UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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(Mark One) |
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☑ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the quarterly period ended June 30, 2018 |
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OR |
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☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period from to |
Commission File Number: 001-15749
ALLIANCE DATA SYSTEMS CORPORATION
(Exact name of registrant as specified in its charter)
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Delaware |
31-1429215 |
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(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
7500 Dallas Parkway, Suite 700
Plano, Texas 75024
(Address of principal executive office, including zip code)
(214) 494-3000
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports required 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 Regulations 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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer ☑ |
Accelerated filer ☐ |
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Non-accelerated filer ☐ |
Emerging growth company ☐ |
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Smaller reporting company ☐ |
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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 is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☑
As of July 25, 2018, 54,943,591 shares of common stock were outstanding.
ALLIANCE DATA SYSTEMS CORPORATION
INDEX
2
ALLIANCE DATA SYSTEMS CORPORATION
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
|
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June 30, |
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December 31, |
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2018 |
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2017 |
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(In millions, except per share amounts) |
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ASSETS |
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|
|
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Cash and cash equivalents |
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$ |
3,449.2 |
|
$ |
4,190.0 |
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Accounts receivable, net, less allowance for doubtful accounts ($5.7 and $6.7 at June 30, 2018 and December 31, 2017 respectively) |
|
|
691.6 |
|
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822.3 |
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Credit card and loan receivables: |
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|
|
|
|
|
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Credit card receivables – restricted for securitization investors |
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|
13,524.9 |
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14,293.9 |
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Other credit card and loan receivables |
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4,460.0 |
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4,319.9 |
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Total credit card and loan receivables |
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17,984.9 |
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18,613.8 |
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Allowance for loan loss |
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(1,189.0) |
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(1,119.3) |
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Credit card and loan receivables, net |
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16,795.9 |
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17,494.5 |
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Credit card and loan receivables held for sale |
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984.2 |
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1,026.3 |
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Inventories, net |
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233.2 |
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234.1 |
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Other current assets |
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352.6 |
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348.9 |
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Redemption settlement assets, restricted |
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574.8 |
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589.5 |
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Total current assets |
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23,081.5 |
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24,705.6 |
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Property and equipment, net |
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620.9 |
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613.9 |
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Deferred tax asset, net |
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82.6 |
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28.1 |
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Intangible assets, net |
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667.8 |
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800.6 |
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Goodwill |
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3,857.8 |
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3,880.1 |
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Other non-current assets |
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640.3 |
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656.5 |
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Total assets |
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$ |
28,950.9 |
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$ |
30,684.8 |
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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Accounts payable |
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$ |
532.0 |
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$ |
651.2 |
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Accrued expenses |
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395.4 |
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442.8 |
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Current portion of deposits |
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6,160.3 |
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6,366.2 |
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Current portion of non-recourse borrowings of consolidated securitization entities |
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2,477.3 |
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1,339.9 |
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Current portion of long-term and other debt |
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123.0 |
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131.3 |
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Other current liabilities |
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291.8 |
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368.7 |
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Deferred revenue |
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788.9 |
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846.6 |
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Total current liabilities |
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10,768.7 |
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10,146.7 |
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Deferred revenue |
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112.0 |
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120.3 |
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Deferred tax liability, net |
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189.1 |
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211.2 |
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Deposits |
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4,399.0 |
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4,564.7 |
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Non-recourse borrowings of consolidated securitization entities |
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5,295.9 |
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7,467.4 |
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Long-term and other debt |
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5,667.5 |
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5,948.3 |
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Other liabilities |
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399.4 |
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370.9 |
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Total liabilities |
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26,831.6 |
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28,829.5 |
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Commitments and contingencies |
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Stockholders’ equity: |
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Common stock, $0.01 par value; authorized, 200.0 shares; issued, 112.9 shares and 112.8 shares at June 30, 2018 and December 31, 2017, respectively |
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1.1 |
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1.1 |
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Additional paid-in capital |
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3,132.7 |
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3,099.8 |
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Treasury stock, at cost, 57.9 shares and 57.4 shares at June 30, 2018 and December 31, 2017, respectively |
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(5,371.7) |
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(5,272.5) |
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Retained earnings |
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4,493.6 |
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4,167.1 |
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Accumulated other comprehensive loss |
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(136.4) |
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(140.2) |
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Total stockholders’ equity |
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2,119.3 |
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1,855.3 |
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Total liabilities and stockholders' equity |
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$ |
28,950.9 |
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$ |
30,684.8 |
See accompanying notes to unaudited condensed consolidated financial statements.
