The following discussion should be read in conjunction with the unaudited
condensed consolidated financial statements and related notes thereto presented
in this quarterly report and the consolidated financial statements and related
notes thereto included in our Annual Report filed on Form 10-K for the year
ended December 31, 2011, filed with the Securities and Exchange Commission, or
SEC, on February 27, 2012.
Year in Review Highlights
For the six months ended June 30, 2012, revenue increased 18.7% to $1.8 billion
and adjusted EBITDA increased 20.4% to $596.5 million as compared to the prior
year period as each of our three segments achieved solid operating results.
LoyaltyOne®
Revenue increased 15.8% to $487.4 million and adjusted EBITDA increased 7.0% to
$119.0 million for the six months ended June 30, 2012 as compared to the same
period in 2011.
The LoyaltyOne segment generates revenue primarily from our coalition loyalty
program in Canada and, as such, the segment can be impacted by changes in the
foreign currency exchange rate between the U.S. dollar and the Canadian dollar.
A weaker Canadian dollar negatively impacted the quarter as the average foreign
currency exchange rate for the six months ended June 30, 2012 was $0.99 as
compared to $1.02 in the prior year period, which lowered revenue and adjusted
EBITDA by $14.6 million and $4.0 million, respectively.
AIR MILES® reward miles redeemed during the six months ended June 30, 2012
increased 26.0% compared to the same period in the prior year due to higher
collector redemptions. As expected, the introduction of a five-year expiry
policy for the AIR MILES Reward Program in December 2011 stimulated redemption
activity during the first quarter of 2012 and remained somewhat elevated during
the second quarter of 2012. We believe redemption activity will continue to
moderate for the remainder of 2012.
The number of AIR MILES reward miles issued impacts the number of future AIR
MILES reward miles available to be redeemed. This can also impact our future
revenue recognized with respect to the number of AIR MILES reward miles redeemed
and the amount of breakage for those AIR MILES reward miles expected to go
unredeemed. AIR MILES reward miles issued during the six months ended June 30,
2012 increased 9.3% compared to the same period in the prior year due to
positive growth in consumer credit card spending and increased promotional
activity in the gas and grocer sectors. We expect mid-single digit
year-over-year issuance growth for 2012.
In December 2011 we introduced a new program option to issue AIR MILES reward
miles called AIR MILES Cash, to which collectors, beginning in the first quarter
of 2012, can allocate some or all of their future AIR MILES reward miles
collected. Effective March 2012, AIR MILES Cash enabled collectors to instantly
redeem their AIR MILES reward miles collected in this new program in-store
towards purchases at participating sponsors. We have approximately 600,000
collectors in the program and launched our fifth participating redemption
sponsor in June 2012. AIR MILES reward mile issuance in AIR MILES Cash continues
to meet our expectations; however, such issuances are not a material part of
total AIR MILES reward mile issuances. During the remainder of 2012, we plan to
increase the number of redemption sponsors as well as increase the number of
locations where AIR MILES Cash redemptions are accepted. The implementation of
AIR MILES Cash did not have a significant impact for the six months ended
June 30, 2012 nor is it expected to have a significant impact for the remainder
of 2012.
During the six months ended June 30, 2012, LoyaltyOne announced a new multi-year
agreement with Toys "R" Us, Canada to issue AIR MILES reward miles in all
Toys "R" Us and Babies "R" Us locations across Canada.
Further, CBSM-Companhia Brasileira De Servicos De Marketing, operator of
Brazil's dotz coalition loyalty program, or dotz, in which we have a 37%
ownership, is continuing to roll-out its coalition loyalty program into
additional regions. We announced the rollout of dotz into the Sao Paulo State
interior in April 2012 and the expansion of the dotz program into Fortaleza in
July 2012. We anticipate that dotz will enter into two additional Brazilian
markets by the end of 2012. In June 2012, we acquired an additional 8% ownership
interest in Direxions Global Solutions Private Ltd., a leading loyalty, CRM
solutions and data analytics provider in India, bringing our total ownership
interest to 34%. We expect to incur losses of approximately $15 million
associated with our international initiatives in 2012.
27
--------------------------------------------------------------------------------
Index
Epsilon®
Revenue increased 34.7% to $463.4 million and adjusted EBITDA increased 21.4% to
$88.6 million for the six months ended June 30, 2012 as compared to the same
period in 2011. These increases were driven by the acquisition of Aspen
Marketing Holdings, Inc., or Aspen, in May 2011 and growth in marketing
technology with the expansion of services to existing clients and new client
signings.
During the six months ended June 30, 2012, Epsilon announced a new multi-year
agreement with Northwestern Mutual Life Insurance Company to manage and deploy
their permission-based email newsletters and email marketing initiatives.
Epsilon also announced that The Container Store, a leading retailer of storage
and organization products, has enlisted Epsilon for comprehensive data and
database marketing services. In addition, Epsilon announced a new multi-year
agreement with Canadian Tire Corporation, one of Canada's largest general and
sporting goods retailers, to host the electronic platform for Canadian Tire
Corporation's customer rewards program. Patagonia, a leading designer of
sport-related apparel and accessories, has renewed its long-standing partnership
with Epsilon where Epsilon will continue to provide comprehensive database
marketing services.
We anticipate that Epsilon's revenue growth will experience some temporary
softness in the second half of 2012, particularly in the third quarter of 2012,
due to weakness in the pharmaceutical sector. However, we expect that adjusted
EBITDA will continue double-digit growth, with expansion in our adjusted EBITDA
margin.
Private Label Services and Credit
Revenue increased 12.5% to $809.8 million and adjusted EBITDA increased 24.1% to
$430.5 million for the six months ended June 30, 2012 as compared to the same
period in 2011.
For the six months ended June 30, 2012, average credit card receivables
increased 9.9% as compared to the same period in the prior year as a result of
increased credit sales and stabilized payment rates. Credit sales increased
19.1% for the six months ended June 30, 2012 due to strong credit cardholder
spending and recent new client signings.
Delinquency rates improved to 3.9% of principal receivables at June 30, 2012,
down from 4.5% at June 30, 2011. The principal net charge-off rate was 5.1% for
the six months ended June 30, 2012 as compared to 7.5% in the prior year period.
Based on current trends, we anticipate a 150-180 basis point improvement in the
principal net charge-off rate for the full year 2012 as compared to 2011.
