SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
Amendment No. 1
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported):
December 8, 2014
ALLIANCE DATA SYSTEMS CORPORATION
(Exact Name of Registrant as Specified in Charter)
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DELAWARE
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001-15749
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31-1429215
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(State or Other Jurisdiction
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(Commission
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(IRS Employer
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of Incorporation)
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File Number)
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Identification No.)
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7500 DALLAS PARKWAY, SUITE 700
PLANO, TEXAS 75024
(Address and Zip Code of Principal Executive Offices)
(214) 494-3000
(Registrant's Telephone Number, including Area Code)
NOT APPLICABLE
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K is intended to simultaneously satisfy the filing obligation of the Registrant under any of the following provisions:
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Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
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[ ]
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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
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On December 10, 2014, Alliance Data Systems Corporation ("Alliance Data") filed with the Securities and Exchange Commission a Current Report on Form 8-K (the "Original Form 8-K") regarding the completion of the acquisition of Conversant, Inc., a Delaware corporation ("Conversant"), pursuant to the terms of that certain Agreement and Plan of Merger, dated as of September 11, 2014 (the "Merger Agreement"), by and among Alliance Data, Conversant and Amber Sub LLC, a Delaware limited liability company and a wholly-owned subsidiary of Alliance Data (the "Merger Sub"). At the effective time, as defined in the Merger Agreement, Conversant merged with and into the Merger Sub, with the Merger Sub continuing as the surviving entity and a direct wholly-owned subsidiary of Alliance Data (the "Merger").
This Current Report on Form 8-K/A amends Item 9.01 of the Original Form 8-K to present certain unaudited pro forma financial information in connection with the Merger, which unaudited pro forma financial information is filed as an exhibit hereto.
Item 9.01. Financial Statements and Exhibits.
Pro Forma Financial Information
The unaudited pro forma combined balance sheet as of September 30, 2014 as if the Merger occurred on September 30, 2014, and the unaudited pro forma combined statements of operations for the nine months ended September 30, 2014 and the year ended December 31, 2013 as if the Merger occurred on January 1, 2013, are filed as Exhibit 99.1 to this Current Report on Form 8-K/A and are incorporated herein by reference.
Financial Statements of Businesses Acquired
Financial statements of Conversant are not required to be provided with the filing of this Current Report on Form 8-K/A.
(d) Exhibits
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Exhibit No.
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Document Description
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99.1
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Unaudited pro forma combined balance sheet as of September 30, 2014 as if the Merger occurred on September 30, 2014, and the unaudited pro forma combined statements of operations for the nine months ended September 30, 2014 and the year ended December 31, 2013 as if the Merger occurred on January 1, 2013.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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Alliance Data Systems Corporation
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Date: January 20, 2015
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By:
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/s/ Charles L. Horn
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Charles L. Horn
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Executive Vice President and
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Chief Financial Officer
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EXHIBIT INDEX
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Exhibit No.
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Document Description
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99.1
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Unaudited pro forma combined balance sheet as of September 30, 2014 as if the Merger occurred on September 30, 2014, and the unaudited pro forma combined statements of operations for the nine months ended September 30, 2014 and the year ended December 31, 2013 as if the Merger occurred on January 1, 2013.
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UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
On December 10, 2014, Alliance Data completed the acquisition of Conversant, Inc. ("Conversant") pursuant to the terms of the agreement and plan of merger, dated as of September 11, 2014, for a total consideration of $2.3 billion. Alliance Data paid approximately $991.5 million in cash and issued approximately 4.6 million shares of Alliance Data common stock to former stockholders of Conversant. Alliance Data paid holders of Conversant common stock consideration valued at $35.00 per share, subject to the terms and conditions of the merger agreement, based upon the closing price of Alliance Data common stock. The closing price of Alliance Data common stock was calculated using the volume weighted average price per share of Alliance Data common stock on the New York Stock Exchange, or the NYSE, for the consecutive period of fifteen trading days ending on December 8, 2014, which we refer to as the Parent Closing Trading Price. Each outstanding share of Conversant common stock was exchanged for consideration consisting of (i) 0.07037 shares of Alliance Data common stock and (ii) an amount in cash such that the total consideration per share equals $35.00. The calculation of estimated consideration is as follows:
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(In thousands, except
per share data)
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Number of Conversant shares eligible for merger consideration
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65,491
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Consideration per share
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$
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35.00
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Total estimated consideration
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$
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2,292,197
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Number of Conversant shares eligible for merger consideration
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65,491
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Per Share Cash Consideration
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$
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15.14
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Estimated cash consideration
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$
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991,521
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Number of Conversant shares eligible for merger consideration
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65,491
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Fixed exchange ratio per share
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0.070370
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Total estimated Alliance Data shares issued
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4,609
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Parent Closing Trading Price
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$
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282.23
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Estimated equity consideration
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$
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1,300,676
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In December 2014, Alliance Data amended its 2013 credit facility, increasing the term loans issued by $1.4 billion and extending the maturity from July 2018 to December 2019. The net proceeds from this amendment were used to repay a portion of the outstanding indebtedness under our revolving credit facility and to fund the cash consideration in the merger.