3
ALLIANCE DATA SYSTEMS CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
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Three Months Ended |
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Six Months Ended |
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June 30, |
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June 30, |
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2018 |
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2017 |
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2018 |
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2017 |
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(In millions, except per share amounts) |
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Revenues |
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Services |
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$ |
609.5 |
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$ |
626.5 |
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$ |
1,204.6 |
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$ |
1,238.1 |
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Redemption, net |
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147.5 |
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184.5 |
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279.4 |
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435.3 |
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Finance charges, net |
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1,146.9 |
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1,010.8 |
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2,304.1 |
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2,027.4 |
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Total revenue |
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1,903.9 |
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1,821.8 |
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3,788.1 |
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3,700.8 |
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Operating expenses |
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Cost of operations (exclusive of depreciation and amortization disclosed separately below) |
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1,001.6 |
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1,014.4 |
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2,015.5 |
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2,056.5 |
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Provision for loan loss |
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311.9 |
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288.1 |
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649.6 |
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603.2 |
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General and administrative |
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48.1 |
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42.4 |
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81.2 |
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87.0 |
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Depreciation and other amortization |
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48.6 |
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45.2 |
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96.3 |
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89.9 |
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Amortization of purchased intangibles |
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73.4 |
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80.3 |
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147.4 |
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160.4 |
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Total operating expenses |
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1,483.6 |
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1,470.4 |
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2,990.0 |
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2,997.0 |
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Operating income |
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420.3 |
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351.4 |
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|
798.1 |
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|
703.8 |
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Interest expense |
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Securitization funding costs |
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55.2 |
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36.6 |
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107.3 |
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71.8 |
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Interest expense on deposits |
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36.8 |
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28.6 |
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72.3 |
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54.6 |
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Interest expense on long-term and other debt, net |
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|
73.7 |
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72.3 |
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|
145.3 |
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|
136.3 |
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Total interest expense, net |
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165.7 |
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137.5 |
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|
324.9 |
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262.7 |
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Income before income taxes |
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254.6 |
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213.9 |
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473.2 |
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441.1 |
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Provision for income taxes |
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36.8 |
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76.2 |
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|
91.4 |
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|
157.0 |
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Net income |
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$ |
217.8 |
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$ |
137.7 |
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$ |
381.8 |
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$ |
284.1 |
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Net income per share: |
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Basic (Note 3) |
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$ |
3.94 |
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$ |
2.48 |
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$ |
6.90 |
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$ |
5.07 |
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Diluted (Note 3) |
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$ |
3.93 |
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$ |
2.47 |
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$ |
6.87 |
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$ |
5.05 |
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Weighted average shares: |
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|
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Basic (Note 3) |
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|
55.2 |
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55.6 |
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55.3 |
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|
56.0 |
|
Diluted (Note 3) |
|
|
55.4 |
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55.8 |
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|
55.5 |
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|
56.3 |
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|
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|
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Dividends declared per share: |
|
$ |
0.57 |
|
$ |
0.52 |
|
$ |
1.14 |
|
$ |
1.04 |
See accompanying notes to unaudited condensed consolidated financial statements.
