What changed in this filing

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Item 1. Financial Statements

2021-11-03 compared with 2021-08-05 · 241 added, 204 removed, 873 unchanged (34% of the section changed)

2 unchanged sentences

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

September 30,

(in millions, except per share amounts)

Cash and cash equivalents

Accounts receivable, net, less allowance for doubtful accounts ($ 6.3 million and $ 4.0 million at June 30, 2021 and December 31, 2020, respectively)

Accounts receivable, net, less allowance for doubtful accounts ($ 7.1 million and $ 4.0 million at September 30, 2021 and December 31, 2020, respectively)

Credit card and loan receivables:

4 unchanged sentences

Credit card and loan receivables, net

Inventories, net

Other current assets

26 unchanged sentences

authorized, 200.0 million shares;

issued, 117.1 million shares at each of June 30, 2021 and December 31, 2020

issued, 49.8 million and 117.1 million shares at September 30, 2021 and December 31, 2020, respectively

Additional paid-in capital

Treasury stock, at cost, 67.4 million shares at each of June 30, 2021 and December 31, 2020

Treasury stock, at cost, no shares and 67.4 million shares at September 30, 2021 and December 31, 2020, respectively

Retained earnings

6 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(in millions, except per share amounts)

23 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(in millions)

3 unchanged sentences

Unrealized (loss) gain on securities available-for-sale, net of tax

Unrealized (loss) gain on cash flow hedges

Tax benefit (expense)

Unrealized (loss) gain on cash flow hedges, net of tax

Foreign currency translation adjustments (inclusive of deconsolidation of $ 3.8 million for the six months ended June 30, 2020 related to the sale of a business)

Other comprehensive income (loss), net of tax

Unrealized gain on cash flow hedges

Unrealized gain on cash flow hedges, net of tax

Foreign currency translation adjustments (inclusive of deconsolidation of $ 3.8 million for the nine months ended September 30, 2020 related to the sale of a business)

Other comprehensive (loss) income, net of tax

Total comprehensive income, net of tax

4 unchanged sentences

Stockholders’

Three Months Ended June 30, 2021

Three Months Ended September 30, 2021

(in millions)

Balance at April 1, 2021

Other comprehensive income

Balance at July 1, 2021

Other comprehensive loss

Stock-based compensation

Dividends and dividend equivalent rights declared ($ 0.21 per common share)

Balance at June 30, 2021

Retirement of treasury stock

Balance at September 30, 2021

Comprehensive

Stockholders’

Three Months Ended June 30, 2020

Three Months Ended September 30, 2020

(in millions)

Balance at April 1, 2020

Balance at July 1, 2020

Other comprehensive income

1 unchanged sentence

Dividends and dividend equivalent rights declared ($ 0.21 per common share)

Balance at June 30, 2020

Balance at September 30, 2020

See accompanying notes to unaudited condensed consolidated financial statements.

3 unchanged sentences

Stockholders’

Six Months Ended June 30, 2021

Nine Months Ended September 30, 2021

(in millions)

3 unchanged sentences

Dividends and dividend equivalent rights declared ($ 0.21 per common share)

Balance at June 30, 2021

Retirement of treasury stock

Balance at September 30, 2021

Comprehensive

Stockholders’

Six Months Ended June 30, 2020

Nine Months Ended September 30, 2020

(in millions)

3 unchanged sentences

Stock-based compensation

Dividends and dividend equivalent rights declared ($ 0.63 per common share for the three months ended March 31, 2020 and $ 0.21 per common share for the three months ended June 30, 2020)

Balance at June 30, 2020

Dividends and dividend equivalent rights declared ($ 0.63 per common share for the three months ended March 31, 2020 and $ 0.21 per common share for both the three months ended June 30, 2020 and September 30, 2020)

Balance at September 30, 2020

See accompanying notes to unaudited condensed consolidated financial statements.

1 unchanged sentence

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months Ended

Nine Months Ended

September 30,

(in millions)

14 unchanged sentences

Proceeds from sale of credit card portfolio

Purchase of credit card portfolio

Purchase of credit card portfolios

Capital expenditures

7 unchanged sentences

Repayments/maturities of non-recourse borrowings of consolidated securitization entities

Net decrease in deposits

Net increase (decrease) in deposits

Payment of deferred financing costs

24 unchanged sentences

Planned Spinoff of the LoyaltyOne Segment

In May 2021, the Company announced its intention to spin off its LoyaltyOne segment, comprised of its Canadian AIR MILES ® Reward Program and Netherlands-based BrandLoyalty business, into a new, independent, publicly traded company (“SpinCo”) through a distribution of 81 % of SpinCo’s shares to the stockholders of ADSC.

The transaction is expected to qualify as a tax-free reorganization and a tax-free distribution to the Company and its stockholders for U.S.

federal income tax purposes.

The spinoff is expected to be completed in the fourth quarter of 2021, subject to market and certain other conditions.

At the time of the spinoff, the Company expects to retain a 19 % interest in SpinCo and the historical results of the LoyaltyOne segment will be reflected as discontinued operations in the Company’s consolidated financial statements.

On October 13, 2021, the Company’s Board of Directors approved the previously announced separation (the “Separation”) of its LoyaltyOne segment, consisting of its Canadian AIR MILES® Reward Program and Netherlands-based BrandLoyalty businesses, into an independent, publicly traded company, Loyalty Ventures Inc.

listed on Nasdaq under the symbol “LYLT” (“Loyalty Ventures”).

The Separation will be completed through the pro rata distribution of 81 % of the outstanding shares of Loyalty Ventures to holders of ADSC’s common stock at the close of business on the record date of October 27, 2021, with ADSC retaining the remaining 19 % of the outstanding shares of Loyalty Ventures.

ADSC stockholders of record at the close of business on October 27, 2021 will receive one share of Loyalty Ventures common stock for every two and one-half ( 2.5 ) shares of ADSC common stock.

The distribution is expected to qualify as a tax-free reorganization and a tax-free distribution to ADSC and its stockholders for U.S.

federal income tax purposes, to be completed on November 5, 2021.

At the time of the spinoff, the Company will retain a 19 % interest in Loyalty Ventures and historical results of the LoyaltyOne segment will be reflected as discontinued operations in the Company’s consolidated financial statements.

Recently Issued Accounting Standards

4 unchanged sentences

The Company is evaluating the impact that adoption of ASU 2020-04 will have on its consolidated financial statements.

ALLIANCE DATA SYSTEMS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

Recently Adopted Accounting Standards

2 unchanged sentences

The Company’s adoption of this standard on January 1, 2021 did not have a material impact on its consolidated financial statements.

