(Mark One)
|
|
R
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the quarterly period ended June 30, 2015 | |
OR
|
|
£
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to |
Delaware
|
31-1429215
|
(State or other jurisdiction of incorporation or organization)
|
(I.R.S. Employer Identification No.)
|
Large accelerated filer R
|
Accelerated filer £
|
|
Non-accelerated filer £ (Do not check if a smaller reporting company)
|
Smaller reporting company £
|
Page
Number
|
|||
Part I: FINANCIAL INFORMATION
|
|||
Item 1.
|
Financial Statements (unaudited)
|
||
3
|
|||
4
|
|||
5
|
|||
6
|
|||
7
|
|||
Item 2.
|
34
|
||
Item 3.
|
46
|
||
Item 4.
|
46
|
||
Part II: OTHER INFORMATION
|
|||
Item 1.
|
47
|
||
Item 1A.
|
47
|
||
Item 2.
|
47
|
||
Item 3.
|
47
|
||
Item 4.
|
47
|
||
Item 5.
|
47
|
||
Item 6.
|
48
|
||
50
|
Item 1.
|
Financial Statements.
|
June 30,
2015
|
December 31,
2014
|
|||||||
(In thousands, except per share amounts)
|
||||||||
ASSETS
|
||||||||
Cash and cash equivalents
|
$
|
822,314
|
$
|
1,077,152
|
||||
Trade receivables, less allowance for doubtful accounts ($4,158 and $3,811 at June 30, 2015 and December 31, 2014, respectively)
|
563,533
|
743,294
|
||||||
Credit card and loan receivables:
|
||||||||
Credit card receivables – restricted for securitization investors
|
8,315,489
|
8,312,291
|
||||||
Other credit card and loan receivables
|
2,971,108
|
2,931,589
|
||||||
Total credit card and loan receivables
|
11,286,597
|
11,243,880
|
||||||
Allowance for loan loss
|
(623,316
|
)
|
(570,171
|
)
|
||||
Credit card and loan receivables, net
|
10,663,281
|
10,673,709
|
||||||
Credit card and loan receivables held for sale
|
113,314
|
125,060
|
||||||
Deferred tax asset, net
|
225,535
|
218,872
|
||||||
Other current assets
|
477,152
|
456,349
|
||||||
Redemption settlement assets, restricted
|
491,979
|
520,340
|
||||||
Total current assets
|
13,357,108
|
13,814,776
|
||||||
Property and equipment, net
|
548,255
|
559,628
|
||||||
Deferred tax asset, net
|
162
|
164
|
||||||
Cash collateral, restricted
|
6,341
|
22,511
|
||||||
Intangible assets, net
|
1,338,956
|
1,515,994
|
||||||
Goodwill
|
3,811,689
|
3,865,484
|
||||||
Other non-current assets
|
484,931
|
485,420
|
||||||
Total assets
|
$
|
19,547,442
|
$
|
20,263,977
|
||||
LIABILITIES AND EQUITY
|
||||||||
Accounts payable
|
$
|
387,078
|
$
|
455,656
|
||||
Accrued expenses
|
289,623
|
457,472
|
||||||
Contingent consideration
|
—
|
326,023
|
||||||
Deposits
|
2,542,668
|
2,645,995
|
||||||
Non-recourse borrowings of consolidated securitization entities
|
1,650,000
|
1,058,750
|
||||||
Current debt
|
200,635
|
208,164
|
||||||
Other current liabilities
|
248,104
|
306,123
|
||||||
Deferred revenue
|
755,552
|
846,370
|
||||||
Deferred tax liability, net
|
91
|
930
|
||||||
Total current liabilities
|
6,073,751
|
6,305,483
|
||||||
Deferred revenue
|
160,035
|
166,807
|
||||||
Deferred tax liability, net
|
647,571
|
690,175
|
||||||
Deposits
|
2,035,660
|
2,127,546
|
||||||
Non-recourse borrowings of consolidated securitization entities
|
3,573,166
|
4,133,166
|
||||||
Long-term and other debt
|
4,649,259
|
4,001,082
|
||||||
Other liabilities
|
215,192
|
207,772
|
||||||
Total liabilities
|
17,354,634
|
17,632,031
|
||||||
Commitments and contingencies (Note 12)
|
||||||||
Redeemable non-controlling interest
|
233,655
|
235,566
|
||||||
Stockholders' equity:
|
||||||||
Common stock, $0.01 par value; authorized, 200,000 shares; issued, 112,050 shares and 111,686 shares at June 30, 2015 and December 31, 2014, respectively
|
1,120
|
1,117
|
||||||
Additional paid-in capital
|
2,937,187
|
2,905,563
|
||||||
Treasury stock, at cost, 50,328 shares and 47,874 shares at June 30, 2015 and December 31, 2014, respectively
|
(3,674,458
|
)
|
(2,975,795
|
)
|
||||
Retained earnings
|
2,819,650
|
2,540,948
|
||||||
Accumulated other comprehensive loss
|
(124,346
|
)
|
(75,453
|
)
|
||||
Total stockholders' equity
|
1,959,153
|
2,396,380
|
||||||
Total liabilities and equity
|
$
|
19,547,442
|
$
|
20,263,977
|
|
|
Three Months Ended
June 30,
|
Six Months Ended
June 30,
|
||||||||||||
2015
|
2014
|
2015
|
2014
|
||||||||||||
(In thousands, except per share amounts)
|
|||||||||||||||
Revenues
|
|
|
|||||||||||||
Transaction
|
|
$ |
86,784
|
$
|
80,248
|
$ |
180,069
|
|
$
|
164,228
|
|||||
Redemption
|
|
218,125
|
268,504
|
|
526,270
|
|
512,194
|
||||||||
Finance charges, net
|
|
683,980
|
538,186
|
|
1,363,442
|
|
1,074,447
|
||||||||
Marketing services
|
|
465,369
|
339,819
|
|
936,565
|
|
668,288
|
||||||||
Other revenue
|
|
46,360
|
38,401
|
|
95,429
|
|
78,901
|
||||||||
Total revenue
|
|
1,500,618
|
1,265,158
|
|
3,101,775
|
|
2,498,058
|
||||||||
Operating expenses
|
|||||||||||||||
Cost of operations (exclusive of depreciation and amortization disclosed separately below)
|
|
896,543
|
783,369
|
|
1,886,406
|
|
1,555,795
|
||||||||
Provision for loan loss
|
|
155,337
|
96,652
|
|
290,266
|
|
167,234
|
||||||||
General and administrative
|
|
40,909
|
28,302
|
|
71,102
|
|
62,329
|
||||||||
Depreciation and other amortization
|
|
34,895
|
25,973
|
|
68,533
|
|
51,485
|
||||||||
Amortization of purchased intangibles
|
|
87,211
|
48,322
|
|
175,201
|
|
96,883
|
||||||||
Total operating expenses
|
|
1,214,895
|
982,618
|
|
2,491,508
|
|
1,933,726
|
||||||||
Operating income
|
|
285,723
|
282,540
|
|
610,267
|
|
564,332
|
||||||||
Interest expense
|
|||||||||||||||
Securitization funding costs
|
|
24,553
|
22,300
|
|
48,366
|
|
45,211
|
||||||||
Interest expense on deposits
|
|
11,642
|
8,228
|
|
23,380
|
|
16,462
|
||||||||
Interest expense on long-term and other debt, net
|
|
44,520
|
32,404
|
|
86,976
|
|
69,006
|
||||||||
Total interest expense, net
|
|
80,715
|
62,932
|
|
158,722
|
|
130,679
|
||||||||
Income before income tax
|
$ |
205,008
|
$ |
219,608
|
$ |
451,545
|
$ |
433,653
|
|||||||
Provision for income taxes
|
|
74,969
|
80,419
|
|
156,674
|
|
158,717
|
||||||||
Net income
|
|
$ |
130,039
|
$
|
139,189
|
$
|
294,871
|
|
$
|
274,936
|
|||||
Less: Net (loss) income attributable to non-controlling interest
|
|
(1,298
|
)
|
1,745
|
|
975
|
|
97
|
|||||||
Net income attributable to common stockholders
|
|
$ |
131,337
|
$
|
137,444
|
$ |
293,896
|
|
$ |
274,839
|
|||||
Net income attributable to common stockholders per share:
|
|||||||||||||||
Basic
|
|
$ |
2.12
|
$
|
2.54
|
$ |
4.46
|
|
$ |
5.13
|
|||||
Diluted
|
|
$ |
2.11
|
$
|
2.19
|
$ |
4.43
|
|
$ |
4.27
|
|||||
Weighted average shares:
|
|||||||||||||||
Basic
|
|
61,928
|
54,154
|
62,501
|
|
53,600
|
|||||||||
Diluted
|
|
62,325
|
62,637
|
|
62,959
|
|
64,354
|
||||||||
|
Three Months Ended
June 30,
|
Six Months Ended
June 30,
|
||||||||||||||
2015
|
2014
|
2015
|
2014
|
|||||||||||||
(In thousands)
|
||||||||||||||||
Net income
|
$
|
130,039
|
$
|
139,189
|
$
|
294,871
|
$
|
274,936
|
||||||||
Other comprehensive income (loss), net of tax
|
||||||||||||||||
Net unrealized (loss) gain on securities available-for-sale, net of tax (benefit) expense of $(580), $514, $(128) and $916 for the three and six months ended June 30, 2015 and 2014, respectively
|
(2,371
|
)
|
71
|
(1,454
|
)
|
556
|
||||||||||
Net unrealized loss on cash flow hedges, net of tax benefit of $162 and $916 for the three and six months ended June 30, 2015
|
(478
|
)
|
—
|
(2,881
|
)
|
—
|
||||||||||
Foreign currency translation adjustments
|
18,056
|
(5,857
|
)
|
(44,558
|
)
|
3,476
|
||||||||||
Other comprehensive income (loss)
|
15,207
|
(5,786
|
)
|
(48,893
|
)
|
4,032
|
||||||||||
Total comprehensive income, net of tax
|
$
|
145,246
|
$
|
133,403
|
$
|
245,978
|
$
|
278,968
|
||||||||
Less: comprehensive (loss) income attributable to non-controlling interest
|
(1,765
|
)
|
1,846
|
997
|
263
|
|||||||||||
Comprehensive income attributable to common
stockholders
|
$
|
147,011
|
$
|
131,557
|
$
|
244,981
|
$
|
278,705
|
||||||||
|
Six Months Ended
June 30,
|
|||||||
|
2015
|
2014
|
||||||
|
(In thousands)
|
|||||||
CASH FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
Net income
|
$
|
294,871
|
$
|
274,936
|
||||
Adjustments to reconcile net income to net cash provided by operating activities:
|
||||||||
Depreciation and amortization
|
243,734
|
148,368
|
||||||
Deferred income tax (benefit) expense
|
(42,891
|
)
|
13,221
|
|||||
Provision for loan loss
|
290,266
|
167,234
|
||||||
Non-cash stock compensation
|
51,530
|
31,497
|
||||||
Fair value gain on interest rate derivatives
|
(72
|
)
|
(113
|
)
|
||||
Amortization of discount on debt
|
428
|
12,293
|
||||||
Amortization of deferred financing costs
|
15,548
|
11,301
|
||||||
Change in deferred revenue
|
(27,152
|
)
|
(41,175
|
)
|
||||
Change in contingent consideration
|
(99,601
|
)
|
—
|
|||||
Change in other operating assets and liabilities, net of acquisitions
|
(106,622
|
)
|
(8,292
|
)
|
||||
Originations of credit card and loan receivables held for sale
|
(2,888,589
|
)
|
(2,343,434
|
)
|
||||
Sales of credit card and loan receivables held for sale
|
2,856,891
|
2,342,091
|
||||||
Excess tax benefits from stock-based compensation
|
(20,750
|
)
|
(26,926
|
)
|
||||
Other
|
(3,771
|
)
|
6,797
|
|||||
Net cash provided by operating activities
|
563,820
|
587,798
|
||||||
CASH FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
Change in redemption settlement assets
|
(8,623
|
)
|
(57,530
|
)
|
||||
Change in cash collateral, restricted
|
16,500
|
—
|
||||||
Change in credit card and loan receivables
