BREAD FINANCIAL HOLDINGS, INC. 10-Q

Item 1. Financial Statements. ALLIANCE DATA SYSTEMS CORPORATION UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, ​ December 31, ​ 2021 2020 ​ ​ (in millions, except per share amounts) ASSETS ​ ​ ​ ​ ​ ​ Cash and cash equivalents ​ $ 3,172.2 ​ $ 3,081.5 Accounts receivable, net, less allowance for doubtful accounts ($ 7.1 million and $ 4.0 million at September 30, 2021 and December 31, 2020, respectively) ​ 371.5 ​ 383.8 Credit card and loan receivables: ​ ​ ​ ​ ​ ​ Credit card and loan receivables – restricted for securitization investors ​ 10,102.7 ​ 11,208.5 Other credit card and loan receivables ​ 5,587.2 ​ 5,575.9 Total credit card and loan receivables ​ 15,689.9 ​ 16,784.4 Allowance for loan loss ​ ( 1,644.8 ) ​ ( 2,008.0 ) Credit card and loan receivables, net ​ 14,045.1 ​ 14,776.4 Inventories ​ ​ 192.3 ​ ​ 164.3 Other current assets ​ 872.3 ​ 534.9 Redemption settlement assets, restricted ​ 734.0 ​ 693.5 Total current assets ​ 19,387.4 ​ 19,634.4 Property and equipment, net ​ 292.2 ​ 310.9 Right of use assets - operating ​ ​ 208.0 ​ ​ 233.2 Deferred tax asset, net ​ 337.9 ​ 359.2 Intangible assets, net ​ 64.1 ​ 81.7 Goodwill ​ 1,342.7 ​ 1,369.6 Other non-current assets ​ 625.0 ​ 558.1 Total assets ​ $ 22,257.3 ​ $ 22,547.1 LIABILITIES AND STOCKHOLDERS' EQUITY ​ ​ ​ ​ ​ ​ Accounts payable ​ $ 365.6 ​ $ 328.2 Accrued expenses ​ 387.9 ​ 444.7 Current operating lease liabilities ​ ​ 21.9 ​ ​ 23.6 Current portion of deposits ​ 7,762.6 ​ 6,553.9 Current portion of non-recourse borrowings of consolidated securitization entities ​ 3,094.6 ​ 1,850.7 Current portion of long-term and other debt ​ 101.3 ​ 101.4 Other current liabilities ​ 276.2 ​ 220.9 Deferred revenue ​ 924.3 ​ 898.5 Total current liabilities ​ 12,934.4 ​ 10,421.9 Deferred revenue ​ 96.6 ​ 105.5 Long-term operating lease liabilities ​ ​ 249.9 ​ ​ 276.4 Deposits ​ 2,122.9 ​ 3,238.7 Non-recourse borrowings of consolidated securitization entities ​ 1,494.1 ​ 3,859.2 Long-term and other debt ​ 2,632.6 ​ 2,704.3 Other liabilities ​ 481.2 ​ 419.5 Total liabilities ​ 20,011.7 ​ 21,025.5 Commitments and contingencies (Note 14) ​ ​ ​ ​ ​ ​ Stockholders’ equity: ​ ​ ​ ​ ​ ​ Common stock, $ 0.01 par value; authorized, 200.0 million shares; issued, 49.8 million and 117.1 million shares at September 30, 2021 and December 31, 2020, respectively ​ 0.5 ​ 1.2 Additional paid-in capital ​ 2,170.8 ​ 3,427.2 Treasury stock, at cost, no shares and 67.4 million shares at September 30, 2021 and December 31, 2020, respectively ​ — ​ ( 6,733.9 ) Retained earnings ​ 130.5 ​ 4,832.1 Accumulated other comprehensive loss ​ ( 56.2 ) ​ ( 5.0 ) Total stockholders’ equity ​ 2,245.6 ​ 1,521.6 Total liabilities and stockholders’ equity ​ $ 22,257.3 ​ $ 22,547.1 See accompanying notes to unaudited condensed consolidated financial statements . ​ 3 Index ALLIANCE DATA SYSTEMS CORPORATION UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Nine Months Ended ​ ​ September 30, ​ September 30, ​ 2021 2020 2021 2020 ​ ​ (in millions, except per share amounts) Revenues ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Services ​ $ 10.5 ​ $ 24.7 ​ $ 70.4 ​ $ 109.2 Redemption, net ​ 97.1 ​ 113.1 ​ 280.8 ​ 318.6 Finance charges, net ​ 991.7 ​ 912.7 ​ 2,845.3 ​ 2,983.7 Total revenue ​ 1,099.3 ​ 1,050.5 ​ 3,196.5 ​ 3,411.5 Operating expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cost of operations (exclusive of depreciation and amortization disclosed separately below) ​ 489.2 ​ 482.7 ​ 1,481.1 ​ 1,474.7 Provision for loan loss ​ ​ 161.1 ​ ​ 207.7 ​ ​ 180.3 ​ ​ 1,113.7 General and administrative ​ 34.5 ​ 29.0 ​ 78.6 ​ 73.2 Depreciation and other amortization ​ 18.9 ​ 18.4 ​ 61.7 ​ 56.2 Amortization of purchased intangibles ​ 12.8 ​ 21.7 ​ 35.5 ​ 64.1 Total operating expenses ​ 716.5 ​ 759.5 ​ 1,837.2 ​ 2,781.9 Operating income ​ 382.8 ​ 291.0 ​ 1,359.3 ​ 629.6 Interest expense ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Securitization funding costs ​ 26.0 ​ 37.5 ​ 89.9 ​ 130.1 Interest expense on deposits ​ 37.3 ​ 52.9 ​ 124.7 ​ 172.1 Interest expense on long-term and other debt, net ​ 28.8 ​ 24.7 ​ 87.9 ​ 79.1 Total interest expense, net ​ 92.1 ​ 115.1 ​ 302.5 ​ 381.3 Income before income taxes ​ ​ 290.7 ​ ​ 175.9 ​ ​ 1,056.8 ​ ​ 248.3 Provision for income taxes ​ 67.0 ​ 42.6 ​ 273.4 ​ 46.6 Net income ​ $ 223.7 ​ $ 133.3 ​ $ 783.4 ​ $ 201.7 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income per share (Note 3): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic ​ $ 4.50 ​ $ 2.79 ​ $ 15.75 ​ $ 4.23 Diluted ​ $ 4.47 ​ $ 2.79 ​ $ 15.68 ​ $ 4.23 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted average shares (Note 3): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic ​ 49.8 ​ 47.7 ​ 49.7 ​ 47.7 Diluted ​ 50.0 ​ 47.8 ​ 50.0 ​ 47.7 See accompanying notes to unaudited condensed consolidated financial statements. ​ ​ 4 Index ALLIANCE DATA SYSTEMS CORPORATION UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Nine Months Ended ​ ​ September 30, ​ September 30, ​ 2021 2020 2021 2020 ​ ​ (in millions) Net income ​ $ 223.7 ​ $ 133.3 ​ $ 783.4 ​ $ 201.7 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other comprehensive income (loss): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Unrealized (loss) gain on securities available-for-sale ​ ​ ( 3.5 ) ​ ​ 3.9 ​ ​ ( 14.2 ) ​ ​ 20.1 Tax benefit (expense) ​ ​ 0.2 ​ ​ 0.1 ​ ​ 1.4 ​ ​ ( 1.1 ) Unrealized (loss) gain on securities available-for-sale, net of tax ​ ( 3.3 ) ​ 4.0 ​ ( 12.8 ) ​ 19.0 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Unrealized gain on cash flow hedges ​ ​ 1.2 ​ ​ 0.7 ​ ​ 2.1 ​ ​ — Tax expense ​ ​ ( 0.3 ) ​ ​ ( 0.2 ) ​ ​ ( 0.4 ) ​ ​ — Unrealized gain on cash flow hedges, net of tax ​ ​ 0.9 ​ ​ 0.5 ​ ​ 1.7 ​ ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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) ​ ( 20.7 ) ​ 35.3 ​ ( 40.1 ) ​ 33.2 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other comprehensive (loss) income, net of tax ​ ( 23.1 ) ​ 39.8 ​ ( 51.2 ) ​ 52.2 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total comprehensive income, net of tax ​ $ 200.6 ​ $ 173.1 ​ $ 732.2 ​ $ 253.9 See accompanying notes to unaudited condensed consolidated financial statements. ​ ​ 5 Index ALLIANCE DATA SYSTEMS CORPORATION UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ ​ ​ ​ ​ Other ​ Total ​ ​ Common Stock ​ Paid-In ​ Treasury ​ Retained ​ Comprehensive ​ Stockholders’ Three Months Ended September 30, 2021 Shares Amount Capital Stock Earnings Loss Equity ​ ​ (in millions) Balance at July 1, 2021 117.1 ​ $ 1.2 ​ $ 3,442.9 ​ $ ( 6,733.9 ) ​ $ 5,370.8 ​ $ ( 33.1 ) ​ $ 2,047.9 Net income — ​ ​ — ​ ​ — ​ ​ — ​ ​ 223.7 ​ ​ — ​ 223.7 Other comprehensive loss — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 23.1 ) ​ ​ ( 23.1 ) Stock-based compensation — ​ ​ — ​ ​ 8.6 ​ ​ — ​ ​ — ​ ​ — ​ ​ 8.6 Dividends and dividend equivalent rights declared ($ 0.21 per common share) ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 10.6 ) ​ ​ — ​ ​ ( 10.6 ) Retirement of treasury stock ​ ( 67.4 ) ​ ​ ( 0.7 ) ​ ​ ( 1,279.8 ) ​ ​ 6,733.9 ​ ​ ( 5,453.4 ) ​ ​ — ​ ​ — Other 0.1 ​ ​ — ​ ​ ( 0.9 ) ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 0.9 ) Balance at September 30, 2021 49.8 ​ $ 0.5 ​ $ 2,170.8 ​ $ — ​ $ 130.5 ​ $ ( 56.2 ) ​ $ 2,245.6 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ ​ ​ ​ ​ Other ​ Total ​ ​ Common Stock ​ Paid-In ​ Treasury ​ Retained ​ Comprehensive ​ Stockholders’ Three Months Ended September 30, 2020 Shares Amount Capital Stock Earnings Loss Equity ​ ​ (in millions) Balance at July 1, 2020 115.1 ​ $ 1.2 ​ $ 3,267.7 ​ $ ( 6,733.9 ) ​ $ 4,707.1 ​ $ ( 87.5 ) ​ $ 1,154.6 Net income — ​ — ​ — ​ — ​ 133.3 ​ — ​ 133.3 Other comprehensive income ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 39.8 ​ ​ 39.8 Stock-based compensation ​ — ​ ​ — ​ ​ 5.3 ​ ​ — ​ ​ — ​ ​ — ​ ​ 5.3 Dividends and dividend equivalent rights declared ($ 0.21 per common share) ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 10.1 ) ​ ​ — ​ ​ ( 10.1 ) Other ​ — ​ ​ — ​ ​ ( 0.3 ) ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 0.3 ) Balance at September 30, 2020 ​ 115.1 ​ $ 1.2 ​ $ 3,272.7 ​ $ ( 6,733.9 ) ​ $ 4,830.3 ​ $ ( 47.7 ) ​ $ 1,322.6 See accompanying notes to unaudited condensed consolidated financial statements. ​ 6 Index ALLIANCE DATA SYSTEMS CORPORATION UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY – (CONTINUED) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ ​ ​ ​ ​ Other ​ Total ​ ​ Common Stock ​ Paid-In ​ Treasury ​ Retained ​ Comprehensive ​ Stockholders’ Nine Months Ended September 30, 2021 Shares Amount Capital Stock Earnings Loss Equity ​ ​ (in millions) Balance at December 31, 2020 117.1 ​ $ 1.2 ​ $ 3,427.2 ​ $ ( 6,733.9 ) ​ $ 4,832.1 ​ $ ( 5.0 ) ​ $ 1,521.6 Net income — ​ ​ — ​ ​ — ​ ​ — ​ ​ 783.4 ​ ​ — ​ 783.4 Other comprehensive loss — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 51.2 ) ​ ( 51.2 ) Stock-based compensation — ​ ​ — ​ ​ 24.6 ​ ​ — ​ ​ — ​ ​ — ​ 24.6 Dividends and dividend equivalent rights declared ($ 0.21 per common share) ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 31.6 ) ​ ​ — ​ ( 31.6 ) Retirement of treasury stock ​ ( 67.4 ) ​ ​ ( 0.7 ) ​ ​ ( 1,279.8 ) ​ ​ 6,733.9 ​ ​ ( 5,453.4 ) ​ ​ — ​ ​ — Other 0.1 ​ ​ — ​ ​ ( 1.2 ) ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 1.2 ) Balance at September 30, 2021 49.8 ​ $ 0.5 ​ $ 2,170.8 ​ $ — ​ $ 130.5 ​ $ ( 56.2 ) ​ $ 2,245.6 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ ​ ​ ​ ​ Other ​ Total ​ ​ Common Stock ​ Paid-In ​ Treasury ​ Retained ​ Comprehensive ​ Stockholders’ Nine Months Ended September 30, 2020 Shares