ALLIANCE DATA SYSTEMS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

The Company’s products and services are reported under two segments—LoyaltyOne and Card Services, as shown below.

The following tables present revenue disaggregated by major source:

Three Months Ended June 30, 2021

Three Months Ended September 30, 2021

Card Services

7 unchanged sentences

Investment income

Three Months Ended June 30, 2020

Three Months Ended September 30, 2020

Card Services

7 unchanged sentences

Investment income

Six Months Ended June 30, 2021

ALLIANCE DATA SYSTEMS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

Nine Months Ended September 30, 2021

Card Services

7 unchanged sentences

Investment income

ALLIANCE DATA SYSTEMS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

Six Months Ended June 30, 2020

Nine Months Ended September 30, 2020

Card Services

8 unchanged sentences

The following tables present revenue disaggregated by geographic region based on the location of the subsidiary that generally correlates with the location of the customer:

Three Months Ended June 30, 2021

Three Months Ended September 30, 2021

Card Services

3 unchanged sentences

Europe, Middle East and Africa

Three Months Ended June 30, 2020

Three Months Ended September 30, 2020

Card Services

3 unchanged sentences

Europe, Middle East and Africa

Six Months Ended June 30, 2021

ALLIANCE DATA SYSTEMS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

Nine Months Ended September 30, 2021

Card Services

3 unchanged sentences

Europe, Middle East and Africa

ALLIANCE DATA SYSTEMS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

Six Months Ended June 30, 2020

Nine Months Ended September 30, 2020

Card Services

12 unchanged sentences

Effects of foreign currency translation

Balance at June 30, 2021

Balance at September 30, 2021

Amounts recognized in the consolidated balance sheets:

5 unchanged sentences

Additionally, contract liabilities for the Company’s short-term loyalty programs are recognized in other current liabilities in the Company’s unaudited condensed consolidated balance sheets.

The beginning balance as of January 1, 2021 was $ 66.9 million and the closing balance as of June 30, 2021 was $ 75.2 million, with the change due to cash payments received in advance of program performance, offset in part by revenue recognized of approximately $ 156.3 million during the six months ended June 30, 2021.

The beginning balance as of January 1,

ALLIANCE DATA SYSTEMS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

2021 was $ 66.9 million and the closing balance as of September 30, 2021 was $ 107.2 million, with the change due to cash payments received in advance of program performance, offset in part by revenue recognized of approximately $ 226.9 million during the nine months ended September 30, 2021.

Contract Costs

1 unchanged sentence

Depending on the nature of the contract costs, the amortization is recorded as a reduction to revenue, or costs of operations, in the Company’s unaudited condensed consolidated statements of income.

As of June 30, 2021 and December 31, 2020, the remaining unamortized contract

ALLIANCE DATA SYSTEMS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

costs were $ 365.1 million and $ 311.1 million, respectively, and are included in other current assets and other non-current assets in the Company’s unaudited condensed consolidated balance sheets.

As of September 30, 2021 and December 31, 2020, the remaining unamortized contract costs were $ 361.0 million and $ 311.1 million, respectively, and are included in other current assets and other non-current assets in the Company’s unaudited condensed consolidated balance sheets.

EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted net income per share of common stock:

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(in millions, except per share amounts)

5 unchanged sentences

Diluted net income per share:

(1) For both the three and six months ended June 30, 2021, the number of restricted stock units excluded from the calculation of weighted average dilutive common shares as the effect would have been anti-dilutive were de minimis.

For both the three and six months ended June 30, 2020, 0.3 million of restricted stock units were excluded from the calculation of weighted average dilutive common shares as the effect would have been anti-dilutive.

(1) For both the three and nine months ended September 30, 2021, the number of restricted stock units excluded from the calculation of weighted average dilutive common shares as the effect would have been anti-dilutive were de minimis.

For both the three and nine months ended September 30, 2020, 0.3 million of restricted stock units were excluded from the calculation of weighted average dilutive common shares as the effect would have been anti-dilutive.

On September 28, 2020, the Company acquired 3.5 million preferred Series D Shares of Lon Inc., a Delaware corporation (“Bread”), for approximately $ 25.0 million, which represented an approximate 6 % ownership interest in Bread.

26 unchanged sentences

On January 10, 2020, the Company sold Precima ® , a provider of retail strategy and customer data applications and analytics, to Nielsen Holdings plc for total consideration of $ 43.8 million.

The purchase and sale agreement provided for $ 10.0 million in contingent consideration based upon the occurrence of specified events and performance of the business, with two earnout determinations in September 2020 and September 2021, respectively.

In September 2020, the Company received cash of $ 5.0 million upon the earnout determination date.

At June 30, 2021, the Company estimated the fair value of the remaining contingent purchase price at approximately $ 1.5 million, which is included in the total consideration below.

The purchase and sale agreement provided for contingent consideration of $ 10.0 million based upon the occurrence of specified events and performance of the business, of which $ 5.0 million was achieved in 2020.

The Company estimated the fair value of the contingent purchase price, which is included in the total consideration below.

Precima was included in the Company’s LoyaltyOne segment.

The pre-tax gain was recorded in cost of operations in the Company’s unaudited condensed consolidated statements of income for the six months ended June 30, 2020.

The pre-tax gain was recorded in cost of operations in the Company’s unaudited condensed consolidated statements of income for the nine months ended September 30, 2020.

(in millions)

9 unchanged sentences

Quantitative information about the components of the Company’s credit card and loan receivables is presented in the table below:

September 30,

(in millions)

32 unchanged sentences

As permitted by ASC 326, the Company excludes unbilled finance charges from its amortized cost basis of credit card and loan receivables.

As of June 30, 2021 and December 31, 2020, unbilled finance charges were $ 206.2 million and $ 219.4 million, respectively, and are included in other credit card and loan receivables in the Company’s unaudited condensed consolidated balance sheets.

As of September 30, 2021 and December 31, 2020, unbilled finance charges were $ 208.4 million and $ 219.4 million, respectively, and are included in other credit card and loan receivables in the Company’s unaudited condensed consolidated balance sheets.

Installment Loan Receivables

2 unchanged sentences

delinquency, risk score and remaining term.

As of June 30, 2021 and December 31, 2020, the allowance for loan loss related to installment loan receivables was $ 7.6 million and $ 5.7 million, respectively.

As of September 30, 2021 and December 31, 2020, the allowance for loan loss related to installment loan receivables was $ 7.8 million and $ 5.7 million, respectively.

Allowance for Loan Loss Rollforward

1 unchanged sentence

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(in millions)

7 unchanged sentences

(2) Recorded January 1, 2020 through a cumulative-effect adjustment to retained earnings, net of taxes.