The unaudited pro forma condensed combined balance sheet gives effect to the merger and the credit facility amendment, as if both had occurred as of September 30, 2014, while the unaudited pro forma condensed combined statements of income for the nine months ended September 30, 2014 and the year ended December 31, 2013 give effect to the merger as if it occurred on January 1, 2013.
The historical consolidated financial information has been adjusted in the unaudited pro forma condensed combined financial statements to give effect to pro forma events that are (1) directly attributable to the merger, (2) factually supportable, and (3) with respect to the statements of operations, expected to have a continuing impact on the combined results of Alliance Data and Conversant. These unaudited pro forma condensed combined financial statements do not give effect to anticipated synergies, integration costs or nonrecurring transaction costs which result directly from the merger. Further, because the tax rate used for these pro forma financial statements is an estimated statutory tax rate, it will likely vary from the actual effective rate in periods subsequent to completion of the transaction, and no adjustment has been made to the unaudited pro forma condensed combined financial information as it relates to limitations on the ability to utilize deferred tax assets, such as those related to net operating losses and tax credit carryforwards, as a result of the transaction.
The following unaudited pro forma condensed combined financial statements give effect to the merger under the acquisition method of accounting in accordance with Financial Accounting Standards Board ("FASB") Accounting Standard Topic 805, Business Combinations ("ASC 805"), with Alliance Data treated as the acquirer. As of the date of this filing, Alliance Data has not completed the detailed valuation work necessary to arrive at the required estimates of the fair value of the Conversant assets to be acquired and the liabilities to be assumed and the related allocation of purchase price, nor has it identified all adjustments necessary to conform Conversant's accounting policies to Alliance Data's accounting policies. Accordingly, the accompanying purchase price allocation is preliminary and is subject to further adjustments. Differences between these preliminary estimates and the final purchase price allocation amounts will occur and these differences could have a material impact on the accompanying unaudited pro forma condensed combined financial statements.
These unaudited pro forma condensed combined financial statements are for informational purposes only. They do not purport to indicate the results that would actually have been obtained had the merger been completed on the assumed date or for the periods presented, or which may be realized in the future. A final determination of the fair value of Conversant's assets and liabilities will be based on the actual net tangible and intangible assets and liabilities of Conversant that existed as of December 10, 2014.
Unaudited Pro Forma Condensed Combined Balance Sheet
September 30, 2014
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Alliance Data
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Conversant
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Amendment to
Credit Facility
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Acquisition
Pro Forma
Adjustments
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Pro Forma
Combined
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(In thousands)
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Cash and cash equivalents
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$
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634,824
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$
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66,051
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$
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1,206,317
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(c)
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$
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(1,046,521)
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(j)
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$
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860,671
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Trade receivables, net
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455,064
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132,838
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—
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—
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587,902
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Credit card and loan receivables
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Credit card receivables – restricted for securitization investors
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7,214,380
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—
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—
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—
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7,214,380
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Other credit card and loan receivables
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2,080,465
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—
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—
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—
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2,080,465
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Total credit card and loan receivables
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9,294,845
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—
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—
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—
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9,294,845
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Allowance for loan loss
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(511,354)
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—
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—
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—
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(511,354)
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Credit card and loan receivables, net
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8,783,491
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—
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—
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—
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8,783,491
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Loan receivables held for sale
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70,588
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—
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—
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—
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70,588
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Deferred tax asset, net
