UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended ~~September~~March 3031, ~~2016~~2017.

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

For the transition period from to .

Commission file number: 333-133895

AFFINION GROUP, INC.

(Exact name of registrant as specified in its charter)

Delaware

16-1732152

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

6 High Ridge Park

Stamford, CT 06905

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

(203) 956-1000

(Registrant’s telephone number, including area code)

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

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

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

Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☒ (Do not check if a smaller reporting company) Smaller reporting company ☐ Emerging growth company ☐

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 ☒

The number of shares outstanding of the registrant’s common stock, $0.01 par value, as of ~~October~~May 2611, ~~2016~~2017 was 100.

TABLE OF CONTENTS

	Page
Part I. FINANCIAL INFORMATION
Item 1.	1
Financial Statements	1
Unaudited Condensed Consolidated Balance Sheets as of September 30, 2016 and December 31, 2015	1
Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2016 and 2015	2
Unaudited Condensed Consolidated Statements of Changes in Deficit for the Nine Months Ended September 30, 2016 and 2015	3
Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2016 and 2015	4
Notes to Unaudited Condensed Consolidated Financial Statements	5
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations	37
Item 3.
Quantitative and Qualitative Disclosures about Market Risk	62
Item 4.
Controls and Procedures	63
Part II. OTHER INFORMATION
Item 1.
Legal Proceedings	64
Item 1A.
Risk Factors	64
Item 2.
Unregistered Sales of Equity in Securities and Use of Proceeds	64
Item 3.
Defaults Upon Senior Securities	64
Item 4.
Mine Safety Disclosure	64
Item 5.
Other Information	64
Item 6.
Exhibits	64
SIGNATURES	S-1

	Page
Part I. FINANCIAL INFORMATION
Item 1.	1
Financial Statements	1
Unaudited Condensed Consolidated Balance Sheets as of March 31, 2017 and December 31, 2016	1
Unaudited Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2017 and 2016	2
Unaudited Condensed Consolidated Statements of Changes in Deficit for the Three Months Ended March 31, 2017 and 2016	3
Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2017 and 2016	4
Notes to Unaudited Condensed Consolidated Financial Statements	5
Item 2.	34
Management’s Discussion and Analysis of Financial Condition and Results of Operations	34
Item 3.	59
Quantitative and Qualitative Disclosures about Market Risk	59
Item 4.	60
Controls and Procedures	60
Part II. OTHER INFORMATION	61
Item 1.	61
Legal Proceedings	61
Item 1A.	61
Risk Factors	61
Item 2.	61
Unregistered Sales of Equity in Securities and Use of Proceeds	61
Item 3.	61
Defaults Upon Senior Securities	61
Item 4.	61
Mine Safety Disclosure	61
Item 5.	61
Other Information	61
Item 6.	61
Exhibits	61
SIGNATURES	S-1

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

AFFINION GROUP, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF ~~SEPTEMBER~~MARCH 3031, ~~2016~~2017 AND DECEMBER 31, ~~2015~~2016

(In millions, except share amounts)

	September 30,			December 31,
	March 31,			December 31,
	2016			2015
	2017			2016
Assets
Current assets:
Cash and cash equivalents	$	6133.6		$	5136.2
Restricted cash		2624.98			2926.21
Receivables (net of allowances for doubtful accounts of $3.1 and $3.1, respectively)		116.6			114.0
Receivables (net of allowances for doubtful accounts of $3.5 and $3.0, respectively)		151.6			135.9
Profit-sharing receivables from insurance carriers		2421.98			1918.98
Prepaid commissions		3033.16			3833.49
Other current assets		7386.83			8570.6
Total current assets		~~333~~351.97			~~338~~321.35
Property and equipment, net		~~108~~105.38			~~119~~105.5
Contract rights and list fees, net		1516.96			16.64
Goodwill		~~222~~218.29			~~225~~218.82
Other intangibles, net		4539.64			5541.05
Receivables from related parties		28.9			28.9
Other non-current assets		4633.48			4434.93
Total assets	$	~~801~~795.21		$	~~829~~766.03
Liabilities and Deficit
Current liabilities:
Current portion of long-term debt	$	7.8		$	7.8
Accounts payable and accrued expenses		~~332~~353.87			~~346~~322.09
Payables to related parties		1415.79			1016.32
Deferred revenue		6154.02			6954.38
Income taxes payable		32.08			2.47
Total current liabilities		~~419~~434.34			~~435~~404.84
Long-term debt		1,~~844~~828.82			1,~~868~~837.46
Deferred income taxes		3927.27			3526.9
Deferred revenue		54.53			74.78
Other long-term liabilities		2630.30			2731.14
Total liabilities		2,~~335~~324.16			2,~~374~~305.91
Commitments and contingencies
Deficit:
Common stock and additional paid-in capital, $0.01 par value, 1,000 shares authorized, and 100 shares issued and outstanding		210.4			210.4
Accumulated deficit		(1,~~733~~726.2	)		(1,~~750~~734.83	)
Accumulated other comprehensive income		(1214.09	)		(615.27	)
Total Affinion Group, Inc. deficit		(1,~~534~~530.87	)		(1,~~546~~539.6	)
Non-controlling interest in subsidiary		01.92			0.78
Total deficit		(1,~~533~~529.95	)		(1,~~545~~538.98	)
Total liabilities and deficit	$	~~801~~795.21		$	~~829~~766.03

See accompanying notes to the unaudited condensed consolidated financial statements.

AFFINION GROUP, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME ~~(LOSS)~~

FOR THE THREE ~~AND NINE~~ MONTHS ENDED ~~SEPTEMBER~~MARCH 3031, ~~2016~~2017 AND ~~2015~~2016

(In millions)

	For the Three Months Ended						~~For the Nine Months Ended~~
	September 30,			September 30,			September 30,			September 30,
	March 31,			March 31,
	2016			2015			2016			2015
	2017			2016
Net revenues	$	~~238~~241.1		$	~~291~~254.39		$	~~737.0~~		$	~~888.6~~
Expenses:
Cost of revenues, exclusive of depreciation
and amortization shown separately below:
Marketing and commissions		8177.69			~~104~~88.71			~~254.4~~			~~331.4~~
Operating costs		7889.54			9586.18			~~248.0~~			~~298.1~~
General and administrative		2724.13			2932.31			~~87.1~~			~~93.1~~
Facility exit costs		0.1		—	~~0.1~~			~~0.1~~			~~1.2~~
Depreciation and amortization		1311.73			2314.73			~~41.9~~			~~71.7~~
Total expenses		~~201~~203.0			~~252~~221.93			~~631.5~~			~~795.5~~
Income from operations		3738.1			3833.46			~~105.5~~			~~93.1~~
Interest income		0.2			10.93			~~0.8~~			~~2.3~~
Interest expense		(27.84	)		(4728.81	)		~~(82.5~~	)		~~(142.3~~	)
Other income, net	—				0.6		—				1.2
Other expense, net		(0.1	)	—
Income (loss) before income taxes and non-controlling interest		9.5			(6.9	)		23.8			(45.7	)
Income before income taxes and non-controlling interest		10.8			5.8
Income tax expense		(12.74	)		(13.1	)		~~(5.7~~	)		~~(4.2~~	)
Net income (loss)		7.8			(8.0	)		18.1			(49.9	)
Net income		8.4			2.7
Less: net income attributable to non-controlling interest		(0.3	)		(0.21	)		~~(0.5~~	)		~~(0.5~~	)
Net income (loss) attributable to Affinion Group, Inc.	$	7.5		$	(8.2	)	$	17.6		$	(50.4	)
Net income attributable to Affinion Group, Inc.	$	8.1		$	2.6
Net income (loss)	$	7.8		$	(8.0	)	$	18.1		$	(49.9	)
Net income	$	8.4		$	2.7
Currency translation adjustment, net of tax for all periods		(10.49	)	—	~~(2.2~~	)		~~(5.8~~	)		~~(5.7~~	)
Comprehensive income (loss)		6.4			(10.2	)		12.3			(55.6	)
Comprehensive income		9.3			2.7
Less: comprehensive income attributable to non-controlling interest		(0.34	)	—	(0.1	)		~~(0.5~~	)		~~(0.2~~	)
Comprehensive income (loss) attributable to Affinion Group, Inc.	$	6.1		$	(10.2	)	$	11.8		$	(55.8	)
Comprehensive income attributable to Affinion Group, Inc.	$	8.9		$	2.6

See accompanying notes to the unaudited condensed consolidated financial statements.

AFFINION GROUP, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN DEFICIT

FOR THE ~~NINE~~THREE MONTHS ENDED ~~SEPTEMBER~~MARCH 3031, ~~2016~~2017 AND ~~2015~~2016

(In millions)

	Affinion Group, Inc. Deficit
	Common Stock and Additional Paid-in Capital		Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Non- Controlling Interest			Total Deficit
Balance, January 1, 2016	$	210.4	$	(1,750.8	)	$	(6.2	)	$	0.7		$	(1,545.9	)
Balance, January 1, 2017	$	210.4	$	(1,734.3	)	$	(15.7	)	$	0.8		$	(1,538.8	)
Net income (loss)	—			17.6		—				0.5			18.1
Net income	—			8.1		—				0.3			8.4
Currency translation adjustment	—		—				(5.8	)	—				(5.8	)
Currency translation adjustment, net of tax	—		—				0.8			0.1			0.9
Dividend paid to non-controlling interest	—		—			—				(0.3	)		(0.3	)
Balance, March 31, 2017	$	210.4	$	(1,726.2	)	$	(14.9	)	$	1.2		$	(1,529.5	)
Balance, September 30, 2016	$	210.4	$	(1,733.2	)	$	(12.0	)	$	0.9		$	(1,533.9	)
	Affinion Group, Inc. Deficit
	Common Stock and Additional Paid-in Capital		Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Non- Controlling Interest			Total Deficit
Balance, January 1, 2015	$	102.6	$	(1,720.8	)	$	1.2		$	1.1		$	(1,615.9	)
Balance, January 1, 2016	$	210.4	$	(1,750.8	)	$	(6.2	)	$	0.7		$	(1,545.9	)
Net income (loss)	—			(50.4	)	—				0.5			(49.9	)
Net income	—			2.6		—				0.1			2.7
Currency translation adjustment	—		—				(5.4	)		(0.3	)		(5.7	)
Balance, March 31, 2016	$	210.4	$	(1,748.2	)	$	(6.2	)	$	0.8		$	(1,543.2	)
Balance, September 30, 2015	$	102.6	$	(1,771.2	)	$	(4.2	)	$	1.3		$	(1,671.5	)

See accompanying notes to the unaudited condensed consolidated financial statements.

AFFINION GROUP, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE ~~NINE~~THREE MONTHS ENDED ~~SEPTEMBER~~MARCH 3031, ~~2016~~2017 AND ~~2015~~2016

(In millions)

	For the Nine Months Ended
	For the Three Months Ended
	September 30,			September 30,
	March 31,			March 31,
	2016			2015
	2017			2016
Operating Activities
Net income (loss)	$	18.1		$	(49.9	)
Net income	$	8.4		$	2.7
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		4111.93			7114.73
Amortization of debt discount and financing costs		41.5			71.05
Provision for (recovery of) accounts receivable loss provided for		0.2			(5.5	)
Provision for accounts receivable loss		0.6			0.2
Facility exit costs		0.1		−−	~~1.2~~
Amortization of carrying value adjustment		(269.20	)	−−	(8.5	)
Share-based compensation		20.89			10.47
Deferred income taxes		1.80			1.51
Net change in assets and liabilities:
Restricted cash		~~(0.~~1.5	)		4(0.12	)
Receivables		(416.40	)		8(13.72	)
Receivables from related parties	−−				4.0
Profit-sharing receivables from insurance carriers		(3.0	)		(2.9	)
Profit-sharing receivables from insurance carriers		(5.0	)		4.3
Prepaid commissions		0.5			4.3
Prepaid commissions		7.8			1.2
Other current assets		(15.8	)		15.7
Other current assets		10.3			(18.8	)
Contract rights and list fees		(0.3	)		0.9
Contract rights and list fees		0.6			(0.4	)
Other non-current assets		0.4			(1.2	)
Other non-current assets		0.2			(13.3	)
Accounts payable and accrued expenses		31.1			(8.4	)
Accounts payable and accrued expenses		(4.0	)		(7.8	)
Payables to related parties		(1.2	)		(1.7	)
Payables to related parties		1.7			(0.8	)
Deferred revenue		(1.2	)		(7.7	)
Deferred revenue		(9.2	)		(6.3	)
Income taxes receivable and payable		0.4			0.7
Income taxes receivable and payable		0.3			(0.5	)
Other long-term liabilities		(1.5	)		(1.7	)
Other long-term liabilities		(1.6	)		(5.7	)
Other, net		(0.2	)	−−
Other, net		0.6			3.2
Net cash provided by (used in) operating activities		9.5			(3.4	)
Net cash provided by (used in) operating activities		40.4			(0.7	)
Investing Activities
Capital expenditures		(2410.35	)		(236.30	)
Restricted cash		~~1.5~~—			(10.1	)
Proceeds from sale of investment	−−				1.5
Net cash used in investing activities		(10.5	)		(5.9	)
Net cash used in investing activities		(22.8	)		(22.9	)
Financing Activities
Borrowings under revolving credit facility, net	−−				61.0
Principal payments on borrowings		(1.9	)		(2.0	)
Principal payments on borrowings		(5.8	)		(6.6	)
Net cash used in financing activities		(1.9	)		(2.0	)
Dividend paid to non-controlling interest		(0.3	)	−−
Effect of changes in exchange rates on cash and cash equivalents		0.3			0.3
Receivables from and payables to parent company		−−			(1.9	)
Net decrease in cash and cash equivalents		(2.6	)		(11.0	)
Net cash provided by (used in) financing activities		(6.1	)		52.5
Cash and cash equivalents, beginning of period		36.2			51.2
Effect of changes in exchange rates on cash and cash equivalents		(1.1	)		(1.2	)
Cash and cash equivalents, end of period	$	33.6		$	40.2
Net increase in cash and cash equivalents		10.4			27.7
Cash and cash equivalents, beginning of period		51.2			28.0
Cash and cash equivalents, end of period	$	61.6		$	55.7
Supplemental Disclosure of Cash Flow Information:
Interest payments	$	9025.3		$	~~138~~24.05
Income tax payments, net of refunds	$	31.60		$	21.62
Non-cash investing and financing activities:
Accrued capital expenditures	$	0.93		$	~~0.4~~—
Payment of in-kind interest	$	3.9		$	−−

See accompanying notes to the unaudited condensed consolidated financial statements.

AFFINION GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

1. BASIS OF PRESENTATION AND BUSINESS DESCRIPTION

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

~~All~~The ~~references~~accompanying tounaudited ~~Cendant~~condensed ~~refer~~consolidated tofinancial ~~Cendant~~statements ~~Corporation~~include the accounts and transactions of Affinion Group, ~~which~~Inc. ~~changed~~(the ~~its~~“Company” ~~name~~or to“Affinion”), ~~Avis~~a ~~Budget~~wholly-owned subsidiary of Affinion Group Holdings, Inc. in(“Affinion ~~August~~Holdings”). ~~2006~~In presenting these unaudited condensed consolidated financial statements, management makes estimates and ~~its~~assumptions ~~consolidated~~that ~~subsidiaries~~affect reported amounts of assets and liabilities and related disclosures, ~~specifically~~and indisclosure of contingent assets and liabilities, at the ~~context~~date of ~~its~~the ~~business~~financial statements, and ~~operations~~reported ~~prior~~amounts ~~to,~~of revenues and inexpenses ~~connection~~during ~~with~~the reporting periods. Estimates, by their nature, are based on judgments and available information at the ~~Company~~time such estimate is made. As such, actual results could differ from those estimates. In management’s ~~separation~~opinion, ~~from~~the ~~Cendant~~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 ~~include~~have ~~the~~been ~~accounts~~prepared ~~and~~in ~~transactions~~accordance ofwith the ~~Company.~~instructions Into ~~presenting~~Form ~~these~~10-Q ~~unaudited~~and ~~condensed~~following ~~consolidated~~the ~~financial~~guidance ~~statements,~~of ~~management~~Rule ~~makes~~10-01 ~~estimates~~of ~~and~~Regulation ~~assumptions~~S-X ~~that~~for ~~affect~~interim ~~reported~~financial ~~amounts~~statements ofrequired ~~assets~~to ~~and~~be ~~liabilities~~filed ~~and~~with ~~related~~the ~~disclosures,~~U.S. Securities and ~~disclosure~~Exchange ofCommission ~~contingent~~(the ~~assets~~“SEC”). ~~and~~As ~~liabilities,~~permitted atunder ~~the~~such ~~date~~rules, ofcertain ~~the~~notes and other financial ~~statements,~~information ~~and~~normally ~~reported~~required ~~amounts~~by ofaccounting ~~revenues~~principles ~~and~~generally ~~expenses~~accepted ~~during~~in the ~~reporting~~United ~~periods.~~States ~~Estimates,~~of byAmerica ~~their~~have ~~nature,~~been ~~are~~condensed ~~based~~or onomitted; ~~judgments~~however, ~~and~~the ~~available~~unaudited ~~information~~condensed atconsolidated ~~the~~financial ~~time~~statements do include such ~~estimate~~notes isand ~~made.~~financial Asinformation ~~such,~~sufficient ~~actual~~so ~~results~~as ~~could~~to ~~differ~~make ~~from~~the ~~those~~interim ~~estimates.~~information Inpresented ~~management’s~~not ~~opinion,~~misleading. ~~the~~These unaudited condensed consolidated financial statements ~~contain~~should ~~all~~be ~~normal~~read ~~recurring~~in ~~adjustments~~conjunction ~~necessary~~with ~~for~~the aaudited ~~fair~~consolidated ~~statement~~financial ofstatements ~~interim~~and ~~results~~related ~~reported.~~notes ~~The~~of ~~results~~the ofCompany, ~~operations~~which ~~reported~~are ~~for~~included ~~interim~~in ~~periods~~the ~~are~~Company’s ~~not~~Annual ~~necessarily~~Report ~~indicative~~on ofForm 10-K for the ~~results~~year ofended ~~operations~~December 31, ~~for~~2016 filed with the ~~entire~~SEC ~~year~~on orMarch ~~any~~31, ~~subsequent~~2017 ~~interim~~(the ~~period.~~“Form 10-K”).

~~The~~Business ~~accompanying~~Description— ~~unaudited~~The ~~condensed~~Company ~~consolidated~~develops ~~financial~~programs ~~statements~~and ~~have~~solutions ~~been~~that ~~prepared~~motivate inand ~~accordance~~inspire ~~with~~loyalty. ~~the~~Through ~~instructions~~our toproprietary ~~Form~~technology ~~10-Q~~platforms and ~~following the guidance of Rule 10~~end-~~01 of Regulation S~~to-Xend ~~for~~customer ~~interim~~service ~~financial~~capabilities, ~~statements~~we ~~required~~design, toadminister ~~be filed with the U.S. Securities~~ and ~~Exchange~~fulfill ~~Commission (the “SEC”). As permitted under such rules~~loyalty, ~~certain~~customer ~~notes~~engagement and ~~other~~insurance ~~financial~~programs ~~information~~and ~~normally~~solutions ~~required~~that bystrengthen ~~accounting~~and ~~principles~~expand ~~generally accepted in~~ the ~~United~~value ~~States~~ of ~~America~~customer ~~have~~relationships ~~been~~for ~~condensed~~many orof ~~omitted; however,~~ the ~~unaudited~~world’s ~~condensed~~largest ~~consolidated financial statements do include such notes~~ and ~~financial~~most ~~information~~respected ~~sufficient so as to make the interim information presented not misleading~~companies. ~~These~~Our ~~unaudited~~programs ~~condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements~~ and ~~related~~solutions ~~notes of the Company, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 filed with the SEC on March 10, 2016 (the “Form 10-K”).~~ include:

~~Business~~• ~~Description—~~Loyalty ~~The~~solutions ~~Company~~that ishelp ~~one~~reward, motivate and retain consumers. We create and manage any and all aspects of ~~the~~our ~~world~~clients’s ~~leading~~points-based loyalty ~~and~~programs, ~~customer~~including ~~engagement~~design, ~~solutions~~platform, ~~companies~~analytics, points management and fulfillment. ~~The~~Our ~~Company~~loyalty ~~designs~~solutions offer relevant, ~~markets~~best-in-class ~~and~~rewards ~~services~~(such ~~programs~~as ~~that~~travel, ~~strengthen~~gift cards and ~~extend~~merchandise) ~~customer~~to ~~relationships~~consumers ~~for~~enabling ~~many~~clients ofto ~~the~~motivate, ~~world’s~~retain ~~largest~~ and ~~most~~thank ~~respected~~their ~~companies~~best customers. ~~The~~For ~~Company’s~~example, ~~programs~~our platform and technology support points-based programs for financial services, ~~include:~~automotive, gaming, travel and hospitality companies.

• ~~Loyalty~~Customer engagement programs and solutions that address key consumer needs such as greater peace of mind and meaningful savings for everyday purchases. We provide these solutions to leading companies in the financial institution, telecommunications, ecommerce, retail and travel sectors globally. These differentiated programs help ~~reward~~our clients enrich their offerings to drive deeper connections with their customers, ~~motivate~~and to encourage their customers to engage more, stay loyal and ~~retain~~generate ~~consumers~~more revenue for our clients. For example, we develop and manage programs such as identity theft protection, credit monitoring, savings on everyday purchases, concierge services, discount travel services and roadside assistance.

• ~~Membership~~Insurance programs and solutions that help protect consumers ~~save~~in ~~money~~the event of a covered accident, injury, illness, or death. We market accident and ~~gain~~life ~~peace~~insurance programs on behalf of ~~mind~~our financial institution partners. We work with leading insurance carriers to administer coverage for over 19 million people across America. These insurance solutions provide affordable, convenient insurance to consumers resulting in proven customer loyalty and generating incremental revenue for our clients. Our insurance solutions include accidental death and dismemberment insurance (“AD&D”), hospital accident plan, recuperative care, graded benefit whole life and simplified issue term life insurance.

•In ~~Package~~2016, ~~programs~~we ~~that~~implemented ~~bundle~~a ~~valuable~~new ~~discounts,~~globalized ~~protection~~organizational structure (the “Global Reorganization”) to better support our key strategic initiatives and ~~other~~enhance ~~benefits~~long-term revenue growth. This new organizational structure allows us to combine similar lines of business on common platforms and shared infrastructures on a global basis to drive best practices and efficiencies with meaningful cost savings. In addition, we 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 ~~relationships,~~engagement solutions. The implementation of the Global Reorganization marks another major step in our strategic plan and ongoing transformation. See Note 10 to our unaudited condensed consolidated financial statements for more information concerning our segment results.

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

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

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

~~with~~Starting toin ~~provide loyalty and customer engagement solutions as clients or marketing partners. The Company refers to~~ the ~~consumers~~first toquarter ~~whom it provides services directly under a contractual relationship as subscribers or insureds. The Company refers to those consumers that it services on behalf~~ of ~~a third party~~2016, ~~such~~we ashave ~~one~~the offollowing ~~its~~four ~~marketing~~operating ~~partners, and with whom it has a contractual relationship as end-customers.~~ segments:

~~The~~• ~~Company~~Global ~~utilizes~~Loyalty. ~~its~~This ~~substantial~~segment ~~expertise~~consists inof aall ~~variety~~ of ~~direct~~our ~~engagement~~loyalty ~~media~~assets toglobally ~~market~~in ~~valuable~~which ~~products~~we ~~and~~are ~~services~~a toprovider ~~the customers~~ of ~~its~~end-to-end ~~marketing~~loyalty ~~partners~~solutions onthat ahelp ~~highly~~clients ~~targeted~~reward, ~~campaign~~enrich, ~~basis.~~motivate ~~The selection of the media employed in a campaign corresponds to the preferences~~ and ~~expectations~~retain ~~the targeted~~ customers ~~have demonstrated for transacting with its marketing partners~~, asincluding ~~the~~program ~~Company believes this optimizes response~~design, ~~thereby~~points ~~improving~~management ~~the~~and ~~efficiency of our marketing investment. Accordingly~~administration, ~~the~~and ~~Company maintains significant capabilities to market through direct mail, point~~broad-~~of-sale,~~based ~~the~~fulfillment ~~internet, inbound~~ and ~~outbound~~redemption ~~telephony~~across ~~and~~multiple ~~voice response unit marketing, as well as other media as needed~~channels.

~~Effective~~• ~~January 1, 2016, we implemented a new globalized organizational structure (the “~~Global ~~Reorganization”)~~Customer ~~to better support our key strategic initiatives and enhance long-term revenue growth~~Engagement. This ~~new~~segment ~~organizational~~consists ~~structure allows us to combine similar lines~~ of ~~business~~our oncustomer ~~common~~engagement ~~platforms and shared infrastructures on a global basis to drive best practices and efficiencies with meaningful cost savings. In addition~~business, ~~we intend to no longer materially invest~~ in ~~lines~~which ~~of business that~~ we ~~believe~~ are ~~not~~a ~~essential~~leading toglobal ~~our~~solutions ~~long-term~~provider ~~growth prospects. We remain committed to our business strategy of pursuing initiatives~~ that ~~maintain~~delivers ~~and enhance our position as~~ a ~~global~~flexible ~~leader~~mix ~~in loyalty and customer engagement solutions. The implementation~~ of ~~the~~benefits ~~new global organizational structure marks another major step in our strategic plan~~ and ~~ongoing~~services ~~transformation. See Note 10 to our unaudited condensed consolidated financial statements~~ for ~~more information concerning~~ our ~~segment~~clients ~~results~~that ~~and~~meet ~~Note~~customers’ 2needs, toincluding ~~our~~products ~~unaudited~~that ~~condensed~~are ~~consolidated~~designed ~~financial statements for more information concerning the allocation of goodwill among the new segments. Prior period segment amounts throughout the notes~~ to ~~the~~help ~~unaudited~~consumers ~~condensed~~save ~~consolidated~~money ~~financial~~and ~~statement~~gain ~~have~~peace ~~been reclassified to the new segment structure. The reclassification~~ of ~~historical business segment information had no impact on our basic financial statements~~mind.

~~Effective~~• ~~January~~Insurance 1,Solutions. ~~2016~~This segment consists of the domestic insurance business, in which we ~~have~~are ~~the~~a ~~following~~leading ~~four~~third-party ~~new~~agent, ~~operating~~administrator ~~segments:~~and marketer of certain accident & life insurance solutions.

• ~~Global~~Legacy ~~Loyalty~~Membership and Package. This segment consists of ~~all~~certain ofglobal ~~the~~membership ~~Company’s~~and ~~loyalty~~package ~~assets~~programs ~~globally~~that ~~in which we~~ are ano ~~provider~~longer ofbeing ~~end-to-end~~actively ~~loyalty~~marketed ~~solutions~~but ~~that~~continue ~~help~~to ~~clients~~be ~~reward,~~serviced ~~motivate~~ and ~~retain customers, including program design, points management and administration, and broad-based fulfilment and redemption~~supported.

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

• Insurance Solutions. This segment consists of the domestic insurance business, in which the Company is a leading third-party agent, administrator and marketer of certain Accident and Life insurance products.

