As previously reported by Alliance Data Systems Corporation (“ADS” or the “Company”) in its Current Report on Form
8-K filed with the Securities and Exchange Commission (the “SEC”) on November 8, 2021 (the “Original 8-K”), the separation of Loyalty Ventures Inc. (“Loyalty Ventures”) from ADS was completed (the “Closing”) on November 5, 2021 after market
close (the “Separation”). The Separation of Loyalty Ventures, which comprised the LoyaltyOne segment of ADS and has been classified by ADS as “Discontinued Operations,” was achieved through ADS’ distribution (the “Distribution”) of 81% of the
shares of Loyalty Ventures common stock to holders of ADS common stock as of the close of business on the record date of October 27, 2021. ADS stockholders of record received one share of Loyalty Ventures common stock for every two and a half
shares of ADS common stock. Following the Distribution, Loyalty Ventures became an independent, publicly-traded company, in which ADS has retained a 19% ownership interest. As part of the plan regarding the Separation, the Company received
distributions from Loyalty Ventures prior to the effectiveness of the Separation in the aggregate amount of $750 million, of which $725 million was used by the Company to repay certain term loans as required under the Company’s credit agreement
and $25 million was used by the Company to make scheduled amortization payments for the fourth quarter of 2021 with respect to such term loans.
At Closing, the Separation was not deemed to be a significant business disposition for financial reporting
purposes and did not require the filing of pro forma financial information contemplated by Article 11 of Regulation S-X in the Original 8-K. To provide a better understanding of the impact of the Separation, ADS is hereby voluntarily providing
its investors with certain unaudited adjusted condensed consolidated statements of income (collectively, the “Unaudited Adjusted Quarterly Financial Information”), which adjust the prior quarterly historical income statements of the Company for
each of the seven quarters in the period from January 1, 2020 to September 30, 2021 (the “Adjusted Periods”) as follows:
The Unaudited Adjusted Quarterly Financial Information is based on, and should be read in conjunction with, the
corresponding Quarterly Reports on Form 10-Q and the most recent Annual Report on Form 10-K, in each case previously filed by ADS with the SEC.
The “Adjustments for Discontinued Operations” column reflects the removal of the operations of Loyalty Ventures
and is derived from the LoyaltyOne reportable operating segment presented in the corresponding Quarterly Reports on Form 10-Q or Annual Report on Form 10-K, adjusted to reflect directly attributable costs and allocations previously held in the
Corporate segment, such as transaction costs, hedging costs, and interest on term loans required to be repaid as a result of the Separation. During 2021, the Company has recognized in Discontinued Operations approximately $30 million in
associated transaction costs, approximately $20 million related to the release of a net investment hedge associated with the LoyaltyOne reportable operating segment that was previously recorded in Accumulated Other Comprehensive Loss in the
Consolidated Balance Sheets and recognized in Discontinued Operations at the Closing, and approximately $10 million in allocated interest expense on the $725 million in term loans required to be repaid as a result of the Separation. Of such
preceding amounts, a portion has been reflected in the tables below and the majority will be recognized in the fourth quarter of 2021.
The “Adjustments for Bank Holding Company Presentation” column reflects the changes, due to the removal of the
operations of Loyalty Ventures, in the presentation of the Company’s historic consolidated statements of income from SEC Regulation S-X Article 5, which is broadly applicable to all “commercial and industrial companies,” to Article 9, which is
applicable to “bank holding companies” and is referred to herein as the “Bank Holding Company Presentation.” The changes from historical presentation to the Bank Holding Company Presentation, the most significant of which reflect a
reclassification of Interest expense within Net interest income, are intended to reflect ADS’ operations going forward and better align the Company with its peers for comparability purposes.
The Unaudited Adjusted Quarterly Financial Information furnished on this Current Report on Form 8-K has been
prepared in a manner consistent with the accounting policies of ADS. However, such Unaudited Adjusted Quarterly Financial Information (i) does not fully comply with Generally Accepted Accounting Principles or Article 11 of Regulation S-X, (ii)
is not indicative of the results of operations that would have been realized had the Separation been completed, or the Bank Holding Company Presentation had been implemented, as of the date indicated, and (iii) is not meant to be indicative of
the Company’s future results of operations that ADS will experience following the Separation or the change to the Bank Holding Company Presentation. ADS has provided, however, a reconciliation of the presentation of such Unaudited Adjusted
Quarterly Financial Information to its historical quarterly financial information for the Adjusted Periods, consistent with the information that was previously reported by ADS in its Quarterly Reports on Forms 10-Q and Annual Report on Form
10-K. Investors are cautioned not to unduly rely on the Unaudited Adjusted Quarterly Financial Information. Any pro forma financial information for the Separation required by Article 11 of Regulation S-X to be included in ADS’ Annual Report on
Form 10-K for the fiscal year ending December 31, 2021 (the “2021 10-K”) will be included by ADS in the 2021 10-K on a timely basis. As a result of the Separation, ADS also expects that its financial statements to be presented in the 2021 10-K
will reflect the Bank Holding Company Presentation.
