_________________
| (Mark One) |
| [X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2004
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
(Exact name of registrant as specified in its charter)
| Delaware (State or other jurisdiction of incorporation or organization) |
48-1090909 (IRS Employer Identification No.) | |||
| 5775 Roscoe Court San Diego, California (Address of principal executive offices) |
92123 (Zip code) |
(877) 445 — 4581
(Registrant’s
telephone number, including area code)
(Not Applicable)
(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 [ ]
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act) Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer’s classes of stock, as of the latest practicable date.
| Class | Outstanding at April 15, 2004 | ||
|---|---|---|---|
| Common Stock, $0.01 par value | 22,046,579 shares |
1
ENCORE CAPITAL GROUP,
INC.
Condensed Consolidated
Statements of Financial Condition
(In Thousands, Except
Par Value Amounts)
| March 31, 2004 (Unaudited) |
December 31, 2003 (A) | |||||||
|---|---|---|---|---|---|---|---|---|
| Assets | ||||||||
| Cash and cash equivalents | $ | 36,803 | $ | 38,612 | ||||
| Restricted cash | 5,367 | 842 | ||||||
| Investment in receivable portfolios, net (Notes 4, 5 and 7) | 86,208 | 89,136 | ||||||
| Investment in retained interest (Note 5) | 72 | 1,231 | ||||||
| Property and equipment, net (Note 6) | 2,844 | 2,786 | ||||||
| Deferred tax assets, net (Note 8) | 5,089 | 1,358 | ||||||
| Other assets | 4,527 | 4,320 | ||||||
| Total assets | $ | 140,910 | $ | 138,285 | ||||
| Liabilities and stockholders' equity | ||||||||
| Liabilities | ||||||||
| Accounts payable and accrued liabilities | $ | 12,735 | $ | 11,644 | ||||
| Accrued profit sharing arrangement (Note 7) | 15,586 | 12,749 | ||||||
| Income tax payable (Note 8) | 6,849 | 883 | ||||||
| Notes payable and other borrowings (Note 7) | 27,656 | 41,178 | ||||||
| Capital lease obligations (Note 10) | 394 | 460 | ||||||
| Total liabilities | 63,220 | 66,914 | ||||||
| Commitments and contingencies (Note 10) | ||||||||
| Stockholders' equity (Note 9) | ||||||||
| Preferred stock, $.01 par value, 5,000 shares | ||||||||
| authorized, and no shares issued and outstanding | – | – | ||||||
| Common stock, $.01 par value, 50,000 shares | ||||||||
| authorized, 22,044 shares and 22,003 shares | ||||||||
| issued and outstanding as of March 31, 2004 | ||||||||
| and December 31, 2003, respectively | 220 | 220 | ||||||
| Additional paid-in capital | 65,711 | 65,387 | ||||||
| Accumulated earnings | 11,674 | 5,658 | ||||||
| Accumulated other comprehensive income | 85 | 106 | ||||||
| Total stockholders' equity | 77,690 | 71,371 | ||||||
| Total liabilities and stockholders' equity | $ | 140,910 | $ | 138,285 | ||||
(A)
Derived from the audited consolidated financial statements as of December 31,
2003
See accompanying notes to condensed consolidated financial statements
2
ENCORE CAPITAL GROUP,
INC.
Condensed Consolidated
Statements of Operations
(In Thousands, Except
Per Share Amounts)
(Unaudited)
| Three Months Ended March 31, |
||||||||
|---|---|---|---|---|---|---|---|---|
| 2004 | 2003 | |||||||
| Revenues | ||||||||
| Revenue from receivable portfolios (Note 4) | $ | 42,075 | $ | 27,256 | ||||
| Revenue from retained interest (Note 5) | 16 | 128 | ||||||
| Servicing fees and other related income (Note 10) | 296 | 739 | ||||||
| Total revenues | 42,387 | 28,123 | ||||||
| Operating expenses | ||||||||
| Salaries and employee benefits | 11,624 | 9,647 | ||||||
| Other operating expenses | 4,094 | 2,377 | ||||||
| Cost of legal collections | 5,502 | 3,357 | ||||||
| General and administrative expense | 1,653 | 1,474 | ||||||
| Depreciation and amortization (Note 6) | 443 | 536 | ||||||
| Total operating expenses | 23,316 | 17,391 | ||||||
| Income before other income (expense) | ||||||||
| and income taxes | 19,071 | 10,732 | ||||||
| Other income (expense) | ||||||||
| Interest expense (Note 7) | (9,282 | ) | (4,410 | ) | ||||
| Other income (Note 3) | 155 | 7,274 | ||||||
| Total other income (expense) | (9,127 | ) | 2,864 | |||||
| Income before income taxes | 9,944 | 13,596 | ||||||
| Provision for income taxes (Note 8) | (3,928 | ) | (5,430 | ) | ||||
| Net income | 6,016 | 8,166 | ||||||
| Preferred Stock Dividends | – | (125 | ) | |||||
| Net income available to common stockholders | $ | 6,016 | $ | 8,041 | ||||
| Weighted average shares outstanding | 22,020 | 7,411 | ||||||
| Incremental shares from assumed conversion of | ||||||||
| warrants, options, and preferred stock | 1,423 | 11,270 | ||||||
| Adjusted weighted average share outstanding | 23,443 | 18,681 | ||||||
| Earnings per share - Basic | $ | 0.27 | $ | 1.09 | ||||
| Earnings per share - Diluted | $ | 0.26 | $ | 0.44 | ||||
See accompanying notes to condensed consolidated financial statements
3
ENCORE CAPITAL GROUP,
INC.
Condensed Consolidated Statement of Stockholders’ Equity
(Unaudited, In
Thousands)
| Accumulated | ||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Additional | Other | |||||||||||||||||||
| Common Stock | Paid-In | Accumulated | Comprehensive | |||||||||||||||||
| Shares | Par | Capital | Earnings | Income | Total | |||||||||||||||
| Balances at December 31, 2003 | 22,003 | $ | 220 | $ | 65,387 | $ | 5,658 | $ | 106 | $ | 71,371 | |||||||||
| Net income | – | – | – | 6,016 | – | 6,016 | ||||||||||||||
| Other comprehensive income - unrealized gain on | ||||||||||||||||||||
| non-qualified deferred compensation plan assets | – | – | – | – | 15 | 15 | ||||||||||||||
| Other comprehensive loss - decrease in unrealized gain | ||||||||||||||||||||
| on investment in retained interest, net of tax | – | – | – | – | (36 | ) | (36 | ) | ||||||||||||
| Comprehensive income | 5,995 | |||||||||||||||||||
| Exercise of stock options (Note 9) | 41 | – | 36 | – | – | 36 | ||||||||||||||
| Tax benefits related to stock option exercises | – | – | 261 | – | – | 261 | ||||||||||||||
| Amortization of stock options issued at below market | – | – | 27 | – | – | 27 | ||||||||||||||
| Balances at March 31, 2004 | 22,044 | $ | 220 | $ | 65,711 | $ | 11,674 | $ | 85 | $ | 77,690 | |||||||||
See accompanying notes to condensed consolidated financial statements
4
ENCORE CAPITAL GROUP,
INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited, In Thousands)
| Three Months Ended March 31, |
||||||||
|---|---|---|---|---|---|---|---|---|
| 2004 | 2003 | |||||||
| Operating activities | ||||||||
| Gross collections | $ | 63,996 | $ | 47,083 | ||||
| Less: | ||||||||
| Amounts collected on behalf of third parties | (962 | ) | (1,968 | ) | ||||
| Amounts applied to principal on receivable portfolios | (19,820 | ) | (15,132 | ) | ||||
| Amounts applied to principal of securitization 98-1 | (1,123 | ) | (2,598 | ) | ||||
| Servicing fees | 296 | 739 | ||||||
| Operating expenses | ||||||||
| Salaries and employee benefits | (12,705 | ) | (10,786 | ) | ||||
| Other operating expenses | (2,328 | ) | (2,887 | ) | ||||
| Cost of legal collections | (5,502 | ) | (3,357 | ) | ||||
| General and administrative | (1,583 | ) | (1,046 | ) | ||||
| Interest payments | (538 | ) | (876 | ) | ||||
| Contingent interest payments | (5,793 | ) | (3,391 | ) | ||||
| Other income and expense | 190 | 64 | ||||||
| Increase in restricted cash | (4,525 | ) | (643 | ) | ||||
| Income taxes | (1,410 | ) | (538 | ) | ||||
| Net cash provided by operating activities | 8,193 | 4,664 | ||||||
| Investing activities | ||||||||
| Purchases of receivable portfolios | (17,248 | ) | (18,803 | ) | ||||
| Collections applied to principal of receivable portfolios | 19,820 | 15,132 | ||||||
| Collections applied to principal of securitization 98-1 | 1,123 | 2,598 | ||||||
| Proceeds from put-backs of receivable portfolios | 356 | 255 | ||||||
| Purchases of property and equipment | (502 | ) | (417 | ) | ||||
| Net cash provided by (used in) investing activities | 3,549 | (1,235 | ) | |||||
| Financing activities | ||||||||
| Proceeds from notes payable and other borrowings | 6,952 | 16,922 | ||||||
| Repayment of notes payable and other borrowings | (20,474 | ) | (18,718 | ) | ||||
| Proceeds from exercise of common stock options | 36 | – | ||||||
| Payment of preferred dividend | – | (250 | ) | |||||
| Repayment of capital lease obligations | (65 | ) | (69 | ) | ||||
| Net cash used in financing activities | (13,551 | ) | (2,115 | ) | ||||
| Net increase (decrease) in cash | (1,809 | ) | 1,314 | |||||
| Cash, beginning of period | 38,612 | 752 | ||||||
| Cash, end of period | $ | 36,803 | $ | 2,066 | ||||
See accompanying notes to condensed consolidated financial statements
5
ENCORE CAPITAL
GROUP, INC.
Condensed Consolidated Statements of Cash Flows (cont.)
Reconciliation
of Net Income to Net Cash Provided by Operating Activities
(Unaudited, In Thousands)
| Three Months Ended March 31, |
||||||||
|---|---|---|---|---|---|---|---|---|
| 2004 | 2003 | |||||||
| Net income | $ | 6,016 | $ | 8,166 | ||||
| Adjustments to reconcile net income to net cash | ||||||||
| provided by operating activities: | ||||||||
| Depreciation and amortization | 443 | 536 | ||||||
| Amortization of loan costs and debt discount | 11 | 122 | ||||||
| Tax benefits from stock option exercises | 261 | – | ||||||
| Amortization of stock based compensation | 27 | – | ||||||
| &nbs | ||||||||