• Legacy Membership and Package. This segment combines all global membership programs in which the Company no longer expects to actively market (which were previously reported predominantly in our Membership Products segment and to a lesser extent in our International Products segment) and also includes the domestic Package business (which, through December 31, 2015, was reported in its Insurance and Package segment). This segment includes membership programs that were marketed with many of the Company’s large domestic financial institution partners. Although the Company will continue to service these members, it expects that cash flows and revenues will decrease over time due to the anticipated attrition of the member base in this operating segment.

Recently Issued Accounting Pronouncements

OnIn May ~~28,~~ 2014, the FASB ~~and International Accounting Standards Board~~ issued ~~their~~new ~~final~~accounting ~~standard~~guidance onrelated to revenue ~~from contracts with customers~~recognition. The new standard outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The fundamental principles of the guidance are that ~~companies~~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 aan ~~company~~ entity expects to receive for the goods and services provided. Entities ~~The~~have ~~guidance establishes a five-step approach for~~ the ~~recognition~~option of ~~revenue.~~using Ineither ~~addition,~~a ~~the~~full ~~guidance~~retrospective ~~will~~or ~~also~~modified ~~require~~retrospective ~~significantly~~approach; ~~expanded~~however ~~disclosures~~entities ~~about~~are ~~revenue~~not ~~recognition.~~permitted Into ~~July~~adopt ~~2015,~~ the ~~FASB~~standard ~~issued~~earlier athan ~~new~~annual ~~standard~~reporting ~~that,~~periods ~~for~~beginning ~~public~~after ~~entities~~December 15, ~~defers~~2016, ~~the~~with ~~effective date of~~ the new standard onrequired ~~revenue~~to ~~from~~be ~~contracts~~adopted ~~with~~for ~~customers by one year, to~~ annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2017. ~~Entities~~We ~~have~~are evaluating the ~~option~~adoption method as well as the impact of ~~using~~this ~~either~~new accounting guidance on our consolidated financial statements. We have formed a ~~full~~project ~~retrospective~~implementation orteam ~~modified~~with ~~retrospective~~representatives ~~approach~~from each of our operating segments and ~~early~~have ~~application~~engaged isa ~~not~~third-party ~~permitted,~~consultant ~~other~~to ~~than~~assist ~~entities~~in ~~may~~our ~~earlier~~evaluation ~~adopt~~of the impact of the new guidance. asAs part of ~~the~~our ~~originally~~assessment ~~proposed~~work ~~effective~~to date, ~~which~~we ~~was~~have ~~for~~analyzed ~~annual~~a ~~reporting~~representative ~~periods~~sampling ~~(including~~of ~~interim~~customer ~~reporting~~contracts ~~periods~~across ~~within~~all ~~those~~segments ~~periods)~~and ~~beginning~~continue ~~after~~to ~~December~~progress ~~15,~~with ~~2016~~a comprehensive review and assessment of the total contract population. ~~The~~We ~~Company~~have isnot inyet completed our final review of the ~~process~~impact of ~~performing~~this anguidance; however, we continue to review variable consideration, incremental and direct costs, potential disclosures, and our method of adoption to complete our evaluation of the impact ofon our consolidated financial statements. In addition, we continue to monitor additional changes, modifications, clarifications or interpretations being undertaken by the ~~new~~FASB, ~~guidance~~which may impact our current conclusions. The Company expects to adopt the new standard on its effective date.

In February 2016, the FASB issued ASU 2016-02, its new standard on accounting for leases. The new standard requires lessees to recognize 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. Entities are required to adopt the guidance using a modified retrospective method. The Company has formed a project implementation team and is working with representatives from each of its operating segments to compile a lease database containing all of the relevant information required to assess the impact of the new guidance. The Company expects to adopt the new standard on its effective date.

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. 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 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.

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

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

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

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

On August 26, 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. 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.

2. INTANGIBLE ASSETS AND GOODWILL

Intangible assets consisted of:

	September 30, 2016
	March 31, 2017
	Gross Carrying		Accumulated			Net Carrying
	Amount		Amortization			Amount
	(in millions)
Amortizable intangible assets:
Member relationships	$	~~934~~932.47	$	(~~932~~931.03	)	$	21.4
Affinity relationships		~~638~~634.31		(~~604~~603.06	)		3430.35
Proprietary databases and systems		59.76		(58.01	)		1.75
Trademarks and tradenames		2827.47		(2122.50	)		65.97
Patents and technology		47.67		(47.45	)		0.2
Covenants not to compete		2.5		(2.4	)		0.1
	$	1,~~710~~704.93	$	(1,~~665~~664.39	)	$	4539.64
	December 31, 2015
	December 31, 2016
	Gross Carrying		Accumulated			Net Carrying
	Amount		Amortization			Amount
	(in millions)
Amortizable intangible assets:
Member relationships	$	~~936~~932.94	$	(~~933~~930.8	)	$	3.1.6
Affinity relationships		~~639~~632.39		(~~598~~600.69	)		4032.70
Proprietary databases and systems		59.76		(5758.70	)		21.06
Trademarks and tradenames		2827.7		(2021.87	)		76.90
Patents and technology		47.67		(4647.5	)		10.12
Covenants not to compete		2.54		(2.3	)		0.21
	$	1,~~714~~702.7	$	(1,~~659~~661.72	)	$	5541.05

Foreign currency translation resulted in aan ~~decrease~~increase in intangible assets and accumulated amortization of $31.76 million and $31.76 million, respectively, from December 31, ~~2015~~2016 to ~~September~~March 3031, ~~2016~~2017.

Amortization expense relating to intangible assets was as follows:

	For the Three Months Ended				~~For the Nine Months Ended~~
	September 30,		September 30,		September 30,		September 30,
	March 31,		March 31,
	2016		2015		2016		2015
	2017		2016
	(in millions)
Amortizable intangible assets:
Member relationships	$	0.21	$	10.42	$	~~0.7~~	$	~~3.4~~
Affinity relationships		21.25		92.52		~~6.6~~		~~29.2~~
Proprietary databases and systems		0.1		0.1		~~0.3~~		~~0.3~~
Trademarks and tradenames		0.34		0.54		~~0.9~~		~~1.8~~
Patents and technology		~~0.3~~—		0.43		~~0.9~~		~~2.0~~
Covenants not to compete		~~0.1~~—		~~0.1~~—		~~0.1~~		~~0.2~~
	$	3.2.1	$	123.02	$	~~9.5~~	$	~~36.9~~

Based on the Company’s amortizable intangible assets as of ~~September~~March 3031, ~~2016~~2017, the Company expects the related amortization expense for fiscal year ~~2016~~2017 and the four succeeding fiscal years to be approximately $1213.54 million in ~~2016~~2017, $87.3 million in ~~2017~~2018, $75.49 million in ~~2018~~2019, $65.25 million in ~~2019~~2020 and $53.7 million in ~~2020~~2021.

~~At January 1, 2016 and September 30, 2016, the Company had gross goodwill of $654.~~7 million and $651.2 million, respectively, and accumulated impairment losses of $429.0 million at both dates. The accumulated impairment losses represent the $15.5 million impairment loss recognized in 2006 impairing all of the goodwill assigned to the Global Loyalty segment (previously included in the Global Loyalty Products segment) related to the Apollo Transactions, the $31.5 million impairment loss recognized in 2012 impairing all of the goodwill assigned in connection with the acquisition of Prospectiv Direct, Inc. included in the Legacy Membership and Package segment (previously included in the Membership Products segment) and the $292.4 million and the $89.6 million impairment losses recognized in 2014 and 2015, respectively, impairing all of the goodwill assigned to the former Membership Products segment, which has been allocated to the Legacy Membership and Package segment.

At March 31, 2017 and December 31, 2016, the Company had gross goodwill of $647.9 million and $647.2 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 8 to our 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, ~~2015~~2016 and the ~~nine~~three months ended ~~September~~March 3031, ~~2016~~2017 are as follows:

	Balance at					Balance at						Balance at					~~Balance at~~
	January 1,		Currency			December 31,			Currency			~~December~~March 31,		~~Currency~~			~~September 30,~~
	2015		Acquisition			Impairment			Translation			2015		Translation			2016
	2016		Translation			2016			Translation			2017
	(in millions)
Global Loyalty	$	~~106~~105.21	$	(0.23	)	$	-104.8		$	(0.91	)	$	~~105~~104.19	$	~~0.2~~		$	~~105.3~~
Global Customer Engagement		6862.14	—	(7.3	)	—	55.1			(50.76	)		6255.47		~~(3.8~~	)		~~58.6~~
Insurance Solutions		58.3	—			—	58.3		—				58.3	—				~~58.3~~
Legacy Membership and Package	—	~~89.6~~	—				~~(89.6~~—	)	—			—	-	—			—
Total	$	~~322~~225.28	$	(07.26	)	$	~~(89~~218.62	)	$	(60.67	)	$	~~225~~218.89	$	~~(3.6~~	)	$	~~222.2~~

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

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

3. CONTRACT RIGHTS AND LIST FEES, NET

Contract rights and list fees consisted of:

	September 30, 2016							December 31, 2015
	March 31, 2017							December 31, 2016
	Gross Carrying		Accumulated			Net Carrying		Gross Carrying		Accumulated			Net Carrying
	Amount		Amortization			Amount		Amount		Amortization			Amount
	(in millions)
Contract rights	$	505.10	$	(505.10	)	$	-—	$	~~56.~~5.0	$	(565.40	)	$	~~0.1~~—
List fees		6063.0		(4446.14	)		1516.96		5761.06		(4045.52	)		16.54
	$	~~110~~68.10	$	(9451.24	)	$	1516.96	$	~~113~~66.56	$	(9650.92	)	$	16.64

Amortization expense for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2016~~2017 ~~was $1.3 million~~ and ~~$3.8~~2016 ~~million,~~was ~~respectively, of which~~ $1.~~2 million and $3.6 million, respectively, is included in marketing expense and $0.~~1 million and $0.2 million, respectively, is included in depreciation and amortization expense in the unaudited condensed consolidated statement of comprehensive income (loss). Amortization expense for the three and nine months ended September 30, 2015 was $1.3 million ~~and $4.0 million~~, respectively, of which $1.31 million and $31.82 million, respectively, is included in marketing expense and ~~less~~none ~~than~~and $0.1 million ~~and $0.2 million~~, respectively, is included in depreciation and amortization expense in the unaudited condensed consolidated statement of comprehensive income ~~(loss)~~. Based on the Company’s contract rights and list fees as of ~~September~~March 3031, ~~2016~~2017, the Company expects the related amortization expense for fiscal year ~~2016~~2017 and the four succeeding fiscal years to be approximately $4.93 million in ~~2016~~2017, $3.97 million in ~~2017~~2018, $3.20 million in ~~2018~~2019, $2.53 million in ~~2019~~2020 and $21.05 million in ~~2020~~2021.

4. LONG-TERM DEBT

Long-term debt consisted of:

	September 30,			December 31,
	March 31,			December 31,
	2016			2015
	2017			2016
	(in millions)
First-lien term loan due 2018	$	~~755~~751.68		$	~~761~~753.47
Second-lien term loan due 2018		425.0			425.0
Revolving credit facility, expiring in 2018	—			—
7.875% senior notes due 2018, net of unamortized discount of $0.5
7.875% senior notes due 2018, net of unamortized discount of $0.3
million and $0.6 million, respectively, with an effective interest rate
million and $0.4 million, respectively, with an effective interest rate
of 8.31%		474.57			474.46
7.5% cash/PIK senior notes due 2018,
with an effective interest rate of 7.39%		~~113~~116.92			~~110~~116.02
13.50% senior subordinated notes due 2018, with an
effective interest rate of 14.31%		22.6			22.6
Capital lease obligations	—				0.1
Adjustment to carrying value of debt		53.5			62.5
Adjustment to carrying value of debt		71.6			97.8
Total debt		1,843.8			1,854.6
Total debt		1,863.2			1,891.3
Less: current portion of long-term debt		(7.8	)		(7.8	)
Less: unamortized deferred financing costs		(107.68	)		(159.12	)
Long-term debt	$	1,~~844~~828.82		$	1,~~868~~837.46

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

The revolving credit facility includes a letter of credit subfacility and a swingline loan subfacility. The First Lien Term Loan facility ~~matures in April 2018 and the Second Lien Term Loan facility matures in October 2018. The First Lien Term Loan facility~~ provides for quarterly amortization payments totaling 1% per annum, with the balance payable upon the final maturity date. The Second Lien Term Loan facility does not provide for quarterly amortization payments. The Affinion Credit Facility also requires mandatory prepayments of the outstanding term loans based on excess cash flow (as defined), if any, and the proceeds from certain specified transactions. The interest rates with respect to First Lien Term Loans and revolving loans under the amended Affinion Credit Facility are based on, at the Company’s option, (a) the higher of (i) adjusted LIBOR and (ii) 1.50%, in each case plus 5.25%, or (b) the highest of (i) Deutsche Bank Trust Company Americas’ prime rate, (ii) the Federal Funds Effective Rate plus 0.5% and (iii) 2.50% (“ABR”), in each case plus 4.25%. The interest rates with respect to Second Lien Term Loans under the amended Affinion Credit Facility are based on, at the Company’s option, (a) the higher of (i) adjusted LIBOR and (ii) 1.50%, in each case plus 7.00%, or (b) the highest of (i) Deutsche Bank Trust Company Americas’ prime rate, (ii) the Federal Funds Effective Rate plus 0.5% and (iii) 2.50% (“ABR”), in each case plus 6.00%. The weighted average interest rate on the First Lien Term Loan for the three months ended March 31, 2017 and 2016 was 6.75% for each period and the weighted average interest rate on the Second Lien Term Loan for the three months ended March 31, 2017 and 2016 was 8.50% for each period. The weighted average interest rate on revolving credit facility borrowings for the three months ended March 31, 2017 and 2016 was 8.0%, and 7.8%, respectively. The Company’s obligations under the credit facility are, and the Company’s obligations under any interest rate protection or other hedging arrangements entered into with a lender or any of its affiliates will be, guaranteed by Affinion Holdings and by each of the Company’s existing and subsequently acquired or organized domestic subsidiaries, subject to certain exceptions. The Affinion Credit Facility is secured to the extent legally permissible by substantially all of the assets of (i) Affinion Holdings, which consists of a pledge of all the Company’s capital stock and (ii) the Company and the subsidiary guarantors, including but not limited to: (a) a pledge of substantially all capital stock held by the Company or any subsidiary guarantor and (b) security interests in substantially all tangible and intangible assets of the Company and each subsidiary guarantor, subject to certain exceptions. The Affinion Credit Facility also contains financial, affirmative and negative covenants. The negative covenants in the Affinion Credit Facility include, among other things, limitations (all of which are subject to certain exceptions) on the Company’s (and in certain cases, Affinion Holdings’) ability to: declare dividends and make other distributions, redeem or repurchase the Company’s capital stock; prepay, redeem or repurchase certain of the Company’s subordinated indebtedness; make loans or investments (including acquisitions); incur additional indebtedness (subject to certain exceptions); enter into agreements that would restrict the ability of the Company’s subsidiaries to pay dividends; merge or enter into acquisitions; sell

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

As of ~~September~~March 3031, ~~2016~~2017 and December 31, ~~2015~~2016, there were no outstanding borrowings under the revolving credit facility. During the ~~nine~~three months ended ~~September~~March 3031, ~~2016~~2017 and ~~2015~~2016, the Company had borrowings of $~~107~~53.0 million and $8117.0 million, respectively, under the revolving credit facility. During the ~~nine~~three months ended ~~September~~March 3031, ~~2016~~2017 and ~~2015~~2016, the Company had repayments of $~~107~~53.0 million and $2017.0 million, respectively, under the revolving credit facility. As of ~~September~~March 3031, ~~2016~~2017, the Company had $69.2 million available for borrowing under the Affinion Credit Facility after giving effect to the issuance of $10.8 million of letters of credit.

On November 9, 2015, (a) Affinion Holdings completed a private offer to exchange (the “2015 Holdings Exchange Offer”) its outstanding 13.75%/14.50% senior secured PIK/toggle notes due 2018 (Affinion Holdings’ “2013 senior notes”) for shares of its Common Stock, par value $0.01 per share (Affinion Holdings’ “Common Stock”), (b) Affinion Investments, LLC (“Affinion Investments”) completed a private offer to exchange (the “2015 Investments Exchange Offer” and, together with the 2015 Holdings Exchange Offer, the “2015 Exchange Offers”) its outstanding 13.50% senior subordinated notes due 2018 (the “Investments senior subordinated notes”) for shares of Common Stock, and (c) Affinion Holdings and Affinion International Holdings Limited (“Affinion International”), a wholly-owned subsidiary of Affinion, jointly completed a rights offering giving holders of Affinion Holdings’ 2013 senior notes and the Investments senior subordinated notes the right to purchase an aggregate principal amount of $110.0 million of 7.5% Cash/PIK Senior Notes due 2018 (the “International Notes”) of Affinion International and up to 2,483,333 shares of Common Stock for an aggregate cash purchase price of $110.0 million. Under the terms of the 2015 Holdings Exchange Offer, for each $1,000 principal amount of Affinion Holdings’ 2013 senior notes tendered during the offer period, holders received 7.15066 shares of Affinion Holdings’ Common Stock. Under the terms of the 2015 Investments Exchange Offer, for each $1,000 principal amount of the Investments senior subordinated notes tendered during the offer period, holders received 15.52274 shares of Affinion Holdings’ Common Stock. Under certain circumstances, certain holders would have received non-participating penny warrants (the “Limited Warrants”) of Affinion Holdings that would have been convertible into shares of Common Stock upon certain conditions. Pursuant to the 2015 Holdings Exchange Offer, approximately $247.4 million of Affinion Holdings’ 2013 senior notes were exchanged for 1,769,104 shares of Common Stock and pursuant to the 2015 Investments Exchange Offer, approximately $337.3 million of Investments senior subordinated notes were exchanged for 5,236,517 shares of Common Stock.

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

In connection with the 2015 Exchange Offers, Affinion Holdings and Affinion International jointly conducted a rights offering (the “2015 Rights Offering”) for International Notes and shares of Affinion Holdings’ Common Stock. The 2015 Rights Offering was for an aggregate principal amount of $110.0 million of International Notes and up to 2,483,333 shares of Common Stock. Each unit sold in the 2015 Rights Offering consisted of (1) $1,000 principal amount of International Notes and (2) 22.57576 shares of Affinion Holdings’ Common Stock, and was sold at a purchase price per unit of $1,000. Each holder that properly tendered for exchange, and did not validly withdraw, all of their Affinion Holdings’ 2013 senior notes and the Investments senior subordinated notes in the 2015 Exchange Offers received non-certificated rights to subscribe for rights offering units. In connection with the 2015 Rights Offering, Empyrean Capital Partners, L.P. agreed to purchase any rights offering units that were unpurchased in the 2015 Rights Offering (the “Backstop”). Pursuant to the 2015 Rights Offering and the Backstop, Affinion International received cash of approximately $110.0 million in exchange for $110.0 million aggregate principal amount of International Notes and 2,021,042 shares of Common Stock and non-participating penny warrants (the “Limited Warrants”) of Affinion Holdings that are convertible into 462,266 shares of Common Stock upon certain conditions.

11The International Notes bear interest at 7.5% per annum, of which 3.5% per annum will be payable in cash (“International Cash Interest”) and 4.0% per annum will be payable by increasing the principal amount of the outstanding International Notes or by issuing International Notes (“International PIK Interest”); provided, that all of the accrued interest on the International Notes from the issue date to, but not including, May 1, 2016 was payable on May 1, 2016 entirely as International PIK Interest. Interest on the International Notes is payable semi-annually on May 1 and November 1 of each year, commencing on May 1, 2016. The International Notes will mature on July 30, 2018. The International Notes are redeemable at Affinion International’s option prior to maturity. The indenture governing the International Notes contains negative covenants which restrict the ability of Affinion International, Affinion and their respective restricted subsidiaries to engage in certain transactions and also contains customary events of default. Affinion International’s obligations under the International Notes are fully and unconditionally guaranteed on an unsecured senior basis by each of Affinion’s existing and future domestic subsidiaries that guarantee Affinion’s indebtedness under its senior secured credit facility (other than Affinion Investments and Affinion Investments II, LLC (“Affinion Investments II”), and additionally including (such additional guarantors, the “Foreign Guarantors”) Affinion International Limited, Affinion International Travel HoldCo Limited, Webloyalty International Limited, Loyalty Ventures Limited, Bassae Holding B.V., Webloyalty Holdings Coöperatief U.A. and

for an aggregate principal amount of $110.0 million of International Notes and up to 2,483,333 shares of Common Stock. Each unit sold in the 2015 Rights Offering consisted of (1) $1,000 principal amount of International Notes and (2) 22.57576 shares of Affinion Holdings’ Common Stock, and was sold at a purchase price per unit of $1,000. Each holder that properly tendered for exchange, and did not validly withdraw, all of their Affinion Holdings’ 2013 senior notes and the Investments senior subordinated notes in the 2015 Exchange Offers received non-certificated rights to subscribe for rights offering units. In connection with the 2015 Rights Offering, Empyrean Capital Partners, L.P. agreed to purchase any rights offering units that were unpurchased in the 2015 Rights Offering (the “Backstop”). Pursuant to the 2015 Rights Offering and the Backstop, Affinion International received cash of approximately $110.0 million in exchange for $110.0 million aggregate principal amount of International Notes and 2,021,042 shares of Common Stock and a Limited Warrant to purchase up to 462,266 shares of Common Stock. The net cash proceeds from the 2015 Rights Offering were used for working capital purposes of Affinion International and the Foreign Guarantors (as defined below) and to repay certain intercompany loans owed by Affinion International to Affinion and its domestic subsidiaries. Affinion used such intercompany loan repayment proceeds for general corporate purposes, including to repay borrowings under its revolving credit facility and to pay fees and expenses related to the 2015 Transactions (as defined below). 10

The International Notes bear interest at 7.5% per annum, of which 3.5% per annum will be payable in cash (“International Cash Interest”) and 4.0% per annum will be payable by increasing the principal amount of the outstanding International Notes or by issuing International Notes (“International PIK Interest”); provided, that all of the accrued interest on the International Notes from the issue date to, but not including, May 1, 2016 was payable on May 1, 2016 entirely as International PIK Interest. Interest on the International Notes is payable semi-annually on May 1 and November 1 of each year, commencing on May 1, 2016. The International Notes will mature on July 30, 2018. The International Notes are redeemable at Affinion International’s option prior to maturity. The indenture governing the International Notes contains negative covenants which restrict the ability of Affinion International, Affinion and their respective restricted subsidiaries to engage in certain transactions and also contains customary events of default. Affinion International’s obligations under the International Notes are fully and unconditionally guaranteed on an unsecured senior basis by each of Affinion’s existing and future domestic subsidiaries that guarantee Affinion’s indebtedness under its senior secured credit facility (other than Affinion Investments and Affinion Investments II, LLC (“Affinion Investments II”), and additionally including (such additional guarantors, the “Foreign Guarantors”) Affinion International Limited, Affinion International Travel HoldCo Limited, Webloyalty International ~~Limited, Loyalty Ventures Limited, Bassae Holding B.V., Webloyalty Holdings Coöperatief U.A. and Webloyalty International~~ S.à r.l.). The International Notes and guarantees thereof are unsecured senior obligations of Affinion International’s and rank equally with all of Affinion International’s and the guarantors’ existing and future senior indebtedness and senior to Affinion International’s and the guarantors’ existing and future subordinated indebtedness.

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

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

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

The adjustment to the carrying value of the debt is the net impact of the aforementioned transaction and represents an adjustment of the carrying value of the First Lien Term Loans, the Second Lien Term Loans, Affinion’s 2010 senior notes (defined below) and the International Notes of $103.3 million. This amount represents the interest to be paid in cash on the continuing debt instruments held by those who participated in the exchange but were not subject to the exchange itself through the scheduled maturity of those instruments. This amount, net of amortization, increases the carrying value of the Company’s recorded long term debt at ~~September~~March 3031, ~~2016~~2017 and December 31, ~~2015~~2016 by $7153.65 million and $9762.85 million, respectively. Such amounts have been and will continue to be reduced in future years as scheduled interest is paid on those remaining instruments.

On December 12, 2013, the Company completed a private offer to exchange the Company’s 2006 senior subordinated notes for Investments senior subordinated notes, pursuant to which $360.0 million aggregate principal amount of Investments senior subordinated notes were issued in exchange for $352.9 million aggregate principal amount of the Company’s 2006 senior subordinated notes. The Investments senior subordinated notes bear interest at 13.50% per annum, payable semi-annually on February 15 and August 15 of each year, commencing on February 15, 2014. The Investments senior subordinated notes will mature on August 15, 2018. Affinion Investments may redeem some or all of the Investments senior subordinated notes at any time on or after December 12, 2016 at redemption prices (generally at a premium) set forth in the indenture governing the Investments senior subordinated notes. In addition, prior to December 12, 2016, up to 35% of the outstanding Investments senior subordinated notes were redeemable at the option of Affinion Investments, with the net proceeds raised by the Company or Affinion Holdings in one or more equity offerings, at 113.50% of their principal amount. In addition, prior to December 12, 2016, the Investments senior subordinated notes were redeemable, in whole or in part, at a redemption price equal to 100% of the principal amount of the Investments senior subordinated notes redeemed plus a “make-whole” premium. The indenture governing the Investments senior subordinated notes contains negative covenants which restrict the ability of Affinion Investments, any future restricted subsidiaries of Affinion Investments and one of the Company’s other wholly-owned subsidiaries that guarantees the Investments senior subordinated notes to engage in certain transactions and also contains customary events of default. Affinion Investments’ obligations under the Investments senior subordinated notes are guaranteed on an unsecured senior subordinated basis by Affinion Investments II. Each of Affinion Investments and Affinion Investments II is an unrestricted subsidiary of the Company and guarantees the Company’s indebtedness under its senior secured credit facility but does not guarantee the Company’s other indebtedness. The Investments senior subordinated notes and guarantee thereof are unsecured senior subordinated obligations of Affinion Investments, as issuer, and Affinion Investments II, as guarantor, and rank junior in right of payment to their respective guarantees of the Company’s senior secured credit facility. As a result of the consent solicitations consummated on November 9, 2015, substantially all of the restrictive covenants and certain of the default provisions were removed from the indenture governing the Investments senior subordinated notes.

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

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

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

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

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

The amended Affinion Credit Facility and the indenture governing the 2010 senior notes both contain restrictive covenants related primarily to the Company’s ability to distribute dividends, redeem or repurchase capital stock, sell assets, issue additional debt or merge with or acquire other companies. Under the Affinion Credit Facility, payment of additional dividends requires the satisfaction of various conditions, including meeting defined leverage ratios and a defined fixed charge coverage ratio, and the total dividend paid cannot exceed a calculated amount of defined available free cash flow, or requires availability under specified baskets. The covenants in the Affinion Credit Facility also require compliance with a senior secured leverage ratio. During the ~~nine~~three months ended ~~September~~March 3031, ~~2016~~2017 and ~~the~~ year ended December 31, ~~2015~~2016, the Company did not pay any cash dividends to Affinion Holdings. The Company was in compliance with the covenants referred to above as of ~~September~~March 3031, ~~2016~~2017. Payment under each of the debt agreements may be accelerated in the event of a default. Events of default include the failure to pay principal and interest when due, covenant defaults (unless cured within applicable grace periods, if any), events of bankruptcy and, for the amended Affinion Credit Facility, a material breach of representation or warranty and a change of control.

