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Alliance Data Systems Corp. Reports Operating Results (10-Q)

November 09, 2010 | About:
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10qk

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Alliance Data Systems Corp. (ADS) filed Quarterly Report for the period ended 2010-09-30.

Alliance Data Systems Corp. has a market cap of $3.29 billion; its shares were traded at around $62.52 with a P/E ratio of 10.7 and P/S ratio of 1.7. 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, Bruce Kovner of Caxton Associates, Paul Tudor Jones of The Tudor Group, James Barrow of Barrow, Hanley, Mewhinney & Strauss, Ruane Cunniff of Ruane & Cunniff & Goldfarb Inc, Steven Cohen of SAC Capital Advisors, RS Investment Management.

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.

The new Federal Reserve Board guidelines on late fees that can be charged by financial institutions became effective on August 22, 2010. In anticipation of the late fee guidelines, we modified cardholder terms to offset the impact of any decline in average late fees charged. 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. In response to the final guidelines, we have changed minimum payments and modified late fee structures effective for billing cycles beginning in November 2010.

For the third quarter of 2010, credit trends were positive with principal charge-offs at 8.3% of average total receivables, improving from 9.4% for the third quarter of 2009. Charge-off rates continue to trend lower as, due to the length of severity of the economic downturn, there is no longer a direct correlation between loan loss rates and unemployment levels. Delinquency rates, a good predictor of future losses, improved slightly to 6.1% of principal receivables at September 30, 2010 from 6.2% at September 30, 2009. Delinquency rates continue to trend downward on a seasonally adjusted basis. However, the September 2010 delinquency rate was 10 to 20 basis points higher than predicted by normal seasonality. We believe that the changes incorporated in cardholder terms during 2010, including raising annual percentage rates in March and increasing minimum payments from $10 to $20 in June, have resulted in two small increases that are working their way through the delinquency rate. Finally, cardholder spending has slowed from the first half of 2010. For the third quarter of 2010, credit sales increased 7.2%, driven primarily by new credit card portfolios.

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