| UNITED STATES | |
|---|---|
| SECURITIES AND EXCHANGE COMMISSION | |
| WASHINGTON, D.C. 20549 | |
| | |
| FORM 10-Q | |
| [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) | |
| OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the quarter ended June 30, 2002 | |
| OR | |
| [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE | |
| SECURITIES EXCHANGE ACT OF 1934 | |
| For the transition period from to . | |
| COMMISSION FILE NUMBER: 000-26489 | |
| ENCORE CAPITAL GROUP, INC. | |
| (Exact name of registrant as specified in its charter) | |
| Delaware | 48-1090909 |
| (State or other jurisdiction of | (IRS Employer |
| incorporation or organization) | Identification No.) |
| 5775 Roscoe Court | |
| San Diego, California | 92123 |
| (Address of principal executive offices) | (Zip code) |
| (877) 445 - 4581 | |
| (Registrant's telephone number, including area code) | |
| MCM Capital Group, Inc. | |
| (Former name, former address and former fiscal year, | |
| if changed since last report) | |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the last 90 days.
| Yes [X] | No [ ] |
There were 7,411,132 shares of common stock outstanding as of August 13, 2002.
| Page | |||||
| PART I. FINANCIAL INFORMATION | 2 | ||||
| Item 1. Financial Statements | 2 | ||||
| Condensed Consolidated Statements of Financial Condition | 2 | ||||
| Condensed Consolidated Statements of Operations | 3 | ||||
| Condensed Consolidated Statements of Cash Flows | 4 | ||||
| Condensed Consolidated Statement of Stockholders' Equity (Deficit) | 6 | ||||
| Notes to Condensed Consolidated Financial Statements | 7 | ||||
| Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 20 | ||||
| PART II — OTHER INFORMATION | 27 | ||||
| Item 1 – Legal Proceedings | 29 | ||||
| Item 2 – Changes in Securities and Use of Proceeds | 30 | ||||
| Item 3 – Defaults Upon Senior Securities | 30 | ||||
| Item 4 – Submission of Matters to a Vote of Security Holders | 30 | ||||
| Item 5 – Other Information | 30 | ||||
| Item 6 – Exhibits and Reports on Form 8-K | 30 | ||||
| SIGNATURES | 31 | ||||
1
| December 31, | June 30, | ||||
|---|---|---|---|---|---|
| 2001 (A) |
2002 | ||||
| (Unaudited) | |||||
| Assets | |||||
| Cash | $ 1,412 | $ 1,289 | |||
| Restricted cash | 3,053 | 4,225 | |||
| Investment in receivable portfolios, net (Note 5) | 47,001 | 48,836 | |||
| Retained interest in securitized receivables (Note 6) | 17,926 | 11,085 | |||
| Property and equipment, net (Note 7) | 5,244 | 4,373 | |||
| Other assets, net | 3,075 |
3,998 |
|||
| Total assets | $ 77,711 |
$ 73,806 |
|||
| Liabilities and Stockholders' Equity (Deficit) | |||||
| Accounts payable and accrued liabilities | $ 7,240 | $ 7,681 | |||
| Accrued profit sharing arrangement (Note 8) | 2,378 | 6,849 | |||
| Notes payable and other borrowings (Notes 5 and 8) | 69,215 | 51,351 | |||
| Capital lease obligations | 1,236 |
730 |
|||
| Total liabilities | 80,069 |
66,611 |
|||
| Commitments and Contingencies (Note 11) | |||||
| Stockholders' equity (deficit) (Notes 2 and 3) | |||||
| Preferred stock, $0.01 par value, 5,000,000 shares authorized, | |||||
| zero shares and 1,000,000 shares issued and | |||||
| outstanding at December 31, 2001 and June 30, 2002, | |||||
| respectively | – | 10 | |||
| Common stock, $0.01 par value, 50,000,000 shares authorized, | |||||
| and 7,161,132 shares and 7,411,132 shares issued and outstanding at | |||||
| December 31, 2001 and June 30, 2002, respectively | 72 | 74 | |||
| Additional paid in capital | 22,111 | 31,431 | |||
| Accumulated deficit | (25,737 | ) | (24,996 | ) | |
| Accumulated other comprehensive income | 1,196 |
676 |
|||
| Total stockholders' equity (deficit) | (2,358 |
) | 7,195 |
||
| Total liabilities and stockholders' equity (deficit) | $ 77,711 |
$ 73,806 |
|||
(A)
Derived from the audited consolidated financial statements as of December 31,
2001.
