Building Business Acumen®
Acumen Learning
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
2
Important Questions
How much do you know about Alliance Data
System’s (ADS)
Key Success Measures?
(or Key Performance Indicators (KPIs))
Let’s find out!
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
Pop Quiz
For fiscal year 2010:
1 - How much Cash was on hand?
3
ADS
$______
2 - How much Cash was generated by Operating Activities? $______
3 - What was our Total Revenues?
$______
4 - What was our Net Income?
$______
5 - What was our EBITDA Margin?
______%
6 - What was our Net Margin?
______%
7 – What was our Return on Assets?
______%
8 - How much did Total Revenue change YOY?
______%
9 - How much did EBITDA change YOY?
______%
10 - How much did Net Income change YOY?
______%
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
4
Learning Objectives
 Understand the 10 key performance measures that are
important to ADS and the Executive Team.
 List and describe the five business drivers all successful
businesses must focus on.
 Teach specific components of ADS financial statements.
 Better articulate company performance & strategy.
 Create a personal action plan that can positively impact
personal performance and company results.
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
5
Acumen Means?
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
3
6
~Wayne Gretzky~
“The Great One”
When Gretzky’s Dad was asked by a
reporter,
“What makes your son so great?”
He responded by saying;
“Wayne doesn’t skate to where the puck is.”
“ He skates to where the puck…
is going to be.”
(Hockey Acumen!)
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
7
Acumen Means?
…the ability to make good business decisions in a timely manner with an
understanding of how the decision should impact the business.
©2009 ADS Alliance Data Systems, Inc.
3
Confidential and Proprietary
8
Business can be tough!
 Only 5-10% of business start-ups survive past 5 years.
 16% of CEOs lose their job every year.
Booz Allen Hamilton 5th annual Study
 70% of merger and acquisition activity do not live
up to expectation.
Wall Street Journal 2007
Why do businesses fail?
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
6
9
Business Acumen:
Every business must focus on five
business drivers.
If they do, they will be
successful.
 If they don’t, they’ll fail.