~~5. INCOME TAXES~~ 12

~~The~~defaults ~~Company~~(unless iscured ~~included~~within asapplicable agrace ~~member~~periods, ofif ~~Affinion~~any), ~~Holdings’~~events ~~consolidated federal income tax return and as a member~~ of ~~certain~~bankruptcy ~~of Affinion Holdings’ unitary or combined state income tax returns. Income taxes are presented in the Company’s consolidated financial statements using the asset~~ and, ~~liability approach based on the separate return method~~ for the ~~consolidated~~amended ~~group.~~Affinion ~~Under~~Credit ~~this method~~Facility, ~~current and deferred tax expense or benefit for the period is determined for the Company and its subsidiaries as~~ a ~~separate~~material ~~group~~breach ~~on a standalone basis. Deferred tax assets and liabilities are calculated based upon the temporary differences between the financial statements and income tax bases~~ of ~~assets~~representation 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,~~warranty 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, 2016 and ~~December 31, 2015, the Company has recorded~~ a ~~full~~change ~~valuation allowance for its U.S. federal net deferred tax assets. As~~ of ~~September 30, 2016 and December 31, 2015, the Company has also recorded valuation allowances against the deferred tax assets related to certain state and foreign tax jurisdictions~~control.

~~The~~On ~~Company’s~~October 5, ~~effective income tax rates for the three and nine months ended September 30~~2010, ~~2016~~Affinion ~~were~~Holdings ~~18.6%~~issued ~~and 24~~$325.~~1%,~~0 ~~respectively,~~million ~~and~~aggregate ~~the~~principal ~~Company’s~~amount ~~effective~~of ~~income~~Affinion ~~tax~~Holdings’ ~~rates~~2010 ~~for~~senior ~~the three and nine months ended September 30, 2015 were (16~~notes.~~4)%~~ ~~and~~Affinion ~~(9.2)%,~~Holdings ~~respectively.~~used ~~The difference in the effective tax rates for the three months ended September 30, 2016 and 2015 is primarily~~ a ~~result~~portion of the ~~change~~proceeds ~~from a loss before income taxes and non-controlling interest~~ of $6320.93 million ~~for~~(net ~~the~~of ~~three~~issue ~~months ended September 30~~discount), ~~2015~~along towith ~~income~~proceeds ~~before~~from ~~income~~a ~~taxes~~cash ~~and~~dividend ~~non-controlling~~from ~~interests of $9.5 million for~~ the ~~three~~Company ~~months ended September 30, 2016 and an increase~~ in the ~~income~~amount ~~tax~~of ~~provision from~~ $1115.13 million ~~for the three months ended September 30~~, ~~2015~~ to ~~$1.7~~repay ~~million~~its ~~for~~senior ~~the~~unsecured ~~three~~term ~~months ended September 30, 2016~~loan. ~~The~~A ~~difference~~portion inof the ~~effective~~remaining ~~tax~~proceeds ~~rates~~from ~~for~~ the ~~nine~~offering ~~months~~of ~~ended~~Affinion ~~September~~Holdings’ ~~30,~~2010 ~~2016~~senior ~~and~~notes ~~2015~~were isutilized ~~primarily~~to apay ~~result~~related offees ~~the change from a loss before income taxes~~ and ~~non-controlling~~expenses ~~interest~~ of approximately $456.7 million, ~~for~~with the ~~nine~~balance ~~months~~retained ~~ended~~for ~~September~~general ~~30,~~corporate ~~2015 to income before income taxes and non-controlling interests of $23~~purposes.8 ~~million~~The ~~for~~indenture ~~the~~governing ~~nine~~Affinion ~~months~~Holdings’ ~~ended~~2010 ~~September~~senior ~~30,~~notes ~~2016~~contains ~~and~~restrictive ancovenants ~~increase~~related inprimarily ~~the income tax provision from $4.2 million for the nine months ended September 30, 2015~~ to ~~$5.7 million for~~ the ~~nine months ended September 30, 2016. The~~ Company’s ~~tax~~and ~~rate~~Affinion isHoldings’ ~~affected~~ability byto ~~recurring~~distribute ~~items~~dividends, ~~such~~redeem asor ~~tax~~repurchase ~~rates~~capital ~~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~~stock, ~~but~~sell ~~are not consistent from year to year. In addition to state and foreign income taxes~~assets, ~~the~~issue ~~requirement~~additional todebt ~~maintain~~or ~~valuation~~merge ~~allowances~~with ~~had~~or ~~the~~acquire ~~most~~other ~~significant~~companies. ~~impact~~The onoutstanding ~~the~~Affinion ~~difference between the Company~~Holdings’s ~~effective~~2010 ~~tax~~senior ~~rate~~notes ~~and~~matured ~~the~~on ~~statutory~~November ~~U.S.~~15, ~~federal income tax rate of 35%~~2015.

On December 12, 2013, Affinion Holdings completed an offer to exchange Affinion Holdings’ 2010 senior notes for Affinion Holdings’ 2013 senior notes. In connection with the exchange offer, $292.8 million aggregate principal amount of Affinion Holdings’ 2010 senior notes were exchanged for $292.8 million aggregate principal amount of Affinion Holdings’ 2013 senior notes. Affinion Holdings’ 2013 senior notes bear interest at 13.75% per annum, payable semi-annually on March 15 and September 15 of each year, commencing on September 15, 2014. At Affinion Holdings’ option (subject to certain exceptions), it may elect to pay interest (i) in cash, (ii) by increasing the principal amount of Affinion Holdings’ 2013 senior notes (“PIK Interest”), or (iii) 50% as cash and 50% as PIK Interest. PIK Interest accrues at 13.75% per annum plus 0.75%. Affinion Holdings’ 2013 senior notes will mature on September 15, 2018. In June 2014, Affinion Holdings completed an offer to exchange Affinion Holdings’ 2013 senior notes for Affinion Holdings’ Series A warrants to purchase shares of Affinion Holdings’ Class B common stock. In connection with the exchange offer, approximately $88.7 million aggregate principal amount of Affinion Holdings’ 2013 senior notes were exchanged for up to approximately 30.3 million Series A warrants to purchase shares of Affinion Holdings Class B common stock. As a result of the 2015 Consent Solicitations, substantially all of the restrictive covenants and certain of the default provisions were removed from the indenture governing Affinion Holdings’ 2013 senior notes and the collateral securing Affinion Holdings’ 2013 senior notes was released. The Company did not make any dividend distributions to Affinion Holdings during the years ended December 31, 2016 and 2015. The Company expects that, in the future, to the extent that it is permitted contractually and legally to pay cash dividends to Affinion Holdings, Affinion Holdings may require the Company to pay cash dividends to enable Affinion Holdings to service its net cash obligations under Affinion Holdings’ 2013 senior notes.

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

On March 31, 2017, Affinion entered into a commitment letter with a lender, pursuant to which the lender committed to provide 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 the first anniversary of the closing date (the “New Credit Facility”). Execution and closing of the New Credit Facility was conditioned on the consummation of the private offers to exchange for new Senior Cash 12.5%/ PIK Step-Up to 15.5% Notes due 2022 of Affinion (the “New Notes”) and New Warrants (as defined below) or repurchase for cash Affinion’s 2010 senior notes, Affinion Holdings’ 2013 senior notes and Investments’ senior subordinated notes (the “Exchange Offers”).

Also on March 31, 2017, certain holders of Existing Notes (the “Significant Holders”), which collectively held, as of such date, approximately 50% aggregate principal amount of Affinion’s 2010 senior notes, entered into a support agreement (the “Support Agreement”) with Affinion Holdings, Affinion and Affinion Investments. Pursuant to the Support Agreement, the Significant Holders agreed to tender in the Exchange Offers their Existing Notes.

Subsequent Event—

On May 10, 2017, Affinion entered into the New 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 the first anniversary of the closing date. The proceeds of the term loans 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 the closing date, 1% per annum, (ii) for the third year after the closing date, 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 New Credit Facility also requires mandatory prepayments of the outstanding term loans based on excess cash flow (as defined), if any, and the proceeds from certain specified transactions.

The interest rates with respect to the term loans and revolving loans under the New 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%.

The Company’s obligations under the New Credit Facility are, and the Company’s obligations under any interest rate protection or other hedging arrangements entered into with a lender or any of its affiliates are, guaranteed by Affinion Holdings and by each of the Company’s existing and subsequently acquired or organized domestic subsidiaries, subject to certain exceptions. The New 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) the Company and the subsidiary guarantors, including but not limited to: (a) a pledge of substantially all capital stock held by the Company or any subsidiary guarantor and (b) security interests in substantially all tangible and intangible assets of the Company and each subsidiary guarantor, subject to certain exceptions. The New Credit Facility also contains financial, affirmative and negative covenants. The negative covenants in the New Credit Facility include, among other things, limitations (all of which are subject to certain exceptions) on the Company’s (and in certain cases, Affinion Holdings’) ability to: declare dividends and make other distributions, redeem or repurchase the Company’s capital stock; prepay, redeem or repurchase certain of the Company’s subordinated indebtedness; make loans or investments (including acquisitions); incur additional indebtedness (subject to certain exceptions); enter into agreements that would restrict the ability of the Company’s subsidiaries to pay dividends; merge or enter into acquisitions; sell assets; and enter into transactions with affiliates. The New Credit Facility requires Affinion to comply with (a) a maximum ratio of senior secured debt to EBITDA (as defined in the New Credit Facility) and (y) a minimum ratio of EBITDA to consolidated fixed charges. For the quarter ending June 30, 2017, the maximum ratio of senior secured debt to EBITDA will be 7.5:1.0 and the minimum ratio of EBITDA to consolidated fixed charges will be 1.0:1.0.

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 2010 senior notes for (i) New Notes and warrants to acquire the Common Stock of Affinion Holdings (the “New Warrants”) 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) New Notes and New 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”) Investments’ senior subordinated notes for (i) New Notes and New 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 New Notes and New 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 New Notes and New 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 Investments’ senior subordinated notes accepted in the Investments Exchange Offer, holders could elect to receive (i)(A) $1,000 principal amount of New Notes and New 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 were exchanged for approximately $277.8 million of New Notes, New Warrants to purchase 1,103,203 shares of Common Stock and approximately $417,386 in cash; pursuant to the Holdings Exchange Offer, approximately $4.6 million of Affinion Holdings’ 2013 senior notes were exchanged for approximately $4.7 million of New Notes and New 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 were exchanged for approximately $12.8 million of New Notes, New Warrants to purchase 51,005 shares of Common Stock and approximately $912 in cash. Affinion used the proceeds of the New Notes issued pursuant to the Investor Purchase Agreement (as defined below) 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 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.

The New Notes bear interest at the rate per annum as follows:

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 New 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 New Notes or by

~~The~~issuing ~~Company~~PIK ~~recognizes~~notes ~~interest~~(“PIK ~~and~~Interest”) ~~penalties~~at ~~related~~a torate ~~uncertain~~per ~~tax~~annum ~~positions in income tax expense. The Company recognized less than $0.1 million and $0.2 million, respectively,~~ of ~~interest related to uncertain tax positions in the three and nine month periods ended September 30, 2016~~14. ~~The Company recognized less than $0.1 million and $0.2 million~~00%, ~~respectively,~~provided ofthat interest ~~related~~for ~~to uncertain tax positions in~~ the ~~three~~first ~~and nine month periods ended September 30, 2015. The~~ interest ~~has been included in income tax expense for the current~~ period. ~~The~~commencing ~~Company’s~~on ~~gross unrecognized tax benefits for~~ the ~~nine~~Settlement ~~months~~Date ~~ended~~shall ~~September~~be ~~30,~~payable ~~2016~~entirely ~~decreased~~in byPIK $1Interest.~~5 million as a result of tax positions taken during the current period, which was offset by a valuation allowance.~~

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 New Notes (the “New 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 New 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 New 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 New 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 New 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 New 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 New 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 New Credit Facility (including, without limitation, any required repayment of outstanding borrowings under the revolving facility under the New Credit Facility).

Interest on the New Notes is payable semi-annually on May 10 and November 10 of each year, commencing on November 10, 2017. The New Notes will mature on November 10, 2022. Under certain circumstances, the New Notes are redeemable at Affinion’s option prior to maturity. If the New Notes are not so redeemed by Affinion, under certain circumstances, Affinion may be required to make an offer to purchase New Notes. The New Notes Indenture contains negative covenants which restrict the ability of Affinion and its restricted subsidiaries to engage in certain transactions and also contains customary events of default. In addition, the covenants will 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 New Notes and files such reports with the SEC. Affinion’s obligations under the New Notes are jointly and severally and fully and unconditionally guaranteed on an unsecured senior basis by the same entities that guarantee the New Credit Facility. The New 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 New 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, 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”) entered into an investor purchase agreement (the “Investor Purchase Agreement”) with Affinion Holdings, Affinion and Affinion Investments, in which they agreed to purchase New 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 Investments’ senior subordinated notes not tendered in the Exchange Offers, the Company could obligate the Investors to purchase an aggregate principal amount of New Notes and New Warrants that would yield sufficient cash proceeds to fund any such redemptions. On May 10, 2017, Affinion exercised its option to redeem the Existing AGI Notes and irrevocably deposited the cash redemption price on such date in order to satisfy and discharge its obligations under the indenture governing the Existing AGI 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 in aggregate

principal amount of New Notes and the same number of New Warrants that such principal amount of New Notes would have been issued with as part of the Exchange Offers.

Accordingly, on May 10, 2017, Affinion issued approximately $532.6 million aggregate principal amount of New Notes and New Warrants to purchase 3,974,581 shares of Common Stock, of which (i) approximately $295.3 million principal amount of New Notes and New Warrants to purchase 1,172,747 shares of Common Stock were issued to participating holders (including the Investors) in the Exchange Offers and (ii) approximately $237.3 million principal amount of New Notes and New Warrants to purchase 2,801,834 shares of Common Stock were issued to the Investors 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 the Existing AGI Notes that were not exchanged or tendered in the AGI Exchange Offer and to pay the commitment premium under the Investor Purchase Agreement. The New 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 New Warrants, as described herein, reflects the application of the anti-dilution protections of the New Warrants issued in the Exchange Offers and pursuant to the Investor Purchase Agreement (other than the New Warrants issued as part of the funding premium) that are triggered by the issuance of New Warrants as part of the funding premium.

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 New Warrants in the Exchange Offers and pursuant to the Investor Purchase Agreement, Affinion Holdings expects to offer (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 New Warrants at an exercise price of $0.01 per New Warrant.

The Company is evaluating the accounting for these transactions, including treatment of the debt issuance costs, for which there will be significant charges that impact future periods, as with previous debt transactions.

5. INCOME TAXES

The Company is included as a member of Affinion Holdings’ consolidated federal income tax return and as a member of certain of Affinion Holdings’ unitary or combined state income tax returns. Income taxes are presented in the Company’s consolidated financial statements using the asset and liability approach based on the separate return method for the consolidated group. Under this method, current and deferred tax expense or benefit for the period is determined for the Company and its subsidiaries as a separate group on a standalone basis. Deferred tax assets and liabilities are calculated based upon the temporary differences between the financial statements and income tax bases of assets and liabilities using currently enacted tax rates. Deferred tax assets are recorded net of a valuation allowance when, based on the weight of available evidence, it is more likely than not that some portion, or all, of the recorded deferred tax assets will not be realized in future periods. Decreases to the valuation allowance are recorded as reductions to the income tax provision, while increases to the valuation allowance result in additional income tax provision. The realization of deferred tax assets is primarily dependent on estimated future taxable income. As of March 31, 2017 and December 31, 2016, the Company has recorded a full valuation allowance for its U.S. federal net deferred tax assets. As of March 31, 2017 and December 31, 2016, the Company has also recorded valuation allowances against the deferred tax assets related to certain state and foreign tax jurisdictions.

The Company’s effective income tax rates for the three months ended March 31, 2017 and 2016 were 22.3% and 53.7%, respectively. The difference in the effective tax rates for the three months ended March 31, 2017 and 2016 is primarily a result of the increase in income before income taxes and non-controlling interest of $5.8 million for the three months ended March 31, 2016 to $10.8 million for the three months ended March 31, 2017 and a decrease in the income tax provision from $3.1 million for the three months ended March 31, 2016 to $2.4 million for the three months ended March 31, 2017. The Company’s tax rate is affected by recurring items, such as tax rates in foreign jurisdictions and the relative amount of income it earns in those jurisdictions. It is also affected by discrete items that may occur in any given year, but are not consistent from year to year. In addition to state and foreign income taxes and related foreign tax deductions impacting the effective tax rate, the requirement to maintain valuation allowances had the most significant impact on the difference between the Company’s effective tax rate and the statutory U.S. federal income tax rate of 35%.

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. The Company recognized less than $0.1 million of interest related to uncertain tax positions in each of the three month periods ended March 31, 2017 and 2016. The interest has been included in income tax expense for the current period. The Company’s gross unrecognized tax benefits for the three months ended March 31, 2017 increased by less than $0.1 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.

6. COMMITMENTS AND CONTINGENCIES

Litigation

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

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

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

On May 12, 2014, remaining Defendants in the consolidated cases filed answers in which they denied the material allegations of the consolidated amended complaint. On April 28, 2014, Plaintiffs filed a motion seeking interlocutory appellate review of portions of the court’s order of March 28, 2014. Briefing on the motion was completed on June 5, 2014. On March 26, 2015, the court denied Plaintiff’s motion for interlocutory appeal. On May 29, 2015, the court issued a scheduling order indicating that discovery was to commence immediately and be completed by December 31, 2015. On May 29, 2015, the court also set deadlines for dispositive motions, which were due February 29, 2016. If no dispositive motions were filed, a joint trial memorandum would be due by April 1, 2016, and jury selection would take place on May 3, 2016. If dispositive motions were filed, the joint trial memorandum would be due by October 3, 2016, and jury selection would take place on November 1, 2016. On June 16, 2015, the court set a schedule for class certification, with Plaintiffs’ motion for class certification due on September 15, 2015, and with briefing to be completed by November 30, 2015. Plaintiffs filed their motion for class certification on September 15, 2015, and Defendants filed an opposition brief on December 15, 2015. Plaintiffs filed a reply brief on December 22, 2015, and Defendants filed a sur-reply on December 29, 2015. On February 29, 2016, the Company filed a Motion for Summary Judgment on the individual claims of the remaining named Plaintiffs. Plaintiffs filed a response on March 21, 2016, and the Company filed its response on April 4, 2016. On August 23, 2016 the court granted Defendant’s motion for Summary Judgment as to all remaining claims against the Defendants. Plaintiffs filed a notice of appeal on September 21, 2016. NoThe ~~schedule~~Plaintiffs ~~has~~filed ~~been~~their ~~set~~opening ~~yet~~brief ~~for~~on ~~the~~ appeal on January 4, 2017. The Company filed its response brief on April 5, 2017.

On August 27, 2010, a class action lawsuit was filed against Webloyalty, one of its former clients and one of the credit card associations in the United States District Court for the District of Connecticut alleging, among other things, violations of the EFT, ECPA, unjust enrichment, civil theft, negligent misrepresentation, fraud and CUTPA violation (the “Connecticut Action”). This lawsuit relates to Webloyalty’s alleged conduct occurring on and after October 1, 2008. On November 1, 2010, the Defendants moved to dismiss the initial complaint, which Plaintiff then amended on November 19, 2010. On December 23, 2010, Webloyalty filed a second motion to dismiss this lawsuit. On May 15, 2014, the court heard oral argument on Plaintiff’s motion to strike the Company’s request for judicial notice of the Plaintiff’s membership enrollment documents filed in support of the Company’s second motion to dismiss. On July 17, 2014, the court denied Plaintiff’s motion to strike. The court, at the same time, dismissed those claims grounded in fraud, but reserved until further proceedings the determination as to whether all of Plaintiff’s claims are grounded in fraud and whether those claims not grounded in fraud are dismissible. The court permitted the Plaintiff until August 15, 2014 to amend his complaint and allowed the parties the opportunity to conduct limited discovery, to be completed by September 26, 2014, concerning the issues addressed in its dismissal order. All other discovery was stayed in the case. The July 17, 2014 order indicated that the court would set a further motion to dismiss briefing schedule following the conclusion of this limited discovery. The Plaintiff amended his complaint as scheduled, and the parties conducted limited discovery as ordered. After this limited discovery, the parties proposed a motion to dismiss briefing schedule calling for the Defendants to file their opening briefs on January 9, 2015. The Plaintiff filed his opposition brief on March 24, 2015, and on April 24, 2015, the Defendants filed their reply briefs in response to that opposition. On October 15, 2015, the court entered a judgment dismissing all of the Plaintiff’s claims with prejudice and without further leave to amend. On November 13, 2015, the Plaintiff filed a notice of appeal of the dismissal decision. Plaintiff’s opening appeals brief was filed on February 10, 2016. The Company’s answering brief was filed on April 15, 2016 and the Plaintiff filed a reply brief on May 11, 2016. The court held oral argument on September 14, 2016. On December 20, ~~but~~2016, itthe ~~has~~Court ~~not~~affirmed ~~yet~~the ~~issued~~District Court’s dismissal decisions, with the exception of Plaintiff’s claim under CUTPA and under the EFT with regard to delivery of a “copy” of the Plaintiff’s authorization to him. The Court vacated the District Court’s decision ~~regarding~~on ~~Plaintiffs~~both claims and remanded them to the District Court for further proceedings on the merits. On March 23, 2017, the District Court held a scheduling conference and took the parties’ ~~appeal~~respective recommendations for the remaining case schedule under advisement.

On June 7, 2012, another class action lawsuit was filed in the U.S. District Court for the Southern District of California against Webloyalty that was factually similar to the Connecticut Action. The action claims that Webloyalty engaged in unlawful business practices in violation of California Business and Professional Code § 17200, et seq. and in violation of CUTPA. Both claims are based on allegations that in connection with enrollment and billing of the Plaintiff, Webloyalty charged Plaintiff’s credit or debit card using information obtained through a data pass process and without obtaining directly from Plaintiff his full account number, name, address, and contact information, as purportedly required under ~~ROSCA~~the Restore Online Shoppers’ Confidence Act. On September 25, 2012, Webloyalty filed a motion to dismiss the complaint in its entirety and the court scheduled a hearing on the motion for January 14, 2013. Webloyalty also sought judicial notice of the enrollment page and related enrollment and account documents. Plaintiff filed his opposition on December 12, 2012, and Webloyalty filed its reply submission on January 7, 2013. Thereafter, on January 10, 2013, the court cancelled the previously scheduled January 14, 2013 hearing and indicated that it would rule based on the parties’ written submissions without the need for a hearing. On August 28, 2013, the court sua sponte dismissed Plaintiff’s complaint without prejudice with leave to amend by September 30, 2013. The Plaintiff filed his amended complaint on September 30, 2013, adding purported claims under the ECPA and for unjust enrichment, money had and received, conversion, civil theft, and invasion of privacy. On December 2, 2013, the Company moved to dismiss Plaintiff’s amended complaint. Plaintiff responded to the motion on January 27, 2014. On February 6, 2014, the court indicated that it would review the submissions and issue a decision on Plaintiff’s motion without oral argument. On September 29, 2014, the court dismissed the Plaintiff’s claims on substantive grounds and/or statute of limitations grounds. The court allowed the

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submissions without the need for a hearing. On August 28, 2013, the court sua sponte dismissed Plaintiff’s complaint without prejudice with leave to amend by September 30, 2013. The Plaintiff filed his amended complaint on September 30, 2013, adding purported claims under the ECPA and for unjust enrichment, money had and received, conversion, civil theft, and invasion of privacy. On December 2, 2013, the Company moved to dismiss Plaintiff’s amended complaint. Plaintiff responded to the motion on January 27, 2014. On February 6, 2014, the court indicated that it would review the submissions and issue a decision on Plaintiff’s motion without oral argument. On September 29, 2014, the court dismissed the Plaintiff’s claims on substantive grounds and/or statute of limitations grounds. The court allowed the Plaintiff 28 days to file a motion demonstrating why a further amendment of the complaint was not futile. On October 27, 2014, the Plaintiff filed a motion for leave to amend the complaint and attached a proposed amended complaint. The Company responded to the motion on November 10, 2014. On June 22, 2015, the court entered a final order and judgment denying Plaintiff’s motion to amend, dismissing all federal claims with prejudice, and dismissing all state claims without prejudice. On July 10, 2015, Plaintiff filed a notice appealing the dismissal decision and denial of his request to further amend his complaint to the U.S. Court of Appeals for the Ninth Circuit. The Company responded to the motion on November 10, 2014. On June 22, 2015, the court entered a final order and judgment denying Plaintiff’s motion to amend, dismissing all federal claims with prejudice, and dismissing all state claims without prejudice. On July 10, 2015, Plaintiff filed a notice appealing the dismissal decision and denial of his request to further amend his complaint to the U.S. Court of Appeals for the Ninth Circuit. The Plaintiff filed his opening appeal brief on November 19, 2015, and the Company’s answering brief was filed on January 19, 2016. Plaintiff filed a reply brief on February 2, 2016. ~~The~~A ~~court~~hearing ~~has~~on ~~not~~the appeal was held on February 17, 2017. On March 28, 2017, the Court of Appeals found that the Plaintiff’s current complaint had stated claims, which remain as of yet ~~scheduled~~unproven, asufficiently ~~hearing~~to ~~for~~permit ~~this~~him ~~appeal~~to proceed with the litigation. Specifically, the Court of Appeals reversed the District Court’s procedural dismissal of the Plaintiff’s various federal and state causes of action, with the exception of dismissal of his ECPA claim and privacy-based state law claims, which the Court of Appeals affirmed. The Court of Appeals also vacated the District Court’s order denying the Plaintiff leave to amend, thereby allowing the Plaintiff to reassert his claims under the EFT, which had previously been dismissed.