For the six months ended June 30, 2021, the decrease in the allowance for loan loss was due to improved credit performance, lower net charge-offs and improving macroeconomic indicators.

For the nine months ended September 30, 2021, the decrease in the allowance for loan loss was due to improved credit performance, lower net charge-offs and improving macroeconomic variables.

In addition, improvements in customer payment behavior, which include the effects of government stimulus actions, have contributed to a reduction in credit card receivables and delinquencies, which also contributed to the reduction in the allowance for loan loss.

For the six months ended June 30, 2020, the increase in the allowance for loan loss was due to a $ 644.0 million cumulative-effect adjustment for the adoption of ASC 326 as well as deterioration of the macroeconomic outlook due to COVID-19.

For the nine months ended September 30, 2020, the increase in the allowance for loan loss was due to a $ 644.0 million cumulative-effect adjustment for the adoption of ASC 326 as well as deterioration of the macroeconomic outlook due to COVID-19.

Net Charge-offs

2 unchanged sentences

Credit card receivables, including unpaid interest and fees, are charged-off in the month during which an account becomes 180 days contractually past due, except in the case of customer bankruptcies or death.

Installment loan receivables, including unpaid interest, are charged-off when a loan is 120 days past due.

Installment loan receivables, including unpaid interest, are charged-off when a loan is 120 days past due, including in the case of customer bankruptcies or death.

Credit card receivables, including unpaid interest and fees, associated with customer bankruptcies or death are charged-off in each month subsequent to 60 days after the receipt of notification of the bankruptcy or death, but in any case, not later than the 180-day contractual time frame.

Principal charge-offs, net of recoveries, were $ 193.9 million and $ 304.6 million for the three months ended June 30, 2021 and 2020, respectively, and $ 392.0 million and $ 624.8 million for the six months ended June 30, 2021 and 2020, respectively.

Charge-offs for unpaid interest and fees were $ 113.9 million and

Principal charge-offs, net of

ALLIANCE DATA SYSTEMS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

$ 197.7 million for the three months ended June 30, 2021 and 2020, respectively, and $ 244.5 million and $ 429.6 million for the six months ended June 30, 2021 and 2020, respectively.

recoveries, were $ 151.5 million and $ 223.1 million for the three months ended September 30, 2021 and 2020, respectively, and $ 543.5 million and $ 847.9 million for the nine months ended September 30, 2021 and 2020, respectively.

Charge-offs for unpaid interest and fees were $ 90.7 million and $ 142.3 million for the three months ended September 30, 2021 and 2020, respectively, and $ 335.1 million and $ 571.9 million for the nine months ended September 30, 2021 and 2020, respectively.

Delinquencies

11 unchanged sentences

(in millions)

As of June 30, 2021

As of September 30, 2021

As of December 31, 2020

(1) As the amount of the installment loans and associated delinquencies were immaterial, the amounts were included in the above table for both the period ended June 30, 2021 and December 31, 2020.

(1) As the amount of the installment loans and associated delinquencies were immaterial, the amounts were included in the above table for both the period ended September 30, 2021 and December 31, 2020.

Modified Credit Card Receivables

1 unchanged sentence

In response to the COVID-19 pandemic, the Company offered forbearance programs, which provided for short-term modifications in the form of payment deferrals and late fee waivers to borrowers who were current with their payments prior to any relief.

As of June 30, 2021 and December 31, 2020, the credit card receivables in these deferral forbearance programs were approximately $ 77.9 million and $ 157.4 million, respectively.

Additionally, the Company instituted two short-term programs with durations of three and six months , which provide concessions consisting primarily of a reduced minimum payment and an interest rate reduction, the balances of which were $ 23.1 million and $ 67.3 million as of June 30, 2021 and December 31, 2020, respectively.

As of September 30, 2021 and December 31, 2020, the credit card receivables in these deferral forbearance programs were approximately $ 79.4 million and $ 157.4 million, respectively.

Additionally, the Company instituted two short-term programs with durations of three and six months , which provide concessions consisting primarily of a reduced minimum payment and an interest rate reduction, the balances of which were $ 13.3 million and $ 67.3 million as of September 30, 2021 and December 31, 2020, respectively.

As these short-term modifications were made in response to COVID-19 to borrowers who were current prior to any relief, these are not considered troubled debt restructurings under the Interagency Statement guidance on certain loan modifications and an interpretation of ASC 310-40, “Receivables—Troubled Debt Restructurings by Creditors.”

3 unchanged sentences

These modified credit card receivables include concessions consisting primarily of a reduced minimum payment and an interest rate reduction.

The temporary programs’ concessions remain in place for a period no longer than twelve months , while the permanent programs remain in place through the payoff of the credit card receivables if the credit cardholder complies with the terms of the program.

Additionally, the Company instituted two temporary hardship programs with durations of three and six months with similar terms to our short-term forbearance programs.

As of June 30, 2021 and December 31, 2020, the outstanding

The temporary programs’ concessions remain in place for a period no longer than twelve months , while the permanent programs remain in place

ALLIANCE DATA SYSTEMS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

balance of credit card receivables in these two short-term temporary hardship programs treated as troubled debt restructurings totaled approximately $ 17.8 million and $ 39.9 million, respectively.

through the payoff of the credit card receivables if the credit cardholder complies with the terms of the program.

Additionally, the Company instituted two temporary hardship programs with durations of three and six months with similar terms to our short-term forbearance programs.

As of September 30, 2021 and December 31, 2020, the outstanding balance of credit card receivables in these two short-term temporary hardship programs treated as troubled debt restructurings totaled approximately $ 9.5 million and $ 39.9 million, respectively.

Troubled debt restructuring concessions do not include the forgiveness of unpaid principal, but may involve the reversal of certain unpaid interest or fee assessments.

2 unchanged sentences

Credit card receivables for which temporary hardship and permanent concessions were granted are each considered troubled debt restructurings and are collectively evaluated for impairment.

The Company had $ 369.3 million and $ 489.8 million, respectively, as a recorded investment in impaired credit card receivables as of June 30, 2021 and December 31, 2020, respectively, which represented approximately 3 % of the Company’s total credit card receivables as of June 30, 2021 and December 31, 2020, respectively.

The average recorded investment in impaired credit card receivables was $ 415.4 million and $ 387.5 million for the three months ended June 30, 2021 and 2020, respectively, and $ 448.5 million and $ 351.1 million for the six months ended June 30, 2021 and 2020, respectively.

The Company had $ 311.8 million and $ 489.8 million, respectively, as a recorded investment in impaired credit card receivables as of September 30, 2021 and December 31, 2020, respectively, which represented approximately 3 % of the Company’s total credit card receivables as of September 30, 2021 and December 31, 2020, respectively.