4
ALLIANCE DATA SYSTEMS CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
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Three Months Ended |
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Six Months Ended |
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June 30, |
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June 30, |
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2018 |
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2017 |
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2018 |
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2017 |
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(In millions) |
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Net income |
|
$ |
217.8 |
|
$ |
137.7 |
|
$ |
381.8 |
|
$ |
284.1 |
|
|
|
|
|
|
|
|
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|
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|
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|
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Other comprehensive income: |
|
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|
|
|
|
|
|
|
|
|
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Unrealized loss on securities available-for-sale |
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|
(2.3) |
|
|
(2.7) |
|
|
(5.3) |
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|
(2.0) |
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Tax benefit (expense) |
|
|
0.3 |
|
|
(0.1) |
|
|
1.3 |
|
|
(0.1) |
|
Unrealized loss on securities available-for-sale, net of tax |
|
|
(2.0) |
|
|
(2.8) |
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|
(4.0) |
|
|
(2.1) |
|
|
|
|
|
|
|
|
|
|
|
|
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Unrealized gain (loss) on cash flow hedges |
|
|
1.8 |
|
|
(0.8) |
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1.7 |
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|
(1.2) |
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Tax benefit (expense) |
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(0.4) |
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0.2 |
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|
(0.4) |
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|
0.3 |
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Unrealized gain (loss) on cash flow hedges, net of tax |
|
|
1.4 |
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(0.6) |
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1.3 |
|
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(0.9) |
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|
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|
|
|
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|
|
|
|
|
|
|
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Unrealized gain (loss) on net investment hedges |
|
|
40.8 |
|
|
(38.6) |
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|
25.4 |
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|
(43.7) |
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Tax benefit (expense) |
|
|
(9.8) |
|
|
14.8 |
|
|
(6.1) |
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|
16.3 |
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Unrealized gain (loss) on net investment hedges, net of tax |
|
|
31.0 |
|
|
(23.8) |
|
|
19.3 |
|
|
(27.4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Foreign currency translation adjustments |
|
|
(30.3) |
|
|
34.5 |
|
|
(12.8) |
|
|
39.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income, net of tax |
|
|
0.1 |
|
|
7.3 |
|
|
3.8 |
|
|
9.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income, net of tax |
|
$ |
217.9 |
|
$ |
145.0 |
|
$ |
385.6 |
|
$ |
293.2 |
See accompanying notes to unaudited condensed consolidated financial statements.
5
ALLIANCE DATA SYSTEMS CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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Six Months Ended |
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June 30, |
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2018 |
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2017 |
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(In millions) |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
Net income |
|
$ |
381.8 |
|
$ |
284.1 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
243.7 |
|
|
250.3 |
|
Deferred income taxes |
|
|
(82.0) |
|
|
(61.0) |
|
Provision for loan loss |
|
|
649.6 |
|
|
603.2 |
|
Non-cash stock compensation |
|
|
46.3 |
|
|
45.2 |
|
Amortization of deferred financing costs |
|
|
25.5 |
|
|
21.2 |
|
Change in deferred revenue |
|
|
(26.0) |
|
|
(28.4) |
|
Change in other operating assets and liabilities |
|
|
(61.1) |
|
|
(162.7) |
|
Originations of credit card and loan receivables held for sale |
|
|
(4,743.4) |
|
|
(3,923.1) |
|
Sales of credit card and loan receivables held for sale |
|
|
4,791.9 |
|
|
3,920.7 |
|
Other |
|
|
95.5 |
|
|
73.1 |
|
Net cash provided by operating activities |
|
|
1,321.8 |
|
|
1,022.6 |
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
Change in redemption settlement assets |
|
|
(39.7) |
|
|
(181.7) |
|
Change in credit card and loan receivables |
|
|
(121.2) |
|
|
(286.4) |
|
Proceeds from sale of credit card portfolio |
|
|
55.6 |
|
|
— |
|
Capital expenditures |