Amount Capital Stock Earnings Loss Equity ​ ​ (in millions) Balance at December 31, 2019 115.0 ​ $ 1.1 ​ $ 3,257.7 ​ $ ( 6,733.9 ) ​ $ 5,163.3 ​ $ ( 99.9 ) ​ $ 1,588.3 Net income — ​ ​ — ​ ​ — ​ ​ — ​ ​ 201.7 ​ ​ — ​ 201.7 Cumulative effect adjustment to retained earnings in accordance with ASU 2016-13 ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 485.0 ) ​ ​ — ​ ( 485.0 ) Other comprehensive income ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 52.2 ​ 52.2 Stock-based compensation ​ — ​ ​ — ​ ​ 16.2 ​ ​ — ​ ​ — ​ ​ — ​ 16.2 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) ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 49.7 ) ​ ​ — ​ ( 49.7 ) Other ​ 0.1 ​ ​ 0.1 ​ ​ ( 1.2 ) ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 1.1 ) Balance at September 30, 2020 ​ 115.1 ​ $ 1.2 ​ $ 3,272.7 ​ $ ( 6,733.9 ) ​ $ 4,830.3 ​ $ ( 47.7 ) ​ $ 1,322.6 See accompanying notes to unaudited condensed consolidated financial statements. ​ ​ 7 Index ALLIANCE DATA SYSTEMS CORPORATION UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine Months Ended ​ ​ September 30, ​ 2021 2020 ​ ​ (in millions) CASH FLOWS FROM OPERATING ACTIVITIES: ​ ​ ​ ​ ​ ​ Net income ​ $ 783.4 ​ $ 201.7 Adjustments to reconcile net income to net cash provided by operating activities: ​ ​ ​ ​ ​ ​ Depreciation and amortization ​ 97.2 ​ 120.3 Deferred income taxes ​ 20.0 ​ ( 157.7 ) Provision for loan loss ​ 180.3 ​ 1,113.7 Non-cash stock compensation ​ 24.6 ​ 16.2 Amortization of deferred financing costs ​ 23.5 ​ 26.6 Asset impairment charges ​ — ​ 34.2 Change in other operating assets and liabilities, net of sale of business ​ ​ 25.4 ​ ​ 121.6 Other ​ 53.6 ​ 12.0 Net cash provided by operating activities ​ 1,208.0 ​ 1,488.6 ​ ​ ​ ​ ​ ​ ​ CASH FLOWS FROM INVESTING ACTIVITIES: ​ ​ ​ ​ ​ ​ Change in redemption settlement assets ​ ( 47.3 ) ​ ( 31.3 ) Change in credit card and loan receivables ​ 87.9 ​ 3,107.8 Proceeds from sale of business ​ — ​ 26.7 Proceeds from sale of credit card portfolio ​ 512.2 ​ ​ 289.5 Purchase of credit card portfolios ​ ( 99.5 ) ​ — Capital expenditures ​ ( 58.8 ) ​ ( 37.9 ) Purchases of other investments ​ ( 77.4 ) ​ ( 22.5 ) Maturities/sales of other investments ​ 60.7 ​ 57.5 Other ​ 2.9 ​ ( 25.0 ) Net cash provided by investing activities ​ 380.7 ​ 3,364.8 ​ ​ ​ ​ ​ ​ ​ CASH FLOWS FROM FINANCING ACTIVITIES: ​ ​ ​ ​ ​ ​ Borrowings under debt agreements ​ 38.0 ​ 1,150.0 Repayments of borrowings ​ ( 114.1 ) ​ ( 1,194.5 ) Non-recourse borrowings of consolidated securitization entities ​ 2,767.5 ​ 435.0 Repayments/maturities of non-recourse borrowings of consolidated securitization entities ​ ( 3,891.2 ) ​ ( 3,380.0 ) Net increase (decrease) in deposits ​ ​ 88.4 ​ ​ ( 2,012.0 ) Payment of deferred financing costs ​ ( 13.0 ) ​ ( 16.2 ) Dividends paid ​ ( 31.6 ) ​ ( 50.5 ) Other ​ ( 1.1 ) ​ 3.9 Net cash used in financing activities ​ ( 1,157.1 ) ​ ( 5,064.3 ) ​ ​ ​ ​ ​ ​ ​ Effect of exchange rate changes on cash, cash equivalents and restricted cash ​ ( 4.2 ) ​ 3.7 ​ ​ ​ ​ ​ ​ ​ Change in cash, cash equivalents and restricted cash ​ 427.4 ​ ( 207.2 ) Cash, cash equivalents and restricted cash at beginning of period ​ 3,463.2 ​ 3,958.1 Cash, cash equivalents and restricted cash at end of period ​ $ 3,890.6 ​ $ 3,750.9 ​ ​ ​ ​ ​ ​ ​ SUPPLEMENTAL CASH FLOW INFORMATION: ​ ​ ​ ​ ​ ​ Interest paid ​ $ 292.6 ​ $ 379.5 Income taxes paid, net ​ $ 247.2 ​ $ 108.4 ​ See accompanying notes to unaudited condensed consolidated financial statements . ​ 8 Index ALLIANCE DATA SYSTEMS CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The unaudited condensed consolidated financial statements included herein have been prepared by Alliance Data Systems Corporation (“ADSC” or, including its consolidated subsidiaries and variable interest entities (“VIEs”), the “Company”), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on February 26, 2021. The unaudited condensed consolidated financial statements included herein reflect all adjustments (consisting of normal, recurring adjustments) which are, in the opinion of management, necessary to state fairly the results for the interim periods presented. The results of operations for the interim periods presented are not necessarily indicative of the operating results to be expected for any subsequent interim period or for the fiscal year. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect (1) the reported amounts of assets; (2) liabilities and disclosure of contingent assets and liabilities at the date of the financial statements; and (3) the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Planned Spinoff of the LoyaltyOne Segment 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 In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-04, “Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” This ASU provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this ASU apply only to contracts and hedging relationships that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued due to reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022. This ASU is elective and is effective upon issuance for all entities. The Company is evaluating the impact that adoption of ASU 2020-04 will have on its consolidated financial statements. ​ 9 Index ALLIANCE DATA SYSTEMS CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) Recently Adopted Accounting Standards In December 2019, the FASB issued ASU 2019-12, “Simplifying the Accounting for Income Taxes.” ASU 2019-12 eliminated certain exceptions within Accounting Standards Codification (“ASC”) 740, “Income Taxes,” and clarified certain aspects of ASC 740 to promote consistency among reporting entities. Most amendments within the standard were required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis. The Company’s adoption of this standard on January 1, 2021 did not have a material impact on its consolidated financial statements. 2. REVENUE 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Corporate/ ​ ​ ​ Three Months Ended September 30, 2021 LoyaltyOne Card Services Other Total ​ ​ (in millions) Disaggregation of Revenue by Major Source: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Coalition loyalty program ​ $ 68.6 ​ $ — ​ $ — ​ $ 68.6 Short-term loyalty programs ​ 95.8 ​ — ​ — ​ 95.8 Servicing fees, net ​ — ​ ( 61.7 ) ​ — ​ ( 61.7 ) Other ​ 1.6 ​ — ​ — ​ 1.6 Revenue from contracts with customers ​ $ 166.0 ​ $ ( 61.7 ) ​ $ — ​ $ 104.3 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Finance charges, net ​ — ​ 991.7 ​ — ​ 991.7 Investment income ​ 3.3 ​ — ​ — ​ 3.3 Total ​ $ 169.3 ​ $ 930.0 ​ $ — ​ $ 1,099.3 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Corporate/ ​ ​ ​ Three Months Ended September 30, 2020 LoyaltyOne Card Services Other Total ​ ​ (in millions) Disaggregation of Revenue by Major Source: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Coalition loyalty program ​ $ 63.0 ​ $ — ​ $ — ​ $ 63.0 Short-term loyalty programs ​ 117.4 ​ — ​ — ​ 117.4 Servicing fees, net ​ — ​ ( 47.0 ) ​ — ​ ( 47.0 ) Other ​ 1.1 ​ — ​ — ​ 1.1 Revenue from contracts with customers ​ $ 181.5 ​ $ ( 47.0 ) ​ $ — ​ $ 134.5 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Finance charges, net ​ — ​ 912.7 ​ — ​ 912.7 Investment income ​ 3.3 ​ — ​ — ​ 3.3 Total ​ $ 184.8 ​ $ 865.7 ​ $ — ​ $ 1,050.5 ​ 10 Index ALLIANCE DATA SYSTEMS CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Corporate/ ​ ​ ​ Nine Months Ended September 30, 2021 LoyaltyOne Card Services Other Total ​ ​ (in millions) Disaggregation of Revenue by Major Source: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Coalition loyalty program ​ $ 203.9 ​ $ — ​ $ — ​ $ 203.9 Short-term loyalty programs ​ 278.7 ​ — ​ — ​ 278.7 Servicing fees, net ​ — ​ ( 145.5 ) ​ — ​ ( 145.5 ) Other ​ 3.9 ​ — ​ — ​ 3.9 Revenue from contracts with customers ​ $ 486.5 ​ $ ( 145.5 ) ​ $ — ​ $ 341.0 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Finance charges, net ​ — ​ 2,845.3 ​ — ​ 2,845.3 Investment income ​ 10.2 ​ — ​ — ​ 10.2 Total ​ $ 496.7 ​ $ 2,699.8 ​ $ — ​ $ 3,196.5 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Corporate/ ​ ​ ​ Nine Months Ended September 30, 2020 LoyaltyOne Card Services Other Total ​ ​ (in millions) Disaggregation of Revenue by Major Source: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Coalition loyalty program ​ $ 195.9 ​ $ — ​ $ — ​ $ 195.9 Short-term loyalty programs ​ 322.5 ​ — ​ — ​ 322.5 Servicing fees, net ​ — ​ ( 106.2 ) ​ — ​ ( 106.2 ) Other ​ 5.9 ​ — ​ 0.1 ​ 6.0 Revenue from contracts with customers ​ $ 524.3 ​ $ ( 106.2 ) ​ $ 0.1 ​ $ 418.2 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Finance charges, net ​ — ​ 2,983.7 ​ — ​ 2,983.7 Investment income ​ 9.6 ​ — ​ — ​ 9.6 Total ​ $ 533.9 ​ $ 2,877.5 ​ $ 0.1 ​ $ 3,411.5 ​ 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Corporate/ ​ ​ ​ Three Months Ended September 30, 2021 LoyaltyOne Card Services Other Total ​ ​ (in millions) Disaggregation of Revenue by Geographic Region: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ United States ​ $ 0.1 ​ $ 929.8 ​ $ — ​ $ 929.9 Canada ​ 75.8 ​ 0.2 ​ — ​ 76.0 Europe, Middle East and Africa ​ 68.1 ​ — ​ — ​ 68.1 Asia Pacific ​ 23.0 ​ — ​ — ​ 23.0 Other ​ 2.3 ​ — ​ — ​ 2.3 Total ​ $ 169.3 ​ $ 930.0 ​ $ — ​ $ 1,099.3 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Corporate/ ​ ​ ​ Three Months Ended September 30, 2020 LoyaltyOne Card Services Other Total ​ ​ (in millions) Disaggregation of Revenue by Geographic Region: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ United States ​ $ 3.3 ​ $ 865.7 ​ $ — ​ $ 869.0 Canada ​ 70.3 ​ — ​ — ​ 70.3 Europe, Middle East and Africa ​ 76.9 ​ — ​ — ​ 76.9 Asia Pacific ​ 12.6 ​ — ​ — ​ 