|
(272,062
|
)
|
(151,078
|
)
|
||||
Proceeds from the sale of a credit card portfolio
|
26,900
|
—
|
||||||
Payment for acquired business, net of cash
|
—
|
(259,514
|
)
|
|||||
Capital expenditures
|
(88,085
|
)
|
(77,260
|
)
|
||||
Purchases of other investments
|
(17,614
|
)
|
(105,911
|
)
|
||||
Maturities/sales of other investments
|
4,815
|
3,209
|
||||||
Other
|
(1,159
|
)
|
(4,058
|
)
|
||||
Net cash used in investing activities
|
(339,328
|
)
|
(652,142
|
)
|
||||
CASH FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Borrowings under debt agreements
|
1,751,102
|
1,121,834
|
||||||
Repayments of borrowings
|
(1,102,334
|
)
|
(788,805
|
)
|
||||
Proceeds from convertible note hedge counterparties
|
—
|
1,519,833
|
||||||
Settlement of convertible note borrowings
|
—
|
(1,864,803
|
)
|
|||||
Payment of acquisition-related contingent consideration
|
(205,928
|
)
|
—
|
|||||
Acquisition of non-controlling interest
|
(87,376
|
)
|
—
|
|||||
Issuances of deposits
|
1,010,225
|
1,194,448
|
||||||
Repayments of deposits
|
(1,205,439
|
)
|
(1,000,783
|
)
|
||||
Non-recourse borrowings of consolidated securitization entities
|
1,620,000
|
760,000
|
||||||
Repayments/maturities of non-recourse borrowings of consolidated securitization entities
|
(1,588,750
|
)
|
(1,040,000
|
)
|
||||
Payment of deferred financing costs
|
(7,328
|
)
|
(6,671
|
)
|
||||
Excess tax benefits from stock-based compensation
|
20,750
|
26,926
|
||||||
Proceeds from issuance of common stock
|
8,698
|
8,202
|
||||||
Purchase of treasury shares
|
(676,668
|
)
|
(201,759
|
)
|
||||
Other
|
—
|
(1,461
|
)
|
|||||
Net cash used in financing activities
|
(463,048
|
)
|
(273,039
|
)
|
||||
Effect of exchange rate changes on cash and cash equivalents
|
(16,282
|
)
|
(1,272
|
)
|
||||
Change in cash and cash equivalents
|
(254,838
|
)
|
(338,655
|
)
|
||||
Cash and cash equivalents at beginning of period
|
1,077,152
|
969,822
|
||||||
Cash and cash equivalents at end of period
|
$
|
822,314
|
$
|
631,167
|
||||
SUPPLEMENTAL CASH FLOW INFORMATION:
|
||||||||
Interest paid
|
$
|
152,718
|
$
|
114,986
|
||||
Income taxes paid, net
|
$
|
131,741
|
$
|
69,028
|
|
Three Months Ended
June 30,
|
Six Months Ended
June 30,
|
|||||||||||
|
2015
|
2014
|
2015
|
2014
|
|||||||||
(In thousands, except per share amounts)
|
|||||||||||||
Numerator:
|
|||||||||||||
Net income attributable to common stockholders
|
|
$ |
131,337
|
$
|
137,444
|
$ |
293,896
|
$
|
274,839
|
||||
Less: accretion of redeemable non-controlling interest
|
—
|
—
|
15,194
|
—
|
|||||||||
Net income attributable to common stockholders after accretion of redeemable non-controlling interest
|
|
$ |
131,337
|
$
|
137,444
|
$ |
278,702
|
$
|
274,839
|
||||
Denominator:
|
|||||||||||||
Weighted average shares, basic
|
|
61,928
|
|
54,154
|
62,501
|
|
53,600
|
||||||
Weighted average effect of dilutive securities:
|
|||||||||||||
Shares from assumed conversion of convertible senior notes
|
|
—
|
|
2,715
|
—
|
|
4,224
|
||||||
Shares from assumed exercise of convertible note warrants
|
|
—
|
|
5,247
|
—
|
|
6,009
|
||||||
Net effect of dilutive stock options and unvested restricted stock
|
|
397
|
|
521
|
458
|
|
521
|
||||||
Denominator for diluted calculations
|
|
62,325
|
|
62,637
|
62,959
|
|
64,354
|
||||||
|
|
|
|||||||||||
Net income attributable to common stockholders per share:
|
|||||||||||||
Basic
|
|
$
|
2.12
|
$ |
2.54
|
$ |
4.46
|
$
|
5.13
|
||||
Diluted
|
|
$
|
2.11
|
$ |
2.19
|
$ |
4.43
|
$
|
4.27
|
|
As of January 2, 2014
|
|||
(In thousands)
|
||||
Current assets, net of cash acquired
|
|
$ |
246,769
|
|
Deferred tax asset
|
|
3,509
|
||
Property and equipment
|
|
19,719
|
||
Other non-current assets
|
|
3,994
|
||
Intangible assets
|
|
423,832
|
||
Goodwill
|
|
565,015
|
||
Total assets acquired
|
|
1,262,838
|
||
Current liabilities
|
|
146,559
|
||
Current portion of long-term debt
|
|
34,180
|
||
Deferred tax liability
|
105,512
|
|||
Long-term debt (net of current portion)
|
126,323
|
|||
Other liabilities
|
142
|
|||
Total liabilities assumed
|
|
412,716
|
||
Redeemable non-controlling interest
|
|
341,907
|
||
Net assets acquired
|
|
$ |
508,215
|
|
As of December 10, 2014
|
||||
(In thousands)
|
|||||
Current assets, net of cash acquired
|
|
$
|
180,030
|
||
Deferred tax asset
|
|
11,905
|
|||
Property and equipment
|
|
25,555
|
|||
Developed technology
|
|
182,500
|
|||
Other non-current assets
|
|
1,744
|
|||
Intangible assets
|
|
755,600
|
|||
Goodwill
|
|
1,650,299
|
|||
Total assets acquired
|
|
2,807,633
|
|||
Current liabilities
|
|
177,585
|
|||
Deferred tax liability
|
344,081
|
||||
Other liabilities
|
26,933
|
||||
Total liabilities assumed
|
|
548,599
|
|||
Net assets acquired
|
|
$
|
2,259,034
|
|
Three Months Ended
June 30, 2014
|
Six Months Ended
June 30, 2014
|
||||||
|
(In thousands, except per share amounts)
|
|||||||
Total revenue
|
$
|
1,402,538
|
$
|
2,781,351
|
||||
Net income
|
$
|
129,741
|
$
|
259,555
|
||||
Net income attributable to common stockholders
|
$
|
127,996
|
$
|
259,458
|
||||
Net income attributable to common stockholders per share:
|
||||||||
Basic
|
$
|
2.18
|
$
|
4.46
|
||||
Diluted
|
$
|
1.90
|
$
|
3.76
|
|
June 30,
2015
|
December 31,
2014
|
||||||
|
(In thousands)
|
|||||||
Principal receivables
|
$
|
10,821,510
|
$
|
10,762,498
|
||||
Billed and accrued finance charges
|
440,546
|
422,838
|
||||||
Other credit card and loan receivables
|
24,541
|
58,544
|
||||||
Total credit card and loan receivables
|
11,286,597
|
11,243,880
|
||||||
Less credit card receivables – restricted for securitization investors
|
8,315,489
|
8,312,291
|
||||||
Other credit card and loan receivables
|
$
|
2,971,108
|
$
|
2,931,589
|
|
Three Months Ended
June 30,
|
Six Months Ended
June 30,
|
||||||||||||||
2015
|
2014
|
2015
|
2014
|
|||||||||||||
(In thousands)
|
||||||||||||||||
Balance at beginning of period
|
$
|
586,678
|
$
|
482,658
|
$
|
570,171
|
$
|
503,169
|
||||||||
Provision for loan loss
|
155,337
|
96,652
|
290,266
|
167,234
|
||||||||||||
Change in estimate for uncollectible unpaid interest and fees
|
3,000
|
(5,000
|
)
|
4,500
|
500
|
|||||||||||
Recoveries
|
41,360
|
38,066
|
80,856
|
76,474
|
||||||||||||
Principal charge-offs
|
(163,059
|
)
|
(128,796
|
)
|
(322,477
|
)
|
(263,797
|
)
|
||||||||
Balance at end of period
|
$
|
623,316
|
$
|
483,580
|
$
|
623,316
|
$
|
483,580
|
|
June 30,
2015
|
% of
Total
|
December 31,
2014
|
% of
Total
|
||||||||||||
|
(In thousands, except percentages)
|
|||||||||||||||
Receivables outstanding – principal
|
$
|
10,821,510
|
100.0
|
%
|
$
|
10,762,498
|
100.0
|
%
|
||||||||
Principal receivables balances contractually delinquent:
|
||||||||||||||||
31 to 60 days
|
159,460
|
1.5
|
%
|
157,760
|
1.4
|
%
|
||||||||||
61 to 90 days
|
104,146
|
1.0
|
93,175
|
0.9
|
||||||||||||
91 or more days
|
177,937
|
1.6
|
182,945
|
1.7
|
||||||||||||
Total
|
$
|
441,543
|
4.1
|
%
|
$
|
433,880
|
4.0
|
%
|
Three Months Ended June 30, 2015
|
Six Months Ended June 30, 2015
|
|||||||||||||||||
Number of
Restructurings
|
Pre-modification
Outstanding Balance
|
Post-modification
Outstanding Balance
|
Number of
Restructurings
|
Pre-modification
Outstanding Balance
|
Post-modification
Outstanding Balance
|
|||||||||||||
|
(Dollars in thousands)
|
|||||||||||||||||
Troubled debt restructurings – credit card receivables
|
36,105
|
$
|
39,204
|
$
|
39,171
|
75,119
|
$
|
81,687
|
$
|
81,613
|
||||||||
Three Months Ended June 30, 2014
|
Six Months Ended June 30, 2014
|
|||||||||||||||||
Number of
Restructurings
|
Pre-modification
Outstanding Balance
|
Post-modification
Outstanding Balance
|
Number of
Restructurings
|
Pre-modification
Outstanding Balance
|
Post-modification
Outstanding Balance
|
|||||||||||||
|
(Dollars in thousands)
|
|||||||||||||||||
Troubled debt restructurings – credit card receivables
|
28,602
|
$
|
28,922
|
$
|
28,896
|
65,154
|
$
|
64,708
|
$
|
64,651
|
||||||||
Three Months Ended
June 30, 2015
|
Six Months Ended
June 30, 2015
|
|||||||||||
Number of
Restructurings
|
Outstanding
Balance
|
Number of
Restructurings
|
Outstanding
Balance
|
|||||||||
|
(Dollars in thousands)
|
|||||||||||
Troubled debt restructurings that subsequently defaulted – credit card receivables
|
17,335
|
$ |
18,251
|
35,728
|
$ |
36,559
|
||||||
Three Months Ended
June 30, 2014
|
Six Months Ended
June 30, 2014
|
|||||||||||
Number of
Restructurings
|
Outstanding
Balance
|
Number of
Restructurings
|
Outstanding
Balance
|
|||||||||
|
(Dollars in thousands)
|
|||||||||||
Troubled debt restructurings that subsequently defaulted – credit card receivables
|
13,770
|
$ |
13,831
|
30,498
|
$ |
29,972
|
||||||
June 30, 2015
|
||||||||||||||||
Age of Accounts Since Origination
|
Number of Active
Accounts with Balances
|
Percentage of Active
Accounts with Balances
|
Principal
Receivables Outstanding
|
Percentage of Principal
Receivables Outstanding
|
||||||||||||
|
(In thousands, except percentages)
|
|||||||||||||||
0-12 Months
|
5,885
|
30.0
|
%
|
$
|
2,828,593
|
26.1
|
%
|
|||||||||
13-24 Months
|
2,890
|
14.7
|
1,652,669
|
15.3
|
||||||||||||
25-36 Months
|
2,030
|
10.4
|
1,186,065
|
11.0
|
||||||||||||
37-48 Months
|
1,465
|
7.5
|
865,706
|
8.0
|
||||||||||||
49-60 Months
|
1,088
|
5.5
|
650,697
|
6.0
|
||||||||||||
Over 60 Months
|
6,265
|
31.9
|
3,637,780
|
33.6
|
||||||||||||
Total
|
19,623
|
100.0
|
%
|
$
|
10,821,510
|
100.0
|
%
|
June 30, 2014
|
