Alliance Data 10-K/P

2013 Annual Report LETTER TO STOCKHOLDERS PROXY STATEMENT 10-K Adjusted EBITDA 15% INCREASE $1.4 B Revenue 19% INCREASE $4.32 B Core Earnings 20% INCREASE $669 M Employees 12% INCREASE12,000 DEAR STOCKHOLDERS: business sprinkling on its unique secret sauce. That data enables us to develop sophisticated 2013 was another record year for Alliance micro-targeted marketing campaigns across Data. We had good visibility going into the year, all sales channels and through any means of and all three businesses executed well. We delivery, be it traditional or digital. We have experienced strong organic and total revenue proven that our data-driven marketing drives growth, exceeding $1 billion in quarterly revenue consumer spending and engenders loyalty. for the first time. Revenue increased 19% to $4.32 billion, supported by 9% organic growth, A LOOK AT EACH BUSINESS and net income was up by 18% to 496 million. Adjusted EBITDA increased by 15% to $1.4 LoyaltyOne®, which operates the AIR MILES billion, while core earnings were up by 20% to Reward Program in Canada, had a strong year $669 million1. for new sponsor wins, and AIR MILES reward miles issued were up 4% for the year. We The year marked a continuation of the shift in signed large deals with Staples, Old Navy, spending from general brand building to very General Motors, Eastlink (our entry into the precise data-driven targeted marketing. This telecom vertical), and Irving Oil. LoyaltyOne also shift requires expertise in data and analytics, as renewed long-term deals with top sponsors well as in the management of loyalty platforms, Bank of Montreal and American Express. On direct mail, and digital channels that reach the the international front, our joint-venture program target consumer. Alliance Data is well positioned in Brazil, dotz, is growing quickly, ending the as a “one-stop shopping” solution for brands, year with approximately 11 million members all wrapped inside a 12,000-person, high-touch and operating in nine markets, up from 6 million services organization. I’d like to thank you for members and five markets one year ago. During your confidence and support. Now, let’s dive in the fourth quarter, we announced that we to the details for the year. would be taking a 60% stake in Netherlands- based BrandLoyalty, one of the largest and HOW DID WE DO IT? most successful data-driven loyalty marketers Looking back, there were three drivers to our outside the United States. BrandLoyalty, similar success: to Alliance Data, is a solid growth company, driving exceptional organic revenue growth and • Organic growth was key. This year we saw providing a springboard for our international organic revenue growth of 9%, about four expansion in Europe and Asia. times the growth rate of real GDP. Epsilon® had a very good year, with revenue • We had three strong engines contributing. increasing 39%, which included organic revenue Our three businesses executed well, delivering growth of 12%. Epsilon’s book of business is a bit of over-performance each quarter. Naturally, exceptionally strong, and the pivot we made there are variables that affect each of our to add agencies with the Aspen and HMI businesses, but when you tally up the year, acquisitions is paying off. With digital agency growth was balanced across all of our businesses, leading our overall offering, we’re seeing pull- giving us nice visibility and predictability. through of some very large commitments on the • Data is still the sweet spot. Consumer technology side, helping to drive organic growth. marketing data continues to be at the core HMI has further expanded Epsilon’s digital of our businesses and offerings, with each capabilities in key channels such as mobile, 1 See Appendix A to our proxy statement for a discussion and reconciliation of non-GAAP financial measures, including adjusted EBITDA, core earnings and core earnings per diluted share. social, targeted display and web development, dotz continues to grow rapidly, with an expectation 500 in December, an undeniable validation of resulting in growth across businesses and cross- of 13 million members by the end of 2014. With our proven business model and solid, consistent sale opportunities. Notable client agreements BrandLoyalty, we expect to see double-digit track record for performance. included a multi-year renewal and expansion growth and perhaps add some upside with the I want to thank the 12,000 associates who with AT&T, and new client Dunkin’ Donuts, cross-selling of LoyaltyOne’s advanced analytics believe in the work we do, and do their best which engaged Epsilon to develop and manage and loyalty consulting services into the existing every day for our clients and our Company. its new loyalty program. BrandLoyalty client base. I’m proud of our performance-driven culture Private Label With Epsilon, we expect to see high-single- and responsible business practices that attract the best talent to our businesses, and I’m also Simply put, we had a boomer of a year in Private digit organic revenue growth as our model proud of the contributions that the Company Label, and our growth strategy is working. continues to benefit from secular trends in the and our associates make to the communities Thanks to a combination of core growth and marketplace. Our 2013 signings and backlog where we work and live. The trust and support new signings, we estimate that our private give us strong visibility. The rollout of our new of our stockholders allows us to continue label credit cards are now active and in the digital platform, Harmony, will fill the known our journey. We had a great ride in 2013, and wallets of approximately one out of every 10 weak spot in our end-to-end offering. I’m looking forward to 2014. employed adults in the United States. We Private Label has a double-digit backlog of new continued to focus on both promoting short- programs to launch. Our clients are focused term growth while laying the groundwork for on seeing the ROI from their marketing spend, long-term success. We’re doing it through the and our full-service, omni-channel approach to expansion of our cardholder base, increasing reaching consumers with relevant, targeted tender share, and onboarding record numbers offers. Our typical cardholders are highly credit- of new card programs. We recorded average worthy, mobile-engaged consumers, so we’ll be card receivables growth of 22%, compared with leveraging innovative digital and mobile offerings relatively flat growth for the industry, and grew during the year. Bottom line: Credit sales look Edward J. Heffernan the portfolio with 15 new client wins – including strong, while funding and credit quality are President and Chief Executive Officer names like Barneys New York and Caesars expected to remain stable. Entertainment. We expect these new wins to add approximately $2 billion in portfolio growth LET’S WRAP IT UP over the next three years. The loyalty concept All in all, 2013 was a great year, with a solid behind the card works, and we’re earning more growth outlook going forward. We expect to tender share and more market share. grow organically in the high single-digit range. At the corporate level, liquidity was $1.3 billion Our model combines nice organic revenue at year-end, more than sufficient to execute growth with modest M&A activity, which has our 2014 capital allocation plans. We continued historically driven strong consistent double-digit to use our share repurchase program to take earnings growth and strong free cash flow. advantage of market opportunities. To date, north Companies are spending north of $400 billion of $2 billion of our stock has been repurchased annually on all forms of marketing, with the since 2008. lion’s share of those dollars going to data-driven targeted marketing via omni-channel distribution. WHAT DO WE SEE IN 2014? We sit in the middle of all this, and our model At LoyaltyOne, we expect growth in the AIR has never looked more promising and exciting. MILES Reward Program to be largely mitigated Closing out the year on another positive note, by a steep drop in the Canadian dollar. In Brazil, we were notified of our inclusion in the S&P ALLIANCE DATA SYSTEMS CORPORATION 7500 Dallas Parkway, Suite 700 Plano, Texas 75024 (214) 494-3000 NOTICE OF 2014 ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON JUNE 5, 2014 To the stockholders of Alliance Data Systems Corporation: We will hold the 2014 annual meeting of our stockholders at our corporate headquarters, 7500 Dallas Parkway, Suite 700, Plano, Texas 75024, on Thursday, June 5, 2014 at 10:00 a.m. (local time), for the following purposes: (1) to re-elect six directors; (2) to hold an advisory vote on executive compensation; Proxy (3) to ratify the selection of Deloitte & Touche LLP as the independent registered public accounting firm of the company for 2014; and (4) 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 7, 2014 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. You may still vote in person if you attend the meeting, even if you have given your proxy.

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