Alliance Data System Annual Report 2021 Form 10-K (NYSE:ADS) Published: February 26th, 2021 PDF generated by stocklight.com UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2020 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 001-15749 ALLIANCE DATA SYSTEMS CORPORATION (Exact name of registrant as specified in its charter) Graphic Delaware 31-1429215 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3075 Loyalty Circle 43219 Columbus, Ohio (Zip Code) (Address of principal executive offices) (614) 729-4000 (Registrant’s telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of each class Trading symbol Name of each exchange on which registered Common stock, par value $0.01 per share ADS New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None (Title of class) Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.Y es ⌧ No ◻ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes◻ No ⌧ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ⌧ No ◻ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ⌧ No ◻ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ⌧ Accelerated filer ◻ Non-accelerated filer ◻ Smaller reporting company ☐ Emerging growth company ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻ Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ⌧ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes☐ No ⌧ As of June 30, 2020, the aggregate market value of the common stock held by non-affiliates of the registrant was approximately$ 2.1 billion, based upon the closing price of $45.12 per share on the New York Stock Exchange on June 30, 2020, which was the last business day of the registrant’s most recently completed second fiscal quarter. As of February 18, 2021, 49,695,051 shares of common stock were outstanding. Documents Incorporated By Reference Certain information called for by Part III is incorporated by reference to certain sections of the Proxy Statement for the 2021 Annual Meeting of our stockholders, which will be filed with the Securities and Exchange Commission not later than 120 days after December 31, 2020. ALLIANCE DATA SYSTEMS CORPORATION INDEX Form 10- K Report Item No. Page Caution Regarding Forward-Looking Statements 1 PART I 1. Business 2 1A. Risk Factors 12 1B. Unresolved Staff Comments 28 2. Properties 28 3. Legal Proceedings 29 4. Mine Safety Disclosures 29 PART II 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer 30 Purchases of Equity Securities 6. Selected Financial Data 32 7. Management’s Discussion and Analysis of Financial Condition and Results of 35 Operations 7A. Quantitative and Qualitative Disclosures About Market Risk 49 8. Financial Statements and Supplementary Data 50 9. Changes in and Disagreements with Accountants on Accounting and Financial 50 Disclosure 9A. Controls and Procedures 50 9B. Other Information 51 PART III 10. Directors, Executive Officers and Corporate Governance 51 11. Executive Compensation 51 12. Security Ownership of Certain Beneficial Owners and Management and Related 51 Stockholder Matters 13. Certain Relationships and Related Transactions, and Director Independence 51 14. Principal Accounting Fees and Services 51 PART IV 15. Exhibits, Financial Statement Schedules 52 16. Form 10-K Summary 64 Caution Regarding Forward-Looking Statement s This Form 10-K 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 strategic initiatives, 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: ● continuing impacts related to COVID-19, including government economic stimulus, relief measures for impacted borrowers and depositors, labor shortages due to quarantine, 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; ● 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 (“FDIC”), 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 discussed in Item 1A of this Form 10-K, elsewhere in this Form 10-K and in the documents incorporated by reference in this Form 10-K. 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-K 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. 1 PART I Item 1. Business. We are a leading provider of data-driven marketing, loyalty and payment solutions serving large, consumer-based industries.