1101215--2/26/2007--ALLIANCE_DATA_SYSTEMS

related topics

{regulation, government, change}

{loss, insurance, financial}

{product, market, service}

{system, service, information}

{tax, income, asset}

{customer, product, revenue}

{operation, natural, condition}

{operation, international, foreign}

{property, intellectual, protect}

{provision, law, control}

{condition, economic, financial}

Failure to safeguard our databases and consumer privacy could affect our reputation among our clients and their customers, and may expose us to legal claims. As a result of our significant Canadian operations, our reported financial information will be affected by fluctuations in the exchange rate between the U.S. and Canadian dollars. The hedging activity related to our securitization trusts subjects us to off-balance sheet counterparty risks relating to the creditworthiness of the commercial banks with whom we enter into hedging transactions. Our failure to protect our intellectual property rights may harm our competitive position, and litigation to protect our intellectual property rights or defend against third party allegations of infringement may be costly. Loss of data center capacity, interruption of telecommunication links, or inability to utilize proprietary software of third party vendors could affect our ability to timely meet the needs of our clients and their customers. If we are required to pay state taxes on transaction processing, it could negatively impact our profitability. Risks Particular to Marketing Services If actual redemptions by AIR MILES Reward Program collectors are greater than expected, our profitability could be adversely affected. We could face increased competition from other loyalty programs, including Aeroplan, Air Canada s frequent flyer program. The loss of our most active AIR MILES Reward Program collectors could negatively affect our growth and profitability. Airline or travel industry disruptions, such as an airline insolvency, could negatively affect the AIR MILES Reward Program, our revenues and profitability. Legislation relating to consumer privacy may affect our ability to collect data that we use in providing our marketing services, which could negatively affect our ability to satisfy our clients needs. Risks Particular to Credit Services If we are unable to securitize our credit card receivables due to changes in the market, the unavailability of credit enhancements, an early amortization event or for other reasons, we would not be able to fund new credit card receivables, which would have a negative impact on our operations and earnings. Increases in net charge-offs beyond our current estimates could have a negative impact on our operating income and profitability. Changes in the amount of payments and defaults by cardholders on credit card balances may cause a decrease in the estimated value of interest-only strips. Increases in our interest rates could have a negative impact on our operating income and profitability. We expect growth in our credit services segment to result from new and acquired credit card programs whose credit card receivable performance could result in increased portfolio losses and negatively impact our net retained interests in loans securitized. Current and proposed regulation and legislation relating to our credit services could limit our business activities, product offerings and fees charged. If our bank subsidiaries fail to meet certain bank criteria, we may become subject to regulation under the Bank Holding Company Act, which would force us to cease all of our non-banking activities and thus cause a drastic reduction in our profits and revenue. If our industrial bank fails to meet the requirements of the Federal Deposit Insurance Corporation or State of Utah, we may be subject to termination of our industrial bank. Risks Particular to Transaction Services In 2006, our Transaction Services segment derived approximately 46.1% of its revenue from servicing cardholder accounts for the Credit Services segment. If the Credit Services segment suffered a significant client loss, our revenue and profitability attributable to the Transaction Services segment could be materially and adversely affected. Risks Related to Our Company Delaware law and our charter documents could prevent a change of control that might be beneficial to you.

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1101215--2/26/2007--ALLIANCE_DATA_SYSTEMS_CORP