In March 2012, we acquired the existing credit card portfolio of Pier 1 Imports
for a total purchase price of $97.7 million. In May 2012, we acquired the
existing private label credit card portfolio of Premier Designs, Inc for a
preliminary purchase price of $24.5 million, which is subject to customary
purchase price adjustments. In July 2012, we purchased the existing private
label credit card portfolio of The Bon-Ton Stores, Inc. Total consideration paid
was approximately $500 million, subject to customary purchase price adjustments.
We do not expect the acquisition of the portfolio to provide any accretion to
earnings per share in 2012, but it is expected to be accretive to 2013.
During the six months ended June 30, 2012, we also announced the signing of
multi-year renewal agreements to continue providing private label credit card
services to Reed Jewelers, a leading multichannel jewelry retailer; The Buckle
Inc., a leading multichannel retailer of private label and brand name apparel,
accessories and footwear; and to Gardner-White Furniture, a Michigan-based
multichannel retailer of home furnishings and electronics. In addition, we
signed a multi-year renewal agreement to continue managing the private label
credit card program for Little Switzerland, Inc., a leading multi-channel
retailer of duty-free merchandise. We signed a new multi-year agreement to
create and manage a new private label credit card program for Blue Nile, Inc, a
leading online retailer of diamonds and fine jewelry.
Critical Accounting Policies and Estimates
There have been no material changes to our critical accounting policies and
estimates from the information provided in Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations," included in our
Annual Report filed on Form 10-K for the fiscal year ended December 31, 2011.
28
--------------------------------------------------------------------------------
Index
Use of Non-GAAP Financial Measures
Adjusted EBITDA is a non-GAAP financial measure equal to net income, the most
directly comparable financial measure based on accounting principles generally
accepted in the United States of America, or GAAP, plus stock compensation
expense, provision for income taxes, interest expense, net, depreciation and
other amortization and amortization of purchased intangibles.
We use adjusted EBITDA as an integral part of our internal reporting to measure
the performance of our reportable segments and to evaluate the performance of
our senior management. Adjusted EBITDA is considered an important indicator of
the operational strength of our businesses. Adjusted EBITDA eliminates the
uneven effect across all business segments of considerable amounts of non-cash
depreciation of tangible assets and amortization of certain intangible assets
that were recognized in business combinations. A limitation of this measure,
however, is that it does not reflect the periodic costs of certain capitalized
tangible and intangible assets used in generating revenues in our businesses.
Management evaluates the costs of such tangible and intangible assets, as well
as asset sales through other financial measures, such as capital expenditures,
investment spending and return on capital and therefore the effects are excluded
from adjusted EBITDA. Adjusted EBITDA also eliminates the non-cash effect of
stock compensation expense. Stock compensation expense is not included in the
measurement of segment adjusted EBITDA provided to the chief operating decision
maker for purposes of assessing segment performance and decision making with
respect to resource allocations. Therefore, we believe that adjusted EBITDA
provides useful information to our investors regarding our performance and
overall results of operations. Adjusted EBITDA is not intended to be a
performance measure that should be regarded as an alternative to, or more
meaningful than, either operating income or net income as an indicator of
operating performance or to cash flows from operating activities as a measure of
liquidity. In addition, adjusted EBITDA is not intended to represent funds
available for dividends, reinvestment or other discretionary uses, and should
not be considered in isolation or as a substitute for measures of performance
prepared in accordance with GAAP.
The adjusted EBITDA measure presented in this Quarterly Report on Form 10-Q may
not be comparable to similarly titled measures presented by other companies, and
may not be identical to corresponding measures used in our various agreements.
Three Months Ended Six Months Ended
June 30, June 30,
2012 2011 2012 2011
(In thousands)
Net income $ 103,821 $ 69,023 $ 219,050 $ 155,399
Stock compensation expense 12,880 11,106 25,186 20,190
Provision for income taxes 63,655 43,974 135,393 98,047
Interest expense, net 73,067 78,794 138,719 150,253
Depreciation and other amortization 18,496 16,850 36,100 33,604
Amortization of purchased intangibles 20,907 19,170 42,022 37,814
Adjusted EBITDA $ 292,826 $ 238,917 $ 596,470 $ 495,307
29--------------------------------------------------------------------------------
Index
Results of Operations
Three months ended June 30, 2012 compared to the three months ended June 30,
2011
Three Months Ended
June 30, Change
2012 2011 $ %
(In thousands, except percentages)
Revenue:
LoyaltyOne $ 229,562 $ 203,162 $ 26,400 13.0 %
Epsilon 235,476 188,456 47,020 25.0
Private Label Services and Credit 402,497 350,718 51,779 14.8
Corporate/Other - 356 (356 ) (100.0 )
Eliminations (1,050 ) (2,234 ) 1,184 nm *
Total $ 866,485 $ 740,458 $ 126,027 17.0 %
Adjusted EBITDA (1):
LoyaltyOne $ 60,574 $ 52,943 $ 7,631 14.4 %
Epsilon 48,779 39,324 9,455 24.0
Private Label Services and Credit 206,078 163,671 42,407 25.9
Corporate/Other (22,605 ) (15,567 ) (7,038 ) 45.2
Eliminations - (1,454 ) 1,454 nm *
Total $ 292,826 $ 238,917 $ 53,909 22.6 %
Stock compensation expense:
LoyaltyOne $ 2,248 $ 1,365 $ 883 64.7 %
Epsilon 3,439 2,855 584 20.5
Private Label Services and Credit 2,267 1,786 481 26.9
Corporate/Other 4,926 5,100 (174 ) (3.4 )
Total $ 12,880 $ 11,106 $ 1,774 16.0 %
Depreciation and amortization:
LoyaltyOne $ 4,967 $ 5,251 $ (284 ) (5.4 )%
Epsilon 24,844 20,721 4,123 19.9
Private Label Services and Credit 8,822 8,858 (36 ) (0.4 )
Corporate/Other 770 1,190 (420 ) (35.3 )
Total $ 39,403 $ 36,020 $ 3,383 9.4 %
Operating income:
LoyaltyOne $ 53,359 $ 46,327 $ 7,032 15.2 %
Epsilon 20,496 15,748 4,748 30.1
Private Label Services and Credit 194,989 153,027 41,962 27.4
Corporate/Other (28,301 ) (21,857 ) (6,444 ) 29.5
Eliminations - (1,454 ) 1,454 nm *
Total $ 240,543 $ 191,791 $ 48,752 25.4 %
Adjusted EBITDA margin (2):
LoyaltyOne 26.4 % 26.1 % 0.3 %
Epsilon 20.7 20.9 (0.2 )
Private Label Services and Credit 51.2 46.7
4.5
Total 33.8 % 32.3 % 1.5 %
Segment operating data:
Private label statements generated 38,851 34,800 4,051 11.6 %
Credit sales $ 2,869,999 $ 2,425,363 $ 444,636 18.3 %
Average credit card receivables $ 5,467,489 $ 4,848,715 $ 618,774 12.8 %
AIR MILES reward miles issued 1,316,309 1,219,695 96,614 7.9 %
AIR MILES reward miles redeemed 1,024,738 816,927 207,811 25.4 %
(1) Adjusted EBITDA is equal to net income, plus stock compensation expense,
provision for income taxes, interest expense, net, depreciation and other
amortization, and amortization of purchased intangibles. For a reconciliation
of adjusted EBITDA to net income, the most directly comparable GAAP financial
measure, see "Use of Non-GAAP Financial Measures" included in this report.