The average recorded investment in impaired credit card receivables was $ 338.8 million and $ 459.7 million for the three months ended September 30, 2021 and 2020, respectively, and $ 411.9 million and $ 387.3 million for the nine months ended September 30, 2021 and 2020, respectively.

Interest income on these modified credit card receivables is accounted for in the same manner as other accruing credit card receivables.

Cash collections on these modified credit card receivables are allocated according to the same payment hierarchy methodology applied to credit card receivables that are not in such programs.

The Company recognized $ 7.1 million for both the three months ended June 30, 2021 and 2020, and $ 15.9 million and $ 12.6 million for the six months ended June 30, 2021 and 2020, respectively, in interest income associated with modified credit card receivables during the period that such credit card receivables were impaired.

The Company recognized $ 5.3 million and $ 8.5 million for the three months ended September 30, 2021 and 2020, respectively, and $ 21.2 million and $ 21.0 million for the nine months ended September 30, 2021 and 2020, respectively, in interest income associated with modified credit card receivables during the period that such credit card receivables were impaired.

The following table provides information on credit card receivables that are considered troubled debt restructurings as described above, which entered into a modification program during the specified periods:

Three Months Ended June 30, 2021

Six Months Ended June 30, 2021

Three Months Ended September 30, 2021

Nine Months Ended September 30, 2021

Pre-modification

6 unchanged sentences

Troubled debt restructurings – credit card receivables

Three Months Ended June 30, 2020

Six Months Ended June 30, 2020

Three Months Ended September 30, 2020

Nine Months Ended September 30, 2020

Pre-modification

8 unchanged sentences

Three Months Ended

Six Months Ended

June 30, 2021

Nine Months Ended

September 30, 2021

Restructurings

5 unchanged sentences

Three Months Ended

Six Months Ended

June 30, 2020

Nine Months Ended

September 30, 2020

Restructurings

9 unchanged sentences

Obligor credit quality is monitored at least monthly during the life of an account.

The following table reflects the composition of the Company’s credit card receivables by obligor credit quality as of June 30, 2021 and December 31, 2020:

The following table reflects the composition of the Company’s credit card receivables by obligor credit quality as of September 30, 2021 and December 31, 2020:

Amortized Cost Revolving Credit Card Receivables

June 30, 2021

September 30, 2021

December 31, 2020

13 unchanged sentences

Credit scores are obtained at origination of the account and refreshed monthly thereafter.

The following table reflects the distribution of the Company’s credit card receivables by credit score as of June 30, 2021 and December 31, 2020:

The following table reflects the distribution of the Company’s credit card receivables by credit score as of September 30, 2021 and December 31, 2020:

September 30,

Greater than 660

Balances for which no credit score is available have been excluded from the table above and represent 0.1 % of the credit card receivable balances as of both June 30, 2021 and December 31, 2020, respectively.

Balances for which no credit score is available have been excluded from the table above and represent 0.1 % of the credit card receivable balances as of both September 30, 2021 and December 31, 2020, respectively.

ALLIANCE DATA SYSTEMS CORPORATION

1 unchanged sentence

Installment Loan Receivables

The amortized cost basis of the Company’s installment loan receivables totaled $ 152.1 million and $ 118.0 million as of June 30, 2021 and December 31, 2020, respectively.

As of June 30, 2021, approximately 84 % of these loans were originated by customers with Fair Isaac Corporation (“FICO”) scores of 660 or above, and approximately 16 % of these loans were originated by customers with FICO scores below 660.

The amortized cost basis of the Company’s installment loan receivables totaled $ 160.8 million and $ 118.0 million as of September 30, 2021 and December 31, 2020, respectively.

As of September 30, 2021, approximately 84 % of these loans were originated by customers with Fair Isaac Corporation (“FICO”) scores of 660 or above, and approximately 16 % of these loans were originated by customers with FICO scores below 660.

As of December 31, 2020, approximately 86 % of these loans were originated by customers with FICO scores of 660 or above, and approximately 14 % of these loans were originated by customers with FICO scores below 660.

Portfolio Acquisition

In April 2021, the Company acquired a credit card portfolio for cash consideration of approximately $ 31.5 million, which consisted of approximately $ 29.9 million of credit card receivables and $ 1.6 million of intangible assets, subject to customary purchase price adjustments.

Portfolio Sale

In August 2021, the Company sold a credit card portfolio for cash consideration of approximately $ 512.2 million and recognized a gain of approximately $ 10.2 million on the transaction, which was recorded in cost of operations in the Company’s consolidated statements of income.

Portfolio Acquisitions

In July 2021, the Company acquired two credit card portfolios for cash consideration of approximately $ 68.0 million, which consisted of approximately $ 65.1 million of credit card receivables and $ 2.9 million of intangible assets.

Securitized Credit Card Receivables

2 unchanged sentences

In its capacity as a servicer, each of the respective entities earns a fee from the trusts to service and administer the credit card and loan receivables, collect payments and charge-off uncollectible receivables.

These fees are eliminated and therefore are not reflected in the Company’s unaudited condensed consolidated statements of income for the three and six months ended June, 2021 and 2020.

These fees are eliminated and therefore are not reflected in the Company’s unaudited condensed consolidated statements of income for the three and nine months ended September 30, 2021 and 2020.

The trusts are VIEs and the assets of these consolidated VIEs include certain credit card receivables that are restricted to settle the obligations of those entities and are not expected to be available to the Company or its creditors.

1 unchanged sentence

The tables below present quantitative information about the components of total securitized credit card receivables, delinquencies and net charge-offs:

September 30,

(in millions)

2 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(in millions)

Net charge-offs of securitized principal

INVENTORIES, NET

Inventories, net of $ 162.3 million and $ 164.3 million at June 30, 2021 and December 31, 2020, respectively, primarily consist of finished goods to be utilized as rewards in the Company’s loyalty programs.

Inventories, net are stated at the lower of cost and net realizable value and valued primarily on a first-in-first-out basis.

The Company records valuation adjustments to its inventories if the cost of inventory exceeds the amount it expects to realize from the ultimate sale or disposal of the inventory.

These estimates are based on management’s judgment regarding future market conditions and an analysis of historical experience.

ALLIANCE DATA SYSTEMS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

Inventories of $ 192.3 million and $ 164.3 million at September 30, 2021 and December 31, 2020, respectively, primarily consist of finished goods to be utilized as rewards in the Company’s loyalty programs.

Inventories are stated at the lower of cost and net realizable value and valued primarily on a first-in-first-out basis.

The Company records valuation adjustments to its inventories if the cost of inventory exceeds the amount it expects to realize from the ultimate sale or disposal of the inventory.

These estimates are based on management’s judgment regarding future market conditions and an analysis of historical experience.