Let’s Start a Business!
©2009 ADS Alliance Data Systems, Inc.
4
Confidential and Proprietary
10
Cash is King!
“Cash is a company’s oxygen supply.”
-Ram Charan
“Cash is more important than your mother."
Al Shugart Former Seagate CEO
What happens to a company who runs low on cash?
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
11
Cash & Cash Flow
Sources of Cash
• Earn it
Pro: No Cost
-Con: Time
•cash from Operation
• Sell Assets
Pro: Immediate -Con: Reduces Assets
•Cash from Investing
• Borrow it
Pro: Immediate -Con: Cost (Interest)
•Cash from Financing
Can a company have too much Cash?
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
9
12
Cash
Can a company have too much Cash?
1)More attractive in a buy-out.
2)Low return.
3)Shareholders don’t like it.
4)May make poor decisions.
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
9
13
How much cash should you have?
Companies ought to keep just enough cash
to cover their interest, expenses and capital
expenditures; plus they should hold a little
bit more in case of emergencies.
Investopedia
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
14
Definition: Cash
DEFINITION
What is required to grow and
maintain the business.
MEASURES
Cash
Cash – the bills and coins in the register,
petty cash, and cash in the bank. Also
includes cash equivalents, like CD’s and
other highly liquid investments, that
easily convert into cash within 90 days.
Cash Flow – The cash generation from
core business activities calculated from
the difference between the cash that
flows into and out of the business in a
given period of time (month, quarter,
annual)
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
8
15
Cash
ADS
(In Millions)
ADS
ADS
ADS
ADS
2010
2009
2008
2007
$2,791
$1,964
$2,025
$1,962
Cash and Equivalents
$139
$213
$157
$219
Cash as % of Revenue
4.98%
10.86%
7.75%
11.17%
$903
$358
$451
$572
Business Measures and Metrics
Total Revenue
Cash
Cash from Operating Activities
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
9
16
Cash
Benchmarks
(In Millions)
Business Measures and Metrics
Total Revenue
Cash
Cash and Equivalents
Cash as % of Revenue
Cash from Operating Activities
ADS
VISA
AMEX
HarteHanks, Inc.
ACXIOM
2010
$2,791
2010
$8,065
2010
$30,242
2010
$861
2010
$1,160
$139
4.98%
$903
$3,867
47.95%
$2,691
$2,498
8.26%
$9,288
$86
9.99%
$95
$207
17.85%
$166
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
9
17
Epsilon Financial Statements
The Annually Reported Financial Statements
• Statement of Income (P&L)
• Balance Sheet
• Statement of Cash Flows
1.
What is the basic equation for each statement?
2.
What is the purpose of the statement?
3.
What are the key numbers and how are they trending?
4.
How can you impact each statement?
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
18
Equation:
Purpose:
Cash from operations + Cash from investing
+ Cash from financing = Net Change in Cash
Cash Management
?
Net Change in Cash 
Started Year 
Ended Year 
?
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
19
Definition: Profit
DEFINITION
What is left over after you have
subtracted expenses. Can be
expressed in dollars ($) or
percent (%).
Profit
MEASURES
EBITDA/EBITDA Margin– Reflects
earnings before interest and taxes.
Net Profit / Net Profit Margin – Profit
after all expenses have been subtracted
from sales.
©2009 ADS Alliance Data Systems, Inc.
10
Confidential and Proprietary
20
Every business must earn a return that is
greater than the cost of using other
people’s money.
-Ram Charan
No Margin, No Mission.
-Stephen R. Covey
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
21
Two ways to impact PROFIT
Total Revenues (Sales)
$100
- Cost of Operations
$ 55
- Provisions For Loan loss
$ 14
- General & Admin. (G&A)
$
100%
3
=EBITDA
$ 28
-Depreciation & Amortization
$
= Operating Income
$ 23
28%
5
-Interest & Other Expense
$ 11
-Taxes
$
4
= Income From Continuing Operations $
7
-Losses from discontinued operations
$ --
= Net Income
$
7
23%
7%
7%
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
22
Driving Profit
High and Low Profit Margins
S&P Average TTM:
11%
Who has much higher profit margins?
Coca Cola
Microsoft
Google
Apple
33%
30%
29%
21%
Why the high margins?
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
23
Driving Profit
High and Low Profit Margins
S&P Average TTM:
11%
Who has lower profit margins?
ExxonMobil
Wal-Mart
Costco
8%
3.8%
1.7%
Why the low margins?
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
24
Calculating Adjusted EBITDA
2010
EBITDA
$ 772,446
+Stock Compensation Expense
$
+Loss on Sale of Assets
$
--
+Merger and Other Costs
$
--
= Adjusted EBITDA
$ 822,540
50,094
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
25
Profit
ADS
(In Millions)
Business Measures and Metrics
Total Revenue
Net Income
ADS
ADS
ADS
ADS
2010
2009
2008
2007
$2,791
$1,964
$2,025
$1,962
$206
$164
Epsilon 613,374
514,272
$194
$144
Profit
EBITDA Margin
27.67%
27.14%
29.45%
27.94%
Net Margin
6.94%
7.32%
10.19%
8.36%
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
11
26
Profit
LoyaltyOne
(In Millions)
Business Measures and LoyaltyOne LoyaltyOne
Metrics
Q2-2011 6 Month
Total Revenue
Profit
$203
$421
LoyaltyOne LoyaltyOne LoyaltyOne
2010
2009
2008
$800
$715
$756
Epsilon 613,374 514,272
Adjusted EBITDA Margin
26.05%
26.43%
25.58%
28.07%
27.12%
Operating Income Margin
N/A