On May 11, 2016, Kohl’s Department Stores, Inc. (“Kohl’s”) filed a third-party complaint against Trilegiant in the United States District Court for the Eastern District of Pennsylvania, alleging claims for indemnification, contribution and breach of contract. The third-party complaint arises in a case filed in the same court on February 13, 2015, in which a putative class action has been brought against Kohl’s and the issuer of Kohl’s credit cards alleging breach of the covenant of good faith and fair dealing and unjust enrichment. Kohl’s third-party complaint alleges that Trilegiant breached alleged obligations to Kohl’s under a marketing agreement between Trilegiant and Kohl’s through which a Trilegiant membership program was offered to Kohl’s credit card customers, including Trilegiant’s purported obligation under that agreement to indemnify Kohl’s and participate in its defense of the class action. Kohl’s third-party complaint seeks damages from Trilegiant, including amounts for which Kohl’s may be liable to the named plaintiffs or the putative class in the class action relating to their claims pertaining to Trilegiant’s membership program and Kohl’s costs, including attorney fees, of defending against such claims. On July 5, 2016, Trilegiant filed a motion to dismiss or, in the alternative, to stay Kohl’s third-party complaint. On September 2, 2016, Kohl’s filed an opposition to Trilegiant’s motion to dismiss. ~~The~~ On February 3, 2017, Trilegiant filed a reply to Kohl’s opposition. As of March 1, 2017, the parties ~~have~~entered into a settlement and release wherein Trilegiant agreed to ~~extend~~make ~~Trilegiant~~a payment to Kohl’s ~~time~~of toapproximately ~~respond~~$0.3 million and to pay 30% of Kohl’s toon-going ~~November~~legal fees in the putative class action, capped at $0.4 million (excluding Trilegiant’s initial payment of approximately $0.3 million), ~~2016~~to resolve Kohl’s indemnification, contribution and breach of contract claims against Trilegiant with respect to ~~discuss~~fees aand ~~possible~~expenses ~~settlement~~that Kohl’s has incurred or will incur in ~~this~~connection ~~matter~~with its defense of the putative class action. ~~Nevertheless,~~ weKohl’s ~~continue~~reserved its right to ~~defend~~seek ~~ourselves~~indemnity ~~vigorously~~from ~~against~~Trilegiant ~~these~~for ~~claims~~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 Affinion Benefits Group, LLC, with a complaint (the “Lion Litigation”), which was filed in the United States District Court for the State of Delaware. LTPC filed a motion to dismiss in response to the complaint on October 24, 2016. On March 20, 2017, a magistrate judge recommended that the Court deny LTPC’s motion to dismiss. LTPC has filed objections to this recommendation, and the Court has not indicated when it will make a final decision on the motion to dismiss. 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. Pursuant to our purchase agreement with Cendant, the Cendant Entities (as such terms are defined in Note 8 to our unaudited condensed consolidated financial statements) have agreed to indemnify us for any liability relating to this matter.

Other Contingencies

From time to time, the Company receives inquiries from federal and state agencies which may include the FTC, the FCC, the CFPB, state attorneys general and other state regulatory agencies, including state insurance regulators. The Company responds to these matters and requests for documents, some of which may lead to further investigations and proceedings. 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 we have accrued $8.2 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. On January 27, 2015, following voluntary discussions with the FCA, AIL, one of our UK subsidiaries, and 11 UK retail banks and credit card issuers, announced a proposed joint arrangement, which allows eligible consumers to make claims for compensation in relation to a discontinued benefit in one of AIL’s products. The proposed arrangement has been approved by a majority of those affected consumers who voted at a creditors’ meeting held on June 30, 2015, and has also been approved by the High Court in London at a hearing held on July 9, 2015. The proposed arrangement, which will not result in the imposition of any fines on AIL or the Company, became effective on August 17, 2015 and eligible customers had until March 18, 2016 to claim compensation (in exceptional circumstances, they had until September 18, 2016). As of June 30, 2016, substantially all of the compensation to consumers had been paid and, based on the information currently available, the Company has recorded an estimated liability that represents any additional potential consumers’ refunds to be paid by the Company as part of such arrangement. 19

OnFrom ~~April~~time ~~18,~~to ~~2014~~time, ~~Bank~~our ofinternational ~~America,~~operations ~~N.A.~~also ~~(“Bank~~receive ofinquiries ~~America”)~~from ~~and~~consumer ~~FIA~~protection, ~~Card~~insurance ~~Services,~~or Ndata protection agencies.A. ~~(“FIA~~The ~~Card~~Company ~~Services”)~~responds ~~commenced~~to anthese ~~arbitration~~matters ~~proceeding~~and ~~against~~requests ~~Trilegiant~~for ~~and~~documents, ~~Affinion~~some ~~pursuant~~of towhich ~~the~~may ~~terms~~lead ofto ~~the~~further ~~parties’~~investigations ~~servicing~~and ~~agreements~~proceedings. InOn ~~the~~January ~~arbitration~~27, ~~proceeding~~2015, ~~Bank~~following ofvoluntary ~~America~~discussions ~~asserted~~with ~~various~~the ~~causes~~FCA, AIL, one of ~~action~~our UK subsidiaries, and ~~requests~~11 ~~for~~UK ~~monetary~~retail banks and ~~other~~credit ~~relief~~card issuers, ~~including~~announced a ~~demand~~proposed ~~for~~joint ~~contractual~~arrangement, ~~indemnification~~which ofallows ~~the~~eligible ~~losses~~consumers ~~and~~to ~~costs,~~make ~~including~~claims infor ~~particular~~compensation ~~customer~~in ~~refunds~~relation ~~and~~to ~~reasonable~~a ~~attorneys’~~discontinued ~~fees~~benefit ~~that~~in ~~Bank~~one of ~~America~~AIL’s ~~incurred~~products. ~~related~~The toproposed ~~consent~~arrangement ~~orders~~has ~~entered~~been ~~into~~approved by ~~Bank~~a majority of ~~America~~those ~~with~~affected ~~the~~consumers ~~Office~~who ofvoted ~~the~~at ~~Comptroller~~a ofcreditors’ ~~the~~meeting ~~Currency~~held on ~~April~~June 730, ~~2014~~2015, and ~~with~~has ~~the~~also ~~CFPB~~been onapproved ~~April~~by 9,the ~~2014.~~High OnCourt ~~May~~in ~~16,~~London ~~2014,~~at ~~Trilegiant~~a ~~commenced~~hearing ~~two~~held ~~separate~~on ~~arbitration~~July ~~proceedings~~9, ~~against~~2015. ~~Bank~~The ofproposed ~~America~~arrangement, ~~asserting~~which ~~that~~will ~~Bank~~not ofresult ~~America~~in ~~breached~~ the ~~parties’~~imposition ~~servicing~~of ~~agreements.~~any Onfines ~~July~~on 7,AIL ~~2014,~~or the ~~parties~~Company, ~~agreed~~became toeffective ~~stay~~on ~~one~~August of17, ~~the~~2015 ~~arbitrations~~and ~~initiated~~eligible bycustomers ~~Trilegiant~~had ~~and~~until toMarch ~~dismiss~~18, ~~the~~2016 ~~other~~to ~~arbitrations~~claim ~~without~~compensation ~~prejudice~~(in exceptional circumstances, ~~pending~~they ~~mediation.~~had Onuntil September 2218, ~~2014,~~2016). ~~Bank~~As of ~~America~~December ~~and~~31, ~~Trilegiant~~2016, ~~participated~~substantially inall aof ~~mediation~~the tocompensation ~~attempt~~ to ~~resolve~~consumers ~~their~~had ~~outstanding~~been ~~disputes.~~paid ~~The~~and, ~~mediation~~based ~~process~~on ~~was ultimately unsuccessful in resolving~~ the ~~parties’~~information ~~disputes. As~~currently ~~such~~available, the ~~parties~~Company ~~resumed~~has ~~the~~recorded ~~arbitration~~an ~~process. The~~estimated ~~arbitration~~liability ~~hearing~~that ~~commenced~~represents onany ~~October~~additional ~~12,~~potential ~~2015~~consumers’ ~~and~~refunds ~~concluded~~to onbe ~~March~~paid 4,by ~~2016.~~the ~~The~~Company ~~parties~~as ~~submitted~~part ~~post-hearing~~of ~~memoranda~~such ~~in April 2016~~arrangement.

~~The~~On ~~arbitrator~~November ~~overseeing~~30, 2015, PNC Bank, N.A. (“PNC”) filed a pleading called a Praecipe for Writ of Summons (the ~~foregoing~~“Writ”) ~~arbitration~~in ~~proceeding~~the ~~denied~~Court of Common Pleas of Allegheny County, Pennsylvania, naming as defendants Trilegiant’s ~~claims~~Corporation, Affinion Benefits Group, LLC, Affinion, and/or ~~denied~~Affinion ~~Bank~~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 ~~America’s~~Common ~~claims~~Pleas against Trilegiant for indemnification, ~~related~~breach toof ~~the~~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 (“OCC”) ~~and~~to ~~CFPB,~~settle ~~but~~the ~~awarded~~OCC’s ~~monetary~~Section ~~damages~~5 claim against it. According to ~~Bank~~PNC, ofthe ~~America~~damages ~~and~~it ~~FIA~~incurred ~~Card~~pursuant ~~Services~~to inthose consent orders were the ~~amount~~result of $Trilegiant’s ~~4.3~~failure ~~million~~to onproperly ~~other~~service ~~claims~~PNC’s ~~(unrelated~~customers. Trilegiant’s preliminary objections to ~~their~~PNC’s ~~indemnification~~complaint ~~claims)~~were ~~asserted~~filed byon ~~Bank~~January of12, ~~America~~2017 inand ~~the~~are ~~arbitration~~now ~~proceeding~~fully briefed. ~~Both~~ ~~parties~~On ~~filed~~January ~~motions~~30, ~~for~~2017, ~~reconsideration~~the bycase was transferred from the ~~arbitrator~~Court of ~~portions~~Common ofPleas to the Commerce Court and Complex Litigation Center. Oral argument on Trilegiant’s preliminary objections was held on May 9, 2017.

17On August 5, 2016, Citizens Bank, N.A. (“Citizens”) filed a complaint against Affinion Holdings, Affinion, Trilegiant, and Affinion Group, LLC (collectively, the “Defendants”) in the United States District Court for the District of Rhode Island. In the complaint, Citizens asserts various causes of action and requests for monetary relief, including a demand for contractual indemnification for customer refunds and attorneys’ fees that Citizens incurred related to a consent order entered into by Citizens with the Office of the Comptroller of the Currency on November 10, 2015 with respect to certain identity theft protection products offered to Citizens’ customers. On November 18, 2016, Defendants’ filed a motion to dismiss in response to the complaint. On February 6, 2017, the Court denied Defendants’ motion to dismiss. Dispositive motions are due by December 6, 2017.

~~award. On~~During ~~October~~the 24three months ended March 31, ~~2016~~2017, ~~the~~a ~~arbitrator~~charge ~~denied~~of ~~both~~$5.2 ~~parties’~~million ~~motions~~was ~~for~~recorded ~~reconsideration,~~relating ~~but~~to ~~reduced~~ the ~~award~~remediation of ~~monetary~~an ~~damages~~external ~~from~~gift $4card inventory theft.3 ~~million~~An insurance claim related to ~~$4.0~~the ~~million~~theft ~~due~~is tocurrently abeing ~~calculation~~pursued ~~error~~with our carriers and we expect a recovery in ~~the~~a ~~original~~future ~~award. The~~period ~~arbitration~~which iswill ~~now~~be ~~closed.~~recorded when received.

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

On November 30, 2015, PNC Bank, N.A. (“PNC”) filed a pleading called a Praecipe for Writ of Summons (the “Writ”) in the Court of Common Pleas of Allegheny County, Pennsylvania, naming as defendants Trilegiant Corporation, Affinion Benefits Group, LLC, Affinion, and/or Affinion Holdings. The Writ does not include a complaint or any specific factual allegations, and does not allege any claims. However, based on a December 4, 2015 letter from PNC’s counsel, the Company understands that PNC may seek indemnification for (i) certain payments made to PNC customers and (ii) a civil money penalty assessed against PNC by the Office of the Comptroller of the Currency pursuant to consent orders dated October 6, 2014. If PNC files a complaint, Affinion intends to defend itself vigorously against any claims that PNC may assert. The parties participated in a non-binding mediation on September 13, 2016. The parties were unable to resolve their dispute in the mediation. However, they have agreed to continue discussions through the mediator regarding possible settlement.

On August 5, 2016, Citizens Bank, N.A. (“Citizens”) filed a complaint against Affinion Holdings, Affinion, Trilegiant, and Affinion Group, LLC (collectively, the “Defendants”) in the United States District Court for the District of Rhode Island. In the complaint, Citizens asserts various causes of action and requests for monetary relief, including a demand for contractual indemnification for customer refunds and attorneys’ fees that Citizens incurred related to a consent order entered into by Citizens with the Office of the Comptroller of the Currency on November 10, 2015 with respect to certain identity theft protection products offered to Citizens’ customers. Defendants’ response to the complaint is due on November 18, 2016.

On August 18, 2016, Lion Receivables 2004 Trust (“Lion”) served Long Term Preferred Care, Inc. (“LTPC”), a subsidiary of Affinion Benefits Group, LLC, with a complaint (the “Lion Litigation”). LTPC’s filed its response to the complaint on October 24, 2016. 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. Pursuant to our purchase agreement with Cendant, the Cendant Entities (as defined in Note 8 to our unaudited condensed consolidated financial statements) have agreed to indemnify us for any liability relating to this matter.

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

Surety Bonds and Letters of Credit

In the ordinary course of business, the Company is required to provide surety bonds to various state authorities in order to operate its membership, insurance and travel agency programs. As of ~~September~~March 3031, ~~2016~~2017, the Company provided guarantees for surety bonds totaling approximately $10.8 million and issued letters of credit totaling $12.1 million.

7. STOCK-BASED COMPENSATION

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

1820

Generally, existing options for Class A Common Stock (as defined below) under the 2005 Plan have been converted into options for shares of Affinion Holdings’ Class C Common Stock, $0.01 par value per share (the “Class C Common Stock”), and Affinion Holdings’ Class D Common Stock, $0.01 par value per share (the “Class D Common Stock” and, together with the Class C Common Stock, the “Class C/D Common Stock”), and both the exercise price and the number of shares of Class C Common Stock and Class D Common Stock underlying such options have been adjusted.

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

In connection with the acquisition of Webloyalty in January 2011, the Company assumed the Webloyalty Holdings, Inc. 2005 Equity Award Plan (the “Webloyalty 2005 Plan”). The Webloyalty 2005 Plan, adopted by Webloyalty’s board of directors in May 2005, authorized Webloyalty’s board of directors to grant awards of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, RSUs, stock bonuses and performance compensation awards or any combination of these awards to directors and employees of, and consultants to, Webloyalty. Unless otherwise determined by Webloyalty’s board of directors, incentive stock options granted under the Webloyalty 2005 Plan were to have an exercise price no less than the fair market value of a share of the underlying common stock on the date of grant and nonqualified stock options granted under the Webloyalty 2005 Plan were to have an exercise price no less than the par value of a share of Webloyalty’s common stock on the date of grant. The Webloyalty board of directors was authorized to grant shares of Webloyalty’s common stock under the Webloyalty 2005 Plan over a ten year period. In connection with the Reclassification, as defined below, all outstanding options granted under the Webloyalty 2005 Plan were cancelled for no consideration, effective November 9, 2015.

On November 9, 2015, in conjunction with the 2015 Exchange Offers, the 2015 Consent Solicitations and the 2015 Rights Offering, Affinion Holdings effected the Reclassification ~~(the “Reclassification” and, together with the 2015 Exchange Offers, the 2015 Consent Solicitations, the 2015 Rights Offering and the related transactions, the “2015 Transactions”)~~ as follows. Immediately prior to the Reclassification, Affinion Holdings’ Series A Warrants (the “Series A Warrants”) were mandatorily cashlessly exercised for shares of Affinion Holdings’ then existing Class A Common Stock, par value $0.01 per share (the “Class A Common Stock”), and Affinion Holdings’ Series B Warrants (the “Series B Warrants”) were cancelled for no additional consideration. In addition, all issued and outstanding options under the Webloyalty 2005 Plan and the 2007 Plan were cancelled for no additional consideration. Stock options issued and outstanding under the 2005 Plan were not affected by the cancellation. In accordance with the Reclassification, Affinion Holdings’ Class A Common Stock was converted into shares of Affinion Holdings’ Class C/D Common Stock. Issued and outstanding options under the 2005 Plan were converted into options to acquire shares of Affinion Holdings’ Class C Common Stock and shares of Affinion Holdings’ Class D Common Stock. The number of shares of Class C/D Common Stock subject to the issued and outstanding options ~~were~~was adjusted based on the conversion ratio utilized for the conversion of the Class A Common Stock, and the exercise price was correspondingly adjusted. As of ~~September~~March 3031, ~~2016~~2017, there were outstanding options to acquire approximately 2,~~700~~235 shares of Affinion Holdings’ Class C Common Stock and approximately 2,~~900~~353 shares of Affinion Holdings’ Class D Common Stock. The weighted average exercise price of the outstanding options, all of which were vested at ~~September~~March 3031, ~~2016~~2017, is $~~151~~147.5712 and the issued and outstanding options granted to employees ~~have a weighted average contractual life of 7.5 years~~ and ~~the issued and outstanding options granted~~ to directors each have a weighted average contractual life of 47.50 years.

On November 9, 2015, the Board of Directors adopted the 2015 Equity Incentive Plan (the “2015 Plan”), which authorizes the Compensation Committee to grant stock options, restricted stock, restricted stock units (“RSUs”) and other equity-based awards. Under the 2015 Plan, 10% of the outstanding shares of common stock have been reserved for issuance pursuant to awards. On March 9, 2016, the Compensation Committee awarded 859,500 options to employees under the 2015 Plan, ~~all~~and ofsubsequently ~~which~~issued ~~are~~another ~~outstanding~~28,000 asoptions ofto ~~September~~employees ~~30,~~under ~~2016, and~~ the ~~Compensation~~2015 ~~Committee~~Plan. ~~awarded~~As anof ~~additional~~March 1831,~~000~~ ~~options~~2017, ~~during~~there ~~the~~were ~~third~~868,950 ~~quarter~~options ~~of 2016~~outstanding.

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

Stock Options

During the three ~~and nine~~ months ended ~~September 30~~March 31, ~~2016~~2017 and ~~2015~~2016, there were no stock options granted to employees from the 2005 Plan. All options previously granted were granted with an exercise price equal to the estimated fair market value of a share of the underlying common stock on the date of grant.

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

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

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

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

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

During the three and nine months ended September 30, 2016 and 2015, there were no stock options granted to employees from the 2007 Plan. All options granted were granted with an exercise price equal to the estimated fair market value of a share of the underlying common stock on the date of grant. 21

During the three months ended March 31, 2017 and 2016, there were no stock options granted to employees from the 2007 Plan. All options granted were granted with an exercise price equal to the estimated fair market value of a share of the underlying common stock on the date of grant.

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

Vesting period		Ratably over 4 years
Initial option term		10 years

On March 28, 2014, the Company modified approximately 2.4 million of the outstanding options under the 2007 Plan, adjusting the exercise price to $1.14 per common share and extending the contractual life of the modified options until April 1, 2024. On November 9, 2015, in conjunction with the Reclassification, all issued and outstanding options under the 2007 Plan were cancelled for no additional consideration.

During the three ~~and nine~~ months ended ~~September~~March 3031, ~~2016~~2017 and ~~2015~~2016, there were no stock options granted to members of the Board of Directors from the 2007 Plan. Generally, options granted to members of the Board of Directors fully vest on the date of grant and have an initial option term of 10 years. On March 28, 2014, the Company modified approximately 0.2 million of the outstanding options granted to members of the Board of Directors, adjusting the exercise price to $1.14 per common share and extending the contractual life of the modified options until April 1, 2024. On November 9, 2015, in conjunction with the Reclassification, all issued and outstanding options granted to members of the Board of Directors under the 2007 Plan were cancelled for no additional consideration.

During the three ~~and nine~~ months ended ~~September~~March 3031, 2016, the Compensation Committee granted options to employees under the 2015 Plan to purchase ~~18,000~~0.9 ~~shares~~million ~~and approximately 860,000~~ shares, ~~respectively,~~ of Affinion Holdings’ Common Stock. There were no options granted to employees under the 2015 Plan during the three months ended March 31, 2017. The options have a contractual life of 10 years and vest ratably on each of the first four anniversaries of the grant date. The exercise price of the options is $13.97 per share, the grant date fair value of a share of Affinion Holdings’ Common Stock.

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

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

	2016 Grants
Expected volatility		75	%
Expected life (in years)	6.3
Risk-free interest rate		1.64	%
Expected dividends	—

2022

A summary of option activity for options to acquire shares of Class C/D Common Stock under the 2005 Plan for the ~~nine~~three months ended ~~September~~March 3031, ~~2016~~2017 is presented below (number of options in thousands):

	2005 Plan			2005 Plan			2005 Plan
	Grants to			Grants to			Grants to			Grants to
	Employees -			Employees -			Employees -			Board of
	Tranche A			Tranche B			Tranche C			Directors
Outstanding options at January 1, 2016		7			3			3			2
Outstanding options at January 1, 2017		2			1			1			1
Granted	—	—		—	—		—	—		—	—
Exercised	—	—		—	—		—	—		—	—
Forfeited or expired		(5—	)		(2—	)		(2—	)	—
Outstanding options at September 30, 2016		2			1			1			2
Outstanding options at March 31, 2017		2			1			1			1
Vested or expected to vest at September 30, 2016		2			1			1			2
Vested or expected to vest at March 31, 2017		2			1			1			1
Exercisable options at September 30, 2016		2			1			1			2
Exercisable options at March 31, 2017		2			1			1			1
Weighted average remaining contractual term (in years)	—	7.0		—	7.0		—	7.0		—	7.0
Weighted average grant date fair value per option
granted in 2016	$	-		$	-		$	-		$	-
granted in 2017	$	—		$	—		$	—		$	—
Weighted average exercise price of exercisable options
at September 30, 2016	$	-		$	-		$	-		$	-
at March 31, 2017	$	147.12		$	147.12		$	147.12		$	147.12
Weighted average exercise price of outstanding options
at September 30, 2016	$	-		$	-		$	-		$	-
at March 31, 2017	$	147.12		$	147.12		$	147.12		$	147.12

A summary of option activity for options to acquire shares of Common Stock granted under the 2015 Plan for the ~~nine~~three months ended ~~September~~March 3031, ~~2016~~2017 is presented below (number of options in thousands):

Outstanding options at January 1, 2016	—
Outstanding options at January 1, 2017		874
Granted		~~878~~—
Exercised	—
Forfeited or expired	—	(5	)
Outstanding options at September 30, 2016		878
Outstanding options at March 31, 2017		869
Vested or expected to vest at September 30, 2016		878
Vested or expected to vest at March 31, 2017		869
Exercisable options at September 30, 2016	—
Exercisable options at March 31, 2017		212
Weighted average remaining contractual term (in years)	~~9.4~~	9.0
Weighted average grant date fair value per option
granted in 2016	$	9.35
granted in 2017	$	—
Weighted average exercise price of exercisable options
at September 30, 2016	$	-
at March 31, 2017	$	13.97
Weighted average exercise price of outstanding options
at September 30, 2016	$	13.97
at March 31, 2017	$	13.97

Based on the estimated fair values of options granted, stock-based compensation expense for the three ~~and nine~~ months ended ~~September~~March 3031, 2017 and 2016 totaled $0.5 million and $~~1.1 million, respectively. Based on the estimated fair values of options granted, stock-based compensation expense for the three and nine months ended September 30, 2015 totaled $~~0.~~2 million and $~~1.1 million, respectively. As of ~~September~~March 3031, ~~2016~~2017, there was $6.90 million of unrecognized compensation cost related to unvested stock options, which will be recognized over a weighted average period of approximately 1.96 years.

Restricted Stock Units

On March 30 25, ~~2012~~2016, each of the non-employee members of the Board’s ~~Compensation~~of ~~Committee~~Directors ~~approved~~was granted RSUs under the ~~2012~~2015 ~~Retention~~Plan ~~Award~~as ~~Program~~a (component of their annual compensation. The RSUs vested 3/12ths as of the ~~“2012~~date ~~RAP”)~~of grant and an additional 1/12th vested on March 31, ~~which~~2016 ~~provides~~and ~~for~~1/12th ~~awards~~will vest on the last day of ~~restricted~~the next eight months, subject to the director’s continuing service on each vesting date. Subject to vesting, the RSUs granted to the non-employee directors will be settled in shares of Affinion Holdings’ common stock ~~units~~on the earlier to occur of a Change in Control (~~“RSUs”)~~as ~~under~~defined in the ~~2007~~2015 Plan) and the third anniversary of the date of grant. ~~The~~In connection with the resignation of one of the directors, the RSUs awarded ~~under~~to the ~~2012~~resigning ~~RAP~~director ~~are~~immediately ~~subject~~vested. toThe ~~time-based~~RSUs ~~vesting~~granted ~~conditions~~to ~~that~~the ~~generally~~remaining ~~ran~~directors ~~through~~vested ~~December 31,~~in ~~2014~~2016. ~~Generally~~As these awards will be settled in shares of Affinion Holdings’ common stock, the ~~number~~Company ofhas accounted for these RSUs ~~awarded~~as toan ~~each~~equity award.

2123

~~participant~~Based ison ~~equal to~~ the ~~quotient~~estimated offair ~~(i) the dollar~~ value of the ~~award,~~RSUs ~~divided by (ii) $8.16~~granted, ~~the value per share of Affinion Holdings’ common~~ stock-based ascompensation ofexpense for the ~~grant~~three ~~date.~~months ~~Upon~~ended ~~vesting~~March ~~of the RSUs~~31, ~~participants~~2016 ~~were~~was ~~able~~$0.1 tomillion. ~~settle~~There ~~the~~was ~~RSUs~~no ~~in shares of common~~ stock-based orcompensation ~~elect~~expense related to ~~receive cash in lieu of shares of common stock upon any of~~ the ~~vesting~~RSU ~~dates~~awards for ~~such RSUs. Due to~~ the ~~ability~~three ofmonths ~~the~~ended ~~participants~~March ~~to settle their awards in cash~~31, ~~the Company accounted for these RSUs as a liability award~~2017.

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

	Number of			Weighted Average
	Restricted			Grant Date
	Stock Units			Fair Value
Outstanding restricted unvested awards at January 1, 2016		261		$	1.14
Granted	—
Vested		(261	)	1.14
Forfeited	—
Outstanding restricted unvested awards at September 30, 2016	—
Weighted average remaining contractual term (in 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 will vest on the last day of the next eight months, subject to the director’s continuing service on each vesting date. Subject to vesting, the RSUs granted to the non-employee directors will be settled in shares of Affinion Holdings’ common stock on the earlier to occur of a Change in Control (as defined in the 2015 Plan) and the third anniversary of the date of grant. 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.

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

	Number of		Weighted Average
	Restricted		Grant Date
	Stock Units		Fair Value
Outstanding restricted unvested awards at January 1, 2016	—
Granted		20	$	13.97
Vested	—
Forfeited	—
Outstanding restricted unvested awards at September 30, 2016		20	$	13.97

Based on the estimated fair value of the RSUs granted, stock-based compensation expense for the three and nine months ended September 30, 2016 was $0.1 million and $0.3 million, respectively. Based on the estimated fair value of the RSUs granted, stock-based compensation expense for the three and nine months ended September 30, 2015 was $0.1 million and $0.3 million, respectively. As of September 30, 2016, there was $0.1 million of unrecognized compensation cost related to the remaining vesting period of RSUs granted under the 2015 Plan. This cost will be recorded in future periods as stock-based compensation expense over a weighted average period of approximately 0.3 years.