(2) Adjusted EBITDA margin is adjusted EBITDA divided by revenue. Management uses
adjusted EBITDA margin to analyze the operating performance of the segments and
the impact revenue growth has on operating expenses.
* not meaningful
30--------------------------------------------------------------------------------
Index
Consolidated Operating Results:
Revenue. Total revenue increased $126.0 million, or 17.0%, to $866.5 million for
the three months ended June 30, 2012 from $740.5 million for the three months
ended June 30, 2011. The net increase was due to the following:
• Transaction. Revenue increased $7.6 million, or 10.9%, to $77.5 million for
the three months ended June 30, 2012. Transaction revenue was positively
impacted by an increase of $3.7 million in other servicing fees charged to our
credit cardholders, an increase of $2.6 million in higher merchant fees due to
increased credit sales at certain retailers, and an increase of $1.3 million
in AIR MILES reward miles issuance fees, for which we provide marketing and
administrative services, as a result of increases in the number of AIR MILES
reward miles issued over the last several quarters.
• Redemption. Revenue increased $25.8 million, or 19.4%, to $159.2 million for
the three months ended June 30, 2012 due to a 25.4% increase in AIR MILES
reward miles redeemed. The introduction of a five-year expiry policy to the
AIR MILES Reward Program in December 2011 continued to stimulate redemption
activity during the second quarter of 2012, although at moderated levels from
the first quarter of 2012.
• Finance charges, net. Revenue increased $45.5 million, or 13.7%, to $377.8
million for the three months ended June 30, 2012. This increase was driven by
an improvement in our gross yield of 20 basis points and a 12.8% increase in
average credit card receivables as customer payment rates stabilized on a
year-over-year basis and credit cardholder spending remained strong.
• Database marketing fees and direct marketing. Revenue increased $37.3 million,
or 20.4%, to $219.5 million for the three months ended June 30, 2012. The
increase in revenue was driven by our acquisition of Aspen, which added $33.2
million, with the remainder of the increase driven by growth in our marketing
technology business resulting from the expansion of services to existing
clients as well as new client signings within our Epsilon segment.
• Other revenue. Revenue increased $9.8 million, or 43.0%, to $32.5 million for
the three months ended June 30, 2012 due to Aspen, which added $8.1 million in
revenue associated with strategic consulting initiatives.
Cost of operations. Cost of operations increased $75.2 million, or 17.4%, to
$506.5 million for the three months ended June 30, 2012 as compared to the three
months ended June 30, 2011. The increase resulted from growth across each of our
segments, including the following:
• Within the LoyaltyOne segment, cost of operations increased $19.7 million due
to a $9.1 million increase in the cost of fulfillment for the AIR MILES Reward
Program as a result of the increase in the number of AIR MILES reward miles
redeemed. In addition, marketing expenses increased $3.9 million due to costs
associated with the promotion of AIR MILES Cash, and payroll and benefit costs
increased $3.3 million to support new growth initiatives, including
international expansion activities.
• Within the Epsilon segment, cost of operations increased $38.1 million due to
the acquisition of Aspen, which added $35.2 million. Cost of operations also
increased as a result of enhancements to infrastructure and security.
• Within the Private Label Services and Credit segment, cost of operations
increased by $17.7 million, with payroll and benefits increasing $7.1 million
due to an increase in the number of associates to support current and future
growth. Marketing expenses increased $2.9 million, in part due to growth in
credit sales, other credit card expenses increased $3.0 million due to higher
volumes and legal and consulting fees also increased $2.3 million.
Provision for loan loss. Provision for loan loss decreased $7.8 million, or
13.0%, to $52.6 million for the three months ended June 30, 2012 as compared to
$60.4 million for the three months ended June 30, 2011. The provision for loan
loss was impacted by a decline in the net charge-off rate of credit card
receivables. The net charge-off rate improved 230 basis points to 4.9% for the
three months ended June 30, 2012 as compared to 7.2% for the three months ended
June 30, 2011. Delinquency rates improved to 3.9% of principal credit card
receivables at June 30, 2012 from 4.5% at June 30, 2011. The decrease in the
provision for loan loss was partially offset by the 12.8% increase in average
credit card receivables.
31
--------------------------------------------------------------------------------
Index
General and administrative. General and administrative expenses increased $6.5
million, or 31.0%, to $27.5 million for the three months ended June 30, 2012 as
compared to $21.0 million for the three months ended June 30, 2011. The increase
was driven by payroll and benefit costs associated with higher medical costs and
an increase in expenses for our retirement savings plans.
Depreciation and other amortization. Depreciation and other amortization
increased $1.6 million, or 9.8%, to $18.5 million for the three months ended
June 30, 2012 as compared to $16.9 million for the three months ended June 30,
2011 due to additional assets placed in service resulting from fixed assets
acquired in the Aspen acquisition and capital expenditures.
Amortization of purchased intangibles. Amortization of purchased intangibles
increased $1.7 million, or 9.1%, to $20.9 million for the three months ended
June 30, 2012 as compared to $19.2 million for the three months ended June 30,
2011. The increase relates to $3.8 million of additional amortization associated
with the intangible assets acquired in the Aspen acquisition, offset in part by
certain fully amortized intangible assets.
Interest expense. Total interest expense, net decreased $5.7 million, or 7.3%,
to $73.1 million for the three months ended June 30, 2012 as compared to $78.8
million for the three months ended June 30, 2011. The decrease was due to the
following:
• Securitization funding costs. Securitization funding costs decreased $12.5
million due to a decline in average interest rates for the three months ended
June 30, 2012 as compared to the three months ended June 30, 2011. In
addition, we also incurred a net benefit of $3.5 million resulting from a
change in the valuation of our derivative financial instruments.
• Interest expense on deposits. Interest on deposits increased $0.5 million as
increases from higher borrowings were offset by lower average interest rates.