N/A
21.32%
23.32%
21.51%
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
11
27
Profit
Epsilon
(In Millions)
Business Measures and Epsilon Epsilon
Metrics
Q2-2011 6 Month
Total Revenue
Profit
$188
$344
Epsilon
Epsilon
Epsilon
2010
2009
2008
$613
$514
$491
Epsilon 613,374 514,272
Adjusted EBITDA Margin
Operating Income
Margin
21%
21%
24.83%
24.94%
25.78%
N/A
N/A
10.61%
9.62%
8.06%
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
11
28
Profit
Private Label (Retail)
(In Millions)
Business Measures and
Metrics
Total Revenue
Profit
Retail
Retail
Q2-2011 6 Month
$351
$720
Retail
Retail
Retail
2010
2009
2008
$1,386
$708
$762
38.23%
44.49%
48.53%
35.13%
39.7%
44.50%
Epsilon 613,374 514,272
Adjusted EBITDA Margin 46.68% 48.22%
Operating Income
N/A
N/A
Margin
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
11
29
Profit
Benchmarks
(In Millions)
ADS
VISA
AMEX
HarteHanks, Inc.
ACXIOM
2010
2010
2010
2010
2010
$2,791
$8,065
$30,242
$861
$1,160
$194
$2,966
$4,057
$54
$(23)
EBITDA Margin
27.67%
60.19%
19.72%
13.30%
2.67%
Net Margin
6.94%
36.78%
13.42%
6.23%
-2.00%
Business Measures and Metrics
Total Revenue
Net Income
Profit
S&P 500 Averages:
Net Margin = 11%
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
11
30
Profit In Action
United Parcel Services (UPS) – Avoiding left-hand turns
-92,000 trucks worldwide
-Saved over 28,541,472 miles
-Saved 3 million gallons of fuel
-Reduced insurance premiums
-Reduced maintenance frequency
and costs
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
11
31
Table Discussion (Page 11)
 How do you individually impact PROFIT?
 Capture your ideas on page 11 in the participant
guide.
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
11
Indicates:
Equation:
Revenues- Expenses= Income
P&L
32
Profitability
SG&A:
(Revenue = Sales)
= Top Line
• Salaries
•Sales commissions
•Benefits/Severance
• Rental Expense
• Bad debt charges
• Merger integration costs
• Professional services:
Attorney fees, Accounting
(G&A)
EBITDA margin
=27.67%
= EBIT
= Bottom Line
Net profit
margin = 6.94%
EBITDA Margin
Total Revenue:
2,791,421
EBITDA:
EBIT
629,220
+67,806
+75,420
= 772,446
÷
2,791,421
= 27.67%
Net Profit Margin
Net Income:
Total Rev.
2,791,421
193,737
÷
= 6.94%
= Net income /
Diluted # of shares
S&P 500 Ave. = 11%
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
33
If your team was able to help generate an
additional 100K in revenue by selling more,
what would be the impact on our net
income?
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
34
Increase revenue by 100K
Statement of Income (P&L)
100K
55K
55K
45K
45K
©2009 ADS Alliance Data Systems, Inc.
17K
Confidential and Proprietary
28K
35
If your team was able to help lower
production and delivery costs by 100K, what
would be the impact on net income?
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
36
Lower costs by 100K
Statement of Income (P&L)
100K
100K
100K
100K
37K
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
63K
37
Which is better?
Raising Revenues $100M =
-or-
$28
Cutting Costs by $100M
$63
=
What are the implications of each
action?
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
38
Street Vendor Case Study
x
Section
3
Assets
 Your supplier has suggested that you take delivery less often. What are
the advantages and disadvantages?
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
12
39
Assets (Read from guide book p. 12)
Balancing…
Asset
Strength
&
i.e. cash, inventory
and ratings
Asset
Utilization
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
40
Definition: Assets
DEFINITION
Assets
What we have and how well we
use what we have.
MEASURES
Return on Assets (ROA)— percent
value of Net Income to Total Assets
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
12
41
Example of Profits and Assets
“In 1912, the Model T for the first time cost less than the prevailing
average annual wage in the United States.”
“Ignoring conventional wisdom, Henry Ford continually sacrificed
margins to increase sales. In fact, profits per car did fall as he slashed
prices from $220 in 1909 to $99 in 1914.”
“But Sales Exploded!”
“Ford demonstrated that a strategic, systematic
lowering of prices could boost profits, as net
income rose from…
$3 million in 1909 to $25 million in 1914.”
~Daniel Gross, Forbes Greatest Business Stories
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
13
42
Example: Return On…
What we Get:
• Income
• Earnings
• Profit
What it Costs:
• Debt
• Assets
• Capital
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
4
43
Assets
ADS
(In Millions)
Business Measures and Metrics
Total Revenue
Net Income
ADS
ADS
ADS
ADS
2010
2009
2008
2007
$2,791
$1,964
$2,025
$1,962
$194
$144
$206
$164
2.34%
2.75%
4.75%
3.94%
Assets
Return on Assets (ROA)
ROA = Net Income = $194 = 2.34%
Total Assets $8,272
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
13
44
Assets
Benchmarks
(In Millions)
Business Measures and Metrics
Total Revenue
Net Income
HarteACXIOM
Hanks, Inc.
ADS
VISA
AMEX
2010
2010
2010
2010
2010
$2,791
$8,065
$30,242
$861
$1,160
$194
$2,966
$4,057
$54
$(23)
2.34%
8.88%
2.76%
5.78%
-1.77%
Assets
Return on Assets (ROA)
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
13
45
Class Discussion (notes on page 13)
Best practices currently employed by companies,
including ours, to improve asset strength and utilization:





Increase revenues.
Lower costs.
Getting more done with fewer employees.
Reducing inventory levels to increase inventory turnover.
Spending only on capital (equipment) upgrades that will
provide a return.
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
46
Why call it a Balance Sheet?
•What balances?
•What is the average price of a
home?
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
46
Indicates:
Equation:
Assets = Liabilities + Equity
47
Financial (asset) Strength
Snapshot in time
Most Liquid
Becomes Cash < 1 year
Least Liquid
Current
Ratio = 1.6
Due First
Due in < 1 year
Balance
Due Last
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
48
Definition: Growth
DEFINITION
The ability to increase year over year,
quarter over quarter, and/or month over
month.
“In today’s business world, no growth
means lagging behind in a world that
grows every day…”
Growth
“Investors expect it, employees are
energized by it, customers are generally
attracted to it and executives are
measured by it.”
MEASURES
Revenue Growth
EBITDA Growth
Net Income Growth
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
14
49
Business in Rapid Decline…
• Best & brightest leave first.
• Productivity goes down.
• Morale goes down.
• Costs are cut, which limits ability
to grow, company becomes less
profitable.
Studies Show:
It usually takes 4 or 5 years for the
company to recover.
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
15
50
Business in Rapid Growth…
• Attracts/Retains the best & brightest!
• Productivity goes up = more profit =
more cash = more ability to grow!
• Morale is high.
• You have the ability to grow in your
career!
Growth gets more time & attention than
any of the 5 elements in a public
company.
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
15
51
Growth
ADS
(In Millions)
ADS
ADS
ADS
2010
2009
2008
$2,791
$1,964
$2,025
$194
$144
$206
Revenue Growth
42.10%
-3.01%
3.22%
EBITDA Growth
44.91%
-10.62%
8.78%
Net Income Growth
34.79%
-30.36%
25.81%
Business Measures and Metrics
Total Revenue
Net Income
Growth
©2009 ADS Alliance Data Systems, Inc.
15
Confidential and Proprietary
52
Growth
LoyaltyOne
(In Millions)
Business Measures and LoyaltyOne LoyaltyOne
Metrics
Q2-2011 6 Month
LoyaltyOne LoyaltyOne LoyaltyOne
2010
2009
2008
Total Revenue
$203.1
$420.8
$800
$715
$756
Adjusted EBITDA
$52.9
$111.2
$205
$201
$205
6%
8%
11.8%
-5.4%
N/A
-10%
-1%
1.9%
-2%
N/A
Profit
Revenue Growth
Adjusted EBITDA
Growth
©2009 ADS Alliance Data Systems, Inc.
15
Confidential and Proprietary
53
Growth
Epsilon
(In Millions)
Business Measures and Epsilon Epsilon
Metrics
Q2-2011 6 Month
Epsilon
Epsilon
Epsilon
2010
2009
2008
Total Revenue
$188
$344.2
$613
$514
$491
Adjusted EBITDA
$39.3
$73
$152
$128
$127
38%
31%
19.26%
4.68%
N/A
26%
25%
18.8%
1.3%
N/A
Profit
Revenue Growth
Adjusted EBITDA
Growth
©2009 ADS Alliance Data Systems, Inc.
15
Confidential and Proprietary
54
Growth
Private Label (Retail)
(In Millions)
Business Measures and
Metrics
Retail
Retail
Q2-2011 6 Month
Retail
Retail
Retail
2010
2009
2008
Total Revenue
$350
$720
$1,386
$708
$762
Adjusted EBITDA
$164
$347
$152
$128
$127
2%
5%
96%
-7%
N/A
23%
27%
68%
1.3%
N/A
Profit
Revenue Growth
Adjusted EBITDA
Growth
©2009 ADS Alliance Data Systems, Inc.
15
Confidential and Proprietary
55
Growth
Benchmarks
(In Millions)
HarteACXIOM
Hanks, Inc.
ADS
VISA
AMEX
2010
2010
2010
2010
2010
$2,791
$8,065
$30,242
$861
$1,160
$194
$2,966
$4,057
$54
$(23)
EBITDA Growth
42.10%
44.91%
16.70%
28.96%
13.14%
109.93%
0.05%
1.84%
5.53%
-68.71%
Net Income Growth
34.79%
26.05%
90.47%
12.32%
-151.96%
Business Measures and Metrics
Total Revenue
Net Income
Growth
Revenue Growth
©2009 ADS Alliance Data Systems, Inc.
15
Confidential and Proprietary
56
Page 56
Q2 Earnings Release
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
57
Page 57
Q2 Earnings Release
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