||||||||||||||||
Age of Accounts Since Origination
|
Number of Active
Accounts with Balances
|
Percentage of Active
Accounts with Balances
|
Principal
Receivables Outstanding
|
Percentage of Principal
Receivables Outstanding
|
||||||||||||
|
(In thousands, except percentages)
|
|||||||||||||||
0-12 Months
|
4,750
|
27.8
|
%
|
$
|
2,031,774
|
25.1
|
%
|
|||||||||
13-24 Months
|
2,467
|
14.5
|
1,148,807
|
14.2
|
||||||||||||
25-36 Months
|
1,714
|
10.0
|
838,573
|
10.4
|
||||||||||||
37-48 Months
|
1,245
|
7.3
|
623,665
|
7.7
|
||||||||||||
49-60 Months
|
988
|
5.8
|
520,428
|
6.4
|
||||||||||||
Over 60 Months
|
5,915
|
34.6
|
2,932,865
|
36.2
|
||||||||||||
Total
|
17,079
|
100.0
|
%
|
$
|
8,096,112
|
100.0
|
%
|
June 30, 2015
|
June 30, 2014
|
||||||||||||||||
Probability of an Account
Becoming 90 or More Days Past Due or
Becoming Charged-off (within the next 12 months)
|
Total Principal
Receivables Outstanding
|
Percentage of Principal
Receivables Outstanding
|
Total Principal
Receivables Outstanding
|
Percentage of Principal
Receivables Outstanding
|
|||||||||||||
(In thousands, except percentages)
|
|||||||||||||||||
No Score
|
$
|
191,438
|
1.8
|
%
|
$
|
144,270
|
1.8
|
%
|
|||||||||
27.1% and higher
|
601,641
|
5.6
|
391,005
|
4.8
|
|||||||||||||
17.1% - 27.0% |
1,067,106
|
9.8
|
748,356
|
9.2
|
|||||||||||||
12.6% - 17.0% |
|
1,280,255
|
11.8
|
886,078
|
11.0
|
||||||||||||
3.7% - 12.5% |
|
4,423,378
|
40.9
|
3,298,009
|
40.7
|
||||||||||||
1.9% - 3.6% |
|
2,124,921
|
19.6
|
1,681,968
|
20.8
|
||||||||||||
Lower than 1.9%
|
1,132,771
|
10.5
|
946,426
|
11.7
|
|||||||||||||
Total
|
$
|
10,821,510
|
100.0
|
%
|
$
|
8,096,112
|
100.0
|
%
|
|
June 30,
2015
|
December 31,
2014
|
|||||
|
(In thousands)
|
||||||
Total credit card receivables – restricted for securitization investors
|
$ |
8,315,489
|
$
|
8,312,291
|
|||
Principal amount of credit card receivables – restricted for securitization investors, 90 days or more past due
|
$ |
134,978
|
$
|
145,768
|
|
Three Months Ended
June 30,
|
Six Months Ended
June 30,
|
||||||||||
2015
|
2014
|
2015
|
2014
|
|||||||||
(In thousands)
|
||||||||||||
Net charge-offs of securitized principal
|
$ |
97,616
|
$ |
79,947
|
$ |
196,455
|
$ |
165,661
|
||||
|
June 30, 2015
|
December 31, 2014
|
|||||||||||||||||||||||||||||
|
Amortized
Cost
|
Unrealized
Gains
|
Unrealized
Losses
|
Fair Value
|
Amortized
Cost
|
Unrealized
Gains
|
Unrealized
Losses
|
Fair Value
|
|||||||||||||||||||||||
|
(In thousands)
|
||||||||||||||||||||||||||||||
Restricted cash
|
$ |
26,851
|
$
|
—
|
$
|
—
|
$
|
26,851
|
$
|
22,611
|
$
|
—
|
$
|
—
|
$
|
22,611
|
|||||||||||||||
Marketable securities
|
107,835
|
290
|
(1,995
|
)
|
106,130
|
95,669
|
520
|
(1,322
|
)
|
94,867
|
|||||||||||||||||||||
U.S. Treasury bonds
|
100,058
|
604
|
—
|
100,662
|
100,072
|
66
|
(33
|
)
|
100,105
|
||||||||||||||||||||||
Total
|
$ |
234,744
|
$
|
894
|
$
|
(1,995
|
)
|
$
|
233,643
|
$
|
218,352
|
$
|
586
|
$
|
(1,355
|
)
|
$
|
217,583
|
June 30, 2015
|
||||||||||||||||||
Less than 12 months
|
12 Months or Greater
|
Total
|
||||||||||||||||
Fair Value
|
Unrealized Losses
|
Fair Value
|
Unrealized Losses
|
Fair Value
|
Unrealized Losses
|
|||||||||||||
(In thousands)
|
||||||||||||||||||
Marketable securities
|
$
|
41,097
|
$
|
(569
|
)
|
$
|
44,892
|
$
|
(1,426
|
)
|
$
|
85,989
|
$
|
(1,995
|
)
|
|||
Total
|
$
|
41,097
|
$
|
(569
|
)
|
$
|
44,892
|
$
|
(1,426
|
)
|
$
|
85,989
|
$
|
(1,995
|
)
|
December 31, 2014
|
||||||||||||||||||
Less than 12 months
|
12 Months or Greater
|
Total
|
||||||||||||||||
Fair Value
|
Unrealized Losses
|
Fair Value
|
Unrealized Losses
|
Fair Value
|
Unrealized Losses
|
|||||||||||||
(In thousands)
|
||||||||||||||||||
Marketable securities
|
$
|
8,757
|
$
|
(27
|
)
|
$
|
48,961
|
$
|
(1,295
|
)
|
$
|
57,718
|
$
|
(1,322
|
)
|
|||
U.S. Treasury bonds
|
75,043
|
(33
|
)
|
—
|
—
|
75,043
|
(33
|
)
|
||||||||||
Total
|
$
|
83,800
|
$
|
(60
|
)
|
$
|
48,961
|
$
|
(1,295
|
)
|
$
|
132,761
|
$
|
(1,355
|
)
|
|
Amortized Cost
|
Fair Value
|
||||||
|
(In thousands)
|
|||||||
Due in one year or less
|
$
|
31,685
|
$
|
31,620
|
||||
Due after one year through five years
|
75,046
|
75,621
|
||||||
Due after five years through ten years
|
5,105
|
5,201
|
||||||
Due after ten years
|
96,057
|
94,350
|
||||||
Total
|
$
|
207,893
|
$
|
206,792
|
|
June 30, 2015
|
December 31, 2014
|
|||||||||||||||||||||||||||||
|
Cost
|
Unrealized Gains
|
Unrealized Losses
|
Fair Value
|
Cost
|
Unrealized Gains
|
Unrealized Losses
|
Fair Value
|
|||||||||||||||||||||||
|
(In thousands)
|
||||||||||||||||||||||||||||||
Cash and cash equivalents
|
$
|
258,809
|
$
|
—
|
$
|
—
|
$
|
258,809
|
$
|
237,127
|
$
|
—
|
$
|
—
|
$
|
237,127
|
|||||||||||||||
Mutual funds
|
20,006
|
—
|
(513
|
)
|
19,493
|
—
|
—
|
—
|
—
|
||||||||||||||||||||||
Corporate bonds
|
211,254
|
2,423
|
—
|
213,677
|
280,053
|
3,160
|
—
|
283,213
|
|||||||||||||||||||||||
Total
|
$
|
490,069
|
$
|
2,423
|
$
|
(513
|
)
|
$
|
491,979
|
$
|
517,180
|
$
|
3,160
|
$
|
—
|
$
|
520,340
|
June 30, 2015
|
||||||||||||||||||
Less than 12 months
|
12 Months or Greater
|
Total
|
||||||||||||||||
Fair Value
|
Unrealized Losses
|
Fair Value
|
Unrealized Losses
|
Fair Value
|
Unrealized Losses
|
|||||||||||||
(In thousands)
|
||||||||||||||||||
Mutual funds
|
$
|
19,493
|
$
|
(513
|
)
|
$
|
—
|
$
|
—
|
$
|
19,493
|
$
|
(513
|
)
|
||||
Total
|
$
|
19,493
|
$
|
(513
|
)
|
$
|
—
|
$
|
—
|
$
|
19,493
|
$
|
(513
|
)
|
|
Amortized Cost
|
Fair Value
|
|||||
|
(In thousands)
|
||||||
Due in one year or less
|
$
|
157,311
|
$
|
157,872
|
|||
Due after one year through five years
|
73,949
|
75,298
|
|||||
Total
|
$
|
231,260
|
$
|
233,170
|
June 30, 2015
|
|||||||||||||
Gross
Assets |
Accumulated
Amortization |
Net
|
Amortization Life and Method
|
||||||||||
(In thousands)
|
|||||||||||||
Finite Lived Assets
|
|||||||||||||
Customer contracts and lists
|
$
|
1,196,775
|
$
|
(275,854
|
)
|
$
|
920,921
|
4-12 years—straight line
|
|||||
Premium on purchased credit card portfolios
|
251,447
|
(99,423
|
)
|
152,024
|
3-10 years—straight line, accelerated
|
||||||||
Customer database
|
210,300
|
(144,644
|
)
|
65,656
|
3-10 years—straight line
|
||||||||
Collector database
|
56,032
|
(52,625
|
)
|
3,407
|
30 years—15% declining balance
|
||||||||
Publisher networks
|
140,200
|
(15,450
|
)
|
124,750
|
5-7 years – straight line
|
||||||||
Tradenames
|
85,015
|
(36,626
|
)
|
48,389
|
2-15 years—straight line
|
||||||||
Purchased data lists
|
12,150
|
(6,479
|
)
|
5,671
|
1-5 years—straight line, accelerated
|
||||||||
Favorable lease
|
6,891
|
(1,320
|
)
|
5,571
|
3-10 years—straight line
|
||||||||
Noncompete agreements
|
1,300
|
(1,083
|
)
|
217
|
3 years—straight line
|
||||||||
$
|
1,960,110
|
$
|
(633,504
|
)
|
$
|
1,326,606
|
|||||||
Indefinite Lived Assets
|
|||||||||||||
Tradenames
|
12,350
|
—
|
12,350
|
Indefinite life
|
|||||||||
Total intangible assets
|
$
|
1,972,460
|
$
|
(633,504
|
)
|
$
|
1,338,956
|
December 31, 2014
|
|||||||||||||
Gross
Assets |
Accumulated
Amortization |
Net
|
Amortization Life and Method
|
||||||||||
(In thousands)
|
|||||||||||||
Finite Lived Assets
|
|||||||||||||
Customer contracts and lists
|
$
|
1,328,056
|
$
|
(295,263
|
)
|
$
|
1,032,793
|
4-12 years—straight line
|
|||||
Premium on purchased credit card portfolios
|
289,173
|
(114,923
|
)
|
174,250
|
3-10 years—straight line, accelerated
|
||||||||
Customer database
|
210,300
|
(126,157
|
)
|
84,143
|
3-10 years—straight line
|
||||||||
Collector database
|
60,238
|
(56,239
|
)
|
3,999
|
30 years—15% declining balance
|
||||||||
Publisher networks
|
140,200
|
(1,662
|
)
|
138,538
|
5-7 years – straight line
|
||||||||
Tradenames
|
86,934
|
(29,408
|
)
|
57,526
|
2-15 years—straight line
|
||||||||
Purchased data lists
|
12,335
|
(6,497
|
)
|
5,838
|
1-5 years—straight line, accelerated
|
||||||||
Favorable lease
|
6,891
|
(767
|
)
|
6,124
|
3-10 years—straight line
|
||||||||
Noncompete agreements
|
1,300
|
(867
|
)
|
433
|
3 years—straight line
|
||||||||
$
|
2,135,427
|
$
|
(631,783
|
)
|
$
|
1,503,644
|
|||||||
Indefinite Lived Assets
|
|||||||||||||
Tradenames
|
12,350
|
—
|
12,350
|
Indefinite life
|
|||||||||
Total intangible assets
|
$
|
2,147,777
|
$
|
(631,783
|
)
|
$
|
1,515,994
|
For the Years Ending
December 31, |
||||
(In thousands)
|
||||
2015 (excluding the six months ended June 30, 2015)
|
$
|
159,430
|
||
2016
|
300,259
|
|||
2017
|
260,017
|
|||
2018
|
199,892
|
|||
2019
|
162,823
|
|||
2020 & thereafter
|
244,185
|
|
LoyaltyOne
|
Epsilon
|
Card Services
|
Corporate/Other
|
Total
|
||||||||||||||
|
(In thousands)
|
||||||||||||||||||
December 31, 2014
|
$
|
713,457
|
$
|
2,890,295
|
$
|
261,732
|
$
|
—
|
$
|
3,865,484
|
|||||||||
Effects of foreign currency translation
|
(53,847
|
)
|
52
|
—
|
—
|
(53,795
|
)
|
||||||||||||
June 30, 2015
|
$
|
659,610
|
$
|
2,890,347
|
$
|
261,732
|
$
|
—
|
$
|
3,811,689
|
Description
|
June 30,
2015
|
December 31,
2014
|
Maturity
|
Interest Rate
|
||||||||
(Dollars in thousands)
|
||||||||||||
Long-term and other debt:
|
|
|||||||||||
2013 credit facility
|
|
$
|
714,000
|
$
|
—
|
July 2018 and December 2019
|
(1) |
|
||||
2013 term loan
|
|
2,570,000
|
|
2,603,125
|
July 2018 and December 2019
|
(1) |
|
|||||
BrandLoyalty credit facility
|
68,135
|
108,789
|
December 2015
|
(2) |
|
|||||||
Senior notes due 2017
|
|
397,759
|
|
397,332
|
December 2017
|
5.250%
|
|
|||||
