|
x
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
¨
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
Delaware
|
48-1090909
|
(State or other jurisdiction of
incorporation or organization)
|
(IRS Employer
Identification No.)
|
|
|
3111 Camino Del Rio North, Suite 1300
San Diego, California
|
92108
|
(Address of principal executive offices)
|
(Zip code)
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Class
|
|
Outstanding at July 29, 2014
|
Common Stock, $0.01 par value
|
|
25,631,325 shares
|
|
Page
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2014 |
|
December 31,
2013 |
||||
Assets
|
|
|
|
||||
Cash and cash equivalents
|
$
|
123,407
|
|
|
$
|
126,213
|
|
Investment in receivable portfolios, net
|
1,987,985
|
|
|
1,590,249
|
|
||
Deferred court costs, net
|
45,577
|
|
|
41,219
|
|
||
Receivables secured by property tax liens, net
|
279,608
|
|
|
212,814
|
|
||
Property and equipment, net
|
58,839
|
|
|
55,783
|
|
||
Other assets
|
217,471
|
|
|
154,783
|
|
||
Goodwill
|
879,910
|
|
|
504,213
|
|
||
Total assets
|
$
|
3,592,797
|
|
|
$
|
2,685,274
|
|
Liabilities and equity
|
|
|
|
||||
Liabilities:
|
|
|
|
||||
Accounts payable and accrued liabilities
|
$
|
163,958
|
|
|
$
|
137,272
|
|
Debt
|
2,715,866
|
|
|
1,850,431
|
|
||
Other liabilities
|
99,209
|
|
|
95,100
|
|
||
Total liabilities
|
2,979,033
|
|
|
2,082,803
|
|
||
Commitments and contingencies
|
|
|
|
|
|
||
Redeemable noncontrolling interest
|
31,730
|
|
|
26,564
|
|
||
Redeemable equity component of convertible senior notes
|
10,488
|
|
|
—
|
|
||
Equity:
|
|
|
|
||||
Convertible preferred stock, $.01 par value, 5,000 shares authorized, no shares issued and outstanding
|
—
|
|
|
—
|
|
||
Common stock, $.01 par value, 50,000 shares authorized, 25,631 shares and 25,457 shares issued and outstanding as of June 30, 2014 and December 31, 2013, respectively
|
256
|
|
|
255
|
|
||
Additional paid-in capital
|
116,037
|
|
|
171,819
|
|
||
Accumulated earnings
|
441,369
|
|
|
394,628
|
|
||
Accumulated other comprehensive gain
|
10,936
|
|
|
5,195
|
|
||
Total Encore Capital Group, Inc. stockholders’ equity
|
568,598
|
|
|
571,897
|
|
||
Noncontrolling interest
|
2,948
|
|
|
4,010
|
|
||
Total equity
|
571,546
|
|
|
575,907
|
|
||
Total liabilities, redeemable equity and equity
|
$
|
3,592,797
|
|
|
$
|
2,685,274
|
|
|
June 30,
2014 |
|
December 31,
2013 |
||||
Assets
|
|
|
|
||||
Cash and cash equivalents
|
$
|
52,827
|
|
|
$
|
62,403
|
|
Investment in receivable portfolios, net
|
1,002,980
|
|
|
620,312
|
|
||
Deferred court costs, net
|
4,317
|
|
|
—
|
|
||
Receivables secured by property tax liens, net
|
127,273
|
|
|
—
|
|
||
Property and equipment, net
|
14,816
|
|
|
13,755
|
|
||
Other assets
|
91,366
|
|
|
33,772
|
|
||
Goodwill
|
728,045
|
|
|
376,296
|
|
||
Liabilities
|
|
|
|
||||
Accounts payable and accrued liabilities
|
$
|
80,791
|
|
|
$
|
47,219
|
|
Debt
|
1,699,343
|
|
|
846,676
|
|
||
Other liabilities
|
7,261
|
|
|
1,897
|
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||
|
2014
|
|
2013
|
|
2014
|
|
2013
|
||||||||
Revenues
|
|
|
|
|
|
|
|
||||||||
Revenue from receivable portfolios, net
|
$
|
248,231
|
|
|
$
|
152,024
|
|
|
$
|
485,799
|
|
|
$
|
292,707
|
|
Other revenues
|
14,149
|
|
|
380
|
|
|
25,498
|
|
|
681
|
|
||||
Net interest income
|
6,815
|
|
|
3,717
|
|
|
11,639
|
|
|
7,319
|
|
||||
Total revenues
|
269,195
|
|
|
156,121
|
|
|
522,936
|
|
|
300,707
|
|
||||
Operating expenses
|
|
|
|
|
|
|
|
||||||||
Salaries and employee benefits
|
64,355
|
|
|
32,969
|
|
|
122,492
|
|
|
61,801
|
|
||||
Cost of legal collections
|
50,029
|
|
|
44,483
|
|
|
99,854
|
|
|
86,741
|
|
||||
Other operating expenses
|
22,041
|
|
|
13,797
|
|
|
48,464
|
|
|
27,062
|
|
||||
Collection agency commissions
|
9,153
|
|
|
5,230
|
|
|
17,429
|
|
|
8,559
|
|
||||
General and administrative expenses
|
38,282
|
|
|
27,601
|
|
|
74,976
|
|
|
43,943
|
|
||||
Depreciation and amortization
|
6,829
|
|
|
2,158
|
|
|
12,946
|
|
|
4,004
|
|
||||
Total operating expenses
|
190,689
|
|
|
126,238
|
|
|
376,161
|
|
|
232,110
|
|
||||
Income from operations
|
78,506
|
|
|
29,883
|
|
|
146,775
|
|
|
68,597
|
|
||||
Other (expense) income
|
|
|
|
|
|
|
|
||||||||
Interest expense
|
(43,218
|
)
|
|
(7,482
|
)
|
|
(81,180
|
)
|
|
(14,336
|
)
|
||||
Other income (expense)
|
75
|
|
|
(4,122
|
)
|
|
340
|
|
|
(3,963
|
)
|
||||
Total other expense
|
(43,143
|
)
|
|
(11,604
|
)
|
|
(80,840
|
)
|
|
(18,299
|
)
|
||||
Income before income taxes
|
35,363
|
|
|
18,279
|
|
|
65,935
|
|
|
50,298
|
|
||||
Provision for income taxes
|
(14,010
|
)
|
|
(7,267
|
)
|
|
(25,752
|
)
|
|
(19,838
|
)
|
||||
Net income
|
21,353
|
|
|
11,012
|
|
|
40,183
|
|
|
30,460
|
|
||||
Net loss attributable to noncontrolling interest
|
2,208
|
|
|
—
|
|
|
6,558
|
|
|
—
|
|
||||
Net income attributable to Encore Capital Group, Inc. stockholders
|
$
|
23,561
|
|
|
$
|
11,012
|
|
|
$
|
46,741
|
|
|
$
|
30,460
|
|
|
|
|
|
|
|
|
|
||||||||
Earnings per share attributable to Encore Capital Group, Inc.:
|
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
||||||||
Basic
|
$
|
0.91
|
|
|
$
|
0.46
|
|
|
$
|
1.81
|
|
|
$
|
1.28
|
|
Diluted
|
$
|
0.86
|
|
|
$
|
0.44
|
|
|
$
|
1.68
|
|
|
$
|
1.24
|
|
|
|
|
|
|
|
|
|
||||||||
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
||||||||
Basic
|
25,798
|
|
|
23,966
|
|
|
25,774
|
|
|
23,707
|
|
||||
Diluted
|
27,492
|
|
|
24,855
|
|
|
27,790
|
|
|
24,652
|
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||
|
2014
|
|
2013
|
|
2014
|
|
2013
|
||||||||
Net income
|
$
|
21,353
|
|
|
$
|
11,012
|
|
|
$
|
40,183
|
|
|
$
|
30,460
|
|
Other comprehensive gain (loss), net of tax:
|
|
|
|
|
|
|
|
||||||||
Unrealized gain (loss) on derivative instruments
|
480
|
|
|
(1,574
|
)
|
|
2,068
|
|
|
(954
|
)
|
||||
Unrealized gain (loss) on foreign currency translation
|
3,525
|
|
|
(583
|
)
|
|
3,674
|
|
|
(697
|
)
|
||||
Other comprehensive gain (loss), net of tax
|
4,005
|
|
|
(2,157
|
)
|
|
5,742
|
|
|
(1,651
|
)
|
||||
Comprehensive income
|
25,358
|
|
|
8,855
|
|
|
45,925
|
|
|
28,809
|
|
||||
Comprehensive loss attributable to noncontrolling interest:
|
|
|
|
|
|
|
|
||||||||
Net loss
|
2,208
|
|
|
—
|
|
|
6,558
|
|
|
—
|
|
||||
Unrealized gain on foreign currency translation
|
(618
|
)
|
|
—
|
|
|
(470
|
)
|
|
—
|
|
||||
Comprehensive loss attributable to noncontrolling interests
|
1,590
|
|
|
—
|
|
|
6,088
|
|
|
—
|
|
||||
Comprehensive income attributable to Encore Capital Group, Inc. stockholders
|
$
|
26,948
|
|
|
$
|
8,855
|
|
|
$
|
52,013
|
|
|
$
|
28,809
|
|
|
Six Months Ended
June 30, |
||||||
|
2014
|
|
2013
|
||||
Operating activities:
|
|
|
|
||||
Net income
|
$
|
40,183
|
|
|
$
|
30,460
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
||||
Depreciation and amortization
|
12,946
|
|
|
4,004
|
|
||
Other non-cash interest expense
|
13,974
|
|
|
3,550
|
|
||
Stock-based compensation expense
|
9,551
|
|
|
5,180
|
|
||
Recognized loss on termination of derivative contract
|
—
|
|
|
3,630
|
|
||
Deferred income taxes
|
9,616
|
|
|
(3,297
|
)
|
||
Excess tax benefit from stock-based payment arrangements
|
(10,756
|
)
|
|
(3,848
|
)
|
||
Reversal of allowances on receivable portfolios, net
|
(6,652
|
)
|
|
(4,680
|
)
|
||
Changes in operating assets and liabilities
|
|
|
|
||||
Deferred court costs and other assets
|
(23,801
|
)
|
|
(7,010
|
)
|
||
Prepaid income tax and income taxes payable
|
(9,038
|
)
|
|
(19,559
|
)
|
||
Accounts payable, accrued liabilities and other liabilities
|
1,574
|
|
|
2,821
|
|
||
Net cash provided by operating activities
|
37,597
|
|
|
11,251
|
|
||
Investing activities:
|
|
|
|
||||
Cash paid for acquisitions, net of cash acquired
|
(303,532
|
)
|
|
(293,329
|
)
|
||
Purchases of receivable portfolios, net of put-backs
|
(475,121
|
)
|
|
(98,196
|
)
|
||
Collections applied to investment in receivable portfolios, net
|
325,451
|
|
|
260,531
|
|
||
Originations and purchases of receivables secured by tax liens
|
(85,014
|
)
|
|
(87,961
|
)
|
||
Collections applied to receivables secured by tax liens
|
53,216
|
|
|
27,097
|
|
||
Purchases of property and equipment
|
(8,943
|
)
|
|
(5,335
|
)
|
||
Other
|
—
|
|
|
(5,530
|
)
|
||
Net cash used in investing activities
|
(493,943
|
)
|
|
(202,723
|
)
|
||
Financing activities:
|
|
|
|
||||
Payment of loan costs
|
(14,673
|
)
|
|
(11,846
|
)
|
||
Proceeds from credit facilities
|
679,872
|
|
|
514,065
|
|
||
Repayment of credit facilities
|
(732,857
|
)
|
|
(228,175
|
)
|
||
Proceeds from senior secured notes
|
288,645
|
|
|
—
|
|
||
Repayment of senior secured notes
|
(7,500
|
)
|
|
(6,250
|
)
|
||
Proceeds from issuance of convertible senior notes
|
161,000
|
|
|
150,000
|
|
||
Proceeds from issuance of securitized notes
|
134,000
|
|
|
—
|
|
||
Repayment of securitized notes
|
(8,793
|
)
|
|
—
|
|
||
Proceeds from issuance of preferred equity certificates
|
20,596
|
|
|
—
|
|
||
Repayment of preferred equity certificates
|
(6,297
|
)
|
|
—
|
|
||
Purchases of convertible hedge instruments
|
(33,576
|
)
|
|
(15,750
|
)
|
||
Repurchase of common stock
|
(16,815
|
)
|
|
(729
|
)
|
||
Taxes paid related to net share settlement of equity awards
|
(18,375
|
)
|
|
(8,420
|
)
|
||
Excess tax benefit from stock-based payment arrangements
|
10,756
|
|
|
3,848
|
|
||
Other, net
|
1,859
|
|
|
(610
|
)
|
||
Net cash provided by financing activities
|
457,842
|
|
|
396,133
|
|
||
Net increase in cash and cash equivalents
|
1,496
|
|
|
204,661
|
|
||
Effect of exchange rate changes on cash
|
(4,302
|
)
|
|
—
|
|
||
Cash and cash equivalents, beginning of period
|
126,213
|
|
|
17,510
|
|
||
Cash and cash equivalents, end of period
|
$
|
123,407
|
|
|
$
|
222,171
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
||||
Cash paid for interest
|
$
|
54,672
|
|
|
$
|
12,537
|
|
Cash paid for income taxes
|
37,805
|
|
|
40,513
|
|
||
Supplemental schedule of non-cash investing and financing activities:
|
|
|
|
||||
Fixed assets acquired through capital lease
|
$
|
3,766
|
|
|
$
|
1,189
|
|
Purchase price:
|
|
||
Cash paid at acquisition
|
$
|
274,068
|
|
Allocation of purchase price:
|
|
||
Cash
|
$
|
16,342
|
|
Investment in receivable portfolios
|
208,450
|
|
|
Deferred court costs
|
914
|
|
|
Property and equipment
|
1,508
|
|
|
Other assets
|
18,091
|
|
|
Liabilities assumed
|
(301,180
|
)
|
|
Identifiable intangible assets
|
1,819
|
|
|
Goodwill
|
328,124
|
|
|
Total net assets acquired
|
$
|
274,068
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||
|
2014
|
|
2013
|
|
2014
|
|
2013
|
||||
Weighted average common shares outstanding—basic
|
25,798
|
|
|
23,966
|
|
|
25,774
|
|
|
23,707
|
|
Dilutive effect of stock-based awards
|
651
|
|
|
849
|
|
|
800
|
|
|
945
|
|
Dilutive effect of convertible senior notes
|
1,043
|
|
|
40
|
|
|
1,195
|
|
|
—
|
|
Dilutive effect of warrants
|
—
|
|
|
—
|
|
|
21
|
|
|
—
|
|
Weighted average common shares outstanding—diluted
|
27,492
|
|
|
24,855
|
|
|
27,790
|
|
|
24,652
|
|
•
|
Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.
|
•
|
Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
|
•
|
Level 3: Unobservable inputs, including inputs that reflect the reporting entity’s own assumptions.
|
|
Fair Value Measurements as of
June 30, 2014 |
||||||||||||||
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
||||||||
Assets
|
|
|
|
|
|
|
|
||||||||
Foreign currency exchange contracts
|
$
|
—
|
|
|
$
|
978
|
|
|
$
|
—
|
|
|
$
|
978
|
|
Interest rate cap contracts
|
—
|
|
|
22
|
|
|
—
|
|
|
22
|
|
||||
Liabilities
|
|
|
|
|
|
|
|
||||||||
Foreign currency exchange contracts
|
—
|
|
|
(1,418
|
)
|
|
—
|
|
|
(1,418
|
)
|
||||
Temporary Equity
|
|
|
|
|
|
|
|
||||||||
Redeemable noncontrolling interests
|
—
|
|
|
—
|
|
|
(31,730
|
)
|
|
(31,730
|
)
|
|
Fair Value Measurements as of
December 31, 2013 |
||||||||||||||
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
||||||||
Assets
|
|
|
|
|
|
|
|
||||||||
Foreign currency exchange contracts
|
$
|
—
|
|
|
$
|
46
|
|
|
$
|
—
|
|
|
$
|
46
|
|
Interest rate cap contracts
|
—
|
|
|
202
|
|
|
—
|
|
|
202
|
|
||||
Liabilities
|
|
|
|
|
|
|
|
||||||||
Foreign currency exchange contracts
|
—
|
|
|
(4,123
|
)
|
|
—
|
|
|
(4,123
|
)
|
||||
Temporary Equity
|
|
|
|
|
|
|
|
||||||||
Redeemable noncontrolling interests
|
—
|
|
|
—
|
|
|
(26,564
|
)
|
|
(26,564
|
)
|
|
Amount
|
||
Balance at December 31, 2013
|
$
|
26,564
|
|
Initial redeemable noncontrolling interest related to business combinations
|
4,753
|
|
|
Net loss attributable to redeemable noncontrolling interests
|
(5,001
|
)
|
|
Adjustment of the redeemable noncontrolling interests to fair value
|
4,957
|
|
|
Effect of foreign currency translation attributable to redeemable noncontrolling interests
|
457
|
|
|
Balance at June 30, 2014
|
$
|
31,730
|
|
|
June 30, 2014
|
|
December 31, 2013
|
||||||||
Balance Sheet
Location
|
|
Fair Value
|
|
Balance Sheet
Location
|
|
Fair Value
|
|||||
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
||||
Foreign currency exchange contracts
|
Other liabilities
|
|
$
|
(1,418
|
)
|
|
Other liabilities
|
|
$
|
(4,123
|
)
|
Foreign currency exchange contracts
|
Other assets
|
|
978
|
|
|
Other assets
|
|
46
|
|
||
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
||||
Interest rate cap
|
Other assets
|
|
22
|
|
|
Other assets
|
|
202
|
|
|
Gain or (Loss)
Recognized in OCI- Effective Portion |
|
Location of Gain
or (Loss) Reclassified from OCI into Income - Effective Portion |
|
Gain or (Loss)
Reclassified from OCI into Income - Effective Portion |
|
Location of
Gain or (Loss) Recognized - Ineffective Portion and Amount Excluded from Effectiveness Testing |
|
Amount of
Gain or (Loss) Recognized - Ineffective Portion and Amount Excluded from Effectiveness Testing |
||||||||||||||||||
|
Three Months Ended
|
|
|
|
Three Months Ended
|
|
|
|
Three Months Ended
|
||||||||||||||||||
|
2014
|
|
2013
|
|
|
|
2014
|
|
2013
|
|
|
|
2014
|
|
2013
|
||||||||||||
Interest rate swaps
|
$
|
—
|
|
|
$
|
151
|
|
|
Interest expense
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Other (expense)
income |
|
$
|
—
|
|
|
$
|
—
|
|
Foreign currency exchange contracts
|
760
|
|
|
(2,540
|
)
|
|
Salaries and
employee benefits |
|
(219
|
)
|
|
(219
|
)
|
|
Other (expense)
income |
|
—
|
|
|
—
|
|
||||||
Foreign currency exchange contracts
|
134
|
|
|
(531
|
)
|
|
General and
administrative expenses |
|
(40
|
)
|
|
(44
|
)
|
|
Other (expense)
income |
|
—
|
|
|
—
|
|
|
Gain or (Loss)
Recognized in OCI-
Effective Portion
|
|
Location of Gain
or (Loss)
Reclassified from
OCI into
Income - Effective
Portion
|
|
Gain or (Loss)
Reclassified
from OCI into
Income - Effective
Portion
|
|
Location of
Gain or (Loss)
Recognized -
Ineffective
Portion and
Amount
Excluded from
Effectiveness
Testing
|
|
Amount of
Gain or (Loss)
Recognized -
Ineffective
Portion and
Amount
Excluded from
Effectiveness
Testing
|
||||||||||||||||||
|
Six Months Ended
|
|
|
|
Six Months Ended
|
|
|
|
Six Months Ended
|
||||||||||||||||||
|
2014
|
|
2013
|
|
|
|
2014
|
|
2013
|
|
|
|
2014
|
|
2013
|
||||||||||||
Interest rate swaps
|
$
|
—
|
|
|
$
|
374
|
|
|
Interest expense
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Other (expense)
income |
|
$
|
—
|
|
|
$
|
—
|
|
Foreign currency exchange contracts
|
2,645
|
|
|
(1,938
|
)
|
|
Salaries and
employee benefits |
|
(575
|
)
|
|
(268
|
)
|
|
Other (expense)
income |
|
—
|
|
|
—
|
|
||||||
Foreign currency exchange contracts
|
321
|
|
|
(428
|
)
|
|
General and
administrative expenses |
|
(97
|
)
|
|
(52
|
)
|
|
Other (expense)
income |
|
—
|
|
|
—
|
|
|
Accretable
Yield
|
|
Estimate of
Zero Basis
Cash Flows
|
|
Total
|
||||||
Balance at December 31, 2013
|
$
|
2,391,471
|
|
|
$
|
8,465
|
|
|
$
|
2,399,936
|
|
Revenue recognized, net
|
(231,057
|
)
|
|
(6,511
|
)
|
|
(237,568
|
)
|
|||
Net additions on existing portfolios
(1)
|
92,325
|
|
|
8,555
|
|
|
100,880
|
|
|||
Additions for current purchases
(1)(2)
|
591,205
|
|
|
—
|
|
|
591,205
|
|
|||
Balance at March 31, 2014
|
2,843,944
|
|
|
10,509
|
|
|
2,854,453
|
|
|||
Revenue recognized, net
|
(241,523
|
)
|
|
(6,708
|
)
|
|
(248,231
|
)
|
|||
Net additions on existing portfolios
(1)
|
80,582
|
|
|
6,135
|
|
|
86,717
|
|
|||
Additions for current purchases
(1)
|
218,047
|
|
|
—
|
|
|
218,047
|
|
|||
Balance at June 30, 2014
|
$
|
2,901,050
|
|
|
$
|
9,936
|
|
|
$
|
2,910,986
|
|
|
Accretable
Yield
|
|
Estimate of
Zero Basis
Cash Flows
|
|
Total
|
||||||
Balance at December 31, 2012
|
$
|
984,944
|
|
|
$
|
17,366
|
|
|
$
|
1,002,310
|
|
Revenue recognized, net
|
(135,072
|
)
|
|
(5,611
|
)
|
|
(140,683
|
)
|
|||
Net additions on existing portfolios
(1)
|
173,634
|
|
|
7,061
|
|
|
180,695
|
|
|||
Additions for current purchases
(1)
|
66,808
|
|
|
—
|
|
|
66,808
|
|
|||
Balance at March 31, 2013
|
1,090,314
|
|
|
18,816
|
|
|
1,109,130
|
|
|||
Revenue recognized, net
|
(144,186
|
)
|
|
(7,838
|
)
|
|
(152,024
|
)
|
|||
Net additions on existing portfolios
(1)
|
30,458
|
|
|
10,784
|
|
|
41,242
|
|
|||
Additions for current purchases
(1)(3)
|
645,865
|
|
|
—
|
|
|
645,865
|
|
|||
Balance at June 30, 2013
|
$
|
1,622,451
|
|
|
$
|
21,762
|
|
|
$
|
1,644,213
|
|
(1)
|
Estimated remaining collections and accretable yield include anticipated collections beyond the
84
to
96
month collection forecast for United States portfolios.
|
(2)
|
Includes
$208.5 million
of portfolios acquired in connection with the Marlin Acquisition discussed in Note
2
, “Business Combinations.”
|
(3)
|
Includes
$383.4 million
of portfolios acquired in connection with the merger with AACC.
|
|
Three Months Ended June 30, 2014
|
||||||||||||||
|
Accrual Basis
Portfolios
|
|
Cost Recovery
Portfolios
|
|
Zero Basis
Portfolios
|
|
Total
|
||||||||
Balance, beginning of period
|
$
|
1,900,177
|
|
|
$
|
3,853
|
|
|
$
|
—
|
|
|
$
|
1,904,030
|
|
Purchases of receivable portfolios
|
225,762
|
|
|
—
|
|
|
—
|
|
|
225,762
|
|
||||
Transfer of portfolios
|
(7,163
|
)
|
|
7,163
|
|
|
—
|
|
|
—
|
|
||||
Gross collections
(1)
|
(400,983
|
)
|
|
(1,589
|
)
|
|
(6,708
|
)
|
|
(409,280
|
)
|
||||
Put-backs and recalls
|
(5,588
|
)
|
|
(254
|
)
|
|
—
|
|
|
(5,842
|
)
|
||||
Foreign currency adjustments
|
24,765
|
|
|
319
|
|
|
—
|
|
|
25,084
|
|
||||
Revenue recognized
|
241,407
|
|
|
—
|
|
|
3,402
|
|
|
244,809
|
|
||||
Portfolio allowance reversals, net
|
116
|
|
|
—
|
|
|
3,306
|
|
|
3,422
|
|
||||
Balance, end of period
|
$
|
1,978,493
|
|
|
$
|
9,492
|
|
|
$
|
—
|
|
|
$
|
1,987,985
|
|
Revenue as a percentage of collections
(2)
|
60.2
|
%
|
|
—
|
%
|
|
50.7
|
%
|
|
59.8
|
%
|
||||
|
Three Months Ended June 30, 2013
|
||||||||||||||
|
Accrual Basis
Portfolios
|
|
Cost Recovery
Portfolios
|
|
Zero Basis
Portfolios
|
|
Total
|
||||||||
Balance, beginning of period
|
$
|
801,525
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
801,525
|
|
Purchases of receivable portfolios
|
423,113
|
|
|
—
|
|
|
—
|
|
|
423,113
|
|
||||
Transfer of portfolios
|
(6,649
|
)
|
|
6,649
|
|
|
—
|
|
|
—
|
|
||||
Gross collections
(1)
|
(269,710
|
)
|
|
(842
|
)
|
|
(7,836
|
)
|
|
(278,388
|
)
|
||||
Put-backs and recalls
|
(1,543
|
)
|
|
(31
|
)
|
|
(2
|
)
|
|
(1,576
|
)
|
||||
Revenue recognized
|
143,607
|
|
|
—
|
|
|
4,743
|
|
|
148,350
|
|
||||
Portfolio allowance reversals, net
|
579
|
|
|
—
|
|
|
3,095
|
|
|
3,674
|
|
||||
Balance, end of period
|
$
|
1,090,922
|
|
|
$
|
5,776
|
|
|
$
|
—
|
|
|
$
|
1,096,698
|
|
Revenue as a percentage of collections
(2)
|
53.2
|
%
|
|
—
|
%
|
|
60.5
|
%
|
|
53.3
|
%
|
|
Six Months Ended June 30, 2014
|
||||||||||||||
|
Accrual Basis
Portfolios
|
|
Cost Recovery
Portfolios
|
|
Zero Basis
Portfolios
|
|
Total
|
||||||||
Balance, beginning of period
|
$
|
1,585,587
|
|
|
$
|
4,662
|
|
|
$
|
—
|
|
|
$
|
1,590,249
|
|
Purchases of receivable portfolios
(3)
|
693,327
|
|
|
—
|
|
|
—
|
|
|
693,327
|
|
||||
Transfer of portfolios
|
(7,163
|
)
|
|
7,163
|
|
|
—
|
|
|
—
|
|
||||
Gross collections
(1)
|
(790,486
|
)
|
|
(2,249
|
)
|
|
(13,219
|
)
|
|
(805,954
|
)
|
||||
Put-backs and recalls
|
(8,823
|
)
|
|
(403
|
)
|
|
—
|
|
|
(9,226
|
)
|
||||
Foreign currency adjustments
|
33,471
|
|
|
319
|
|
|
—
|
|
|
33,790
|
|
||||
Revenue recognized
|
472,154
|
|
|
—
|
|
|
6,993
|
|
|
479,147
|
|
||||
Portfolio allowance reversals, net
|
426
|
|
|
—
|
|
|
6,226
|
|
|
6,652
|
|
||||
Balance, end of period
|
$
|
1,978,493
|
|
|
$
|
9,492
|
|
|
$
|
—
|
|
|
$
|
1,987,985
|
|
Revenue as a percentage of collections
(2)
|
59.7
|
%
|
|
—
|
%
|
|
52.9
|
%
|
|
59.5
|
%
|
||||
|
Six Months Ended June 30, 2013
|
||||||||||||||
|
Accrual Basis
Portfolios
|
|
Cost Recovery
Portfolios
|
|
Zero Basis
Portfolios
|
|
Total
|
||||||||
Balance, beginning of period
|
$
|
873,119
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
873,119
|
|
Purchases of receivable portfolios
(4)
|
481,884
|
|
|
—
|
|
|
—
|
|
|
481,884
|
|
||||
Transfer of portfolios
|
(6,649
|
)
|
|
6,649
|
|
|
—
|
|
|
—
|
|
||||
Gross collections
(1)
|
(534,269
|
)
|
|
(842
|
)
|
|
(13,447
|
)
|
|
(548,558
|
)
|
||||
Put-backs and recalls
|
(2,421
|
)
|
|
(31
|
)
|
|
(2
|
)
|
|
(2,454
|
)
|
||||
Revenue recognized
|
278,622
|
|
|
—
|
|
|
9,405
|
|
|
288,027
|
|
||||
Portfolio allowance reversals, net
|
636
|
|
|
—
|
|
|
4,044
|
|
|
4,680
|
|
||||
Balance, end of period
|
$
|
1,090,922
|
|
|
$
|
5,776
|
|
|
$
|
—
|
|
|
$
|
1,096,698
|
|
Revenue as a percentage of collections
(2)
|
52.2
|
%
|
|
—
|
%
|
|
69.9
|
%
|
|
52.5
|
%
|
(1)
|
Does not include amounts collected on behalf of others.
|
(2)
|
Revenue as a percentage of collections excludes the effects of net portfolio allowances or net portfolio allowance reversals.
|
(3)
|
Purchases of portfolio receivables include
$208.5 million
acquired in connection with the Marlin Acquisition in February 2014 discussed in Note
2
, “Business Combinations.”
|
(4)
|
Includes
$383.4 million
of portfolios acquired in connection with the merger with AACC.
|
|
Valuation Allowance
|
||||||||||||||
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||
|
2014
|
|
2013
|
|
2014
|
|
2013
|
||||||||
Balance at beginning of period
|
$
|
89,850
|
|
|
$
|
104,267
|
|
|
$
|
93,080
|
|
|
$
|
105,273
|
|
Provision for portfolio allowances
|
—
|
|
|
—
|
|
|
—
|
|
|
479
|
|
||||
Reversal of prior allowances
|
(3,422
|
)
|
|
(3,674
|
)
|
|
(6,652
|
)
|
|
(5,159
|
)
|
||||
Balance at end of period
|
$
|
86,428
|
|
|
$
|
100,593
|
|
|
$
|
86,428
|
|
|
$
|
100,593
|
|
|
June 30,
2014 |
|
December 31,
2013 |
||||
Court costs advanced
|
$
|
465,258
|
|
|
$
|
399,274
|
|
Court costs recovered
|
(175,849
|
)
|
|
(147,166
|
)
|
||
Court costs reserve
|
(243,832
|
)
|
|
(210,889
|
)
|
||
|
$
|
45,577
|
|
|
$
|
41,219
|
|
|
Court Cost Reserve
|
||||||||||||||
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||
|
2014
|
|
2013
|
|
2014
|
|
2013
|
||||||||
Balance at beginning of period
|
$
|
(227,275
|
)
|
|
$
|
(162,500
|
)
|
|
$
|
(210,889
|
)
|
|
$
|
(149,080
|
)
|
Provision for court costs
|
(16,557
|
)
|
|
(13,594
|
)
|
|
(32,943
|
)
|
|
(27,014
|
)
|
||||
Balance at end of period
|
$
|
(243,832
|
)
|
|
$
|
(176,094
|
)
|
|
$
|
(243,832
|
)
|
|
$
|
(176,094
|
)
|
|
June 30,
2014 |
|
December 31,
2013 |
||||
Debt issuance costs, net of amortization
|
$
|
43,164
|
|
|
$
|
28,066
|
|
Prepaid income taxes
|
34,565
|
|
|
5,009
|
|
||
Deferred tax assets
|
21,475
|
|
|
13,974
|
|
||
Prepaid expenses
|
20,119
|
|
|
23,487
|
|
||
Funds held in escrow
|
18,965
|
|
|
—
|
|
||
Identifiable intangible assets, net
|
18,224
|
|
|
23,549
|
|
||
Security deposits
|
10,831
|
|
|
2,500
|
|
||
Service fee receivables
|
9,329
|
|
|
8,954
|
|
||
Interest receivable
|
9,043
|
|
|
7,956
|
|
||
Other financial receivables
|
7,374
|
|
|
7,962
|
|
||
Recoverable legal fees
|
2,883
|
|
|
3,049
|
|
||
Other
|
21,499
|
|
|
30,277
|
|
||
|
$
|
217,471
|
|
|
$
|
154,783
|
|
|
June 30,
2014 |
|
December 31,
2013 |
||||
Encore revolving credit facility
|
$
|
274,000
|
|
|
$
|
356,000
|
|
Encore term loan facility
|
149,906
|
|
|
140,625
|
|
||
Encore senior secured notes
|
51,250
|
|
|
58,750
|
|
||
Encore convertible notes
|
448,500
|
|
|
287,500
|
|
||
Less: Debt discount
|
(55,689
|
)
|
|
(42,240
|
)
|
||
Propel facilities
|
112,288
|
|
|
170,630
|
|
||
Propel securitized notes
|
125,207
|
|
|
—
|
|
||
Cabot senior secured notes
|
1,179,693
|
|
|
603,272
|
|
||
Add: Debt premium
|
79,384
|
|
|
43,583
|
|
||
Cabot senior revolving credit facility
|
82,066
|
|
|
—
|
|
||
Preferred equity certificates
|
217,858
|
|
|
199,821
|
|
||
Capital lease obligations
|
13,551
|
|
|
12,219
|
|
||
Other
|
37,852
|
|
|
20,271
|
|
||
|
$
|
2,715,866
|
|
|
$
|
1,850,431
|
|
•
|
A revolving loan of
$692.6 million
, with interest at a floating rate equal to, at the Company’s option, either: (1) reserve adjusted London Interbank Offered Rate (“LIBOR”), plus a spread that ranges from
250
to
300 basis points
depending on the Company’s cash flow leverage ratio; or (2) Alternate Base Rate, plus a spread that ranges from
150
to
200 basis points
depending on the Company’s cash flow leverage ratio. “Alternate Base Rate,” as defined in the agreement, means the highest of (i) the per annum rate which the administrative agent publicly announces from time to time as its prime lending rate, (ii) the federal funds effective rate from time to time, plus
0.5%
per annum and (iii) reserved adjusted LIBOR determined on a daily basis for a one month interest period, plus
1.0%
per annum;
|
•
|
An
$87.5 million
five
-year term loan, with interest at a floating rate equal to, at the Company’s option, either: (1) reserve adjusted LIBOR, plus a spread that ranges from
250
to
300 basis points
, depending on the Company’s cash flow leverage ratio; or (2) Alternate Base Rate, plus a spread that ranges from
150
to
200 basis points
, depending on the Company’s cash flow leverage ratio. Principal amortizes
$4.4 million
in 2014,
$4.4 million
in 2015,
$6.6 million
in 2016,
$8.8 million
in 2017, and
$8.8 million
in 2018 with the remaining principal due at the end of the term;
|
•
|
A
$60.0 million
term loan maturing on
February 25, 2017
, with interest at a floating rate equal to, at the Company’s option, either: (1) reserve adjusted LIBOR, plus a spread that ranges from
200
to
250 basis points
, depending on the Company’s cash flow leverage ratio; or (2) Alternate Base Rate, plus a spread that ranges from
100
to
150 basis points
, depending on the Company’s cash flow leverage ratio. Principal amortizes
$3.0 million
in 2014,
$3.0 million
in 2015, and
$4.5 million
in 2016 with the remaining principal due at the end of the term;
|
•
|
A
$6.3 million
term loan maturing on
November 3, 2017
, with interest at a floating rate equal to, at the Company’s option, either: (1) reserve adjusted LIBOR, plus a spread that ranges from
250
to
300 basis points
, depending on the Company’s cash flow leverage ratio; or (2) Alternate Base Rate, plus a spread that ranges from
150
to
200 basis points
, depending on the Company’s cash flow leverage ratio. Principal amortizes
$0.4 million
in 2014,
$0.5 million
in 2015,
$0.6 million
in 2016 and
$0.5 million
in 2017 with the remaining principal due at the end of the term;
|
•
|
A borrowing base equal to (1) the lesser of (i)
30%
—
35%
(depending on the Company’s trailing 12-month cost per dollar collected) of all eligible non-bankruptcy estimated remaining collections, initially set at
33%
, plus
55%
of eligible estimated remaining collections for consumer receivables subject to bankruptcy, and (ii) the product of the net book value of all receivable portfolios acquired on or after January 1, 2005 multiplied by
95%
, minus (2) the sum of the aggregate principal amount outstanding of Encore’s Senior Secured Notes (as defined below) plus the aggregate principal amount outstanding under the term loans;
|
•
|
The allowance of additional unsecured or subordinated indebtedness not to exceed
$750.0 million
;
|
•
|
Restrictions and covenants, which limit the payment of dividends and the incurrence of additional indebtedness and liens, among other limitations;
|
•
|
Repurchases of up to
$50.0 million
of Encore’s common stock after February 25, 2014, subject to compliance with certain covenants and available borrowing capacity;
|
•
|
A change of control definition, which excludes acquisitions of stock by Red Mountain Capital Partners LLC, JCF FPK LLP and their respective affiliates of up to
50%
of the outstanding shares of Encore’s voting stock;
|
•
|
Events of default which, upon occurrence, may permit the lenders to terminate the facility and declare all amounts outstanding to be immediately due and payable;
|
•
|
A pre-approved acquisition limit of
$225.0 million
in the aggregate, for acquisitions after August 1, 2014;
|
•
|
A basket to allow for investments in unrestricted subsidiaries of
$250.0 million
;
|
•
|
A basket to allow for investments in certain subsidiaries of Propel of
$200.0 million
;
|
•
|
An annual foreign portfolio investment basket of
$150.0 million
; and
|
•
|
Collateralization by all assets of the Company, other than the assets of unrestricted subsidiaries as defined in the Restated Credit Agreement.
|
|
June 30,
2014 |
|
December 31,
2013 |
||||
Liability component—principal amount
|
$
|
448,500
|
|
|
$
|
287,500
|
|
Unamortized debt discount
|
(55,689
|
)
|
|
(42,240
|
)
|
||
Liability component—net carrying amount
|
$
|
392,811
|
|
|
$
|
245,260
|
|
Equity component
|
$
|
53,821
|
|
|
$
|
46,954
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||
|
2014
|
|
2013
|
|
2014
|
|
2013
|
||||||||
Interest expense—stated coupon rate
|
$
|
3,308
|
|
|
$
|
948
|
|
|
$
|
5,764
|
|
|
$
|
1,806
|
|
Interest expense—amortization of debt discount
|
2,181
|
|
|
710
|
|
|
3,936
|
|
|
1,317
|
|
||||
Total interest expense—convertible notes
|
$
|
5,489
|
|
|
$
|
1,658
|
|
|
$
|
9,700
|
|
|
$
|
3,123
|
|
•
|
Interest at Propel’s option, at either: (1) LIBOR, plus a spread that ranges from
300
to
375 basis points
, depending on Propel’s cash flow leverage ratio; or (2) Prime Rate, which is defined in the agreement as the rate of interest per annum equal to the sum of (a) the interest rate quoted in the “Money Rates” section of
The Wall Street Journal
from time to time and designated as the “Prime Rate”
plus
(b) the Prime Rate Margin, which is a spread that ranges from
0
to
75 basis points
, depending on Propel’s cash flow leverage ratio;
|
•
|
A borrowing base of
90%
of the face value of the tax lien collateralized payment arrangements;
|
•
|
Interest payable monthly; principal and interest due at maturity;
|
•
|
Restrictions and covenants, which limit, among other things, the payment of dividends and the incurrence of additional indebtedness and liens; and
|
•
|
Events of default which, upon occurrence, may permit the lender to terminate the Propel Facility I and declare all amounts outstanding to be immediately due and payable.
|
•
|
During the first two years of the
four
-year term, the committed amount can be drawn on a revolving basis. During the following two years,
no
additional draws are permitted, and all proceeds from the tax liens are used to repay any amounts outstanding under the facility. After the
four
-year period ends, if any amounts are still outstanding, an alternate interest rate applies until all amounts owed are repaid;
|
•
|
Prior to the expiration of the
four
-year term, interest at a per annum floating rate equal to LIBOR plus a spread of
325 basis points
;
|
•
|
Following the expiration of the
four
-year term or upon the occurrence of an event of default, interest at
400 basis points
plus the greater of (i) a per annum floating rate equal to LIBOR plus a spread of
325 basis points
, or (ii) Prime Rate, which is defined in the agreement as the rate most recently announced by the lender at its branch in San Francisco, California, from time to time as its prime commercial rate for United States dollar-denominated loans made in the United States;
|
•
|
Proceeds from the tax liens are applied to pay interest, principal and other obligations incurred in connection with the Propel Facility II on a monthly basis as defined in the agreement;
|
•
|
Special purpose entity covenants designed to protect the bankruptcy-remoteness of the borrowers and additional restrictions and covenants, which limit, among other things, the payment of certain dividends, the occurrence of additional indebtedness and liens and use of the collections proceeds from the certain Tax Liens; and
|
•
|
Events of default which, upon occurrence, may permit the lender to terminate the Propel Facility II and declare all amounts outstanding to be immediately due and payable.
|
•
|
The commitment amount was increased from
$100.0 million
to the following: (a) during the period from July 1, 2014 to and including September 30, 2014,
$190.0 million
or (b) at any other time,
$150.0 million
;
|
•
|
Termination of the revolving period for purchasing tax liens from taxing authorities was extended for a period of
two
years to May 15, 2017 (unless terminated earlier in accordance with the terms of the facility);
|
•
|
The maturity date was extended
two
years to May 10, 2019;
|
•
|
The amended facility allows for (a) the funding of tax liens in both Texas and Nevada in an aggregate amount up to
$80.0 million
(in addition to allowing for the purchase of tax liens in states other than Texas and Nevada) and (b) the right to finance vacant land in an amount equal to
5%
of eligible assets (collectively the “Additional Assets”);
|
•
|
The applicable interest rate for advances related to tax liens in Texas is LIBOR plus
2.50%
;
|
•
|
In connection with the Additional Assets, the amended facility provides for certain technical changes throughout the governing tax lien loan and security agreement (
e.g.
, definitions, waterfall mechanics, representations and warranties) which were required to facilitate the addition of the Additional Assets; and
|
•
|
The amended Propel Facility II increases the advance rate for certain states.
|
|
Three Months Ended June 30, 2014
|
|
Six Months Ended June 30, 2014
|
||||
Interest expense—stated coupon rate
|
$
|
26,605
|
|
|
$
|
45,860
|
|
Interest income—accretion of debt premium
|
(2,573
|
)
|
|
(4,805
|
)
|
||
Total interest expense—Cabot Notes and Marlin Bonds
|
$
|
24,032
|
|
|
$
|
41,055
|
|
•
|
Interest at LIBOR plus a maximum of
4.0%
depending on the loan to value (“LTV”) ratio determined quarterly, calculated as being the ratio of the net financial indebtedness of Cabot (as defined in the Cabot Credit Agreement) to Cabot’s estimated remaining collections capped at
84
-months;
|
•
|
A restrictive covenant that limits the LTV ratio to
0.75
;
|
•
|
Additional restrictions and covenants which limit, among other things, the payment of dividends and the incurrence of additional indebtedness and liens; and
|
•
|
Events of default which, upon occurrence, may permit the lenders to terminate the Cabot Credit Facility and declare all amounts outstanding to be immediately due and payable.
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||
|
2014
|
|
2013
|
|
2014
|
|
2013
|
||||
Federal provision
|
35.0
|
%
|
|
35.0
|
%
|
|
35.0
|
%
|
|
35.0
|
%
|
State provision
|
5.8
|
%
|
|
6.6
|
%
|
|
5.8
|
%
|
|
6.6
|
%
|
State benefit
|
(2.0
|
)%
|
|
(2.3
|
)%
|
|
(2.0
|
)%
|
|
(2.3
|
)%
|
International benefit
(1)
|
(1.9
|
)%
|
|
—
|
%
|
|
(3.4
|
)%
|
|
—
|
%
|
Permanent items
(2)
|
3.5
|
%
|
|
0.5
|
%
|
|
3.7
|
%
|
|
0.1
|
%
|
Other
|
(0.8
|
)%
|
|
—
|
%
|
|
(0.1
|
)%
|
|
—
|
%
|
Effective rate
|
39.6
|
%
|
|
39.8
|
%
|
|
39.0
|
%
|
|
39.4
|
%
|
(1)
|
Relates primarily to the lower tax rate on the income attributable to international operations.
|
(2)
|
Represents a provision for nondeductible items.
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||
|
2014
|
|
2013
|
|
2014
|
|
2013
|
||||||||
Revenues:
|
|
|
|
|
|
|
|
||||||||
Portfolio purchasing and recovery
|
$
|
262,087
|
|
|
$
|
152,091
|
|
|
$
|
510,676
|
|
|
$
|
292,774
|
|
Tax lien business
|
7,108
|
|
|
4,030
|
|
|
12,260
|
|
|
7,933
|
|
||||
|
$
|
269,195
|
|
|
$
|
156,121
|
|
|
$
|
522,936
|
|
|
$
|
300,707
|
|
Operating income:
|
|
|
|
|
|
|
|
||||||||
Portfolio purchasing and recovery
|
$
|
87,718
|
|
|
$
|
33,478
|
|
|
$
|
165,286
|
|
|
$
|
76,158
|
|
Tax lien business
|
2,332
|
|
|
742
|
|
|
3,986
|
|
|
1,623
|
|
||||
|
90,050
|
|
|
34,220
|
|
|
169,272
|
|
|
77,781
|
|
||||
Depreciation and amortization
|
(6,829
|
)
|
|
(2,158
|
)
|
|
(12,946
|
)
|
|
(4,004
|
)
|
||||
Stock-based compensation
|
(4,715
|
)
|
|
(2,179
|
)
|
|
(9,551
|
)
|
|
(5,180
|
)
|
||||
Other expense
|
(43,143
|
)
|
|
(11,604
|
)
|
|
(80,840
|
)
|
|
(18,299
|
)
|
||||
Income from operations before income taxes
|
$
|
35,363
|
|
|
$
|
18,279
|
|
|
$
|
65,935
|
|
|
$
|
50,298
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||
|
2014
|
|
2013
|
|
2014
|
|
2013
|
||||||||
Revenues
(1)
:
|
|
|
|
|
|
|
|
||||||||
Domestic
|
$
|
189,012
|
|
|
$
|
156,121
|
|
|
$
|
374,553
|
|
|
$
|
300,707
|
|
International
|
80,183
|
|
|
—
|
|
|
148,383
|
|
|
—
|
|
||||
|
$
|
269,195
|
|
|
$
|
156,121
|
|
|
$
|
522,936
|
|
|
$
|
300,707
|
|
(1)
|
Revenues are attributed to countries based on location of customer.
|
|
Portfolio
Purchasing and
Recovery
|
|
Tax Lien
Business
|
|
Total
|
||||||
Balance, December 31, 2013
|
$
|
454,936
|
|
|
$
|
49,277
|
|
|
$
|
504,213
|
|
Goodwill acquired
|
352,177
|
|
|
—
|
|
|
352,177
|
|
|||
Effect of foreign currency translation
|
23,520
|
|
|
—
|
|
|
23,520
|
|
|||
Balance, June 30, 2014
|
$
|
830,633
|
|
|
$
|
49,277
|
|
|
$
|
879,910
|
|
|
As of June 30, 2014
|
|
As of December 31, 2013
|
||||||||||||||||||||
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Carrying
Amount
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Carrying
Amount
|
||||||||||||
Customer relationships
|
$
|
6,225
|
|
|
$
|
(320
|
)
|
|
$
|
5,905
|
|
|
$
|
1,975
|
|
|
$
|
(74
|
)
|
|
$
|
1,901
|
|
Developed technologies
|
7,519
|
|
|
(1,209
|
)
|
|
6,310
|
|
|
4,909
|
|
|
(468
|
)
|
|
4,441
|
|
||||||
Trade name and other
|
4,904
|
|
|
(857
|
)
|
|
4,047
|
|
|
15,631
|
|
|
(386
|
)
|
|
15,245
|
|
||||||
Other intangibles—indefinite lived
|
1,962
|
|
|
—
|
|
|
1,962
|
|
|
1,962
|
|
|
—
|
|
|
1,962
|
|
||||||
Total intangible assets
|
$
|
20,610
|
|
|
$
|
(2,386
|
)
|
|
$
|
18,224
|
|
|
$
|
24,477
|
|
|
$
|
(928
|
)
|
|
$
|
23,549
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||
|
2014
|
|
2013
|
|
2014
|
|
2013
|
||||||||
Credit card—United Kingdom
(1)
|
$
|
59,061
|
|
|
$
|
—
|
|
|
$
|
410,380
|
|
|
$
|
—
|
|
Credit card—United States
(2), (3)
|
166,701
|
|
|
380,423
|
|
|
282,947
|
|
|
423,837
|
|
||||
Consumer bankruptcy receivables—United States
(2)
|
—
|
|
|
39,897
|
|
|
—
|
|
|
39,897
|
|
||||
Telecom—United States
|
—
|
|
|
2,793
|
|
|
—
|
|
|
18,150
|
|
||||
|
$
|
225,762
|
|
|
$
|
423,113
|
|
|
$
|
693,327
|
|
|
$
|
481,884
|
|
(1)
|
Purchases of consumer portfolio receivables in the United Kingdom for the six months ended June 30, 2014 include
$208.5 million
acquired in connection with the Marlin Acquisition.
|
(2)
|
Purchases of consumer portfolio receivables for the three and six month periods ended June 30, 2013 include $383.4 million acquired in connection with the merger with Asset Acceptance Capital Corp. (“AACC”) ($347.7 million for credit card and $35.7 million for consumer bankruptcy receivables).
|
(3)
|
Purchases of consumer portfolio receivables in the United States include immaterial portfolios purchased in Latin America.
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||
|
2014
|
|
2013
|
|
2014
|
|
2013
|
||||||||
United States:
|
|
|
|
|
|
|
|
||||||||
Legal collections
|
$
|
155,503
|
|
|
$
|
133,682
|
|
|
$
|
306,532
|
|
|
$
|
255,955
|
|
Collection sites
|
130,788
|
|
|
116,853
|
|
|
267,313
|
|
|
243,415
|
|
||||
Collection agencies
(1)
|
19,512
|
|
|
27,853
|
|
|
41,413
|
|
|
49,188
|
|
||||
Subtotal
|
305,803
|
|
|
278,388
|
|
|
615,258
|
|
|
548,558
|
|
||||
United Kingdom:
|
|
|
|
|
|
|
|
||||||||
Collection sites
|
54,716
|
|
|
—
|
|
|
100,577
|
|
|
—
|
|
||||
Collection agencies
|
29,473
|
|
|
—
|
|
|
57,395
|
|
|
—
|
|
||||
Legal collections
|
12,484
|
|
|
—
|
|
|
20,082
|
|
|
—
|
|
||||
Subtotal
|
96,673
|
|
|
—
|
|
|
178,054
|
|
|
—
|
|
||||
Other geographies:
|
|
|
|
|
|
|
|
||||||||
Collection sites
|
6,804
|
|
|
—
|
|
|
12,642
|
|
|
—
|
|
||||
Total collections
|
$
|
409,280
|
|
|
$
|
278,388
|
|
|
$
|
805,954
|
|
|
$
|
548,558
|
|
(1)
|
Collections through our collection agency channel in the United States include accounts subject to bankruptcy filings collected by others. Additionally, collection agency collections often include accounts purchased from a competitor where we maintain the collection agency servicing until the accounts can be recalled and placed in our collection channels.
|
|
Three Months Ended June 30,
|
||||||||||||
|
2014
|
|
2013
|
||||||||||
Revenues
|
|
|
|
|
|
|
|
||||||
Revenue from receivable portfolios, net
|
$
|
248,231
|
|
|
92.2
|
%
|
|
$
|
152,024
|
|
|
97.4
|
%
|
Other revenues
|
14,149
|
|
|
5.3
|
%
|
|
380
|
|
|
0.2
|
%
|
||
Net interest income
|
6,815
|
|
|
2.5
|
%
|
|
3,717
|
|
|
2.4
|
%
|
||
Total revenues
|
269,195
|
|
|
100.0
|
%
|
|
156,121
|
|
|
100.0
|
%
|
||
Operating expenses
|
|
|
|
|
|
|
|
||||||
Salaries and employee benefits
|
64,355
|
|
|
23.9
|
%
|
|
32,969
|
|
|
21.1
|
%
|
||
Cost of legal collections
|
50,029
|
|
|
18.6
|
%
|
|
44,483
|
|
|
28.5
|
%
|
||
Other operating expenses
|
22,041
|
|
|
8.2
|
%
|
|
13,797
|
|
|
8.9
|
%
|
||
Collection agency commissions
|
9,153
|
|
|
3.4
|
%
|
|
5,230
|
|
|
3.3
|
%
|
||
General and administrative expenses
|
38,282
|
|
|
14.2
|
%
|
|
27,601
|
|
|
17.7
|
%
|
||
Depreciation and amortization
|
6,829
|
|
|
2.5
|
%
|
|
2,158
|
|
|
1.4
|
%
|
||
Total operating expenses
|
190,689
|
|
|
70.8
|
%
|
|
126,238
|
|
|
80.9
|
%
|
||
Income from operations
|
78,506
|
|
|
29.2
|
%
|
|
29,883
|
|
|
19.1
|
%
|
||
Other (expense) income
|
|
|
|
|
|
|
|
||||||
Interest expense
|
(43,218
|
)
|
|
(16.1
|
)%
|
|
(7,482
|
)
|
|
(4.8
|
)%
|
||
Other income (expense)
|
75
|
|
|
—
|
%
|
|
(4,122
|
)
|
|
(2.6
|
)%
|
||
Total other expense
|
(43,143
|
)
|
|
(16.1
|
)%
|
|
(11,604
|
)
|
|
(7.4
|
)%
|
||
Income before income taxes
|
35,363
|
|
|
13.1
|
%
|
|
18,279
|
|
|
11.7
|
%
|
||
Provision for income taxes
|
(14,010
|
)
|
|
(5.2
|
)%
|
|
(7,267
|
)
|
|
(4.6
|
)%
|
||
Net income
|
21,353
|
|
|
7.9
|
%
|
|
11,012
|
|
|
7.1
|
%
|
||
Net loss attributable to noncontrolling interest
|
2,208
|
|
|
0.9
|
%
|
|
—
|
|
|
—
|
%
|
||
Net income attributable to Encore shareholders
|
$
|
23,561
|
|
|
8.8
|
%
|
|
$
|
11,012
|
|
|
7.1
|
%
|
|
Six Months Ended June 30,
|
||||||||||||
|
2014
|
|
2013
|
||||||||||
Revenues
|
|
|
|
|
|
|
|
||||||
Revenue from receivable portfolios, net
|
$
|
485,799
|
|
|
92.9
|
%
|
|
$
|
292,707
|
|
|
97.4
|
%
|
Other revenues
|
25,498
|
|
|
4.9
|
%
|
|
681
|
|
|
0.2
|
%
|
||
Net interest income
|
11,639
|
|
|
2.2
|
%
|
|
7,319
|
|
|
2.4
|
%
|
||
Total revenues
|
522,936
|
|
|
100.0
|
%
|
|
300,707
|
|
|
100.0
|
%
|
||
Operating expenses
|
|
|
|
|
|
|
|
||||||
Salaries and employee benefits
|
122,492
|
|
|
23.4
|
%
|
|
61,801
|
|
|
20.6
|
%
|
||
Cost of legal collections
|
99,854
|
|
|
19.1
|
%
|
|
86,741
|
|
|
28.8
|
%
|
||
Other operating expenses
|
48,464
|
|
|
9.3
|
%
|
|
27,062
|
|
|
9.0
|
%
|
||
Collection agency commissions
|
17,429
|
|
|
3.3
|
%
|
|
8,559
|
|
|
2.9
|
%
|
||
General and administrative expenses
|
74,976
|
|
|
14.3
|
%
|
|
43,943
|
|
|
14.6
|
%
|
||
Depreciation and amortization
|
12,946
|
|
|
2.5
|
%
|
|
4,004
|
|
|
1.3
|
%
|
||
Total operating expenses
|
376,161
|
|
|
71.9
|
%
|
|
232,110
|
|
|
77.2
|
%
|
||
Income from operations
|
146,775
|
|
|
28.1
|
%
|
|
68,597
|
|
|
22.8
|
%
|
||
Other (expense) income
|
|
|
|
|
|
|
|
||||||
Interest expense
|
(81,180
|
)
|
|
(15.5
|
)%
|
|
(14,336
|
)
|
|
(4.8
|
)%
|
||
Other income (expense)
|
340
|
|
|
—
|
%
|
|
(3,963
|
)
|
|
(1.3
|
)%
|
||
Total other expense
|
(80,840
|
)
|
|
(15.5
|
)%
|
|
(18,299
|
)
|
|
(6.1
|
)%
|
||
Income before income taxes
|
65,935
|
|
|
12.6
|
%
|
|
50,298
|
|
|
16.7
|
%
|
||
Provision for income taxes
|
(25,752
|
)
|
|
(4.9
|
)%
|
|
(19,838
|
)
|
|
(6.6
|
)%
|
||
Net income
|
40,183
|
|
|
7.7
|
%
|
|
30,460
|
|
|
10.1
|
%
|
||
Net loss attributable to noncontrolling interest
|
6,558
|
|
|
1.2
|
%
|
|
—
|
|
|
—
|
%
|
||
Net income attributable to Encore shareholders
|
$
|
46,741
|
|
|
8.9
|
%
|
|
$
|
30,460
|
|
|
10.1
|
%
|
|
Three Months Ended June 30, 2014
|
|
Six Months Ended June 30, 2014
|
||||||||||||||||||||
|
Janus Holdings
|
|
Encore Europe
(1)
|
|
Consolidated
|
|
Janus Holdings
|
|
Encore Europe
(1)
|
|
Consolidated
|
||||||||||||
Total revenues
|
$
|
73,385
|
|
|
$
|
—
|
|
|
$
|
73,385
|
|
|
$
|
135,905
|
|
|
$
|
—
|
|
|
$
|
135,905
|
|
Total operating expenses
|
(36,629
|
)
|
|
—
|
|
|
(36,629
|
)
|
|
(76,206
|
)
|
|
—
|
|
|
(76,206
|
)
|
||||||
Income from operations
|
36,756
|
|
|
—
|
|
|
36,756
|
|
|
59,699
|
|
|
—
|
|
|
59,699
|
|
||||||
Interest expense-non-PEC
|
(25,628
|
)
|
|
—
|
|
|
(25,628
|
)
|
|
(47,404
|
)
|
|
—
|
|
|
(47,404
|
)
|
||||||
PEC interest (expense) income
|
(11,051
|
)
|
|
5,391
|
|
|
(5,660
|
)
|
|
(22,093
|
)
|
|
10,758
|
|
|
(11,335
|
)
|
||||||
Other income
|
44
|
|
|
—
|
|
|
44
|
|
|
119
|
|
|
—
|
|
|
119
|
|
||||||
Income (loss) before income taxes
|
121
|
|
|
5,391
|
|
|
5,512
|
|
|
(9,679
|
)
|
|
10,758
|
|
|
1,079
|
|
||||||
Provision for income taxes
|
(2,992
|
)
|
|
—
|
|
|
(2,992
|
)
|
|
(846
|
)
|
|
—
|
|
|
(846
|
)
|
||||||
Net (loss) income
|
(2,871
|
)
|
|
5,391
|
|
|
2,520
|
|
|
(10,525
|
)
|
|
10,758
|
|
|
233
|
|
||||||
Net loss attributable to noncontrolling interests
|
412
|
|
|
1,227
|
|
|
1,639
|
|
|
1,510
|
|
|
4,499
|
|
|
6,009
|
|
||||||
Net (loss) income attributable to Encore
|
$
|
(2,459
|
)
|
|
$
|
6,618
|
|
|
$
|
4,159
|
|
|
$
|
(9,015
|
)
|
|
$
|
15,257
|
|
|
$
|
6,242
|
|
(1)
|
Includes only the results of operations related to Janus Holdings and therefore does not represent the complete financial performance of Encore Europe.
|
|
Three Months Ended June 30,
|
||||||||||||||||||||||
|
2014
|
|
2013
|
||||||||||||||||||||
|
$
|
|
Per Diluted
Share—
Accounting
|
|
Per Diluted
Share—
Economic
|
|
$
|
|
Per Diluted
Share— Accounting |
|
Per Diluted
Share— Economic |
||||||||||||
GAAP net income attributable to Encore, as reported
|
$
|
23,561
|
|
|
$
|
0.86
|
|
|
$
|
0.89
|
|
|
$
|
11,012
|
|
|
$
|
0.44
|
|
|
$
|
0.44
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Convertible notes non-cash interest and issuance cost amortization, net of tax
|
1,694
|
|
|
0.06
|
|
|
0.06
|
|
|
529
|
|
|
0.02
|
|
|
0.02
|
|
||||||
Acquisition and integration related expenses, net of tax
|
3,836
|
|
|
0.14
|
|
|
0.15
|
|
|
7,509
|
|
|
0.30
|
|
|
0.30
|
|
||||||
Acquisition related other expenses, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
2,198
|
|
|
0.09
|
|
|
0.09
|
|
||||||
Adjusted income attributable to Encore
|
$
|
29,091
|
|
|
$
|
1.06
|
|
|
$
|
1.10
|
|
|
$
|
21,248
|
|
|
$
|
0.85
|
|
|
$
|
0.85
|
|
|
Six Months Ended June 30,
|
||||||||||||||||||||||
|
2014
|
|
2013
|
||||||||||||||||||||
|
$
|
|
Per Diluted
Share—
Accounting
|
|
Per Diluted
Share—
Economic
|
|
$
|
|
Per Diluted
Share— Accounting |
|
Per Diluted
Share— Economic |
||||||||||||
GAAP net income attributable to Encore, as reported
|
$
|
46,741
|
|
|
$
|
1.68
|
|
|
$
|
1.76
|
|
|
$
|
30,460
|
|
|
$
|
1.24
|
|
|
$
|
1.24
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Convertible notes non-cash interest and issuance cost amortization, net of tax
|
2,985
|
|
|
0.11
|
|
|
0.11
|
|
|
1,000
|
|
|
0.04
|
|
|
0.04
|
|
||||||
Acquisition and integration related expenses, net of tax
|
8,194
|
|
|
0.29
|
|
|
0.31
|
|
|
8,284
|
|
|
0.33
|
|
|
0.33
|
|
||||||
Acquisition related other expenses, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
2,198
|
|
|
0.09
|
|
|
0.09
|
|
||||||
Adjusted income attributable to Encore
|
$
|
57,920
|
|
|
$
|
2.08
|
|
|
$
|
2.18
|
|
|
$
|
41,942
|
|
|
$
|
1.70
|
|
|
$
|
1.70
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||
2014
|
|
2013
|
|
2014
|
|
2013
|
|||||||||
GAAP net income, as reported
|
$
|
21,353
|
|
|
$
|
11,012
|
|
|
$
|
40,183
|
|
|
$
|
30,460
|
|
Adjustments:
|
|
|
|
|
|
|
|
||||||||
Interest expense
|
43,218
|
|
|
7,482
|
|
|
81,180
|
|
|
14,336
|
|
||||
Provision for income taxes
|
14,010
|
|
|
7,267
|
|
|
25,752
|
|
|
19,838
|
|
||||
Depreciation and amortization
|
6,829
|
|
|
2,158
|
|
|
12,946
|
|
|
4,004
|
|
||||
Amount applied to principal on receivable portfolios
|
161,048
|
|
|
126,364
|
|
|
320,154
|
|
|
255,851
|
|
||||
Stock-based compensation expense
|
4,715
|
|
|
2,179
|
|
|
9,551
|
|
|
5,180
|
|
||||
Acquisition and integration related expenses
|
4,645
|
|
|
12,403
|
|
|
15,726
|
|
|
13,679
|
|
||||
Acquisition related other expenses
|
—
|
|
|
3,630
|
|
|
—
|
|
|
3,630
|
|
||||
Adjusted EBITDA
|
$
|
255,818
|
|
|
$
|
172,495
|
|
|
$
|
505,492
|
|
|
$
|
346,978
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||
2014
|
|
2013
|
|
2014
|
|
2013
|
|||||||||
GAAP total operating expenses, as reported
|
$
|
190,689
|
|
|
$
|
126,238
|
|
|
$
|
376,161
|
|
|
$
|
232,110
|
|
Adjustments:
|
|
|
|
|
|
|
|
||||||||
Stock-based compensation expense
|
(4,715
|
)
|
|
(2,179
|
)
|
|
(9,551
|
)
|
|
(5,180
|
)
|
||||
Operating expenses related to non-portfolio purchasing and recovery business
|
(26,409
|
)
|
|
(6,367
|
)
|
|
(46,241
|
)
|
|
(11,641
|
)
|
||||
Acquisition and integration related expenses
|
(4,645
|
)
|
|
(12,403
|
)
|
|
(15,726
|
)
|
|
(13,679
|
)
|
||||
Adjusted operating expenses
|
$
|
154,920
|
|
|
$
|
105,289
|
|
|
$
|
304,643
|
|
|
$
|
201,610
|
|
|
Three Months Ended June 30, 2014
|
|
As of
June 30, 2014 |
|||||||||||||||||||||
|
Collections
(1)
|
|
Gross
Revenue
(2)
|
|
Revenue
Recognition
Rate
(3)
|
|
Net
Portfolio
Allowance Reversal
|
|
Revenue
% of Total
Revenue
|
|
Unamortized
Balances
|
|
Monthly
IRR
|
|||||||||||
United States
(4)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
ZBA
(5)
|
$
|
6,708
|
|
|
$
|
3,402
|
|
|
50.7
|
%
|
|
$
|
3,306
|
|
|
1.4
|
%
|
|
$
|
—
|
|
|
—
|
|
2006
|
1,019
|
|
|
198
|
|
|
19.4
|
%
|
|
—
|
|
|
0.1
|
%
|
|
695
|
|
|
5.3
|
%
|
||||
2007
|
2,294
|
|
|
953
|
|
|
41.5
|
%
|
|
116
|
|
|
0.4
|
%
|
|
3,317
|
|
|
7.3
|
%
|
||||
2008
|
7,893
|
|
|
3,889
|
|
|
49.3
|
%
|
|
—
|
|
|
1.6
|
%
|
|
10,604
|
|
|
9.5
|
%
|
||||
2009
|
15,841
|
|
|
11,671
|
|
|
73.7
|
%
|
|
—
|
|
|
4.8
|
%
|
|
13,046
|
|
|
23.8
|
%
|
||||
2010
|
30,451
|
|
|
23,049
|
|
|
75.7
|
%
|
|
—
|
|
|
9.4
|
%
|
|
32,753
|
|
|
20.5
|
%
|
||||
2011
|
42,145
|
|
|
29,046
|
|
|
68.9
|
%
|
|
—
|
|
|
11.9
|
%
|
|
73,385
|
|
|
11.8
|
%
|
||||
2012
|
70,871
|
|
|
36,343
|
|
|
51.3
|
%
|
|
—
|
|
|
14.8
|
%
|
|
200,479
|
|
|
5.4
|
%
|
||||
2013
|
113,300
|
|
|
59,641
|
|
|
52.6
|
%
|
|
—
|
|
|
24.4
|
%
|
|
381,923
|
|
|
4.8
|
%
|
||||
2014
|
22,085
|
|
|
10,574
|
|
|
47.9
|
%
|
|
—
|
|
|
4.3
|
%
|
|
268,803
|
|
|
2.2
|
%
|
||||
Subtotal
|
312,607
|
|
|
178,766
|
|
|
57.2
|
%
|
|
3,422
|
|
|
73.0
|
%
|
|
985,005
|
|
|
5.0
|
%
|
||||
United Kingdom:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
2013
|
63,135
|
|
|
42,563
|
|
|
67.4
|
%
|
|
—
|
|
|
17.4
|
%
|
|
598,966
|
|
|
2.4
|
%
|
||||
2014
|
33,538
|
|
|
23,480
|
|
|
70.0
|
%
|
|
—
|
|
|
9.6
|
%
|
|
404,014
|
|
|
2.2
|
%
|
||||
Subtotal
|
96,673
|
|
|
66,043
|
|
|
68.3
|
%
|
|
—
|
|
|
27.0
|
%
|
|
1,002,980
|
|
|
2.3
|
%
|
||||
Total
|
$
|
409,280
|
|
|
$
|
244,809
|
|
|
59.8
|
%
|
|
$
|
3,422
|
|
|
100.0
|
%
|
|
$
|
1,987,985
|
|
|
3.6
|
%
|
|
Three Months Ended June 30, 2013
|
|
As of
June 30, 2013 |
|||||||||||||||||||||
|
Collections
(1)
|
|
Gross
Revenue
(2)
|
|
Revenue
Recognition
Rate
(3)
|
|
Net
Portfolio
Allowance Reversal
|
|
Revenue
% of Total
Revenue
|
|
Unamortized
Balances
|
|
Monthly
IRR
|
|||||||||||
ZBA
(5)
|
$
|
7,836
|
|
|
$
|
4,743
|
|
|
60.5
|
%
|
|
$
|
3,095
|
|
|
3.2
|
%
|
|
$
|
—
|
|
|
—
|
|
2005
|
114
|
|
|
6
|
|
|
5.3
|
%
|
|
—
|
|
|
—
|
%
|
|
—
|
|
|
5.7
|
%
|
||||
2006
|
2,518
|
|
|
902
|
|
|
35.8
|
%
|
|
57
|
|
|
0.6
|
%
|
|
4,856
|
|
|
5.1
|
%
|
||||
2007
|
3,270
|
|
|
1,400
|
|
|
42.8
|
%
|
|
237
|
|
|
0.9
|
%
|
|
7,333
|
|
|
5.5
|
%
|
||||
2008
|
11,525
|
|
|
6,415
|
|
|
55.7
|
%
|
|
285
|
|
|
4.3
|
%
|
|
24,565
|
|
|
7.6
|
%
|
||||
2009
|
21,698
|
|
|
13,684
|
|
|
63.1
|
%
|
|
—
|
|
|
9.2
|
%
|
|
30,658
|
|
|
12.7
|
%
|
||||
2010
|
42,374
|
|
|
26,205
|
|
|
61.8
|
%
|
|
—
|
|
|
17.7
|
%
|
|
71,433
|
|
|
10.6
|
%
|
||||
2011
|
60,511
|
|
|
34,535
|
|
|
57.1
|
%
|
|
—
|
|
|
23.3
|
%
|
|
138,462
|
|
|
7.4
|
%
|
||||
2012
|
93,093
|
|
|
42,142
|
|
|
45.3
|
%
|
|
—
|
|
|
28.4
|
%
|
|
357,596
|
|
|
3.6
|
%
|
||||
2013
|
35,449
|
|
|
18,318
|
|
|
51.7
|
%
|
|
—
|
|
|
12.4
|
%
|
|
461,795
|
|
|
4.2
|
%
|
||||
Total
|
$
|
278,388
|
|
|
$
|
148,350
|
|
|
53.3
|
%
|
|
$
|
3,674
|
|
|
100.0
|
%
|
|
$
|
1,096,698
|
|
|
5.1
|
%
|
|
Six Months Ended June 30, 2014
|
|
As of
June 30, 2014 |
|||||||||||||||||||||
|
Collections
(1)
|
|
Gross
Revenue
(2)
|
|
Revenue
Recognition
Rate
(3)
|
|
Net
Portfolio
Allowance Reversal
|
|
Revenue
% of Total
Revenue
|
|
Unamortized
Balances
|
|
Monthly
IRR
|
|||||||||||
United States
(4)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
ZBA
(5)
|
$
|
13,219
|
|
|
$
|
6,993
|
|
|
52.9
|
%
|
|
$
|
6,226
|
|
|
1.5
|
%
|
|
$
|
—
|
|
|
—
|
|
2006
|
2,306
|
|
|
536
|
|
|
23.2
|
%
|
|
—
|
|
|
0.1
|
%
|
|
695
|
|
|
5.3
|
%
|
||||
2007
|
4,632
|
|
|
2,180
|
|
|
47.1
|
%
|
|
116
|
|
|
0.4
|
%
|
|
3,317
|
|
|
7.3
|
%
|
||||
2008
|
16,266
|
|
|
8,951
|
|
|
55.0
|
%
|
|
—
|
|
|
1.9
|
%
|
|
10,604
|
|
|
9.5
|
%
|
||||
2009
|
32,341
|
|
|
24,411
|
|
|
75.5
|
%
|
|
310
|
|
|
5.1
|
%
|
|
13,046
|
|
|
23.8
|
%
|
||||
2010
|
62,414
|
|
|
45,187
|
|
|
72.4
|
%
|
|
—
|
|
|
9.4
|
%
|
|
32,753
|
|
|
20.5
|
%
|
||||
2011
|
87,794
|
|
|
58,291
|
|
|
66.4
|
%
|
|
—
|
|
|
12.2
|
%
|
|
73,385
|
|
|
11.8
|
%
|
||||
2012
|
149,729
|
|
|
73,700
|
|
|
49.2
|
%
|
|
—
|
|
|
15.4
|
%
|
|
200,479
|
|
|
5.4
|
%
|
||||
2013
|
233,072
|
|
|
124,078
|
|
|
53.2
|
%
|
|
—
|
|
|
25.9
|
%
|
|
381,923
|
|
|
4.8
|
%
|
||||
2014
|
26,127
|
|
|
12,547
|
|
|
48.0
|
%
|
|
—
|
|
|
2.6
|
%
|
|
268,803
|
|
|
2.2
|
%
|
||||
Subtotal
|
627,900
|
|
|
356,874
|
|
|
56.8
|
%
|
|
6,652
|
|
|
74.5
|
%
|
|
985,005
|
|
|
5.0
|
%
|
||||
United Kingdom:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
2013
|
126,729
|
|
|
85,936
|
|
|
67.8
|
%
|
|
—
|
|
|
17.9
|
%
|
|
598,966
|
|
|
2.4
|
%
|
||||
2014
|
51,325
|
|
|
36,337
|
|
|
70.8
|
%
|
|
—
|
|
|
7.6
|
%
|
|
404,014
|
|
|
2.2
|
%
|
||||
Subtotal
|
178,054
|
|
|
122,273
|
|
|
68.7
|
%
|
|
—
|
|
|
25.5
|
%
|
|
1,002,980
|
|
|
2.3
|
%
|
||||
Total
|
$
|
805,954
|
|
|
$
|
479,147
|
|
|
59.5
|
%
|
|
$
|
6,652
|
|
|
100.0
|
%
|
|
$
|
1,987,985
|
|
|
3.6
|
%
|
|
Six Months Ended June 30, 2013
|
|
As of
June 30, 2013 |
|||||||||||||||||||||
|
Collections
(1)
|
|
Gross
Revenue
(2)
|
|
Revenue
Recognition
Rate
(3)
|
|
Net
Reversal
(Portfolio
Allowance)
|
|
Revenue
% of Total
Revenue
|
|
Unamortized
Balances
|
|
Monthly
IRR
|
|||||||||||
ZBA
(5)
|
$
|
13,448
|
|
|
$
|
9,405
|
|
|
69.9
|
%
|
|
$
|
4,044
|
|
|
3.3
|
%
|
|
$
|
—
|
|
|
—
|
|
2005
|
2,364
|
|
|
239
|
|
|
10.1
|
%
|
|
10
|
|
|
0.1
|
%
|
|
—
|
|
|
5.7
|
%
|
||||
2006
|
5,021
|
|
|
2,042
|
|
|
40.7
|
%
|
|
(402
|
)
|
|
0.7
|
%
|
|
4,856
|
|
|
5.1
|
%
|
||||
2007
|
6,648
|
|
|
2,954
|
|
|
44.4
|
%
|
|
580
|
|
|
1.0
|
%
|
|
7,333
|
|
|
5.5
|
%
|
||||
2008
|
23,639
|
|
|
13,446
|
|
|
56.9
|
%
|
|
448
|
|
|
4.7
|
%
|
|
24,565
|
|
|
7.6
|
%
|
||||
2009
|
44,930
|
|
|
28,379
|
|
|
63.2
|
%
|
|
—
|
|
|
9.8
|
%
|
|
30,658
|
|
|
12.7
|
%
|
||||
2010
|
87,598
|
|
|
54,597
|
|
|
62.3
|
%
|
|
—
|
|
|
18.9
|
%
|
|
71,433
|
|
|
10.6
|
%
|
||||
2011
|
127,747
|
|
|
70,883
|
|
|
55.5
|
%
|
|
—
|
|
|
24.6
|
%
|
|
138,462
|
|
|
7.4
|
%
|
||||
2012
|
197,265
|
|
|
85,437
|
|
|
43.3
|
%
|
|
—
|
|
|
29.7
|
%
|
|
357,596
|
|
|
3.6
|
%
|
||||
2013
|
39,898
|
|
|
20,645
|
|
|
51.7
|
%
|
|
—
|
|
|
7.2
|
%
|
|
461,795
|
|
|
4.2
|
%
|
||||
Total
|
$
|
548,558
|
|
|
$
|
288,027
|
|
|
52.5
|
%
|
|
$
|
4,680
|
|
|
100.0
|
%
|
|
$
|
1,096,698
|
|
|
5.1
|
%
|
(1)
|
Does not include amounts collected on behalf of others.
|
(2)
|
Gross revenue excludes the effects of net portfolio allowance or net portfolio allowance reversals.
|
(3)
|
Revenue recognition rate excludes the effects of net portfolio allowance or net portfolio allowance reversals.
|
(4)
|
United States data includes immaterial results from Latin America.
|
(5)
|
ZBA revenue typically has a 100% revenue recognition rate. However, collections on ZBA pool groups where a valuation allowance remains must first be recorded as an allowance reversal until the allowance for that pool group is zero. Once the entire valuation allowance is reversed, the revenue recognition rate will become 100%.
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||
|
2014
|
|
2013
|
|
2014
|
|
2013
|
||||||||
Salaries and employee benefits:
|
|
|
|
|
|
|
|
||||||||
Portfolio purchasing and recovery
|
$
|
62,744
|
|
|
$
|
31,534
|
|
|
$
|
119,142
|
|
|
$
|
58,948
|
|
Tax lien business
|
1,611
|
|
|
1,435
|
|
|
3,350
|
|
|
2,853
|
|
||||
|
$
|
64,355
|
|
|
$
|
32,969
|
|
|
$
|
122,492
|
|
|
$
|
61,801
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||||||||||||||
|
2014
|
|
2013
|
|
2014
|
|
2013
|
||||||||||||||||||||
United States:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Collections:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Collections - legal outsourcing
|
$
|
125,564
|
|
|
80.7
|
%
|
|
$
|
116,187
|
|
|
86.9
|
%
|
|
$
|
245,297
|
|
|
80.0
|
%
|
|
$
|
228,829
|
|
|
89.4
|
%
|
Collections - internal legal
|
29,939
|
|
|
19.3
|
%
|
|
17,495
|
|
|
13.1
|
%
|
|
61,235
|
|
|
20.0
|
%
|
|
27,126
|
|
|
10.6
|
%
|
||||
Collections - legal networks
|
$
|
155,503
|
|
|
100.0
|
%
|
|
$
|
133,682
|
|
|
100.0
|
%
|
|
$
|
306,532
|
|
|
100.0
|
%
|
|
$
|
255,955
|
|
|
100.0
|
%
|
Costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Commissions - legal outsourcing
|
$
|
31,791
|
|
|
25.3
|
%
|
|
$
|
30,340
|
|
|
26.1
|
%
|
|
$
|
62,419
|
|
|
25.4
|
%
|
|
$
|
59,150
|
|
|
25.8
|
%
|
Court cost expense - legal outsourcing
(1)
|
11,001
|
|
|
8.8
|
%
|
|
9,344
|
|
|
8.0
|
%
|
|
23,633
|
|
|
9.6
|
%
|
|
19,359
|
|
|
8.5
|
%
|
||||
Direct legal cost - internal legal
|
3,964
|
|
|
|
|
4,209
|
|
|
|
|
8,322
|
|
|
|
|
6,877
|
|
|
|
||||||||
Other
(2)
|
801
|
|
|
|
|
590
|
|
|
|
|
1,551
|
|
|
|
|
1,355
|
|
|
|
||||||||
Direct costs - legal networks
|
47,557
|
|
|
30.6
|
%
|
|
44,483
|
|
|
33.3
|
%
|
|
95,925
|
|
|
31.3
|
%
|
|
86,741
|
|
|
33.9
|
%
|
||||
United Kingdom:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Collections - legal networks
|
12,484
|
|
|
|
|
—
|
|
|
|
|
20,082
|
|
|
|
|
|
—
|
|
|
|
|||||||
Direct cost - legal networks
|
2,472
|
|
|
19.8
|
%
|
|
—
|
|
|
—
|
|
|
3,929
|
|
|
19.6
|
%
|
|
—
|
|
|
—
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Total collections - legal networks
|
$
|
167,987
|
|
|
|
|
$
|
133,682
|
|
|
|
|
$
|
326,614
|
|
|
|
|
$
|
255,955
|
|
|
|
||||
Total direct costs - legal networks
(3)
|
$
|
50,029
|
|
|
29.8
|
%
|
|
$
|
44,483
|
|
|
33.3
|
%
|
|
$
|
99,854
|
|
|
30.6
|
%
|
|
$
|
86,741
|
|
|
33.9
|
%
|
(1)
|
We advance certain out-of-pocket court costs and capitalize these costs in our consolidated financial statements and provide a reserve and corresponding court cost expense for the costs that we believe will be ultimately uncollectible. This amount includes changes in our anticipated recovery rate of court costs expensed.
|
(2)
|
Other costs consist of costs related to counter claims and legal network subscription fees.
|
(3)
|
Total direct costs—legal networks does not include internal legal channel employee salaries and benefits and other related direct operating expenses. These expenses were
$8.1 million
and
$5.0 million
for the three months ended
June 30, 2014
and
2013
, respectively, and
$15.9 million
and
$9.0 million
for the
six months ended
June 30, 2014
and
2013
, respectively.
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||
|
2014
|
|
2013
|
|
2014
|
|
2013
|
||||||||
Other operating expenses:
|
|
|
|
|
|
|
|
||||||||
Portfolio purchasing and recovery
|
$
|
20,524
|
|
|
$
|
12,681
|
|
|
$
|
45,820
|
|
|
$
|
24,992
|
|
Tax lien business
|
1,517
|
|
|
1,116
|
|
|
2,644
|
|
|
2,070
|
|
||||
|
$
|
22,041
|
|
|
$
|
13,797
|
|
|
$
|
48,464
|
|
|
$
|
27,062
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||
|
2014
|
|
2013
|
|
2014
|
|
2013
|
||||||||
General and administrative expenses:
|
|
|
|
|
|
|
|
||||||||
Portfolio purchasing and recovery
|
$
|
36,634
|
|
|
$
|
26,864
|
|
|
$
|
72,696
|
|
|
$
|
42,556
|
|
Tax lien business
|
1,648
|
|
|
737
|
|
|
2,280
|
|
|
1,387
|
|
||||
|
$
|
38,282
|
|
|
$
|
27,601
|
|
|
$
|
74,976
|
|
|
$
|
43,943
|
|
|
Three Months Ended June 30,
|
||||||||||||||||||||||||||
|
2014
|
|
2013
|
||||||||||||||||||||||||
|
Collections
|
|
Cost
|
|
Cost Per
Channel
Dollar
Collected
|
|
Cost Per
Total
Dollar
Collected
|
|
Collections
|
|
Cost
|
|
Cost Per
Channel
Dollar
Collected
|
|
Cost Per
Total
Dollar
Collected
|
||||||||||||
United States:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Collection sites
(1)
|
$
|
130,788
|
|
|
$
|
8,330
|
|
|
6.4
|
%
|
|
2.7
|
%
|
|
$
|
116,853
|
|
|
$
|
7,173
|
|
|
6.1
|
%
|
|
2.5
|
%
|
Legal outsourcing
|
125,564
|
|
|
43,595
|
|
|
34.7
|
%
|
|
14.3
|
%
|
|
116,187
|
|
|
40,309
|
|
|
34.7
|
%
|
|
14.5
|
%
|
||||
Internal legal
(2)
|
29,939
|
|
|
12,064
|
|
|
40.3
|
%
|
|
3.9
|
%
|
|
17,495
|
|
|
8,873
|
|
|
50.7
|
%
|
|
3.2
|
%
|
||||
Collection agencies
|
19,512
|
|
|
4,388
|
|
|
22.5
|
%
|
|
1.4
|
%
|
|
27,853
|
|
|
5,230
|
|
|
18.8
|
%
|
|
1.9
|
%
|
||||
Other indirect costs
(3)
|
—
|
|
|
55,173
|
|
|
—
|
|
|
18.1
|
%
|
|
—
|
|
|
43,704
|
|
|
—
|
|
|
15.7
|
%
|
||||
Subtotal
|
305,803
|
|
|
123,550
|
|
|
|
|
40.4
|
%
|
|
278,388
|
|
|
105,289
|
|
|
|
|
37.8
|
%
|
||||||
United Kingdom:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Collection sites
(1)
|
54,716
|
|
|
3,773
|
|
|
6.9
|
%
|
|
3.9
|
%
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||
Legal outsourcing
|
12,484
|
|
|
2,470
|
|
|
19.8
|
%
|
|
2.6
|
%
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||
Collection agencies
|
29,473
|
|
|
4,765
|
|
|
16.2
|
%
|
|
4.9
|
%
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||
Other indirect costs
(3)
|
—
|
|
|
18,280
|
|
|
—
|
|
|
18.9
|
%
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||
Subtotal
|
96,673
|
|
|
29,288
|
|
|
|
|
30.3
|
%
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
||||||
Other geographies:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Collection sites
(1)
|
6,804
|
|
|
815
|
|
|
12.0
|
%
|
|
12.0
|
%
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||
Other indirect costs
(3)
|
—
|
|
|
1,267
|
|
|
—
|
|
|
18.6
|
%
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||
Subtotal
|
6,804
|
|
|
2,082
|
|
|
|
|
30.6
|
%
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
||||||
Total
(4)
|
$
|
409,280
|
|
|
$
|
154,920
|
|
|
|
|
37.9
|
%
|
|
$
|
278,388
|
|
|
$
|
105,289
|
|
|
|
|
37.8
|
%
|
|
Six Months Ended June 30,
|
||||||||||||||||||||||||||
|
2014
|
|
2013
|
||||||||||||||||||||||||
|
Collections
|
|
Cost
|
|
Cost Per
Channel
Dollar
Collected
|
|
Cost Per
Total
Dollar
Collected
|
|
Collections
|
|
Cost
|
|
Cost Per
Channel
Dollar
Collected
|
|
Cost Per
Total
Dollar
Collected
|
||||||||||||
United States:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Collection sites
(1)
|
$
|
267,313
|
|
|
$
|
16,740
|
|
|
6.3
|
%
|
|
2.7
|
%
|
|
$
|
243,415
|
|
|
$
|
14,416
|
|
|
5.9
|
%
|
|
2.6
|
%
|
Legal outsourcing
|
245,297
|
|
|
87,605
|
|
|
35.7
|
%
|
|
14.2
|
%
|
|
228,829
|
|
|
79,899
|
|
|
34.9
|
%
|
|
14.6
|
%
|
||||
Internal legal
(2)
|
61,235
|
|
|
24,253
|
|
|
39.6
|
%
|
|
3.9
|
%
|
|
27,126
|
|
|
15,439
|
|
|
56.9
|
%
|
|
2.8
|
%
|
||||
Collection agencies
|
41,413
|
|
|
8,094
|
|
|
19.5
|
%
|
|
1.3
|
%
|
|
49,188
|
|
|
8,559
|
|
|
17.4
|
%
|
|
1.6
|
%
|
||||
Other indirect costs
(3)
|
—
|
|
|
111,217
|
|
|
—
|
|
|
18.2
|
%
|
|
—
|
|
|
83,297
|
|
|
—
|
|
|
15.2
|
%
|
||||
Subtotal
|
615,258
|
|
|
247,909
|
|
|
|
|
40.3
|
%
|
|
548,558
|
|
|
201,610
|
|
|
|
|
36.8
|
%
|
||||||
United Kingdom:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Collection sites
(1)
|
100,577
|
|
|
6,496
|
|
|
6.5
|
%
|
|
3.6
|
%
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||
Legal outsourcing
|
20,082
|
|
|
3,927
|
|
|
19.6
|
%
|
|
2.2
|
%
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||
Collection agencies
|
57,395
|
|
|
9,335
|
|
|
16.3
|
%
|
|
5.2
|
%
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||
Other indirect costs
(3)
|
|
|
|
33,019
|
|
|
—
|
|
|
18.5
|
%
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||
Subtotal
|
178,054
|
|
|
52,777
|
|
|
|
|
29.6
|
%
|
|
—
|
|
|
—
|
|
|
|
|
|
—
|
|
|||||
Other geographies:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Collection sites
(1)
|
12,642
|
|
|
1,679
|
|
|
13.3
|
%
|
|
13.3
|
%
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||
Other indirect costs
(3)
|
|
|
|
2,278
|
|
|
—
|
|
|
18.0
|
%
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||
Subtotal
|
12,642
|
|
|
3,957
|
|
|
|
|
31.3
|
%
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
||||||
Total
(4)
|
$
|
805,954
|
|
|
$
|
304,643
|
|
|
|
|
37.8
|
%
|
|
$
|
548,558
|
|
|
$
|
201,610
|
|
|
|
|
36.8
|
%
|
(1)
|
Cost in collection sites represents only account managers and their supervisors’ salaries, variable compensation, and employee benefits. Collection sites in the United States include collection site expenses for our India and Costa Rica call centers.
|
(2)
|
Cost in internal legal channel represents court costs expensed, internal legal channel employee salaries and benefits, and other related direct operating expenses.
|
(3)
|
Other indirect costs represent non-collection site salaries and employee benefits, general and administrative expenses, other operating expenses and depreciation and amortization.
|
(4)
|
Total cost represents all operating expenses, excluding stock-based compensation expense, operating expenses related to non-portfolio purchasing and recovery business, one-time charges, and acquisition and integration related operating expenses. We include this information in order to facilitate a comparison of approximate cash costs to cash collections for the debt purchasing business in the periods presented. Refer to the “Non-GAAP Disclosure” section for further details.
|
•
|
The cost from our collection sites, which includes account manager salaries, variable compensation, and employee benefits, as a percentage of total collections in the United States, increased slightly to
2.7%
during the three months ended
June 30, 2014
from
2.5%
during the three months ended June 30,
2013
and, as a percentage of our site collections, increased to
6.4%
during the three months ended
June 30, 2014
, from
6.1%
during the three months ended
June 30, 2013
. The increase in cost as a percentage of site collections, through our collection sites in the United States, was primarily due to the higher cost to collect attributable to AACC portfolio, which is only included in the prior year’s calculation since the completion of the AACC Merger on June 13, 2013.
|
•
|
The cost of legal collections through our internal legal channel, as a percentage of total collections in the United States, increased to
3.9%
during the three months ended
June 30, 2014
, from
3.2%
during the three months ended
June 30,
|
•
|
Other costs not directly attributable to specific channel collections (other indirect costs) increased to
18.1%
for the three months ended
June 30, 2014
, from
15.7%
for the three months ended
June 30, 2013
. These costs include non-collection site salaries and employee benefits, general and administrative expenses, other operating expenses, and depreciation and amortization. The dollar increase, and the increase in cost per dollar collected, were due to several factors, including increases in corporate legal expense, headcount, and general and administrative expenses necessary to support our growth in addition to investments in initiatives relating to the evolving regulatory environment.
|
•
|
The cost of legal collections through our legal outsourcing channel, as a percentage of total collections in the United States, decreased to
14.3%
during the three months ended
June 30, 2014
, from
14.5%
during the three months ended
June 30, 2013
and, as a percentage of channel collections, remained consistent at
34.7%
. The decrease in the cost of legal collections as a percentage of total collections was primarily due to a decrease in this channel’s collections as a percentage of total collections as a result of increased reliance on our internal legal channel.
|
•
|
Collection agency commissions, as a percentage of total collections in the United States, decreased to
1.4%
during the three months ended
June 30, 2014
, from
1.9%
during the same period in the prior year. Our collection agency commission rate increased to
22.5%
during the three months ended
June 30, 2014
, from
18.8%
during the same period in the prior year. The decrease in the collection agency commissions as a percentage of total collections was primarily related to a decrease in this channel’s collections as a percentage of total collections. The increase in commission rates was attributable to lower commission rates in the prior year. During the three months ended
June 30, 2013
, we experienced an increase in collection agency collections as a result of increased purchases of bankruptcy portfolios, which are primarily serviced by an outside service provider. Commission rates for bankruptcy portfolios are lower than commission rates on non-bankruptcy portfolios.
|
•
|
The cost from our collection sites, which includes account manager salaries, variable compensation, and employee benefits, as a percentage of total collections in the United States, increased slightly to
2.7%
during the
six months ended
June 30, 2014
from
2.6%
during the
six months ended
June 30, 2013
and, as a percentage of our site collections, increased to
6.3%
during the
six months ended
June 30, 2014
, from
5.9%
during the
six months ended
June 30, 2013
. The increase in cost as a percentage of site collections, through our collection sites in the United States, was primarily due to the higher cost to collect attributable to AACC which is only included in the prior year’s calculation since the completion of the AACC Merger on June 13, 2013.
|
•
|
The cost of legal collections through our internal legal channel, as a percentage of total collections in the United States, increased to
3.9%
during the
six months ended
June 30, 2014
, from
2.8%
during the
six months ended
June 30, 2013
and, as a percentage of channel collections, decreased to
39.6%
during the
six months ended
June 30, 2014
, from
56.9%
during the
six months ended
June 30, 2013
. This increase in cost as a percentage of total collections was primarily due to increased collections as a result of our continued expansion of our internal legal channel. The decrease in cost as a percentage of channel collections was primarily due to increased productivity in our internal legal platform, which we expect to continue as the channel matures.
|
•
|
Other costs not directly attributable to specific channel collections (other indirect costs) increased to
18.2%
for the
six months ended
June 30, 2014
, from
15.2%
for the
six months ended
June 30, 2013
. These costs include non-collection site salaries and employee benefits, general and administrative expenses, other operating expenses, and depreciation and amortization. The dollar increase, and the increase in cost per dollar collected, were due to several factors, including increases in corporate legal expense, headcount, and general and administrative expenses necessary to support our growth in addition to investments in initiatives relating to the evolving regulatory environment.
|
•
|
The cost of legal collections through our legal outsourcing channel, as a percentage of total collections in the United States, decreased to
14.2%
during the
six months ended
June 30, 2014
, from
14.6%
during the
six months ended
June 30, 2013
and, as a percentage of channel collections, increased to
35.7%
from
34.9%
compared to the same period in the prior year. The decrease in the cost of legal collections as a percentage of total collections was primarily related to a decrease in this channel’s collections as a percentage of total collections as a result of increased reliance on our internal legal channel. The increase in the cost of legal collections as a percentage of channel collections was due to a higher cost to collect through the legal channel at our AACC subsidiary.
|
•
|
Collection agency commissions, as a percentage of total collections in the United States, decreased to
1.3%
during the
six months ended
June 30, 2014
, from
1.6%
during the same period in the prior year. Our collection agency commission rate increased to
19.5%
during the
six months ended
June 30, 2014
, from
17.4%
during the same period in the prior year. The decrease in collection agency commissions as a percentage of total collections was primarily related to a decrease in this channel’s collections as a percentage of total collections. The increase in commission rates was attributable to lower commission rates in the prior year. During the
six months ended
June 30, 2013
, we experienced an increase in collection agency collections as a result of increased purchases of bankruptcy portfolios, which are primarily serviced by an outside service provider. Commission rates for bankruptcy portfolios are lower than commission rates on non-bankruptcy portfolios.
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||
|
2014
|
|
2013
|
|
2014
|
|
2013
|
||||
Federal provision
|
35.0
|
%
|
|
35.0
|
%
|
|
35.0
|
%
|
|
35.0
|
%
|
State provision
|
5.8
|
%
|
|
6.6
|
%
|
|
5.8
|
%
|
|
6.6
|
%
|
State benefit
|
(2.0
|
)%
|
|
(2.3
|
)%
|
|
(2.0
|
)%
|
|
(2.3
|
)%
|
International benefit
(1)
|
(1.9
|
)%
|
|
—
|
%
|
|
(3.4
|
)%
|
|
—
|
%
|
Permanent items
(2)
|
3.5
|
%
|
|
0.5
|
%
|
|
3.7
|
%
|
|
0.1
|
%
|
Other
|
(0.8
|
)%
|
|
—
|
%
|
|
(0.1
|
)%
|
|
—
|
%
|
Effective rate
|
39.6
|
%
|
|
39.8
|
%
|
|
39.0
|
%
|
|
39.4
|
%
|
(1)
|
Represents reserves taken for certain tax position adopted by the Company.
|
(2)
|
Represents a provision for nondeductible items.
|
(1)
|
Adjusted for put-backs and account recalls. Put-backs represent accounts that are returned to the seller in accordance with the respective purchase agreement (“Put-Backs”). Recalls represent accounts that are recalled by the seller in accordance with the respective purchase agreement (“Recalls”).
|
(2)
|
Cumulative collections from inception through
June 30, 2014
, excluding collections on behalf of others.
|
(3)
|
Cumulative Collections Multiple (“CCM”) through
June 30, 2014
refers to collections as a multiple of purchase price.
|
(4)
|
United States data includes immaterial results from Latin America.
|
|
Purchase Price
(1)
|
|
Historical
Collections
(2)
|
|
Estimated
Remaining
Collections
(3), (4)
|
|
Total Estimated
Gross Collections
|
|
Total Estimated Gross
Collections to
Purchase Price
|
|||||||||
Charged-off consumer receivables:
|
|
|
|
|
|
|
||||||||||||
United States
(5)
:
|
|
|
|
|
|
|
|
|
|
|||||||||
<2005
|
$
|
385,469
|
|
|
$
|
1,357,273
|
|
|
$
|
344
|
|
|
$
|
1,357,617
|
|
|
3.5
|
|
2005
|
192,585
|
|
|
487,180
|
|
|
639
|
|
|
487,819
|
|
|
2.5
|
|
||||
2006
|
141,026
|
|
|
320,517
|
|
|
5,956
|
|
|
326,473
|
|
|
2.3
|
|
||||
2007
|
204,064
|
|
|
497,528
|
|
|
15,620
|
|
|
513,148
|
|
|
2.5
|
|
||||
2008
|
227,768
|
|
|
567,502
|
|
|
30,648
|
|
|
598,150
|
|
|
2.6
|
|
||||
2009
|
253,257
|
|
|
692,322
|
|
|
72,559
|
|
|
764,881
|
|
|
3.0
|
|
||||
2010
|
345,811
|
|
|
835,014
|
|
|
180,257
|
|
|
1,015,271
|
|
|
2.9
|
|
||||
2011
|
382,554
|
|
|
735,945
|
|
|
286,004
|
|
|
1,021,949
|
|
|
2.7
|
|
||||
2012
|
474,557
|
|
|
645,233
|
|
|
426,764
|
|
|
1,071,997
|
|
|
2.3
|
|
||||
2013
|
543,978
|
|
|
444,397
|
|
|
924,583
|
|
|
1,368,980
|
|
|
2.5
|
|
||||
2014
|
282,814
|
|
|
26,127
|
|
|
497,454
|
|
|
523,581
|
|
|
1.9
|
|
||||
Subtotal
|
3,433,883
|
|
|
6,609,038
|
|
|
2,440,828
|
|
|
9,049,866
|
|
|
2.6
|
|
||||
United Kingdom:
|
|
|
|
|
|
|
|
|
|
|||||||||
2013
|
620,900
|
|
|
260,988
|
|
|
1,427,937
|
|
|
1,688,925
|
|
|
2.7
|
|
||||
2014
|
410,380
|
|
|
51,325
|
|
|
938,750
|
|
|
990,075
|
|
|
2.4
|
|
||||
Subtotal
|
1,031,280
|
|
|
312,313
|
|
|
2,366,687
|
|
|
2,679,000
|
|
|
2.6
|
|
||||
Purchased bankruptcy receivables:
|
|
|
|
|
|
|
||||||||||||
2010
|
11,971
|
|
|
19,542
|
|
|
2,946
|
|
|
22,488
|
|
|
1.9
|
|
||||
2011
|
1,642
|
|
|
4,044
|
|
|
76
|
|
|
4,120
|
|
|
2.5
|
|
||||
2012
|
83,436
|
|
|
46,199
|
|
|
52,853
|
|
|
99,052
|
|
|
1.2
|
|
||||
2013
|
39,883
|
|
|
25,496
|
|
|
35,581
|
|
|
61,077
|
|
|
1.5
|
|
||||
Subtotal
|
136,932
|
|
|
95,281
|
|
|
91,456
|
|
|
186,737
|
|
|
1.4
|
|
||||
Total
|
$
|
4,602,095
|
|
|
$
|
7,016,632
|
|
|
$
|
4,898,971
|
|
|
$
|
11,915,603
|
|
|
2.6
|
|
(1)
|
Adjusted for Put-Backs and Recalls.
|
(2)
|
Cumulative collections from inception through
June 30, 2014
, excluding collections on behalf of others.
|
(3)
|
Estimated remaining collections (“ERC”) for charged off consumer receivables includes
$120.7 million
related to accounts that converted to bankruptcy after purchase.
|
(4)
|
The collection forecast of each pool is generally estimated to be between 84 to 96 months based on the expected collection period of each pool in the United States and up to 120 months in the United Kingdom. Expected collections beyond the 84 to 96 month collection forecast in the United States are included in ERC but are not included in the calculation of IRRs.
|
(5)
|
United States data includes immaterial results from Latin America.
|
(1)
|
ERC for Zero Basis Portfolios can extend beyond our collection forecasts.
|
(2)
|
ERC for charged off consumer receivables includes
$120.7 million
related to accounts that converted to bankruptcy after purchase.
|
(3)
|
The collection forecast of each pool is generally estimated to be between 84 to 96 months based on the expected collection period of each pool in the United States and up to 120 months in the United Kingdom. Expected collections beyond the 84 to 96 month collection forecast in the United States are included in ERC but are not included in the calculation of IRRs.
|
(4)
|
United States data includes immaterial results from Latin America.
|
|
Unamortized
Balance as of June 30, 2014 |
|
Purchase
Price
(1)
|
|
Unamortized
Balance as a
Percentage of
Purchase Price
|
|
Unamortized
Balance as a
Percentage
of Total
|
||||||
Charged-off consumer receivables:
|
|
|
|
|
|
|
|
||||||
United States
(2)
:
|
|
|
|
|
|
|
|
||||||
2006
|
$
|
695
|
|
|
$
|
141,026
|
|
|
0.5
|
%
|
|
0.1
|
%
|
2007
|
3,317
|
|
|
204,064
|
|
|
1.6
|
%
|
|
0.4
|
%
|
||
2008
|
10,604
|
|
|
227,768
|
|
|
4.7
|
%
|
|
1.2
|
%
|
||
2009
|
13,046
|
|
|
253,257
|
|
|
5.2
|
%
|
|
1.4
|
%
|
||
2010
|
30,929
|
|
|
345,811
|
|
|
8.9
|
%
|
|
3.4
|
%
|
||
2011
|
73,354
|
|
|
382,554
|
|
|
19.2
|
%
|
|
8.0
|
%
|
||
2012
|
154,411
|
|
|
474,557
|
|
|
32.5
|
%
|
|
16.9
|
%
|
||
2013
|
357,956
|
|
|
543,978
|
|
|
65.8
|
%
|
|
39.2
|
%
|
||
2014
|
268,803
|
|
|
282,814
|
|
|
95.0
|
%
|
|
29.4
|
%
|
||
Subtotal
|
913,115
|
|
|
2,855,829
|
|
|
32.0
|
%
|
|
100.0
|
%
|
||
United Kingdom:
|
|
|
|
|
|
|
|
||||||
2013
|
598,966
|
|
|
620,900
|
|
|
96.5
|
%
|
|
59.7
|
%
|
||
2014
|
404,014
|
|
|
410,380
|
|
|
98.4
|
%
|
|
40.3
|
%
|
||
Subtotal
|
1,002,980
|
|
|
1,031,280
|
|
|
97.3
|
%
|
|
100.0
|
%
|
||
Purchased bankruptcy receivables:
|
|
|
|
|
|
|
|
||||||
2010
|
1,824
|
|
|
11,971
|
|
|
15.2
|
%
|
|
2.5
|
%
|
||
2011
|
31
|
|
|
1,642
|
|
|
1.9
|
%
|
|
—
|
%
|
||
2012
|
46,068
|
|
|
83,436
|
|
|
55.2
|
%
|
|
64.2
|
%
|
||
2013
|
23,967
|
|
|
39,883
|
|
|
60.1
|
%
|
|
33.3
|
%
|
||
Subtotal
|
71,890
|
|
|
136,932
|
|
|
52.5
|
%
|
|
100.0
|
%
|
||
Total
|
$
|
1,987,985
|
|
|
$
|
4,024,041
|
|
|
49.4
|
%
|
|
100.0
|
%
|
(1)
|
Purchase price refers to the cash paid to a seller to acquire a portfolio less Put-Backs, Recalls, and other adjustments.
|
(2)
|
United States data includes immaterial results from Latin America.
|
Years Ending December 31,
|
Charged-off
Consumer
Receivables
United States
|
|
Charged-off
Consumer
Receivables
United Kingdom
|
|
Purchased
Bankruptcy
Receivables
|
|
Total
Amortization
|
||||||||
2014
(1)
|
$
|
123,812
|
|
|
$
|
29,078
|
|
|
$
|
15,285
|
|
|
$
|
168,175
|
|
2015
|
258,970
|
|
|
91,797
|
|
|
27,640
|
|
|
378,407
|
|
||||
2016
|
187,393
|
|
|
120,985
|
|
|
18,527
|
|
|
326,905
|
|
||||
2017
|
132,563
|
|
|
110,462
|
|
|
8,380
|
|
|
251,405
|
|
||||
2018
|
100,708
|
|
|
101,488
|
|
|
2,057
|
|
|
204,253
|
|
||||
2019
|
69,074
|
|
|
98,411
|
|
|
—
|
|
|
167,485
|
|
||||
2020
|
35,712
|
|
|
102,761
|
|
|
—
|
|
|
138,473
|
|
||||
2021
|
4,807
|
|
|
112,787
|
|
|
—
|
|
|
117,594
|
|
||||
2022
|
77
|
|
|
126,251
|
|
|
—
|
|
|
126,328
|
|
||||
2023
|
—
|
|
|
98,690
|
|
|
—
|
|
|
98,690
|
|
||||
2024
|
—
|
|
|
10,270
|
|
|
—
|
|
|
10,270
|
|
||||
Total
|
$
|
913,116
|
|
|
$
|
1,002,980
|
|
|
$
|
71,889
|
|
|
$
|
1,987,985
|
|
(1)
|
2014 amount consists of six months data from July 1, 2014 to December 31, 2014.
|
|
Headcount as of June 30,
|
||||||||||
|
2014
|
|
2013
|
||||||||
|
Domestic
|
|
International
|
|
Domestic
|
|
International
|
||||
General & Administrative
|
951
|
|
|
1,601
|
|
|
1,075
|
|
|
608
|
|
Internal Legal Account Manager
|
52
|
|
|
56
|
|
|
80
|
|
|
27
|
|
Account Manager
|
230
|
|
|
2,384
|
|
|
402
|
|
|
1,338
|
|
|
1,233
|
|
|
4,041
|
|
|
1,557
|
|
|
1,973
|
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||
|
2014
|
|
2013
|
|
2014
|
|
2013
|
||||||||
United States
(1)
:
|
|
|
|
|
|
|
|
||||||||
Gross collections—collection sites
|
$
|
130,788
|
|
|
$
|
116,853
|
|
|
$
|
267,313
|
|
|
$
|
243,415
|
|
Average active Account Manager
|
1,586
|
|
|
1,583
|
|
|
1,627
|
|
|
1,584
|
|
||||
Collections per average active Account Manager
|
$
|
82.5
|
|
|
$
|
73.8
|
|
|
$
|
164.3
|
|
|
$
|
153.7
|
|
United Kingdom:
|
|
|
|
|
|
|
|
||||||||
Gross collections—collection sites
|
$
|
54,716
|
|
|
$
|
—
|
|
|
$
|
100,577
|
|
|
$
|
—
|
|
Average active Account Manager
|
542
|
|
|
—
|
|
|
478
|
|
|
—
|
|
||||
Collections per average active Account Manager
|
$
|
101.0
|
|
|
$
|
—
|
|
|
$
|
210.4
|
|
|
$
|
—
|
|
Overall:
|
|
|
|
|
|
|
|
||||||||
Collections per average active Account Manager
|
$
|
87.2
|
|
|
$
|
73.8
|
|
|
$
|
174.8
|
|
|
$
|
153.7
|
|
(1)
|
United States represents account manager statistics for United States portfolios and includes collection statistics for our India and Costa Rica call centers.
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||
|
2014
|
|
2013
|
|
2014
|
|
2013
|
||||||||
United States
(1)
:
|
|
|
|
|
|
|
|
||||||||
Gross collections—collection sites
|
$
|
130,788
|
|
|
$
|
116,853
|
|
|
$
|
267,313
|
|
|
$
|
243,415
|
|
Total hours paid
|
776
|
|
|
719
|
|
|
1,518
|
|
|
1,447
|
|
||||
Collections per hour paid
|
$
|
168.5
|
|
|
$
|
162.5
|
|
|
$
|
176.1
|
|
|
$
|
168.2
|
|
United Kingdom
:
|
|
|
|
|
|
|
|
||||||||
Gross collections—collection sites
|
$
|
54,716
|
|
|
$
|
—
|
|
|
$
|
100,577
|
|
|
$
|
—
|
|
Total hours paid
|
149
|
|
|
—
|
|
|
266
|
|
|
—
|
|
||||
Collections per hour paid
|
$
|
367.2
|
|
|
$
|
—
|
|
|
$
|
378.1
|
|
|
$
|
—
|
|
Overall:
|
|
|
|
|
|
|
|
||||||||
Collections per hour paid
|
$
|
200.5
|
|
|
$
|
162.5
|
|
|
$
|
206.2
|
|
|
$
|
168.2
|
|
(1)
|
United States represents account manager statistics for United States portfolios and includes collection statistics for our India and Costa Rica call centers.
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||
|
2014
|
|
2013
|
|
2014
|
|
2013
|
||||||||
United States
(1)
:
|
|
|
|
|
|
|
|
||||||||
Gross collections—collection sites
|
$
|
130,788
|
|
|
$
|
116,853
|
|
|
$
|
267,313
|
|
|
$
|
243,415
|
|
Direct cost
(2)
|
$
|
8,330
|
|
|
$
|
7,173
|
|
|
$
|
16,740
|
|
|
$
|
14,416
|
|
Cost per dollar collected
(3)
|
6.4
|
%
|
|
6.1
|
%
|
|
6.3
|
%
|
|
5.9
|
%
|
||||
United Kingdom
:
|
|
|
|
|
|
|
|
||||||||
Gross collections—collection sites
|
$
|
54,716
|
|
|
$
|
—
|
|
|
$
|
100,577
|
|
|
$
|
—
|
|
Direct cost
(2)
|
$
|
3,773
|
|
|
$
|
—
|
|
|
$
|
6,496
|
|
|
$
|
—
|
|
Cost per dollar collected
|
6.9
|
%
|
|
—
|
|
|
6.5
|
%
|
|
—
|
|
||||
Overall:
|
|
|
|
|
|
|
|
||||||||
Cost per dollar collected
|
6.5
|
%
|
|
6.1
|
%
|
|
6.3
|
%
|
|
5.9
|
%
|
(1)
|
United States statistics include gross collections and direct costs for our India and Costa Rica call centers.
|
(2)
|
Represent account managers and their supervisors’ salaries, variable compensation, and employee benefits.
|
(3)
|
The increase in cost as a percentage of total collections, through our collection sites in the United States, was primarily due to the higher cost to collect attributable to our AACC subsidiary.
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||
|
2014
|
|
2013
|
|
2014
|
|
2013
|
||||||||
Portfolio purchasing and recovery activities
|
|
|
|
|
|
|
|
||||||||
Collection site salaries and employee benefits
(1)
|
$
|
12,918
|
|
|
$
|
7,173
|
|
|
$
|
24,915
|
|
|
$
|
14,416
|
|
Non-collection site salaries and employee benefits
(2)
|
44,565
|
|
|
22,182
|
|
|
84,131
|
|
|
39,352
|
|
||||
Subtotal
|
57,483
|
|
|
29,355
|
|
|
109,046
|
|
|
53,768
|
|
||||
Non portfolio purchasing and recovery
|
2,157
|
|
|
1,435
|
|
|
3,895
|
|
|
2,853
|
|
||||
|
$
|
59,640
|
|
|
$
|
30,790
|
|
|
$
|
112,941
|
|
|
$
|
56,621
|
|
(1)
|
Represent account managers and their supervisors’ salaries, variable compensation, and employee benefits.
|
(2)
|
Includes internal legal channel salaries and employee benefits of
$6.0 million
and
$3.3 million
for the three months ended June 30, 2014 and 2013, respectively, and
$11.8 million
and
$6.1 million
for the six months ended June 30, 2014 and 2013, respectively.
|
Quarter
|
# of
Accounts
|
|
Face Value
|
|
Purchase
Price
|
|||||
Q1 2012
|
2,132
|
|
|
$
|
2,902,409
|
|
|
$
|
130,463
|
|
Q2 2012
|
3,679
|
|
|
6,034,499
|
|
|
230,983
|
|
||
Q3 2012
|
1,037
|
|
|
1,052,191
|
|
|
47,311
|
|
||
Q4 2012
|
3,125
|
|
|
8,467,400
|
|
|
153,578
|
|
||
Q1 2013
|
1,678
|
|
|
1,615,214
|
|
|
58,771
|
|
||
Q2 2013
(1)
|
23,887
|
|
|
68,906,743
|
|
|
423,113
|
|
||
Q3 2013
(2)
|
4,232
|
|
|
13,437,807
|
|
|
617,852
|
|
||
Q4 2013
|
614
|
|
|
1,032,472
|
|
|
105,043
|
|
||
Q1 2014
(3)
|
1,104
|
|
|
4,288,159
|
|
|
467,565
|
|
||
Q2 2014
|
1,210
|
|
|
3,075,343
|
|
|
225,762
|
|
(1)
|
Includes $383.4 million of portfolios acquired with a face value of approximately $68.2 billion in connection with the AACC Merger.
|
(2)
|
Includes $559.0 million of portfolios acquired with a face value of approximately $12.8 billion in connection with the Cabot Acquisition.
|
(3)
|
Includes
$208.5 million
of portfolios acquired with a face value of approximately $2.4 billion in connection with the Marlin Acquisition.
|
|
Six Months Ended
June 30, |
||||||
|
2014
|
|
2013
|
||||
Net cash provided by operating activities
|
$
|
37,597
|
|
|
$
|
11,251
|
|
Net cash used in investing activities
|
(493,943
|
)
|
|
(202,723
|
)
|
||
Net cash provided by financing activities
|
457,842
|
|
|
396,133
|
|
Period
|
Total Number of Shares Purchased
|
|
Average
Price Paid
Per Share
|
|
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
(1)
|
|
Maximum Number
of Shares (or
Approximate Dollar
Value) That May
Yet Be Purchased
Under the Publicly
Announced Plans
or Programs
|
||||||
April 1, 2014 to April 30, 2014
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
May 1, 2014 to May 31, 2014
|
400,000
|
|
|
42.04
|
|
|
400,000
|
|
|
33,178,915
|
|
||
June 1, 2014 to June 30, 2014
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||
Total
|
400,000
|
|
|
$
|
42.04
|
|
|
400,000
|
|
|
$
|
33,178,915
|
|
(1)
|
On April 24, 2014, we publicly announced that our Board of Directors had authorized a stock repurchase program for the Company to purchase $50.0 million of our Company’s common stock. This column discloses the number of shares purchased pursuant to the program during the indicated time periods.
|
2.1
|
|
Stock Purchase Agreement, dated August 1, 2014, by and among Encore Capital Group, Inc., the sellers party thereto, Atlantic Credit & Finance, Inc. and Richard Woolwine as the sellers’ representative (filed herewith)
|
|
|
|
4.1
|
|
First Supplemental Indenture, dated March 14, 2014, by and among Cabot Financial (Luxembourg) S.A., Cabot Financial Limited, Cabot Credit Management Limited, as guarantor, and Citibank, N.A., London Branch, as trustee (filed herewith)
|
|
|
|
4.2
|
|
Third Supplemental Indenture, dated May 19, 2014, by and among Cabot Financial (Luxembourg) S.A., Cabot Financial Limited, Citibank, N.A., London Branch, as trustee, and the guarantors party thereto (incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K filed on May 20, 2014)
|
|
|
|
4.3
|
|
Second Supplemental Indenture, dated May 19, 2014, by and among Cabot Financial (Luxembourg) S.A., Cabot Financial Limited, Citibank, N.A., London Branch, as trustee, and the guarantors party thereto (incorporated by reference to Exhibit 4.2 of the Company’s Current Report on Form 8-K filed on May 20, 2014)
|
|
|
|
4.4
|
|
Third Supplemental Indenture, dated May 19, 2014, by and among Marlin Intermediate Holdings plc, Cabot Financial Limited, The Bank of New York Mellon, London Branch, as trustee, and the guarantors party thereto (incorporated by reference to Exhibit 4.3 of the Company’s Current Report on Form 8-K filed on May 20, 2014)
|
|
|
|
10.1
|
|
Amendment No. 1 to Second Amended and Restated Credit Agreement, dated August 1, 2014, by and among Encore Capital Group, Inc., the several banks and other financial institutions and lenders from time to time party thereto and listed on the signature pages thereof, and SunTrust Bank, as administrative agent and collateral agent (filed herewith)
|
|
|
|
10.2
|
|
Amendment No. 3, dated August 1, 2014, to Second Amended and Restated Senior Secured Note Purchase Agreement, dated May 9, 2013, by and between Encore Capital Group, Inc., The Prudential Insurance Company of America, Pruco Life Insurance Company, Prudential Retirement Insurance and Annuity Company and Prudential Annuities Life Assurance Corporations (filed herewith)
|
|
|
|
31.1
|
|
Certification of the Principal Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
|
|
|
|
31.2
|
|
Certification of the Principal Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
|
|
|
|
32.1
|
|
Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)
|
|
|
|
101
|
|
The following financial information from the Encore Capital Group, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 2014 formatted in eXtensible Business Reporting Language (XBRL): (i) Condensed Consolidated Statements of Financial Condition; (ii) Condensed Consolidated Statements of Income; (iii) Condensed Consolidated Statements of Comprehensive Income; (iv) Condensed Consolidated Statements of Cash Flows; and (v) the Notes to Condensed Consolidated Financial Statements
|
|
ENCORE CAPITAL GROUP, INC.
|
||
|
|
|
|
|
By:
|
|
/s/ Paul Grinberg
|
|
|
|
Paul Grinberg
|
|
|
|
Executive Vice President,
|
|
|
|
Chief Financial Officer and Treasurer
|
|
|
Page
|
ARTICLE 1
|
DEFINITIONS
|
2
|
ARTICLE 2
|
PURCHASE AND SALE OF THE SHARES
|
9
|
2.1
|
Purchase and Sale of the Shares
|
9
|
2.2
|
Purchase Price
|
9
|
2.3
|
Pre-Closing Deliverables
|
9
|
2.4
|
The Closing
|
10
|
2.5
|
Locked Box Provisions
|
14
|
ARTICLE 3
|
REPRESENTATIONS AND WARRANTIES OF THE SELLERS WITH RESPECT TO THE ACQUIRED COMPANIES
|
16
|
3.1
|
Organization
|
16
|
3.2
|
Qualification; Due Execution; Power and Authority
|
16
|
3.3
|
Company Records / Authority
|
17
|
3.4
|
Non-contravention
|
17
|
3.5
|
Capitalization
|
17
|
3.6
|
Financial Statements
|
19
|
3.7
|
Recent Events
|
20
|
3.8
|
Contracts
|
22
|
3.9
|
Title to and Condition of Assets and Properties
|
24
|
3.10
|
Receivables; Collections of Receivables
|
25
|
3.11
|
Intellectual Property
|
27
|
3.12
|
Employees
|
28
|
3.13
|
Employee Benefits
|
29
|
3.14
|
Legal Compliance; Permits
|
31
|
3.15
|
Litigation
|
33
|
3.16
|
Taxes
|
33
|
3.17
|
Insurance
|
36
|
3.18
|
Illegal or Improper Payments
|
36
|
3.19
|
Related Party Transactions
|
37
|
3.20
|
Brokers’ Fees
|
37
|
3.21
|
Disclosure
|
37
|
|
|
Page
|
ARTICLE 4
|
REPRESENTATIONS AND WARRANTIES OF THE SELLERS WITH RESPECT TO THEMSELVES
|
37
|
4.1
|
Organization
|
37
|
4.2
|
Authorization of Transaction
|
37
|
4.3
|
Due Execution; Enforceability
|
38
|
4.4
|
Non-contravention
|
38
|
4.5
|
Governmental Consent
|
38
|
4.6
|
Litigation
|
38
|
4.7
|
Title to Securities
|
38
|
4.8
|
Interest in Purchase Price
|
39
|
4.9
|
Brokers’ Fees
|
39
|
|
|
|
ARTICLE 5
|
REPRESENTATIONS AND WARRANTIES OF ENCORE
|
39
|
5.1
|
Organization; Power and Authority
|
39
|
5.2
|
Authorization of Transaction
|
39
|
5.3
|
Due Execution; Enforceability
|
39
|
5.4
|
Non-contravention
|
39
|
5.5
|
Governmental Consent
|
40
|
5.6
|
Brokers’ Fees
|
40
|
ARTICLE 6
|
PRE-CLOSING COVENANTS
|
40
|
6.1
|
Conduct of Business Pending Closing
|
40
|
6.2
|
Information
|
42
|
6.3
|
Exclusivity
|
43
|
6.4
|
Notification of Certain Matters
|
43
|
6.5
|
Hiring of JPF Employees
|
44
|
6.6
|
Roanoke Call Center
|
44
|
6.7
|
Cause Conditions to be Satisfied; Further Assurances
|
44
|
ARTICLE 7
|
CONDITIONS PRECEDENT
|
45
|
7.1
|
Conditions Precedent to Obligations of Encore
|
45
|
7.2
|
Conditions Precedent To Obligations of the Sellers and the Company
|
46
|
ARTICLE 8
|
TERMINATION
|
47
|
8.1
|
Conditions Precedent to Obligations of Encore
|
47
|
8.2
|
Conditions Precedent To Obligations of the Sellers and the Company
|
48
|
|
|
Page
|
ARTICLE 9
|
POST-CLOSING COVENANTS
|
48
|
9.1
|
Cooperation in Litigation
|
48
|
9.2
|
Non-Competition, Non-Solicitation and Confidentiality
|
48
|
9.3
|
Confidential Information
|
50
|
9.4
|
Releases
|
51
|
9.5
|
Further Assurances
|
52
|
ARTICLE 10
|
INDEMNIFICATION
|
52
|
10.1
|
Risk Allocation
|
52
|
10.2
|
Survival
|
52
|
10.3
|
Indemnification by the Sellers
|
53
|
10.4
|
Indemnification by Encore
|
54
|
10.5
|
Matters Involving Third Parties
|
54
|
10.6
|
Limitations on Liability
|
56
|
10.7
|
Procedures for Assertion of Claims
|
57
|
10.8
|
Recourse to Escrow Amount
|
57
|
10.9
|
Exclusive Remedy
|
58
|
ARTICLE 11
|
TAX MATTERS
|
58
|
11.1
|
Preparation of Tax Returns
|
58
|
11.2
|
Straddle Period Allocation
|
59
|
11.3
|
Transfer Taxes
|
59
|
11.4
|
Cooperation on Tax Matters
|
59
|
11.5
|
Conflict
|
59
|
11.6
|
Survival; Exclusivity
|
59
|
11.7
|
Tax Treatment of Indemnity Payments
|
60
|
11.8
|
Termination of Tax Sharing Agreements
|
60
|
ARTICLE 12
|
SELLERS’ REPRESENTATIVE
|
60
|
12.1
|
Appointment and Powers
|
60
|
12.2
|
Reliance
|
61
|
12.3
|
Professionals; Limitation of Liability
|
62
|
12.4
|
Reimbursement of Expenses; Indemnity for Losses
|
62
|
|
|
Page
|
ARTICLE 13
|
MISCELLANEOUS
|
62
|
13.1
|
Public Disclosure
|
62
|
13.2
|
No Third-Party Beneficiaries
|
62
|
13.3
|
Entire Agreement
|
62
|
13.4
|
Succession and Assignment
|
63
|
13.5
|
Notices
|
63
|
13.6
|
Headings
|
64
|
13.7
|
Governing Law
|
64
|
13.8
|
Forum; Waiver of Jury Trial
|
64
|
13.9
|
Amendments and Waivers
|
65
|
13.10
|
Severability
|
66
|
13.11
|
Expenses
|
66
|
13.12
|
Construction
|
66
|
13.13
|
Incorporation of Exhibits and Schedules
|
66
|
13.14
|
Number and Gender
|
66
|
13.15
|
Remedies
|
66
|
13.16
|
Offset Permitted
|
67
|
13.17
|
Directly or Indirectly
|
67
|
13.18
|
Including
|
67
|
13.19
|
Non-Business Days
|
67
|
13.20
|
Counterparts
|
67
|
Disclosure Schedule
|
|
|
|
Exhibits
:
|
|
|
|
Exhibit A
|
Form of Escrow Agreement
|
Exhibit B
|
Form of Release Agreement
|
Exhibit C
|
Form of Transition Services Agreement
|
Exhibit D
|
Form of Amendment to Account Servicing Agreement
|
Exhibit E-1
|
Receivable File
|
Exhibit E-2
|
Receivable File Data Elements
|
Exhibit E-3
|
Chain of Title File
|
Term
|
Section Reference
|
Acquired Company / Acquired Companies
|
Recitals
|
Agreement
|
Preamble
|
Annual Financial Statements
|
3.8(a)(i)
|
ACF Medical
|
Recitals
|
Acquisition Transaction
|
6.3(a)
|
Book 3 Lender
|
2.3(c)
|
Book 3 Residual Payment
|
2.3(c)
|
Term
|
Section Reference
|
Business
|
Recitals
|
Cap
|
10.6(b)
|
Chain of Title File
|
3.10(b)
|
Claim Certificate
|
10.7(a)
|
Claimant
|
10.7(a)
|
Class B Shares
|
Recitals
|
Closing
|
2.4(a)
|
Closing Cash Payment
|
2.4(c)(iv)(D)
|
Closing Date
|
2.4(a)
|
Common Shares
|
Recitals
|
Company Employee Benefit Plans
|
3.13(a)
|
Confidential Information
|
9.3
|
Current Financial Statements
|
3.6(a)
|
Databases
|
3.11(e)
|
Debt Repayment
|
2.4(c)(i)
|
Derivative Securities
|
3.5(a)
|
Disclosure Schedule
|
Article 3
|
Employee Offer Letters
|
6.5
|
Employee Offerees
|
6.5
|
Encore
|
Preamble
|
Encore Indemnitees
|
10.3
|
Escrow Agent
|
2.4(b)(ii)
|
Escrow Agreement
|
2.4(b)(ii)
|
Escrow Amount
|
2.4(c)(iv)(A)
|
Financial Statements
|
3.6(a)
|
Fundamental Representations
|
10.2(a)
|
Indemnified Party
|
10.5(a)
|
Indemnifying Party
|
10.5(a)
|
JPF
|
3.9(c)
|
Latest Balance Sheet
|
3.6(a)
|
Latest Balance Sheet Date
|
3.6(a)
|
Leased Real Property
|
3.9(b)
|
NCEP Payment
|
2.4(c)(ii)
|
Owned Personal Property
|
3.9(c)
|
Original Creditor
|
3.10(b)(i)
|
Party / Parties
|
Preamble
|
Payoff Letters
|
2.3(a)
|
Personally Identifiable Information
|
3.11(e)
|
Post-Closing Tax Period
|
11.1(a)
|
Pre-Closing Tax Period
|
11.1(a)
|
Previous Seller
|
3.10(b)(ii)
|
Term
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Section Reference
|
Purchase Price
|
2.2
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Real Property Leases
|
3.8(b)(ii)
|
Receivable File
|
3.10(b)
|
Required Data
|
3.10(b)(iii)
|
Respondent
|
10.7(a)
|
Restricted Person
|
9.2(a)(ii)
|
Roanoke Assets
|
7.1(g)
|
Roanoke Call Center
|
6.6
|
Roanoke Sublease
|
3.9(b)
|
Seller / Sellers
|
Preamble
|
Seller Indemnitees
|
10.4
|
Sellers’ Representative
|
12.1
|
SFU
|
Recitals
|
SFU III
|
Recitals
|
Shares
|
Recitals
|
SR Reserve Account
|
2.4(c)(iv)(C
|
SR Reserve Amount
|
2.4(c)(iv)(C
|
Statement
|
11.1(a)
|
Straddle Period
|
11.1(a)
|
Termination Date
|
8.1(b)
|
Threshold Amount
|
10.6(a)(i)
|
Virginia Credit
|
Recitals
|
|
ENCORE
:
ENCORE CAPITAL GROUP, INC.
By:
/s/ Paul Grinberg
Name: Paul Grinberg
Title: EVP and CFO
|
|
THE COMPANY
:
ATLANTIC CREDIT & FINANCE, INC.
By:
/s/ Richard E. Woolwine
Name: Richard E. Woolwine
Title: CEO
|
|
THE SELLERS’ REPRESENTATIVE
:
/s/ Richard E. Woolwine
Name: Richard E. Woolwine
Title: CEO
|
|
The Sellers
|
|
RICHARD E. WOOLWINE, III, TRUSTEE OF THE RICHARD E. WOOLWINE, III REVOCABLE TRUST U/A/D 7/7/2009
By:
/s/ Richard E. Woolwine, III
Name: Richard E. Woolwine, III
Title: Trustee
|
|
KELLY S. WOOLWINE, TRUSTEE OF THE KELLY S. WOOLWINE REVOCABLE TRUST U/A/D 10/18/2010
By:
/s/ Kelly S. Woolwine
Name: Kelly S. Woolwine
Title: Trustee
|
|
/s/ Steven J. Woolwine
Steven J. Woolwine
|
|
/s/ Daryl L. Deke
Daryl L. Deke
|
|
/s/ Christopher W. Hanson
Christopher W. Hanson
|
|
/s/ Kevin D. Hudson
Kevin D. Hudson
|
|
/s/ Jaideep Ganguly
Jaideep Ganguly
|
|
|
|
|
|
Page
|
Section 1.
|
Capitalized Terms
|
1
|
Section 2.
|
Agreement to Guarantee
|
1
|
Section 3.
|
Ratification and Effect
|
2
|
Section 4.
|
Governing Law
|
2
|
Section 5.
|
Agent for Service; Submission to Jurisdiction; Waiver of Immunities
|
2
|
Section 6.
|
Counterpart Originals
|
2
|
Section 7.
|
The Trustee
|
2
|
Section 8.
|
Effect of Headings
|
3
|
Section 9.
|
Conflicts
|
3
|
Section 10.
|
Counterparts
|
3
|
Section 11.
|
Successors
|
3
|
|
|
|
Section 1.
|
Capitalized Terms.
|
|
|
|
Section 7.
|
The Trustee.
|
|
|
|
Section 8.
|
Effect of Headings.
|
Section 9.
|
Conflicts.
|
Section 10.
|
Counterparts.
|
Section 11.
|
Successors.
|
|
|
|
|
|
|
|
|
|
|
|
|
Name of the Company
|
Registered Seat
|
Company Number
|
MARLIN FINANCIAL GROUP LIMITED
|
Marlin House
16-22 Grafton Road Worthing West Sussex BN11 1QP United Kingdom |
7,195,881
|
MARLIN FINANCIAL INTERMEDIATE LIMITED
|
Marlin House
16-22 Grafton Road Worthing West Sussex BN11 1QP United Kingdom |
7,196,379
|
MARLIN FINANCIAL INTERMEDIATE II LIMITED
|
Marlin House
16-22 Grafton Road Worthing West Sussex BN11 1QP United Kingdom |
8346249
|
MARLIN MIDWAY LIMITED
|
Marlin House
16-22 Grafton Road Worthing West Sussex BN11 1QP United Kingdom |
8255990
|
BLACK TIP CAPITAL HOLDINGS LIMITED
|
Marlin House
16-22 Grafton Road Worthing West Sussex BN11 1QP United Kingdom |
5927496
|
MARLIN SENIOR HOLDINGS LIMITED
|
Marlin House
16-22 Grafton Road Worthing West Sussex BN11 1QP United Kingdom |
8215555
|
MARLIN PORTFOLIO HOLDINGS LIMITED
|
Marlin House
16-22 Grafton Road Worthing West Sussex BN11 1QP United Kingdom |
8,215,352
|
MARLIN FINANCIAL SERVICES LIMITED
|
Marlin House
16-22 Grafton Road Worthing West Sussex BN11 1QP United Kingdom |
4,618,038
|
|
|
|
MARLIN LEGAL SERVICES LIMITED
|
Marlin House
16-22 Grafton Road Worthing West Sussex BN11 1QP United Kingdom |
6,200,270
|
MARLIN CAPITAL EUROPE LIMITED
|
Marlin House
16-22 Grafton Road Worthing West Sussex BN11 1QP United Kingdom |
4,623,224
|
MCE PORTFOLIO LIMITED
|
Marlin House
16-22 Grafton Road Worthing West Sussex BN11 1QP United Kingdom |
5892466
|
MFS PORTFOLIO LIMITED
|
Marlin House
16-22 Grafton Road Worthing West Sussex BN11 1QP United Kingdom |
5477405
|
MARLIN EUROPE I LIMITED
|
Marlin House
16-22 Grafton Road Worthing West Sussex BN11 1QP United Kingdom |
5948653
|
MARLIN EUROPE II LIMITED
|
Marlin House
16-22 Grafton Road Worthing West Sussex BN11 1QP United Kingdom |
6145019
|
ME III LIMITED
|
Marlin House
16-22 Grafton Road Worthing West Sussex BN11 1QP United Kingdom |
7255614
|
ME IV LIMITED
|
Marlin House
16-22 Grafton Road Worthing West Sussex BN11 1QP United Kingdom |
7256706
|
|
2
|
|
MIDLAND CREDIT MANAGEMENT, INC.
By:
_/s/ Paul Grinberg___ ____
Name: Paul Grinberg
Title: Chief Executive Officer, and Treasurer |
PROPEL ACQUISITION LLC
By:
_/s/ Paul Grinberg___ ____
Name: Paul Grinberg
Title: Treasurer |
MIDLAND PORTFOLIO SERVICES, INC.
By:
_/s/ Paul Grinberg___ ____
Name: Paul Grinberg
Title: Treasurer |
MIDLAND FUNDING LLC
By:
_/s/ Paul Grinberg___ ____
Name: Paul Grinberg
Title: Treasurer |
MIDLAND INDIA LLC
By:
_/s/ Paul Grinberg___ ____
Name: Paul Grinberg
Title: Treasurer |
MIDLAND INTERNATIONAL LLC
By:
_/s/ Paul Grinberg___ ____
Name: Paul Grinberg
Title: Treasurer |
MIDLAND FUNDING NCC-2 CORPORATION
By:
_/s/ Paul Grinberg___ ____
Name: Paul Grinberg
Title: Treasurer |
MRC RECEIVABLES CORPORATION
By:
_/s/ Paul Grinberg___ ____
Name: Paul Grinberg
Title: Treasurer |
PROPEL FUNDING LLC
By:
_/s/ Paul Grinberg___ ____
Name: Paul Grinberg
Title: Treasurer |
ASSET ACCEPTANCE CAPITAL CORP.
By:
_/s/ Paul Grinberg___ ____
Name: Paul Grinberg
Title: Executive Vice President, Chief Financial Officer and Treasurer |
ASSET ACCEPTANCE RECOVERY SERVICES, LLC
By: ASSET ACCEPTANCE CAPITAL CORP., its Sole Manager
_/s/ Paul Grinberg___ ____
Name: Paul Grinberg
Title: Executive Vice President, Chief Financial Officer and Treasurer |
ASSET ACCEPTANCE SOLUTIONS GROUP, LLC
By: ASSET ACCEPTANCE CAPITAL CORP., its Sole Manager
_/s/ Paul Grinberg___ ____
Name: Paul Grinberg
Title: Executive Vice President, Chief Financial Officer and Treasurer |
ASSET ACCEPTANCE, LLC
By: ASSET ACCEPTANCE CAPITAL CORP., its Sole Manager
_/s/ Paul Grinberg___ ____
Name: Paul Grinberg
Title: Executive Vice President, Chief Financial Officer and Treasurer |
LEGAL RECOVERY SOLUTIONS, LLC
By: ASSET ACCEPTANCE CAPITAL CORP., its Sole Manager
_/s/ Paul Grinberg___ ____
Name: Paul Grinberg
Title: Executive Vice President, Chief Financial Officer and Treasurer |
1.
|
I have reviewed this Quarterly Report on Form 10-Q of Encore Capital Group, Inc.;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a.
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b.
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c.
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d.
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons fulfilling the equivalent functions):
|
a.
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
b.
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
By:
|
|
/
S
/ K
ENNETH
A. V
ECCHIONE
|
|
|
Kenneth A. Vecchione
President and Chief Executive Officer
|
1.
|
I have reviewed this Quarterly Report on Form 10-Q of Encore Capital Group, Inc.;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a.
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b.
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c.
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d.
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons fulfilling the equivalent functions):
|
a.
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
b.
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
By:
|
|
/
S
/ PAUL GRINBERG
|
|
|
Paul Grinberg
Executive Vice President, Chief Financial Officer and Treasurer
|
(1)
|
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
|
(2)
|
The information contained in the Report fairly presents, in all material respects, the consolidated financial condition and results of operations of the Company.
|
|
|
/s/ K
ENNETH
A. V
ECCHIONE
|
|
Kenneth A. Vecchione
|
|
President and Chief Executive Officer
|
|
|
|
/s/ P
AUL
G
RINBERG
|
|
Paul Grinberg
|
|
Executive Vice President,
Chief Financial Officer and Treasurer
|
|