• Interest expense on long-term and other debt, net. Interest expense on
long-term and other debt, net increased $6.3 million due, in part, to an
increase in borrowings resulting from the issuance in the first quarter of
2012 of the $500.0 million senior notes due in 2020. In addition, the amortization of imputed interest associated with the convertible senior notes
increased $2.1 million as compared to the same period in 2011. These increases
were offset by a decline in interest expense associated with our line of
credit. The increases were further offset by a decline in the amortization of
debt issuance costs as in the second quarter of 2011 we wrote off $2.6 million
in unamortized debt costs associated with the early extinguishment of certain
previous term loans.
Taxes. Income tax expense increased $19.7 million to $63.7 million for the three
months ended June 30, 2012 from $44.0 million for the comparable period in 2011
due primarily to an increase in taxable income, offset in part by a decline in
the effective tax rate. The effective tax rate for the three months ended
June 30, 2012 declined to 38.0% as compared to 38.9% for the three months ended
June 30, 2011, as the result of the settlement of certain tax audits in
April 2012.
Segment Revenue and Adjusted EBITDA:
Revenue. Total revenue increased $126.0 million, or 17.0%, to $866.5 million for
the three months ended June 30, 2012 from $740.5 million for the three months
ended June 30, 2011. The net increase was due to the following:
• LoyaltyOne. Revenue increased $26.4 million, or 13.0%, to $229.6 million for
the three months ended June 30, 2012. An unfavorable Canadian foreign currency
exchange rate impacted revenue by $10.1 million. Redemption revenue increased
$25.8 million, or 19.4%, due to higher collector redemptions compared to the
second quarter of 2011. The introduction of a five-year expiry policy to the
AIR MILES Reward Program on December 31, 2011 continued to stimulate
redemption activity during the quarter. Revenue from issuance fees, for which
we provide marketing and administrative services, increased $1.3 million due
to increases in the total number of AIR MILES reward miles issued over the
last several quarters.
• Epsilon. Revenue increased $47.0 million, or 25.0%, to $235.5 million for the
three months ended June 30, 2012. Aspen's marketing services product lines
added $41.0 million to revenue. In addition, marketing technology revenue
continues to build from past client signings and the expansion of services to
existing clients, growing $7.0 million, or 6.9%. These increases were offset
by a 2.0% decrease in data revenue, as solid growth in Abacus transactional
data was offset by softness in consumer demographic data offerings.
32--------------------------------------------------------------------------------
Index
• Private Label Services and Credit. Revenue increased $51.8 million, or 14.8%,
to $402.5 million for the three months ended June 30, 2012. Finance charges
and late fees increased by $45.5 million, driven by an increase in our gross
yield of 20 basis points and a 12.8% increase in average credit card
receivables due to strong credit cardholder spending and the stabilization of
customer payment rates. Transaction revenue increased $6.3 million due in part
to an increase in merchant fees and other servicing fees.
Adjusted EBITDA. For purposes of the discussion below, adjusted EBITDA is equal
to net income plus stock compensation expense, provision for income taxes,
interest expense, net, depreciation and other amortization and amortization of
purchased intangibles. Adjusted EBITDA increased $53.9 million, or 22.6%, to
$292.8 million for the three months ended June 30, 2012 from $238.9 million for
the three months ended June 30, 2011. The increase was due to the following:
• LoyaltyOne. Adjusted EBITDA increased $7.6 million, or 14.4%, to $60.6 million
for the three months ended June 30, 2012. Adjusted EBITDA was positively
impacted by increases in revenue associated with higher redemptions. These
increases were somewhat offset by increases in the cost of fulfillment for
those AIR MILES reward miles redeemed. Adjusted EBITDA was also negatively
impacted by marketing expenses associated with the promotion of AIR MILES Cash
and increases in costs associated with our international initiatives.
• Epsilon. Adjusted EBITDA increased $9.5 million, or 24.0%, to $48.8 million
for the three months ended June 30, 2012. Adjusted EDITDA was positively
impacted by Aspen and the growth in marketing technology. The positive impacts
to adjusted EBITDA were somewhat offset by costs associated with a data center
relocation and enhancements to infrastructure and security to support future
growth.
• Private Label Services and Credit. Adjusted EBITDA increased $42.4 million, or
25.9%, to $206.1 million for the three months ended June 30, 2012. Adjusted
EBITDA was positively impacted by the increase in finance charges, net and a
decline in the provision for loan loss, each as described above. The net
charge-off rate for the three months ended June 30, 2012 was 4.9% as compared
to 7.2% in the same period in 2011. Delinquency rates also improved to 3.9% of
principal credit card receivables at June 30, 2012 from 4.5% at June 30, 2011.
• Corporate/Other. Adjusted EBITDA decreased $7.0 million to a loss of $22.6
million for the three months ended June 30, 2012 related to increases in
payroll and benefit costs associated with higher medical costs and an increase
in expenses for our retirement savings plans.