12.6 Other ​ 21.7 ​ — ​ — ​ 21.7 Total ​ $ 184.8 ​ $ 865.7 ​ $ — ​ $ 1,050.5 11 Index ALLIANCE DATA SYSTEMS CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Corporate/ ​ ​ ​ Nine Months Ended September 30, 2021 LoyaltyOne Card Services Other Total ​ ​ (in millions) Disaggregation of Revenue by Geographic Region: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ United States ​ $ 2.6 ​ $ 2,699.5 ​ $ — ​ $ 2,702.1 Canada ​ 229.3 ​ 0.3 ​ — ​ 229.6 Europe, Middle East and Africa ​ 200.0 ​ — ​ — ​ 200.0 Asia Pacific ​ 57.7 ​ — ​ — ​ 57.7 Other ​ 7.1 ​ — ​ — ​ 7.1 Total ​ $ 496.7 ​ $ 2,699.8 ​ $ — ​ $ 3,196.5 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Corporate/ ​ ​ ​ Nine Months Ended September 30, 2020 LoyaltyOne Card Services Other Total ​ ​ (in millions) Disaggregation of Revenue by Geographic Region: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ United States ​ $ 9.6 ​ $ 2,877.5 ​ $ 0.1 ​ $ 2,887.2 Canada ​ 214.1 ​ — ​ — ​ 214.1 Europe, Middle East and Africa ​ 196.2 ​ — ​ — ​ 196.2 Asia Pacific ​ 63.0 ​ — ​ — ​ 63.0 Other ​ 51.0 ​ — ​ — ​ 51.0 Total ​ $ 533.9 ​ $ 2,877.5 ​ $ 0.1 ​ $ 3,411.5 ​ Contract Liabilities The Company records a contract liability when cash payments are received in advance of its performance, which applies to the service and redemption of an AIR MILES reward mile and the reward products for its short-term loyalty programs. A reconciliation of contract liabilities for the AIR MILES Reward Program is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Deferred Revenue ​ Service Redemption Total ​ ​ (in millions) Balance at January 1, 2021 ​ $ 247.2 ​ $ 756.8 ​ $ 1,004.0 Cash proceeds ​ 129.0 ​ 206.7 ​ 335.7 Revenue recognized (1) ​ ( 148.4 ) ​ ( 175.7 ) ​ ( 324.1 ) Other ​ — ​ 1.2 ​ 1.2 Effects of foreign currency translation ​ 1.3 ​ 2.8 ​ 4.1 Balance at September 30, 2021 ​ $ 229.1 ​ $ 791.8 ​ $ 1,020.9 Amounts recognized in the consolidated balance sheets: ​ ​ ​ Deferred revenue (current) ​ $ 132.5 ​ $ 791.8 ​ $ 924.3 Deferred revenue (non-current) ​ $ 96.6 ​ $ — ​ $ 96.6 (1) Reported on a gross basis herein. ​ The deferred redemption obligation associated with the AIR MILES Reward Program is effectively due on demand from the collector base, thus the timing of revenue recognition is based on the redemption by the collector. Service revenue is amortized over the expected life of a mile, with the deferred revenue balance expected to be recognized into revenue in the amount of $ 44.5 million in 2021 , $ 109.5 million in 2022 , $ 57.6 million in 2023 , and $ 17.5 million in 2024 . ​ 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, 12 Index 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 The Company recognizes an asset for the incremental costs of obtaining or fulfilling a contract with the retailer for a credit card program agreement to the extent it expects to recover those costs, in accordance with ASC 340-40, “Other Assets and Deferred Costs.” Contract costs are deferred and amortized on a straight-line basis that is consistent with the transfer of services, which is generally the term of the contract. 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 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. 3. EARNINGS PER SHARE ​ The following table sets forth the computation of basic and diluted net income per share of common stock: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended September 30, ​ Nine Months Ended September 30, ​ 2021 2020 2021 2020 ​ ​ (in millions, except per share amounts) Numerator: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income ​ $ 223.7 ​ $ 133.3 ​ $ 783.4 ​ $ 201.7 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Denominator: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted average shares, basic ​ 49.8 ​ 47.7 ​ 49.7 ​ 47.7 Weighted average effect of dilutive securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net effect of dilutive unvested restricted stock (1) ​ 0.2 ​ 0.1 ​ 0.3 ​ — Denominator for diluted calculation ​ 50.0 ​ 47.8 ​ 50.0 ​ 47.7 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic net income per share: ​ $ 4.50 ​ $ 2.79 ​ $ 15.75 ​ $ 4.23 Diluted net income per share: ​ $ 4.47 ​ $ 2.79 ​ $ 15.68 ​ $ 4.23 (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. 4. ACQUISITION 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. Bread is a technology-driven digital payments company, offering an omnichannel solution for retailers and platform capabilities to bank partners. On December 3, 2020, the Company acquired the remaining interest in Bread. In accordance with ASC 805, the Company’s approximate 6 % interest was remeasured at fair value when control of Bread was obtained on December 3, 2020; no gain or loss was recognized on the remeasurement. Consideration for the 100 % ownership of Bread consisted of cash of $ 275.0 million, equity of $ 149.2 million with the issuance of 1.9 million shares of the Company’s common stock, and deferred cash consideration of $ 75.0 million due December 2021, subject to customary closing purchase price adjustments. Consideration, net of cash and restricted cash acquired, was $ 491.0 million. 13 Index ALLIANCE DATA SYSTEMS CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) The following table summarizes the allocation of the consideration and the respective fair values of the assets acquired and liabilities assumed in the Bread transaction as of the acquisition date, net of cash acquired: ​ ​ ​ ​ ​ As of December 3, 2020 ​ ​ (in millions) Installment loan receivables ​ $ 111.7 Accounts receivable ​ ​ 0.2 Other current assets ​ ​ 0.6 Property and equipment ​ ​ 0.3 Developed technology ​ ​ 90.7 Right of use assets - operating ​ ​ 3.6 Deferred tax asset, net ​ ​ 7.0 Intangible assets ​ ​ 11.3 Goodwill ​ ​ 369.6 Total assets acquired ​ 595.0 ​ ​ ​ ​ Accounts payable ​ 2.0 Accrued expenses ​ 2.9 Operating lease liabilities ​ 3.5 Non-recourse borrowings of consolidated securitization entities ​ 95.6 Total liabilities assumed ​ 104.0 ​ ​ ​ ​ Net assets acquired, net of cash and restricted cash ​ $ 491.0 ​ ​ ​ 5. DISPOSITION 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 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 nine months ended September 30, 2020. ​ ​ ​ ​ ​ ​ January 10, ​ 2020 ​ ​ (in millions) Total consideration (1) ​ $ 43.8 Net carrying value of assets and liabilities (including other comprehensive income) ​ 26.8 Allocation of goodwill ​ 3.2 Strategic transaction costs ​ 5.8 Pre-tax gain on sale of business, net of strategic transaction costs ​ $ 8.0 (1) Consideration as defined included cash associated with the sold Precima entities, which was $ 10.8 million . ​ 14 Index ALLIANCE DATA SYSTEMS CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) ​ 6. CREDIT CARD AND LOAN RECEIVABLES Quantitative information about the components of the Company’s credit card and loan receivables is presented in the table below: ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, December 31, ​ 2021 2020 ​ ​ (in millions) Credit card receivables ​ $ 15,271.0 ​ $ 16,376.4 Installment loan receivables ​ ​ 160.8 ​ ​ 118.0 Other ​ 258.1 ​ 290.0 Total credit card and loan receivables ​ 15,689.9 ​ 16,784.4 Less: Credit card and loan receivables – restricted for securitization investors ​ 10,102.7 ​ 11,208.5 Other credit card and loan receivables ​ $ 5,587.2 ​ $ 5,575.9 ​ Allowance for Loan Loss The allowance for loan loss is an estimate of expected credit losses, measured over the estimated life of the Company’s credit card and loan receivables that considers forecasts of future economic conditions in addition to information about past events and current conditions. The estimate under the current expected credit loss (“CECL”) model is significantly influenced by the composition, characteristics and quality of its portfolio of credit card and loan receivables, as well as the prevailing economic conditions and forecasts utilized. The estimate of the allowance for loan loss includes an estimate for uncollectible principal as well as unpaid interest and fees. Charge-offs of principal amounts, net of recoveries are deducted from the allowance. The allowance is maintained through an adjustment to the provision for loan loss and is evaluated for appropriateness. Credit Card Receivables ASC 326, “Financial Instruments—Credit Losses,” requires entities to use a “pooled” approach to estimate expected credit losses for financial assets with similar risk characteristics. To estimate its allowance for loan loss, the Company segregates its credit card receivables into four groups with similar risk characteristics, on the basis of delinquency status and credit quality risk score, which were determined by the Company to be the most significant characteristics for estimating expected credit losses. These risk characteristics are evaluated on at least an annual basis, or more frequently as facts and circumstances warrant. The Company’s credit card receivables do not have stated maturities and therefore prepayments are not factored into the determination of the estimated life of the credit card receivables. In determining the estimated life of a credit card receivable, payments were applied to the measurement date balance with no payments allocated to future purchase activity. The Company uses a combination of First In First Out (“FIFO”) and the Credit Card Accountability, Responsibility, and Disclosure Act of 2009 (“CARD Act”) methodology to model balance paydown. The Company’s groups of pooled financial assets with similar risk characteristics and their estimated life is as follows: ​ ​ ​ ​ ​ ​ ​ Estimated Life ​ ​ (in months) Group A (Current, risk score - high) ​ ​ 14 Group B (Current, risk score - low) ​ ​ 19 Group C (Delinquent, risk score - high) ​ ​ 17 Group D (Delinquent, risk score - low) ​ ​ 26 ​ In estimating its allowance for loan loss, for each identified group, management utilizes various models and estimation techniques based on historical loss experience, current conditions, reasonable and supportable forecasts and other relevant factors. These models utilize historical data and applicable macroeconomic variables with statistical analysis and behavioral relationships with credit performance. The Company’s quantitative estimate of expected credit losses under CECL is impacted by certain forecasted economic factors. Management utilizes a third party service to analyze a number of scenarios, but uses one scenario to determine the macroeconomic variables over the forecast period. 