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Alliance Data Reports Record Full-Year 2010 Results

DALLAS Feb. 1, 2011 December 31, 2010

http://photos.prnewswire.com/prnh/20051024/ADSLOGO

SUMMARY

Quarter Ended December 31,

Year Ended December 31,

(in millions, except per share amounts)

Pro Forma

Pro Forma

2010

2009

2009 (a)

2010

2009

2009 (a)

Revenue

$  756

$     546

$   694

$  2,791

$  1,964

$   2,513

Income from continuing operations

49

60

196

177

Net income

47

41

194

144

Income from continuing operations per diluted share

$     0.88

$    1.07

$     3.51

$    3.06

Net income per diluted share

$     0.84

$    0.73

$     3.48

$    2.49

Diluted shares outstanding

55.4

56.1

55.7

57.7

Supplemental Non- GAAP Metrics: (b)

 Adjusted EBITDA

$      193

$     176

$      216

$      823

$     590

$      734

 Core earnings per diluted share

$     1.56

$    1.67

$     5.86

$    5.16

 Conformed revenues (c)

$      613

$     546

$  2,249

$  1,964

 Conformed adjusted EBITDA(c)

$      167

$     176

$     668

$     590

(a) Refer to our Form 8-K filed March 31, 2010 for the calculation of pro forma 2009 amounts. All comparisons herein are to pro forma 2009 where applicable.

(b) See "Financial Measures" below for a discussion of adjusted EBITDA, core earnings per diluted share and other non-GAAP financial measures.

(c) 2010 conformed to 2009 presentation, which netted securitization funding costs and loan loss provision against revenue and funding costs against adjusted EBITDA. Hereafter referred to as "old accounting presentation."

FOURTH-QUARTER

$756 million $193 million $28 million

$0.84 $0.88 $1.56 $1.40 $0.46

Diluted shares outstanding were 55.4 million for the fourth quarter of 2010, down 0.7 million shares compared to the prior year quarter. The Company’s repurchase of approximately 1.15 million outstanding shares during the fourth quarter of 2010 (diluted share benefit of 0.6 million) was partially offset by an increase in shares attributable to the assumed conversion of its convertible senior notes, which varies based on the Company’s average per share price.

FULL YEAR

$2.791 billion $823 million $17 million

$3.48 $3.51 $5.86 $5.70 $0.52

Average diluted shares outstanding were 55.7 million for 2010, down 2.0 million shares from 2009. The Company’s repurchase of approximately 2.5 million outstanding shares during 2010 and the full-year benefit of shares purchased during 2009 was offset by a 1.2 million share increase for the assumed conversion of convertible senior notes, which varies based on the Company’s average per share price.

Ed Heffernan

Brazil

"Epsilon continues to financially outperform and has become the clear market leader, generating double-digit organic growth in revenue and adjusted EBITDA. A strategic acquisition of Equifax’s DMS division in mid-2010 greatly enhances our data offering and increased growth in revenue and adjusted EBITDA to over 20 percent for the fourth quarter of 2010. Epsilon enters 2011 with a robust backlog supporting double-digit organic growth coupled with a strong pipeline for non-organic growth. Additionally, we are excited about recent news of Epsilon receiving top industry accolades. A research report issued by Forrester ("The Forrester Wave™: U.S. Database Marketing Service Providers, Q1 2011") named Epsilon as a ‘leader,’ receiving the highest score for its current offering as a marketing services provider, and the top ranking in the Database Management category.

$0.30

"Overall, the Company is well positioned for a strong 2011."

SEGMENT REVIEW

LoyaltyOne: $224 million $46 million $9 million $2 million

CDN$224 million CDN$2 million CDN$11 million CDN$6 million CDN$174 million CDN$8 million

December 2010 December 2009 Canada

Brazil Belo Horizonte

Epsilon: $180 million $50 million

July 1, 2010 $14 million

$133 million

Major signings continued with a new agreement with Barclaycard US for Epsilon to provide permission-based email marketing services in support of new account acquisition and customer retention efforts.

Overall, the outlook for Epsilon’s business remains strong as the major offerings continue to demonstrate positive momentum. Specifically, the database/digital business continues to reap the benefits of strong new client wins, producing a solid implementation stream throughout 2010. In addition, Abacus’ double-digit revenue growth demonstrates a return to stability in retail and catalog marketing budgets. This trend suggests a positive economic outlook from these key verticals, reinforcing the value of data-driven, ROI-based marketing strategies in the overall marketing mix. Finally, the DMS acquisition, which has been fully integrated, augments the Company’s data offerings, enhancing cross-product revenue opportunities.

Private Label Services and Credit: $354 million $113 million $28 million

$12 million $20 million $8 million

December 31, 2010 $5.3 billion December 31, 2009

$116 million $112 million $10 million $518 million December 31, 2010 $128 million $4 million $3 million

$33 million

December 31, 2010 December 31, 2009

August 22, 2010

Farmington Hills, Mich.

Corporate Liquidity

$500 million $50 million $450 million December 31, 2010

Stock Repurchase Program

$149 million $1.7 billion

$400 million December 31, 2010 $328 million

2011 Outlook

First Quarter 2011: $1.65

Full Year: $3 billion $4.66 $6.75

Financial Measures

In addition to the results presented in accordance with generally accepted accounting principles, or GAAP, the Company presents financial measures that are non-GAAP measures, such as constant currency financial measures, adjusted EBITDA, adjusted EBITDA margin, core earnings and core earnings per diluted share (core EPS). The Company believes that these non-GAAP financial measures, viewed in addition to and not in lieu of the Company’s reported GAAP results, provide useful information to investors regarding the Company’s performance and overall results of operations. These metrics are an integral part of the Company’s internal reporting to measure the performance of reportable segments and the overall effectiveness of senior management. Reconciliations to comparable GAAP financial measures are available in the accompanying schedules and on the Company’s website. The financial measures presented are consistent with the Company’s historical financial reporting practices. Core earnings and core earnings per diluted share represent performance measures and are not intended to represent liquidity measures. The non-GAAP financial measures presented herein may not be comparable to similarly titled measures presented by other companies, and are not identical to corresponding measures used in other various agreements or public filings.

Infrequently Occurring Items and Discontinued Operations

$7 million $0.09 $21 million $0.37

$11 million $0.14 $0.20

$19 million $2 million

Conference Call

Tuesday, Feb. 1, 2011 5:00 p.m. (Eastern Time) www.AllianceData.com

11:59 P.M. (Eastern Time) Feb. 8, 2011

About Alliance Data

North America Dallas

Canada www.AllianceData.com www.Twitter.com/AllianceData

Alliance Data’s Safe Harbor Statement/Forward Looking Statements

This release may 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. Such statements may use words such as "anticipate," "believe," "estimate," "expect," "intend," "predict," "project" and similar expressions as they relate to us or our management. When we make forward-looking statements, we are basing them on our management’s beliefs and assumptions, using information currently available to us. Although we believe that the expectations reflected in the forward-looking statements are reasonable, these forward-looking statements are subject to risks, uncertainties and assumptions, including the anticipated effects of the CARD Act and those discussed in our filings with the Securities and Exchange Commission.

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. Any forward-looking statements contained in this presentation reflect our current views with respect to future events and are subject to these and other risks, uncertainties and assumptions relating to our operations, results of operations, growth strategy and liquidity. We have no intention, and disclaim any obligation, to update or revise any forward-looking statements, whether as a result of new information, future results or otherwise.

"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: Statements in this presentation regarding Alliance Data Systems Corporation’s business which are not historical facts are "forward-looking statements" that involve risks and uncertainties. For a discussion of such risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see "Risk Factors" in the Company’s Annual Report on Form 10-K for the most recently ended fiscal year. Risk factors may be updated in Item 1A in each of the Company’s Quarterly Reports on Form 10-Q for each quarterly period subsequent to the Company’s most recent Form 10-K.

ALLIANCE DATA SYSTEMS CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF INCOME

(In millions, except per share amounts)

(Unaudited)

Three Months Ended

December 31,

Year Ended

December 31,

2010

2009

2010

2009

Revenue

$

755.7

$

545.9

$

2,791.4

$

1,964.3

Operating expenses:

      Cost of operations

462.8

380.1

1,631.2

1,431.3

      Provision for loan losses

115.6

387.8

      Depreciation and amortization

36.7

33.8

143.2

125.3

Total operating expenses

615.1

413.9

2,162.2

1,556.6

Operating income

140.6

132.0

629.2

407.7

Interest expense, net:

      Securitization funding costs

26.8

155.1

      Interest expense on certificates of deposit

5.9

8.5

29.4

28.3

      Interest expense on long-term and other debt, net

34.9

32.3

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