Incentive Awards

On ~~April~~March 116, ~~2014~~2015, the Compensation Committee of the Board approved the terms of (i) the Affinion Group Holdings, Inc. ~~2014~~2015 ~~Performance~~Retention ~~Incentive~~ Award Program (the “~~2014~~2015 ~~Performance~~Retention Program”), an equity and cash incentive award program intended to foster retention of key employees of ~~the~~Affinion ~~Company.~~Holdings ~~The~~and its subsidiaries, and (ii) the awards (the “Retention Awards”) to each such key ~~employees~~employee ~~consisted~~consisting of ~~performance~~retention ~~incentive~~ units (“~~PIUs~~RUs”) and a cash ~~incentive~~retention award (“~~CIA~~CRA”) ~~and~~to be made by Affinion Holdings under the ~~aggregate~~2015 ~~cash~~Retention ~~value~~Program. Each Retention Award will entitle the employee to one share of ~~awarded~~Affinion ~~PIUs~~Holdings’ common stock for each RU and ~~CIA~~a ~~comprise~~cash payment in respect of the ~~Award~~CRA, ~~Value~~in each case, subject to applicable withholding taxes, when the applicable vesting conditions for the Retention Awards are met. The ~~number~~Retention ofAwards ~~PIUs~~are ~~awarded~~subject to atime-based ~~participant~~vesting conditions. Upon termination of employment for any reason, ~~which~~an employee will beforfeit ~~awarded~~the ~~from~~entire unvested portion of his or her Retention Award. In conjunction with the ~~2007~~Reclassification, ~~Plan~~which was effective on November 9, ~~will~~2015, beRetention ~~equal~~Awards tounder the ~~quotient~~2015 Retention Program that called for vesting of ~~(i)~~Class ~~50%~~A Common Stock will vest in an adjusted number of ~~the~~shares ~~Award~~of ~~Value~~Class ~~divided~~C byCommon ~~(ii)~~Stock and Class D Common Stock. During the ~~fair~~year ~~market~~ended ~~value~~December ~~per~~31, ~~share~~2016, 6,466 shares of ~~common~~Class ~~stock~~C asCommon Stock and 6,809 shares of ~~the~~Class ~~grant~~D ~~date,~~Common ~~which~~Stock ~~was~~vested, ~~determined~~in addition to beCRAs of approximately $12.140 million. ~~The~~During ~~amount~~the three months ended March 31, 2017, 5,904 shares of ~~the~~Class ~~CIA~~C ~~granted~~Common toStock aand ~~participant~~6,209 ~~was~~shares ~~equal~~of Class D Common Stock vested, in addition to ~~50%~~CRAs of ~~the~~approximately ~~Award Value~~$1.8 ~~Each~~million ofDuring the ~~two~~three ~~components~~months ofended anMarch ~~award~~31, ~~was~~2017 ~~subject~~and to2016, ~~adjustment~~the ~~based~~Company onrecognized expense related to the ~~achievement~~2015 Retention Program of ~~performance~~$0.7 ~~goals~~million and $1.0 ~~The~~million, ~~awards~~respectively, ~~were~~of ~~subject~~which $0.4 million and $0.5 million, respectively, related to ~~certain~~the ~~performance~~common ~~and~~stock ~~time-based~~portion of the Retention Awards.

vesting factors. The maximum number of PIUs and the maximum amount of the CIA into which a participant would be eligible to vest would be determined based on the achievement of certain overall corporate and business unit performance goals, as applicable, during the 2014 calendar year. A participant’s maximum amount of PIUs and the maximum amount of a participant’s CIA would vest in three substantially equal installments on March 15, 2015, 2016 and 2017, subject to that participant’s continued service with the Company on each applicable vesting date. Each PIU that would have vested on a vesting date would be settled for a share of common stock and for the portion of the CIA that vested on a vesting date the Company would have paid the participant an amount equal to the vested portion of the CIA. The aggregate award value granted to participants under the 2014 Performance Program was approximately $9.6 million, subject to adjustment as described above. In March 2015, the Compensation Committee determined that the performance goals established under the 2014 Performance Program had not been achieved and therefore the PIUs and CIA were not eligible to vest and were terminated. During the nine months ended September 30, 2015, the Company recognized an expense reduction related to the 2014 Performance Program of $2.2 million, of which $1.1 million related to the common stock portion of the 2014 Performance Program awards. During the three months ended September 30, 2015, there was no expense recognized relating to the 2014 Performance Program.

On March 16, 2015, the Compensation Committee of the Board approved the terms of (i) the Affinion Group Holdings, Inc. 2015 Retention Award Program (the “2015 Retention Program”), an equity and cash incentive award program intended to foster retention of key employees of Affinion Holdings and its subsidiaries, and (ii) the awards (the “Retention Awards”) to each such key employee consisting of retention units (“RUs”) and a cash retention award (“CRA”) to be made by Affinion Holdings under the 2015 Retention Program. Each Retention Award will entitle the employee to one share of Affinion Holdings’ common stock for each RU and a cash payment in respect of the CRA, in each case, subject to applicable withholding taxes, when the applicable vesting conditions for the Retention Awards are met. The Retention Awards are subject to time-based vesting conditions. An employee’s RUs and CRA will vest in two substantially equal installments on each of March 15, 2016 and March 15, 2017 (each, a “Vesting Date”), subject to that employee’s continued service with Affinion Holdings and its subsidiaries on each applicable Vesting Date. An employee’s RUs and the portion of his or her CRA that become vested as of a given Vesting Date in accordance with the above vesting criteria will be settled as follows: (i) for each RU that vests on such Vesting Date, Affinion Holdings will deliver to the employee on the Settlement Date one share of common stock and (ii) for the portion of the CRA that vests on such Vesting Date, Affinion Holdings will pay to the employee on the Settlement Date an amount in cash equal to such vested portion of the CRA, in each case, subject to applicable tax withholding. An employee’s RUs and the portion of his or her CRA that become vested on a given Vesting Date will be settled as soon as practicable following such Vesting Date but in no event later than the sixtieth (60th) day following such Vesting Date (the “Settlement Date”). Upon termination of employment for any reason, an employee will forfeit the entire unvested portion of his or her Retention Award. The aggregate award value granted to participants under the 2015 Retention Program outstanding as of September 30, 2016 was approximately $7.1 million, net of forfeitures of $1.3 million. In conjunction with the Reclassification, which was effective on November 9, 2015, Retention Awards under the 2015 Retention Program that called for vesting of Class A Common Stock will vest in an adjusted number of shares of Class C Common Stock and Class D Common Stock. During the nine months ended September 30, 2016, 6,466 shares of Class C Common Stock and 6,809 shares of Class D Common Stock vested, in addition to CRAs of approximately $2.0 million. During the three and nine months ended September 30, 2016, the Company recognized expense related to the 2015 Retention Program of $0.9 million and $2.7 million, respectively, of which $0.5 million and $1.4 million, respectively, related to the common stock portion of the Retention Awards. During the three and nine months ended September 30, 2015, the Company recognized expense related to the 2015 Retention Program of $1.0 million and $2.2 million, respectively, of which $0.5 million and $1.1 million, respectively, related to the common stock portion of the Retention Awards.

8. RELATED PARTY TRANSACTIONS

Post-Closing Relationships with Cendant

~~Cendant~~On ~~has~~October 17, ~~agreed to indemnify the Company~~2005, ~~Affinion~~Cendant ~~Holdings~~Corporation ~~and the Company’s affiliates~~ (~~collectively the~~ “~~indemnified parties~~Cendant”) ~~for~~completed ~~breaches~~the sale of ~~representations,~~the ~~warranties and covenants made by~~ Cendant, asMarketing ~~well~~Services asDivision ~~for~~to ~~other specified matters, certain of which are described below. Affinion Holdings and~~ the Company ~~have~~and ~~agreed~~an toaffiliate ~~indemnify Cendant for breaches~~ of ~~representations,~~Apollo ~~warranties~~Global ~~and covenants made in the purchase agreement~~Management, asLLC ~~well as for certain other specified matters. Generally, all parties’ indemnification obligations with respect to breaches of representations and warranties~~ (~~except~~together with ~~respect~~its tosubsidiaries, ~~the matters described below~~“Apollo”), ~~(i) are~~pursuant ~~subject~~ to a ~~$0.1~~purchase ~~million~~agreement ~~occurrence~~dated ~~threshold~~July 26, ~~(ii) are~~2005 ~~not~~for ~~effective~~approximately ~~until the aggregate amount of losses suffered by the indemnified party exceeds~~ $151.08 ~~million~~billion (~~and then only for~~ the ~~amount~~“Apollo ~~of losses exceeding $15.0 million~~Transactions”)~~, 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.

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

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

23Excluded 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 6 to our 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.

~~Excluded~~Certain Litigation and Compliance with Law Matters. Cendant has agreed to ~~fully~~ indemnify the indemnified parties up to specified amounts for: (a) breaches of its representations and warranties with respect to ~~any~~legal ~~pending~~proceedings orthat ~~future~~(1) occur ~~litigation,~~after ~~arbitration,~~the ordate ~~other~~of ~~proceeding~~the ~~relating~~purchase agreement, (2) relate to ~~accounting~~facts ~~irregularities~~and incircumstances related to the ~~former~~business ~~CUC~~of Affinion Group, LLC or Affinion International Holdings Limited (“Affinion International”), ~~Inc.~~and ~~announced~~(3) constitute ona ~~April~~breach or violation of its compliance with law representations and warranties and (b) 15breaches of its representations and warranties with respect to compliance with laws to the extent related to the business of Affinion Group, ~~1998~~LLC or Affinion International.

Certain Litigation and Compliance with Law Matters. Cendant has agreed to indemnify the indemnified parties up to specified amounts for: (a) breaches of its representations and warranties with respect to legal proceedings that (1) occur after the date of the purchase agreement, (2) relate to facts and circumstances related to the business of Affinion Group, LLC or Affinion International Holdings Limited (“Affinion International”), and (3) constitute a breach or violation of its compliance with law representations and warranties and (b) breaches of its representations and warranties with respect to compliance with laws to the extent related to the business of Affinion Group, LLC or Affinion International. Of the legal proceedings disclosed in Note 6 to our 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.

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

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

Other Agreements

On October 17, 2005, Apollo entered into a consulting agreement with the Company for the provision of certain structuring and advisory services. The consulting agreement allowed Apollo and its affiliates to provide certain advisory services for a period of twelve years or until Apollo owned less than 5% of the beneficial economic interests of the Company, whichever was earlier. The agreement could be terminated earlier by mutual consent. The Company was required to pay Apollo an annual fee of $2.0 million for these services commencing in 2006. On January 14, 2011, the Company and Apollo entered into an Amended and Restated Consulting Agreement (“Consulting Agreement”), pursuant to which Apollo and its affiliates would continue to provide Affinion with certain advisory services on substantially the same terms as the previous consulting agreement, except that the annual fee paid by Affinion increased to $2.6 million from $2.0 million, commencing January 1, 2012, with an additional one-time fee of $0.6 million which was paid in January 2011 in respect of calendar year 2011. In connection with the December 2013 refinancing of Affinion’s 2006 senior subordinated notes and Affinion Holdings’ 2010 senior notes, Apollo and the Company further amended the consulting agreement, pursuant to which Apollo would not be paid any fees due under the consulting agreement until such time as none of Affinion Holdings’ 2013 senior notes remained outstanding. If a transaction was consummated involving a change of control or an initial public offering, then, in lieu of the annual consulting fee and subject to certain qualifications, Apollo could have elected to receive a lump sum payment equal to the present value of all consulting fees payable through the end of the term of the consulting agreement.

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

In connection with the 2015 Exchange Offers and 2015 Rights Offering, each of the parties to the Consulting Agreement entered into a termination agreement for no additional consideration. As a result of the termination of the consulting agreement, the Company has no obligation to pay Apollo any previously accrued and unpaid amounts for prior services rendered under the consulting agreement. The amount expensed related to this consulting agreement was $0.7 million and $2.0 million, respectively, for the three and nine months ended September 30, 2015, which is included in general and administrative expenses in the accompanying unaudited condensed consolidated statements of comprehensive income (loss) for the three and nine months ended September 30, 2015. There was no expense recognized related to this consulting agreement for the three and nine months ended September 30, 2016.

In July 2014, Novitex Enterprise Solutions (“Novitex”), a document outsourcing provider owned by affiliates of Apollo, commenced providing administrative services to the Company. In addition, in June 2015, Novitex assumed responsibility for the

~~performance~~Cendant, ~~and~~Affinion ~~management~~Holdings ~~of the Company’s domestic print~~ and ~~mailing operations. During~~ the ~~three and nine months ended September 30, 2015, the~~ Company ~~recognized~~have ~~expenses~~agreed ofthat ~~$2.5~~losses ~~million~~up ~~and~~to $315.50 million, ~~respectively,~~incurred ~~which~~with ~~are~~respect ~~included~~to inthese ~~general~~matters ~~and~~will ~~administrative~~be ~~expenses~~borne insolely by the ~~accompanying~~Company ~~unaudited~~and ~~condensed~~losses ~~consolidated~~in ~~statements~~excess of ~~comprehensive~~$15.0 ~~income~~million ~~(loss)~~will ~~for~~be ~~the~~shared ~~three~~by ~~and~~the ~~nine~~parties ~~months~~in ~~ended~~accordance ~~September~~with ~~30,~~agreed ~~2015~~upon allocations. AsThe aCompany ~~result~~has of the ~~2015~~right ~~Exchange~~at ~~Offers~~all ~~and~~times ~~2015~~to ~~Rights~~control ~~Offering~~litigation ~~consummated~~related onto ~~November~~shared 9,losses ~~2015,~~and ~~Novitex~~Cendant ~~was~~has ~~not~~consultation arights ~~related~~with ~~party~~respect ~~during~~to ~~the~~such ~~three and nine months ended September 30, 2016~~litigation.

~~SkyMall~~Prior ~~Ventures~~to ~~LLC~~2009, Cendant (~~now~~i) distributed ~~known~~the asequity ~~Connexions~~interests SMit ~~Ventures,~~previously ~~LLC),~~held ~~which~~in ~~was~~its ~~acquired~~hospitality byservices ~~the~~business ~~Company~~(“Wyndham”) inand ~~September~~its ~~2014,~~real ~~provides~~estate ~~fulfillment~~ services tobusiness ~~Caesar’s Entertainment Corporation~~ (“~~Caesar’s~~Realogy”), ~~which~~to isCendant ~~owned~~stockholders byand an(ii) sold ~~affiliate~~its oftravel ~~Apollo.~~services ~~During~~business ~~the~~(“Travelport”) ~~three~~to ~~and~~a ~~nine~~third ~~months~~party. ~~ended~~Cendant ~~September~~continues ~~30,~~as ~~2015,~~a ~~the~~re-named ~~Company~~publicly ~~recognized~~traded ~~revenues,~~company ~~net~~which ofowns the ~~cost~~vehicle torental ~~acquire~~business ~~the~~(“Avis ~~merchandise~~Budget,” ~~and~~together ~~gift~~with ~~cards~~Wyndham and Realogy, ofthe $0“Cendant Entities”).1 ~~million~~Subject ~~and~~to ~~$0.9~~certain ~~million~~exceptions, ~~respectively,~~Wyndham ~~which~~and ~~are~~Realogy ~~included~~have inagreed ~~net~~to ~~revenues~~share inCendant’s ~~the~~contingent ~~accompanying~~and ~~unaudited~~other ~~condensed~~liabilities ~~consolidated~~(including ~~statements~~its ofindemnity ~~comprehensive~~obligations ~~income~~to ~~(loss)~~the ~~for~~Company ~~the~~described ~~three~~above and ~~nine~~other ~~months~~liabilities ~~ended~~to ~~September~~the ~~30,~~Company ~~2015.~~in Asconnection awith ~~result~~the ofApollo ~~the~~Transactions) ~~2015~~in ~~Exchange~~specified ~~Offers~~percentages. ~~and~~If ~~2015~~any ~~Rights~~Cendant ~~Offering~~Entity ~~consummated~~defaults onin ~~November~~its 9payment, ~~2015~~when due, ~~Caesar’s~~of ~~was~~any ~~not~~such aliabilities, ~~related~~the ~~party~~remaining ~~during~~Cendant ~~the~~Entities ~~three~~are ~~and~~required ~~nine~~to ~~months~~pay ~~ended~~an ~~September~~equal ~~30,~~portion ~~2016~~of the amounts in default.

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

On January 28, 2010, the Company acquired an ownership interest of approximately 5%, subsequently reduced to approximately 2.9%, in Alclear Holdings, LLC (“Alclear”) for $1.0 million. A family member of one of the Company’s directors, at that time, controls and partially funded Alclear and serves as its chief executive officer. In March 2015, the Company sold its ownership interest in Alclear to certain existing members of Alclear who are not related parties or otherwise affiliated with the Company for $1.5 million, and the related gain of $0.5 million is included in other income, net in the accompanying unaudited condensed consolidated statement of comprehensive income (loss) for the nine months ended September 30, 2015. The Company continued to provide support services to Alclear and recognized revenue of $0.1 million and $0.3 million, respectively, for the three and nine months ended September 30, 2015. The master services agreement was terminated on April 1, 2016. The Company provided transition services to Alclear until August 1, 2016. As a result of the 2015 Exchange Offers and 2015 Rights Offering consummated on November 9, 2015, Alclear was not a related party during the three and nine months ended September 30, 2016.

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

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

9. FINANCIAL INSTRUMENTS, DERIVATIVES AND FAIR VALUE MEASURES

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~~March 3031, ~~2016~~2017:

																			Fair Value At	~~Fair Value At~~
														2021 and						September 30,
														2022 and					March 31,
	2016			2017			2018			2019		2020		Thereafter		Total				2016
	2017			2018			2019			2020		2021		Thereafter		Total			2017
	(in millions)
Fixed rate debt	$	—		$	—622.1		$	~~622.1~~—		$	—	$	—	$	—	$	622.1	~~622.1~~	$	$548.0	~~441.4~~
Average interest rate		8.01	%		87.0197	%		~~7.97~~	%
Variable rate debt	$	17.98		$	71,169.80		$	~~1,170.9~~—		$	—	$	—	$	—	$	1,176.8	~~1,180.6~~	$	$1,162.3	~~1,052.8~~
Average interest rate (a)		7.38	%		7.3868	%		~~7.68~~	%

(a) Average interest rate is based on rates in effect at ~~September~~March 3031, ~~2016~~2017.

Foreign Currency Forward Contracts

On a limited basis the Company has entered into 30 day foreign currency forward contracts, and upon expiration of the contracts, entered into successive 30 day foreign currency forward contracts. The contracts have been entered into to mitigate the Company’s foreign currency exposures related to intercompany loans which are not expected to be repaid within the next twelve months and that are denominated in Euros and British pounds. At ~~September~~March 3031, ~~2016~~2017, the Company had in place contracts to sell EUR 10.0 million and receive $1110.28 million and to sell GBP 13.9 million and receive $1817.02 million.

During the three ~~and nine~~ months ended ~~September~~March 3031, 2017 and 2016, the Company recognized a realized ~~gain~~loss on the forward contracts of $0.36 million and ~~$2.2 million, respectively. During the three and nine months ended September 30, 2015, the Company recognized~~ a realized gain on the forward contracts of $0.75 million ~~and $3.4 million~~, respectively. As of ~~September~~March 3031, ~~2016~~2017, the Company had an immaterial unrealized loss on the foreign currency forward contracts.

Credit Risk and Exposure

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

Fair Value

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

a. Cash and Cash Equivalents, Restricted Cash, Receivables, Profit-Sharing Receivables from Insurance Carriers and Accounts Payable—Carrying amounts approximate fair value at ~~September~~March 3031, ~~2016~~2017 and December 31, ~~2015~~2016 due to the short-term maturities of these assets and liabilities.

b. Long-Term Debt—The Company’s estimated fair value of its long-term fixed-rate debt at September 30, 2016 and December 31, 2015 is based upon available information for debt having similar terms and risks (Level 2). The fair value of the publicly-traded debt is the published market price per unit multiplied by the number of units held or issued without consideration of transaction costs. The fair value of the non-publicly-traded debt, substantially all of which is variable-rate debt, is based on third party indicative valuations and estimates prepared by the Company after consideration of the creditworthiness of the counterparties.25

cb. ~~Foreign~~Long-Term ~~Currency Forward Contracts~~Debt—AtThe ~~September 30, 2016 and December 31, 2015, the~~ Company’s estimated fair value of its ~~foreign~~long-term ~~currency~~fixed-rate ~~forward~~debt ~~contracts~~at March 31, 2017 and December 31, 2016 is based upon available ~~market~~ information. ~~The~~for ~~fair~~debt ~~value~~having ofsimilar ~~the~~terms ~~foreign~~and ~~currency~~risks ~~forward~~(Level ~~contracts~~2). isThe ~~based~~fair onvalue ~~significant~~of ~~other~~the ~~observable~~publicly-traded ~~inputs,~~debt ~~adjusted~~is ~~for~~the ~~contract~~published ~~restrictions~~market ~~and~~price ~~other~~per ~~terms~~unit ~~specific~~multiplied toby the ~~foreign~~number ~~currency~~of ~~forward~~units ~~contracts.~~held ~~The~~or ~~fair~~issued ~~value~~without ~~has been determined after~~ consideration of ~~foreign~~transaction ~~currency~~costs. ~~exchange~~The ~~rates~~fair ~~and~~value ~~the creditworthiness~~ of the ~~parties~~non-publicly-traded todebt, ~~the~~substantially ~~foreign~~all ~~currency~~of ~~forward~~which ~~contracts.~~is ~~The~~variable-rate ~~counterparty~~debt, tois ~~the~~based ~~foreign~~on ~~currency~~third ~~forward~~party ~~contracts~~indicative isvaluations aand ~~major~~estimates ~~financial~~prepared ~~institution.~~by ~~The~~the Company ~~does~~after ~~not~~consideration ~~expect~~of ~~any~~the ~~losses~~creditworthiness ~~from~~of ~~non-performance by~~ the ~~counterparty~~counterparties.

Foreign Currency Forward Contracts—At March 31, 2017 and December 31, 2016, the Company’s estimated fair value of its foreign currency forward contracts is based upon available market information. The fair value of the foreign currency forward contracts is based on significant other observable inputs, adjusted for contract restrictions and other terms specific to the foreign currency forward contracts. The fair value has been determined after consideration of foreign currency exchange rates and the creditworthiness of the parties to the foreign currency forward contracts. The counterparty to the foreign currency forward contracts is a major financial institution. The Company does not expect any losses from non-performance by the counterparty.

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

There were no financial instruments measured at fair value on a recurring basis as of ~~September~~March 3031, ~~2016~~2017 and December 31, ~~2015~~2016, other than foreign currency forward contracts. Such contracts have historically had a term of approximately thirty days and have been held to maturity. The fair value of the foreign currency forward contracts is measured based on significant observable inputs (Level 2).

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

Fair Value Measurements at December 31, 2015

Impairment

Losses

Fair Value at

Quoted Prices in Active

Significant Other

Significant

Year

December 31,

Markets for Identical

Observable

Unobservable

Ended

2015

Assets (Level 1)

Inputs (Level 2)

Inputs (Level 3)

December 31, 2015

(in millions)

Goodwill - Membership Products

—

(89.6

)

10. SEGMENT INFORMATION

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

The Segment EBITDA of the Company’s four reportable segments does not include general corporate expenses. Corporate expenses include certain departmental service costs such as human resources, legal, corporate finance and accounting and unallocated portions of information technology, in addition to expenses previously recorded in corporate such as professional fees related to debt financing activities and stock compensation costs. General corporate expenses have been excluded from the presentation of the Segment EBITDA for the Company’s four reportable segments because they are not reported to the chief operating decision maker for purposes of allocating resources among operating segments or assessing operating segment performance. The accounting policies of the reportable segments are the same as those described in Note 2—Summary of Significant Accounting Policies in the Company’s Form 10-K for the year ended December 31, ~~2015~~2016.

Net Revenues
	For the Three Months Ended						~~For the Nine Months Ended~~
	September 30,			September 30,			September 30,			September 30,
	March 31,			March 31,
	2016			2015			2016			2015
	2017			2016
	(in millions)
Global Loyalty	$	4257.90		$	4039.89		$	~~122.8~~		$	~~131.8~~
Global Customer Engagement		9289.52			~~106~~103.16			~~294.8~~			~~312.9~~
Insurance Solutions		5956.37			5657.84			~~172.0~~			~~175.5~~
Subtotal		~~194~~202.79			~~203~~200.79			~~589.6~~			~~620.2~~
Legacy Membership and Package		4338.62			8754.92			~~148.2~~			~~269.4~~
Eliminations		~~(0.2~~—	)		(0.32	)		~~(0.8~~	)		~~(1.0~~	)
	$	~~238~~241.1		$	~~291~~254.39		$	~~737.0~~		$	~~888.6~~

Segment EBITDA
	For the Three Months Ended						For the Nine Months Ended
	September 30,			September 30,			September 30,			September 30,
	2016			2015			2016			2015
	(in millions)
Global Loyalty	$	14.8		$	14.5		$	41.2		$	45.0
Global Customer Engagement		17.2			16.8			54.9			40.8
Insurance Solutions		22.4			18.1			61.3			55.3
Subtotal		54.4			49.4			157.4			141.1
Legacy Membership and Package		8.2			32.3			32.7			71.2
Corporate		(11.8	)		(19.6	)		(42.7	)		(47.5	)
	$	50.8		$	62.1		$	147.4		$	164.8

Segment EBITDA
	For the Three Months Ended
	March 31,			March 31,
	2017			2016
	(in millions)
Global Loyalty	$	20.1		$	13.6
Global Customer Engagement		12.9			19.6
Insurance Solutions		20.0			21.7
Subtotal		53.0			54.9
Legacy Membership and Package		9.0			10.1
Corporate		(12.6	)		(17.1	)
	$	49.4		$	47.9

	For the Three Months Ended						~~For the Nine Months Ended~~
	September 30,			September 30,			September 30,			September 30,
	March 31,			March 31,
	2016			2015			2016			2015
	2017			2016
	(in millions)
Segment EBITDA	$	5049.84		$	6247.19		$	~~147.4~~		$	~~164.8~~
Depreciation and amortization		(1311.73	)		(2314.73	)		~~(41.9~~	)		~~(71.7~~	)
Income from operations	$	3738.1		$	3833.46		$	~~105.5~~		$	~~93.1~~

11. GUARANTOR/NON-GUARANTOR SUPPLEMENTAL FINANCIAL INFORMATION

The following supplemental condensed consolidating financial information presents, in separate columns, the condensed consolidating balance sheets as of ~~September~~March 3031, ~~2016~~2017 and December 31, ~~2015~~2016, and the related condensed consolidating statements of comprehensive income (loss) for the three ~~and nine~~ month periods ended ~~September~~March 3031, ~~2016~~2017 and ~~2015~~2016 and the related condensed consolidating statements of cash flows for the ~~nine~~three month periods ended ~~September~~March 3031, ~~2016~~2017 and ~~2015~~2016 for (i) the Company (Affinion Group, Inc.) on a parent-only basis, with its investment in subsidiaries recorded under the equity method, (ii) the Guarantor Subsidiaries (the Company’s subsidiaries that guarantee the 2010 senior notes) on a combined basis, (iii) the Non-Guarantor Subsidiaries (the Company’s subsidiaries that do not guarantee the 2010 senior notes) on a combined basis and (iv) the Company on a consolidated basis. The guarantees are full and unconditional and joint and several obligations of each of the guarantor subsidiaries, all of which are 100% owned by the Company. There are no significant restrictions on the ability of the Company to obtain funds from any of its guarantor subsidiaries by dividends or loan.

