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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

_________________

FORM 10-Q

                                                     (Mark One)

[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 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

ENCORE CAPITAL GROUP, INC.
(Exact name of registrant as specified in its charter)

Delaware
 		48-1090909
(State or other jurisdiction of
incorporation or organization)		 (IRS Employer
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)

(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 July 15, 2004
Common Stock, $0.01 par value 22,060,939 shares

ENCORE CAPITAL GROUP, INC.
INDEX TO FORM 10-Q

Page
PART I - FINANCIAL INFORMATION 2 
Item 1 - Consolidated Financial Statements 2 
Unaudited Condensed Consolidated Statements of Financial Condition 2 
Unaudited Condensed Consolidated Statements of Operations 3 
Unaudited Condensed Consolidated Statement of Stockholders' Equity 4 
Unaudited Condensed Consolidated Statements of Cash Flows 5 
Notes to Unaudited Condensed Consolidated Financial Statements 7 
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 25 
Item 3 - Quantitative and Qualitative Disclosures about Market Risk 53 
Item 4 - Controls and Procedures 53 
PART II - OTHER INFORMATION 54 
Item 1 - Legal Proceedings 56 
Item 6 - Exhibits and Reports on Form 8-K 57 
SIGNATURES 58 
Certificate of Principal Executive Officer 59 
Certificate of Principal Financial Officer 60 




1





Index to Form 10Q

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

ENCORE CAPITAL GROUP, INC.
Condensed Consolidated Statements of Financial Condition
(In Thousands, Except Par Value Amounts)



June 30,
2004
(Unaudited)		 December 31,
2003 (A)
Assets            
Cash and cash equivalents   $ 33,692   $ 38,612  
Restricted cash    3,095    842  
Investment in receivable portfolios, net (Notes 4, 5 and 7)     91,555    89,136  
Investment in retained interest (Note 5)     –    1,231  
Property and equipment, net (Note 6)     2,907    2,786  
Prepaid income tax (Note 8)     3,684    –  
Deferred tax assets, net (Note 8)     1,839    1,358  
Other assets    5,560    4,320  
Total assets   $ 142,332   $ 138,285  
Liabilities and stockholders' equity   
Liabilities  
   Accounts payable and accrued liabilities   $ 13,018   $ 11,644  
   Accrued profit sharing arrangement (Note 7)     18,603    12,749  
   Income tax payable (Note 8)     –    883  
   Notes payable and other borrowings (Note 7)     26,918    41,178  
   Capital lease obligations (Note 10)     351    460  
Total liabilities    58,890    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, 22,058 shares and 22,003 shares  
      issued and outstanding as of June 30, 2004  
      and December 31, 2003, respectively    221    220  
  Additional paid-in capital    65,851    65,387  
  Accumulated earnings    17,268    5,658  
  Accumulated other comprehensive income    102    106  
Total stockholders' equity    83,442    71,371  
Total liabilities and stockholders' equity   $ 142,332   $ 138,285  

(A)     Derived from the audited consolidated financial statements as of December 31, 2003

See accompanying notes to condensed consolidated financial statements





2





Index to Form 10Q

ENCORE CAPITAL GROUP, INC.
Condensed Consolidated Statements of Operations
(In Thousands, Except Per Share Amounts)
(Unaudited)



Three Months Ended
June 30,		 Six Months Ended
June 30,
2004 2003 2004 2003
Revenues                    
     Revenue from receivable portfolios (Note 4)    $ 42,622   $ 28,001   $ 84,697   $ 55,257  
     Revenue from retained interest (Note 5)     810    86    826    214  
     Servicing fees and other related revenue (Note 10)     154    304    450    1,043  
Total revenues    43,586    28,391    85,973    56,514  
Operating expenses   
     Salaries and employee benefits    11,852    9,482    23,476    19,129  
     Other operating expenses    4,255    2,634    8,349    5,011  
     Cost of legal collections    6,701    4,161    12,203    7,518  
     General and administrative expenses    2,154    1,539    3,807    3,013  
     Depreciation and amortization    473    477    917    1,013  
Total operating expenses    25,435    18,293    48,752    35,684  
Income before other income (expense)  
     and income taxes    18,151    10,098    37,221    20,830  
Other income (expense)  
     Interest expense (Note 7)     (8,977 )  (4,546 )  (18,259 )  (8,956 )
     Other income (Note 3)     166    15    320    7,289  
Income before income taxes    9,340    5,567    19,282    19,163  
Provision for income taxes (Note 8)     (3,745 )  (2,258 )  (7,672 )  (7,687 )
Net income     5,595    3,309    11,610    11,476  
Preferred stock dividends    –    (126 )  –    (251 )
Net income available to common stockholders    $ 5,595   $ 3,183   $ 11,610   $ 11,225  
Weighted average shares outstanding    22,048    7,421    22,035    7,416  
Incremental shares from assumed conversion  
     of warrants, options, and preferred stock    1,391    12,579    1,407    12,307  
Adjusted weighted average share outstanding    23,439    20,000    23,442    19,723  
Earnings per share – Basic   $ 0.25   $ 0.43   $ 0.53   $ 1.51  
Earnings per share - Diluted   $ 0.24   $ 0.17   $ 0.50   $ 0.58  


See accompanying notes to condensed consolidated financial statements





3





Index to Form 10Q

ENCORE CAPITAL GROUP, INC.
Condensed Consolidated Statement of Stockholders’ Equity
(Unaudited, In Thousands)



Common Stock Additional
Paid-In		 Accumulated Accumulated
Other
Comprehensive
Shares Par Capital Earnings Income Total
Balances at December 31, 2003      22,003   $ 220   $ 65,387   $ 5,658   $ 106   $ 71,371  
   Net income    –    –    –    11,610    –    11,610  
   Other comprehensive income - unrealized gain on  
        non-qualified deferred compensation plan assets    –    –    –    –    32    32  
   Other comprehensive loss - decrease in unrealized gain  
        on investment in retained interest, net of tax    –    –    –    –    (36 )  (36 )
   Comprehensive income                        11,606  
   Exercise of stock options (Note 9)     55    1    49    –    –    50  
   Tax benefits related to stock option exercises    –    –    360    –    –    360  
   Amortization of stock options issued at below market    –    –    55    –    –    55  
Balances at June 30, 2004    22,058   $ 221   $ 65,851   $ 17,268   $ 102   $ 83,442  

See accompanying notes to condensed consolidated financial statements





4





Index to Form 10Q

ENCORE CAPITAL GROUP, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited, In Thousands)

Six Months Ended
June 30,
2004 2003
Operating activities            
Gross collections   $ 121,397   $ 93,733  
Proceeds from litigation settlement    –    11,100  
Less:  
  Amounts collected on behalf of third parties    (1,468 )  (3,027 )
  Amounts applied to principal on receivable portfolios    (33,211 )  (31,135 )
  Amounts applied to principal of securitization 98-1    (1,195 )  (4,100 )
  Litigation settlement proceeds applied to principal  
     of receivable portfolios    –    (692 )
  Legal and other costs related to litigation settlement    –    (3,198 )
Servicing fees    450    1,043  
Operating expenses  
  Salaries and employee benefits    (23,483 )  (19,882 )
  Other operating expenses    (8,135 )  (5,147 )
  Cost of legal collections    (12,203 )  (7,518 )
  General and administrative    (3,401 )  (2,573 )
  Interest payments    (1,186 )  (3,581 )
  Contingent interest payments    (11,194 )  (7,113 )
  Other income    345    79