See accompanying notes to condensed consolidated financial statements
2
| Three Months Ended | Six Months Ended | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| June 30, | June 30, | ||||||||
| 2001 | 2002 | 2001 | 2002 | ||||||
| (In thousands, except per share amounts) | |||||||||
| (Unaudited) | |||||||||
| Revenues | |||||||||
| Income from portfolio receivables | $ 6,755 | $ 17,985 | $ 10,538 | $ 33,232 | |||||
| Income from retained interest (Note 6) | 2,570 | 1,419 | 5,307 | 3,218 | |||||
| Servicing fees and related income (Note 11) | 1,116 | 725 | 3,273 | 1,875 | |||||
| Total revenues | 10,441 | 20,129 | 19,118 | 38,325 | |||||
| Operating expenses | |||||||||
| Salaries and employee benefits | 7,041 | 8,934 | 13,383 | 17,202 | |||||
| Other operating expenses | 2,543 | 4,290 | 4,416 | 7,817 | |||||
| General and administrative expenses | 1,422 | 1,547 | 2,717 | 2,971 | |||||
| Depreciation and amortization | 572 | 598 | 1,142 | 1,191 | |||||
| Total operating expenses | 11,578 | 15,369 | 21,658 | 29,181 | |||||
| Income (Loss) before other income and expense and income | |||||||||
| taxes | (1,137 | ) | 4,760 | (2,540 | ) | 9,144 | |||
| Other income and expense | |||||||||
| Interest expense | (2,463 | ) | (3,990 | ) | (4,550 | ) | (8,012 | ) | |
| Other income (expense) | 54 | 66 | 82 | 157 | |||||
| Income (Loss) before income taxes | (3,546 | ) | 836 | (7,008 | ) | 1,289 | |||
| Income tax benefit (provision) | (334 | ) | (144 | ) | (615 | ) | (363 | ) | |
| Net Income (Loss) | (3,880 | ) | 692 | (7,623 | ) | 926 | |||
| Preferred Dividends (Note 3) | – | (125 | ) | – | (185 | ) | |||
| Net Income (Loss) available to common stockholders | $(3,880 | ) | $ 567 | $(7,623 | ) | $ 741 | |||
| Earnings (Loss) per share (Note 10) | |||||||||
| Basic | $ (0.54 | ) | $ 0.08 | $ (1.06 | ) | $ 0.10 | |||
| Diluted | $ (0.54 | ) | $ 0.04 | $ (1.06 | ) | $ 0.06 | |||
| Shares used for computation | |||||||||
| Basic | 7,161 | 7,367 | 7,161 | 7,265 | |||||
| Diluted | 7,161 | 17,838 | 7,161 | 14,936 | |||||
See accompanying notes to condensed consolidated financial statements
3
| Six Months Ended | |||||
|---|---|---|---|---|---|
| June 30, | |||||
| 2001 | 2002 | ||||
| (Unaudited, in thousands) | |||||
| Operating Activities | |||||
| Gross collections | $ 36,202 | $ 69,620 | |||
| Less: Amounts collected on behalf of third parties (Note 11) | (7,045 | ) | (5,835 | ) | |
| Less: Amounts applied to principal on receivable portfolios | (6,951 | ) | (21,753 | ) | |
| Less: Amounts applied to principal of Securitization 98-1 | – | (5,937 | ) | ||
| Servicing fees | 3,273 | 1,876 | |||
| Operating Expenses: | |||||
| Salaries and employee benefits | (13,567 | ) | (16,935 | ) | |
| Other operating expenses | (2,999 | ) | (3,662 | ) | |
| Collection legal expense | (1,806 | ) | (4,469 | ) | |
| General and administrative | (3,010 | ) | (3,301 | ) | |
| Interest payments | (2,429 | ) | (2,625 | ) | |
| Other income and expense | 82 | 157 | |||
| Increase in restricted cash | (296 |
) | (1,172 |
) | |
| Net cash provided by operating activities | 1,454 |
5,964 |
|||
| Investing Activities | |||||
| Proceeds from sales of receivable portfolios | 940 | – | |||
