1101215--3/3/2006--ALLIANCE_DATA_SYSTEMS

related topics

{regulation, government, change}

{loss, insurance, financial}

{product, market, service}

{system, service, information}

{tax, income, asset}

{customer, product, revenue}

{acquisition, growth, future}

{operation, natural, condition}

{property, intellectual, protect}

{operation, international, foreign}

{stock, price, share}

We cannot assure you that we will effectively integrate acquisitions or realize their full benefits, and future acquisitions may result in dilutive equity issuances or increases in debt. 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 from consumers. 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. 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. If we are required to pay state taxes on transaction processing, it could negatively impact our profitability. Risks Particular to Transaction Services In 2005, our Transaction Services segment derived approximately 44.7% 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 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. 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 credit services segment to result from new and acquired private label 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 terms of the Federal Deposit Insurance Corporation or State of Utah Orders, we may be subject to termination of our industrial bank. Risks Particular to Marketing Services If actual redemptions by AIR MILES 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 collectors could negatively impact 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 Related to Our Company The affiliated entities of Welsh Carson currently own a significant amount of our common stock. These stockholders may have interests that conflict with yours and may be able to control the election of directors and the approval of significant corporate transactions, including a change in control.

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1101215--3/3/2006--ALLIANCE_DATA_SYSTEMS_CORP