OTHER INVESTMENTS

3 unchanged sentences

The principal components of other investments, which are carried at fair value, are as follows:

June 30, 2021

September 30, 2021

December 31, 2020

1 unchanged sentence

Marketable securities

The following table shows the unrealized losses and fair value for those investments that were in an unrealized loss position as of June 30, 2021, aggregated by investment category and the length of time that individual securities have been in a continuous loss position.

The following table shows the unrealized losses and fair value for those investments that were in an unrealized loss position as of September 30, 2021, aggregated by investment category and the length of time that individual securities have been in a continuous loss position.

Unrealized losses as of December 31, 2020 were de minimis.

June 30, 2021

September 30, 2021

Less than 12 months

2 unchanged sentences

Marketable securities

The amortized cost and estimated fair value of the marketable securities at June 30, 2021 by contractual maturity are as follows:

The amortized cost and estimated fair value of the marketable securities at September 30, 2021 by contractual maturity are as follows:

(in millions)

7 unchanged sentences

The Company typically invests in highly-rated securities with low probabilities of default and has the intent and ability to hold the investments until maturity, and the Company performs an assessment each period for credit-related impairment.

As of June 30, 2021, the Company does not consider its investments to be impaired.

There were no realized gains or losses from the sale of investment securities for the three and six months ended June 30, 2021 and 2020.

REDEMPTION SETTLEMENT ASSETS

Redemption settlement assets consist of restricted cash and securities available-for-sale and are designated for settling redemptions by collectors of the AIR MILES Reward Program in Canada under certain contractual relationships with sponsors of the AIR MILES Reward Program.

The principal components of redemption settlement assets, which are

As of September 30, 2021, the Company does not consider its investments to be impaired.

ALLIANCE DATA SYSTEMS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

carried at fair value, are as follows:

June 30, 2021

There were no realized gains or losses from the sale of investment securities for the three and nine months ended September 30, 2021 and 2020.

REDEMPTION SETTLEMENT ASSETS

The principal components of redemption settlement assets, which are carried at fair value, are as follows:

September 30, 2021

December 31, 2020

2 unchanged sentences

Corporate bonds

The following tables show the unrealized losses and fair value for those investments that were in an unrealized loss position as of June 30, 2021 and December 31, 2020, aggregated by investment category and the length of time that individual securities have been in a continuous loss position:

June 30, 2021

The following tables show the unrealized losses and fair value for those investments that were in an unrealized loss position as of September 30, 2021 and December 31, 2020, aggregated by investment category and the length of time that individual securities have been in a continuous loss position:

September 30, 2021

Less than 12 months

7 unchanged sentences

Corporate bonds

The amortized cost and estimated fair value of the securities at June 30, 2021 by contractual maturity are as follows:

The amortized cost and estimated fair value of the securities at September 30, 2021 by contractual maturity are as follows:

(in millions)

5 unchanged sentences

For available-for-sale debt securities in which fair value is less than cost, credit-related impairment, if any, is recognized through an allowance for credit losses and adjusted each period for changes in credit risk.

As of June 30, 2021, the Company does not consider its investments to be impaired.

Losses from the sale of investment securities were $ 0.2 million for the three and six months ended June 30, 2021.

There were no realized gains or losses from the sale of investment securities for the three and six months ended June 30, 2020.

The Company typically invests in highly-rated securities

ALLIANCE DATA SYSTEMS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

with low probabilities of default and has the intent and ability to hold the investments until maturity, and the Company performs an assessment each period for credit-related impairment.

As of September 30, 2021, the Company does not consider its investments to be impaired.

Losses from the sale of investment securities were $ 0.2 million for the nine months ended September 30, 2021.

There were no realized gains or losses from the sale of investment securities for the three months ended September 30, 2021 and the three and nine months ended September 30, 2020.

The Company has operating leases for general office properties, warehouses, data centers, customer care centers, automobiles and certain equipment.

As of June 30, 2021, the Company’s leases have remaining lease terms of less than 1 year to 17 years , some of which may include renewal options.

As of September 30, 2021, the Company’s leases have remaining lease terms of less than 1 year to 17 years , some of which may include renewal options.

For leases in which the implicit rate is not readily determinable, the Company uses its incremental borrowing rate as of the lease commencement date to determine the present value of the lease payments.

5 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(in millions)

3 unchanged sentences

Other information related to leases was as follows:

September 30,

Weighted-average remaining lease term (in years):

4 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(in millions)

5 unchanged sentences

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

Maturities of the lease liabilities as of June 30, 2021 were as follows:

Maturities of the lease liabilities as of September 30, 2021 were as follows:

(in millions)

2021 (excluding the six months ended June 30, 2021)

2021 (excluding the nine months ended September 30, 2021)

Total undiscounted lease liabilities

1 unchanged sentence

Total present value of minimum lease payments

Amounts recognized in the June 30, 2021 consolidated balance sheet:

Amounts recognized in the September 30, 2021 consolidated balance sheet:

Current operating lease liabilities

3 unchanged sentences

Intangible assets consist of the following:

June 30, 2021

September 30, 2021

Amortization Life and Method

34 unchanged sentences

(in millions)

2021 (excluding the six months ended June 30, 2021)

2021 (excluding the nine months ended September 30, 2021)

The changes in the carrying amount of goodwill are as follows:

3 unchanged sentences

Effects of foreign currency translation

Balance at June 30, 2021

Balance at September 30, 2021

The Company tests goodwill for impairment annually, as of July 1, or when events and circumstances change that would indicate the carrying value may not be recoverable.

As of June 30, 2021, the Company does not believe it is more likely than not that the fair value of any reporting unit is less than its carrying amount.

However, in light of the COVID-19 pandemic and current uncertainty in the macroeconomic environment, future deterioration in the economy could adversely impact the Company’s reporting units and result in a goodwill impairment.

As of September 30, 2021, the Company does not believe it is more likely than not that the fair value of any reporting unit is less than its carrying amount.

However, with the COVID-19 pandemic and current uncertainty in the macroeconomic environment, future deterioration in the economy could adversely impact the Company’s reporting units and result in a goodwill impairment.

ALLIANCE DATA SYSTEMS CORPORATION

1 unchanged sentence

Debt consists of the following:

September 30,

Interest Rate

2 unchanged sentences

2017 revolving line of credit

December 2022

2017 term loans

December 2022

December 2022, July 2024

BrandLoyalty credit agreement

7 unchanged sentences

Certificates of deposit

Various – Jul 2021 to Jun 2026

Various – Oct 2021 to Sep 2026

0.20 % to 3.75 %

6 unchanged sentences

Fixed rate asset-backed term note securities

Various – Sep 2021 to Sep 2022

Various – Oct 2021 to Sep 2022

2.21 % to 3.95 %

2 unchanged sentences

Secured loan facility

November 2022

Total non-recourse borrowings of consolidated securitization entities

4 unchanged sentences

(2) The interest rate is based upon LIBOR plus an applicable margin.