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200,094
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6,056
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—
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—
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206,150
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Other current assets
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728,327
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35,251
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(a)
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—
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(1,909)
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(d)
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761,669
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Redemption settlement assets, restricted
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529,037
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—
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—
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—
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529,037
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Total current assets
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11,401,425
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240,196
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1,206,317
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(1,048,430)
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11,799,508
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Property and equipment, net
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337,717
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27,421
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—
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—
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365,138
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Deferred tax asset, net
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2,609
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331
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—
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—
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2,940
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Cash collateral, restricted
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36,576
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—
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—
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—
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36,576
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Intangible assets, net
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752,614
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39,586
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—
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898,514
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(e)
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1,690,714
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Goodwill
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2,245,782
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402,254
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—
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1,268,518
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(f)
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3,916,554
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Other non-current assets
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416,552
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2,027
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23,683
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(c)
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—
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442,262
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Total assets
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$
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15,193,275
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$
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711,815
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$
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1,230,000
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$
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1,118,602
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$
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18,253,692
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|
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Accounts payable
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318,798
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108,015
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—
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—
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426,813
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Accrued expenses
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553,873
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—
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—
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24,250
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(g)
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578,123
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Deposits
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2,066,815
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—
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—
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—
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2,066,815
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Non-recourse borrowings of consolidated securitization entities
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1,268,750
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—
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—
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—
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|
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1,268,750
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Current debt
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|
78,537
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—
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—
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—
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|
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78,537
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Other current liabilities
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210,053
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6,691
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—
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(1,354)
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(h)
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215,390
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Deferred revenue
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873,332
