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, 2020, filed with the SEC on February 26,
2021.
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.
Planned Spinoff
of the LoyaltyOne segment
In May 2021, the Company announced its intention to spin off its
LoyaltyOne segment, comprised of its Canadian AIR MILES®
Reward Program and Netherlands-based BrandLoyalty business, into a
new, independent, publicly traded company (“SpinCo”) through a
distribution of 81% of SpinCo’s shares to the stockholders of ADSC.
The transaction is expected to qualify as a tax-free reorganization
and a tax-free distribution to the Company and its stockholders for
U.S. federal income tax purposes. The spinoff is expected to be
completed in the fourth quarter of 2021, subject to market and
certain other conditions. At the time of the spinoff, the Company
expects to retain a 19% interest in SpinCo and the historical
results of the LoyaltyOne segment will be reflected as discontinued
operations in the Company’s consolidated financial statements.
Recently Issued
Accounting Standards
In March 2020, the Financial Accounting Standards Board (“FASB”)
issued Accounting Standards Update (“ASU”) 2020-04, “Facilitation
of the Effects of Reference Rate Reform on Financial Reporting.”
This ASU provides optional expedients and exceptions for applying
GAAP to contracts, hedging relationships, and other transactions
affected by reference rate reform if certain criteria are met. The
amendments in this ASU apply only to contracts and hedging
relationships that reference the London Interbank Offered Rate
(“LIBOR”) or another reference rate expected to be discontinued due
to reference rate reform. The expedients and exceptions provided by
the amendments do not apply to contract modifications made and
hedging relationships entered into or evaluated after December 31,
2022. This ASU is elective and is effective upon issuance for all
entities. The Company is evaluating the impact that adoption of ASU
2020-04 will have on its consolidated financial statements.
Recently Adopted
Accounting Standards
In December 2019, the FASB issued ASU 2019-12, “Simplifying the
Accounting for Income Taxes.” ASU 2019-12 eliminated certain
exceptions within Accounting Standards Codification (“ASC”) 740,
“Income Taxes,” and clarified certain aspects of ASC 740 to promote
consistency among reporting entities. Most amendments within the
standard were required to be applied on a prospective basis, while
certain amendments must be applied on a retrospective or modified
retrospective basis. The Company’s adoption of this standard on
January 1, 2021 did not have a material impact on its consolidated
financial statements.