1101215--3/2/2009--ALLIANCE_DATA_SYSTEMS

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Risk Factors Related to Our Business Our 10 largest clients represented 48.4 % of our consolidated revenue in 2008 and the loss of any of these clients could cause a significant drop in our revenue. The markets for the services that we offer may fail to expand or may contract and this could negatively impact our growth and profitability. 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. Recent government actions to stabilize credit markets and financial institutions may not be effective and could adversely affect our competitive position. Unprecedented levels of market volatility could adversely affect our ability to meet our liquidity needs. 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 our interest-only strips. Interest rate increases could significantly reduce the amount we realize from the spread between the yield on our assets and our cost of funding. We expect growth in our Private Label Credit and Private Label Services segments 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. 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. Our level of indebtedness could materially adversely affect our ability to generate sufficient cash to repay our outstanding debt, our ability to react to changes in our business and our ability to incur additional indebtedness to fund future needs. The hedging activity related to our securitization trusts and our floating rate indebtedness subjects us to off-balance sheet counterparty risks relating to the creditworthiness of the commercial banks with whom we enter into hedging transactions. Proposed changes to accounting standards could have a significant impact on the Company, the WFN Trusts, the WFC Trust or our bank subsidiaries. Litigation against Blackstone Capital Partners V L.P. is costly and could be disruptive to our business. We rely on third party vendors to provide products and services. Our profitability could be adversely impacted if they fail to fulfill their obligations. If actual redemptions by AIR MILES Reward Program collectors are greater than expected, or if the costs related to redemption of AIR MILES reward miles increase, our profitability could be adversely affected. The loss of our most active AIR MILES Reward Program collectors could negatively affect our growth and profitability. If we fail to identify suitable acquisition candidates, or to integrate the businesses we acquire, it could negatively affect our business. Legislation relating to consumer privacy may affect our ability to collect data that we use in providing our loyalty and marketing services, which, among other things, could negatively affect our ability to satisfy our clients needs. 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. Loss of data center capacity, interruption of telecommunication links, computer viruses 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. Current and proposed regulation and legislation relating to our retail credit services could limit our business activities, product offerings and fees charged. 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. Airline or travel industry disruptions, such as an airline insolvency, could negatively affect the AIR MILES Reward Program, our revenues and profitability. Our bank subsidiaries are subject to extensive federal regulation that may require us to make capital contributions to them, and that may restrict the ability of these subsidiaries to make cash available to us. If our bank subsidiaries fail to meet certain 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 FDIC or State of Utah, we may be subject to termination of our industrial bank. Competition in our industries is intense and we expect it to intensify. In 2008, our Private Label Services segment derived approximately 97.1% of its revenue from servicing cardholder accounts for the Private Label Credit segment. If the Private Label Credit segment suffered a significant client loss, our revenue and profitability attributable to the Private Label Services segment could be materially and adversely affected. Anti-takeover provisions in our organizational documents, Delaware law and the fundamental change purchase rights of our convertible senior notes may discourage or prevent a change of control, even if an acquisition would be beneficial to our stockholders, which could affect our stock price adversely and prevent or delay change of control transactions or attempts by our stockholders to replace or remove our current management. Future sales of our common stock, or the perception that future sales could occur, may adversely affect our common stock price. We do not intend to pay cash dividends. Conversion of the convertible senior notes may dilute the ownership interest of existing stockholders.

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1101215--3/2/2009--ALLIANCE_DATA_SYSTEMS_CORP