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—
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|
|
|
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—
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|
|
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—
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|
|
|
|
|
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|
873,332
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Deferred tax liability, net
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|
19
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|
|
|
—
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|
|
|
|
—
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|
|
|
|
—
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|
|
|
|
|
|
|
19
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|
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Total current liabilities
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|
5,370,177
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|
|
|
114,706
|
|
|
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—
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|
|
|
|
22,896
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|
|
|
|
|
|
|
5,507,779
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|
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Deferred revenue
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|
164,835
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|
|
—
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|
|
|
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—
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—
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|
|
|
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|
164,835
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Deferred tax liability, net
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|
362,236
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|
|
|
4,818
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|
|
|
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—
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|
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|
362,107
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(i)
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|
|
|
|
|
729,161
|
|
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Deposits
|
|
|
1,660,990
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|
|
|
—
|
|
|
|
|
—
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|
|
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—
|
|
|
|
|
|
|
|
1,660,990
|
|
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Non-recourse borrowings of consolidated securitization entities
|
|
|
3,183,166
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
|
|
|
3,183,166
|
|
|
Long-term and other debt
|
|
|
2,878,498
|
|
|
|
55,000
|
|
|
|
|
1,230,000
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(c)
|
|
|
|
(55,000)
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(j)
|
|
|
|
|
|
4,108,498
|
|
|
Other liabilities
|
|
|
175,279
|
|
|
|
32,714
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(b)
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
|
|
|
207,993
|
|
|
Total liabilities
|
|
|
13,795,181
|
|
|
|
207,238
|
|
|
|
|
1,230,000
|
|
|
|
|
330,003
|
|
|
|
|
|
|
|
15,562,422
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable non-controlling interest
|
|
|
317,423
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
|
|
|
317,423
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity
|
|
|
1,080,671
|
|
|
|
504,577
|
|
|
|
|
—
|
|
|
|
|
788,599
|
(k)
|
|
|
|
|
|
2,373,847
|
|
|
Total stockholders' equity
|
|
|
1,080,671
|
|
|
|
504,577
|
|
|
|
|
—
|
|
|
|
|
788,599
|
|
|
|
|
|
|
|
2,373,847
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders' equity
|
|
$
|
15,193,275
|
|
|
$
|
711,815
|
|
|
|
$
|
1,230,000
|
|
|
|
$
|
1,118,602
|
|
|
|
|
|
|
$
|
18,253,692
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to Unaudited Pro Forma Condensed Combined Financial Statements
Unaudited Pro Forma Condensed Combined Statements of Income
Nine Months Ended September 30, 2014
| |
|
Historical
|
|
|
Conversant
|
|
Reclassifications
|
|
|
|
Pro Forma Adjustments
|
|
|
|
|
|
Pro Forma
Combined
|
|
| |
|
(In thousands, except per share data)
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction
|
|
$
|
251,390
|
|
|
$
|
—
|
|
|
|
$
|
—
|
|
|
|
$
|
—
|
|
|
|
|
|
$
|
251,390
|
|
|
Redemption
|
|
|
744,658
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
|
|
744,658
|
|
|
Finance charges, net
|
|
|
1,672,339
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
|
|
1,672,339
|
|
|
Database marketing fees and direct marketing services
|
|
|
1,021,813
|
|
|
|
421,606
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
|
|
1,443,419
|
|
|
Other revenue
|
|
|
126,991
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
|
|
126,991
|
|
|
Total revenue
|
|
|
3,817,191
|
|
|
|
421,606
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
|
|
4,238,797
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of operations (exclusive of depreciation and amortization disclosed separately below)
|
|
|
2,323,210
|
|
|
|
270,588
|
(l)
|
|
|
|
(13,330)
|
(m)
|
|
|
|
—
|
|
|
|
|
|
|
2,580,468
|
|
|
Provision for loan loss
|
|
|
281,811
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
|
|
281,811
|
|
|
General and administrative
|
|
|
101,498
|
|
|
|
57,124
|
|
|
|
|
(3,474)
|
(m)
|
|
|
|
—
|
|
|
|
|
|
|
155,148
|
|
|
Depreciation and other amortization
|
|
|
79,555
|
|
|
|
—
|
|
|
|
|
9,539
|
(m) |
|
|
|
—
|
|
|
|
|
|
|
89,094
|
|
|
Amortization of purchased intangibles
|
|
|
145,144
|
|
|
|
11,750
|
|
|
|
|
7,265
|
(m)
|
|
|
|
106,730
|
(n)
|
|
|
|
|
|
270,889
|
|
|
Total operating expenses
|
|
|
2,931,218
|
|
|
|
339,462
|
|
|
|
|
—
|
|
|
|
|
106,730
|
|
|
|
|
|
|
3,377,410
|
|
|
Operating income
|
|
|
885,973
|
|
|
|
82,144
|
|
|
|
|
—
|
|
|
|
|
(106,730)
|
|
|
|
|
|
|
|
861,387
|
|
|
Securitization funding costs
|
|
|
67,974
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
|
|
|
67,974
|
|
|
Interest expense on deposits
|
|
|
25,526
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
|
|
|
25,526
|
|
|
Interest expense on long-term and other debt, net
|
|
|
98,643
|
|
|
|
(1,399)
|
|
|
|
|
—
|
|
|
|
|
19,135
|
(o)
|
|
|
|
|
|
116,379
|
|
|
Total interest expense
|
|
|
192,143
|
|
|
|
(1,399)
|
|
|
|
|
—
|
|
|
|
|
19,135
|
|
|
|
|
|
|
|
209,879
|
|
|
Income before income tax
|
|
|
693,830
|
|
|
|
83,543
|
|
|
|
|
—
|
|
|
|
|
(125,865)
|
|
|
|
|
|
|
|
651,508
|
|
|
Provision for income taxes
|
|
|
253,946
|
|
|
|
36,584
|
|
|
|
|
—
|
|
|
|
|
(48,584)
|
(p) |
|
|
|
|
|
|
241,946
|
|
|
Income from continuing operations
|
|
$
|
439,884
|
|
|
$
|
46,959
|
|
|
|
$
|
—
|
|
|
|
$
|
(77,281)
|
|
|
|
|
|
|
$
|
409,562
|
|
|
Less: Income from continuing operations attributable to non-controlling interest
|
|
|
803
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
|
|
|
803
|
|
|
Income from continuing operations attributable to common stockholders
|
|
$
|
439,081
|
|
|
$
|
46,959
|
|
|
|
$
|
—
|
|
|
|
$
|
(77,281)
|