15 Index ALLIANCE DATA SYSTEMS CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) The Company considers the forecast used to be reasonable and supportable over the estimated life of the credit card receivables, with no reversion period. In addition to the quantitative estimate of expected credit losses, the Company also incorporates qualitative adjustments for certain factors such as Company-specific risks, changes in current economic conditions that may not be captured in the quantitatively derived results, or other relevant factors to ensure the allowance for loan loss reflects the Company’s best estimate of current expected credit losses. As permitted by ASC 326, the Company excludes unbilled finance charges from its amortized cost basis of credit card and loan receivables. 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 The allowance for loan loss for installment loan receivables utilizes a migration model over the remaining life of the loans. The model segments accounts based on three attributes: delinquency, risk score and remaining term. 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 The following table presents the Company’s allowance for loan loss for its credit card and loan receivables for the periods indicated: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Nine Months Ended ​ ​ September 30, ​ September 30, ​ 2021 (1) 2020 2021 (1) 2020 ​ ​ (in millions) Balance at beginning of period ​ $ 1,635.3 ​ $ 2,096.3 ​ $ 2,008.0 ​ $ 1,171.1 Adoption of ASC 326 (2) ​ ​ — ​ ​ — ​ ​ — ​ ​ 644.0 Provision for loan loss ​ 161.1 ​ 207.7 ​ 180.3 ​ 1,113.7 Recoveries ​ 36.2 ​ 45.5 ​ 127.9 ​ 170.3 Principal charge-offs ​ ( 187.8 ) ​ ( 268.6 ) ​ ( 671.4 ) ​ ( 1,018.2 ) Balance at end of period ​ $ 1,644.8 ​ $ 2,080.9 ​ $ 1,644.8 ​ $ 2,080.9 (1) With the acquisition of Bread in December 2020, the Company acquired certain installment loans which represented a separate portfolio segment. As the amount of the allowance for loan loss was immaterial, the amounts were included in the above table. (2) Recorded January 1, 2020 through a cumulative-effect adjustment to retained earnings, net of taxes. 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 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 Net charge-offs include the principal amount of losses that are deemed uncollectible, less recoveries and exclude charged-off interest, fees and fraud losses. Charged-off interest and fees reduce finance charges, net while fraud losses are recorded as a cost of operations expense. 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, 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 16 Index ALLIANCE DATA SYSTEMS CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) 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 An account is contractually delinquent if the Company does not receive the minimum payment by the specified due date. It is the Company’s policy to continue to accrue interest and fee income on all accounts, except in limited circumstances, until the account balance and all related interest and other fees are paid or charged-off, typically at 180 days delinquent for credit card receivables and 120 days delinquent for installment loan receivables. After an account becomes 30 days past due, a proprietary collection scoring algorithm automatically scores the risk of the account becoming further delinquent. The collection system then recommends a collection strategy for the past due account based on the collection score and account balance and dictates the contact schedule and collections priority for the account. If the Company is unable to make a collection after exhausting all in-house collection efforts, the Company may engage collection agencies and outside attorneys to continue those efforts. The following table presents the amortized cost basis of the aging analysis of the Company’s credit card and loan receivables portfolio: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Aging Analysis of Delinquent Amortized Cost Credit Card and Loan Receivables (1) ​ ​ ​ ​ ​ ​ ​ 31 to 60 days delinquent 61 to 90 days delinquent 91 or more days delinquent Total delinquent Current Total ​ ​ (in millions) As of September 30, 2021 $ 230.8 ​ $ 160.1 ​ $ 346.6 ​ $ 737.5 ​ $ 14,694.3 ​ $ 15,431.8 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of December 31, 2020 $ 272.5 ​ $ 203.3 ​ $ 439.8 ​ $ 915.6 ​ $ 15,578.8 ​ $ 16,494.4 (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 Forbearance Programs 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 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.” Troubled Debt Restructurings The Company holds certain credit card receivables for which the terms have been modified. The Company’s modified credit card receivables include credit card receivables for which temporary hardship concessions have been granted and credit card receivables in permanent workout programs. 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 17 Index ALLIANCE DATA SYSTEMS CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) 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. In the case of the temporary hardship programs, at the end of the concession period, credit card receivable terms revert to standard rates. These arrangements are automatically terminated if the customer fails to make payments in accordance with the terms of the program, at which time their account reverts back to its original terms. 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 $ 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 $ 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 September 30, 2021 ​ Nine Months Ended September 30, 2021 ​ ​ ​ ​ Pre-modification ​ Post-modification ​ ​ ​ Pre-modification ​ Post-modification ​ ​ Number of ​ Outstanding ​ Outstanding ​ Number of ​ Outstanding ​ Outstanding ​ Restructurings Balance Balance Restructurings Balance Balance ​ ​ (Dollars in millions) Troubled debt restructurings – credit card receivables ​ 37,379 $ 54.6 $ 54.5 ​ 134,068 $ 199.8 $ 199.6 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended September 30, 2020 Nine Months Ended September 30, 2020 ​ ​ ​ ​ Pre-modification ​ Post-modification ​ ​ Pre-modification ​ Post-modification ​ ​ Number of ​ Outstanding ​ Outstanding ​ Number of ​ Outstanding ​ Outstanding ​ Restructurings Balance Balance Restructurings Balance Balance ​ ​ (Dollars in millions) Troubled debt restructurings – credit card receivables ​ 131,919 $ 170.3 $ 169.0 ​ 302,438 $ 439.3 $ 437.6 The table below summarizes troubled debt restructurings that have defaulted in the specified periods where the default occurred within 12 months of their modification date: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended Nine Months Ended ​ ​ September 30, 2021 ​ September 30, 2021 ​ ​ Number of ​ Outstanding Number of ​ Outstanding ​ Restructurings Balance Restructurings Balance ​ ​ (Dollars in millions) Troubled debt restructurings that subsequently defaulted – credit card receivables 19,888 ​ $ 27.0 ​ 102,624 ​ $ 136.4 ​ 18 Index ALLIANCE DATA SYSTEMS CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended Nine Months Ended ​ ​ September 30, 2020 ​ September 30, 2020 ​ ​ Number of ​ Outstanding Number of ​ Outstanding ​ Restructurings Balance Restructurings Balance ​ ​ (Dollars in millions) Troubled debt restructurings that subsequently defaulted – credit card receivables 28,724 ​ $ 37.8 ​ 82,000 ​ $ 113.1 ​ Credit Quality Credit Card Receivables The Company uses proprietary scoring models developed specifically for the purpose of monitoring the Company’s obligor credit quality for its credit card receivables. The proprietary scoring models are used as a tool in the underwriting process and for making credit decisions. The proprietary scoring models are based on historical data and require various assumptions about future performance, which the Company updates periodically. Information regarding customer performance is factored into these proprietary scoring models to determine the probability of an account becoming 91 or more days past due at any time within the next 12 months. 