Alliance Data Systems Corp. Reports Operating Results (10-Q)
Alliance Data Systems Corp. has a market cap of $3.28 billion; its shares were traded at around $61.42 with a P/E ratio of 11.11 and P/S ratio of 1.67. Alliance Data Systems Corp. had an annual average earning growth of 27% over the past 10 years.ADS is in the portfolios of Ronald Muhlenkamp of Muhlenkamp Fund, Diamond Hill Capital of Diamond Hill Capital Management Inc, James Barrow of Barrow, Hanley, Mewhinney & Strauss, Ruane Cunniff of Ruane & Cunniff & Goldfarb Inc, RS Investment Management, Steven Cohen of SAC Capital Advisors, George Soros of Soros Fund Management LLC.
Highlight of Business Operations: At adoption, we added approximately $3.4 billion of assets, including a $0.5 billion addition to loan loss reserves, and approximately $3.7 billion of liabilities to our unaudited condensed consolidated balance sheets. The impact of the new accounting is a reduction to stockholders equity of $0.4 billion. The adoption required a full consolidation of the securitization trusts in accordance with accounting principles generally accepted in the United States of America, or GAAP.
On June 15, 2010, the Federal Reserve Board released the final guidelines on late fees that can be charged by financial institutions effective as of August 22, 2010. In anticipation of the late fee guidelines, we modified cardholder terms to include a $1 processing fee to offset the impact of any decline in average late fees charged. However, the final guidelines had less impact than initially expected as they provide for: (1) a $25 maximum late fee compared to our original expectation of $20, and (2) late fees to be charged in excess of the $25 maximum for repeat offenses within a six month period. Accordingly we suspended the $1 processing fee previously scheduled for implementation this summer as it is disproportionate to the anticipated impact to average late fees from the final rules. Instead, we will marginally increase minimum payments and modify existing late fee structures to maintain the current average late fee of approximately $25. The mailing of revised cardholder terms will be made as early as August 2010, to be effective for billing cycles beginning in November 2010.
Our outlook for 2010 assumed the rollout of the $1 processing fee in the third quarter of 2010 as an offset to the potential impact of the CARD Act requirements to 2010. As noted previously, we have suspended this rollout. Without the benefit of the $1 processing fee, the CARD Act requirements are expected to lower our earnings per diluted share by approximately $0.30 in 2010. This reduction results from the timing gap between when the rollout of the $1 processing fee was scheduled and when the new cardholder terms relating to late fees can be implemented. This short-term impact places downward risk on our estimated 2010 earnings.
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