|
|
|
|
|
|
$
|
408,759
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations attributable to common stockholders per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
7.98
|
|
|
$
|
0.71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6.86
|
|
|
Diluted
|
|
$
|
6.98
|
|
|
$
|
0.70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6.06
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
54,998
|
|
|
|
65,691
|
|
|
|
|
|
|
|
|
|
4,609
|
(q)
|
|
|
|
|
|
59,607
|
|
|
Diluted
|
|
|
62,887
|
|
|
|
67,160
|
|
|
|
|
|
|
|
|
|
4,609
|
(q)
|
|
|
|
|
|
67,496
|
|
See accompanying notes to Unaudited Pro Forma Condensed Combined Financial Statements
Unaudited Pro Forma Condensed Combined Statements of Income
Year Ended December 31, 2013
| |
|
Historical
|
|
|
Conversant
|
|
|
|
|
|
Reclassifications
|
|
|
|
Pro Forma Adjustments
|
|
|
|
|
|
Pro Forma
Combined
|
|
| |
|
(In thousands, except per share data)
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction
|
|
$
|
329,027
|
|
|
$
|
—
|
|
|
|
|
|
$
|
—
|
|
|
|
$
|
—
|
|
|
|
|
|
$
|
329,027
|
|
|
Redemption
|
|
|
587,187
|
|
|
|
—
|
|
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
|
|
587,187
|
|
|
Finance charges, net
|
|
|
1,956,654
|
|
|
|
—
|
|
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
|
|
1,956,654
|
|
|
Database marketing fees and direct marketing services
|
|
|
1,289,356
|
|
|
|
573,121
|
|
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
|
|
1,862,477
|
|
|
Other revenue
|
|
|
156,839
|
|
|
|
—
|
|
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
|
|
156,839
|
|
|
Total revenue
|
|
|
4,319,063
|
|
|
|
573,121
|
|
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
|
|
4,892,184
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of operations (exclusive of depreciation and amortization disclosed separately below)
|
|
|
2,549,159
|
|
|
|
326,988
|
(1)
|
|
|
|
|
|
|
(15,870)
|
(m)
|
|
|
|
—
|
|
|
|
|
|
|
2,860,277
|
|
|
Provision for loan loss
|
|
|
345,758
|
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
|
|
345,758
|
|
|
General and administrative
|
|
|
109,115
|
|
|
|
63,143
|
|
|
|
|
|
|
|
(4,336)
|
(m)
|
|
|
|
—
|
|
|
|
|
|
|
167,922
|
|
|
Depreciation and other amortization
|
|
|
84,291
|
|
|
|
—
|
|
|
|
|
|
|
|
12,263
|
(m)
|
|
|
|
—
|
|
|
|
|
|
|
96,554
|
|
|
Amortization of purchased intangibles
|
|
|
131,828
|
|
|
|
15,208
|
|
|
|
|
|
|
|
7,943
|
(m)
|
|
|
|
144,509
|
(n)
|
|
|
|
|
|
299,488
|
|
|
Total operating expenses
|
|
|
3,220,151
|
|
|
|
405,339
|
|
|
|
|
|
|
|
—
|
|
|
|
|
144,509
|
|
|
|
|
|
|
3,769,999
|
|
|
Operating income
|
|
|
1,098,912
|
|
|
|
167,782
|
|
|
|
|
|
|
|
—
|
|
|
|
|
(144,509)
|
|
|
|
|
|
|
|
1,122,185
|
|
|
Securitization funding costs
|
|
|
95,326
|
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
|
|
|
95,326
|
|
|
Interest expense on deposits
|
|
|
29,111
|
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
|
|
|
29,111
|
|
|
Interest expense on long-term and other debt, net
|
|
|
181,063
|
|
|
|
25,180
|
|
|
|
|
|
|
|
—
|
|
|
|
|
25,509
|
(o)
|
|
|
|
|
|
231,752
|
|
|
Total interest expense
|
|
|
305,500
|
|
|
|
25,180
|
|
|
|
|
|
|
|
—
|
|
|
|
|
25,509
|
|
|
|
|
|
|
|
356,189
|
|
|
Income before income tax
|
|
|
793,412
|
|
|
|
142,602
|
|
|
|
|
|
|
|
—
|
|
|
|
|
(170,018)
|
|
|
|
|
|
|
|
765,996
|
|
|
Provision for income taxes
|
|
|
297,242
|
|
|
|
52,160
|
|
|
|
|
|
|
|
—
|
|
|
|
|
(65,627)
|
(p) |
|
|
|
|
|
|
283,775
|
|
|
Income from continuing operations
|
|
$
|
496,170
|
|
|
$
|
90,442
|
|
|
|
|
|
|
$
|
—
|
|
|
|
$
|
(104,391)
|
|
|
|
|
|
|
$
|
482,221
|
|
|
Less: Income from continuing operations attributable to non-controlling interest
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
|
Income from continuing operations attributable to common stockholders
|
|
$
|
496,170
|
|
|
$
|
90,442
|
|
|
|
|
|
|
$
|
—
|
|
|
|
$
|
(104,391)
|
|
|
|
|
|
|
$
|
482,221
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations attributable to common stockholders per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
10.09
|
|
|
$
|
1.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
8.96
|
|
|
Diluted
|
|
$
|
7.42
|
|
|
$
|
1.22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6.75
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
49,190
|
|
|
|
72,376
|
|
|
|
|
|
|
|
|
|
|
|
|
4,609
|
(q)
|
|
|
|
|
|
53,799
|
|
|
Diluted
|
|
|
66,866
|
|
|
|
74,122
|
|
|
|
|
|
|
|
|
|
|
|
|
4,609
|
(q)
|
|
|
|
|
|
71,475
|
|
See accompanying notes to Unaudited Pro Forma Condensed Combined Financial Statements
Notes to the Unaudited Pro Forma Condensed Combined Financial Statements
1. Basis of Presentation and Accounting Policies
The merger is reflected in the unaudited pro forma condensed combined financial statements under the acquisition method in accordance with ASC 805, Business Combinations, with Alliance Data treated as the acquirer. Under the acquisition method, the preliminary estimated purchase price allocation is calculated as described in Note 2. In accordance with ASC 805, the assets acquired and the liabilities assumed have been measured at fair value based on various preliminary estimates, and these estimates are subject to change pending further review of the fair value of assets acquired and liabilities assumed. The final amounts recorded for the merger may differ materially from the information presented herein.
The unaudited pro forma condensed combined financial statements were prepared in accordance with GAAP and pursuant to U.S. Securities and Exchange Commission Regulation S-X Article 11, and present the pro forma financial position and results of operations of the combined companies based upon the historical information after giving effect to the merger and adjustments described in these Notes to the Unaudited Pro Forma Condensed Combined Financial Statements. The unaudited pro forma condensed combined balance sheet is presented as if the merger had occurred on September 30, 2014; and the unaudited pro forma condensed combined statements of income for the nine months ended September 30, 2014 and the year ended December 31, 2013 are presented as if the merger had occurred on January 1, 2013.
Certain reclassifications have been made relative to Conversant's historical financial statements to conform to the financial statement presentation of Alliance Data. Such reclassifications are described in further detail in these Notes to the Unaudited Pro Forma Condensed Combined Financial Statements.
2. Preliminary Purchase Price Allocation
The merger with Conversant will be accounted for in accordance with the acquisition method of accounting. The following preliminary purchase price allocation is based on Alliance Data's preliminary estimates and is allocated among Conversant's tangible and intangible assets and liabilities based on their estimated fair value as of September 30, 2014. The final determination of the purchase price allocation will be based on the fair value of such assets and liabilities as of December 10, 2014. Final determination of the purchase price allocation may be significantly different from the preliminary estimates used in these unaudited pro forma condensed combined financial statements.
