UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): June 16, 2010
ENCORE CAPITAL GROUP, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 000-26489 | 48-1090909 | ||
| (State or other jurisdiction of incorporation) |
(Commission File Number) |
(IRS Employer Identification No.) |
| 8875 Aero Drive, Suite 200, San Diego, California | 92123 | |
| (Address of principal executive offices) | (Zip Code) |
(877) 445-4581
Registrant’s telephone number, including area code
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
| ¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
| Item 7.01 | Regulation FD Disclosure. |
On June 16, 2010, Encore Capital Group, Inc. (the “Company”) made available an investor presentation following the Company’s 2010 Annual Meeting. A copy of the slides used in the Company’s presentation is attached as Exhibit 99.1 and incorporated herein by reference.
The information in this Current Report on Form 8-K, including the information contained in Exhibit 99.1, is being furnished to the Securities and Exchange Commission pursuant to Item 7.01, and shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Act of 1934 or otherwise subject to the liabilities of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except as shall be expressly set forth by a specific reference in such filing.
| Item 9.01 | Financial Statements and Exhibits. |
| (d) | Exhibits |
| Exhibit |
Description | |
| 99.1 | Encore Capital Group, Inc. presentation dated June 16, 2010 | |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| ENCORE CAPITAL GROUP, INC. | ||||||
| Date June 17, 2010 | ||||||
| /S/ PAUL GRINBERG | ||||||
| Paul Grinberg | ||||||
| Executive Vice President, Chief Financial Officer and Treasurer | ||||||
Exhibit Index
| Exhibit |
Description | |
| 99.1 | Encore Capital Group, Inc. presentation dated June 16, 2010 | |
 2010 Investor Day
June 16, 2010
Exhibit 99.1 |
 CAUTIONARY NOTE ABOUT FORWARD-LOOKING STATEMENTS
1
The statements in this presentation that are not historical facts, including, most
importantly, those statements preceded by, or that include, the words
“may,” “believe,”
“projects,”
“expects,”
“anticipates”
or the negation thereof, or similar
expressions,
constitute
“forward-looking
statements”
within
the
meaning
of
the
Private
Securities
Litigation
Reform
Act
of
1995
(the
“Reform
Act”).
These
statements
may
include,
but
are
not
limited
to,
statements
regarding
our
future
operating
results
and
growth, ability to expand and utilize flexibility under our new credit facility,
and the repurchase of our securities.
For all “forward-looking statements,”
the Company
claims the protection of the safe harbor for forward-looking statements
contained in the Reform Act.
Such forward-looking statements involve risks, uncertainties and
other factors which may cause actual results, performance or achievements of the
Company
and
its
subsidiaries
to
be
materially
different
from
any
future
results,
performance or achievements expressed or implied by such forward-looking
statements. These risks, uncertainties and other factors are discussed in the
reports filed by the Company with the Securities and Exchange Commission,
including the most recent reports on Forms 10-K, 10-Q and 8-K,
each as it may be amended from time to time.
The Company disclaims any intent or obligation to update these
forward-looking statements.
FORWARD-LOOKING STATEMENTS |
 HIGHLIGHTS
2
•
Significant market opportunity
•
Highly differentiated business model
•
Disciplined and conservative underwriting strategy
•
Successful long-term track record
•
Well positioned to take advantage of growth prospects
|
 OUR
LONG-TERM FINANCIAL MODEL GIVES THE CONSUMER TIME TO RECOVER
3
CONSUMER
Opens unsecured
credit line,
credit card or
consumer loan
Consumer either
cannot or will not
make payments
ISSUER
Delinquency cycle
(days 30-180)
Attempt
rehabilitation and
escalate
consequences
Consumer is
“charged-off”
by issuer on
day 181
Issuer offers to
sell unsecured,
charged-off
debt to Encore
ENCORE
Price portfolio using