Senior notes due 2020
|
|
500,000
|
|
500,000
|
April 2020
|
6.375%
|
|
|||||
Senior notes due 2022
|
600,000
|
600,000
|
August 2022
|
5.375%
|
|
|||||||
Total long-term and other debt
|
|
4,849,894
|
|
4,209,246
|
|
|||||||
Less: current portion
|
|
200,635
|
|
208,164
|
|
|||||||
Long-term portion
|
|
$
|
4,649,259
|
$
|
4,001,082
|
|
||||||
Deposits:
|
||||||||||||
Certificates of deposit
|
|
$
|
3,373,167
|
$
|
3,934,906
|
Various – July 2015 – November 2021
|
0.25% to 2.80%
|
|||||
Money market deposits
|
|
1,205,161
|
|
838,635
|
On demand
|
(3) |
|
|||||
Total deposits
|
4,578,328
|
4,773,541
|
||||||||||
Less: current portion
|
|
2,542,668
|
|
2,645,995
|
|
|||||||
Long-term portion
|
|
$
|
2,035,660
|
$
|
2,127,546
|
|
||||||
Non-recourse borrowings of consolidated securitization entities:
|
|
|
|
|||||||||
Fixed rate asset-backed term note securities
|
|
$
|
2,983,166
|
$
|
3,376,916
|
Various - September 2015 – June 2019
|
0.61% to 4.55%
|
|||||
Floating rate asset-backed term note securities
|
|
810,000
|
|
450,000
|
February 2016 and April 2018
|
(4) |
|
|||||
Conduit asset-backed securities
|
|
1,430,000
|
|
1,365,000
|
Various - May 2016 – May 2017
|
(5) |
|
|||||
Total non-recourse borrowings of consolidated securitization entities
|
5,223,166
|
5,191,916
|
||||||||||
Less: current portion
|
|
1,650,000
|
|
1,058,750
|
|
|||||||
Long-term portion
|
|
$
|
3,573,166
|
$
|
4,133,166
|
|
||||||
(1) | The interest rate is based upon the London Interbank Offered Rate ("LIBOR") plus an applicable margin. At June 30, 2015, the weighted average interest rate was 2.23% and 2.19% for the 2013 Credit Facility and 2013 Term Loan, respectively. |
(2) | The interest rate is based upon the Euro Interbank Offered Rate plus an applicable margin. At June 30, 2015, the weighted average interest rate was 2.02%. |
(3) | The interest rates are based on the Federal Funds rate. At June 30, 2015, the interest rates ranged from 0.01% to 0.43%. |
(4) | The interest rates are based upon LIBOR plus an applicable margin. At June 30, 2015, the interest rates ranged from 0.57% to 0.67%. |
(5) | The interest rate is based upon LIBOR or the asset-backed commercial paper costs of each individual conduit provider plus an applicable margin. At June 30, 2015, the interest rates ranged from 1.08% to 1.73%. |
June 30, 2015
|
||||||||||
Balance Sheet Location
|
Notional Amount
|
Maturity
|
Fair Value
|
|||||||
(In thousands)
|
||||||||||
Designated as hedging instruments:
|
||||||||||
Foreign currency exchange hedges
|
Other current assets
|
$
|
5,456
|
July 2015 to September 2015
|
$
|
87
|
||||
Foreign currency exchange hedges
|
Other current liabilities
|
$
|
55,630
|
July 2015 to March 2016
|
$
|
1,755
|
||||
Not designated as hedging instruments:
|
||||||||||
Foreign currency exchange hedges
|
Other current liabilities
|
$
|
6,162
|
September 2015 to January 2016
|
$
|
105
|
||||
Interest rate derivatives
|
Other current liabilities
|
$
|
47,959
|
December 2015
|
$
|
120
|
||||
December 31, 2014
|
||||||||||
Balance Sheet Location
|
Notional Amount
|
Maturity
|
Fair Value
|
|||||||
(In thousands)
|
||||||||||
Designated as hedging instruments:
|
||||||||||
Foreign currency exchange hedges
|
Other current assets
|
$
|
50,908
|
January 2015 to September 2015
|
$
|
3,528
|
||||
Not designated as hedging instruments:
|
||||||||||
Foreign currency exchange hedges
|
Other current assets
|
$
|
3,125
|
January 2015 to March 2015
|
$
|
343
|
||||
Foreign currency exchange forward contract
|
Other current liabilities
|
$
|
236,578
|
January 2015
|
$
|
16,990
|
||||
Interest rate derivatives
|
Other current liabilities
|
$
|
79,429
|
December 2015 to August 2016
|
$
|
330
|
||||
|
2015
|
2014
|
|||||||||
For the three months ended June 30,
|
Income Statement Location
|
Gain on
Derivative
Instruments
|
Income Statement Location
|
Gain on
Derivative
Instruments
|
|||||||
|
(In thousands)
|
||||||||||
Interest rate derivatives
|
Interest expense on long-term
and other debt, net
|
$
|
65
|
Interest expense on long-term
and other debt, net
|
$
|
33
|
|||||
Foreign currency exchange hedges
|
Cost of operations
|
$
|
103
|
Cost of operations
|
$
|
—
|
|||||
|
2015
|
2014
|
|||||||||
For the six months ended June 30,
|
Income Statement Location
|
Gain (Loss)
on Derivative
Instruments
|
Income Statement Location
|
Gain on
Derivative
Instruments
|
|||||||
|
(In thousands)
|
||||||||||
Interest rate derivatives
|
Interest expense on long-term
and other debt, net
|
$
|
92
|
Interest expense on long-term
and other debt, net
|
$
|
114
|
|||||
Foreign currency exchange forward contract
|
General and administrative
|
$
|
(13,724
|
)
|
General and administrative
|
$
|
—
|
||||
Foreign currency exchange hedges
|
Cost of operations
|
$
|
422
|
Cost of operations
|
$
|
—
|
|||||
|
Deferred Revenue
|
|||||||||||
|
Service
|
Redemption
|
Total
|
|||||||||
|
(In thousands)
|
|||||||||||
December 31, 2014
|
$
|
332,368
|
$
|
680,809
|
$
|
1,013,177
|
||||||
Cash proceeds
|
102,368
|
190,807
|
293,175
|
|||||||||
Revenue recognized
|
(95,180
|
)
|
(225,157
|
)
|
(320,337
|
)
|
||||||
Other
|
—
|
(32
|
)
|
(32
|
)
|
|||||||
Effects of foreign currency translation
|
(23,299
|
)
|
(47,097
|
)
|
(70,396
|
)
|
||||||
June 30, 2015
|
$
|
316,257
|
$
|
599,330
|
$
|
915,587
|
||||||
Amounts recognized in the unaudited condensed consolidated balance sheets:
|
||||||||||||
Current liabilities
|
$
|
156,222
|
$
|
599,330
|
$
|
755,552
|
||||||
Non-current liabilities
|
$
|
160,035
|
$
|
—
|
$
|
160,035
|
||||||
|
Redeemable Non-
Controlling Interest
|
|||
(In thousands)
|
||||
Balance at January 2, 2014
|
$
|
341,907
|
||
Net income attributable to non-controlling interest
|
9,847
|
|||
Other comprehensive income attributable to non-controlling interest
|
1,988
|
|||
Adjustment to redemption value
|
14,775
|
|||
Foreign currency translation adjustments
|
(39,654
|
)
|
||
Reclassification to accrued expenses
|
(93,297
|
)
|
||
Balance at December 31, 2014
|
235,566
|
|||
Net income attributable to non-controlling interest
|
975
|
|||
Other comprehensive income attributable to non-controlling interest
|
22
|
|||
Adjustment to redemption value
|
15,194
|
|||
Foreign currency translation adjustments
|
(18,102
|
)
|
||
Balance at June 30, 2015
|
$
|
233,655
|
|
Three Months Ended
June 30,
|
Six Months Ended
June 30,
|
|||||||||||||
2015
|
2014
|
2015
|
2014
|
||||||||||||
(In thousands)
|
|||||||||||||||
Cost of operations
|
$
|
17,736
|
$
|
11,230
|
$
|
39,838
|
$
|
22,212
|
|||||||
General and administrative
|
6,306
|
4,643
|
11,692
|
9,285
|
|||||||||||
Total
|
$
|
24,042
|
$
|
15,873
|
$
|
51,530
|
$
|
31,497
|
Three Months Ended June 30, 2015
|
Net Unrealized
Gains on Securities
|
Unrealized
Gains (Losses)
on Cash Flow Hedges
|
Foreign
Currency
Translation
Adjustments(1)
|
Accumulated
Other
Comprehensive
Income (Loss)
|
||||||||||||
(In thousands)
|
||||||||||||||||
Balance at March 31, 2015
|
$
|
3,571
|
$
|
(53
|
)
|
$
|
(143,071
|
)
|
$
|
(139,553
|
)
|
|||||
Changes in other comprehensive income (loss) before reclassifications
|
(2,371
|
)
|
(2,033
|
)
|
18,056
|
13,652
|
||||||||||
Amounts reclassified from other comprehensive income (loss)
|
—
|
1,555
|
—
|
1,555
|
||||||||||||
Changes in other comprehensive income (loss)
|
(2,371
|
)
|
(478
|
)
|
18,056
|
15,207
|
||||||||||
Balance as of June 30, 2015
|
$
|
1,200
|
$
|
(531
|
)
|
$
|
(125,015
|
)
|
$
|
(124,346
|
)
|
|||||
Three Months Ended June 30, 2014
|
Net Unrealized
Gains on Securities
|
Unrealized Gains
on Cash Flow Hedges
|
Foreign
Currency
Translation
Adjustments(1)
|
Accumulated
Other
Comprehensive
Income (Loss)
|
||||||||||||
(In thousands)
|
||||||||||||||||
Balance as of March 31, 2014
|
$
|
4,674
|
$
|
—
|
$
|
(13,083
|
)
|
$
|
(8,409
|
)
|
||||||
Changes in other comprehensive income (loss)
|
71
|
—
|
(5,857
|
)
|
(5,786
|
)
|
||||||||||
Balance as of June 30, 2014
|
$
|
4,745
|
$
|
—
|
$
|
(18,940
|
)
|
$
|
(14,195
|
)
|
||||||
Six Months Ended June 30, 2015
|
Net Unrealized
Gains on Securities
|
Unrealized
Gains (Losses)
on Cash Flow Hedges
|
Foreign
Currency
Translation
Adjustments(1)
|
Accumulated
Other
Comprehensive
Income (Loss)
|
||||||||||||
(In thousands)
|
||||||||||||||||
Balance at December 31, 2014
|
$
|
2,654
|
$
|
2,350
|
$
|
(80,457
|
)
|
$
|
(75,453
|
)
|
||||||
Changes in other comprehensive income (loss) before reclassifications
|
(1,454
|
)
|
(3,886
|
)
|
(44,558
|
)
|
(49,898
|
)
|
||||||||
Amounts reclassified from other comprehensive income (loss)
|
—
|
1,005
|
—
|
1,005
|
||||||||||||
Changes in other comprehensive income (loss)
|
(1,454
|
)
|
(2,881
|
)
|
(44,558
|
)
|
(48,893
|
)
|
||||||||
Balance as of June 30, 2015
|
$
|
1,200
|
$
|
(531
|
)
|
$
|
(125,015
|
)
|
$
|
(124,346
|
)
|
|||||
Six Months Ended June 30, 2014
|
Net Unrealized
Gains on Securities
|
Unrealized Gains
on Cash Flow Hedges
|
Foreign
Currency
Translation
Adjustments(1)
|
Accumulated
Other
Comprehensive
Income (Loss)
|
||||||||||||
(In thousands)
|
||||||||||||||||
Balance as of December 31, 2013
|
$
|
4,189
|
$
|
—
|
$
|
(22,416
|
)
|
$
|
(18,227
|
)
|
||||||
Changes in other comprehensive income (loss)
|
556
|
—
|
3,476
|
4,032
|
||||||||||||
Balance as of June 30, 2014
|
$
|
4,745
|
$
|
—
|
$
|
(18,940
|
)
|
$
|
(14,195
|
)
|
||||||
(1)
|
Primarily related to the impact of changes in the Canadian dollar and Euro foreign currency exchange rates.