|
|
(98.5) |
|
|
(116.8) |
|
Purchases of other investments |
|
|
(50.1) |
|
|
(4.9) |
|
Maturities/sales of other investments |
|
|
10.6 |
|
|
33.0 |
|
Other |
|
|
7.1 |
|
|
(4.2) |
|
Net cash used in investing activities |
|
|
(236.2) |
|
|
(561.0) |
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
Borrowings under debt agreements |
|
|
2,399.1 |
|
|
5,856.9 |
|
Repayments of borrowings |
|
|
(2,678.5) |
|
|
(5,103.8) |
|
Non-recourse borrowings of consolidated securitization entities |
|
|
1,475.0 |
|
|
1,465.0 |
|
Repayments/maturities of non-recourse borrowings of consolidated securitization entities |
|
|
(2,510.0) |
|
|
(1,860.0) |
|
Net (decrease) increase in deposits |
|
|
(373.2) |
|
|
332.1 |
|
Payment of deferred financing costs |
|
|
(7.8) |
|
|
(44.1) |
|
Dividends paid |
|
|
(63.3) |
|
|
(58.0) |
|
Purchase of treasury shares |
|
|
(94.5) |
|
|
(499.9) |
|
Other |
|
|
(15.8) |
|
|
(15.1) |
|
Net cash (used in) provided by financing activities |
|
|
(1,869.0) |
|
|
73.1 |
|
Effect of exchange rate changes on cash, cash equivalents and restricted cash |
|
|
(4.1) |
|
|
3.8 |
|
Change in cash, cash equivalents and restricted cash |
|
|
(787.5) |
|
|
538.5 |
|
Cash, cash equivalents and restricted cash at beginning of period |
|
|
4,314.7 |
|
|
1,968.5 |
|
Cash, cash equivalents and restricted cash at end of period |
|
$ |
3,527.2 |
|
$ |
2,507.0 |
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW INFORMATION: |
|
|
|
|
|
|
|
Interest paid |
|
$ |
347.5 |
|
$ |
251.1 |
|
Income taxes paid, net |
|
$ |
120.6 |
|
$ |
181.9 |
See accompanying notes to unaudited condensed consolidated financial statements.
6
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, 2017, filed with the SEC on February 27, 2018.
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.
For purposes of comparability, certain prior period amounts have been reclassified to conform to the current year presentation in accordance with GAAP. Specifically, certain statement of cash flow reclassifications were made for the adoption of Accounting Standards Update (“ASU”) 2016-18, “Restricted Cash.” 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:
|
|
|
June 30, |
|
June 30, |
||
|
|
|
2018 |
|
2017 |
||
|
|
|
(In millions) |
||||
|
Cash and cash equivalents |
|
$ |
3,449.2 |
|
$ |
1,945.9 |
|
Restricted cash included within other current assets (1) |
|
|
33.8 |
|
|
473.9 |
|
Restricted cash included within redemption settlement assets, restricted (2) |
|
|
44.2 |
|
|
87.2 |
|
Total cash, cash equivalents and restricted cash |
|
$ |
3,527.2 |
|
$ |
2,507.0 |
|
(1) |
Includes $433.8 million in principal accumulation at June 30, 2017 for the repayment of non-recourse borrowings of consolidated securitized debt that matured in July 2017. |
|
(2) |
See Note 8, “Redemption Settlement Assets,” for additional information regarding nature of restrictions. |
Recently Issued Accounting Standards
In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, “Leases (Topic 842),” that replaces existing lease guidance. The new standard is intended to provide enhanced transparency and comparability by requiring lessees to record right-of-use assets and corresponding lease liabilities on the balance sheet. The new guidance will continue to classify leases as either finance or operating, with classification affecting the pattern of expense recognition in the statements of income. ASU 2016-02 is effective for interim and annual reporting periods beginning after December 15, 2018, with early adoption and various optional practical expedients permitted. In July 2018, the FASB issued ASU 2018-11, “Leases (Topic 842): Targeted Improvements” that provides transition relief by removing certain comparative period requirements and recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption, which is January 1, 2019 for the Company. The new standard may be applied using this additional transition method or a modified retrospective approach. The Company is evaluating the impact that adoption of ASU 2016-02 will have on its consolidated financial statements, but expects an increase in assets and liabilities on its consolidated balance sheets at adoption for the recording of right-of-use assets and corresponding
7
ALLIANCE DATA SYSTEMS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
lease liabilities. The Company continues to assess the impact of adoption of the new standard on its existing policies, processes, systems and controls in conjunction with its review of existing lease agreements.
In June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 requires entities to utilize a financial instrument impairment model to establish an allowance based on expected losses over the life of the exposure rather than a model based on an incurred loss approach. ASU 2016-13 also expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating the allowance. In addition, ASU 2016-13 modifies the impairment model for available-for-sale debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination. ASU 2016-13 is effective for interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted beginning after December 15, 2018. The Company is evaluating the impact that adoption of ASU 2016-13 will have on its consolidated financial statements.