Based on the Parent Closing Trading Price, the consideration paid was approximately $2.3 billion. Based upon a preliminary valuation, the total purchase price was allocated to Conversant's assets and liabilities as follows:
|
|
As of September 30, 2014
|
|
| |
(In thousands)
|
|
|
Current assets
|
|
|
$
|
183,287
|
|
|
Deferred tax asset
|
|
|
|
331
|
|
|
Property and equipment
|
|
|
|
27,421
|
|
|
Other non-current assets
|
|
|
|
2,027
|
|
|
Intangible assets
|
|
|
|
938,100
|
|
|
Goodwill
|
|
|
|
1,670,772
|
|
|
Total assets acquired
|
|
|
|
2,821,938
|
|
| |
|
|
|
|
|
|
Current liabilities
|
|
|
|
130,102
|
|
|
Deferred tax liability
|
|
|
|
366,925
|
|
|
Other non-current liabilities
|
|
|
|
32,714
|
|
|
Total liabilities assumed
|
|
|
|
529,741
|
|
| |
|
|
|
|
|
|
Net assets acquired
|
|
|
$
|
2,292,197
|
|
3. Pro Forma Adjustments
(a) Included in other current assets are prepaid expenses and other current assets and income taxes receivable, as detailed in Conversant's condensed consolidated balance sheet as of September 30, 2014. Amounts were reclassified to conform to current presentation.
| |
|
|
|
|
| |
(In thousands)
|
|
| |
|
|
|
|
|
Prepaid expenses and other current assets
|
|
|
$
|
9,023
|
|
|
Income taxes receivable
|
|
|
|
26,228
|
|
|
Total other current assets
|
|
|
$
|
35,251
|
|
| |
|
|
|
|
|
(b) Included in other liabilities, are income taxes payable, less current portion and other non-current liabilities, as detailed in Conversant's condensed consolidated balance sheet as of September 30, 2014. Amounts were reclassified to conform to current presentation.
| |
|
|
|
|
| |
(In thousands)
|
|
| |
|
|
|
|
|
Income taxes payable, less current portion
|
|
|
$
|
23,342
|
|
|
Other non-current liabilities
|
|
|
|
9,372
|
|
|
Total other liabilities
|
|
|
$
|
32,714
|
|
| |
|
|
|
|
|
(c) In December 2014, Alliance Data amended its 2013 credit facility, increasing the term loans issued by $1.4 billion and extending the maturity from July 2018 to December 2019. The net proceeds from this amendment were used to repay a portion of the outstanding indebtedness under our revolving credit facility and to fund the cash consideration in the merger. The pro forma adjustments to long-term and other debt, other assets, and cash and cash equivalents are as follows:
| |
|
|
|
| |
(In thousands) |
|
| |
|
|
|
|
Issuance of term notes under the credit facility
|
|
$
|
1,400,000
|
|
|
Repayments on Alliance Data's 2013 revolving credit facility
|
|
|
(170,000)
|
|
|
Net increase to long-term and other debt
|
|
|
1,230,000
|
|
| |
|
|
|
|
|
Debt issuance costs, included in other assets
|
|
|
23,683
|
|
| |
|
|
|
|
|
Net proceeds and pro forma adjustment to cash and cash equivalents
|
|
$
|
1,206,317
|
|
| |
|
|
|
|
(d) Reflects the pro forma adjustment to other current assets for the write-off of the debt issuance costs associated with Conversant's credit facility which was terminated on or before the closing date in accordance with the terms of the merger agreement.