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

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

UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEET

AS OF MARCH 31, 2017

(In millions)

						Non-
	Parent			Guarantor		Guarantor
	Company			Subsidiaries		Subsidiaries			Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	2.6		$	1.9	$	29.1		$	—		$	33.6
Restricted cash		—			15.9		8.9			—			24.8
Receivables, net		2.7			109.5		39.4			—			151.6
Profit-sharing receivables from insurance carriers		—			21.8		—			—			21.8
Prepaid commissions		—			24.3		9.3			—			33.6
Intercompany interest receivable		—			—		0.4			(0.4	)		—
Other current assets		43.0			18.2		25.1			—			86.3
Total current assets		48.3			191.6		112.2			(0.4	)		351.7
Property and equipment, net		5.6			73.1		27.1			—			105.8
Contract rights and list fees, net		—			16.6		—			—			16.6
Goodwill		—			155.6		63.3			—			218.9
Other intangibles, net		—			34.2		5.2			—			39.4
Receivables from related parties		28.9			—		—			—			28.9
Investment in subsidiaries		2,495.1			81.9		63.9			(2,640.9	)		—
Intercompany loan receivable		180.6			16.1		22.6			(219.3	)		—
Intercompany receivables		—			2,462.1		—			(2,462.1	)		—
Other non-current assets		—			29.2		4.6			—			33.8
Total assets	$	2,758.5		$	3,060.4	$	298.9		$	(5,322.7	)	$	795.1
Liabilities and Deficit
Current liabilities:
Current portion of long-term debt	$	7.8		$	—	$	—		$	—		$	7.8
Accounts payable and accrued expenses		107.0			164.1		82.6			—			353.7
Payables to related parties		15.9			—		—			—			15.9
Intercompany interest payable		0.4			—		—			(0.4	)		—
Deferred revenue		0.1			37.0		17.1			—			54.2
Income taxes payable		0.6			—		2.2			—			2.8
Total current liabilities		131.8			201.1		101.9			(0.4	)		434.4
Long-term debt		1,677.7			—		150.5			—			1,828.2
Deferred income taxes		2.3			24.9		0.5			—			27.7
Deferred revenue		0.3			2.0		2.0			—			4.3
Intercompany loans payable		22.6			—		196.7			(219.3	)		—
Intercompany payables		2,446.3			—		15.8			(2,462.1	)		—
Other long-term liabilities		8.2			17.4		4.4			—			30.0
Total liabilities		4,289.2			245.4		471.8			(2,681.8	)		2,324.6
Total Affinion Group, Inc. deficit		(1,530.7	)		2,815.0		(174.1	)		(2,640.9	)		(1,530.7	)
Non-controlling interest in subsidiary		—			—		1.2			—			1.2
Total deficit		(1,530.7	)		2,815.0		(172.9	)		(2,640.9	)		(1,529.5	)
Total liabilities and deficit	$	2,758.5		$	3,060.4	$	298.9		$	(5,322.7	)	$	795.1

UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEET

AS OF ~~SEPTEMBER~~DECEMBER 3031, 2016

(In millions)

						Non-
	Parent			Guarantor		Guarantor
	Company			Subsidiaries		Subsidiaries			Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	309.21		$	2.83	$	2824.68		$	—		$	6136.62
Restricted cash		—			1716.03		9.98			—			26.91
Receivables, net		12.96			8199.40		3334.3			—			~~116~~135.69
Profit-sharing receivables from insurance carriers		—			2418.98		—			—			2418.98
Prepaid commissions		—			2625.35		3.8.4			—			3033.19
Intercompany interest receivable		—			—		01.42			(01.42	)		—
Other current assets		2111.59			2731.39		2526.08			—			7370.86
Total current assets		5323.6			~~179~~193.78		~~101~~105.03			(01.42	)		~~333~~321.95
Property and equipment, net		74.19			7273.97		2826.39			—			~~108~~105.35
Contract rights and list fees, net		—			1516.94		—			—			1516.94
Goodwill		—			155.56		6662.76			—			~~222~~218.2
Other intangibles, net		—			3735.9		75.76			—			4541.65
Receivables from related parties		28.9			—		—			—			28.9
Investment in subsidiaries		2,~~381~~437.06			81.20		63.9			(2,~~526~~582.15	)		—
Intercompany loan receivable		~~163~~164.40			2015.58		22.6			(~~206~~202.54	)		—
Intercompany receivables		—			2,~~355~~387.9		—			(2,~~355~~387.9	)		—
Other non-current assets		~~12.6~~—			2729.6		64.27			—			4634.43
Total assets	$	2,~~646~~659.60		$	2,~~947~~989.17	$	~~296~~291.46		$	(5,~~088~~174.90	)	$	~~801~~766.23
Liabilities and Deficit
Current liabilities:
Current portion of long-term debt	$	7.8		$	—	$	—		$	—		$	7.8
Accounts payable and accrued expenses		8183.12			~~172~~157.40		7982.37			—			~~332~~322.89
Payables to related parties		1416.72			—		—			—			1416.72
Intercompany interest payable		01.42			—		—			(01.42	)		—
Deferred revenue		0.1			4037.52		2017.45			—			6154.08
Income taxes payable		0.75			-—		2.32			—			32.07
Total current liabilities		~~104~~109.80			~~212~~194.92		102.04			(01.42	)		~~419~~404.34
Long-term debt		1,~~691~~685.90			—		152.96			—			1,~~844~~837.86
Deferred income taxes		142.71			2324.62		0.96			—			3926.29
Deferred revenue		0.3			2.41		2.84			—			54.58
Intercompany loans payable		22.6			—		~~183~~179.98			(~~206~~202.54	)		—
Intercompany payables		2,~~343~~371.63			—		1216.36			(2,~~355~~387.9	)		—
Other long-term liabilities		38.53			18.58		4.3			—			2631.34
Total liabilities		4,~~181~~198.46			~~257~~239.43		~~459~~458.17			(2,~~562~~591.85	)		2,~~335~~305.1
Total Affinion Group, Inc. deficit		(1,~~534~~539.86	)		2,~~689~~750.74		(~~163~~167.69	)		(2,~~526~~582.15	)		(1,~~534~~539.86	)
Non-controlling interest in subsidiary		—			—		0.98			—			0.98
Total deficit		(1,~~534~~539.86	)		2,~~689~~750.74		(~~162~~167.71	)		(2,~~526~~582.15	)		(1,~~533~~538.98	)
Total liabilities and deficit	$	2,~~646~~659.60		$	2,~~947~~989.17	$	~~296~~291.46		$	(5,~~088~~174.90	)	$	~~801~~766.23

UNAUDITED CONDENSED CONSOLIDATING ~~BALANCE~~STATEMENT ~~SHEET~~OF COMPREHENSIVE INCOME (LOSS)

ASFOR OFTHE ~~DECEMBER~~THREE MONTHS ENDED MARCH 31, ~~2015~~2017

(In millions)

							Non-
	Parent			Guarantor			Guarantor
	Company			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Assets
Net revenues	$	—		$	172.5		$	68.6		$	—		$	241.1
Current assets:
Expenses:
Cash and cash equivalents	$	31.0		$	1.6		$	18.6		$	—		$	51.2
Cost of revenues, exclusive of depreciation and amortization shown separately below:
Restricted cash		—			16.0			13.2			—			29.2
Marketing and commissions		—			53.6			24.3			—			77.9
Receivables, net		1.9			68.7			43.4			—			114.0
Operating costs		10.6			39.3			39.5			—			89.4
Profit-sharing receivables from insurance carriers		—			19.9			—			—			19.9
General and administrative		12.0			6.9			5.4			—			24.3
Prepaid commissions		—			32.9			5.5			—			38.4
Facility exit costs		—			0.1			—			—			0.1
Intercompany interest receivable		1.2			—			1.1			(2.3	)		—
Depreciation and amortization		0.1			8.1			3.1			—			11.3
Other current assets		20.4			37.8			27.4			—			85.6
Total expenses		22.7			108.0			72.3			—			203.0
Total current assets		54.5			176.9			109.2			(2.3	)		338.3
Income (loss) from operations		(22.7	)		64.5			(3.7	)		—			38.1
Property and equipment, net		3.6			78.5			37.4			—			119.5
Interest income		0.2			—			—			—			0.2
Contract rights and list fees, net		—			16.6			—			—			16.6
Interest expense		(26.3	)		(0.1	)		(1.0	)		—			(27.4	)
Goodwill		—			155.6			70.2			—			225.8
Interest income (expense) - intercompany		(0.6	)		—			0.6			—			—
Other intangibles, net		—			44.6			10.4			—			55.0
Other expense, net		—			(0.1	)		—			—			(0.1	)
Receivables from related parties		28.9			—			—			—			28.9
Income (loss) before income taxes and non-controlling interest		(49.4	)		64.3			(4.1	)		—			10.8
Investment in subsidiaries		2,199.4			52.1			63.9			(2,315.4	)		—
Income tax expense		(0.2	)		(0.9	)		(1.3	)		—			(2.4	)
Intercompany loan receivable		144.9			20.0			22.6			(187.5	)		—
		(49.6	)		63.4			(5.4	)		—			8.4
Intercompany receivables		—			2,150.4			—			(2,150.4	)		—
Equity in income of subsidiaries		57.7			0.9			—			(58.6	)		—
Other non-current assets		(1.8	)		41.5			5.2			—			44.9
Net income (loss)		8.1			64.3			(5.4	)		(58.6	)		8.4
Total assets	$	2,429.5		$	2,736.2		$	318.9		$	(4,655.6	)	$	829.0
Less: net income attributable to non-controlling interest		—			—			(0.3	)		—			(0.3	)
Liabilities and Deficit
Net income (loss) attributable to Affinion Group, Inc.	$	8.1		$	64.3		$	(5.7	)	$	(58.6	)	$	8.1
Current liabilities:
Net income (loss)	$	8.1		$	64.3		$	(5.4	)	$	(58.6	)	$	8.4
Current portion of long-term debt	$	7.7		$	0.1		$	—		$	—		$	7.8
Currency translation adjustment, net of tax		0.8			0.3			(0.5	)		0.3			0.9
Accounts payable and accrued expenses		87.6			163.4			95.0			—			346.0
Comprehensive income (loss)		8.9			64.6			(5.9	)		(58.3	)		9.3
Payables to related parties		10.3			—			—			—			10.3
Less: comprehensive income attributable to non-controlling interest		—			—			(0.4	)		—			(0.4	)
Intercompany interest payable		1.1			—			1.2			(2.3	)		—
Comprehensive income (loss) attributable to Affinion Group, Inc.	$	8.9		$	64.6		$	(6.3	)	$	(58.3	)	$	8.9
Deferred revenue		0.2			44.9			24.2			—			69.3
Income taxes payable		1.0			0.1			1.3			—			2.4
Total current liabilities		107.9			208.5			121.7			(2.3	)		435.8
Long-term debt		1,713.1			—			155.3			—			1,868.4
Deferred income taxes		—			34.9			1.0			—			35.9
Deferred revenue		0.3			3.7			3.7			—			7.7
Intercompany loans payable		22.6			—			164.9			(187.5	)		—
Intercompany payables		2,128.9			—			21.5			(2,150.4	)		—
Other long-term liabilities		3.3			19.6			4.2			—			27.1
Total liabilities		3,976.1			266.7			472.3			(2,340.2	)		2,374.9
Total Affinion Group, Inc. deficit		(1,546.6	)		2,469.5			(154.1	)		(2,315.4	)		(1,546.6	)
Non-controlling interest in subsidiary		—			—			0.7			—			0.7
Total deficit		(1,546.6	)		2,469.5			(153.4	)		(2,315.4	)		(1,545.9	)
Total liabilities and deficit	$	2,429.5		$	2,736.2		$	318.9		$	(4,655.6	)	$	829.0

UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)

FOR THE THREE MONTHS ENDED ~~SEPTEMBER~~MARCH 3031, 2016

(In millions)

							Non-
	Parent			Guarantor			Guarantor
	Company			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Net revenues	$	—		$	~~167~~174.06		$	7180.13		$	—		$	~~238~~254.19
Expenses:
Cost of revenues, exclusive of depreciation and amortization shown separately below:
Marketing and commissions		0.1			5661.73			2426.87			—			8188.61
Operating costs		1011.6			2632.34			4142.68			—			7886.58
General and administrative		1516.56			6.89			4.8.6			—			2732.1
Facility exit costs		—			~~0.1~~—			—			—			~~0.1~~—
Depreciation and amortization		0.1			89.72			45.90			—			1314.73
Total expenses		2628.34			98109.68			7683.1			—			~~201~~221.03
Income (loss) from operations		(26.3	)		68.4			(5.0	)		—			37.1
Income from operations		(28.4	)		64.8			(2.8	)		—			33.6
Interest income		0.12			—			0.1			—			0.23
Interest expense		(26.78	)		(0.12	)		(1.01	)		—			(2728.81	)
Interest income (expense) - intercompany		(0.6	)		—			0.6			—			—
Income (loss) before income taxes and non-controlling interest		(53.5	)		68.3			(5.3	)		—			9.5
Other income, net		—			—			—			—			—
Income tax expense		(0.2	)		(0.7	)		(0.8	)		—			(1.7	)
Loss before income taxes and non-controlling interest		(55.6	)		64.6			(3.2	)		—			5.8
		(53.7	)		67.6			(6.1	)		—			7.8
Income tax expense		(0.2	)		(1.2	)		(1.7	)		—			(3.1	)
Equity in income of subsidiaries		61.2			0.2			—			(61.4	)		—
		(55.8	)		63.4			(4.9	)		—			2.7
Net income (loss)		7.5			67.8			(6.1	)		(61.4	)		7.8
Equity in income of subsidiaries		58.4			2.6			—			(61.0	)		—
Less: net income attributable to non-controlling interest		—			—			(0.3	)		—			(0.3	)
Net loss		2.6			66.0			(4.9	)		(61.0	)		2.7
Net income (loss) attributable to Affinion Group, Inc.	$	7.5		$	67.8		$	(6.4	)	$	(61.4	)	$	7.5
Less: net income attributable to non-controlling interest		—			—			(0.1	)		—			(0.1	)
Net income (loss)	$	7.5		$	67.8		$	(6.1	)	$	(61.4	)	$	7.8
Net loss attributable to Affinion Group, Inc.	$	2.6		$	66.0		$	(5.0	)	$	(61.0	)	$	2.6
Currency translation adjustment, net of tax		(1.4	)		0.2			0.1			(0.3	)		(1.4	)
Net loss	$	2.6		$	66.0		$	(4.9	)	$	(61.0	)	$	2.7
Comprehensive income (loss)		6.1			68.0			(6.0	)		(61.7	)		6.4
Currency translation adjustment, net of tax		—			—			—			—			—
Less: comprehensive income attributable to non-controlling interest		—			—			(0.3	)		—			(0.3	)
Comprehensive loss		2.6			66.0			(4.9	)		(61.0	)		2.7
Comprehensive income (loss) attributable to Affinion Group, Inc.	$	6.1		$	68.0		$	(6.3	)	$	(61.7	)	$	6.1
Less: comprehensive income attributable to non-controlling interest		—			—			(0.1	)		—			(0.1	)
Comprehensive loss attributable to Affinion Group, Inc.	$	2.6		$	66.0		$	(5.0	)	$	(61.0	)	$	2.6

UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF ~~COMPREHENSIVE~~CASH ~~INCOME~~FLOWS ~~(LOSS)~~

FOR THE ~~NINE~~THREE MONTHS ENDED ~~SEPTEMBER~~MARCH 3031, ~~2016~~2017

(In millions)

							Non-
	Parent			Guarantor			Guarantor
	Company			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Net revenues	$	—		$	509.4		$	227.6		$	—		$	737.0
Operating Activities
Expenses:
Net income (loss)	$	8.1		$	64.3		$	(5.4	)	$	(58.6	)	$	8.4
Cost of revenues, exclusive of depreciation and amortization shown separately below:
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Marketing and commissions		0.2			177.7			76.5			—			254.4
Depreciation and amortization		0.1			8.1			3.1			—			11.3
Operating costs		33.0			90.7			124.3			—			248.0
Amortization of debt discount and financing costs		1.5			—			—			—			1.5
General and administrative		45.9			22.1			19.1			—			87.1
Provision for accounts receivable loss		—			0.6			—			—			0.6
Facility exit costs		—			0.1			—			—			0.1
Depreciation and amortization		0.3			26.8			14.8			—			41.9
Amortization of carrying value adjustment		(6.9	)		—			(2.1	)		—			(9.0	)
Total expenses		79.4			317.4			234.7			—			631.5
Share-based compensation		0.9			—			—			—			0.9
Income (loss) from operations		(79.4	)		192.0			(7.1	)		—			105.5
Equity in (income) loss of subsidiaries		(57.7	)		(0.9	)		—			58.6			—
Interest income		0.5			—			0.3			—			0.8
Deferred income taxes		0.1			0.9			—			—			1.0
Interest expense		(80.0	)		0.6			(3.1	)		—			(82.5	)
Net change in assets and liabilities:
Interest income (expense) - intercompany		(1.7	)		—			1.7			—			—
Restricted cash		—			0.4			1.1			—			1.5
Income (loss) before income taxes and non-controlling interest		(160.6	)		192.6			(8.2	)		—			23.8
Receivables		(0.1	)		(11.2	)		(4.7	)		—			(16.0	)
Income tax expense		(0.7	)		(2.2	)		(2.8	)		—			(5.7	)
Receivables from related parties		(0.8	)		—			0.8			—			—
		(161.3	)		190.4			(11.0	)		—			18.1
Profit-sharing receivables from insurance carriers		—			(3.0	)		—			—			(3.0	)
Equity in income of subsidiaries		178.9			5.9			—			(184.8	)		—
Prepaid commissions		—			1.3			(0.8	)		—			0.5
Net income (loss)		17.6			196.3			(11.0	)		(184.8	)		18.1
Other current assets		(31.2	)		13.7			1.7			—			(15.8	)
Less: net income attributable to non-controlling interest		—			—			(0.5	)		—			(0.5	)
Contract rights and list fees		—			(0.3	)		—			—			(0.3	)
Net income (loss) attributable to Affinion Group, Inc.	$	17.6		$	196.3		$	(11.5	)	$	(184.8	)	$	17.6
Other non-current assets		—			0.4			—			—			0.4
Net income (loss)	$	17.6		$	196.3		$	(11.0	)	$	(184.8	)	$	18.1
Accounts payable and accrued expenses		23.8			8.5			(1.2	)		—			31.1
Currency translation adjustment, net of tax		(5.8	)		0.5			1.7			(2.2	)		(5.8	)
Payables to related parties		(1.2	)		—			—			—			(1.2	)
Comprehensive income (loss)		11.8			196.8			(9.3	)		(187.0	)		12.3
Deferred revenue		—			(0.3	)		(0.9	)		—			(1.2	)
Less: comprehensive income attributable to non-controlling interest		—			—			(0.5	)		—			(0.5	)
Income taxes receivable and payable		0.1			—			0.3			—			0.4
Comprehensive income (loss) attributable to Affinion Group, Inc.	$	11.8		$	196.8		$	(9.8	)	$	(187.0	)	$	11.8
Other long-term liabilities		(0.1	)		(1.5	)		0.1			—			(1.5	)
Other, net		(0.3	)		—			0.1			—			(0.2	)
Net cash provided by (used in) operating activities		(63.7	)		81.1			(7.9	)		—			9.5
Investing Activities
Capital expenditures		(0.7	)		(7.2	)		(2.6	)		—			(10.5	)
Intercompany receivables and payables		—			(74.3	)		(0.8	)		75.1			—
Net cash used in investing activities		(0.7	)		(81.5	)		(3.4	)		75.1			(10.5	)
Financing Activities
Principal payments on borrowings		(1.9	)		—			—			—			(1.9	)
Intercompany receivables and payables		75.1			—			—			(75.1	)		—
Intercompany loans		(15.3	)		—			15.3			—			—
Net cash provided by financing activities		57.9			—			15.3			(75.1	)		(1.9	)
Effect of changes in exchange rates on cash and cash equivalents		—			—			0.3			—			0.3
Net increase (decrease) in cash and cash equivalents		(6.5	)		(0.4	)		4.3			—			(2.6	)
Cash and cash equivalents, beginning of period		9.1			2.3			24.8			—			36.2
Cash and cash equivalents, end of period	$	2.6		$	1.9		$	29.1		$	—		$	33.6

UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2015

(In millions)

							Non-
	Parent			Guarantor			Guarantor
	Company			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Net revenues	$	—		$	205.1		$	86.2		$	—		$	291.3
Expenses:
Cost of revenues, exclusive of depreciation and amortization shown separately below:
Marketing and commissions		—			72.5			32.2			—			104.7
Operating costs		—			49.3			45.8			—			95.1
General and administrative		10.6			10.5			8.2			—			29.3
Facility exit costs		—			0.1			—			—			0.1
Depreciation and amortization		0.1			16.7			6.9			—			23.7
Total expenses		10.7			149.1			93.1			—			252.9
Income from operations		(10.7	)		56.0			(6.9	)		—			38.4
Interest income		(0.3	)		1.7			0.5			—			1.9
Interest expense		(35.1	)		—			(12.7	)		—			(47.8	)
Interest income (expense) - intercompany		(11.5	)		—			11.5			—			—
Other income, net		—			0.7			(0.1	)		—			0.6
Loss before income taxes and non-controlling interest		(57.6	)		58.4			(7.7	)		—			(6.9	)
Income tax expense		(0.1	)		(0.2	)		(0.8	)		—			(1.1	)
		(57.7	)		58.2			(8.5	)		—			(8.0	)
Equity in income of subsidiaries		49.5			3.0			—			(52.5	)		—
Net loss		(8.2	)		61.2			(8.5	)		(52.5	)		(8.0	)
Less: net income attributable to non-controlling interest		—			—			(0.2	)		—			(0.2	)
Net loss attributable to Affinion Group, Inc.	$	(8.2	)	$	61.2		$	(8.7	)	$	(52.5	)	$	(8.2	)
Net loss	$	(8.2	)	$	61.2		$	(8.5	)	$	(52.5	)	$	(8.0	)
Currency translation adjustment, net of tax		—			—			(2.2	)		—			(2.2	)
Comprehensive loss		(8.2	)		61.2			(10.7	)		(52.5	)		(10.2	)
Less: comprehensive income attributable to non-controlling interest		—			—			—			—			—
Comprehensive loss attributable to Affinion Group, Inc.	$	(8.2	)	$	61.2		$	(10.7	)	$	(52.5	)	$	(10.2	)

UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015

(In millions)

							Non-
	Parent			Guarantor			Guarantor
	Company			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Net revenues	$	—		$	632.1		$	256.5		$	—		$	888.6
Expenses:
Cost of revenues, exclusive of depreciation and amortization shown separately below:
Marketing and commissions		—			229.0			102.4			—			331.4
Operating costs		—			155.6			142.5			—			298.1
General and administrative		21.6			46.0			25.5			—			93.1
Facility exit costs		—			1.2			—			—			1.2
Depreciation and amortization		0.5			50.9			20.3			—			71.7
Total expenses		22.1			482.7			290.7			—			795.5
Income from operations		(22.1	)		149.4			(34.2	)		—			93.1
Interest income		—			1.7			0.6			—			2.3
Interest expense		(103.7	)		(0.1	)		(38.5	)		—			(142.3	)
Interest income (expense) - intercompany		(35.3	)		—			35.3			—			—
Other income, net		—			3.5			(2.3	)		—			1.2
Loss before income taxes and non-controlling interest		(161.1	)		154.5			(39.1	)		—			(45.7	)
Income tax expense		(0.8	)		(2.0	)		(1.4	)		—			(4.2	)
		(161.9	)		152.5			(40.5	)		—			(49.9	)
Equity in income of subsidiaries		111.5			1.9			—			(113.4	)		—
Net loss		(50.4	)		154.4			(40.5	)		(113.4	)		(49.9	)
Less: net income attributable to non-controlling interest		—			—			(0.5	)		—			(0.5	)
Net loss attributable to Affinion Group, Inc.	$	(50.4	)	$	154.4		$	(41.0	)	$	(113.4	)	$	(50.4	)
Net loss	$	(50.4	)	$	154.4		$	(40.5	)	$	(113.4	)	$	(49.9	)
Currency translation adjustment, net of tax		—			—			(5.7	)		—			(5.7	)
Comprehensive loss		(50.4	)		154.4			(46.2	)		(113.4	)		(55.6	)
Less: comprehensive income attributable to non-controlling interest		—			—			(0.2	)		—			(0.2	)
Comprehensive loss attributable to Affinion Group, Inc.	$	(50.4	)	$	154.4		$	(46.4	)	$	(113.4	)	$	(55.8	)

UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE ~~NINE~~THREE MONTHS ENDED ~~SEPTEMBER~~MARCH 3031, 2016

(In millions)

							Non-
	Parent			Guarantor			Guarantor
	Company			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Operating Activities
Net income (loss)	$	17.6		$	196.3		$	(11.0	)	$	(184.8	)	$	18.1
Net loss	$	2.6		$	66.0		$	(4.9	)	$	(61.0	)	$	2.7
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		0.31			269.82			145.80			—			4114.93
Amortization of debt discount and financing costs		41.5			—			—			—			41.5
Recovery of accounts receivable loss provided for		—			0.12			~~0.1~~—			—			0.2
Facility exit costs		—			0.1			—			—			0.1
Amortization of carrying value adjustment		(6.4	)		—			(2.1	)		—			(8.5	)
Amortization of carrying value adjustment		(20.0	)		—			(6.2	)		—			(26.2	)
Share-based compensation		0.7			—			—			—			0.7
Share-based compensation		2.8			—			—			—			2.8
Equity in (income) loss of subsidiaries		(58.4	)		(2.6	)		—			61.0			—
Equity in (income) loss of subsidiaries		(178.9	)		(5.9	)		—			184.8			—
Deferred income taxes		0.1			1.2			(0.2	)		—			1.1
Deferred income taxes		0.3			2.1			(0.6	)		—			1.8
Net change in assets and liabilities:
Restricted cash		—			(0.9	)		0.87			—			(0.12	)
Receivables		—(0.1	)		(129.86	)		8(3.45	)		—			(413.42	)
Receivables from related parties		0(1.40	)		—			(01.40	)		—			—
Profit-sharing receivables from insurance carriers		—			(52.09	)		—			—			(52.09	)
Prepaid commissions		—			63.69			10.24			—			74.83
Other current assets		(19.13	)		106.47			1.(0.3	)		—			1015.37
Contract rights and list fees		—			0.69			—			—			0.69
Other non-current assets		~~0.1~~—			~~0.7~~—			(01.62	)		—			0(1.2	)
Accounts payable and accrued expenses		(612.42	)		8(22.31	)		(51.96	)		—(0.1	)		(48.04	)
Payables to related parties		(1.7	)		—			—			—			(1.7	)
Deferred revenue		~~(0.1~~—	)		(5.6.4	)		(31.53	)		—			(97.27	)
Income taxes receivable and payable		(0.31	)		~~(0.1~~—	)		0.76			—			0.37
Other long-term liabilities		~~0.2~~—			(0.64	)		(1.23	)		—			(1.67	)
Other, net		1.4			—			(0.8	)		—			0.6
Net cash used in operating activities		(41.0	)		43.2			(5.5	)		(0.1	)		(3.4	)
Net cash provided by (used in) operating activities		(177.5	)		221.1			(3.2	)		—			40.4
Investing Activities
Capital expenditures		(30.98	)		(142.49	)		(62.03	)		—			(246.30	)
Restricted cash		—			—			10.51			—			10.51
Capital contribution to subsidiary		(0.2	)		—			—			0.2			—
Intercompany receivables and payables		—			(39.6	)		—			39.6			—
Intercompany receivables and payables		—			(205.5	)		(9.2	)		214.7			—
Net cash used in investing activities		(0.8	)		(42.5	)		(2.2	)		39.6			(5.9	)
Net cash provided by (used in) investing activities		(4.1	)		(219.9	)		(13.7	)		214.9			(22.8	)
Financing Activities
Principal payments on borrowings		(52.80	)		—			—			—			(52.80	)
Intercompany receivables and payables		~~214~~40.76			—			—(1.1	)		(~~214~~39.75	)		—
Capital contribution to subsidiary		—(0.3	)		—			0.23			~~(0.2~~—	)		—
Dividend paid to non-controlling interest		—			—			(0.3	)		—			(0.3	)
Intercompany loan		(13.3	)		—			13.3			—			—
Intercompany loans		(28.1	)		—			28.1			—			—
Net cash provided by financing activities		25.0			—			12.5			(39.5	)		(2.0	)
Net cash provided by (used in) financing activities		180.8			—			28.0			(214.9	)		(6.1	)
Effect of changes in exchange rates on cash and cash equivalents		—			—			0.3			—			0.3
Effect of changes in exchange rates on cash and cash equivalents		—			—			(1.1	)		—			(1.1	)
Net increase in cash and cash equivalents		(16.8	)		0.7			5.1			—			(11.0	)
Net increase (decrease) in cash and cash equivalents		(0.8	)		1.2			10.0			—			10.4
Cash and cash equivalents, beginning of period		31.0			1.6			18.6			—			51.2
Cash and cash equivalents, end of period	$	3014.2		$	2.83		$	2823.67		$	—		$	6140.62