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 September 30, 2021 and December 31, 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Amortized Cost Revolving Credit Card Receivables ​ ​ ​ September 30, 2021 ​ ​ December 31, 2020 ​ ​ ​ ​ Percentage of ​ ​ Percentage of ​ ​ ​ ​ Amortized ​ ​ ​ ​ Amortized Probability of an Account Becoming 91 or More Days Past ​ Amortized ​ Cost Basis ​ ​ Amortized ​ Cost Basis Due or Becoming Charged-off (within the next 12 months) Cost Basis Outstanding Cost Basis Outstanding ​ ​ (in millions, except percentages) ​ No Score ​ $ 172.4 1.1 % $ 204.1 1.2 % 27.1% and higher ​ 1,036.0 6.8 ​ 1,390.4 8.5 ​ 17.1% - 27.0% ​ 739.8 4.8 ​ 848.8 5.2 ​ 12.6% - 17.0% ​ 843.5 5.5 ​ 937.0 5.7 ​ 3.7% - 12.5% ​ 6,889.9 45.1 ​ 7,305.5 44.6 ​ 1.9% - 3.6% ​ 2,752.4 18.0 ​ 2,939.5 17.9 ​ Lower than 1.9% ​ 2,837.0 18.7 ​ 2,751.1 16.9 ​ Total ​ $ 15,271.0 100.0 % $ 16,376.4 100.0 % ​ Note: The Company’s credit card receivables are revolving receivables as they do not have stated maturities and are exempted from certain vintage disclosures required under ASC 326. ​ In addition, as part of the Company’s credit risk management activities, the Company also assesses overall credit quality by reviewing information related to the performance of a credit cardholder’s account, as well as information from credit bureaus relating to the cardholder’s broader credit performance. The credit scores obtained by the Company are Vantage scores, which is one of several credit scoring models used by industry participants. The Company uses these credit scores as one of its tools in its underwriting and credit decision process. 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 September 30, 2021 and December 31, 2020: ​ ​ ​ ​ ​ ​ ​ September 30, ​ ​ December 31, ​ ​ 2021 ​ ​ 2020 ​ Greater than 660 61.9 % ​ 59.8 % 601-660 26.3 ​ ​ 27.8 ​ 600 or below 11.8 ​ ​ 12.4 ​ Total (1) 100.0 % ​ 100.0 % (1) 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. 19 Index ALLIANCE DATA SYSTEMS CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) Installment Loan Receivables 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 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 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. 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 The Company regularly securitizes its credit card and loan receivables through its trusts. The Company continues to own and service the accounts that generate credit card and loan receivables held by the trusts. 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 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. The liabilities of the consolidated VIEs include non-recourse secured borrowings and other liabilities for which creditors or beneficial interest holders do not have recourse to the general credit of the Company. ​ The tables below present quantitative information about the components of total securitized credit card receivables, delinquencies and net charge-offs: ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, December 31, ​ 2021 2020 ​ ​ (in millions) Total credit card and loan receivables – restricted for securitization investors ​ $ 10,102.7 ​ $ 11,208.5 Principal amount of credit card and loan receivables – restricted for securitization investors, 91 days or more past due ​ $ 139.5 ​ $ 200.8 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Nine Months Ended ​ ​ September 30, ​ September 30, ​ 2021 2020 2021 2020 ​ ​ (in millions) Net charge-offs of securitized principal ​ $ 90.6 ​ $ 148.1 ​ $ 346.8 ​ $ 602.7 ​ ​ 20 Index ALLIANCE DATA SYSTEMS CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) 7. INVENTORIES 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. 8. OTHER INVESTMENTS Other investments consist of marketable securities and U.S. Treasury bonds and are included in other current assets and other non-current assets in the Company’s unaudited condensed consolidated balance sheets. Marketable securities include available-for-sale debt securities, mutual funds and domestic certificate of deposit investments. The principal components of other investments, which are carried at fair value, are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2021 ​ December 31, 2020 ​ Amortized Unrealized Unrealized ​ ​ Amortized Unrealized Unrealized ​ ​ ​ Cost Gains Losses Fair Value Cost Gains Losses Fair Value ​ ​ (in millions) Marketable securities ​ $ 233.6 ​ $ 4.7 ​ $ ( 1.4 ) ​ $ 236.9 ​ $ 219.0 ​ $ 6.4 ​ $ — ​ $ 225.4 Total ​ $ 233.6 ​ $ 4.7 ​ $ ( 1.4 ) ​ $ 236.9 ​ $ 219.0 ​ $ 6.4 ​ $ — ​ $ 225.4 ​ 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. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2021 ​ ​ Less than 12 months ​ 12 Months or Greater ​ Total ​ ​ ​ Unrealized ​ ​ Unrealized ​ ​ Unrealized ​ Fair Value Losses Fair Value Losses Fair Value Losses ​ ​ (in millions) Marketable securities ​ $ 57.8 ​ $ ( 1.3 ) ​ $ 3.4 ​ $ ( 0.1 ) ​ $ 61.2 ​ $ ( 1.4 ) Total ​ $ 57.8 ​ $ ( 1.3 ) ​ $ 3.4 ​ $ ( 0.1 ) ​ $ 61.2 ​ $ ( 1.4 ) ​ The amortized cost and estimated fair value of the marketable securities at September 30, 2021 by contractual maturity are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ Amortized Estimated ​ Cost Fair Value ​ ​ (in millions) Due in one year or less (1) ​ $ 62.5 ​ $ 62.5 Due after one year through five years ​ ​ — ​ ​ — Due after five years through ten years ​ — ​ — Due after ten years ​ 171.1 ​ 174.4 Total ​ $ 233.6 ​ $ 236.9 (1) Includes mutual funds, which do not have a stated maturity. Market values were determined for each individual security in the investment portfolio. 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. 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 September 30, 2021, the Company does not consider its investments to be impaired. 21 Index ALLIANCE DATA SYSTEMS CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) 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. 9. 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 carried at fair value, are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2021 ​ December 31, 2020 ​ ​ ​ ​ Amortized ​ Unrealized ​ Unrealized ​ ​ ​ ​ ​ Amortized ​ Unrealized ​ Unrealized ​ ​ ​ ​ Cost Gains Losses Fair Value Cost Gains Losses Fair Value ​ ​ ​ (in millions) Restricted cash ​ $ 58.2 $ — $ — $ 58.2 $ 55.4 $ — $ — $ 55.4 Mutual funds ​ ​ ​ 26.2 ​ ​ — ​ ​ — ​ ​ 26.2 ​ ​ 26.9 ​ ​ — ​ ​ — ​ ​ 26.9 Corporate bonds ​ ​ ​ 641.8 ​ ​ 10.3 ​ ​ ( 2.5 ) ​ ​ 649.6 ​ ​ 592.3 ​ ​ 19.1 ​ ​ ( 0.2 ) ​ ​ 611.2 Total ​ $ 726.2 $ 10.3 $ ( 2.5 ) $ 734.0 $ 674.6 $ 19.1 $ ( 0.2 ) $ 693.5 ​ 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 ​ 12 Months or Greater ​ Total ​ ​ ​ ​ ​ Unrealized ​ ​ ​ ​ Unrealized ​ ​ ​ ​ Unrealized ​ Fair Value Losses Fair Value Losses Fair Value Losses ​ ​ (in millions) Corporate bonds ​ $ 178.2 ​ $ ( 2.3 ) ​ $ 14.2 ​ $ ( 0.2 ) ​ $ 192.4 ​ $ ( 2.5 ) Total $ 178.2 $ ( 2.3 ) $ 14.2 $ ( 0.2 ) $ 192.4 $ ( 2.5 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2020 ​ ​ Less than 12 months ​ 12 Months or Greater ​ Total ​ ​ ​ ​ ​ Unrealized ​ ​ ​ ​ Unrealized ​ ​ ​ ​ Unrealized ​ Fair Value Losses Fair Value Losses Fair Value Losses ​ ​ (in millions) Corporate bonds ​ $ 46.2 ​ $ ( 0.1 ) ​ $ 10.3 ​ $ ( 0.1 ) ​ $ 56.5 $ ( 0.2 ) Total ​ $ 46.2 ​ $ ( 0.1 ) ​ $ 10.3 ​ $ ( 0.1 ) ​ $ 56.5 ​ $ ( 0.2 ) ​ The amortized cost and estimated fair value of the securities at September 30, 2021 by contractual maturity are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ Amortized Estimated ​ Cost Fair Value ​ ​ (in millions) Due in one year or less (1) ​ $ 158.1 ​ $ 159.2 Due after one year through five years ​ 506.0 ​ 512.6 Due after five year through ten years ​ ​ 3.9 ​ ​ 4.0 Total ​ $ 668.0 ​ $ 675.8 (1) Includes mutual funds, which do not have a stated maturity. Market values were determined for each individual security in the investment portfolio. 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. The Company typically invests in highly-rated securities 22 Index 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. ​ 10. LEASES The Company has operating leases for general office properties, warehouses, data centers, customer care centers, automobiles and certain equipment. 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. The incremental borrowing rate is based on the Company’s specific rate of interest to borrow on a collateralized basis, over a similar term and in a similar economic environment as the lease. Leases with an initial term of 12 months or less are not recognized on the balance sheet; the Company recognizes lease expense for these leases on a straight-line basis over the lease term. Additionally, the Company accounts for lease and nonlease components as a single lease component for its identified asset classes. The components of lease expense were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Nine Months Ended ​ ​ September 30, ​ September 30, ​ 2021 ​ 2020 ​ 2021 ​ 2020 ​ ​ (in millions) Operating lease cost $ 8.5 ​ $ 10.0 ​ $ 30.5 ​ $ 30.2 Short-term lease cost ​ ​ 0.1 ​ ​ 0.2 ​ ​ 0.4 ​ ​ 0.7 Variable lease cost ​ ​ 1.5 ​ ​ 1.3 ​ ​ 4.6 ​ ​ 4.4 Total ​ $ 10.1 ​ $ 11.5 ​ $ 35.5 ​ $ 35.3 ​ Other information related to leases was as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, ​ September 30, ​ 2021 ​ 2020 Weighted-average remaining lease term (in years): ​ ​ ​ ​ ​ ​ Operating leases ​ ​ 10.3 ​ ​ 11.0 Weighted-average discount rate: ​ ​ ​ ​ ​ ​ Operating leases ​ ​ 5.3 % ​ ​ 5.2 % ​ Supplemental cash flow information related to leases was as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Nine Months Ended ​ ​ September 30, ​ September 30, ​ 2021 ​ 2020 ​ 2021 ​ 2020 ​ ​ (in millions) Cash paid for amounts included in the measurement of lease liabilities: ​ ​ ​ ​ ​ ​ Operating cash flows from operating leases ​ $ 9.4 ​ $ 10.0 ​ $ 33.8 ​ $ 35.7 Right of use assets obtained in exchange for lease obligations: ​ ​ ​ ​ ​ ​ Operating leases ​ $ 0.2 ​ $ 0.5 ​ $ 4.5 ​ $ 3.3 ​ 23 Index ALLIANCE DATA SYSTEMS CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) Maturities of the lease liabilities as of September 30, 2021 were as follows: ​ ​ ​ ​ ​ ​ ​ Operating Year ​ Leases ​ (in millions) 2021 (excluding the nine months ended September 30, 2021) ​ $ 6.7 2022 ​ 38.5 2023 ​ 37.2 2024 ​ 35.4 2025 ​ 34.7 Thereafter ​ 205.8 Total undiscounted lease liabilities ​ ​ 358.3 Less: Amount representing interest ​ ​ ( 86.5 ) Total present value of minimum lease payments ​ $ 271.8 ​ ​ ​ ​ Amounts recognized in the September 30, 2021 consolidated balance sheet: ​ ​ ​ Current operating lease liabilities ​ $ 21.9 Long-term operating lease liabilities ​ ​ 249.9 Total ​ $ 271.8 ​ ​ 11. INTANGIBLE ASSETS AND GOODWILL Intangible Assets Intangible assets consist of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2021 ​ ​ ​ Gross Accumulated ​ ​ ​ ​ Assets Amortization Net Amortization Life and Method ​ ​ (in millions) ​ ​ Definite-Lived Assets ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Customer contracts and lists ​ $ 8.8 ​ $ ( 2.4 ) ​ $ 6.4 3 years —straight line Premium on purchased credit card portfolios ​ 132.1 ​ ​ ( 81.2 ) ​ 50.9 1 - 13 years —straight line Collector database ​ 55.2 ​ ​ ( 55.1 ) ​ 0.1 5 years —straight line Tradenames ​ 33.2 ​ ​ ( 29.5 ) ​ 3.7 4 - 15 years —straight line Non-compete agreements ​ 2.2 ​ ​ ( 0.4 ) ​ ​ 1.8 5 years —straight line ​ ​ $ 231.5 ​ $ ( 168.6 ) ​ $ 62.9 ​ ​ Indefinite-Lived Assets ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Tradename ​ 1.2 ​ — ​ 1.2 Indefinite life Total intangible assets ​ $ 232.7 ​ $ ( 168.6 ) ​ $ 64.1 ​ ​ ​ 24 Index ALLIANCE DATA SYSTEMS CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2020 ​ ​ ​ Gross Accumulated ​ ​ ​ ​ Assets Amortization Net Amortization Life and Method ​ ​ (in millions) ​ ​ Definite-Lived Assets ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Customer contracts and lists ​ $ 363.0 ​ $ ( 354.5 ) ​ $ 8.5 3 - 7 years —straight line Premium on purchased credit card portfolios ​ 137.2 ​ ​ ( 72.8 ) ​ 64.4 3 - 13 years —straight line Collector database ​ 55.0 ​ ​ ( 54.5 ) ​ 0.5 5 years —straight line Tradenames ​ 35.0 ​ ​ ( 30.1 ) ​ 4.9 4 - 15 years —straight line Non-compete agreements ​ 2.2 ​ ​ — ​ ​ 2.2 5 years —straight line ​ ​ $ 592.4 ​ $ ( 511.9 ) ​ $ 80.5 ​ ​ Indefinite-Lived Assets ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Tradename ​ 1.2 ​ — ​ 1.2 Indefinite life Total intangible assets ​ $ 593.6 ​ $ ( 511.9 ) ​ $ 81.7 ​ ​ ​ The estimated amortization expense related to intangible assets for the next five years and thereafter is as follows: ​ ​ ​ ​ ​ ​ For the Years Ending ​ December 31, ​ ​ (in millions) 2021 (excluding the nine months ended September 30, 2021) ​ $ 8.0 2022 ​ 21.4 2023 ​ 16.1 2024 ​ 11.2 2025 ​ 2.4 Thereafter ​ 3.8 ​ Goodwill The changes in the carrying amount of goodwill are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ LoyaltyOne Card Services Total ​ ​ (in millions) Balance at January 1, 2021 ​ $ 736.0 ​ $ 633.6 ​ $ 1,369.6 ​ Effects of foreign currency translation ​ ( 26.9 ) ​ — ​ ( 26.9 ) ​ Balance at September 30, 2021 ​ $ 709.1 ​ $ 633.6 ​ $ 1,342.7 ​ ​ 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 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. 25 Index ALLIANCE DATA SYSTEMS CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) 12. DEBT ​ Debt consists of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, December 31, ​ ​ Description 2021 2020 Maturity Interest Rate ​ ​ (Dollars in millions) ​ ​ ​ ​ Long-term and other debt: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2017 revolving line of credit ​ $ — ​ $ — July 2024 (1) 2017 term loans ​ 1,408.3 ​ 1,484.3 December 2022, July 2024 (2) BrandLoyalty credit agreement ​ — ​ — April 2024 (3) Senior notes due 2024 ​ ​ 850.0 ​ ​ 850.0 ​ December 2024 ​ 4.750 % Senior notes due 2026 ​ ​ 500.0 ​ ​ 500.0 ​ January 2026 ​ 7.000 % Total long-term and other debt ​ 2,758.3 ​ 2,834.3 ​ ​ ​ ​ Less: Unamortized debt issuance costs ​ ​ 24.4 ​ ​ 28.6 ​ ​ ​ ​ Less: Current portion ​ 101.3 ​ 101.4 ​ ​ ​ ​ Long-term portion ​ $ 2,632.6 ​ $ 2,704.3 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Deposits: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Certificates of deposit ​ $ 4,968.0 ​ $ 6,014.9 Various – Oct 2021 to Sep 2026 0.20 % to 3.75 % Money market deposits ​ 4,925.5 ​ 3,790.2 Non-maturity (4) Total deposits ​ 9,893.5 ​ 9,805.1 ​ ​ ​ ​ Less: Unamortized debt issuance costs ​ ​ 8.0 ​ ​ 12.5 ​ ​ ​ ​ Less: Current portion ​ 7,762.6 ​ 6,553.9 ​ ​ ​ ​ Long-term portion ​ $ 2,122.9 ​ $ 3,238.7 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Non-recourse borrowings of consolidated securitization entities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fixed rate asset-backed term note securities ​ $ 1,894.0 ​ $ 3,423.8 Various – Oct 2021 to Sep 2022 2.21 % to 3.95 % Conduit asset-backed securities ​ 2,697.5 ​ 2,205.1 Various – Aug 2022 to Oct 2023 (5) Secured loan facility ​ ​ — ​ ​ 86.3 ​ ​ ​ ​ Total non-recourse borrowings of consolidated securitization entities ​ 4,591.5 ​ 5,715.2 ​ ​ ​ ​ Less: Unamortized debt issuance costs ​ ​ 2.8 ​ ​ 5.3 ​ ​ ​ ​ Less: Current portion ​ 3,094.6 ​ 1,850.7 ​ ​ ​ ​ Long-term portion ​ $ 1,494.1 ​ $ 3,859.2 ​ ​ ​ ​ (1) The interest rate is based upon LIBOR plus an applicable margin. (2) The interest rate is based upon LIBOR plus an applicable margin. 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 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 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 % . ​ At September 30, 2021, the Company was in compliance with its financial covenants. ​ 26 Index ALLIANCE DATA SYSTEMS CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) Long-term and Other Debt Credit Agreement 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 minus, in the case of the first transaction associated with the divestiture of the LoyaltyOne spinoff or sale, $ 25.0 million and (vi) add Lon Inc. 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 September 30, 2021, there were no amounts outstanding under the BrandLoyalty Credit Agreement. Non-Recourse Borrowings of Consolidated Securitization Entities Asset-Backed Term Notes In February 2021, $ 591.5 million of Series 2018-A asset-backed term notes, $ 66.5 million of which were retained by the Company and eliminated from the Company’s unaudited condensed consolidated balance sheets, matured and were repaid. 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 The Company has access to committed undrawn capacity through three conduit facilities to support the funding of its credit card receivables for certain of its trusts. In June 2021, Master Trust I amended its 2009-VFN conduit facility, increasing the capacity from $ 1.0 billion to $ 2.75 billion and extending the maturity to October 2023. In June 2021, Master Trust III amended its 2009-VFC conduit facility, decreasing the capacity from $ 700.0 million to $ 225.0 million and extending the maturity to August 2022. In June 2021, the WFC Trust amended its 2009-VFN conduit facility, extending the maturity to August 2022. 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. ​ 27 Index 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. 13. DERIVATIVE INSTRUMENTS The Company uses derivatives to manage risks associated with certain assets and liabilities arising from the potential adverse impact of fluctuations in foreign currency exchange rates. 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 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. 14. COMMITMENTS AND CONTINGENCIES Regulatory Matters On September 10, 2019, Comenity Capital Bank submitted a bank merger application to the Federal Deposit Insurance Corporation (“FDIC”) seeking the FDIC’s approval to merge Comenity Bank with and into Comenity Capital Bank as the surviving bank entity. On the same date, Comenity Capital Bank and Comenity Bank each submitted counterpart bank merger applications to the Utah Department of Financial Institutions and the Delaware Office of the State Bank Commissioner, respectively, in connection with the proposed merger. On April 20, 2021, Comenity Capital Bank withdrew its bank merger application with the FDIC. On May 3, 2021, each of Comenity Capital Bank and Comenity Bank similarly withdrew their counterpart bank merger applications in Utah and Delaware, respectively. Indemnification ​ On July 1, 2019, the Company completed the sale of its Epsilon segment to Publicis Groupe S.A. (“Publicis”). Under the terms of the agreement governing that transaction, the Company agreed to indemnify Publicis and its affiliates from and against any losses arising out of or related to a United States Department of Justice (“DOJ”) investigation. The DOJ investigation related to third-party marketers who sent, or allegedly sent, deceptive mailings and the provision of data and services to those marketers by Epsilon’s data practice. Epsilon actively cooperated with the DOJ in connection with the investigation. On January 19, 2021, Epsilon entered into a deferred prosecution agreement (“DPA”) with the DOJ to resolve the matters that were the subject of the investigation. Pursuant to the DPA, Epsilon agreed, among other things, to pay penalties and consumer compensation in the aggregate amount of $ 150.0 million, to be paid in two equal installments, the first in January 2021 and the second in January 2022. In accordance with ASC 450, “Contingencies,” the Company records a loss contingency when a loss is probable and an amount can be reasonably estimated, and therefore as of December 31, 2020, a $ 150.0 million liability was recorded. The Company paid $ 75.0 million to Publicis pursuant to its contractual indemnification obligation in January 2021. As of September 30, 2021, the Company has $ 75.0 million included in accrued expenses in its unaudited condensed consolidated balance sheets. 15. STOCKHOLDERS’ EQUITY Stock Compensation Expense 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. 