33--------------------------------------------------------------------------------
Index
Results of Operations
Six months ended June 30, 2012 compared to the six months ended June 30, 2011
Six Months Ended
June 30, Change
2012 2011 $ %
(In thousands, except percentages)
Revenue:
LoyaltyOne $ 487,359 $ 420,836 $ 66,523 15.8 %
Epsilon 463,408 344,140 119,268 34.7
Private Label Services and Credit 809,843 719,628 90,215 12.5
Corporate/Other 292 713 (421 ) (59.0 )
Eliminations (2,848 ) (4,423 ) 1,575 nm *
Total $ 1,758,054 $ 1,480,894 $ 277,160 18.7 %
Adjusted EBITDA (1):
LoyaltyOne $ 118,966 $ 111,194 $ 7,772 7.0 %
Epsilon 88,601 72,990 15,611 21.4
Private Label Services and Credit 430,480 347,001 83,479 24.1
Corporate/Other (41,577 ) (32,970 ) (8,607 ) 26.1
Eliminations - (2,908 ) 2,908 nm *
Total $ 596,470 $ 495,307 $ 101,163 20.4 %
Stock compensation expense:
LoyaltyOne $ 4,369 $ 3,332 $ 1,037 31.1 %
Epsilon 7,050 5,148 1,902 36.9
Private Label Services and Credit 4,102 3,430 672 19.6
Corporate/Other 9,665 8,280 1,385 16.7
Total $ 25,186 $ 20,190 $ 4,996 24.7 %
Depreciation and amortization:
LoyaltyOne $ 10,086 $ 10,434 $ (348 ) (3.3 )%
Epsilon 49,222 40,620 8,602 21.2
Private Label Services and Credit 17,347 17,868 (521 ) (2.9 )
Corporate/Other 1,467 2,496 (1,029 ) (41.2 )
Total $ 78,122 $ 71,418 $ 6,704 9.4 %
Operating income:
LoyaltyOne $ 104,511 $ 97,428 $ 7,083 7.3 %
Epsilon 32,329 27,222 5,107 18.8
Private Label Services and Credit 409,031 325,703 83,328 25.6
Corporate/Other (52,709 ) (43,746 ) (8,963 ) 20.5
Eliminations - (2,908 ) 2,908 nm *
Total $ 493,162 $ 403,699 $ 89,463 22.2 %
Adjusted EBITDA margin (2):
LoyaltyOne 24.4 % 26.4 % (2.0 )%
Epsilon 19.1 21.2 (2.1 )
Private Label Services and Credit 53.2 48.2
5.0
Total 33.9 % 33.4 % 0.5 %
Segment operating data:
Private label statements generated 75,968 69,546 6,422 9.2 %
Credit sales $ 5,213,548 $ 4,379,062 $ 834,486 19.1 %
Average credit card receivables $ 5,394,502 $ 4,908,587 $ 485,915 9.9 %
AIR MILES reward miles issued 2,546,152 2,330,233 215,919 9.3 %
AIR MILES reward miles redeemed 2,274,560 1,805,572 468,988 26.0 %
(1) Adjusted EBITDA is equal to net income, plus stock compensation expense,
provision for income taxes, interest expense, net, depreciation and other
amortization, and amortization of purchased intangibles. For a reconciliation
of adjusted EBITDA to net income, the most directly comparable GAAP financial
measure, see "Use of Non-GAAP Financial Measures" included in this report.
(2) Adjusted EBITDA margin is adjusted EBITDA divided by revenue. Management uses
adjusted EBITDA margin to analyze the operating performance of the segments and
the impact revenue growth has on operating expenses.
* not meaningful
34--------------------------------------------------------------------------------
Index
Consolidated Operating Results:
Revenue. Total revenue increased $277.2 million, or 18.7%, to $1.8 billion for
the six months ended June 30, 2012 from $1.5 billion for the six months ended
June 30, 2011. The net increase was due to the following:
• Transaction. Revenue increased $13.6 million, or 9.3%, to $160.2 million for
the six months ended June 30, 2012 due to an increase of $3.6 million in AIR
MILES reward miles issuance fees, for which we provide marketing and
administrative services, as a result of increases in the number of AIR MILES
reward miles issued over the past year, and higher merchant fees of $5.9
million. Other servicing fees charged to our cardholders also increased
transaction revenue by $4.1 million.
• Redemption. Revenue increased $64.5 million, or 22.8%, to $347.7 million for
the six months ended June 30, 2012 due to a 26.0% increase in AIR MILES reward
miles redeemed. The introduction of a five-year expiry policy to the AIR MILES
Reward Program in December 2011 stimulated redemption activity through the six
months ended June 30, 2012.
• Finance charges, net. Revenue increased $79.7 million, or 11.8%, to $754.1
million for the six months ended June 30, 2012. This increase was driven by an
improvement in our gross yield of 50 basis points and a 9.9% increase in
average credit card receivables as customer payment rates stabilized on a
year-over-year basis and credit cardholder spending remained strong.
• Database marketing fees and direct marketing. Revenue increased $98.2 million,
or 29.3%, to $433.1 million for the six months ended June 30, 2012. The
increase in revenue was driven by our acquisition of Aspen, which added $88.8
million, with the remainder of the increase driven by growth in our marketing
technology business resulting from the expansion of services to existing
clients as well as new client signings within our Epsilon segment.
• Other revenue. Revenue increased $21.2 million, or 50.7%, to $62.9 million for
the six months ended June 30, 2012 due to Aspen, which added $19.3 million in
revenue associated with strategic consulting initiatives.
Cost of operations. Cost of operations increased $197.6 million, or 23.6%, to
$1.0 billion for the six months ended June 30, 2012 as compared to the six
months ended June 30, 2011. The increase resulted from growth across each of our
segments, including the following:
• Within the LoyaltyOne segment, cost of operations increased $59.8 million due
to a $35.7 million increase in the cost of fulfillment for the AIR MILES
Reward Program as a result of a 26.0% increase in the number of AIR MILES
reward miles redeemed. In addition, marketing expenses increased $9.6 million
due to costs associated with the launch and promotion of AIR MILES Cash, and
payroll and benefit costs increased $7.8 million to support new growth
initiatives. Cost of operations also increased as a result of additional
international expansion activities.
• Within the Epsilon segment, cost of operations increased $105.6 million due to
the acquisition of Aspen, which added $93.5 million. Cost of operations also
increased as a result of increased payroll and benefit costs, enhancements to
infrastructure and security as well as a relocation of a data center to
support future growth.
• Within the Private Label Services and Credit segment, cost of operations
increased by $33.6 million, with payroll and benefits increasing $14.5 million
due to an increase in the number of associates to support current and future
growth. Marketing expenses increased $6.3 million, in part due to growth in
credit sales, other credit card expenses increased $6.9 million due to higher
volumes and legal and consulting also increased $3.8 million.
Provision for loan loss. Provision for loan loss decreased $26.2 million, or
20.4%, to $101.9 million for the six months ended June 30, 2012 as compared to
$128.0 million for the six months ended June 30, 2011. The provision for loan
loss was impacted by a decline in the net charge-off rate of credit card
receivables. The net charge-off rate improved 240 basis points to 5.1% for the
six months ended June 30, 2012 as compared to 7.5% for the six months ended
June 30, 2011. Delinquency rates improved to 3.9% of principal credit card
receivables at June 30, 2012 from 4.5% at June 30, 2011. The decrease in the
provision for loan loss was partially offset by the 9.9% increase in average
credit card receivables.
35
--------------------------------------------------------------------------------
Index
General and administrative. General and administrative expenses increased $9.6
million, or 22.8%, to $51.5 million for the six months ended June 30, 2012 as
compared to $42.0 million for the six months ended June 30, 2011. The increase
was driven by payroll, benefit and consulting costs as a result of higher
medical costs and an increase in expenses for our retirement savings plans, as
well as the impact of the amortization of deferred gains in 2011 associated with
sale-leaseback transactions that were fully amortized in April 2011.