|
|
June 30, 2015
|
December 31, 2014
|
||||||||||||||
|
Carrying
Amount
|
Fair
Value
|
Carrying
Amount
|
Fair
Value
|
||||||||||||
|
(In thousands)
|
|||||||||||||||
Financial assets
|
||||||||||||||||
Cash and cash equivalents
|
$
|
822,314
|
$
|
822,314
|
$
|
1,077,152
|
$
|
1,077,152
|
||||||||
Trade receivables, net
|
563,533
|
563,533
|
743,294
|
743,294
|
||||||||||||
Credit card and loan receivables, net
|
10,663,281
|
10,663,281
|
10,673,709
|
10,673,709
|
||||||||||||
Credit card and loan receivables held for sale
|
113,314
|
113,314
|
125,060
|
125,060
|
||||||||||||
Redemption settlement assets, restricted
|
491,979
|
491,979
|
520,340
|
520,340
|
||||||||||||
Cash collateral, restricted
|
6,341
|
6,341
|
22,511
|
22,511
|
||||||||||||
Derivative instruments
|
87
|
87
|
3,871
|
3,871
|
||||||||||||
Other investments
|
233,643
|
233,643
|
217,583
|
217,583
|
||||||||||||
Financial liabilities
|
||||||||||||||||
Accounts payable
|
387,078
|
387,078
|
455,656
|
455,656
|
||||||||||||
Derivative instruments
|
1,980
|
1,980
|
17,290
|
17,290
|
||||||||||||
Deposits
|
4,578,328
|
4,621,965
|
4,773,541
|
4,801,464
|
||||||||||||
Non-recourse borrowings of consolidated securitization entities
|
5,223,166
|
5,239,687
|
5,191,916
|
5,225,359
|
||||||||||||
Long-term and other debt
|
4,849,894
|
4,877,134
|
4,209,246
|
4,227,414
|
||||||||||||
Contingent consideration
|
—
|
—
|
326,023
|
326,023
|
· | Level 1, defined as observable inputs such as quoted prices in active markets; |
· | Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and |
· | Level 3, defined as unobservable inputs where little or no market data exists, therefore requiring an entity to develop its own assumptions. |
Fair Value Measurements at
June 30, 2015 Using |
||||||||||||||||
Balance at
June 30, 2015 |
Level 1
|
Level 2
|
Level 3
|
|||||||||||||
(In thousands)
|
||||||||||||||||
Corporate bonds (1)
|
$
|
213,677
|
$
|
—
|
$
|
213,677
|
$
|
—
|
||||||||
Mutual funds (1)
|
19,493
|
19,493
|
—
|
—
|
||||||||||||
Cash collateral, restricted
|
6,341
|
1,500
|
—
|
4,841
|
||||||||||||
Other investments (2)
|
233,643
|
132,590
|
101,053
|
—
|
||||||||||||
Derivative instruments (3)
|
87
|
—
|
87
|
—
|
||||||||||||
Total assets measured at fair value
|
$
|
473,241
|
$
|
153,583
|
$
|
314,817
|
$
|
4,841
|
||||||||
Derivative instruments (3)
|
$
|
1,980
|
$
|
—
|
$
|
1,980
|
$
|
—
|
||||||||
Total liabilities measured at fair value
|
$
|
1,980
|
$
|
—
|
$
|
1,980
|
$
|
—
|
Fair Value Measurements at
December 31, 2014 Using |
|||||||||||||||||
Balance at
December 31, 2014 |
Level 1
|
Level 2
|
Level 3
|
||||||||||||||
(In thousands)
|
|||||||||||||||||
Corporate bonds (1)
|
$
|
283,213
|
$
|
—
|
$
|
283,213
|
$
|
—
|
|||||||||
Cash collateral, restricted
|
22,511
|
—
|
—
|
22,511
|
|||||||||||||
Other investments (2)
|
217,583
|
127,764
|
89,819
|
—
|
|||||||||||||
Derivative instruments (3)
|
3,871
|
—
|
3,871
|
—
|
|||||||||||||
Total assets measured at fair value
|
$
|
527,178
|
$
|
127,764
|
$
|
376,903
|
$
|
22,511
|
|||||||||
Derivative instruments (3)
|
$
|
17,290
|
$
|
—
|
$
|
17,290
|
$
|
—
|
|||||||||
Contingent consideration
|
326,023
|
—
|
—
|
326,023
|
|||||||||||||
Total liabilities measured at fair value
|
$
|
343,313
|
$
|
—
|
$
|
17,290
|
$
|
326,023
|
|||||||||
(1) | Amounts are included in redemption settlement assets in the unaudited condensed consolidated balance sheets. |
(2) | Amounts are included in other current assets and other assets in the unaudited condensed consolidated balance sheets. |
(3) | Derivative instruments are included in other current assets and other current liabilities in the unaudited condensed consolidated balance sheets. |
Cash Collateral, Restricted
|
||||||||||||||||
|
Three Months Ended
June 30,
|
Six Months Ended
June 30,
|
||||||||||||||
2015
|
2014
|
2015
|
2014
|
|||||||||||||
(In thousands)
|
||||||||||||||||
Balance at beginning of period
|
$
|
22,690
|
$
|
34,425
|
$
|
22,511
|
$
|
34,124
|
||||||||
Total gains (realized or unrealized):
|
—
|
—
|
—
|
—
|
||||||||||||
Included in earnings
|
151
|
285
|
330
|
586
|
||||||||||||
Purchases
|
—
|
—
|
—
|
—
|
||||||||||||
Sales
|
—
|
—
|
—
|
—
|
||||||||||||
Issuances
|
—
|
—
|
—
|
—
|
||||||||||||
Settlements
|
(18,000
|
)
|
—
|
(18,000
|
)
|
—
|
||||||||||
Transfers in or out of Level 3
|
—
|
—
|
—
|
—
|
||||||||||||
Balance at end of period
|
$
|
4,841
|
$
|
34,710
|
$
|
4,841
|
$
|
34,710
|
||||||||
Gains for the period included in earnings related to assets still held at end of period
|
$
|
15
|
$
|
285
|
$
|
55
|
$
|
586
|
Contingent Consideration
|
||||||||||||||||
|
Three Months Ended
June 30,
|
Six Months Ended
June 30,
|
||||||||||||||
2015
|
2014
|
2015
|
2014
|
|||||||||||||
(In thousands)
|
||||||||||||||||
Balance at beginning of period
|
$
|
—
|
$
|
250,508
|
$
|
326,023
|
$
|
—
|
||||||||
Total gains or losses (realized or unrealized):
|
||||||||||||||||
Included in earnings
|
—
|
—
|
—
|
—
|
||||||||||||
Purchases
|
—
|
—
|
547
|
248,702
|
||||||||||||
Sales
|
—
|
—
|
—
|
—
|
||||||||||||
Issuances
|
—
|
—
|
—
|
—
|
||||||||||||
Settlements
|
—
|
—
|
(305,528
|
)
|
—
|
|||||||||||
Foreign currency transaction adjustments
|
—
|
(1,441
|
)
|
(21,042
|
)
|
365
|
||||||||||
Transfers in or out of Level 3
|
—
|
—
|
—
|
—
|
||||||||||||
Balance at end of period
|
$
|
—
|
$
|
249,067
|
$
|
—
|
$
|
249,067
|
||||||||
Gains (losses) for the period included in earnings related to liability still held at end of period
|
$
|
—
|
$
|
1,441
|
$
|
—
|
$
|
(365
|
)
|
|
Fair Value Measurements at
June 30, 2015
|
|||||||||||||||
|
Total
|
Level 1
|
Level 2
|
Level 3
|
||||||||||||
|
(In thousands)
|
|||||||||||||||
Financial assets
|
||||||||||||||||
Cash and cash equivalents
|
$
|
822,314
|
$
|
822,314
|
$
|
—
|
$
|
—
|
||||||||
Credit card and loan receivables, net
|
10,663,281
|
—
|
—
|
10,663,281
|
||||||||||||
Credit card and loan receivables held for sale
|
113,314
|
—
|
—
|
113,314
|
||||||||||||
Total
|
$
|
11,598,909
|
$
|
822,314
|
$
|
—
|
$
|
10,776,595
|
||||||||
|
||||||||||||||||
Financial liabilities
|
||||||||||||||||
Deposits
|
$
|
4,621,965
|
$
|
—
|
$
|
4,621,965
|
$
|
—
|
||||||||
Non-recourse borrowings of consolidated securitization entities
|
5,239,687
|
—
|
5,239,687
|
—
|
||||||||||||
Long-term and other debt
|
4,877,134
|
—
|
4,877,134
|
—
|
||||||||||||
Total
|
$
|
14,738,786
|
$
|
—
|
$
|
14,738,786
|
$
|
—
|
|
Fair Value Measurements at
December 31, 2014
|
|||||||||||||||
|
Total
|
Level 1
|
Level 2
|
Level 3
|
||||||||||||
|
(In thousands)
|
|||||||||||||||
Financial assets
|
||||||||||||||||
Cash and cash equivalents
|
$
|
1,077,152
|
$
|
1,077,152
|
$
|
—
|
$
|
—
|
||||||||
Credit card and loan receivables, net
|
10,673,709
|
—
|
—
|
10,673,709
|
||||||||||||
Credit card and loan receivables held for sale
|
125,060
|
—
|
—
|
125,060
|
||||||||||||
Total
|
$
|
11,875,921
|
$
|
1,077,152
|
$
|
—
|
$
|
10,798,769
|
||||||||
|
||||||||||||||||
Financial liabilities
|
||||||||||||||||
Deposits
|
$
|
4,801,464
|
$
|
—
|
$
|
4,801,464
|
$
|
—
|
||||||||
Non-recourse borrowings of consolidated securitization entities
|
5,225,359
|
—
|
5,225,359
|
—
|
||||||||||||
Long-term and other debt
|
4,227,414
|
—
|
4,227,414
|
—
|
||||||||||||
Total
|
$
|
14,254,237
|
$
|
—
|
$
|
14,254,237
|
$
|
—
|
• | LoyaltyOne includes the Company's Canadian AIR MILES Reward Program and BrandLoyalty; |
• | Epsilon provides end-to-end, integrated direct marketing solutions that leverage transactional data to help clients more effectively acquire and build stronger relationships with their customers; and |
• | Card Services provides risk management solutions, account origination, funding, transaction processing, customer care, collections and marketing services for the Company's private label and co-brand credit card programs. |
Three Months Ended June 30, 2015
|
LoyaltyOne
|
Epsilon
|
Card Services
|
Corporate/ Other
|
Eliminations
|
Total
|
||||||||||||||||||
|
(In thousands)
|
|||||||||||||||||||||||
Revenues
|
$
|
301,660
|
$
|
495,172
|
$
|
710,398
|
$
|
41
|
$
|
(6,653
|
)
|
$
|
1,500,618
|
|||||||||||
Income (loss) before income taxes
|
42,343
|
19,778
|
229,965
|
(87,078
|
)
|
—
|
205,008
|
|||||||||||||||||
Interest expense, net
|
580
|
(13
|
)
|
36,195
|
43,953
|
—
|
80,715
|
|||||||||||||||||
Operating income (loss)
|
42,923
|
19,765
|
266,160
|
(43,125
|
)
|
—
|
285,723
|
|||||||||||||||||
Depreciation and amortization
|
20,538
|
81,667
|
17,646
|
2,255
|
—
|
122,106
|
||||||||||||||||||
Stock compensation expense
|
2,794
|
11,121
|
3,820
|
6,307
|
—
|
24,042
|
||||||||||||||||||
Adjusted EBITDA (1)
|
66,255
|
112,553
|
287,626
|
(34,563
|
)
|
—
|
431,871
|
|||||||||||||||||
Less: securitization funding costs
|
—
|
—
|
24,553
|
—
|
—
|
24,553
|
||||||||||||||||||
Less: interest expense on deposits
|
—
|
—
|
11,642
|
—
|
—
|
11,642
|
||||||||||||||||||
Less: adjusted EBITDA attributable to non-controlling interest
|
3,163
|
—
|
—
|
—
|
—
|
3,163
|
||||||||||||||||||
Adjusted EBITDA, net (1)
|
$
|
63,092
|
$
|
112,553
|
$
|
251,431
|
$
|
(34,563
|
)
|
$
|
—
|
$
|
392,513
|
Three Months Ended June 30, 2014
|
LoyaltyOne
|
Epsilon
|
Card Services
|
Corporate/ Other
|
Eliminations
|
Total
|
||||||||||||||||||
|
(In thousands)
|
|||||||||||||||||||||||
Revenues
|
$
|
355,583
|
$
|
357,088
|
$
|
557,258
|
$
|
187
|
$
|
(4,958
|
)
|
$
|
1,265,158
|
|||||||||||
Income (loss) before income taxes
|
60,056
|
25,598
|
194,891
|
(60,937
|
)
|
—
|
219,608
|
|||||||||||||||||
Interest expense, net
|
2,082
|
(6
|
)
|
29,785
|
31,071
|
—
|
62,932
|
|||||||||||||||||
Operating income (loss)
|
62,138
|
25,592
|
224,676
|
(29,866
|
)
|
—
|
282,540
|
|||||||||||||||||
Depreciation and amortization
|
22,723
|
36,838
|
12,981
|
1,753
|
—
|
74,295
|
||||||||||||||||||
Stock compensation expense
|
2,705
|
5,262
|
3,263
|
4,643
|
—
|
15,873
|
||||||||||||||||||
Adjusted EBITDA (1)
|
87,566
|
67,692
|
240,920
|
(23,470
|
)
|
—
|
372,708
|
|||||||||||||||||
Less: Securitization funding costs
|
—
|
—
|
22,300
|
—
|
—
|
22,300
|
||||||||||||||||||
Less: Interest expense on deposits
|
—
|
—
|
8,228
|
—
|
—
|
8,228
|
||||||||||||||||||
Less: Adjusted EBITDA attributable to non-controlling interest
|
10,214
|
—
|
—
|
—
|
—
|
10,214
|
||||||||||||||||||
Adjusted EBITDA, net (1)
|
$
|
77,352
|
$
|
67,692
|
$
|
210,392
|
$
|
(23,470
|
)
|
$
|
—
|
$