28 Index 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 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 ​ Nine Months Ended ​ ​ September 30, ​ September 30, ​ 2021 2020 2021 2020 ​ ​ (in millions) Cost of operations ​ $ 5.4 ​ $ 3.4 ​ $ 14.9 ​ $ 9.4 General and administrative ​ 3.2 ​ 1.9 ​ 9.7 ​ 6.8 Total ​ $ 8.6 ​ $ 5.3 ​ $ 24.6 ​ $ 16.2 ​ Dividends 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. 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 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. ​ ​ 29 Index ALLIANCE DATA SYSTEMS CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) 16. ACCUMULATED OTHER COMPREHENSIVE LOSS The changes in each component of accumulated other comprehensive loss, net of tax effects, are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net ​ Net Unrealized ​ Net Unrealized ​ Foreign ​ Accumulated ​ ​ Unrealized ​ Gains (Losses) ​ Gains (Losses) ​ Currency ​ Other ​ Gains (Losses) on Cash on Net Translation Comprehensive Three Months Ended September 30, 2021 on Securities Flow Hedges Investment Hedge Adjustments (1) Loss ​ (in millions) Balance at June 30, 2021 $ 13.7 $ 0.1 $ ( 7.5 ) $ ( 39.4 ) $ ( 33.1 ) Changes in other comprehensive income (loss) ​ ​ ( 3.3 ) ​ ​ 0.9 ​ ​ — ​ ​ ( 20.7 ) ​ ​ ( 23.1 ) Balance at September 30, 2021 $ 10.4 $ 1.0 $ ( 7.5 ) $ ( 60.1 ) $ ( 56.2 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net ​ Net Unrealized ​ Net Unrealized ​ Foreign ​ Accumulated ​ ​ Unrealized ​ Gains (Losses) ​ Gains (Losses) ​ Currency ​ Other ​ Gains (Losses) on Cash on Net Translation Comprehensive Three Months Ended September 30, 2020 on Securities Flow Hedges Investment Hedge Adjustments (1) Loss ​ (in millions) Balance at June 30, 2020 $ 17.5 $ ( 0.6 ) $ ( 7.5 ) $ ( 96.9 ) $ ( 87.5 ) Changes in other comprehensive income (loss) ​ ​ 4.0 ​ ​ 0.5 ​ ​ — ​ ​ 35.3 ​ ​ 39.8 Balance at September 30, 2020 $ 21.5 $ ( 0.1 ) $ ( 7.5 ) $ ( 61.6 ) $ ( 47.7 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net ​ Net Unrealized ​ Net Unrealized ​ Foreign ​ Accumulated ​ ​ Unrealized ​ Gains (Losses) ​ Gains (Losses) ​ Currency ​ Other ​ ​ Gains (Losses) ​ on Cash ​ on Net ​ Translation ​ Comprehensive Nine Months Ended September 30, 2021 on Securities Flow Hedges Investment Hedge Adjustments (1) Loss ​ (in millions) Balance at December 31, 2020 $ 23.2 $ ( 0.7 ) $ ( 7.5 ) $ ( 20.0 ) $ ( 5.0 ) Changes in other comprehensive income (loss) ​ ​ ( 12.8 ) ​ ​ 1.7 ​ ​ — ​ ​ ( 40.1 ) ​ ​ ( 51.2 ) Balance at September 30, 2021 $ 10.4 $ 1.0 $ ( 7.5 ) $ ( 60.1 ) $ ( 56.2 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net ​ Net Unrealized ​ Net Unrealized ​ Foreign ​ Accumulated ​ ​ Unrealized ​ Gains (Losses) ​ Gains (Losses) ​ Currency ​ Other ​ ​ Gains (Losses) ​ on Cash ​ on Net ​ Translation ​ Comprehensive Nine Months Ended September 30, 2020 on Securities Flow Hedges Investment Hedge Adjustments (1) Loss ​ (in millions) Balance at December 31, 2019 $ 2.5 $ ( 0.1 ) $ ( 7.5 ) $ ( 94.8 ) $ ( 99.9 ) Changes in other comprehensive income (loss) ​ ​ 19.0 ​ ​ — ​ ​ — ​ ​ 29.4 ​ ​ 48.4 Recognition resulting from the sale of Precima's foreign subsidiaries ​ ​ — ​ ​ — ​ ​ — ​ ​ 3.8 ​ ​ 3.8 Balance at September 30, 2020 $ 21.5 $ ( 0.1 ) $ ( 7.5 ) $ ( 61.6 ) $ ( 47.7 ) (1) Primarily related to the impact of changes in the Canadian dollar and Euro foreign currency exchange rates. ​ In accordance with ASC 830, “Foreign Currency Matters,” upon the sale of Precima on January 10, 2020, $ 3.8 million of accumulated foreign currency translation adjustments attributable to Precima’s foreign subsidiaries sold were reclassified from accumulated other comprehensive loss and included in the calculation of the gain on sale of Precima. Other reclassifications from accumulated other comprehensive loss into net income for each of the periods presented were not material. 30 Index ALLIANCE DATA SYSTEMS CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) 17. FINANCIAL INSTRUMENTS ​ In accordance with ASC 825, “Financial Instruments,” the Company is required to disclose the fair value of financial instruments for which it is practical to estimate fair value. To obtain fair values, observable market prices are used if available. In some instances, observable market prices are not readily available and fair value is determined using present value or other techniques appropriate for a particular financial instrument. These techniques involve judgment and as a result are not necessarily indicative of the amounts the Company would realize in a current market exchange. The use of different assumptions or estimation techniques may have a material effect on the estimated fair value amounts. Fair Value of Financial Instruments — The estimated fair values of the Company’s financial instruments are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2021 ​ December 31, 2020 ​ ​ Carrying ​ Fair ​ Carrying ​ Fair ​ Amount Value Amount Value ​ ​ (in millions) Financial assets ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Credit card and loan receivables, net ​ $ 14,045.1 ​ $ 16,202.0 ​ $ 14,776.4 ​ $ 17,301.2 Redemption settlement assets, restricted ​ 734.0 ​ 734.0 ​ 693.5 ​ 693.5 Other investments ​ 236.9 ​ 236.9 ​ 225.4 ​ 225.4 Derivative instruments ​ 1.9 ​ 1.9 ​ 0.4 ​ 0.4 Financial liabilities ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Derivative instruments ​ ​ 0.8 ​ ​ 0.8 ​ ​ 1.5 ​ ​ 1.5 Deposits ​ 9,885.5 ​ 10,027.3 ​ 9,792.6 ​ 10,015.9 Non-recourse borrowings of consolidated securitization entities ​ 4,588.7 ​ 4,616.3 ​ 5,709.9 ​ 5,783.4 Long-term and other debt ​ 2,733.9 ​ 2,816.6 ​ 2,805.7 ​ 2,875.1 ​ The following techniques and assumptions were used by the Company in estimating fair values of financial instruments as disclosed herein: Credit card and loan receivables, net — The Company utilizes a discounted cash flow model using unobservable inputs, including estimated yields (interest and fee income), loss rates, payment rates and discount rates to estimate the fair value measurement of the credit card and loan receivables . Redemption settlement assets, restricted — Redemption settlement assets, restricted are recorded at fair value based on quoted market prices for the same or similar securities. 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. Other investments are recorded at fair value based on quoted market prices for the same or similar securities. Deposits — For money market deposits, carrying value approximates fair value due to the liquid nature of these deposits. For certificates of deposit, the fair value is estimated based on the current observable market rates available to the Company for similar deposits with similar remaining maturities. Non-recourse borrowings of consolidated securitization entities — The fair value is estimated based on the current observable market rates available to the Company for similar debt instruments with similar remaining maturities or quoted market prices for the same transaction. Long-term and other debt — The fair value is estimated based on the current observable market rates available to the Company for similar debt instruments with similar remaining maturities or quoted market prices for the same transaction. Derivative instruments — The Company’s foreign currency cash flow hedges and foreign currency exchange forward contracts are recorded at fair value based on a discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflected the contractual terms of the derivatives, including the period to maturity, and used observable market-based inputs. 31 Index ALLIANCE DATA SYSTEMS CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) Financial Assets and Financial Liabilities Fair Value Hierarchy ASC 820, “Fair Value Measurement,” establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: ● Level 1, defined as observable inputs such as quoted prices in active markets; ● Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and ● Level 3, defined as unobservable inputs where little or no market data exists, therefore requiring an entity to develop its own assumptions. Financial instruments are considered Level 3 when their values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable. Level 3 financial instruments also include those for which the determination of fair value requires significant management judgment or estimation. 