3533

UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015

(In millions)

							Non-
	Parent			Guarantor			Guarantor
	Company			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Operating Activities
Net loss	$	(50.4	)	$	154.4		$	(40.5	)	$	(113.4	)	$	(49.9	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		0.5			50.9			20.3			—			71.7
Amortization of debt discount and financing costs		5.6			—			1.4			—			7.0
Recovery of accounts receivable loss provided for		—			(5.7	)		0.2			—			(5.5	)
Facility exit costs		—			1.2			—			—			1.2
Share-based compensation		1.4			—			—			—			1.4
Equity in (income) loss of subsidiaries		(111.5	)		(1.9	)		—			113.4			—
Deferred income taxes		0.3			1.9			(0.7	)		—			1.5
Net change in assets and liabilities:
Restricted cash		1.7			0.8			1.6			—			4.1
Receivables		(0.8	)		1.6			7.9			—			8.7
Receivables from related parties		(12.8	)		4.0			12.8			—			4.0
Profit-sharing receivables from insurance carriers		—			4.3			—			—			4.3
Prepaid commissions		—			1.3			(0.1	)		—			1.2
Other current assets		(36.4	)		17.1			0.5			—			(18.8	)
Contract rights and list fees		—			(0.4	)		—			—			(0.4	)
Other non-current assets		0.1			(13.1	)		(0.3	)		—			(13.3	)
Accounts payable and accrued expenses		20.0			3.3			(31.1	)		—			(7.8	)
Payables to related parties		(1.7	)		0.9			—			—			(0.8	)
Deferred revenue		0.4			(7.0	)		0.3			—			(6.3	)
Income taxes receivable and payable		(0.4	)		—			(0.1	)		—			(0.5	)
Other long-term liabilities		0.1			(6.5	)		0.7			—			(5.7	)
Other, net		1.3			(0.8	)		2.7			—			3.2
Net cash used in operating activities		(182.6	)		206.3			(24.4	)		—			(0.7	)
Investing Activities
Capital expenditures		0.5			(11.2	)		(12.6	)		—			(23.3	)
Restricted cash		—			—			(1.1	)		—			(1.1	)
Proceeds from sale of an investment		—			—			1.5			—			1.5
Intercompany receivables and payables		—			(193.9	)		—			193.9			—
Net cash used in investing activities		0.5			(205.1	)		(12.2	)		193.9			(22.9	)
Financing Activities
Borrowings under revolving credit facility, net		61.0			—			—			—			61.0
Principal payments on borrowings		(5.8	)		(0.8	)		—			—			(6.6	)
Receivables from and payables to parent company		(1.9	)		—			—			—			(1.9	)
Intercompany receivables and payables		195.6			—			(1.7	)		(193.9	)		—
Capital contribution to subsidiary		(0.1	)		—			0.1			—			—
Intercompany loan		(45.8	)		—			45.8			—			—
Net cash provided by financing activities		203.0			(0.8	)		44.2			(193.9	)		52.5
Effect of changes in exchange rates on cash and cash equivalents		—			—			(1.2	)		—			(1.2	)
Net increase in cash and cash equivalents		20.9			0.4			6.4			—			27.7
Cash and cash equivalents, beginning of period		7.8			2.5			17.7			—			28.0
Cash and cash equivalents, end of period	$	28.7		$	2.9		$	24.1		$	−−		$	55.7

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

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

The following discussion and analysis of our results of operations and financial condition should be read in conjunction with our audited consolidated financial statements as of December 31, ~~2015~~2016 and ~~2014~~2015, and for the years ended December 31, ~~2015~~2016, ~~2014~~2015 and ~~2013~~2014, included in our Annual Report on Form 10-K for the year ended December 31, ~~2015~~2016 (the “Form 10-K”) and with the unaudited condensed consolidated financial statements and related notes thereto presented in this Form 10-Q.

Disclosure Regarding Forward-Looking Statements

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

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

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

Introduction

~~The~~Management’s discussion and analysis of results of operations and financial condition (“MD&A”) is provided as a supplement to ~~the~~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, ~~results~~changes ofin ~~our~~financial ~~operations~~condition and ~~changes~~results inof our ~~financial condition~~operations. The MD&A is organized as follows:

•

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

• Results of operations. This section provides an analysis of our results of operations for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2016~~2017 ~~and~~to ~~2015~~2016. This analysis is presented on both a consolidated basis and on an operating segment basis.

• Financial condition, liquidity and capital resources. This section provides an analysis of our cash flows for the ~~nine~~three months ended ~~September~~March 3031, ~~2016~~2017 and ~~2015~~2016, and our financial condition as of ~~September~~March 3031, ~~2016~~2017, as well as a discussion of our liquidity and capital resources: (i) as of March 31, 2017 prior to giving effect to the consummation of the Credit Agreement Refinancing, the Exchange Offers and related transactions on May 10, 2017 (collectively, the “2017 Transactions”) and (ii) after giving effect to the consummation of the 2017 Transactions.

• Critical accounting policies. This section discusses certain significant accounting policies considered to be important to our financial condition and results of operations and which require significant judgment and estimates on the part of management in their application. In addition, we refer you to our audited consolidated financial statements as of ~~December 31, 2015 and 2014, and for the years ended December 31, 2015, 2014 and 2013, included in the Form 10-K for a summary of our significant accounting policies.~~

3734

December 31, 2016 and 2015, and for the years ended December 31, 2016, 2015 and 2014, included in the Form 10-K for a summary of our significant accounting policies.

Overview

Description of Business

WeThe ~~are~~Company ~~one~~develops ofprograms ~~the~~and ~~world’s~~solutions ~~leading~~that motivate and inspire loyalty. Through our proprietary technology platforms and end-to-end customer ~~engagement~~service ~~solutions~~capabilities, ~~companies.~~we We design, ~~market~~administer and ~~service~~fulfill loyalty, customer engagement and insurance programs and solutions that strengthen and ~~extend~~expand the value of customer relationships for many of the world’s largest and most respected companies. Our programs and ~~services~~solutions include:

• Loyalty ~~programs~~solutions that help reward, motivate and retain consumers. We create and manage any and all aspects of our clients’ points-based loyalty programs, including design, platform, analytics, points management and fulfillment. Our loyalty solutions offer relevant, best-in-class rewards (such as travel, gift cards and merchandise) to consumers enabling clients to motivate, retain and thank their best customers. For example, our platform and technology support points-based programs for financial services, automotive, gaming, travel and hospitality companies.

• ~~Membership~~Customer engagement programs and solutions that ~~help~~address ~~consumers~~key ~~save~~consumer ~~money~~needs ~~and~~such ~~gain~~as greater peace of mind and meaningful savings for everyday purchases. We provide these solutions to leading companies in the financial institution, telecommunications, ecommerce, retail and travel sectors globally. These differentiated programs help our clients enrich their offerings to drive deeper connections with their customers, and to encourage their customers to engage more, stay loyal and generate more revenue for our clients. For example, we develop and manage programs such as identity theft protection, credit monitoring, savings on everyday purchases, concierge services, discount travel services and roadside assistance.

• ~~Package~~Insurance programs and solutions that ~~bundle~~help ~~valuable~~protect ~~discounts~~consumers in the event of a covered accident, ~~protection~~injury, illness, or death. We market accident and ~~other~~life ~~benefits~~insurance programs on behalf of our financial institution partners. We work with leading insurance carriers to ~~enhance~~administer coverage for over 19 million people across America. These insurance solutions provide affordable, convenient insurance to consumers resulting in proven customer ~~relationships~~loyalty and generating incremental revenue for our clients. Our insurance solutions include accidental death and dismemberment insurance (“AD&D”), hospital accident plan, recuperative care, graded benefit whole life and simplified issue term life insurance.

•Our ~~Insurance~~financial ~~programs~~business ~~that~~model ~~help~~is ~~protect~~characterized ~~consumers~~by insubstantial ~~the~~recurring ~~event~~revenues. ofWe agenerate ~~covered~~revenue ~~accident,~~primarily ~~injury,~~in ~~illness,~~three ~~or death.~~ways:

We• ~~design~~Fee ~~loyalty~~for ~~and~~service: ~~customer~~we ~~engagement~~generate ~~solutions~~revenues ~~with~~from anour ~~attractive~~clients ~~suite~~through ofour ~~benefits~~loyalty ~~and~~business ~~ease~~by ofdesigning ~~usage that we believe are likely to interest~~(management, ~~engage~~analytics and ~~reward~~customer ~~consumers~~experience) ~~based on their needs~~ and ~~interests.~~administering ~~For~~points-based ~~example, we provide~~ loyalty ~~program~~programs ~~design~~on ~~and~~a ~~management,~~platform ~~disaggregated loyalty points redemptions for gift cards~~licensing, ~~travel and merchandise, credit monitoring and identity~~fee-~~theft~~for-service ~~resolution,~~basis. ~~discount~~We ~~travel~~also ~~services,~~generate ~~accidental~~revenues ~~death~~for ~~and~~desired ~~dismemberment~~customer ~~insurance~~engagement ~~(“AD&D”),~~programs ~~various checking account~~ and ~~credit card enhancement services~~solutions, ~~roadside~~typically ~~assistance,~~through asa ~~well~~licensing asand/or ~~other~~per ~~products~~user ~~and services~~fee.

We• ~~are~~Commission aor ~~global~~transaction leader in the designing, marketing and servicing of comprehensive loyalty and customer engagement solutions that enhance and extend the relationship of millions of consumers with many of the largest and most respected companies in the world. We generally partner with these leading companies in two waysfee: ~~(1)~~we byearn ~~developing~~a ~~and~~commission ~~supporting~~from ~~programs that are natural extensions of~~ our ~~partner~~suppliers ~~companies’ brand image~~ and/or ~~that~~a ~~provide~~transaction ~~valuable~~fee ~~services~~from toour ~~their~~clients ~~end-customers,~~based ~~and~~on ~~(2)~~volume ~~by providing the back-end technological support and redemption services~~ for ~~points-based~~enabling ~~loyalty~~or ~~programs.~~executing ~~Using~~transactions ~~our~~such expertise in customer engagement, product development, creative design and data-driven targeted marketing, we develop and market programs and services that enable the companies we partner with to generate significant, high-margin incremental revenue, enhance our partners’ brands among targeted consumers as ~~well~~fees asgenerated ~~strengthen~~from ~~and enhance the~~ loyalty ofpoints ~~their~~related ~~customer~~purchases ~~relationships. The enhanced loyalty can lead to improved customer satisfaction rates, longer retention of existing customers, increased acquisition of new customers,~~ and ~~greater use of other services provided by such companies~~redemption. We ~~refer~~can toalso ~~the~~generate ~~leading~~revenues ~~companies~~based ~~that~~on wea ~~work~~per-subscriber ~~with to provide loyalty~~ and ~~customer engagement solutions as our clients~~ /or ~~marketing partners. We refer to the consumers to whom we provide services directly under~~ a ~~contractual~~per-activity ~~relationship~~commission asfee ~~subscribers~~from orour ~~insureds.~~clients Wefor ~~refer to those consumers that we service on behalf of a third party, such as one of~~ our ~~marketing partners, and with whom we have a contractual relationship as end-customers~~services.

We• ~~utilize~~Subscription: ~~our~~we ~~substantial~~generate ~~expertise~~revenues inthrough ~~a variety of direct engagement media to market valuable products and services to~~ the ~~customers~~sale of our ~~marketing~~value-added ~~partners~~subscription-based onprograms aand ~~highly~~solutions ~~targeted, campaign basis. The selection of the media employed in a campaign corresponds~~ to the ~~preferences and expectations the targeted~~ customers ~~have demonstrated for transacting with our marketing partners, as we believe this optimizes response, thereby improving the efficiency~~ of our ~~marketing~~clients ~~investment.~~whom ~~Accordingly,~~ we ~~maintain~~bill ~~significant~~on ~~capabilities~~a ~~to market through direct mail~~monthly, ~~point-of-sale,~~quarterly ~~the~~or ~~internet~~annual ~~and inbound and outbound telephony and voice response unit marketing, as well as other media as needed~~basis.

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

AsEffective ofJanuary ~~December 31~~1, ~~2015~~2016, we ~~had~~implemented ~~approximately~~a ~~54 million~~new ~~subscribers~~globalized organizational structure (the “Global Reorganization”) to better support our key strategic initiatives and ~~end~~enhance long-~~customers~~term ~~enrolled~~revenue growth. This new organizational structure allows us to combine similar lines of business on common platforms and shared infrastructures on a global basis to drive best practices and efficiencies with meaningful cost savings. In addition, we no longer materially invest in lines of business that we believe are not essential to our ~~membership,~~long-term ~~insurance~~growth prospects. We remain committed to our business strategy of pursuing initiatives that maintain and ~~package~~enhance ~~programs~~our ~~worldwide~~position as a global leader in loyalty and ~~approximately~~customer ~~40 million~~engagement ~~customers~~solutions. The ~~who~~implementation ~~received~~of ~~credit~~the ornew ~~debit~~global ~~card~~organizational ~~enhancement~~structure ~~services~~marks oranother ~~loyalty~~major ~~points-based~~step ~~management~~in ~~services~~our strategic plan and ongoing transformation.

~~Effective January 1, 2016, we organize our business into four operating segments:~~35

•Starting ~~Global Loyalty. This segment consists of all of our loyalty assets globally~~ in ~~which~~the wefirst ~~are~~quarter ~~a provider~~ of ~~end-to-end loyalty solutions that help clients reward~~2016, ~~motivate~~we ~~and~~have ~~retain~~the ~~customers,~~following ~~including~~four ~~program~~operating ~~design, points management and administration, and broad-based fulfilment and redemption.~~segments:

• Global ~~Customer Engagement~~Loyalty. This segment ~~combines~~consists of all ~~global~~of ~~customer~~our ~~engagement~~loyalty ~~programs~~assets globally in which we orare ~~our~~a ~~partners~~provider ~~expect~~of end-to-end ~~actively~~loyalty ~~market. Through our Global Customer Engagement business, we expect that we will continue to be a leading global~~ solutions ~~provider~~ that ~~delivers~~help aclients ~~flexible~~reward, ~~mix~~enrich, ofmotivate ~~benefits~~ and ~~services~~retain ~~for our clients that meet~~ customers~~’ needs~~, including ~~products~~program ~~that~~design, ~~are~~points ~~designed~~management toand ~~help~~administration, ~~consumers~~and ~~save~~broad-based ~~money~~fulfillment and ~~gain~~redemption ~~peace~~across ofmultiple ~~mind~~channels.

38In 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 ~~Insurance~~provide ~~Solutions.~~and ~~This~~manage ~~segment~~reward ~~consists~~products offor ~~the~~loyalty ~~domestic~~programs ~~insurance~~through ~~business~~Connexions Loyalty, inInc. ~~which~~(“Connexions”), weour ~~are~~wholly-owned subsidiary, which is a ~~leading~~service ~~third~~provider for points-~~party~~based ~~agent,~~loyalty ~~administrator~~programs. We typically charge a per-subscriber and/or ~~marketer~~a ofper-activity ~~certain~~administrative ~~Accident~~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 ~~Life~~a ~~insurance~~travel ~~products~~gift card which can be used on all travel components, including airfare, rental car, hotel stays and cruise vacations.

• ~~Legacy~~Global ~~Membership~~Customer ~~and Package~~Engagement. This segment ~~combines~~consists ~~all~~of ~~global membership programs in which we no longer expect to actively market (which were previously reported predominantly in~~ our ~~Membership~~customer ~~Products~~engagement ~~segment and to a lesser extent in our International Products segment) and also includes the domestic Package~~ business ~~(which~~, ~~through December 31, 2015, was reported~~ in ~~our~~which ~~Insurance and Package segment). This segment includes membership programs that were marketed with many of our large domestic financial institution partners. Although~~ we ~~will~~are ~~continue~~a toleading ~~service~~global ~~these~~solutions ~~members,~~provider ~~we expect~~ that ~~cash~~delivers ~~flows~~a ~~and~~flexible ~~revenues~~mix ~~will decrease over time due to the anticipated attrition~~ of ~~the~~benefits member base in this operating segment. The expected reduction in revenues is expected to be partially offset by ongoing cost savings initiatives to mitigate the impact of reduced revenues on operating cash flows. The Legacy Membership and ~~Package~~services ~~segment~~for ~~would have constituted approximately 30% of~~ our ~~total~~clients ~~net~~that ~~revenues~~meet incustomers’ ~~2015 and~~needs, asincluding ofproducts ~~January~~that 1,are ~~2016,~~designed ~~is expected~~ to ~~continue~~help toconsumers besave ~~15%~~money ~~to 25% of our total net revenues over the next 12 months~~ and ~~run~~gain ~~off~~peace ~~over~~of ~~the next 3 to 5 years until it is no longer a material contributor to the overall enterprise~~mind.

WeThrough ~~offer~~ our ~~products~~global ~~and~~customer ~~services~~engagement ~~through~~operations, ~~both~~we ~~retail~~create and ~~wholesale~~manage ~~arrangements~~innovative ~~with~~programs ~~our~~and ~~marketing~~solutions ~~partners~~that asaddress ~~well~~key ~~as through direct-to-~~consumer ~~marketing.~~needs ~~Currently,~~such weas ~~primarily~~greater ~~provide~~peace-of-mind ~~wholesale services~~ and ~~benefits~~meaningful ~~derived from our credit card registration, credit monitoring and identity-theft resolution products~~savings. InWe ~~the~~provide ~~majority of~~ our ~~retail~~solutions ~~arrangements, we incur the marketing solicitation expenses~~ to ~~acquire~~leading ~~new~~companies ~~customers~~in ~~for~~the ~~our~~financial ~~subscription-based membership~~institution, ~~insurance and package enhancement products with the objective of building a base of highly profitable and predictable recurring future revenue streams and cash flows. For our membership~~telecommunications, ~~insurance~~retail and ~~package~~travel ~~enhancement~~sectors ~~products, these upfront marketing costs are expensed when the costs are incurred in support of a launched campaign~~globally.

Our ~~membership~~customer ~~programs~~engagement ~~are~~solutions ~~offered~~may ~~under~~be acategorized ~~variety~~in oftwo ~~terms~~ways: ~~and conditions. Prospective members are usually offered incentives~~ (~~e.g. free credit reports or other premiums~~1) ~~and~~revenue ~~one~~enhancement, towhich ~~three~~is ~~month~~a ~~risk~~traditional subscription-~~free~~based ~~trial~~model ~~periods to encourage them to evaluate~~ and ~~use~~(2) ~~the~~engagement ~~benefits~~solutions, ofwhich ~~membership~~is ~~before~~a ~~the~~fee-for-service ~~first~~or ~~billing~~transactional ~~period~~based ~~takes effect~~model. ~~We do not recognize any revenue during the trial period and expense the cost of all incentives and program benefits and servicing costs as incurred.~~

~~Customers~~In ~~of our membership programs typically pay their subscription fees either annually or monthly. Our membership products may have significant timing differences between~~ the ~~receipt of membership fees for annual members and~~ revenue ~~recognition.~~enhancement ~~Historically~~model, ~~memberships~~we ~~were~~provide ~~offered~~incremental ~~primarily~~services under full money back terms whereby a member could receive a full refund upon cancellation at any time during the current membership term. These revenues were recognized upon completion of the membership term when they were no longer refundable. Depending on the length of the trial period, this revenue may not have been recognized for upour toclients ~~16 months after the related marketing spend was incurred and expensed. Currently, annual memberships are primarily renewed under pro-rata arrangements in which the member is entitled~~ to amonetize ~~prorated refund for the unused portion of~~ their ~~membership~~customer ~~term~~base. ~~This~~We ~~allows~~also uspartner towith ~~recognize~~clients ~~revenue~~to ~~ratably~~customize ~~over~~benefits ~~the annual membership term. Upon completion of the subscription term, the membership renews under generally the same billing terms in which it originated. Given~~ that weresonate ~~had~~with ~~historically~~their ~~offered~~brand ~~a significant amount of subscriptions offering annual terms, our existing base continues to reflect a blend of both monthly~~ and ~~annual~~their ~~terms,~~customers’ ~~and will continue doing so for as long as a substantial percentage of the annual subscribers renew~~needs. However, the majority of our recent solicitation activity has been for subscriptions offering monthly terms, and during the nine months ended September 30, 2016 and the year ended December 31, 2015, in excess of 95% of our new member and end-customer enrollments were in monthly payment programs. Revenue is recognized monthly under both annual pro rata and monthly memberships, allowing for a better matching of revenues and related servicing and benefit costs when compared to annual full money back memberships.

~~When~~In ~~marketing~~the ~~with~~engagement asolutions ~~marketing partner~~model, we ~~generally~~help ~~utilize~~clients ~~the~~differentiate ~~brand~~their ~~names~~products and ~~customer~~build ~~contacts~~strong ofcustomer ~~the marketing partner in our marketing campaigns~~relations. We ~~usually~~also ~~compensate~~bundle ~~our~~appropriate ~~marketing~~rewards ~~partners~~and ~~either~~benefits ~~through~~along ~~commissions~~the ~~based~~lifecycle onof ~~revenues~~clients’ wecustomers ~~receive from members (which we expense in proportion~~ to ~~the~~create ~~revenue we recognize) or up-front marketing payments~~intimate, ~~commonly~~reciprocal ~~referred~~connections tothat asdrive ~~“bounties”~~purchase ~~(which we expense when incurred). In addition~~decisions, weinteraction enter into arrangements with certain marketing partners where we pay the marketing partners advance commissions which provide the potential for recovery from the marketing partners if certain targets are not achieved. These payments are capitalized and ~~amortized~~participation over ~~the expected life of the acquired members~~time. The commission rates that we pay to our marketing partners differ depending on the arrangement we have with the particular marketing partner and the type of media we utilize for a given marketing campaign.

In• aInsurance ~~direct-to-consumer~~Solutions. ~~campaign,~~This wesegment ~~invest~~consists ~~in Internet marketing to generate consumer awareness~~ of ~~our~~the ~~programs~~domestic ~~and~~insurance ~~services~~business, ~~and~~in ~~stimulate~~which ~~responses~~we ~~from~~are ~~our~~a ~~targeted~~leading ~~markets.~~third-party ~~As part of Internet marketing~~agent, weadministrator ~~employ search engine optimization~~ and ~~related~~marketer ~~techniques.~~of ~~When~~certain ~~marketing~~accident ~~directly~~& tolife ~~the~~insurance ~~consumer, we generally use our proprietary brands and avoid incurring any commission expense~~solutions.

We ~~serve~~offer asfive anprimary ~~agent~~insurance ~~and~~solutions ~~third-party~~that ~~administrator~~pertain onto ~~behalf~~supplemental ofhealth aor ~~variety~~life ofinsurance. ~~underwriters~~These ~~for~~solutions, ~~the~~including ~~marketing of~~ AD&D, ~~and~~represent our ~~other~~core insurance ~~products.~~offerings ~~Free trial periods~~ and ~~incentives~~the ~~are~~majority ~~generally~~of ~~not offered with~~ our annual insurance ~~programs~~revenue. ~~Insurance program~~

39We market our insurance products primarily by direct mail and the Internet. We use retail arrangements with our clients when we market our insurance solutions to their customers. We earn revenue in the form of commissions from premiums collected, and in some cases, from economic sharing arrangements with the insurance carriers that underwrite the policies that we market. While these economic sharing arrangements have a loss-sharing feature that is triggered in the event that the claims made against an insurance carrier exceed the premiums collected over a specified period of time, historically, we have never had to make a payment to insurance carriers under such loss-sharing feature.

~~participants~~• ~~typically~~Legacy ~~pay~~Membership ~~their~~and ~~insurance premiums either monthly or quarterly~~Package. WeThis ~~earn~~segment ~~revenue~~consists ~~in the form~~ of ~~commissions~~certain ~~collected~~global onmembership ~~behalf of the insurance carriers~~ and ~~participate~~package inprograms ~~profit-sharing relationships with certain of the carriers~~ that ~~underwrite~~are ~~the~~no ~~insurance~~longer ~~policies~~being ~~that~~actively wemarketed ~~market,~~but ~~where~~continue ~~profit is measured by the excess amount of premium remitted~~ to ~~the~~be ~~carrier~~serviced ~~less the cost for claim activities~~ and ~~any related expenses~~supported. InThis ~~2014,~~segment weincludes ~~transitioned~~membership aprograms ~~significant~~that ~~portion~~were ofpreviously ~~our~~marketed ~~AD&D~~with ~~business~~many ~~from~~of our ~~former~~large ~~primary~~domestic ~~insurance~~financial ~~carrier~~institution ~~to new carriers that receive a fixed distribution of collected premiums rather than participating in the profit-sharing arrangement~~partners. AsAlthough awe ~~result~~will ofcontinue ~~the completion of this transition, a significant portion of the business is no longer subject~~ to ~~profit-sharing~~service ~~arrangements. Our estimated share of profits from~~ these ~~arrangements~~members, iswe ~~reflected~~expect asthat ~~profit-sharing~~cash ~~receivables~~flows ~~from insurance carriers on the accompanying unaudited consolidated balance sheets~~ and ~~any~~revenues ~~changes~~will indecrease ~~estimated~~over ~~profit~~time ~~sharing~~due ~~in connection with the actual claims activities are periodically recorded as an adjustment~~ to ~~net revenue. Insurance revenues are recognized ratably over~~ the ~~insurance~~anticipated ~~period~~attrition ~~for which a policy is in effect and there are no significant differences between cash flows and related revenue recognition. Revenue from insurance programs is reported net~~ of ~~insurance costs in~~ the ~~accompanying~~member ~~unaudited~~base ~~consolidated~~in ~~statements~~this ofoperating ~~comprehensive income (loss)~~segment.