industry-leading models
Based on consumer
behavior at the account level
Focused on willingness and
ability-to-pay
Create liquidation
strategy and set goals
Effort sloping through
empirical and statistical
modeling
Collect debt through the application of
unique collections platforms and unrivaled
collection professionals (84 month window)
Legal
Outsourcing
Call Centers
Direct Mail
Collection Agency
Outsourcing
Sales channel
No/Low effort |
 THE
INDUSTRY HAS GONE THROUGH SEVERAL DISTINCT STAGES OVER THE LAST 10 YEARS
4
Demand
Supply
•
Issuers are relatively naïve
about the value of consumer
debt
•
Modest demand for delinquent
consumer paper leads to low
prices
An emerging
market
2002
2004
•
Issuers improve their delinquent credit card
valuation methods
•
The number of buyers increases dramatically
as private equity enters and small players
borrow and invest heavily for growth
•
Buyers
fall
prey
to
the
“winner’s
curse”
as
they price portfolios well outside reasonable
collection expectations
Overconfidence and
irrational pricing
2006
2008
•
As credit markets closed,
buyers were unable to fund
new and existing contracts
•
Consumer charge-off rates
near all-time highs
•
Banks begin to manage the
pace at which they sell
receivables
Significant
opportunity
2010 |
 Several competitors are now
known to have overpaid for
portfolios and are in financial
distress or have exited the
industry
Between 2005 and 2007, we
remained disciplined and avoided
high priced portfolios that did not
meet internal hurdle rates
In late 2005, we
established call
center in India
We believe it is the only
successful late-stage
collections platform in India,
at approximately 1/3 the cost
of our U.S. operations
We have maintained our
analytic leadership position,
and have strengthened it,
with novel models and
technologies
Conserved capital until
portfolio prices
decreased to a point
where we could achieve
consistent profitability
Credit markets continue to
offer liquidity only to the best
players in our industry
In 2008, we built and
implemented industry’s
first known ability-to-pay
(Capability) model
In February 2010, we
entered into a new
$327.5 million
revolving credit facility
In 2009, we
ramped up
purchasing to take
advantage of the
favorable market
environment
WE ARE WELL POSITIONED TODAY BECAUSE OF KEY STRATEGIC
DECISIONS WE MADE
5 |
 2010
Q1 2009 Q1
Q1 YOY Growth
Variance
$141,267
$26,034
23%
$115,233
Collections
$87,338
$10,892
14%
$76,446
Revenue
$82,588
$18,791
29%
$63,797
Adjusted EBITDA*
$81,632
$25,719
46%
$55,913
Purchases
$0.44
$0.06
16%
$0.38
EPS
($000s, except EPS and ratios)
OUR STRATEGIC DECISIONS LED TO STRONG Q1 RESULTS
6
* Adjusted EBITDA is a non-GAAP number. The Company considers Adjusted EBITDA
to be a meaningful indicator of operating performance and uses it as a measure to
assess the operating performance of the Company. See Reconciliation of Adjusted
EBITDA to GAAP Net Income at the end of the presentation. |
 2010
MARKS
OUR
10
TH
CONSECUTIVE
YEAR
OF
INCREASING
COLLECTIONS
7
Quarterly gross collections
($ millions)
$141.3
$87.6
$90.5
$104.4
$115.2 |
 $45.6
$46.1
$39.0
$43.5
$58.5
$53.0
$47.3
$49.3
$63.8
$64.7
$70.0
$66.1
$82.6
Q1 07
Q2 07
Q3 07
Q4 07
Q1 08
Q2 08
Q3 08
Q4 08
Q1 09
Q2 09
Q3 09
Q4 09
Q1 10
WE ARE INCREASING OUR OPERATING CASH FLOWS (ADJUSTED EBITDA)
AT A FASTER RATE THAN COLLECTIONS
Adjusted EBITDA* by quarter
($ millions)
* Adjusted EBITDA is a non-GAAP number. The Company considers Adjusted EBITDA
to be a meaningful indicator of operating performance and uses it as a measure to
assess the operating performance of the Company. See Reconciliation of Adjusted
EBITDA to GAAP Net Income at the end of the presentation. 8
|
 Full
year purchases for 2008 and 2009; Estimate for 2010 ($ millions)
WE ARE REINVESTING CASH BACK INTO THE BUSINESS THROUGH
INCREASED PURCHASING VOLUMES
$230.3
$300.0
$256.6
2008
2009
2010E
9 |
 Collection sites’
direct cost per dollar collected
A MAJOR CONTRIBUTOR TO THE IMPROVING CASH FLOW IS OUR LOWER
CALL CENTER COST STRUCTURE, DRIVEN BY EXPANSION INTO INDIA