In August 2017, the FASB issued ASU 2017-12, “Targeted Improvements to Accounting for Hedging Activities.” ASU 2017-12 expands and refines the hedge accounting model for both financial and non-financial risk components, aligns the recognition and presentation of the effects of hedging instruments and hedged items in the financial statements, and makes certain targeted improvements to simplify the application of hedge accounting guidance related to the assessment of hedge effectiveness. ASU 2017-12 is effective for interim and annual reporting periods beginning after December 15, 2018, with early adoption permitted. The Company is evaluating the impact that adoption of ASU 2017-12 will have on its consolidated financial statements.
In February 2018, the FASB issued ASU 2018-02, “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” ASU 2018-02 allows for reclassification of stranded tax effects on items resulting from the change in the corporate tax rate as a result of H.R. 1, originally known as the Tax Cuts and Jobs Act of 2017, from accumulated other comprehensive income to retained earnings. Tax effects unrelated to H.R. 1 are permitted to be released from accumulated other comprehensive income using either the specific identification approach or the portfolio approach, based on the nature of the underlying item. ASU 2018-02 is effective for interim and annual reporting periods beginning after December 15, 2018, with early adoption permitted. The Company is evaluating the impact that adoption of ASU 2018-02 will have on its consolidated financial statements.
Recently Adopted Accounting Standards
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers,” Accounting Standards Codification (“ASC”) 606, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. Companies may adopt ASC 606 using a full retrospective or modified retrospective method.
During 2017, the Company completed its evaluation of ASC 606, including the impact on its processes and controls, and differences in the timing and/or method of revenue recognition. As a result, the Company identified changes to and modified certain of its accounting policies and practices. Although there were no significant changes to the Company’s accounting systems or controls upon adoption of ASC 606, the Company modified certain of its existing controls to incorporate the revisions made to its accounting policies and practices.
The Company adopted the standard on January 1, 2018 using the modified retrospective method. The Company’s adoption of this standard did not have a material impact on its consolidated results of operations or cash flows. ASC 606 does not apply to financial instruments and other contractual rights or obligations (for example, interest income and late fees from credit card and loan receivables), and therefore, the Company’s finance charges, net were not affected by the adoption of the standard. Most revenue streams are recorded consistently under both ASC 605, “Revenue Recognition” and the new standard; however, the Company noted the following impacts:
|
· |
Upon the adoption of ASC 606, revenue associated with a database build was changed from recognizing revenue over the expected contract term upon client acceptance to over the build period in which the database is completed, because the Company’s performance does not create an asset with an alternative use and the Company has an enforceable right to payment for performance completed to date. The cumulative effect of the changes made to the consolidated January 1, 2018 balance sheet for the adoption of ASC 606 resulted in an |
8
ALLIANCE DATA SYSTEMS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
increase in unbilled accounts receivable and accrued expenses, a reduction in deferred costs and deferred revenue and a net increase in retained earnings as follows: |
|
|
|
Balance at |
|
Adjustments |
|
Balance at |
|||
|
|
|
December 31, |
|
due to |
|
January 1, |
|||
|
|
|
2017 |
|
ASC 606 |
|
2018 |
|||
|
Consolidated Balance Sheet |
|
|
|
(In millions) |
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net |
|
$ |
822.3 |
|
$ |
22.4 |
|
$ |
844.7 |
|
Other current assets |
|
|
348.9 |
|
|
(16.6) |
|
|
332.3 |
|
Other non-current assets |
