Alliance Data 10-K/P

2012 ANNUAL REPORT LETTER TO STOCKHOLDERS • PROXY STATEMENT • 10-K revenue increased 15% to $3.6 BiLLion revenue increased 15% to $3.6 BiLLion core ePs increased 14% to $8.71 core ePs increased 14% to $8.71 adJusted eBitda increased 18% to $1.2 BiLLion adJusted eBitda increased 18% to $1.2 BiLLion enterPrise vaLue increased to $10 BiLLion enterPrise vaLue increased to $10 BiLLion DEAR STOCKHOLDERS: helped our clients deliver a seamless customer Organic revenue growth of 4% was below experience across all channels—from bricks expectations as we witnessed a temporary 2012 was, no doubt, our finest year ever. From a and mortar, to online, to mobile for researching, pullback (or “air pocket”) in our healthcare/ financial perspective, the results were compelling, buying, or engaging with brands via SMS/texting pharmaceutical vertical. Strong expense but perhaps even more exciting were the two key and geolocation targeting. management allowed Epsilon to hit its goal of themes that made the year so exceptional. First, 10% adjusted EBITDA growth, excluding non- • Modest economic growth, and macro- our growth was nicely balanced across our three recurring items. Fortunately, by year-end, this air economic conditions continued to stabilize. segments, with revenue growth between 9% and pocket had passed, and Epsilon was poised to As consumers regained confidence in the 18% for LoyaltyOne, Private Label and Epsilon, enter 2013 with strong momentum. Also, during future, businesses also felt more confident in respectively; and second, consolidated revenue 2012 we made investments in critical delivery spending for growth. In our businesses, this growth of 15% was driven by approximately platforms, bolstering long-term prospects, and renewed confidence drove our clients to allocate 9% organic growth. As the macro-economic realigned Epsilon’s business to serve industry environment has shifted away from an historical additional funds for our services. Additionally, verticals to more effectively deliver the full suite average annual growth rate of 3.5% and toward interest rates remained at low levels, and we of Epsilon’s marketing services. At the end of the a more modest 2% rate, organic growth is much were able to secure favorable financing terms for year, we announced the strategic acquisition of the harder to achieve. As such, our ability to generate our corporate and Private Label liquidity needs. HMI group of companies, an impressive collection organic growth at 4 times GDP allowed us to KEY BUSINESS HIGHLIGHTS of digital marketing agency services that secured stand out. This was clearly not lost on you, our Epsilon’s foothold as an ‘agency of the future.’ stockholders, who continued to vote in favor of our LoyaltyOne, the operator of our Canadian Private Label Services and Credit had an model as evidenced by the approximate eleven- coalition loyalty program, the AIR MILES® Reward enormous year. Our Private Label business saw fold increase in stock value we have realized since Program, had a very solid year, highlighted by over record credit portfolio growth of $1 billion—up our $12 per share IPO in 2001. Thank you for your 9% organic growth in revenues. We saw a nice almost 20%—the best in our history. Combined trust and support. resurgence in AIR MILES reward miles issued with strong credit quality and low funding costs, (up 6%). We also rolled out AIR MILES Cash, WHAT DROVE OUR GROWTH? Private Label was our primary driver of over- which added consumer excitement by permitting performance during 2012. We opportunistically Two things: the growing demand for our solutions collectors to instantly redeem their AIR MILES used some of this over-performance to reinvest and an improved macro-economic environment. reward miles in-store. Additionally, the speed in higher-rate, but longer-term fixed rate funding, Specifically, we saw: with which our joint-venture program in Brazil, giving us nice visibility into future earnings. We dotz, expanded during the year demonstrated our • Increased demand for our loyalty and achieved record new business signings, including success in replicating the coalition loyalty model marketing services. Our consumer-centric both new program start-ups as well as modest internationally. We opened in new markets and clients continued to rely on us to develop and portfolio acquisitions. Additionally, we saw signed new program sponsors, and by year-end execute highly sophisticated, data-driven significant increases in credit sales across our we had membership in the program at 6 million— multi-channel marketing programs. Deep insight core portfolio of brands. significantly more than anticipated. and understanding of our clients’ customers And at the corporate level, our war chest and knowing the right channel through which Epsilon posted enviable results, with mid-teens of liquidity increased to $1.8 billion, which to engage them drove powerful results. We growth in both revenues and adjusted EBITDA. included completing two high-yield offerings. Our