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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 September 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.)
8875 Aero Drive
San Diego, California
 		92123
(Address of principal executive offices) (Zip code)

(877) 445 – 4581
(Registrant’s telephone number, including area code)

5775 Roscoe Court
San Diego, California 92123
(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 October 15, 2004
Common Stock, $0.01 par value 22,117,604 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 23 
Item 3 - Quantitative and Qualitative Disclosures about Market Risk 51 
Item 4 - Controls and Procedures 51 
PART II - OTHER INFORMATION 52 
Item 1 - Legal Proceedings 54 
Item 6 - Exhibits and Reports on Form 8-K 55 
SIGNATURES 56 
Certificate of Principal Executive Officer 57 
Certificate of Principal Financial Officer 59 








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)





September 30,
2004
(Unaudited)		 December 31,
2003 (A)
Assets            
Cash and cash equivalents   $ 44,131   $ 38,612  
Restricted cash    3,549    842  
Investment in receivable portfolios, net    99,282    89,136  
Investment in retained interest    –    1,231  
Property and equipment, net    2,812    2,786  
Prepaid income tax    3,291    –  
Deferred tax assets, net    –    1,358  
Other assets    6,166    4,320  
Total assets   $ 159,231   $ 138,285  
Liabilities and stockholders' equity   
Liabilities  
   Accounts payable and accrued liabilities   $ 14,029   $ 11,644  
   Accrued profit sharing arrangement    20,272    12,749  
   Income tax payable    –    883  
   Notes payable and other borrowings    34,374    41,178  
   Capital lease obligations    306    460  
    Deferred tax liability, net    525    –  
Total liabilities    69,506    66,914  
Commitments and contingencies  
Stockholders' equity  
Preferred stock, $.01 par value, 5,000 shares  
  authorized, and no shares issued and outstanding    –    –  
Common stock, $.01 par value, 50,000 shares  
  authorized, 22,116 shares and 22,003 shares  
  issued and outstanding as of September 30, 2004  
  and December 31, 2003, respectively    221    220  
 Additional paid-in capital    66,272    65,387  
 Accumulated earnings    23,150    5,658  
 Accumulated other comprehensive income    82    106  
Total stockholders' equity    89,725    71,371  
Total liabilities and stockholders' equity   $ 159,231   $ 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
September 30,		 Nine Months Ended
September 30,
2004 2003 2004 2003
Revenues                    
    Revenue from receivable portfolios   $ 45,186   $ 29,148   $ 129,883   $ 84,405  
    Revenue from retained interest    1,194    59    2,020    272  
    Servicing fees and other related revenue    143    332    594    1,375  
Total revenues    46,523    29,539    132,497    86,052  
Operating expenses   
    Salaries and employee benefits    11,712    9,872    35,188    29,001  
    Other operating expenses    3,652    3,393    10,461    8,404  
    Collection agency commissions    1,660    –    3,201    –  
    Cost of legal collections    8,326    3,983    20,529    11,502  
    General and administrative expenses    2,470    1,712    6,277    4,725  
    Depreciation and amortization    495    507    1,412    1,521  
Total operating expenses    28,315    19,467    77,068    55,153  
Income before other income (expense)  
    and income taxes    18,208    10,072    55,429    30,899  
Other income (expense)  
    Interest expense    (8,570 )  (4,903 )  (26,829 )  (13,857 )
    Other income    252    21    572    7,310  
Income before income taxes    9,890    5,190    29,172    24,352  
Provision for income taxes    (4,008 )  (2,086 )  (11,680 )  (9,773 )
Net income     5,882    3,104    17,492    14,579  
Preferred stock dividends    –    (125 )  –    (376 )
Net income available to common stockholders    $ 5,882   $ 2,979   $ 17,492   $ 14,203  
Weighted average shares outstanding    22,091    7,435    22,054    7,422  
Incremental shares from assumed conversion  
     of warrants, options, and preferred stock    1,380    12,762    1,396    12,577  
Adjusted weighted average share outstanding    23,471    20,197    23,450    19,999  
Earnings per share – Basic   $ 0.27   $ 0.40   $ 0.79   $ 1.91  
Earnings per share - Diluted   $ 0.25   $ 0.15   $ 0.75   $ 0.73  


          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    –    –    –    17,492    –    17,492  
   Other comprehensive income - unrealized gain on  
        non-qualified deferred compensation plan assets    –    –    –    –    12    12  
   Other comprehensive loss - decrease in unrealized gain 
        on investment in retained interest, net of tax    –    –    –    –    (36 )  (36 )
   Comprehensive income                             17,468  
   Exercise of stock options    113    1    104    –    –    105  
   Tax benefits related to stock option exercises    –    –    699    –    –    699  
   Amortization of stock options issued at below market    –    –    82    –    –    82  
Balances at September 30, 2004    22,116   $221   $66,272   $23,150   $82   $89,725  


          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)





Nine Months Ended
September 30,
2004 2003
Operating activities            
Gross collections   $ 181,301   $ 142,828  
Proceeds from litigation settlement    –    11,100  
Less:  
   Amounts collected on behalf of third parties    (1,968 )  (3,982 )
   Amounts applied to principal on receivable portfolios    (46,235 )  (48,715 )
   Amounts applied to principal of securitization 98-1    (1,195 )  (5,453 )
    Litigation settlement proceeds applied to principal  
       of receivable portfolios    –    (692 )
    Legal and other costs related to litigation settlement    –    (3,198 )
Servicing fees