Depreciation and other amortization. Depreciation and other amortization
increased $2.5 million, or 7.4%, to $36.1 million for the six months ended
June 30, 2012 as compared to $33.6 million for the six months ended June 30,
2011 due to additional assets placed in service resulting from fixed assets
acquired in the Aspen acquisition and capital expenditures.
Amortization of purchased intangibles. Amortization of purchased intangibles
increased $4.2 million, or 11.1%, to $42.0 million for the six months ended
June 30, 2012 as compared to $37.8 million for the six months ended June 30,
2011. The increase relates to $9.6 million of additional amortization associated
with the intangible assets acquired in the Aspen acquisition, offset in part by
certain fully amortized intangible assets.
Interest expense. Total interest expense, net decreased $11.5 million, or 7.7%,
to $138.7 million for the six months ended June 30, 2012 as compared to $150.3
million for the six months ended June 30, 2011. The decrease was due to the
following:
• Securitization funding costs. Securitization funding costs decreased $21.2
million due to lower average borrowings and lower interest rates for the six
months ended June 30, 2012 as compared to the six months ended June 30, 2011.
• Interest expense on deposits. Interest on deposits increased $0.8 million as
increases from higher borrowings were offset by lower average interest rates.
• Interest expense on long-term and other debt, net. Interest expense on
long-term and other debt, net increased $8.9 million due, in part, to an
increase in borrowings resulting from the issuance in the first quarter of 2012 of senior notes due in 2020. In addition, the amortization of imputed
interest associated with the convertible senior notes increased $4.2 million
as compared to the same period in 2011. These increases were offset by a
decline in interest expense associated with our line of credit. The increases
were further offset by a decline in the amortization of debt issuance costs as
in the second quarter of 2011 we wrote off $2.6 million in unamortized debt
costs associated with the early extinguishment of certain previous term loans.
Taxes. Income tax expense increased $37.3 million to $135.4 million for the six
months ended June 30, 2012 from $98.0 million for the comparable period in 2011
due primarily to an increase in taxable income, offset in part by a decline in
the effective tax rate. The effective tax rate for the six months ended June 30,
2012 declined to 38.2% as compared to 38.7% for the six months ended June 30,
2011, as the result of the settlement of certain tax audits in April 2012.
Segment Revenue and Adjusted EBITDA:
Revenue. Total revenue increased $277.2 million, or 18.7%, to $1.8 billion for
the six months ended June 30, 2012 from $1.5 billion for the six months ended
June 30, 2011. The net increase was due to the following:
• LoyaltyOne. Revenue increased $66.5 million, or 15.8%, to $487.4 million for
the six months ended June 30, 2012. An unfavorable Canadian foreign currency
exchange rate impacted revenue by $14.6 million. Redemption revenue increased
$64.5 million, or 22.8%, due to higher collector redemptions compared to the
six month ended June 30, 2011. The introduction of a five-year expiry policy
to the AIR MILES Reward Program on December 31, 2011 stimulated redemption
activity. Revenue from issuance fees, for which we provide marketing and
administrative services, increased $3.6 million due to increases in the total
number of AIR MILES reward miles issued over the past year.
• Epsilon. Revenue increased $119.3 million, or 34.7%, to $463.4 million for the
six months ended June 30, 2012. Aspen's marketing services product lines added
$106.2 million to revenue. In addition, marketing technology revenue continues
to build from past client signings and the expansion of services to existing
clients, growing $14.0 million, or 7.1%. Data revenue remained relatively flat
as solid growth in transactional data was offset by softness in consumer
demographic data offerings.
36--------------------------------------------------------------------------------
Index
• Private Label Services and Credit. Revenue increased $90.2 million, or 12.5%,
to $809.8 million for the six months ended June 30, 2012. Finance charges and
late fees increased by $79.7 million, driven by an increase in our gross yield
of 50 basis points and a 9.9% increase in average credit card receivables due
to strong credit cardholder spending and the stabilization of customer payment
rates. Transaction revenue increased $10.5 million due in part to higher
merchant fees.
• Corporate/Other. Revenue decreased by $0.4 million to $0.3 million for the six
months ended June 30, 2012 as a result of the transfer of certain sublease
agreements.
Adjusted EBITDA. For purposes of the discussion below, adjusted EBITDA is equal
to net income plus stock compensation expense, provision for income taxes,
interest expense, net, depreciation and other amortization and amortization of
purchased intangibles. Adjusted EBITDA margin is adjusted EBITDA divided by
revenue. Adjusted EBITDA increased $101.2 million, or 20.4%, to $596.5 million
for the six months ended June 30, 2012 from $495.3 million for the six months
ended June 30, 2011. The increase was due to the following:
• LoyaltyOne. Adjusted EBITDA increased $7.8 million, or 7.0%, to $119.0 million
for the six months ended June 30, 2012 as compared to the six months ended
June 30, 2011. Adjusted EBITDA was positively impacted by increases in revenue
associated with higher redemptions. These increases were somewhat offset by
increases in the cost of fulfillment for those AIR MILES reward miles
redeemed. Adjusted EBITDA was also negatively impacted by marketing expenses
associated with the launch and promotion of AIR MILES Cash and increases in
costs associated with our international initiatives.
• Epsilon. Adjusted EBITDA increased $15.6 million, or 21.4%, to $88.6 million
for the six months ended June 30, 2012. Adjusted EDITDA was positively
impacted by Aspen and the growth in marketing technology. The positive impacts
to adjusted EBITDA were somewhat offset by higher payroll and benefit costs,
and costs associated with a data center relocation and incremental spending on
infrastructure and security to support future growth. Adjusted EBITDA margin
decreased to 19.1% for the six months ended June 30, 2012 from 21.2% for the
same period in the prior year. The negative impact to adjusted EBITDA margin
was due to a shift in revenue mix attributable to the Aspen acquisition and
additional costs to support future growth as discussed above.
• Private Label Services and Credit. Adjusted EBITDA increased $83.5 million, or
24.1%, to $430.5 million for the six months ended June 30, 2012. Adjusted
EBITDA was positively impacted by the increase in finance charges, net and a
decline in the provision for loan loss, each as described above. The net
charge-off rate for the six months ended June 30, 2012 was 5.1% as compared to
7.5% in the same period in 2011. Delinquency rates also improved to 3.9% of
principal credit card receivables at June 30, 2012 from 4.5% at June 30, 2011.
• Corporate/Other. Adjusted EBITDA decreased $8.6 million to a loss of $41.6
million for the six months ended June 30, 2012. Payroll and benefit costs
increased $5.4 million as a result of higher medical costs and an increase in
expenses for our retirement savings plans. In addition, in 2011, we recognized
$1.2 million in the amortization of deferred gains in 2011 associated with
sale-leaseback transactions that were fully amortized in April 2011.