| Purchases of receivable portfolios | (18,909 | ) | (23,622 | ) | |
| Collections applied to principal of receivable portfolios | 6,951 | 21,752 | |||
| Collections applied to principal of Securitization 98-1 | – | 5,937 | |||
| Purchases of property and equipment | (299 | ) | (321 | ) | |
| Proceeds from the sale of property and equipment | 52 |
– |
|||
| Net cash (used in) provided by investing activities | (11,265 |
) | 3,746 |
||
| Financing Activities | |||||
| Proceeds from exercise of common stock warrants (Note 8) | – | 2 | |||
| Proceeds from sale of preferred stock, net (Note 3) | – | 4,590 | |||
| Proceeds from notes payable and other borrowings | 18,046 | 28,099 | |||
| Repayment of notes payable and other borrowings | (7,633 | ) | (41,864 | ) | |
| Capitalized loan costs relating to finance arrangement | (55 | ) | (154 | ) | |
| Repayment of capital lease obligations | (494 |
) | (506 |
) | |
| Net cash provided by (used in) financing activities | 9,864 |
(9,833 |
) | ||
| Net increase (decrease) in cash | 53 | (123 | ) | ||
| Cash at beginning of period | 888 |
1,412 |
|||
| Cash at end of period | $ 941 |
$ 1,289 |
|||
See accompanying notes to condensed consolidated financial statements
4
| Six Months Ended | |||||
|---|---|---|---|---|---|
| June 30, | |||||
| 2001 | 2002 | ||||
| (Unaudited, in thousands) | |||||
| Net Income (loss) | $ (7,623) | $ 926 | |||
| Adjustments to reconcile net income (loss) to net cash | |||||
| (used in) provided by operating activities: | |||||
| Depreciation and amortization | 1,142 | 1,191 | |||
| Amortization of loan costs and debt discount | 759 | 429 | |||
| Gain on sales of property and equipment | (14) | – | |||
| Deferred income tax expense | 615 | 364 | |||
| Increase in income on portfolio receivables | 5,657 | 34 | |||
| Increase in income on retained interest | 507 | 414 | |||
| Changes in operating assets and liabilities: | |||||
| Increase in restricted cash | (296) | (1,172) | |||
| Increase in other assets | (723) | (1,189) | |||
| Note payable issued in lieu of interest payment | 633 | – | |||
| Increase in accounts payable and accrued liabilities | 797 | 2,396 | |||
| Increase in profit sharing arrangement | – |
2,571 |
|||
| Net cash provided by operating activities | $ 1,454 |
$ 5,964 |
|||
See accompanying notes to condensed consolidated financial statements
5
| Accumulated | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Additional | Other | ||||||||||||||||
| Preferred Stock | Common Stock | Paid-in | Accumulated | Comprehensive | |||||||||||||
| Shares |
Par |
Shares |
Par |
Capital |
Deficit |
Income |
Total | ||||||||||
| Balance at December 31, 2001 | – | $ – | 7,161 | $ 72 | $ 22,111 | $ (25,737) | $ 1,196 | $(2,358) | |||||||||
| Net Income | – | – | – | – | – | 926 | – | 926 | |||||||||
| Other comprehensive | |||||||||||||||||
| loss - decrease in | |||||||||||||||||
| unrealized gain (Note9) | – | – | – | – | – | – | (520) | (520) |
|||||||||
| Comprehensive gain | 406 | ||||||||||||||||
| Net proceeds from | |||||||||||||||||
| issuance of preferred | |||||||||||||||||
| stock (Note 3) | 1,000 | 10 | – | – | 4,579 | – | – | 4,589 | |||||||||
| Preferred dividends (Note 3) | |||||||||||||||||