The weighted average interest rate for the term loans was 1.85 % and 1.90 % at June 30, 2021 and December 31, 2020, respectively.

The weighted average interest rate for the term loans was 1.83 % and 1.90 % at September 30, 2021 and December 31, 2020, respectively.

(3) The interest rate is based upon the Euro Interbank Offered Rate plus an applicable margin.

(4) The interest rates are primarily based on the Federal Funds rate plus an applicable margin.

At June 30, 2021, the interest rates ranged from 0.39 % to 3.50 % .

At September 30, 2021, the interest rates ranged from 0.37 % to 3.50 % .

At December 31, 2020, the interest rates ranged from 0.38 % to 3.50 % .

(5) The interest rate is based upon LIBOR or the asset-backed commercial paper costs of each individual conduit provider plus an applicable margin.

At June 30, 2021, the interest rates ranged from 0.85 % to 0.94 % .

At September 30, 2021, the interest rates ranged from 0.86 % to 0.92 % .

At December 31, 2020, the interest rates ranged from 1.39 % to 1.89 % .

(6) The interest rate is based upon LIBOR plus an applicable margin.

The weighted average interest rate for the secured loan facility was 3.90 % at each of June 30, 2021 and December 31, 2020, respectively.

At June 30, 2021, the Company was in compliance with its financial covenants.

Long-term and Other Debt

Credit Agreement

As of June 30, 2021, the Company had $ 1,433.6 million in term loans outstanding with $ 750.0 million total availability under the revolving line of credit.

At September 30, 2021, the Company was in compliance with its financial covenants.

ALLIANCE DATA SYSTEMS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

In July 2021, the Company amended its credit agreement to, among other things, (i) provide consent by the lenders to the spinoff or sale of the Company’s LoyaltyOne segment, (ii) extend the maturity date of the revolving loans and approximately 86 % of the term loans from December 31, 2022 to July 1, 2024, (iii) revise the method of determining interest rates and commitment fees to be charged in connection with the loans, (iv) modify the financial and operational covenants and certain other provisions in the credit agreement to reflect the Company’s business and operations after giving effect to the LoyaltyOne spinoff or sale, (v) require a prepayment of certain of the loans in an amount equal to the net proceeds from the LoyaltyOne spinoff or sale, including any net proceeds from debt that is distributed to the Company and (vi) add Lon Inc.

and Lon Operations LLC as additional guarantors.

Long-term and Other Debt

Credit Agreement

and Lon Operations LLC acquired in the Company’s acquisition of Bread as additional guarantors.

As of September 30, 2021, the Company had $ 1,408.3 million in term loans outstanding with $ 750.0 million total availability under the revolving line of credit.

BrandLoyalty Credit Agreement

In the first quarter of 2021, BrandLoyalty and certain of its subsidiaries, as borrowers and guarantors, amended its credit agreement to extend the maturity date by one year from April 3, 2023 to April 3, 2024.

As of June 30, 2021, there were no amounts outstanding under the BrandLoyalty Credit Agreement.

As of September 30, 2021, there were no amounts outstanding under the BrandLoyalty Credit Agreement.

Non-Recourse Borrowings of Consolidated Securitization Entities

2 unchanged sentences

In June 2021, $ 866.7 million of Series 2016-A asset-backed term notes, $ 184.2 million of which were retained by the Company and eliminated from the Company’s unaudited condensed consolidated balance sheets, matured and were repaid.

In September 2021, $ 337.5 million of Series 2018-B asset-backed term notes, $ 15.2 million of which were retained by the Company and eliminated from the Company’s unaudited condensed consolidated balance sheets, matured and were repaid.

Conduit Facilities

3 unchanged sentences

In June 2021, the WFC Trust amended its 2009-VFN conduit facility, extending the maturity to August 2022.

As of June 30, 2021, total capacity under the conduit facilities was $ 4.5 billion, of which $ 2.4 billion had been drawn and was included in non-recourse borrowings of consolidated securitization entities in the unaudited condensed consolidated balance sheets.

As of September 30, 2021, total capacity under the conduit facilities was $ 4.5 billion, of which $ 2.7 billion had been drawn and was included in non-recourse borrowings of consolidated securitization entities in the unaudited condensed consolidated balance sheets.

ALLIANCE DATA SYSTEMS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

Secured Loan Facility

In August 2021, the Company repaid its outstanding secured loan facility, which was originally scheduled to mature on November 19, 2022, with prepayment permitted.

DERIVATIVE INSTRUMENTS

1 unchanged sentence

Certain derivatives used to manage the Company’s exposure to foreign currency exchange rate movements are not designated as hedges and do not qualify for hedge accounting.

The fair value of the Company’s derivative instruments as of June 30, 2021 was $ 0.9 million included in other current assets and $ 1.1 million included in other current liabilities in the Company’s unaudited condensed consolidated balance sheets.

The fair value of the Company’s derivative instruments as of September 30, 2021 was $ 1.9 million included in other current assets and $ 0.8 million included in other current liabilities in the Company’s unaudited condensed consolidated balance sheets.

The fair value of the Company’s derivative instruments as of December 31, 2020 was $ 0.4 million included in other current assets and $ 1.5 million included in other current liabilities in the Company’s unaudited condensed consolidated balance sheets.

ALLIANCE DATA SYSTEMS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

COMMITMENTS AND CONTINGENCIES

14 unchanged sentences

The Company paid $ 75.0 million to Publicis pursuant to its contractual indemnification obligation in January 2021.

As of June 30, 2021, the Company has $ 75.0 million included in accrued expenses in its unaudited condensed consolidated balance sheets.

As of September 30, 2021, the Company has $ 75.0 million included in accrued expenses in its unaudited condensed consolidated balance sheets.

STOCKHOLDERS’ EQUITY

Stock Compensation Expense

During the six months ended June 30, 2021, the Company awarded 632,050 service-based restricted stock units with a weighted average grant date fair value per share of $ 87.81 as determined on the date of grant.

During the nine months ended September 30, 2021, the Company awarded 656,924 service-based restricted stock units with a weighted average grant date fair value per share of $ 88.22 as determined on the date of grant.

Service-based restricted stock units typically vest ratably over three years provided that the participant is employed by the Company on each such vesting date.

During the six months ended June 30, 2021, the Company awarded 95,762 performance-based restricted stock units with pre-defined vesting criteria that permit a range from 0 % to 170 % to be earned, subject to a market-based condition.