Asset Quality
Our delinquency and net charge-off rates reflect, among other factors, the
credit risk of our private label credit card receivables, the success of our
collection and recovery efforts, and general economic conditions.
Delinquencies. A credit card account is contractually delinquent if we do not
receive the minimum payment by the specified due date on the cardholder's
statement. Our policy is to continue to accrue interest and fee income on all
credit card accounts beyond 90 days, except in limited circumstances, until the
credit card account balance and all related interest and other fees are paid or
charged off, typically at 180 days delinquent. When an account becomes
delinquent, a message is printed on the cardholder's billing statement
requesting payment. After an account becomes 30 days past due, a proprietary
collection scoring algorithm automatically scores the risk of the account
becoming further delinquent. The collection system then recommends a collection
strategy for the past due account based on the collection score and account
balance and dictates the contact schedule and collections priority for the
account. If we are unable to make a collection after exhausting all in-house
collection efforts, we engage collection agencies and outside attorneys to
continue those efforts.
37--------------------------------------------------------------------------------
Index
The following table presents the delinquency trends of our credit card
portfolio:
June 30, % of December 31, % of
2012 Total 2011 Total
(In thousands, except percentages)
Receivables outstanding -
principal $ 5,451,277 100 % $ 5,408,862 100 %
Principal receivables
balances contractually
delinquent:
31 to 60 days 77,212 1.4 % 78,272 1.4 %
61 to 90 days 49,842 0.9 51,709 1.0
91 or more days 87,346 1.6 105,626 2.0
Total $ 214,400 3.9 % $ 235,607 4.4 %
Net Charge-Offs. Our net charge-offs include the principal amount of losses from
cardholders unwilling or unable to pay their account balances, as well as
bankrupt and deceased credit cardholders, less recoveries and exclude
charged-off interest, fees and fraud losses. Charged-off interest and fees
reduce finance charges, net while fraud losses are recorded as an expense.
Credit card receivables, including unpaid interest and fees, are charged-off at
the end of the month during which an account becomes 180 days contractually past
due, except in the case of customer bankruptcies or death. Credit card
receivables, including unpaid interest and fees, associated with customer
bankruptcies or death are charged-off at the end of each month subsequent to 60
days after the receipt of notification of the bankruptcy or death, but in any
case, not later than the 180-day contractual time frame.
The net charge-off rate is calculated by dividing net charge-offs of principal
receivables for the period by the average credit card receivables for the
period. Average credit card receivables represent the average balance of the
cardholder receivables at the beginning of each month in the periods indicated.
The following table presents our net charge-offs for the periods indicated.
Three Months Ended Six Months Ended
June 30, June 30,
2012 2011 2012 2011
(In thousands, except percentages)
Average credit card $
receivables $ 5,467,489 $ 4,848,715 $ 5,394,502 4,908,587
Net charge-offs of
principal receivables 67,514 87,066 137,679 185,096
Net charge-offs as a
percentage of average
credit card receivables 4.9 % 7.2 % 5.1 % 7.5 %
See Note 3, "Credit Card Receivables," of the Notes to Unaudited Condensed
Consolidated Financial Statements for additional information related to the
securitization of our credit card receivables.
Liquidity and Capital Resources
Operating Activities. We have historically generated cash flows from operations,
although that amount may vary based on fluctuations in working capital.
We generated cash flow from operating activities of $417.4 million and $407.9
million for the six months ended June 30, 2012 and 2011, respectively. Operating
cash flows increased $9.5 million as cash flows from increased profitability
were offset by a decrease in cash flows associated with higher working capital
balances for the six months ended June 30, 2012 as compared to the six months
ended June 30, 2011.
Investing Activities. Cash used in investing activities was $613.0 million and
$277.3 million for the six months ended June 30, 2012 and 2011, respectively.
Significant components of investing activities are as follows:
• Restricted Cash. Cash decreased $438.7 million for the six months ended
June 30, 2012, as compared to a cash increase of $16.8 million for the six
months ended June 30, 2011, due to the principal accumulation for the
repayment of asset-backed securities debt maturing in July 2012.
• Credit Card Receivables Funding. Cash decreased $61.4 million for the six
months ended June 30, 2012, as compared to a cash increase of $270.6 million
for the six months ended June 30, 2011, due to growth in our credit card
receivables.
• Purchase of Credit Card Portfolios. Cash decreased $122.2 million for the six
months ended June 30, 2012 due to the acquisition of existing private label
credit card portfolios from Pier 1 Imports and Premier Designs. During the six
months ended June 30, 2011, cash decreased $42.7 million due to the
acquisition of an existing private label credit card portfolio from J.Jill.
38
--------------------------------------------------------------------------------
Index
• Cash Collateral, Restricted. Cash increased $37.7 million for the six months
ended June 30, 2012 as compared to a cash decrease of $131.2 million for the
six months ended June 30, 2011 due to the maturing of asset-backed securities
as the restricted cash is released upon repayment.
• Payments for Acquired Businesses, Net of Cash. For the six months ended June
30, 2011, we utilized cash of $359.1 million for the Aspen acquisition which
was completed on May 31, 2011. No businesses were acquired during the six
months ended June 30, 2012.
• Capital Expenditures. Our capital expenditures for the six months ended
June 30, 2012 were $55.5 million compared to $33.9 million for the comparable
period in 2011. We anticipate capital expenditures not to exceed approximately
3.5% of annual revenue for 2012.
Financing Activities. Cash provided by financing activities was $621.8 million
for the six months ended June 30, 2012, as compared to cash used by financing
activities of $37.8 million for the six months ended June 30, 2011. Our
financing activities during the six months ended June 30, 2012 relate primarily
to borrowings and repayments of deposits and debt and repurchases of our common
stock.
Liquidity Sources. In addition to cash generated from operating activities, our
primary sources of liquidity include our credit card securitization program,
deposits issued by World Financial Network Bank, or WFNB, and World Financial
Capital Bank, or WFCB, our credit agreement and issuances of equity securities.
In addition to our efforts to renew and expand our current facilities, we
continue to seek new sources of liquidity.
As of June 30, 2012, we had no borrowings under our credit facility, with total
availability at $917.5 million. Our total leverage ratio, as defined in our
credit agreement, was 2.2 to 1 at June 30, 2012, as compared to the maximum
covenant ratio of 3.5 to 1. The Tier 1 risk-based capital ratio, leverage ratio
and total risk-based capital ratio for our main bank subsidiary, WFNB, were
15.7%, 16.0% and 17.0%, respectively, at June 30, 2012.