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

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

Factors Affecting Results of Operations and Financial Condition

Competitive Environment

AsWe are a ~~leader~~leading inloyalty ~~the~~and ~~affinity~~customer ~~direct~~engagement ~~marketing~~solutions ~~industry,~~company wewith ~~compete~~value-added ~~with~~programs ~~many~~and ~~other~~services ~~organizations,~~with ~~including~~a ~~certain~~network of ~~our~~more ~~marketing~~than ~~partners~~5,500 asclients ~~well~~ as ~~other~~of ~~benefit~~December 31, ~~providers~~2016, toapproximately ~~obtain~~44 million asubscribers ~~share~~and ~~of the~~ end-~~consumer’s~~customers ~~spending~~enrolled in ~~each~~our ofcustomer ~~our~~engagement ~~respective~~and ~~product~~insurance ~~categories.~~programs Asworldwide anand ~~affinity~~approximately ~~direct~~42 ~~marketer,~~million wecustomers ~~derive~~who ~~our~~received ~~leads~~credit ~~from~~or adebit ~~marketing~~card ~~partner’s~~enhancement ~~contacts~~services and loyalty points-based management and redemption services as of December 31, ~~which~~2016. We believe our ~~competitors~~portfolio ~~also~~of ~~seek~~programs ~~access~~and tobenefits is the broadest in the industry, and that we ~~must~~are ~~therefore~~capable ~~generate~~of ~~sufficient~~providing ~~earnings~~the ~~per~~full ~~lead~~range of administrative services for ~~our~~loyalty ~~marketing~~points ~~partners~~programs. toAt ~~compete~~December 31, ~~effectively~~2016, ~~for~~we ~~access~~offered to13 ~~their~~core ~~end-customers.~~products and services with 241 unique benefits and

~~As direct-to-consumer marketers, we compete with any company who offers comparable benefits and services to what we market from our own product portfolio.~~ 36

Wesupported ~~compete~~almost ~~with companies of varying size~~4,600 ~~financial~~versions ~~strength and availability~~ of ~~resources.~~products ~~Our competitors include marketing solutions providers, financial institutions, insurance companies, consumer goods companies, internet companies~~ and ~~others,~~services asrepresenting ~~well~~different ascombinations ~~direct marketers offering similar programs. Some~~ of ~~our competitors are larger than we are~~pricing, ~~have~~benefit ~~greater~~configurations ~~financial~~ and ~~other resources and are able to deploy more resources in their pursuit of the limited target market for our products~~branding.

WeOur ~~expect~~competitors ~~these~~include ~~competitive~~any ~~environments~~company seeking direct and regular access to ~~continue~~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 face competition in all areas of our business, including price, product offerings and product performance. As a whole, the ~~foreseeable~~direct ~~future~~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.

Financial Industry Trends

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

For instance, the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) mandates the most wide-ranging overhaul of financial industry regulation in decades. Dodd-Frank created the Consumer Financial Protection Bureau (the “CFPB”) which became operational on July 21, 2011, and has been given authority to regulate all consumer financial products sold by banks and non-bank companies. These regulations have imposed additional reporting, supervisory, and regulatory requirements on our financial institution ~~marketing~~clients ~~partners~~ which have adversely affected our business, financial condition and results of operations. In addition, even an inadvertent failure of our financial institution ~~marketing~~clients ~~partners~~ to comply with these laws and regulations, as well as rapidly evolving social expectations of corporate fairness, could adversely affect our business or our reputation going forward. Some of our ~~marketing~~clients ~~partners~~ 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.

40In 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.

a result, certain financial institution marketing partners have, and others could, delay or cease marketing with us, terminate their agreements with us, require us to cease providing services to members or end-consumers, or require changes to our products or services to consumers that could also have a material adverse effect on our business. Partially as a result of these factors, we have experienced a decline in our domestic membership customer base and domestic membership revenues. We anticipate this decline will continue at an accelerated rate in 2016, as compared to historical periods, before returning to historical attrition rates in 2017.

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

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

Regulatory Environment

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

These regulations primarily impact the means we use to market our programs, which can reduce the acceptance rates of our solicitation efforts, impact our ability to obtain information from our members and end-customers and impact the benefits we provide and how we service our ~~members and end-~~customers. In addition, new and contemplated regulations enacted by, or ~~marketing~~client ~~partner~~ settlement agreements or consent orders with, the CFPB could impose additional reporting, supervisory and regulatory requirements on, as well as result in inquiries of, us and our ~~marketing~~clients ~~partners~~ that could delay or terminate marketing campaigns with certain ~~marketing partners~~clients, impact the ~~services~~programs and ~~products~~solutions we provide to ~~consumers~~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 6 to our unaudited condensed consolidated financial statements in “Item 1. Financial Statements.”

Seasonality

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

Company History

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.

In 2005, the Company was acquired by investment funds affiliated with Apollo Global Management, LLC (such investment funds, the “Apollo Funds”) from Cendant Corporation (“Cendant”) through the consummation of the Apollo Transactions (as defined in “—The Apollo Transactions”).

In 2011, we entered into a merger agreement that resulted in the Webloyalty Acquisition and the acquisition of approximately 21% of the common stock of Affinion Holdings by investment funds affiliated with General Atlantic LLC (such investment funds referred to as “General Atlantic”) with the Apollo Funds continuing to own approximately 70% of the common stock of Affinion Holdings.

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.”

Upon consummation of the 2015 Exchange Offers, the Apollo Funds and General Atlantic ceased to have beneficial ownership of any common stock of Affinion Holdings.

The Apollo Transactions

On October 17, 2005, Cendant Corporation (“Cendant”) 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.

2015 Exchange Offers, 2015 Rights Offering and Reclassification

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

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

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

Results of Operations

Supplemental Data

We manage our business using a portfolio approach, meaning that we allocate ~~and reallocate~~ our investments in the ongoing pursuit of the highest and best available returns, allocating our resources to whichever products, services, geographies and programs offer the best opportunities. With the globalization of our clients, ~~products~~programs and ~~services~~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 the businesses (amounts in thousands, except dollars per unit).

	Three Months Ended
	March 31,
	2017		2016
Global Loyalty
Gross Transactional Sales Volume (1)	$	762,837	$	481,080
Gross Transactional Sales Volume per Transaction (1)	$	214.98	$	150.28
Total Transactions		3,548		3,201
Global Customer Engagement
Average Subscribers (2)		2,532		2,726
Annualized Net Revenue per Average Subscriber (3)	$	101.16	$	104.30
Engagement Solutions Platform Revenue	$	25,212	$	32,520
Insurance Solutions
Average Supplemental Insureds (2)		3,195		3,420
Annualized Net Revenue per Supplemental Insured (3)	$	69.53	$	65.87
Legacy Membership and Package
Average Legacy Members (2)		1,217		1,963
Annualized Net Revenue per Legacy Member (3)	$	106.60	$	95.25

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
Global Loyalty
Gross Transactional Sales Volume (1)	$	506,907	$	440,680	$	1,481,437	$	1,392,447
Gross Transactional Sales Volume per Transaction (1)	$	137.93	$	131.44	$	146.25	$	146.21
Total Transactions		3,675		3,353		10,130		9,524
Global Customer Engagement
Average Subscribers (2)		2,593		2,717		2,652		2,738
Annualized Net Revenue per Average Subscriber (3)	$	104.10	$	106.48	$	104.23	$	102.98
Engagement Solutions Platform Revenue	$	27,853	$	33,829	$	90,298	$	101,453
Insurance Solutions
Average Supplemental Insureds (2)		3,300		3,490		3,357		3,567
Annualized Net Revenue per Supplemental Insured (3)	$	70.47	$	63.78	$	66.99	$	64.25
Legacy Membership and Package
Average Legacy Members (2)		1,460		3,415		1,701		3,666
Annualized Net Revenue per Legacy Member (3)	$	102.55	$	91.58	$	98.51	$	85.45

(1)

Gross Transactional Sales Volume primarily includes the gross sales amount of travel bookings, gift cards and merchandise redeemed by customers of our clients’ programs that we support and excludes cash redemptions and revenue generated from programming, platform, administration and other non-transactional services. Gross Transactional Sales Volume per Transaction is calculated by taking the Gross Transactional Sales Volume reported for the period and dividing it by the total transactions for the same period.

(2)

Average Subscribers, Average Supplemental Insureds and Average Legacy Members for the period are all calculated by determining the average subscribers, insureds or members, as applicable, for each month in the period (adding the number of subscribers, insureds or members, as applicable, at the beginning of the month with the number of subscribers, insureds or members, as applicable, at the end of the month and dividing that total by two) and then averaging that result for the period. A subscriber’s, insured’s or member’s, as applicable, account is added or removed in the period in which the subscriber, insured or member, as applicable, has joined or cancelled.

(3)

Annualized Net Revenue per Average Subscriber and Supplemental Insured are all calculated by taking the revenues from subscribers or insureds, as applicable, for the period and dividing it by the average subscribers or insureds, as applicable, for the period. Quarterly periods are then multiplied by four to annualize this amount for comparative purposes. Upon cancellation of a subscriber or an insured, as applicable, the subscriber’s or insured’s, as applicable, revenues are no longer recognized in the calculation.

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

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

Segment EBITDA ~~and Adjusted EBITDA~~

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

Adjusted EBITDA consists of Segment EBITDA adjusted to exclude the financial impact of certain transactions as specified in the Company’s senior secured credit facility. Adjusted EBITDA is a supplemental measure of our performance that is neither required by, nor presented in accordance with, U.S. GAAP. The Company believes that Adjusted EBITDA on a consolidated basis and for each 40

Three Months Ended March 31, 2017 Compared to Three Months Ended March 31, 2016

The following table summarizes our consolidated results of operations for the three months ended March 31, 2017 and 2016:

Summary of Operating Results for the Three Months Ended March 31, 2017

	Three Months Ended			Three Months Ended
	March 31,			March 31,			Increase
	2017			2016			(Decrease)
	(in millions)
Net revenues	$	241.1		$	254.9		$	(13.8	)
Expenses:
Cost of revenues, exclusive of depreciation and amortization shown separately below:
Marketing and commissions		77.9			88.1			(10.2	)
Operating costs		89.4			86.8			2.6
General and administrative		24.3			32.1			(7.8	)
Facility exit costs		0.1		—				0.1
Depreciation and amortization		11.3			14.3			(3.0	)
Total expenses		203.0			221.3			(18.3	)
Income from operations		38.1			33.6			4.5
Interest income		0.2			0.3			(0.1	)
Interest expense		(27.4	)		(28.1	)		0.7
Other income, net		(0.1	)	—				(0.1	)
Income before income taxes and non-controlling interest		10.8			5.8			5.0
Income tax expense		(2.4	)		(3.1	)		0.7
Net income		8.4			2.7			5.7
Less: net income attributable to non-controlling interest		(0.3	)		(0.1	)		(0.2	)
Net income attributable to Affinion Group, Inc.	$	8.1		$	2.6		$	5.5

The following is a summary of changes affecting our operating results for the three months ended March 31, 2017.

Net revenues decreased $13.8 million, or 5.4%, for the three months ended March 31, 2017 as compared to the same period of the prior year primarily the result of lower retail revenues from a decline in retail member volumes in Legacy Membership and Package and lower revenue in Global Customer Engagement primarily due to the unfavorable impact of foreign exchange, as well as the timing of marketing campaign launches and product launches with new clients. Net revenue increased in Global Loyalty primarily due to increased growth with existing customers and launches with new clients.

Segment EBITDA increased $1.5 million for the three months ended March 31, 2017 as compared to the same period of the prior year months as the impact of the lower net revenues and higher operating costs was more than offset by lower marketing and commissions and lower general and administrative expenses.

Three Months Ended March 31, 2017 Compared to Three Months Ended March 31, 2016

The following section provides an overview of our consolidated results of operations for the three months ended March 31, 2017 as compared to the three months ended March 31, 2016.

Net Revenues. During the three months ended March 31, 2017 we reported net revenues of $241.1 million, a decrease of $13.8 million, or 5.4%, as compared to net revenues of $254.9 million in the comparable period of 2016. Global Loyalty net revenues increased $17.1 million primarily due to increased growth with existing customers and launches with new clients. On a currency consistent basis, net revenues decreased $9.5 million in Global Customer Engagement primarily from lower revenue in our revenue enhancement business principally caused by the timing of marketing campaign launches along with lower net revenues in our engagement solutions business primarily due to the timing of product launches with new clients. Net revenues declined $4.9 million from the unfavorable impact of foreign exchange. Insurance Solutions net revenues decreased $0.7 million as the impact from lower average supplemental insureds was primarily offset by an increase in the average revenue per supplemental insured and a lower cost of insurance principally from lower claims experience. Net revenues in Legacy Membership and Package decreased $16.0 million primarily due to the expected attrition of legacy members, including those from our large financial institution partners, principally due to the cessation of new marketing campaigns and terminated programs with those partners as a result of the regulatory issues that have negatively impacted these partners. We expect this downward trend in net revenues related to our financial institution partners to

continue for the foreseeable future. Net revenues further decreased from lower Package revenue primarily the result of lower average Package members and an unfavorable foreign exchange impact of $0.5 million.

Marketing and Commissions Expense. Marketing and commissions expense decreased by $10.2 million, or 11.6%, to $77.9 million for the three months ended March 31, 2017 from $88.1 million for the three months ended March 31, 2016. Marketing and commissions expense decreased in Legacy Membership and Package by $4.8 million primarily due to lower commissions. Costs decreased $6.0 million in Global Customer Engagement primarily due to the timing of campaign launches and the favorable impact of foreign exchange.

Operating Costs. Operating costs increased by $2.6 million, or 3.0%, to $89.4 million for the three months ended March 31, 2017 from $86.8 million for the three months ended March 31, 2016. Costs increased $10.5 million in Global Loyalty primarily from higher servicing costs related to the higher net revenues and a charge of $5.2 million recorded in relation to the remediation of an external gift card inventory theft. An insurance claim related to the theft is currently being pursued with our carriers and we expect a recovery in a future period which will be recorded when received. Operating costs decreased $4.8 million in Legacy Membership and Package primarily from lower product and servicing costs associated with the lower retail member volumes. Costs decreased $3.0 million in Global Customer Engagement primarily related to the favorable impact of foreign exchange.

General and Administrative Expense. General and administrative expense decreased by $7.8 million, or 24.3% to $24.3 million for the three months ended March 31, 2017 from $32.1 million for the three months ended March 31, 2016. Corporate costs decreased $3.7 million primarily due to lower legal costs. Costs decreased $5.3 million in Legacy Membership and Package primarily due to lower legal reserves.

Depreciation and Amortization Expense. Depreciation and amortization expense decreased by $3.0 million for the three months ended March 31, 2017 to $11.3 million from $14.3 million for the three months ended March 31, 2016, primarily from a decrease of $0.9 million related to lower amortization of intangible assets acquired in various acquisitions, principally member relationships which are amortized on an accelerated basis. Depreciation expense decreased $1.9 million primarily due to the favorable impact of foreign exchange.

Income Tax Expense. Income tax expense decreased by $0.7 million for the three months ended March 31, 2017 as compared to the three months ended March 31, 2016, primarily due to a decrease in the current state and foreign tax provisions and deferred federal and state tax provisions for the three months ended March 31, 2017, partially offset by an increase in the deferred foreign tax provision for the same period.

The Company’s effective income tax rates for the three months ended March 31, 2017 and 2016 were 22.3% and 53.7%, respectively. The difference in the effective tax rates for the three months ended March 31, 2017 and 2016 is primarily a result of the increase in income before income taxes and non-controlling interest from $5.8 million for the three months ended March 31, 2016 to $10.8 million for the three months ended March 31, 2017 and a decrease in the income tax provision from $3.1 million for the three months ended March 31, 2016 to $2.4 million for the three months ended March 31, 2017. The Company’s tax rate is affected by recurring items, such as tax rates in foreign jurisdictions and the relative amount of income it earns in those jurisdictions. It is also affected by discrete items that may occur in any given year, but are not consistent from year to year. In addition to state and foreign income taxes and related foreign tax deductions impacting the effective tax rate, the requirement to maintain valuation allowances had the most significant impact on the difference between the Company’s effective tax rate and the statutory U.S. federal income tax rate of 35%.

segment provides supplemental information useful to investors as it is frequently used by the financial community to analyze performance period to period, to analyze a company’s ability to service its debt and to facilitate comparisons among companies. The Company believes Adjusted EBITDA also provides additional supplemental information to compare results among our segments. However, Adjusted EBITDA is not a measurement of financial performance under U.S. GAAP, and Adjusted EBITDA may not be comparable to similarly titled measures of other companies. You should not consider Adjusted EBITDA as an alternative to operating or net income determined in accordance with U.S. GAAP, as an indicator of operating performance or as an alternative to cash flows from operating activities, determined in accordance with U.S. GAAP, or as an indicator of cash flows, or as a measure of liquidity.

Three Months Ended September 30, 2016 Compared to Three Months Ended September 30, 2015

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

	Three Months Ended			Three Months Ended
	September 30,			September 30,			Increase
	2016			2015			(Decrease)
	(in millions)
Net revenues	$	238.1		$	291.3		$	(53.2	)
Expenses:
Cost of revenues, exclusive of depreciation and amortization shown separately below:
Marketing and commissions		81.6			104.7			(23.1	)
Operating costs		78.5			95.1			(16.6	)
General and administrative		27.1			29.3			(2.2	)
Facility exit costs		0.1			0.1		—
Depreciation and amortization		13.7			23.7			(10.0	)
Total expenses		201.0			252.9			(51.9	)
Income from operations		37.1			38.4			(1.3	)
Interest income		0.2			1.9			(1.7	)
Interest expense		(27.8	)		(47.8	)		20.0
Other income, net	—				0.6			(0.6	)
Income (loss) before income taxes and non-controlling interest		9.5			(6.9	)		16.4
Income tax expense		(1.7	)		(1.1	)		(0.6	)
Net income (loss)		7.8			(8.0	)		15.8
Less: net income attributable to non-controlling interest		(0.3	)		(0.2	)		(0.1	)
Net income (loss) attributable to Affinion Group, Inc.	$	7.5		$	(8.2	)	$	15.7

Summary of Operating Results for the Three Months Ended September 30, 2016

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

Net revenues decreased $53.2 million, or 18.3%, for the three months ended September 30, 2016 as compared to the same period of the prior year primarily the result of lower retail revenues from a decline in retail member volumes in Legacy Membership and Package and lower revenue in Global Customer Engagement primarily from the unfavorable impact of foreign exchange, as well as the timing of marketing campaign launches and product launches with new clients.

Segment EBITDA decreased $11.3 million for the three months ended September 30, 2016 as compared to the same period of the prior year as the impact of the lower net revenues was partially offset by lower marketing and commissions, lower operating costs and lower general and administrative expense.

Three Months Ended September 30, 2016 Compared to Three Months Ended September 30, 2015

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

Net Revenues. During the three months ended September 30, 2016 we reported net revenues of $238.1 million, a decrease of $53.2 million, or 18.3%, as compared to net revenues of $291.3 million in the comparable period of 2015. Global Loyalty net revenues increased $2.1 million as growth with existing clients was partially offset by lower revenue from the loss of a key client in 2015. Global Customer Engagement net revenues decreased $13.6 million. On a currency consistent basis, net revenues decreased $8.9 million primarily from lower revenue in our revenue enhancement business principally caused by the timing of marketing campaign launches and the recording of a one-time non-cash adjustment as well as lower net revenues in our engagement solutions business primarily due to the timing of product launches with new clients. Net revenues declined $4.7 million from the unfavorable impact of foreign exchange. Insurance Solutions net revenues increased $2.5 million primarily due to a lower cost of insurance principally due to lower claims experience which was partially offset by the impact of lower average supplemental insureds. Net revenues in Legacy Membership and Package decreased $44.3 million primarily due to the expected attrition of legacy members, including those from our large financial institution partners, principally due to the cessation of new marketing campaigns and terminated programs with those partners as a result of the regulatory issues that have negatively impacted these partners. We expect this downward trend in net revenues related to our financial institution partners to continue for the foreseeable future. Net revenues further decreased from lower Package revenue primarily the result of lower average Package members and an unfavorable foreign exchange impact of $0.5 million.

Marketing and Commissions Expense. Marketing and commissions expense decreased by $23.1 million, or 22.1%, to $81.6 million for the three months ended September 30, 2016 from $104.7 million for the three months ended September 30, 2015. Marketing and commissions expense decreased in Legacy Membership and Package by $15.5 million primarily due to our decision in the latter part of 2015 to terminate certain marketing channels. Costs decreased $7.5 million in Global Customer Engagement primarily due to the timing of campaign launches.

Operating Costs. Operating costs decreased by $16.6 million, or 17.5%, to $78.5 million for the three months ended September 30, 2016 from $95.1 million for the three months ended September 30, 2015. Operating costs decreased $12.4 million in Legacy Membership and Package primarily from lower product and servicing costs associated with the lower retail member volumes along with lower costs of $5.0 million in Global Customer Engagement primarily due to lower product and servicing costs.

General and Administrative Expense. General and administrative expense decreased by $2.2 million, or 7.5% to $27.1 million for the three months ended September 30, 2016 from $29.3 million for the three months ended September 30, 2015. Costs decreased $2.1 million in Global Customer Engagement primarily due to the favorable impact of foreign exchange and lower employee related costs. Corporate costs decreased by $7.8 million primarily from lower professional fees related to our debt refinancing transactions incurred in 2015. Costs increased $6.8 million in Legacy Membership and Package primarily due to higher professional fees related to ongoing legal matters.

Depreciation and Amortization Expense. Depreciation and amortization expense decreased by $10.0 million for the three months ended September 30, 2016 to $13.7 million from $23.7 million for the three months ended September 30, 2015, primarily from a decrease of $7.7 million related to lower amortization of intangible assets acquired in connection with Affinion’s 2005 acquisition of the Cendant Marketing Services Division. The majority of these intangible assets are amortized on an accelerated basis. In addition, amortization expense recorded in 2016 decreased $1.0 million for intangible assets acquired in various acquisitions, principally member relationships which are amortized on an accelerated basis.

Interest Expense. Interest expense decreased $20.0 million, or 41.8% to $27.8 million for the three months ended September 30, 2016 from $47.8 million for the three months ended September 30, 2015, primarily from lower interest expense accrued as a result of the 2015 Exchange Offers and 2015 Rights Offering.

Income Tax Expense. Income tax expense increased by $0.6 million for the three months ended September 30, 2016 as compared to the three months ended September 30, 2015, primarily due to an increase in the current foreign and deferred federal and state tax provisions for the three months ended September 30, 2016, partially offset by a decrease in the current state and deferred foreign tax provisions for the same period.

The Company’s effective income tax rates for the three months ended September 30, 2016 and 2015 were 18.6% and (16.4)%, respectively. The difference in the effective tax rates for the three months ended September 30, 2016 and 2015 is primarily a result of a change from a loss before income taxes and non-controlling interest of $6.9 million for the three months ended September 30, 2015 to income before income taxes and non-controlling interest of $9.5 million for the three months ended September 30, 2016 and an increase in the income tax provision from $1.1 million for the three months ended September 30, 2015 to $1.7 million for the three months ended September 30, 2016. The Company’s tax rate is affected by recurring items, such as tax rates in foreign jurisdictions and the relative amount of income it earns in those jurisdictions. It is also affected by discrete items that may occur in any given year, but are not consistent from year to year. In addition to state and foreign income taxes, the requirement to maintain valuation allowances had the most significant impact on the difference between the Company’s effective tax rate and the statutory U.S. federal income tax rate of 35%.

Operating Segment Results

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

	Three Months Ended September 30,
	Three Months Ended March 31,
	Net Revenues									Segment EBITDA (1)									Adjusted EBITDA (1)
							Increase									Increase									Increase
	2016			2015			(Decrease)			2016			2015			(Decrease)			2016			2015			(Decrease)
	2017			2016			(Decrease)			2017			2016			(Decrease)			2017			2016			(Decrease)
	(in millions)
Global Loyalty	$	4257.90		$	4039.89		$	217.1		$	1420.81		$	1413.56		$	06.35		$	1425.90		$	1413.5		$	011.45
Global Customer Engagement		9289.52			~~106~~103.16			(1314.64	)		1712.29			1619.86			0(6.47	)		2114.38			1921.03			2(6.35	)
Insurance Solutions		5956.37			5657.84			2(0.57	)		2220.40			1821.17			4(1.37	)		2220.02			1821.15			3(1.93	)
Subtotal		~~194~~202.79			~~203~~200.79			(92.0	)		5453.40			4954.49			5(1.09	)		5860.20			5156.63			63.67
Legacy Membership and Package		4338.62			8754.92			(4416.30	)		89.20			3210.31			(241.1	)		1510.29			3618.12			(207.93	)
Eliminations		~~(0.2~~—	)		(0.32	)		0.12			—			—			—			—			—			—
Corporate		—			—			—			(1112.86	)		(1917.61	)		74.85			(1011.50	)		(1215.20	)		14.70
Total	$	~~238~~241.1		$	~~291~~254.39		$	(5313.28	)		5049.84			6247.19			~~(11~~1.35	)		6259.9			7559.5			~~(12~~0.64	)
Effect of purchase accounting, reorganizations and non-recurring revenues and gains																				—			~~(0.2~~—	)		~~0.2~~—
Certain legal costs																				(50.59	)		(26.43	)		(35.14	)
Net cost savings																				(02.90	)		(34.52	)		2.62
Other, net																				(5.7.6	)		(71.31	)		1.(6.5	)
Depreciation and amortization											(1311.73	)		(2314.73	)		103.0			(1311.73	)		(2314.73	)		103.0
Income from operations										$	3738.1		$	3833.46		$	(14.35	)	$	3738.1		$	3833.46		$	(14.35	)

	Three Months Ended September 30, 2016
	Global Loyalty		Global Customer Engagement		Insurance Solutions			Legacy Membership and Package		Corporate		Total
	(in millions)
Effect of purchase accounting, reorganizations and non-recurring revenues and gains	$	—	$	—	$	—		$	—	$	—	$	—
Certain legal costs		—		—		—			5.5		—		5.5
Net cost savings		—		0.4		—			0.3		0.2		0.9
Other, net		0.1		3.7		(0.4	)		1.2		1.1		5.7
Total	$	0.1	$	4.1	$	(0.4	)	$	7.0	$	1.3	$	12.1
	Three Months Ended September 30, 2015
	Global Loyalty		Global Customer Engagement		Insurance Solutions			Legacy Membership and Package		Corporate		Total
	(in millions)
Effect of purchase accounting, reorganizations and non-recurring revenues and gains	$	—	$	0.1	$	—		$	0.1	$	—	$	0.2
Certain legal costs		—		—		—			2.3		0.1

Filing Compare · Affinion Group, Inc.