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 September 30, 2021 and December 31, 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair Value Measurements at ​ ​ ​ ​ ​ September 30, 2021 Using ​ Balance at ​ ​ ​ ​ ​ ​ ​ ​ September 30, ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2021 Level 1 Level 2 Level 3 ​ ​ (in millions) Mutual funds (1) ​ $ 26.2 ​ $ 26.2 ​ $ — ​ $ — Corporate bonds (1) ​ ​ 649.6 ​ ​ — ​ ​ 649.6 ​ ​ — Marketable securities (2) ​ ​ 236.9 ​ ​ 48.8 ​ ​ 188.1 ​ ​ — Derivative instruments (3) ​ ​ 1.9 ​ ​ — ​ ​ 1.9 ​ ​ — Total assets measured at fair value ​ $ 914.6 ​ $ 75.0 ​ $ 839.6 ​ $ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Derivative instruments (3) ​ $ 0.8 ​ $ — ​ $ 0.8 ​ $ — Total liabilities measured at fair value ​ $ 0.8 ​ $ — ​ $ 0.8 ​ $ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair Value Measurements at ​ ​ ​ ​ ​ December 31, 2020 Using ​ Balance at ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2020 Level 1 Level 2 Level 3 ​ ​ (in millions) Mutual funds (1) ​ $ 26.9 ​ $ 26.9 ​ $ — ​ $ — Corporate bonds (1) ​ ​ 611.2 ​ ​ — ​ ​ 611.2 ​ ​ — Marketable securities (2) ​ ​ 225.4 ​ ​ 34.2 ​ ​ 191.2 ​ ​ — Derivative instruments (3) ​ ​ 0.4 ​ ​ — ​ ​ 0.4 ​ ​ — Total assets measured at fair value ​ $ 863.9 ​ $ 61.1 ​ $ 802.8 ​ $ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Derivative instruments (3) ​ $ 1.5 ​ $ — ​ $ 1.5 ​ $ — Total liabilities measured at fair value ​ $ 1.5 ​ $ — ​ $ 1.5 ​ $ — (1) Amounts are included in redemption settlement assets in the unaudited condensed consolidated balance sheets. (2) Amounts are included in other current assets and other non-current assets in the unaudited condensed consolidated balance sheets. (3) Amounts are included in other current assets and other current liabilities in the unaudited condensed consolidated balance sheets. ​ 32 Index 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 September 30, 2021 and December 31, 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair Value Measurements at ​ ​ September 30, 2021 ​ Total Level 1 Level 2 Level 3 ​ ​ (in millions) Financial assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Credit card and loan receivables, net ​ $ 16,202.0 ​ $ — ​ $ — ​ $ 16,202.0 Total ​ $ 16,202.0 ​ $ — ​ $ — ​ $ 16,202.0 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Financial liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Deposits ​ $ 10,027.3 ​ $ — ​ $ 10,027.3 ​ $ — Non-recourse borrowings of consolidated securitization entities ​ 4,616.3 ​ — ​ 4,616.3 ​ — Long-term and other debt ​ 2,816.6 ​ — ​ 2,816.6 ​ — Total ​ $ 17,460.2 ​ $ — ​ $ 17,460.2 ​ $ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair Value Measurements at ​ ​ December 31, 2020 ​ Total Level 1 Level 2 Level 3 ​ ​ (in millions) Financial assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Credit card and loan receivables, net ​ $ 17,301.2 ​ $ — ​ $ — ​ $ 17,301.2 Total ​ $ 17,301.2 ​ $ — ​ $ — ​ $ 17,301.2 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Financial liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Deposits ​ $ 10,015.9 ​ $ — ​ $ 10,015.9 ​ $ — Non-recourse borrowings of consolidated securitization entities ​ 5,783.4 ​ — ​ 5,783.4 ​ — Long-term and other debt ​ 2,875.1 ​ — ​ 2,875.1 ​ — Total ​ $ 18,674.4 ​ $ — ​ $ 18,674.4 ​ $ — ​ ​ ​ 18. INCOME TAXES 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. 19. SEGMENT INFORMATION Operating segments are defined by ASC 280, “Segment Reporting,” as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The operating segments are reviewed separately because each operating segment represents a strategic business unit that generally offers different products and services. 33 Index 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: ● LoyaltyOne provides coalition and short-term loyalty programs through the Company’s Canadian AIR MILES Reward Program and BrandLoyalty; and ● Card Services provides private label, co-brand, general purpose and business credit card programs, digital payments, including Bread, and Comenity-branded financial services. Card Services provides risk management solutions, account origination, funding, transaction processing, customer care, collections and marketing services. Corporate and other consists of corporate overhead not allocated to either of the Company’s segments. ​ Effective with the first quarter of 2021, the Company changed its measure of segment operating profit from adjusted EBITDA and adjusted EBITDA, net to income before income taxes, as income before income taxes is now the primary performance metric utilized by the chief operating decision maker to allocate resources and assess performance of the segments. 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 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. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Corporate/ ​ ​ ​ ​ ​ ​ Three Months Ended September 30, 2021 LoyaltyOne Card Services Other Eliminations Total ​ ​ (in millions) Revenues ​ $ 169.3 ​ $ 930.0 ​ $ — ​ $ — ​ $ 1,099.3 Other operating expenses ​ ​ 115.8 ​ ​ 369.4 ​ ​ 34.4 ​ ​ 4.1 ​ ​ 523.7 Provision for loan loss ​ ​ — ​ ​ 161.1 ​ ​ — ​ ​ — ​ ​ 161.1 Depreciation and amortization ​ 9.1 ​ ​ 22.0 ​ ​ 0.6 ​ — ​ 31.7 Operating income (loss) ​ 44.4 ​ 377.5 ​ ( 35.0 ) ​ ( 4.1 ) ​ 382.8 Interest expense, net ​ ​ ( 0.1 ) ​ ​ 63.3 ​ ​ 28.9 ​ ​ — ​ ​ 92.1 Income (loss) before income taxes ​ $ 44.5 ​ $ 314.2 ​ $ ( 63.9 ) ​ $ ( 4.1 ) ​ $ 290.7 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Corporate/ ​ ​ ​ ​ ​ ​ Three Months Ended September 30, 2020 LoyaltyOne Card Services Other Eliminations Total ​ ​ (in millions) Revenues ​ $ 184.8 ​ $ 865.7 ​ $ — ​ $ — ​ $ 1,050.5 Other operating expenses ​ ​ 146.4 ​ ​ 336.3 ​ ​ 29.0 ​ ​ — ​ ​ 511.7 Provision for loan loss ​ ​ — ​ ​ 207.7 ​ ​ — ​ ​ — ​ ​ 207.7 Depreciation and amortization ​ 20.3 ​ ​ 19.2 ​ ​ 0.6 ​ — ​ ​ 40.1 Operating income (loss) ​ 18.1 ​ 302.5 ​ ( 29.6 ) ​ — ​ 291.0 Interest expense, net ​ ( 0.2 ) ​ ​ 90.4 ​ ​ 24.9 ​ ​ — ​ ​ 115.1 Income (loss) before income taxes ​ $ 18.3 ​ $ 212.1 ​ $ ( 54.5 ) ​ $ — ​ $ 175.9 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Corporate/ ​ ​ ​ ​ ​ ​ Nine Months Ended September 30, 2021 LoyaltyOne Card Services Other Eliminations Total ​ ​ (in millions) Revenues ​ $ 496.7 ​ $ 2,699.8 ​ $ — ​ $ — ​ $ 3,196.5 Other operating expenses ​ ​ 368.8 ​ ​ 1,108.4 ​ ​ 78.4 ​ ​ 4.1 ​ ​ 1,559.7 Provision for loan loss ​ ​ — ​ ​ 180.3 ​ ​ — ​ ​ — ​ ​ 180.3 Depreciation and amortization ​ 27.5 ​ 68.0 ​ 1.7 ​ — ​ 97.2 Operating income (loss) ​ 100.4 ​ 1,343.1 ​ ( 80.1 ) ​ ( 4.1 ) ​ 1,359.3 Interest expense, net ​ ​ ( 0.3 ) ​ ​ 214.6 ​ ​ 88.2 ​ ​ — ​ ​ 302.5 Income (loss) before income taxes ​ $ 100.7 ​ $ 1,128.5 ​ $ ( 168.3 ) ​ $ ( 4.1 ) ​ $ 1,056.8 34 Index ALLIANCE DATA SYSTEMS CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Corporate/ ​ ​ ​ ​ ​ ​ Nine Months Ended September 30, 2020 LoyaltyOne Card Services Other Eliminations Total ​ ​ (in millions) Revenues ​ $ 533.9 ​ $ 2,877.5 ​ $ 0.1 ​ $ — ​ $ 3,411.5 Other operating expenses ​ ​ 388.6 ​ ​ 1,086.1 ​ ​ 73.2 ​ ​ — ​ ​ 1,547.9 Provision for loan loss ​ ​ — ​ ​ 1,113.7 ​ ​ — ​ ​ — ​ ​ 1,113.7 Depreciation and amortization ​ 56.9 ​ 61.0 ​ 2.4 ​ — ​ 120.3 Operating income (loss) ​ 88.4 ​ 616.7 ​ ( 75.5 ) ​ — ​ 629.6 Interest expense, net ​ ​ ( 0.5 ) ​ ​ 302.2 ​ ​ 79.6 ​ ​ — ​ ​ 381.3 Income (loss) before income taxes ​ $ 88.9 ​ $ 314.5 ​ $ ( 155.1 ) ​ $ — ​ $ 248.3 ​ ​ 20. SUPPLEMENTAL CASH FLOW INFORMATION 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, ​ September 30, ​ ​ 2021 ​ 2020 ​ ​ (in millions) Cash and cash equivalents ​ $ 3,172.2 ​ $ 3,078.4 Restricted cash included within other current assets (1) ​ ​ 660.2 ​ ​ 627.1 Restricted cash included within redemption settlement assets, restricted (2) ​ ​ 58.2 ​ ​ 45.4 Total cash, cash equivalents and restricted cash ​ $ 3,890.6 ​ $ 3,750.9 (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 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. ​ 35 Index Caution Regarding Forward-Looking Statements This Form 10-Q and the documents incorporated by reference herein contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements give our expectations or forecasts of future events and can generally be identified by the use of words such as “believe,” “expect,” “anticipate,” “estimate,” “intend,” “project,” “plan,” “likely,” “may,” “should” or other words or phrases of similar import. 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 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. Forward-looking statements, however, are subject to a number of risks and uncertainties that could cause actual results to differ materially from the projections, anticipated results or other expectations expressed in this report, and no assurances can be given that our expectations will prove to have been correct. These risks and uncertainties include, but are not limited to, the following: ● 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 the spinoff; ● continued financial responsibility with respect to a divested business, including required equity ownership, guarantees, indemnities or other financial obligations; ● increases in the cost of doing business, including market interest rates; ● inability to access financial or capital markets, including asset-backed securitization funding or deposits markets; ● loss of active AIR MILES ® Reward Program collectors; ● increased redemptions by AIR MILES Reward Program collectors; ● unfavorable fluctuations in foreign currency exchange rates; ● limitations on consumer credit, loyalty or marketing services from new legislative or regulatory actions related to consumer protection and consumer privacy; ● increases in Federal Deposit Insurance Corporation, Delaware or Utah regulatory capital requirements or other support for our banks; ● failure to maintain exemption from regulation under the Bank Holding Company Act; ● loss or disruption, due to cyber attack or other service failures, of data center operations or capacity; ● loss of consumer information due to compromised physical or cyber security; and ● those factors set forth in the Risk Factors section in our Annual Report on Form 10-K for the most recently ended fiscal year as well as those factors discussed in Item 1A and elsewhere in this Form 10-Q and in the documents incorporated by reference in this Form 10-Q. ​ If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may vary materially from what we projected. Further risks and uncertainties include, but are not limited to, the impact of strategic initiatives on us or our business if any transactions are undertaken, and whether the anticipated benefits of such transactions can be realized. ​ Any forward-looking statements contained in this Form 10-Q speak only as of the date made, and we undertake no obligation, other than as required by applicable law, to update or revise any forward-looking statements, whether as a result of new information, subsequent events, anticipated or unanticipated circumstances or otherwise. 36 Index