ALLIANCE DATA SYSTEMS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

During the nine months ended September 30, 2021, the Company awarded 98,883 performance-based restricted stock units with pre-defined vesting criteria that permit a range from 0 % to 170 % to be earned, subject to a market-based condition.

The fair market value of these awards is $ 92.62 and was estimated utilizing Monte Carlo simulations of the Company’s stock price correlation, expected volatility and risk-free rate over a three-year time horizon matching the performance period.

If the performance targets are met, the restrictions will lapse with respect to the entire award on February 16, 2024, provided that the participant is employed by the Company on the vesting date.

Stock-based compensation expense recognized in the Company’s unaudited condensed consolidated statements of income for the three and six months ended June 30, 2021 and 2020 is as follows:

If the performance targets are met, the restrictions will lapse with respect to the entire award on February 16, 2024 and July 15, 2024, provided that the participant is employed by the Company on the vesting date.

Stock-based compensation expense recognized in the Company’s unaudited condensed consolidated statements of income for the three and nine months ended September 30, 2021 and 2020 is as follows:

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(in millions)

1 unchanged sentence

General and administrative

ALLIANCE DATA SYSTEMS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

On January 28, 2021, the Company’s board of directors declared a quarterly cash dividend of $ 0.21 per share on the Company’s common stock to stockholders of record at the close of business on February 12, 2021, resulting in an aggregate dividend payment of $ 10.4 million on March 18, 2021.

On April 29, 2021, the Company’s board of directors declared a quarterly cash dividend of $ 0.21 per share on the Company’s common stock to stockholders of record at the close of business on May 14, 2021, resulting in an aggregate dividend payment of $ 10.4 million on June 18, 2021.

Additionally, the Company paid $ 0.2 million in cash related to dividend equivalent rights for the six months ended June 30, 2021.

On July 29, 2021, the Company’s board of directors declared a quarterly cash dividend of $ 0.21 per share on the Company’s common stock, payable on August 13, 2021 to stockholders of record at the close of business on September 17, 2021.

On July 29, 2021, the Company’s board of directors declared a quarterly cash dividend of $ 0.21 per share on the Company’s common stock to stockholders of record at the close of business on August 13, 2021, resulting in an aggregate dividend payment of $ 10.4 million on September 17, 2021.

Additionally, the Company paid $ 0.2 million in cash related to dividend equivalent rights for the nine months ended September 30, 2021.

On October 28, 2021, the Company’s board of directors declared a quarterly cash dividend of $ 0.21 per share on the Company’s common stock, payable on December 17, 2021 to stockholders of record at the close of business on November 12, 2021.

Treasury Stock

On July 30, 2021, the Company retired its 67.4 million shares of treasury stock.

On July 30, 2021, the Company retired its 67.4 million shares of treasury stock outstanding, which increased treasury stock by $ 6,733.9 million, reduced retained earnings by $ 5,453.4 million, reduced additional paid-in capital by $ 1,279.8 million and reduced common stock by $ 0.7 million, with no impact to total stockholders’ equity, in the Company’s unaudited condensed consolidated balance sheets.

ALLIANCE DATA SYSTEMS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

ACCUMULATED OTHER COMPREHENSIVE LOSS

6 unchanged sentences

Comprehensive

Three Months Ended June 30, 2021

Three Months Ended September 30, 2021

on Securities

2 unchanged sentences

(in millions)

Balance at March 31, 2021

Changes in other comprehensive income (loss)

Balance at June 30, 2021

Changes in other comprehensive income (loss)

Balance at September 30, 2021

Net Unrealized

4 unchanged sentences

Comprehensive

Three Months Ended June 30, 2020

Three Months Ended September 30, 2020

on Securities

2 unchanged sentences

(in millions)

Balance at March 31, 2020

Changes in other comprehensive income (loss)

Balance at June 30, 2020

Changes in other comprehensive income (loss)

Balance at September 30, 2020

Net Unrealized

4 unchanged sentences

Comprehensive

Six Months Ended June 30, 2021

Nine Months Ended September 30, 2021

on Securities

4 unchanged sentences

Changes in other comprehensive income (loss)

Balance at June 30, 2021

ALLIANCE DATA SYSTEMS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

Balance at September 30, 2021

Net Unrealized

4 unchanged sentences

Comprehensive

Six Months Ended June 30, 2020

Nine Months Ended September 30, 2020

on Securities

5 unchanged sentences

Recognition resulting from the sale of Precima's foreign subsidiaries

Balance at June 30, 2020

Balance at September 30, 2020

(1) Primarily related to the impact of changes in the Canadian dollar and Euro foreign currency exchange rates.

1 unchanged sentence

Other reclassifications from accumulated other comprehensive loss into net income for each of the periods presented were not material.

ALLIANCE DATA SYSTEMS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

FINANCIAL INSTRUMENTS

5 unchanged sentences

Fair Value of Financial Instruments — The estimated fair values of the Company’s financial instruments are as follows:

June 30, 2021

September 30, 2021

December 31, 2020

12 unchanged sentences

Redemption settlement assets, restricted — Redemption settlement assets, restricted are recorded at fair value based on quoted market prices for the same or similar securities.

ALLIANCE DATA SYSTEMS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

Other investments — Other investments consist of marketable securities and are included in other current assets and other non-current assets in the unaudited condensed consolidated balance sheets.

6 unchanged sentences

This analysis reflected the contractual terms of the derivatives, including the period to maturity, and used observable market-based inputs.

ALLIANCE DATA SYSTEMS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

Financial Assets and Financial Liabilities Fair Value Hierarchy

7 unchanged sentences

The use of different techniques to determine fair value of these financial instruments could result in different estimates of fair value at the reporting date.

The following tables provide information for the assets and liabilities carried at fair value measured on a recurring basis as of June 30, 2021 and December 31, 2020:

The following tables provide information for the assets and liabilities carried at fair value measured on a recurring basis as of September 30, 2021 and December 31, 2020:

Fair Value Measurements at

June 30, 2021 Using

September 30, 2021 Using

September 30,

(in millions)

6 unchanged sentences

Total liabilities measured at fair value

ALLIANCE DATA SYSTEMS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

Fair Value Measurements at

11 unchanged sentences

(3) Amounts are included in other current assets and other current liabilities in the unaudited condensed consolidated balance sheets.

ALLIANCE DATA SYSTEMS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

Financial Instruments Disclosed but Not Carried at Fair Value

The following tables provide assets and liabilities disclosed but not carried at fair value as of June 30, 2021 and December 31, 2020:

The following tables provide assets and liabilities disclosed but not carried at fair value as of September 30, 2021 and December 31, 2020:

Fair Value Measurements at

June 30, 2021

September 30, 2021

(in millions)

12 unchanged sentences

Long-term and other debt

ALLIANCE DATA SYSTEMS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

For the three months ended June 30, 2021 and 2020, the Company utilized an effective tax rate of 26.4 % and 18.3 %, respectively, to calculate its provision for income taxes.