|
331,966
|
Six Months Ended June 30, 2015
|
LoyaltyOne
|
Epsilon
|
Card Services
|
Corporate/ Other
|
Eliminations
|
Total
|
||||||||||||||||||
|
(In thousands)
|
|||||||||||||||||||||||
Revenues
|
$
|
689,612
|
$
|
1,000,073
|
$
|
1,425,116
|
$
|
142
|
$
|
(13,168
|
)
|
$
|
3,101,775
|
|||||||||||
Income (loss) before income taxes
|
96,133
|
26,818
|
489,706
|
(161,112
|
)
|
—
|
451,545
|
|||||||||||||||||
Interest expense, net
|
1,285
|
(16
|
)
|
71,746
|
85,707
|
—
|
158,722
|
|||||||||||||||||
Operating income (loss)
|
97,418
|
26,802
|
561,452
|
(75,405
|
)
|
—
|
610,267
|
|||||||||||||||||
Depreciation and amortization
|
40,471
|
162,849
|
35,970
|
4,444
|
—
|
243,734
|
||||||||||||||||||
Stock compensation expense
|
5,786
|
26,539
|
7,512
|
11,693
|
—
|
51,530
|
||||||||||||||||||
Adjusted EBITDA (1)
|
143,675
|
216,190
|
604,934
|
(59,268
|
)
|
—
|
905,531
|
|||||||||||||||||
Less: Securitization funding costs
|
—
|
—
|
48,366
|
—
|
—
|
48,366
|
||||||||||||||||||
Less: Interest expense on deposits
|
—
|
—
|
23,380
|
—
|
—
|
23,380
|
||||||||||||||||||
Less: Adjusted EBITDA attributable to non-controlling interest
|
10,945
|
—
|
—
|
—
|
—
|
10,945
|
||||||||||||||||||
Adjusted EBITDA, net (1)
|
$
|
132,730
|
$
|
216,190
|
$
|
533,188
|
$
|
(59,268
|
)
|
$
|
—
|
$
|
822,840
|
Six Months Ended June 30, 2014
|
LoyaltyOne
|
Epsilon
|
Card Services
|
Corporate/ Other
|
Eliminations
|
Total
|
||||||||||||||||||
|
(In thousands)
|
|||||||||||||||||||||||
Revenues
|
$
|
684,553
|
$
|
704,557
|
$
|
1,119,054
|
$
|
228
|
$
|
(10,334
|
)
|
$
|
2,498,058
|
|||||||||||
Income (loss) before income taxes
|
104,432
|
38,745
|
423,246
|
(132,770
|
)
|
—
|
433,653
|
|||||||||||||||||
Interest expense, net
|
3,644
|
(19
|
)
|
60,191
|
66,863
|
—
|
130,679
|
|||||||||||||||||
Operating income (loss)
|
108,076
|
38,726
|
483,437
|
(65,907
|
)
|
—
|
564,332
|
|||||||||||||||||
Depreciation and amortization
|
44,972
|
73,915
|
25,674
|
3,807
|
—
|
148,368
|
||||||||||||||||||
Stock compensation expense
|
5,489
|
10,253
|
6,470
|
9,285
|
—
|
31,497
|
||||||||||||||||||
Adjusted EBITDA (1)
|
158,537
|
122,894
|
515,581
|
(52,815
|
)
|
—
|
744,197
|
|||||||||||||||||
Less: Securitization funding costs
|
—
|
—
|
45,211
|
—
|
—
|
45,211
|
||||||||||||||||||
Less: Interest expense on deposits
|
—
|
—
|
16,462
|
—
|
—
|
16,462
|
||||||||||||||||||
Less: Adjusted EBITDA attributable to non-controlling interest
|
16,003
|
—
|
—
|
—
|
—
|
16,003
|
||||||||||||||||||
Adjusted EBITDA, net (1)
|
$
|
142,534
|
$
|
122,894
|
$
|
453,908
|
$
|
(52,815
|
)
|
$
|
—
|
$
|
666,521
|
|||||||||||
(1)
|
Adjusted EBITDA is a non-GAAP financial measure equal to net income, the most directly comparable financial measure based on GAAP, plus stock compensation expense, provision for income taxes, interest expense, net, depreciation and other amortization and amortization of purchased intangibles. Adjusted EBITDA, net is also a non-GAAP financial measure equal to adjusted EBITDA less securitization funding costs, interest expense on deposits and adjusted EBITDA attributable to the non-controlling interest. Adjusted EBITDA and adjusted EBITDA, net are presented in accordance with ASC 280 as they are the primary performance metrics utilized to assess performance of the segments.
|
|
Three Months Ended
June 30,
|
Six Months Ended
June 30,
|
||||||||||||||
2015
|
2014
|
2015
|
2014
|
|||||||||||||
(In thousands)
|
||||||||||||||||
Net income
|
$
|
130,039
|
$
|
139,189
|
$
|
294,871
|
$
|
274,936
|
||||||||
Stock compensation expense
|
24,042
|
15,873
|
51,530
|
31,497
|
||||||||||||
Provision for income taxes
|
74,969
|
80,419
|
156,674
|
158,717
|
||||||||||||
Interest expense, net
|
80,715
|
62,932
|
158,722
|
130,679
|
||||||||||||
Depreciation and other amortization
|
34,895
|
25,973
|
68,533
|
51,485
|
||||||||||||
Amortization of purchased intangibles
|
87,211
|
48,322
|
175,201
|
96,883
|
||||||||||||
Adjusted EBITDA
|
431,871
|
372,708
|
905,531
|
744,197
|
||||||||||||
Less: Securitization funding costs
|
24,553
|
22,300
|
48,366
|
45,211
|
||||||||||||
Less: Interest expense on deposits
|
11,642
|
8,228
|
23,380
|
16,462
|
||||||||||||
Less: Adjusted EBITDA attributable to non-controlling interest
|
3,163
|
10,214
|
10,945
|
16,003
|
||||||||||||
Adjusted EBITDA, net
|
$
|
392,513
|
$
|
331,966
|
$
|
822,840
|
$
|
666,521
|
Three Months Ended June 30,
|
% Change
|
|||||||||||
2015
|
2014
|
2015 to 2014
|
||||||||||
Revenues
|
(In thousands, except percentages)
|
|||||||||||
Transaction
|
$
|
86,784
|
$
|
80,248
|
8
|
%
|
||||||
Redemption
|
218,125
|
268,504
|
(19
|
)
|
||||||||
Finance charges, net
|
683,980
|
538,186
|
27
|
|||||||||
Marketing services
|
465,369
|
339,819
|
37
|
|||||||||
Other revenue
|
46,360
|
38,401
|
21
|
|||||||||
Total revenue
|
1,500,618
|
1,265,158
|
19
|
%
|
||||||||
Operating expenses
|
||||||||||||
Cost of operations (exclusive of depreciation and amortization disclosed separately below)
|
896,543
|
783,369
|
14
|
|||||||||
Provision for loan loss
|
155,337
|
96,652
|
61
|
|||||||||
General and administrative
|
40,909
|
28,302
|
45
|
|||||||||
Depreciation and other amortization
|
34,895
|
25,973
|
34
|
|||||||||
Amortization of purchased intangibles
|
87,211
|
48,322
|
80
|
|||||||||
Total operating expenses
|
1,214,895
|
982,618
|
24
|
%
|
||||||||
Operating income
|
285,723
|
282,540
|
1
|
%
|
||||||||
Interest expense
|
||||||||||||
Securitization funding costs
|
24,553
|
22,300
|
10
|
|||||||||
Interest expense on deposits
|
11,642
|
8,228
|
41
|
|||||||||
Interest expense on long-term and other debt, net
|
44,520
|
32,404
|
37
|
|||||||||
Total interest expense, net
|
80,715
|
62,932
|
28
|
|||||||||
Income before income tax
|
$
|
205,008
|
$
|
219,608
|
(7
|
)%
|
||||||
Provision for income taxes
|
74,969
|
80,419
|
(7
|
)
|
||||||||
Net income
|
$
|
130,039
|
$
|
139,189
|
(7
|
)%
|
||||||
Key Operating Metrics:
|
||||||||||||
Credit card statements generated
|
59,200
|
51,245
|
16
|
%
|
||||||||
Credit sales
|
$
|
6,008,635
|
$
|
4,497,642
|
34
|
%
|
||||||
Average credit card and loan receivables
|
$
|
10,866,214
|
$
|
8,170,572
|
33
|
%
|
||||||
AIR MILES reward miles issued
|
1,482,211
|
1,246,631
|
19
|
%
|
||||||||
AIR MILES reward miles redeemed
|
1,142,146
|
1,038,844
|
10
|
%
|
• | Transaction. Revenue increased $6.5 million, or 8%, to $86.8 million for the three months ended June 30, 2015 due to an increase in servicing fees charged to our credit cardholders. |
• | Redemption. Revenue decreased $50.4 million, or 19%, to $218.1 million for the three months ended June 30, 2015. Revenue was negatively impacted by the decline in the Euro and Canadian dollar relative to the U.S. dollar, which resulted in a $39.1 million decrease in revenue, and the timing of short term loyalty programs in market in 2015 as compared to 2014. Many of these programs were in market in the first quarter of 2015 as compared to 2014, when they were executed in the second quarter. |
• | Finance charges, net. Revenue increased $145.8 million, or 27%, to $684.0 million for the three months ended June 30, 2015. This increase was driven by a 33% increase in average credit card and loan receivables, which increased revenue $177.6 million through a combination of recent credit card portfolio acquisitions and strong cardholder spending. This increase was offset in part by a 120 basis point decline in finance charge yield, which decreased revenue by $31.8 million. Our finance charge yield has been negatively impacted by the growth of our co-brand credit card programs. |
• | Marketing Services. Revenue increased $125.6 million, or 37%, to $465.4 million for the three months ended June 30, 2015. The increase in revenue was driven by the Conversant acquisition, which added $116.5 million. Additionally, revenues increased $10.2 million within our Epsilon segment due to database builds completed for new clients and placed into production. |
• | Other revenue. Revenue increased $8.0 million, or 21%, to $46.4 million for the three months ended June 30, 2015 due to the Conversant acquisition. |
• | Within the LoyaltyOne segment, cost of operations decreased $32.5 million due to a $25.3 million decrease in cost of redemptions associated with the decrease in redemption revenue as discussed above and a $6.1 million decrease in payroll and benefits expense and the realization of efficiency initiatives. |
• | Within the Epsilon segment, cost of operations increased $99.1 million due to the Conversant acquisition, which added $88.1 million. Excluding Conversant, cost of operations increased $11.0 million due to an increase of $9.4 million in direct expenses associated with the increase in revenue. |
• | Within the Card Services segment, cost of operations increased by $48.3 million as operating costs increased $36.7 million due to increased credit card processing expenses resulting from higher volumes, and increased marketing expenses to support the growth in credit sales. Additionally, payroll and benefit expenses increased $11.6 million due to an increase in the number of associates. |
• | Securitization funding costs. Securitization funding costs increased $2.3 million as higher average borrowings were offset in part by lower average interest rates. |
• | Interest expense on deposits. Interest expense on deposits increased $3.4 million due to an increase in average borrowings, offset in part by lower average interest rates. |
• | Interest expense on long-term and other debt, net. Interest expense on long-term and other debt, net increased $12.1 million. Interest expense increased as a result of $16.4 million in interest expense associated with both the $1.4 billion incremental term loan borrowed in December 2014 and the $600.0 million Senior Notes due 2022 issued in July 2014. These increases were offset in part by a decrease in interest expense of $6.0 million associated with the convertible senior notes that were repaid at maturity in May 2014. |
Six Months Ended June 30,
|
% Change
|
|||||||||||
2015
|
2014
|
2015 to 2014
|
||||||||||
Revenues
|
(In thousands, except percentages)
|
|||||||||||
Transaction
|
$
|
180,069
|
$
|
164,228
|
10
|
%
|
||||||
Redemption
|
526,270
|
512,194
|
3
|
|||||||||
Finance charges, net
|
1,363,442
|
1,074,447
|
27
|
|||||||||
Marketing services
|
936,565
|
668,288
|
40
|
|||||||||
Other revenue