58
How can you personally impact
Growth?
• At your table, discuss how you individually impact Growth.
• Capture your ideas on page 15 in the participant guide.
• Be prepared to share one of your ideas with the class.
©2009 ADS Alliance Data Systems, Inc.
15
Confidential and Proprietary
59
Definition: People
People
DEFINITION
-The External Customer,
Vendor/Re-seller, or Internal
Customer that has the ability to
impact the success of the
business...
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
16
60
People
What is more important than meeting customer expectations?
Exceeding?
Anticipating Customer Needs & Expectations!
“If I would have asked my customer what they wanted, they would have
said a faster horse!”
~Henry Ford
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
17
61
Failing to Anticipate customer needs/expectation!
What companies have failed to anticipate customer
expectations? What were the results?
• GM/Ford
• Kodak
– Unprepared for recession and required government bailout
money. Ford secured line of credit prior and retained full
ownership.
– decided to move to digital product line. Polaroid did not and is no
longer a serious competitor.
• IBM
– In 1943, the CEO said the customer need for their product was
approximately 5 computers for the entire world.
• Sony
– Did not move to a digital music player and lost a significant market
share to innovative companies like Apple.
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
17
62
Goals for 2011
• Capitalize on our Leadership in Targeted and
Data-Driven Consumer Marketing
• Sell More Fully Integrated End-to-End Marketing
Solutions.
• Continue to Expand our Global Footprint
• Optimize our Business Portfolio
2010 Year End Press Release
Page 62
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
63
What are your best practices in anticipating CUSTOMERS
needs?
(Capture ideas on page 17)
• Know your business and how you impact results!
• Develop formal processes for listening to customers, both internal and external.
• A quarterly meeting with your boss…ask, how am I doing?
• What could I do to improve?
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
64
Individual Activity
(Page 17)
Write down
a specific action you will take to
anticipate the needs of
(get close to) your
CUSTOMER.
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
65
Business Drivers
(Page 18)
Cash
-On hand
-Generation
Growth
People
Profit
-Top Line
-Bottom Line
-Customers
-Employees
-Revenue
-Expenses
Assets
-Strength
-Utilization
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
66
How will I remember these?
Cash
Growth
People
Profit
Assets
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
67
Finding our performance around the 5
Business Drivers
Cash
-On hand
-Generation
Growth
People
Profit
-Top Line
-Bottom Line
-Customers
-Employees
-Revenue
-Expenses
Assets
-Strength
-Utilization
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
68
139
629 + 143 = 772
2,791
27.67
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
69
1
2
629 + 143 = 772
194
194
2,791
629 + 143 = 772
194
139
903
3
2,791
4
194
2,791
5
27.67
2,791
6
6.94
8,272
1,964
408 + 125 = 533
144
7
2.34
8
42.10
9
44.91
10
34.79
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
70
Epsilon Corporation’
Key Success Measures
1½
SCORING:
Right answer =
1 point
Somewhat close =
½ point (within: 10%)
Missed it by a ways = 0 point
0
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
35
71
5 Business Driver Review
(Pages 8-17)
Cash
-On hand
-Generation
Growth
-Top Line
-Bottom Line
People
-Customers
-Employees
Profit
-Revenue
-Expenses
Assets
-Strength
-Utilization
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
72
Review and Teaching (page 30)
1) Assign one of the business drivers to each
person at your table.
2) Take a few minutes to answer the questions below:

How would you describe this business driver?

Why is it important to our organization?

How is it measured?

How can I impact this business driver in my role?
3) Review with your group the answers you found.
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
73
Demystifying the Annual Report
(page 21)
What is the Purpose of the Annual Report?
 General Communication
 Marketing
 Compliance
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
74
Getting to Know Your Company
Which of the 5 “drivers” does your CEO &
Chairman emphasize? Why? As table groups, What are
Mr. Heffernan’s top 2 focus areas.
What other key initiatives are also being talked
about?
Was this a good year or bad year? How can you
tell?
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
75
Finding our performance around the 5
Business Drivers
Cash
-On hand
-Generation
Growth
-Top Line
-Bottom Line
People
-Customers
-Employees
Profit
-Revenue
-Expenses
Assets
-Strength
-Utilization
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
76
Company Reports
LoyaltyOne
Epsilon
Retail
Know Thyself.
-Plato
-
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
77
Finding Competitors Performance Around:
Cash
-On hand
-Generation
Growth
-Top Line
-Bottom
Line
People
-Customers
-Employees
Profit
-Revenue
Expenses
Assets
-Strength
Utilization
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
78
Getting to Know ADS
Use these sources:
1) President Letter from Insight Magazine
2) Website
3) Team Members
4) Others in the Class
To answer these questions on:

What is the basic business model? How would you describe it to an outsider?

Key Objectives for 2011

Opportunities & Threats

What synergies do you see with the other two business lines?
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
79
External Factors (page 40)
How does the situation affect:
People
Cash
Growth
Profit
Assets
Heads Up!
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
80
Which External Factor has the biggest impact on Alliance
Data Systems? (pg. 27)
0%
ar
ke
k
St
oc
A
ca
l
og
i
M
dv
...
..
t
0%
Te
ch
no
l
ic
om
on
0%
of
.
ng
es
os
C
Ec
0%
st
at
tc
ha
ul
a
tio
n
0%
us
0%
n
6.
eg
5.
R
4.
tit
io
3.
om
pe
2.
Competition
Regulation
Cost changes
Economic status of customers
Technological Advances
Stock Market
C
1.
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
81
Google And Reuters
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
82
Competitor Reports
Visa
American Express
Harte-Hanks
ACXIOM
Keep your friends close,
and your enemies closer.
--Lao Tzu
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
83
Finding Competitors Performance Around:
Cash
-On hand
-Generation
Growth
-Top Line
-Bottom
Line
People
-Customers
-Employees
Profit
-Revenue
Expenses
Assets
-Strength
Utilization
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
84
Getting to Know a Company (pages 36)
Use these sources:
1) CEO letter
2) Financial analysis (fill out the NTF)
3) Recent quarterly earnings release
4) One year stock performance
To answer these questions on page 36:

Was this a good year or bad year? How can you tell?

Which of the 5 business drivers are most important to them? Why?