For the six months ended June 30, 2021 and 2020, the Company utilized an effective tax rate of 26.9 % and 5.5 %, respectively, to calculate its provision for income taxes.

The increase in the effective tax rate for the three months ended June 30, 2021 as compared to the three months ended June 30, 2020 was primarily due to a discrete tax benefit related to the expiration of a statute of limitations in the prior year.

The increase in the effective tax rate for the six months ended June 30, 2021 as compared to the six months ended June 30, 2020 was due to discrete tax benefits related to the expiration of a statute of limitations and a favorable tax settlement recorded in the prior year.

For the three months ended September 30, 2021 and 2020, the Company utilized an effective tax rate of 23.0 % and 24.2 %, respectively, to calculate its provision for income taxes.

For the nine months ended September 30, 2021 and 2020, the Company utilized an effective tax rate of 25.9 % and 18.8 %, respectively, to calculate its provision for income taxes.

The decrease in the effective tax rate for the three months ended September 30, 2021 as compared to the three months ended September 30, 2020 was primarily due to a discrete tax benefit related to a favorable settlement with a state tax authority in the third quarter of 2021.

The increase in the effective tax rate for the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020 was primarily due to greater discrete tax benefits recorded in the prior year, which included the expiration of statutes of limitation related to certain foreign tax matters, a favorable state tax settlement and a benefit related to the issuance of final regulations on the GILTI high tax exception.

SEGMENT INFORMATION

1 unchanged sentence

The operating segments are reviewed separately because each operating segment represents a strategic business unit that generally offers different products and services.

ALLIANCE DATA SYSTEMS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

The Company operates in the LoyaltyOne and Card Services reportable segments, which consist of the following:

5 unchanged sentences

Income taxes are not allocated to the segments in the computation of segment operating profit for internal evaluation purposes.

Segment operating results for the three and six months ended June 30, 2020 have been presented to align with the current year presentation.

Segment operating results for the three and nine months ended September 30, 2020 have been presented to align with the current year presentation.

This change had no impact on previously reported financial information.

Three Months Ended June 30, 2021

Three Months Ended September 30, 2021

Card Services

6 unchanged sentences

Income (loss) before income taxes

ALLIANCE DATA SYSTEMS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

Three Months Ended June 30, 2020

Three Months Ended September 30, 2020

Card Services

6 unchanged sentences

Income (loss) before income taxes

Six Months Ended June 30, 2021

Nine Months Ended September 30, 2021

Card Services

6 unchanged sentences

Income (loss) before income taxes

Six Months Ended June 30, 2020

ALLIANCE DATA SYSTEMS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

Nine Months Ended September 30, 2020

Card Services

8 unchanged sentences

The following table provides a reconciliation of cash and cash equivalents to the total of the amounts reported in the unaudited condensed consolidated statements of cash flows:

September 30,

(in millions)

4 unchanged sentences

(1) Includes cash restricted for principal and interest repayments of non-recourse borrowings of consolidated securitized debt and other restricted cash within other current assets.

At June 30, 2021, restricted cash included $ 253.1 million in principal accumulation for the repayment of non-recourse borrowings of consolidated securitized debt that matures in September 2021 and October 2021.

At June 30, 2020, restricted cash included $ 415.1 million in principal accumulation for the repayment of non-recourse borrowings of consolidated securitized debt that matured in August 2020.

At September 30, 2021, restricted cash included $ 632.9 million in principal accumulation for the repayment of non-recourse borrowings of consolidated securitized debt that matures in October 2021, February 2022 and June 2022.

At September 30, 2020, restricted cash included $ 603.1 million in principal accumulation for the repayment of non-recourse borrowings of consolidated securitized debt that matured in October 2020.

(2) See Note 9, “Redemption Settlement Assets,” for additional information regarding the nature of restrictions on redemption settlement assets.

In July 2021, the Company retired its outstanding treasury stock, which was a non-cash financing activity.

See Note 15, “Stockholders' Equity,” for additional information.

Caution Regarding Forward-Looking Statements

2 unchanged sentences

Similarly, statements that describe our business strategy, outlook, objectives, plans, intentions or goals also are forward-looking statements.

Examples of forward-looking statements include, but are not limited to, statements we make regarding initiation or completion of strategic initiatives including the proposed spinoff of our LoyaltyOne segment, our expected operating results, future economic conditions including currency exchange rates, future dividend declarations and the guidance we give with respect to our anticipated financial performance.

Examples of forward-looking statements include, but are not limited to, statements we make regarding initiation or completion of strategic initiatives including the planned spinoff of our LoyaltyOne segment, our expected operating results, future economic conditions including currency exchange rates, future dividend declarations and the guidance we give with respect to our anticipated financial performance.

We believe that our expectations are based on reasonable assumptions.

1 unchanged sentence

These risks and uncertainties include, but are not limited to, the following:

● continuing impacts related to COVID-19, including government economic stimulus, relief measures for impacted borrowers and depositors, labor shortages, reduction in demand from clients, supply chain disruption for our reward suppliers and disruptions in the airline or travel industries;

● the spinoff may not be consummated within the anticipated time period or at all;

● the distribution to be effected in the spinoff may not be tax-free for U.S.

federal income tax purposes;

● disruption to our business or a loss of synergies from separating the businesses that could negatively impact the balance sheet, profit margins or earnings of both businesses or that the companies resulting from the spinoff do not realize all of the expected benefits of the spinoff;

● the combined value of the common stock of the two publicly-traded companies will not be equal to or greater than the value of our common stock had the spinoff not occurred;

● continuing impacts related to COVID-19, including government economic stimulus, relief measures for impacted borrowers and depositors, labor shortages, any government-imposed vaccine mandates, reduction in demand from clients, supply chain disruption for our reward suppliers and disruptions in the airline or travel industries;

● loss of, or reduction in demand for services from, significant clients;

● increases in fraudulent activity, net charge-offs in credit card and loan receivables or increases or volatility in the allowance for loan loss that may result from the application of the current expected credit loss model;

● failure to identify, complete or successfully integrate or disaggregate business acquisitions or divestitures, or complete our planned spinoff discussed in this report;

● failure to identify, complete or successfully integrate or disaggregate business acquisitions or divestitures, or complete the spinoff;

● continued financial responsibility with respect to a divested business, including required equity ownership, guarantees, indemnities or other financial obligations;

14 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements