 30, Ended June 30, Ended June 30,
2008 2008 2007 2008 2007
Net loss $(127.8) $(6.2) $(50.0) $(50.0) $(113.3)
Interest expense, net 124.5 12.0 31.5 50.5 66.3
Income tax expense benefit 7.8 0.4 1.1 5.8 2.7
Minority interests, net of
tax 0.5 0.1 - 0.3 0.1
Other expense, net 0.3 0.2 - 0.2 -
Depreciation and amortization 288.8 69.3 80.3 137.2 159.2
Segment EBITDA $294.1 $75.8 $62.9 $144.0 $115.0
SOURCE Affinion Group, Inc.
James Hart, +1-203-956-8746, or mobile, +1-203-339-2578, or Todd Smith,
+1-615-764-2598, or mobile, +1-615-202-7944