ALLIANCE DATA SYSTEMS CORPORATION
UNAUDITED ADJUSTED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share amounts)
__________________________________
* Caption not historically provided.
(a) Represents financing fees, net previously reported in Finance charges, net revenue.
(b) Represents interest income and interest expense previously reported in Total interest expense, net.
(c) Represents servicing fees previously reported in Services revenue, and the gain/loss on portfolio and other sales previously
reported in Cost of operations.
(d) Represents further detailed expense line items previously reported in Cost of operations and General and administrative
expense.
(e) Represents depreciation and amortization previously reported in Depreciation and other amortization, and Amortization of
purchased intangibles.
ALLIANCE DATA SYSTEMS CORPORATION
UNAUDITED ADJUSTED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share amounts)
__________________________________
* Caption not historically provided.
(a) Represents financing fees, net previously reported in Finance charges, net revenue.
(b) Represents interest income and interest expense previously reported in Total interest expense, net.
(c) Represents servicing fees previously reported in Services revenue, and the gain/loss on portfolio and other sales previously
reported in Cost of operations.
(d) Represents further detailed expense line items previously reported in Cost of operations and General and administrative
expense.
(e) Represents depreciation and amortization previously reported in Depreciation and other amortization, and Amortization of
purchased intangibles.
ALLIANCE DATA SYSTEMS CORPORATION
UNAUDITED ADJUSTED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share amounts)
__________________________________
* Caption not historically provided.
(a) Represents financing fees, net previously reported in Finance charges, net revenue.
(b) Represents interest income and interest expense previously reported in Total interest expense, net.
(c) Represents servicing fees previously reported in Services revenue, and the gain/loss on portfolio and other sales previously
reported in Cost of operations.
(d) Represents further detailed expense line items previously reported in Cost of operations and General and administrative
expense.
(e) Represents depreciation and amortization previously reported in Depreciation and other amortization, and Amortization of
purchased intangibles.
ALLIANCE DATA SYSTEMS CORPORATION
UNAUDITED ADJUSTED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share amounts)
__________________________________
* Caption not historically provided.
(a) Represents financing fees, net previously reported in Finance charges, net revenue.
(b) Represents interest income and interest expense previously reported in Total interest expense, net.
(c) Represents servicing fees previously reported in Services revenue, and the gain/loss on portfolio and other sales previously
reported in Cost of operations.
(d) Represents further detailed expense line items previously reported in Cost of operations and General and administrative
expense.
(e) Represents depreciation and amortization previously reported in Depreciation and other amortization, and Amortization of
purchased intangibles.
ALLIANCE DATA SYSTEMS CORPORATION
UNAUDITED ADJUSTED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share amounts)
__________________________________
* Caption not historically provided.
(a) Represents financing fees, net previously reported in Finance charges, net revenue.
(b) Represents interest income and interest expense previously reported in Total interest expense, net.
(c) Represents servicing fees previously reported in Services revenue, and the gain/loss on portfolio and other sales previously
reported in Cost of operations.
(d) Represents further detailed expense line items previously reported in Cost of operations and General and administrative
expense.
(e) Represents depreciation and amortization previously reported in Depreciation and other amortization, and Amortization of
purchased intangibles.
ALLIANCE DATA SYSTEMS CORPORATION
UNAUDITED ADJUSTED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share amounts)
__________________________________
* Caption not historically provided.
(a) Represents financing fees, net previously reported in Finance charges, net revenue.
(b) Represents interest income and interest expense previously reported in Total interest expense, net.
(c) Represents servicing fees previously reported in Services revenue, and the gain/loss on portfolio and other sales previously
reported in Cost of operations.
(d) Represents further detailed expense line items previously reported in Cost of operations and General and administrative
expense.
(e) Represents depreciation and amortization previously reported in Depreciation and other amortization, and Amortization of
purchased intangibles.
ALLIANCE DATA SYSTEMS CORPORATION
UNAUDITED ADJUSTED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share amounts)
__________________________________
* Caption not historically provided.
(a) Represents financing fees, net previously reported in Finance charges, net revenue.
(b) Represents interest income and interest expense previously reported in Total interest expense, net.
(c) Represents servicing fees previously reported in Services revenue, and the gain/loss on portfolio and other sales previously
reported in Cost of operations.
(d) Represents further detailed expense line items previously reported in Cost of operations and General and administrative
expense.
(e) Represents depreciation and amortization previously reported in Depreciation and other amortization, and Amortization of
purchased intangibles.
ALLIANCE DATA SYSTEMS CORPORATION
UNAUDITED ADJUSTED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share amounts)
__________________________________
NOTE: These Unaudited Adjusted Condensed Consolidated Statements of Income give effect to the
Discontinued Operations and the Bank Holding Company Presentation in each of the Adjusted Periods. For the reconciliation to the historical presentation and the adjustment columns, see the tables and related footnotes, as well as the explanatory
note, in each case included above.