|
|
656.5 |
|
|
(20.9) |
|
|
635.6 |
|
Total Assets: |
|
|
1,827.7 |
|
|
(15.1) |
|
|
1,812.6 |
|
|
|
|
|
|
|
|
|
|
|
|
Accrued expenses |
|
|
442.8 |
|
|
3.2 |
|
|
446.0 |
|
Other current liabilities |
|
|
368.7 |
|
|
(14.3) |
|
|
354.4 |
|
Other liabilities |
|
|
370.9 |
|
|
(13.6) |
|
|
357.3 |
|
Total Liabilities: |
|
|
1,182.4 |
|
|
(24.7) |
|
|
1,157.7 |
|
|
|
|
|
|
|
|
|
|
|
|
Retained earnings |
|
|
4,167.1 |
|
|
9.6 |
|
|
4,176.7 |
|
· |
Further, ASC 606 impacted the presentation of revenue within the Company’s coalition loyalty program. Upon the adoption of ASC 606, for the fulfillment of certain rewards where the AIR MILES® Reward Program does not control the goods or services before they are transferred to the collector, revenue is recorded on a net basis. |
|
· |
ASC 606 also requires expanded disclosure regarding the nature, timing, and uncertainty of revenue transactions. See Note 2, “Revenue,” for the Company’s ASC 606 disclosures. |
In January 2016, the FASB issued ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities.” ASU 2016-01 requires that equity investments be measured at fair value with changes in fair value recognized in net income. For equity investments without readily determinable fair values, entities have the option to either measure these investments at fair value or at cost adjusted for changes in observable prices minus impairment. Additionally, ASU 2016-01 requires entities that elect the fair value option for financial liabilities to recognize changes in fair value related to instrument-specific credit risk in other comprehensive income. Finally, entities must assess valuation allowances for deferred tax assets related to available-for-sale debt securities in combination with their other deferred tax assets. ASU 2016-01 is effective for interim and annual reporting periods beginning after December 15, 2017, with early adoption permitted. The Company adopted this standard on January 1, 2018, resulting in a cumulative-effect adjustment of $1.5 million that was reclassified from accumulated other comprehensive loss to retained earnings on the consolidated January 1, 2018 balance sheet.
In August 2016, the FASB issued ASU 2016-15, “Classification of Certain Cash Receipts and Cash Payments.” ASU 2016-15 makes eight targeted changes to how certain cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 is effective for interim and annual reporting periods beginning after December 15, 2017, with early adoption permitted. The Company’s adoption of this standard on January 1, 2018 did not have a material impact on its consolidated statements of cash flows.
In November 2016, the FASB issued ASU 2016-18, “Restricted Cash.” ASU 2016-18 requires entities to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. ASU 2016-18 is effective for interim and annual reporting periods beginning after December 15, 2017, with early adoption permitted. The Company adopted this standard on January 1, 2018. The effect of the adoption of the standard was to include restricted cash and restricted cash equivalents at the beginning-of-period and end-of-period cash and cash equivalents totals.
9
ALLIANCE DATA SYSTEMS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
2. REVENUE
Effective January 1, 2018, the Company adopted ASC 606, “Revenue from Contracts with Customers,” applying the modified retrospective method to those contracts that were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under ASC 606, while prior period amounts have not been adjusted and continue to be reported in accordance with the Company’s historic accounting under ASC 605. ASC 606 does not apply to financial instruments and other contractual rights or obligations.
Under ASC 606, revenue is recognized when control of the promised goods or services is transferred to the customer, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. The Company’s contracts with its customers state the terms of sale, including the description, quantity, and price of the product or service purchased. Payment terms can vary by contract, but the period between invoicing and when payment is due is not significant. Taxes assessed on revenue-producing transactions are excluded from revenues.