(e) Reflects the components of the preliminary estimates of the fair value of intangible assets acquired by Alliance Data upon closing of the merger as follows:
| |
|
Estimated Average Useful Lives (in years)
|
|
|
Estimated Fair Value
|
|
|
Historical Conversant
|
|
|
Pro Forma Adjustments
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
|
7
|
|
|
$
|
544,000
|
|
|
$
|
25,749
|
|
|
$
|
518,251
|
|
|
Developed technologies
|
|
|
5
|
|
|
|
182,500
|
|
|
|
13,008
|
|
|
|
169,492
|
|
|
Publisher network
|
|
|
5
|
|
|
|
140,200
|
|
|
|
—
|
|
|
|
140,200
|
|
|
Database
|
|
|
3
|
|
|
|
63,600
|
|
|
|
—
|
|
|
|
63,600
|
|
|
Trade name
|
|
|
2
|
|
|
|
4,200
|
|
|
|
269
|
|
|
|
3,931
|
|
|
Favorable lease
|
|
|
5
|
|
|
|
3,600
|
|
|
|
—
|
|
|
|
3,600
|
|
|
Non-compete covenants
|
|
|
—
|
|
|
|
—
|
|
|
|
560
|
|
|
|
(560)
|
|
|
Pro forma adjustment to intangible assets
|
|
|
|
|
|
$
|
938,100
|
|
|
$
|
39,586
|
|
|
$
|
898,514
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(f) Reflects the preliminary pro forma adjustment to goodwill, calculated as follows:
| |
|
|
|
| |
|
(In thousands)
|
|
| |
|
|
|
|
Preliminary purchase price
|
|
$
|
2,292,197
|
|
|
Less: Fair value of net assets acquired
|
|
|
621,425
|
|
|
Total estimated goodwill
|
|
|
1,670,772
|
|
|
Less: Conversant historical goodwill
|
|
|
402,254
|
|
|
Pro forma adjustment to goodwill
|
|
$
|
1,268,518
|
|
The goodwill to be recognized is attributable to expected synergies and the assembled workforce. In addition, the combination of Alliance Data and Conversant provides scale in display, mobile, video, and social digital channels, and adds important capabilities to Alliance Data's digital messaging platform, Agility Harmony™. The addition of Conversant's Common ID, which is able to recognize individuals across devices (desktop, tablet, mobile), as well as the ability to insource all digital capabilities, enhances Agility Harmony. Conversant's data is also expected to enrich Alliance Data's existing offline and online data set, allowing for more effective targeted marketing programs. The goodwill resulting from the acquisition is not expected to be deductible for tax purposes.
(g) Reflects the pro forma adjustments to accrued expenses as follows (in thousands):
| |
|
Estimated Transaction Costs
|
|
|
Incurred for the Nine Months Ended September 30, 2014
|
|
|
Pro Forma Adjustments
|
|
| |
|
(in thousands)
|
|
|
Transaction costs expected to be incurred by Conversant
|
|
$
|
23,300
|
|
|
$
|
6,550
|
|
|
$
|
16,750
|
|
|
Transaction costs expected to be incurred by Alliance Data
|
|
|
11,000
|
|
|
|
3,500
|
|
|
|
7,500
|
|
|
Pro forma adjustment to intangible assets
|
|
$
|
34,300
|
|
|
$
|
10,050
|
|
|
$
|
24,250
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Of the combined $34.3 million in estimated transaction costs, $29.8 million relates to investment banker fees and advisory fees as specified in the relevant agreements. The remaining $4.5 million in estimated transaction costs primarily relates to professional fees associated with the merger, including legal, accounting, tax, regulatory filing and printing fees to be paid to third parties based on each party's best estimate.
(h) Reflects the adjustment of Conversant's deferred revenue to fair value as follows:
| |
Estimated Fair Value
|
|
|
Historical
Conversant
|
|
|
Pro Forma Adjustment
|
|
| |
(In thousands)
|
|
| |
|
|
|
|
|
|
|
|
|
|
Deferred revenue
|
|
$
|
—
|
|
|
$
|
1,354
|
|
|
$
|
(1,354)
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
(i) Reflects the estimated impact on deferred taxes resulting from pro forma purchase accounting adjustments at an estimated blended rate of 38.6%. We expect changes to our deferred tax positions, including valuation allowance requirements based on costs associated with the transactions, and the finalization of the purchase price allocation.
(j) Reflects pro forma adjustments to cash and cash equivalents and long-term debt and other, as follows:
| |
(In thousands)
|
|
|
|
|
|
Payment of merger cash consideration
|
|
|
$
|
(991,521)
|
(1)
|
|
|
|
|
|
Repayment of Conversant's line of credit
|
|
|
|
(55,000)
|
(2)
|
|
|
|
|
|
Pro forma adjustment to cash and cash equivalents
|
|
|
$
|
(1,046,521)
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
(1)
|
Cash consideration per the terms of the merger agreement was determined as follows:
|
| |
|
(In thousands, except per share amounts)
|
|
| |
|
|
|
|
Number of Conversant common shares eligible for merger consideration
|
|
|
65,491
|
|
|
Per share cash consideration
|
|
$
|
15.14
|
|
|
Total merger cash consideration
|
|
|
991,521
|
|
| |
|
|
|
|
|
|
Pro forma adjustment to long-term debt and other
|
|
$
|
(55,000)
|
(2)
|
| |
|
|
|
|
|
(2)
|
Under the terms of the merger agreement, on or before the closing date, Conversant's outstanding obligations under its line of credit were repaid and its total revolving loan commitment was canceled.
|
(k) Represents the elimination of historical stockholders' equity for Conversant and Alliance Data shares issued for consideration.