We believe that internally generated funds and other sources of liquidity
discussed above will be sufficient to meet working capital needs, capital
expenditures, and other business requirements for at least the next 12 months.
Securitization Program. We sell a majority of the credit card receivables
originated by WFNB to WFN Credit Company, LLC, which in turn sells them to World
Financial Network Credit Card Master Trust, World Financial Network Credit Card
Master Note Trust, World Financial Network Credit Card Master Note Trust II and
World Financial Network Credit Card Master Trust III, or collectively, the WFN
Trusts, as part of our credit card securitization program, which has been in
existence since January 1996. We also sell our credit card receivables
originated by WFCB to World Financial Capital Credit Company, LLC, which in turn
sells them to World Financial Capital Credit Card Master Note Trust, or the WFC
Trust. These securitization programs are the primary vehicle through which we
finance WFNB's and WFCB's credit card receivables.
Historically, we have used both public and private term asset-backed securities
transactions as well as private conduit facilities as sources of funding for our
credit card receivables. Private conduit facilities have been used to
accommodate seasonality needs and to bridge to completion of asset-backed
securitization transactions.
We have secured and continue to secure the necessary commitments to fund our
portfolio of securitized credit card receivables originated by WFNB and WFCB.
However, certain of these commitments are short-term in nature and subject to
renewal. There is not a guarantee that these funding sources, when they mature,
will be renewed on similar terms or at all as they are dependent on the
asset-backed securitization markets at the time.
At June 30, 2012, we had $3.4 billion of asset-backed securities debt - owed to
securitization investors, of which $1.6 billion is due within the next 12
months.
39
--------------------------------------------------------------------------------
Index
The following table shows the maturities of borrowing commitments as of June 30,
2012 for the WFN Trusts and the WFC Trust by year:
2016 &
2012 2013 2014 2015 Thereafter Total
(In thousands)
Term notes $ 596,651 $ 822,339 $ 250,000 $ 393,750 $ 512,500 $ 2,575,240
Conduit facilities (1) 330,000 375,000 1,200,000 - - 1,905,000
Total (2) $ 926,651 $ 1,197,339 $ 1,450,000 $ 393,750 $ 512,500 $ 4,480,240
(1) Amount represents borrowing capacity, not outstanding borrowings.
(2) Total amounts do not include $804.2 million 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.
Early amortization events as defined within each asset-backed securitization
transaction are generally driven by asset performance. We do not believe it is
reasonably likely for an early amortization event to occur due to asset
performance. However, if an early amortization event were declared, the trustee
of the particular credit card securitization trust would retain the interest in
the receivables along with the excess interest income that would otherwise be
paid to our bank subsidiary until the credit card securitization investors were
fully repaid. The occurrence of an early amortization event would significantly
limit or negate our ability to securitize additional credit card receivables.
Debt
On March 30, 2012, we, as borrower, and ADS Alliance Data Systems, Inc., ADS
Foreign Holdings, Inc., Alliance Data Foreign Holdings, Inc., Epsilon Marketing
Services, LLC, Epsilon Data Management LLC, Comenity LLC and Alliance Data FHC,
Inc., as guarantors, entered into a second amendment, or the Second Amendment,
to our credit agreement, dated May 24, 2011, or the Credit Agreement, through
which we increased our revolving line of credit, or the 2011 Credit Facility, by
$125.0 million to $917.5 million and borrowed additional term loans in the
aggregate principal amount of $125.5 million.
In March 2012, we issued and sold $500 million aggregate principal amount of
6.375% senior notes due April 1, 2020, or the Senior Notes due 2020. The Senior
Notes due 2020 accrue interest on the principal amount at the rate of 6.375% per
annum from March 29, 2012, payable semiannually in arrears, on April 1 and
October 1 of each year, beginning on October 1, 2012. The payment obligations
under the Senior Notes due 2020 are governed by an indenture dated March 29,
2012. The Senior Notes due 2020 are unsecured and are guaranteed on a senior
unsecured basis by certain of our existing and future domestic subsidiaries that
guarantee our Credit Agreement.
As of June 30, 2012, we were in compliance with our covenants.
See Note 6, "Debt," of the Notes to Unaudited Condensed Consolidated Financial
Statements for additional information regarding our debt.
In April 2012, World Financial Network Credit Card Master Note Trust issued
$550.0 million of public, 7-year, fixed-rate, term asset-backed securities to
investors. The offering consisted of $412.5 million of Class A Series 2012-A
asset-backed term notes that have a fixed interest rate of 3.14% per year and
mature in March 2019. In addition, we retained an aggregate of $137.5 million of
subordinated classes of the term asset-backed notes which have been eliminated
from our unaudited condensed consolidated financial statements.
In June 2012, we renewed our $1.2 billion 2009-VFN conduit facility under World
Financial Network Credit Card Master Note Trust, extending its maturity to
March 5, 2014.
In June 2012, we renewed our 2009-VFN conduit facility under World Financial
Capital Master Note Trust, extending the maturity to May 31, 2013 and increasing
the total capacity from $275.0 million to $375.0 million.
In July 2012, World Financial Network Credit Card Master Note Trust issued
$433.3 million of term asset-backed securities to investors. The offering
consisted of $325.0 million of Class A Series 2012-B asset-backed term notes
that have a fixed interest rate of 1.76% per year and mature in July 2017. In
addition, we retained an aggregate of $108.3 million of subordinated classes of
the term asset-backed notes which will be eliminated from our unaudited
condensed consolidated financial statements.
40
--------------------------------------------------------------------------------
Index
In July 2012, World Financial Network Credit Card Master Note Trust issued
$266.7 million of term asset-backed securities to investors. The offering
consisted of $200.0 million of Class A Series 2012-C asset-backed notes that
have a fixed interest rate of 2.23% per year, $10.0 million of Class M Series
2012-C asset-backed notes that have a fixed interest rate of 3.32% per year,
$12.7 million of Class B Series 2012-C asset-backed notes that have a fixed
interest rate of 3.57% per year, $33.3 million of Class C Series 2012-C
asset-backed notes that have a fixed interest rate of 4.55% per year, and $10.7
million of Class D Series 2012-C asset-backed notes. The Class A, Class M,
Class B and Class C Series 2012-C asset-backed notes will all mature in
October 2018. The Class D Series 2012-C asset-backed notes were retained by us
and will be eliminated from our unaudited condensed consolidated financial
statements.