|
95,429
|
78,901
|
21
|
|||||||||
Total revenue
|
3,101,775
|
2,498,058
|
24
|
%
|
||||||||
Operating expenses
|
||||||||||||
Cost of operations (exclusive of depreciation and amortization disclosed separately below)
|
1,886,406
|
1,555,795
|
21
|
|||||||||
Provision for loan loss
|
290,266
|
167,234
|
74
|
|||||||||
General and administrative
|
71,102
|
62,329
|
14
|
|||||||||
Depreciation and other amortization
|
68,533
|
51,485
|
33
|
|||||||||
Amortization of purchased intangibles
|
175,201
|
96,883
|
81
|
|||||||||
Total operating expenses
|
2,491,508
|
1,933,726
|
29
|
%
|
||||||||
Operating income
|
610,267
|
564,332
|
8
|
%
|
||||||||
Interest expense
|
||||||||||||
Securitization funding costs
|
48,366
|
45,211
|
7
|
|||||||||
Interest expense on deposits
|
23,380
|
16,462
|
42
|
|||||||||
Interest expense on long-term and other debt, net
|
86,976
|
69,006
|
26
|
|||||||||
Total interest expense, net
|
158,722
|
130,679
|
21
|
|||||||||
Income before income tax
|
451,545
|
433,653
|
4
|
%
|
||||||||
Provision for income taxes
|
156,674
|
158,717
|
(1
|
)
|
||||||||
Net income
|
$
|
294,871
|
$
|
274,936
|
7
|
%
|
||||||
Key Operating Metrics:
|
||||||||||||
Credit card statements generated
|
117,895
|
102,129
|
15
|
%
|
||||||||
Credit sales
|
$
|
10,968,457
|
$
|
8,111,813
|
35
|
%
|
||||||
Average credit card and loan receivables
|
$
|
10,771,751
|
$
|
8,096,612
|
33
|
%
|
||||||
AIR MILES reward miles issued
|
2,711,072
|
2,393,558
|
13
|
%
|
||||||||
AIR MILES reward miles redeemed
|
2,354,780
|
2,095,078
|
12
|
%
|
• | Transaction. Revenue increased $15.8 million, or 10%, to $180.1 million for the six months ended June 30, 2015 due to an increase in servicing fees charged to our credit cardholders. |
• | Redemption. Revenue increased $14.1 million, or 3%, to $526.3 million for the six months ended June 30, 2015. Despite the impact of foreign currency exchange rates, which negatively impacted revenue by $94.9 million, revenue increased due to a higher number of short-term loyalty programs in the market for the six months ended June 30, 2015 as compared to the prior year period, and a 12% increase in AIR MILES reward miles redeemed resulting in higher redemption revenue in our coalition loyalty program. |
• | Finance charges, net. Revenue increased $289.0 million, or 27%, to $1.4 billion for the six months ended June 30, 2015 due to a 33% increase in average credit card and loan receivables, which increased revenue $355.0 million. This increase was offset in part by a 120 basis point decline in finance charge yield, which decreased revenue by $66.0 million. Our finance charge yield has been negatively impacted by the growth in our co-brand credit card programs. |
• | Marketing services. Revenue increased $268.3 million, or 40%, to $936.6 million for the six months ended June 30, 2015. The Conversant acquisition added $244.4 million in revenue. Additionally, revenue increased $28.5 million within our Epsilon segment due to database builds completed for new clients and placed into production. |
• | Other revenue. Revenue increased $16.5 million, or 21%, to $95.4 million for the six months ended June 30, 2015 due to the Conversant acquisition. |
• | Within the LoyaltyOne segment, cost of operations increased $20.2 million due to an increase in the cost of redemptions associated with the increase in redemption revenue as discussed above. |
• | Within the Epsilon segment, cost of operations increased $218.5 million due primarily to the Conversant acquisition, which added $188.8 million. The remaining increase is due to an increase in payroll and benefits expense of $10.9 million associated with an increase in the number of associates to support growth, including the onboarding of new clients, and an increase of $18.7 million in direct processing expenses associated with the increase in revenue. |
• | Within the Card Services segment, cost of operations increased by $94.7 million. Payroll and benefits expense increased $22.3 million due to an increase in the number of associates to support growth, and marketing expenses increased $8.8 million to support the growth in credit sales. Other operating expenses increased $63.6 million due to higher credit card processing costs associated with the increase in the number of statements generated and higher data processing expenses. |
• | Securitization funding costs. Securitization funding costs increased $3.2 million, as higher average borrowings were offset in part by lower average interest rates. |
• | Interest expense on deposits. Interest expense on deposits increased $6.9 million due to an increase in average borrowings, offset in part by lower average interest rates. |
• | Interest expense on long-term and other debt, net. Interest expense on long-term and other debt, net increased $18.0 million as a result of $32.8 million in interest expense associated with both the $1.4 billion incremental term loan borrowed in December 2014 and the $600.0 million Senior Notes due 2022 issued in July 2014. These increases were offset by a decrease in interest expense of $17.5 million associated with the convertible senior notes that were repaid at maturity in May 2014. |
Three Months Ended June 30,
|
% Change
|
||||||||||||
2015
|
2014
|
2015 to 2014
|
|||||||||||
Revenue:
|
(In thousands, except percentages)
|
||||||||||||
LoyaltyOne
|
$
|
301,660
|
$
|
355,583
|
(15
|
)%
|
|||||||
Epsilon
|
495,172
|
357,088
|
39
|
||||||||||
Card Services
|
710,398
|
557,258
|
27
|
||||||||||
Corporate/Other
|
41
|
187
|
nm
|
||||||||||
Eliminations
|
(6,653
|
)
|
(4,958
|
)
|
nm
|
||||||||
Total
|
$
|
1,500,618
|
$
|
1,265,158
|
19
|
%
|
|||||||
Adjusted EBITDA, net (1):
|
|||||||||||||
LoyaltyOne
|
$
|
63,092
|
$
|
77,352
|
(18
|
)%
|
|||||||
Epsilon
|
112,553
|
67,692
|
66
|
||||||||||
Card Services
|
251,431
|
210,392
|
20
|
||||||||||
Corporate/Other
|
(34,563
|
)
|
(23,470
|
)
|
47
|
||||||||
Eliminations
|
—
|
—
|
nm
|
||||||||||
Total
|
$
|
392,513
|
$
|
331,966
|
18
|
%
|
|||||||
(1) | Adjusted EBITDA, net is equal to net income, plus stock compensation expense, provision for income taxes, interest expense, net, depreciation and amortization and amortization of purchased intangibles, less securitization funding costs, interest expense on deposits and adjusted EBITDA attributable to the non-controlling interest. For a reconciliation of adjusted EBITDA, net to net income, the most directly comparable GAAP financial measure, see "Use of Non-GAAP Financial Measures" included in this report. |
• | LoyaltyOne. Revenue decreased $53.9 million, or 15%, to $301.7 million for the three months ended June 30, 2015. Revenue was negatively impacted by the decline in the Euro and Canadian dollar relative to the U.S. dollar, which resulted in a $49.8 million decrease in revenue, and the timing of short term loyalty programs in market in 2015 as compared to 2014. Many of these programs were in market in the first quarter of 2015 as compared to 2014, when they were executed in the second quarter. |
• | Epsilon. Revenue increased $138.1 million, or 39%, to $495.2 million for the three months ended June 30, 2015 due primarily to the Conversant acquisition, which added $124.3 million. Revenue also increased due to the completion of database builds for new clients placed in production. |
• | Card Services. Revenue increased $153.1 million, or 27%, to $710.4 million for the three months ended June 30, 2015. Finance charges, net increased by $145.8 million, driven by a 33% increase in average credit card and loan receivables, which was a result of recent portfolio acquisitions and strong cardholder spending. Other servicing fees charged to our credit cardholders increased $7.6 million due to higher volumes. |
• | LoyaltyOne. Adjusted EBITDA, net decreased $14.3 million, or 18%, to $63.1 million for the three months ended June 30, 2015. Adjusted EBITDA, net was negatively impacted by the decline in the Euro and Canadian dollar relative to the U.S. dollar, which resulted in an $8.8 million decrease in adjusted EBITDA, net as well as the timing of short term loyalty programs in market. |
• | Epsilon. Adjusted EBITDA, net increased $44.9 million, or 66%, to $112.6 million for the three months ended June 30, 2015. Adjusted EBITDA, net was positively impacted by the acquisition of Conversant, which contributed $41.8 million and new database builds placed into production. |
• | Card Services. Adjusted EBITDA, net increased $41.0 million, or 20%, to $251.4 million for the three months ended June 30, 2015. Adjusted EBITDA, net was positively impacted by the increase in finance charges, net, but offset in part by both an increase in operating expenses due to increased volumes and an increase in the provision for loan loss resulting from the increase in credit card and loan receivables and a slight increase in the net loss rate. |
• | Corporate/Other. Adjusted EBITDA, net decreased $11.1 million to a loss of $34.6 million for the three months ended June 30, 2015 due to higher payroll and benefits expense. |
Six Months Ended June 30,
|
% Change
|
||||||||||||
2015
|
2014
|
2015 to 2014
|
|||||||||||
Revenue:
|
(In thousands, except percentages)
|
||||||||||||
LoyaltyOne
|
$
|
689,612
|
$
|
684,553
|
1
|
%
|
|||||||
Epsilon
|
1,000,073
|
704,557
|
42
|
||||||||||
Card Services
|
1,425,116
|
1,119,054
|
27
|
||||||||||
Corporate/Other
|
142
|
228
|
nm
|
||||||||||
Eliminations
|
(13,168
|
)
|
(10,334
|
)
|
nm
|
||||||||
Total
|
$
|
3,101,775
|
$
|
2,498,058
|
24
|
%
|
|||||||
Adjusted EBITDA, net (1):
|
|||||||||||||
LoyaltyOne
|
$
|
132,730
|
$
|
142,534
|
(7
|
)%
|
|||||||
Epsilon
|
216,190
|
122,894
|
76
|
||||||||||
Card Services
|
533,188
|
453,908
|
17
|
||||||||||
Corporate/Other
|
(59,268
|
)
|
(52,815
|
)
|
12
|
||||||||
Eliminations
|
—
|
—
|
nm
|
||||||||||
Total
|
$
|
822,840
|
$
|
666,521
|
23
|
%
|
|||||||
(1) | Adjusted EBITDA, net is equal to net income, plus stock compensation expense, provision for income taxes, interest expense, net, depreciation and amortization and amortization of purchased intangibles, less securitization funding costs, interest expense on deposits and adjusted EBITDA attributable to the non-controlling interest. For a reconciliation of adjusted EBITDA, net to net income, the most directly comparable GAAP financial measure, see "Use of Non-GAAP Financial Measures" included in this report. |
