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DESCRIPTION OF BUSINESS, SPINOFF AND BASIS OF PRESENTATION | 9 Months Ended
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Sep. 30, 2021
DESCRIPTION OF BUSINESS, SPINOFF AND BASIS OF PRESENTATION |
DESCRIPTION OF BUSINESS, SPINOFF AND BASIS OF PRESENTATION | ​ 1. DESCRIPTION OF BUSINESS, SPINOFF AND BASIS OF PRESENTATION Description of the Business Loyalty Ventures Inc. (the “Company” or “Loyalty Ventures”) provides coalition and campaign-based loyalty solutions through the Canadian AIR MILES® Reward Program and BrandLoyalty Group B.V. (“BrandLoyalty”). The AIR MILES Reward Program is a full service outsourced coalition loyalty program for its sponsors who pay a fee per AIR MILES reward mile issued, in return for which the AIR MILES Reward Program provides all marketing, customer service, rewards and redemption management. BrandLoyalty designs, implements, conducts and evaluates innovative and tailor-made loyalty programs for high frequency retailers worldwide. These loyalty programs are designed to generate immediate changes in consumer behavior and are offered across Europe and Asia, as well as around the world. The business represents the LoyaltyOne reportable segment previously owned by Alliance Data Systems Corporation (“ADS” or “Parent”) that was spun off into Loyalty Ventures Inc. on November 5, 2021. Spinoff of the LoyaltyOne Segment On October 13, 2021, the Board of Directors of ADS approved the previously announced separation (the “Separation”) of its LoyaltyOne segment, into an independent, publicly traded company, Loyalty Ventures Inc. The Separation was completed on November 5, 2021 through the pro rata distribution of 81% of the outstanding shares of Loyalty Ventures to holders of ADS common stock at the close of business on the record date of October 27, 2021, with ADS retaining the remaining 19% of the outstanding shares of Loyalty Ventures. ADS stockholders of record at the close of business on October 27, 2021 received one share of Loyalty Ventures common stock for every two and one-half (2.5) shares of ADS common stock. Additionally, Loyalty Ventures made a cash distribution of $750.0 million to ADS on November 3, 2021 as part of the Separation. The distribution qualified as a tax-free reorganization and a tax-free distribution to ADS and its stockholders for U.S. federal income tax purposes. On November 8, 2021, “regular-way” trading of Loyalty Ventures’ common stock began on the Nasdaq Stock Market under the symbol “LYLT”. In connection with the Separation, Loyalty Ventures entered into several agreements with ADS, including on November 3, 2021 the Separation and Distribution Agreement and on November 5, 2021 the remaining agreements described below, that, among other things, effect the Separation and provide a framework for its relationship with ADS after the Separation:
| • | Separation and Distribution Agreement. Governs the overall terms of the Separation. Generally, the Separation and Distribution Agreement includes ADS’ and Loyalty Ventures’ agreements relating to the restructuring steps taken to complete the Separation, including the assets and rights transferred, liabilities assumed and related matters. The Separation and Distribution Agreement provides for ADS and Loyalty Ventures to transfer specified assets between the companies that operate the LoyaltyOne segment after the Distribution, on the one hand, and ADS’ remaining businesses, on the other hand.
| • | Tax Matters Agreement. Governs ADS’ and Loyalty Ventures’ respective rights, responsibilities and obligations with respect to taxes, including taxes arising in the ordinary course of business, and taxes, if any, incurred as a result of the failure of the Distribution (and certain related transactions) to qualify for tax-free treatment for U.S. federal income tax purposes. The Tax Matters Agreement also sets forth the respective obligations of the parties with respect to the filing of tax returns, the administration of tax contests and assistance and cooperation on tax matters. Under the Tax Matters Agreement, ADS generally is responsible for all of the pre-Separation taxes of Loyalty Ventures and its subsidiaries (“Loyalty Ventures Group”) and is entitled to all the Loyalty Ventures Group’s pre-Separation refunds, and Loyalty Ventures is generally responsible for all post-Separation taxes with respect to the Loyalty Ventures Group.
| • | Transition Services Agreement. Sets forth the terms on which each of Loyalty Ventures and ADS will provide certain historically shared services to the other, on a transitional basis. Transition services will include various corporate, administrative and information technology services. Both parties are obligated, subject to certain customary exceptions, to provide such services in substantially the same manner as such services have been provided during the 12-month period prior to the distribution.
| • | Employee Matters Agreement. Governs each company’s respective compensation and benefit obligations with respect to current and former employees, directors and consultants. The Employee Matters Agreement sets forth general principles relating to employee matters in connection with the Separation, such as the assignment of employees, the assumption and retention of liabilities and related assets, expense reimbursements, workers’ compensation, leaves of absence, the provision of comparable benefits, employee service credit, the sharing of employee information and duplication or acceleration of benefits.
| • | Registration Rights Agreement. Provides ADS with certain customary demand registration, shelf takedown and piggyback registration rights with respect to its shares of Loyalty Ventures’ common stock, subject to certain customary limitations.
Basis of Presentation The Company has historically operated as part of ADS and not as a standalone company. The unaudited condensed combined financial statements have been derived from ADS’ historical accounting records and are presented on a carve-out basis. All revenues and expenses as well as assets and liabilities directly associated with the business activity of the Company are included in the unaudited condensed combined financial statements. The unaudited condensed combined financial statements also include allocations of certain general and administrative expenses from ADS. However, amounts recognized by the Company are not necessarily representative of the amounts that would have been reflected in the unaudited condensed combined financial statements had the Company operated independently of ADS. Related-party allocations are discussed further in Note 18, “Related Party Transactions.” The cash and cash equivalents held by ADS at the corporate level are not specifically identifiable and therefore have not been reflected in the combined balance sheets. ADS’ third-party long-term debt and the related interest expense have not been allocated for any of the periods presented as the Company was not a legal obligor of such debt. Parent’s net investment represents ADS’ interest in the recorded net assets of the Company. All significant transactions between the Company and Parent have been included in the accompanying unaudited condensed combined financial statements. Transactions with Parent as contributions to the carve-out entity or distributions from the carve-out entity are reflected in the accompanying unaudited condensed combined statements of equity as “Changes in Parent’s net investment” and in the accompanying unaudited condensed combined balance sheets within “Parent’s net investment.” All significant intercompany accounts and transactions between the businesses comprising the Company have been eliminated in the accompanying unaudited condensed combined financial statements. The Company’s unaudited condensed combined financial statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company’s unaudited condensed combined financial statements and accompanying notes are presented in U.S. Dollars (“USD”), the Company’s reporting currency. The unaudited condensed combined financial statements included herein reflect all adjustments (consisting of normal, recurring adjustments) which are, in the opinion of management, necessary to state fairly the results for the interim periods presented. The results of operations for the interim periods presented are not necessarily indicative of the operating results to be expected for any subsequent interim period or for the fiscal year. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. These unaudited condensed combined financial statements should be read in conjunction with the combined financial statements and the notes thereto for the year ended December 31, 2020 included in our registration statement on Form 10, filed with the Securities and Exchange Commission (“SEC”) on October 13, 2021. Recently Issued Accounting Standards In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-04, “Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” This ASU provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this ASU apply only to contracts and hedging relationships that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued due to reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022. This ASU is elective and is effective upon issuance for all entities. The Company is evaluating the impact that adoption of ASU 2020-04 will have on its combined financial statements. Recently Adopted Accounting Standards In December 2019, the FASB issued ASU 2019-12, “Simplifying the Accounting for Income Taxes.” ASU 2019-12 eliminated certain exceptions within ASC 740, “Income Taxes,” and clarified certain aspects of ASC 740 to promote consistency among reporting entities. Most amendments within the standard were required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis. The Company’s adoption of this standard on January 1, 2021 did not have a material impact on its unaudited condensed combined financial statements.

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