The Company’s products and services are reported under three segments—LoyaltyOne, Epsilon and Card Services, and are listed below. The following presents revenue disaggregated by major source, as well as geographic region which is based on the location of the subsidiary that generally correlates with the location of the customer:
|
|
|
|
|
|
|
|
|
|
|
|
Corporate/ |
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2018 |
|
LoyaltyOne |
|
Epsilon |
|
Card Services |
|
Other |
|
Eliminations |
|
Total |
||||||
|
|
|
(In millions) |
||||||||||||||||
|
Disaggregation of Revenue by Major Source: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coalition loyalty program |
|
$ |
92.5 |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
92.5 |
|
Short-term loyalty programs |
|
|
130.3 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
130.3 |
|
Technology services |
|
|
— |
|
|
255.1 |
|
|
— |
|
|
— |
|
|
(5.3) |
|
|
249.8 |
|
Digital Media services |
|
|
— |
|
|
179.3 |
|
|
— |
|
|
— |
|
|
(1.3) |
|
|
178.0 |
|
Agency services |
|
|
— |
|
|
79.8 |
|
|
— |
|
|
— |
|
|
(0.9) |
|
|
78.9 |
|
Servicing fees, net |
|
|
— |
|
|
— |
|
|
1.6 |
|
|
— |
|
|
— |
|
|
1.6 |
|
Other |
|
|
22.9 |
|
|
— |
|
|
— |
|
|
0.2 |
|
|
(0.1) |
|
|
23.0 |
|
Revenue from contracts with customers |
|
$ |
245.7 |
|
$ |
514.2 |
|
$ |
1.6 |
|
$ |
0.2 |
|
$ |
(7.6) |
|
$ |
754.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance charges, net |
|
|
— |
|
|
— |
|
|
1,146.9 |
|
|
— |
|
|
— |
|
|
1,146.9 |
|
Investment income |
|
|
2.9 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
2.9 |
|
Total |
|
$ |
248.6 |
|
$ |
514.2 |
|
$ |
1,148.5 |
|
$ |
0.2 |
|
$ |
(7.6) |
|
$ |
1,903.9 |
|
|
|
|
|
|
|
|
|
|
|
|
Corporate/ |
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2018 |
|
LoyaltyOne |
|
Epsilon |
|
Card Services |
|
Other |
|
Eliminations |
|
Total |
||||||
|
|
|
(In millions) |
||||||||||||||||
|
Disaggregation of Revenue by Major Source: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coalition loyalty program |
|
$ |
182.4 |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
182.4 |
|
Short-term loyalty programs |
|
|
244.4 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
244.4 |
|
Technology services |
|
|
— |
|
|
501.1 |
|
|
— |
|
|
— |
|
|
(11.7) |
|
|
489.4 |
|
Digital Media services |
|
|
— |
|
|
357.5 |
|
|
— |
|
|
— |
|
|
(1.6) |
|
|
355.9 |
|
Agency services |
|
|
— |
|
|
165.0 |
|
|
— |
|
|
— |
|
|
(1.0) |
|
|
164.0 |
|
Servicing fees, net |
|
|
— |
|
|
— |
|
|
(0.4) |
|
|
— |
|
|
— |
|
|
(0.4) |
|
Other |
|
|
42.5 |
|
|
— |
|
|
— |
|
|
0.3 |
|
|
(0.1) |
|
|
42.7 |
|
Revenue from contracts with customers |
|
$ |
469.3 |
|
$ |
1,023.6 |
|
$ |
(0.4) |
|
$ |
0.3 |
|
$ |
(14.4) |
|
$ |
1,478.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance charges, net |
|
|
— |
|
|
— |
|
|
2,304.1 |
|
|
— |
|
|
— |
|
|
2,304.1 |
|
Investment income |
|
|
5.6 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
5.6 |
|
Total |
|
$ |
474.9 |
|
$ |
1,023.6 |
|
$ |
2,303.7 |
|
$ |
0.3 |
|
$ |
(14.4) |
|
$ |
3,788.1 |
10
ALLIANCE DATA SYSTEMS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
|
|
|
|
|
|
|
|
|
|
|
|
Corporate/ |
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2018 |
|
LoyaltyOne |
|
Epsilon |
|
Card Services |
|
Other |
|
Eliminations |
|
Total |
||||||
|
|
|
(In millions) |
||||||||||||||||
|
Disaggregation of Revenue by Geographic Region: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
6.3 |
|
$ |
491.4 |
|
$ |
1,148.5 |
|
$ |
0.2 |
|
$ |
(7.4) |
|
$ |
1,639.0 |
|
Canada |
|
|
105.4 |
|
|
4.5 |
|
|
— |
|
|
— |
|
|
(0.1) |
|
|
109.8 |
|
Europe, Middle East and Africa |
|
|
91.1 |
|
|
16.2 |
|
|
— |
|
|
— |
|
|
(0.1) |
|
|
107.2 |
|
Asia Pacific |
|
|
28.9 |
|
|
2.1 |
|
|
— |
|
|
— |
|
|
— |
|
|
31.0 |
|
Other |
||||||||||||||||||