• | LoyaltyOne. Revenue increased $5.1 million, or 1%, to $689.6 million for the six months ended June 30, 2015. Revenue was negatively impacted by the decline in the Euro and Canadian dollar relative to the U.S. dollar, which resulted in a $115.3 million decrease in revenue, offset in part by a greater number of programs in market in the six months ended June 30, 2015 as compared to the prior year period, and a 12% increase in the number of AIR MILES reward miles redeemed. |
• | Epsilon. Revenue increased $295.5 million, or 42%, to $1.0 billion for the six months ended June 30, 2015. The Conversant acquisition added $261.0 million. Excluding the Conversant acquisition, Epsilon's revenue increased $34.6 million as a result of the completion of database builds for new clients that were placed in production. |
• | Card Services. Revenue increased $306.0 million, or 27%, to $1.4 billion for the six months ended June 30, 2015. Finance charges, net increased by $289.0 million, driven by a 33% increase in average credit card and loan receivables due to strong cardholder spending and new client signings. Transaction revenue increased $17.6 million due to an increase in servicing fees charged to credit cardholders due to higher volumes. |
• | LoyaltyOne. Adjusted EBITDA, net decreased $9.8 million, or 7%, to $132.7 million for the six months ended June 30, 2015. Adjusted EBITDA, net was positively impacted by the number of short-term loyalty programs in the market as compared to the six months ended June 30, 2014, while weaker Canadian dollar and Euro exchange rates negatively impacted adjusted EBITDA, net by $19.0 million. |
• | Epsilon. Adjusted EBITDA, net increased $93.3 million, or 76%, to $216.2 million for the six months ended June 30, 2015. The Conversant acquisition added $87.7 million. Excluding the Conversant acquisition, adjusted EBITDA, net increased by $5.6 million driven by database builds completed for new clients and placed in production. |
• | Card Services. Adjusted EBITDA, net increased $79.3 million, or 17%, to $533.2 million for the six months ended June 30, 2015. Adjusted EBITDA, net was positively impacted by the increase in finance charges, net, but offset in part by both an increase in operating expenses due to increased volumes and an increase in the provision for loan loss due to the increase in credit card and loan receivables. |
• | Corporate/Other. Adjusted EBITDA, net decreased $6.5 million to a loss of $59.3 million for the six months ended June 30, 2015 as higher discretionary benefits expense was offset in part by net foreign currency exchange gains related to the February 2015 settlement of the contingent liability associated with the BrandLoyalty acquisition. |
|
June 30,
2015
|
% of
Total
|
December 31,
2014
|
% of
Total
|
||||||||||||
|
(In thousands, except percentages)
|
|||||||||||||||
Receivables outstanding – principal
|
$
|
10,821,510
|
100.0
|
%
|
$
|
10,762,498
|
100.0
|
%
|
||||||||
Principal receivables balances contractually delinquent:
|
||||||||||||||||
31 to 60 days
|
159,460
|
1.5
|
%
|
157,760
|
1.4
|
%
|
||||||||||
61 to 90 days
|
104,146
|
1.0
|
93,175
|
0.9
|
||||||||||||
91 or more days
|
177,937
|
1.6
|
182,945
|
1.7
|
||||||||||||
Total
|
$
|
441,543
|
4.1
|
%
|
$
|
433,880
|
4.0
|
%
|
|
Three Months Ended
June 30,
|
Six Months Ended
June 30,
|
|||||||||||||
2015
|
2014
|
2015
|
2014
|
||||||||||||
(In thousands, except percentages)
|
|||||||||||||||
Average credit card receivables
|
$
|
10,866,214
|
$
|
8,170,572
|
$
|
10,771,751
|
$
|
8,096,612
|
|||||||
Net charge-offs of principal receivables
|
121,699
|
90,730
|
241,621
|
187,323
|
|||||||||||
Net charge-offs as a percentage of average credit card receivables
|
4.5
|
%
|
4.4
|
%
|
4.5
|
%
|
4.6
|
%
|
• | Redemption settlement assets. Cash decreased $8.6 million and $57.5 million for the six months ended June 30, 2015 and 2014, respectively. The use of cash in the six months ended June 30, 2014 was related to an increase in funding related to the change in breakage rate at December 31, 2013. |
• | Credit card and loan receivables, net. Cash decreased $272.1 million and $151.1 million for the six months ended June 30, 2015 and 2014, respectively, due to growth in credit card receivables associated with recent portfolio acquisitions and strong core cardholder spending. |
• | Proceeds from the sale of credit card portfolio. During the six months ended June 30, 2015, we sold a credit card portfolio resulting in proceeds of approximately $26.9 million. |
• | Payments for acquired business, net of cash acquired. During the six months ended June 30, 2014, we utilized cash of $259.5 million for the acquisition of our 60% ownership interest in BrandLoyalty on January 2, 2014. |
• | Capital expenditures. Cash paid for capital expenditures was $88.1 million and $77.3 million for the six months ended June 30, 2015 and 2014, respectively. We anticipate capital expenditures not to exceed 3% of annual revenue. |
• | Purchases of other investments. During the six months ended June 30, 2014, we purchased $100.1 million of U.S. treasury bonds. |
|
2015
|
2016
|
2017
|
2018
|
2019 and Thereafter
|
Total
|
||||||||||||||||||
|
(In thousands)
|
|||||||||||||||||||||||
Term notes
|
$
|
300,000
|
$
|
1,050,000
|
$
|
650,000
|
$
|
991,000
|
$
|
802,166
|
$
|
3,793,166
|
||||||||||||
Conduit facilities(1)
|
—
|
450,000
|
1,600,000
|
—
|
—
|
2,050,000
|
||||||||||||||||||
Total(2)
|
$
|
300,000
|
$
|
1,500,000
|
$
|
2,250,000
|
$
|
991,000
|
$
|
802,166
|
$
|
5,843,166
|
||||||||||||
(1) | Amount represents borrowing capacity, not outstanding borrowings. |
(2) | Total amounts do not include $1.7 billion of debt issued by the credit card securitization trusts, which was retained by us and has been eliminated in the unaudited condensed consolidated financial statements. |
Period
|
Total Number of
Shares Purchased(1)
|
Average Price Paid per Share
|
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans or Programs
|
Approximate Dollar
Value of Shares that May Yet Be Purchased
Under the Plans or Programs(2)
|
||||||||||||
|
(Dollars in millions)
|
|||||||||||||||
During 2015:
|
||||||||||||||||
April 1-30
|
109,351
|
$
|
296.79
|
106,165
|
$
|
403.6
|
||||||||||
May 1-31
|
178,142
|
298.69
|
175,590
|
351.2
|
||||||||||||
June 1-30
|
172,329
|
294.89
|
168,999
|
301.3
|
||||||||||||
Total
|
459,822
|
$
|
296.81
|
450,754
|
$
|
301.3
|
||||||||||
(1) | During the period represented by the table, 9,068 shares of our common stock were purchased by the administrator of our 401(k) and Retirement Savings Plan for the benefit of the employees who participated in that portion of the plan. |
(2) | On January 1, 2015, our Board of Directors authorized a stock repurchase program to acquire up to $600.0 million of our outstanding common stock from January 1, 2015 through December 31, 2015. On April 15, 2015, our Board of Directors authorized an increase to the stock repurchase program approved on January 1, 2015 to acquire up to $1.0 billion of our outstanding common stock through December 31, 2015. The stock repurchase plan is subject to any restrictions pursuant to the terms of our credit agreements, indentures, applicable securities laws or otherwise. |
Incorporated by Reference
|
||||||||||
Exhibit No.
|
Filer
|
Description
|
Form
|
Exhibit
|
Filing Date
|
|||||
3.1
|
(a)
|
Second Amended and Restated Certificate of Incorporation of the Registrant.
|
S-1
|
3.1
|
3/3/00
|
|||||
3.2
|
(a)
|
Certificate of Amendment to the Second Amended and Restated Certificate of Incorporation of the Registrant.
|
8-K
|
3.1
|
6/7/13
|
|||||
3.3
|
(a)
|
Fourth Amended and Restated Bylaws of the Registrant.
|
8-K
|
3.2
|
6/7/13
|
|||||
4
|
(a)
|
Specimen Certificate for shares of Common Stock of the Registrant.
|
10-Q
|
4
|
8/8/03
|
|||||
10.1
|
(b)
(c)
(d)
|
Series 2015-A Indenture Supplement, dated as of April 17, 2015, between World Financial Network Credit Card Master Note Trust and MUFG Union Bank, N.A.
|
8-K
|
4.1
|
4/21/15
|
|||||
10.2
|
(a)
|
First Amendment to Second Amended and Restated Series 2009-VFC1 Supplement, dated as of May 1, 2015, among Comenity Bank, WFN Credit Company, LLC and Deutsche Bank Trust Company Americas.
|
10-Q
|
10.5
|
5/7/15
|
|||||
+10.3
|
(a)
|
Form of Alliance Data Systems Corporation Indemnification Agreement for Officers and Directors.
|
8-K
|
10.1
|
6/5/15
|
|||||
*31.1
|
(a)
|
Certification of Chief Executive Officer of Alliance Data Systems Corporation pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended.
|
||||||||
*31.2
|
(a)
|
Certification of Chief Financial Officer of Alliance Data Systems Corporation pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended.
|
||||||||
*32.1
|
(a)
|
Certification of Chief Executive Officer of Alliance Data Systems Corporation pursuant to Rule 13a-14(b) promulgated under the Securities Exchange Act of 1934, as amended, and Section 1350 of Chapter 63 of Title 18 of the United States Code.
|
||||||||
*32.2
|
(a)
|
Certification of Chief Financial Officer of Alliance Data Systems Corporation pursuant to Rule 13a-14(b) promulgated under the Securities Exchange Act of 1934, as amended, and Section 1350 of Chapter 63 of Title 18 of the United States Code.
|
||||||||
*101.INS
|
(a)
|
XBRL Instance Document
|
||||||||
*101.SCH
|
(a)
|
XBRL Taxonomy Extension Schema Document
|
||||||||
*101.CAL
|
(a)
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
Incorporated by Reference
|
||||||||||
Exhibit No.
|
Filer
|
Description
|
Form
|
Exhibit
|
Filing Date
|
|||||
*101.DEF
|
(a)
|
XBRL Taxonomy Extension Definition Linkbase Document
|
||||||||
*101.LAB
|
(a)
|
XBRL Taxonomy Extension Label Linkbase Document
|
||||||||
*101.PRE
|
(a)
|
XBRL Taxonomy Extension Presentation Linkbase Document
|
||||||||
*
|
Filed herewith
|
|
+
|
Management contract, compensatory plan or arrangement
|
(a)
|
Alliance Data Systems Corporation
|
|
(b)
|
WFN Credit Company
|
|
(c)
|
World Financial Network Credit Card Master Trust
|
|
(d)
|
World Financial Network Credit Card Master Note Trust
|
ALLIANCE DATA SYSTEMS CORPORATION
|
By:
|
/s/ Edward J. Heffernan
|
||
Edward J. Heffernan
|
|||
President and Chief Executive Officer
|
By:
|
/s/ Charles L. Horn
|
||
Charles L. Horn
|
|||
Executive Vice President and Chief Financial Officer
|