reputation and history of strong performance Epsilon will be focused on pursuing new clients us, on behalf of our clients, to extract category has served us well in enabling us to amass and expanding business with existing clients. As I and SKU-level purchase data tied to the individual ample funds for compelling M&A opportunities alluded to previously, our operational realignment, customer. This is significant, as it enables us to and/or share repurchases. To date, approximately combined with a powerhouse of capabilities and then create highly targeted communications and $2 billion of our stock has been repurchased services, enables Epsilon to provide the “total promotional campaigns that drive incremental since 2008. offering” to the top global brands. The business sales for our clients. is equipped on all levels to deliver the full suite WHAT’S ON TAP FOR 2013? of data-driven marketing solutions across the IN CLOSING traditional set of services (data, database, I am confident in our future and believe we will We remain confident that our leadership and our analytics, distribution) as well as the newer, more continue to deliver strong growth, with superior associates are up for both a strong 2013 as well technologically sophisticated digital services as continuing to build momentum for the future. organic growth. Specifically: (digital agency products, creative offerings, strategy). I want to thank our 11,000 outstanding associates For LoyaltyOne, the focus is on AIR MILES As Private Label rounded out 2012 with record for their dedication and hard work. It’s how they do reward miles issuance. Partnering with our performance, in 2013, the continued focus will their jobs every day that has given Alliance Data sponsors to offer compelling marketing campaigns be on signing new clients. Our goal is to sign its solid reputation and market-leading position of that drive collector spend (i.e., issuance) is the new clients sufficient to provide $1 billion in delivering on our promises to our clients, our name of the game. Further, we expect to renew portfolio growth when fully ramped up. That’s a stockholders, and our communities. We value the some key anchor sponsors, sign new sponsors, big number for us, but we did it in 2012, and the trust and confidence that our clients and stockholders have in us, and we’ve never felt more and continue to promote the AIR MILES Cash pipeline remains robust. Where’s all this demand optimistic about our Company’s bright future. program. Finally, we plan to accelerate our market coming from? Simply stated, we believe that That should do it for 2012—time to get back to expansion in Brazil with dotz, expecting to grow we are witnessing a long-term, positive secular work on 2013 and beyond. to 10 million members by the end of 2013. This trend toward private label. Why? Because of the country continues to be promising as it has all high value our millions of cardholders get from the critical components of an optimum market for our card programs, which are fueled by customer our coalition model: a strong and growing middle data and how we leverage that data. Private label class, a stable economic and social environment, provides a closed loop network that is linked to the Edward J. Heffernan and a consumer-friendly culture. merchant’s POS/merchandising systems, allowing President and Chief Executive Officer ALLIANCE DATA SYSTEMS CORPORATION 7500 Dallas Parkway, Suite 700 Plano, Texas 75024 (214) 494-3000 NOTICE OF 2013 ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON JUNE 6, 2013 To the stockholders of Alliance Data Systems Corporation: We will hold the 2013 annual meeting of our stockholders at our corporate headquarters, 7500 Dallas Parkway, Suite 700, Plano, Texas 75024, on Thursday, June 6, 2013 at 10:00 a.m. (local time), for the following purposes: (1) to re-elect three class I directors; (2) to hold an advisory vote on executive compensation; Proxy (3) to amend the company’s certificate of incorporation to declassify the board of directors; (4) to amend the company’s certificate of incorporation to provide stockholders certain rights to call a special meeting; (5) to ratify the selection of Deloitte & Touche LLP as the independent registered public accounting firm of the company for 2013; and (6) to transact such other business as may properly come before the annual meeting or any adjournments or postponements thereof. Stockholders of record as of April 8, 2013 are the only stockholders entitled to vote at the meeting and any adjournments or postponements thereof. You are cordially invited to attend the meeting, but whether or not you expect to attend in person, we urge you to grant your proxy to vote your shares by telephone or through the Internet by following the instructions included on the Notice of Internet Availability of Proxy Materials that you received, or if you received a paper copy of the proxy card, to mark, date, sign and return the proxy card in the envelope provided.

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