What does this company do that you were not aware of?
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
85
Banks,
Insur. Co’s
Over
leveraged.
Did not
understand
FNMA &
sub-prime
FHLMC
Over risk.
U.S.
Government
Pushing
more loans.
Little oversight.
Federal
Reserve
Aggressive
rate cuts
after 9/11 to
spur Home
spending.Builders
What does
Credit
thisCrisis
mean
for FCX?
leveraged
with implied
government
Rating
backing.
Agencies
Did not rate
sub-prime
loan risk
Who is involved?
Mortgage
Companies
Aggressive
Sub-prime
lending.
increase
supply of
homes to
Home meet
Buyers demand.
Buying more
home than
they can
afford.
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
86
The Role of the Stock Market
1) What role does the stock market play?
2) Who cares about your stock price and why?
a. Investors
b. Analysts
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
87
Analyst Recommendations
September 19, 2011
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
88
The Role of the Stock Market
1) What role does the stock market play?
2) Who cares about your stock price and why?
a. Investors
b. Analysts
c. Your CEO
d. Employees
3) What are the benefits of a higher stock price?
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
89
6 Benefits of a Higher Stock Price:
(Page 41)
1) Treasury stock is worth more.
2) Secondary offering brings more cash.
3) Better credit ratings = more access to cash at a cheaper rate.
4) More acquisition power.
5) Can attract talented people.
6) More expensive in a buy-out.
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
90
Market Cap = shares outstanding X stock price
Element
Market Cap.
ADS
Visa
AMEX
4.5 Billion
69 Billion
52 Billion
HarteHank
ACXIOM
.5 Billion .85 Billion
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
91
The P/E Ratio-ADS
(Page 42, 43)
Price (of one share of stock)
Earnings Per Share (for last 12 months)
Price
EPS
$ 89.02
$ 4.55
= 19.5 P/E ratio
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
92
P/E Ratios
Element
P/E Ratio
ADS
Visa
AMEX
HarteHanks
Acxiom
20
20
11
12
-
“The P/E ratio tells you what people who have a
dispassionate view of your company think of its future ability
to make money. It reveals how much of their money they are
willing to bet on your success in the quarters and years to
come.”
Ram Charan
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
93
ADS Stock Chart
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
94
ADS and S&P 500
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
95
ADS and Benchmark Companies
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
96
CEO Urgency Continuum
(Page 49)
URGENT
CASH
NEAR TERM
PROFIT
ASSETS
LONG TERM
GROWTH
PEOPLE
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
97
Content Retention
Retaining Content over Time
Review
Apply
Teach
15%
Time
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
52
98
Changing Behavior
*Based on a 1993 Brigham Young University Study
When a Person Says …
Chances of the idea being incorporated
into their life is...
“That’s a good idea”…
10%
“I’ll do it!” and commits...
25%
Says when they’ll do it…
40%
Plans how to do it…
50%
Commits to another…
60%
Sets a future specific
appointment with the
person they committed to...
Good Management
Technique!
95%
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
99
Accountability Conversations
Find a Partner now and:
1.
Set up a specific date and time in 30 days to report your
progress on your action plan.
2.
Exchange emails
3.
Exchange phone numbers
4.
Decide who will initiate the call
5.
Determine a back-up plan
6.
Transfer this information to your
planner or PDA now.
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
53
100
Post Course Action Items:
1. 7 days:
Teach one of the principals learned in class today,
to someone in your department.
2. 7 days:
Discuss your action items with your manager in the
next 7 days.
3. 30 days:
Read the first 90 pages of:
“What The CEO Wants You to Know“
4. 30 days:
Get with your class partner and give an account of
your progress on your action item(s).
Start now:

Build and practice your new business acumen skills.

When making decisions, determine how the outcome will impact
Cash, Profit, Assets, Growth, People…
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
101
Learning Objectives
 Understand the 10 key performance measures that are
important to ADS and the Executive Team.
 List and describe the five business drivers all successful
businesses must focus on.
 Teach specific components of ADS financial statements.
 Better articulate company performance & strategy.
 Create a personal action plan that can positively impact
personal performance and company results.
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
102
Where to Find Information
(page 55)
* nasdaq.com
* finance.google.com
* reuters.com
* hoovers.com
* yahoo.com
* smartmoney.com
Glossary: page 58
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
103
One final thought…
People will work hard for a paycheck,
harder for a person,
and hardest for a reason.
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary
104
Thank You!
Please complete the evaluation form
Participant Feedback Form
~Please place at the front of your tables~
 Feedback Evaluations
 Voting Cards
 Calculators
©2009 ADS Alliance Data Systems, Inc.
Confidential and Proprietary