10 |
 THE
INCREASED CONTRIBUTION FROM INDIA TRANSLATES INTO SIGNIFICANT ANNUAL COST
SAVINGS 11
Collections from all call centers
India
contribution
10%
19%
30%
40%
($ millions)
$126
$157
$186
~$250 |
 $892
$1,063
$1,160
$1,240
Y/E 2007
Y/E 2008
Y/E 2009
Q1 2010
Estimated remaining gross collections
($ millions)
NOT ONLY HAVE WE IMPROVED OPERATING RESULTS, WE HAVE ALSO
ADDED SIGNIFICANTLY TO THE COMPANY’S EMBEDDED VALUE
12 |
 WE
HAVE BEEN ABLE TO ACCOMPLISH THIS WITH MODEST LEVERAGE, LEAVING ROOM FOR FUTURE
EXPANSION 13
Estimated remaining net collections
($ millions, Q1 2010)
$1,240
Gross Estimated
Remaining
Collections
($496)
40% Cost to
Collect
$667
Net Estimated
Remaining
Collections
Taxes (40% Rate)
($77)
* DTL = Deferred Tax Liability
$327
Net Debt + DTL*
$17
$310
Net
Debt
DTL*
We are 2Xover-
collateralized |
 $-
$250
$500
$750
$1,000
$1,250
$1,500
$1,750
$2,000
$2,250
$2,500
$2,750
AND WE BELIEVE THAT OUR CURRENT ESTIMATE OF REMAINING
COLLECTIONS IS CONSERVATIVE GIVEN OUR HISTORY
14
Cumulative collections (initial expectation vs. actual)
($ millions, Jan 01 –
Mar 10)
Actual cash
collections
Initial
projections |
 WE
APPLY THIS SAME CONSERVATISM IN OTHER AREAS 15
Our general
financial approach
is conservative,
and reinforces our
efforts to reduce
risk, build future
value, and set the
standard for our
industry
PORTFOLIO
LIQUIDATION
ESTIMATES
TAX REVENUE
RECOGNITION
COVENANT
COMPLIANCE |
 WE
HAVE SIGNIFICANT ROOM TO GROW THE BUSINESS 16
($ millions)
Cash flow leverage ratio
Debt
Trailing 4-quarter adjusted EBITDA
Debt/Adj. EBITDA [Maximum 1.75x]
Minimum net worth
Total stockholders' equity
Minimum net worth
Excess room
Interest coverage ratio
Trailing 4-quarter EBIT
Trailing 4-quarter consolidated interest expense
EBIT/Interest expense [Minimum 2.0x]
311.3
211.1
1.47
195.9
146.2
49.7
47.2
15.6
3.0
2009
303.1
264.6
1.15
243.1
183.0
60.1
69.9
16.2
4.3
*Not adjusted for ASC 470-20, prior to 2009
*
*
*
Q1 2010
318.0
283.4
1.12
257.2
188.5
68.7
72.5
16.4
4.4
2008
Based on our
cash flow and
LTM Adj.
EBITDA, our
leverage ratio
would allow
us to increase
total debt to
$495 million
Covenant analysis |
 MARKET
DYNAMICS HAVE INFLUENCED OUR APPROACH TO THE BUSINESS 17
Charge-offs
remain
elevated
Consumer
credit continues
to experience
losses at near
record levels
Supply more
closely
managed by
the issuers
Demand
increasing, albeit
slowly
Few players with
access to
significant
amounts of capital
Continued exit of
large players, but
others starting to
gain traction
Consumer
performance
remains predictable
Our models continue
to predict consumer
behavior with a high
degree of accuracy
Significant
regulatory and
legislative scrutiny
Both in our industry
and in the financial
services sector at
large |
 Moody’s Credit Card Charge-off Index
18
CHARGE-OFFS REMAIN NEAR HISTORICAL PEAKS
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
Mar-90
Jul-91
Nov-92
Mar-94
Jul-95
Nov-96
Mar-98
Jul-99
Nov-00
Mar-02
Jul-03
Nov-04
Mar-06
Jul-07
Nov-08
Mar-10 |
 4.3%
4.3%
4.5%
5.3%
9.8%
12.5%
12.6%
9.0%
6.5%
7.0%
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
PRICING IS UP MODERATELY IN 2010 AND WE ARE STILL DEPLOYING
CAPITAL AT VERY PROFITABLE LEVELS
19
Pricing trend from one issuer through time
(% on a dollar of face)
Active market buyer
Intentionally absent
EXAMPLE |
 THE
AVAILABLE DATA AROUND THE AVERAGE CONSUMER SHOWS THAT THEY REMAIN
CHALLENGED 20
High mortgage defaults
Near all-time high unemployment rate
Low consumer sentiment
Volatile consumer price index
Source: Federal Reserve, University of Michigan, U.S. Bureau of Labor Statistics
|
 HOWEVER, OUR CONSUMERS’
PAYMENT BEHAVIOR AND OUR
PERFORMANCE REMAIN CONSISTENT
21
Metric
Recent trend
•
Payer rates
•
Slightly upward
•
Average payment size
•
Stable
•
Single vs. multi-payers
•
More payment plans
•
Broken payer rates
•
Mild improvement
•
Settlement rates
•
Upward trend |
 OUR
OVERALL PAYER RATES HAVE IMPROVED 22
Overall payer rate for all active inventory
2008
2009
2010 |
 AVERAGE PAYMENT SIZE REMAINS CONSISTENT, EVEN AS PAYMENT PLANS