| |
|
|
|
| |
(In thousands, except per share amounts)
|
|
| |
|
|
|
|
Parent Closing Trading Price
|
|
$
|
282.23
|
|
|
Fixed exchange ratio
|
|
|
0.070370
|
|
|
Implied exchange ratio value
|
|
$
|
19.86
|
|
|
Number of Conversant common shares eligible for merger consideration
|
|
|
65,491
|
|
| |
|
|
|
|
|
Pro forma stockholders' equity
|
|
$
|
1,300,676
|
|
| |
|
|
|
|
|
Less: historical Conversant stockholders' equity
|
|
$
|
504,577
|
|
|
Less: transaction costs expected to be incurred by Alliance Data
|
|
|
7,500
|
|
|
Pro forma adjustment to stockholders' equity
|
|
$
|
788,599
|
|
| |
|
|
|
|
(l) Cost of operations for Conversant includes cost of revenue, sales and marketing, and technology as included in their consolidated statements of income. A reconciliation is as follows:
|
|
|
Nine months Ended September 30,
2014
|
|
|
Year Ended December 31,
2013
|
|
|
|
|
(In thousands)
|
|
|
Cost of revenue
|
|
$
|
142,448
|
|
|
$
|
183,282
|
|
|
Sales and marketing
|
|
|
77,421
|
|
|
|
88,104
|
|
|
Technology
|
|
|
50,719
|
|
|
|
55,602
|
|
|
Conversant cost of operations
|
|
$
|
270,588
|
|
|
$
|
326,988
|
|
| |
|
|
|
|
|
|
|
|
(m) Represents the reclassification of amortization of acquired developed technologies and websites and depreciation and amortization from cost of revenue and general and administrative to amortization of purchased intangibles and depreciation and amortization to conform to Alliance Data's presentation.
|
|
|
Nine months Ended September 30,
2014
|
|
|
Year Ended December 31,
2013
|
|
|
|
|
(In thousands)
|
|
|
Amortization of acquired developed technology – cost of revenue
|
|
$
|
7,265
|
|
|
$
|
7,943
|
|
| |
|
|
|
|
|
|
|
|
|
Depreciation and amortization – cost of revenue
|
|
|
6,065
|
|
|
|
7,927
|
|
|
Depreciation and amortization – general and administrative
|
|
|
3,474
|
|
|
|
4,336
|
|
|
Pro forma adjustment to depreciation and amortization
|
|
$
|
9,539
|
|
|
$
|
12,263
|
|
| |
|
|
|
|
|
|
|
|
(n) Reflects pro forma adjustments to amortization of purchased intangibles utilizing the preliminary estimates of the fair value and estimated weighted average lives on a straight line basis as described in note (e) to the unaudited pro forma condensed combined financial statements.
|
|
Nine months Ended September 30,
2014
|
|
|
Year Ended December 31,
2013
|
|
|
|
(In thousands)
|
|
|
Pro forma amortization of purchased intangibles
|
|
$
|
125,745
|
|
|
$
|
167,660
|
|
|
Less: Conversant historical amortization of purchased intangibles
|
|
|
19,015
|
|
|
|
23,151
|
|
|
Pro forma adjustment to depreciation and amortization
|
|
$
|
106,730
|
|
|
$
|
144,509
|
|
(o) Reflects pro forma interest expense resulting from the additional borrowings associated with the amendment to Alliance Data's 2013 credit facility:
|
|
|
Nine months Ended
September 30,
2014
|
|
|
Year Ended December 31,
2013
|
|
|
|
|
(In thousands)
|
|
|
Credit facility(1)
|
|
$
|
17,816
|
|
|
$
|
23,819
|
|
|
Amortization of debt issuance costs(2)
|
|
|
3,552
|
|
|
|
4,737
|
|
| |
|
|
21,368
|
|
|
|
28,556
|
|
|
Less: historical interest on Conversant's line of credit(3)
|
|
|
2,233
|
|
|
|
3,047
|
|
|
Pro forma adjustment to interest expense
|
|
$
|
19,135
|
|
|
$
|
25,509
|
|
| |
|
|
|
|
|
|
|
|
|
|
(1)
|
Reflects an assumed interest rate of LIBOR plus an applicable margin, or 1.91%, on Alliance Data's credit facility.
|
|
(2)
|
Reflects amortization of debt issuance costs that are amortized over the remaining term of the 2013 credit facility, which is 5 years.
|
|
(3)
|
Represents interest on the Conversant line of credit which is to be cancelled on or before the closing date in accordance with the terms of the merger agreement and the associated amortization of debt issuance costs.
|
A 1/8% change of the assumed interest rate of the variable interest debt would result in a change of interest expense of $1.2 million and $1.6 million for the nine months ended September 30, 2014 and the year ended December 31, 2013.
(p) Represents the estimated tax effect of the pro forma adjustments at a blended statutory rate of 38.6%.
(q) Represents the estimated number of share of Alliance Data common stock issued in connection with the merger.
|
Number of Conversant shares eligible for merger consideration
|
|
|
65,491
|
|
|
Fixed exchange ratio per share
|
|
|
0.070370
|
|
|
Total estimated Alliance Data shares issued
|
|
|
4,609
|
|