CONTINUE TO BE THE NORM
23
Average payment size for all paying accounts
2008
2009
2010
Single settlement payers as a percentage of
total payers
2008
2009
2010 |
 OUR
CONSUMERS ARE HONORING THEIR OBLIGATIONS AND SETTLING THEIR ACCOUNTS AT
CONSTANT RATES 24
Overall broken payer rate, excluding settled
accounts through time
2008
2009
2010
Legal settlement rate
2008
2009
2010 |
 WE ARE
POSITIONED TO RESPOND TO THE CHANGING REGULATORY ENVIRONMENT
25
Technology
Proprietary software platforms allow the company to make
changes as new regulations and laws emerge
Sophisticated software and analytics platforms ensure that
all data-driven activities are compliant
Data management
Expanded legal and quality assurance teams partner with training
department to keep account managers abreast of changes
Training
Zero tolerance policy in place to address errors by account
managers
Self-discipline |
 WE
ALSO LOOK FOR WAYS TO BOTH PROTECT AND PARTNER WITH OUR CONSUMERS ACROSS A
RANGE OF OPERATIONAL ACTIVITIES 26
Operational practices
Activity
•
Interest policy
•
Discounts
•
Outbound
communication
•
Work segmentation
•
We do not charge interest during the course of payment plans to
improve the likelihood that a consumer will be able to fulfill their
obligations
•
We consistently provide significant discounts to consumers in an
effort to establish a mutually beneficial negotiation
•
It is our policy not to leave messages on answering machines
(unless previous contact made) or intentionally contact third-
parties
out
of
respect
for
our
consumers’
privacy
•
We use our suite of powerful analytic scores to identify those
consumers that are unable to repay their obligations, and we
proactively choose to forgo all work effort either temporarily or
permanently |
 THESE
PRACTICES HAVE ALLOWED US TO EFFECTIVELY WORK WITH MILLIONS OF CONSUMERS
Consumers with whom we have partnered to retire their debt (cumulative)
27 |
 ENCORE’S
STRATEGIC
PILLARS
COST
LEADERSHIP
PRINCIPLED
INTENT
CONSUMER
INTELLIGENCE
ANALYTIC
STRENGTH
OUR OPERATIONAL SUCCESS IS BASED UPON FOUR STRATEGIC PRIORITIES
28 |
 |
                Strong partnership
opportunities
with
willing
and able consumers
Our attempts to contact or
work with consumers are
typically
ignored,
and
the
legal
option becomes necessary
Hardship
strategies
Offer
significant discounts
and plans
that accommodate
many small payments
Remind consumers of their
obligation
through
legal
communications
Focus on
payment plans and
opportunities to build longer
relationships
with consumers
Willingness to pay
Is the debtor willing to resolve the debt on fair terms?
HIGH
HIGH
LOW
LOW
OUR ANALYTIC INSIGHT ALLOWS US TO MATCH OUR COLLECTION
APPROACH TO THE INDIVIDUAL CONSUMER’S PAYMENT BEHAVIOR
30 |
 2006
Behavioral science and
macroeconomics
2000
Early statistical
modeling
•
Hired first statisticians
•
Created account-level
valuation model
•
Created 1
st
and 2
nd
generation forecasting
models
•
Created 1
st
generation
operational models (mail
channel and call center)
•
Introduced Capability-
Willingness framework
•
Developed industry’s first
ability-to-pay model
•
Developed account level,
activity-based cost
database
•
Developed 3
rd
generation
forecasting model
•
Created industry-leading
legal model
•
Developed 3
rd
generation
valuation model
•
Developed
2
nd
generation
mail and call center models
2009
Strategy and optimization
2003
Forecasting and
predictive modeling
OUR LEVEL OF SOPHISTICATION HAS SIGNIFICANTLY INCREASED OUR
COMPETITIVE ADVANTAGE
31 |
 AS
HAVE OUR INVESTMENTS IN DATA AND TECHNOLOGY 32
Investments to support consumer analytics (2009 only)
($000s) |
 Core competency in understanding the
payer behavior of distressed consumers
Cross-channel
coordination
and optimization
Consumer
behavior
research
Market data
and insight
Portfolio
valuation
Pre-purchase
model
No effort
Legal
Outsourcing
Legal effort
model with
Capability
Call
Centers
Call effort
model with
Capability
Direct
Mail
Letter effort
model with
Capability
Collection
Agency
Outsourcing
Agency effort
model with
Capability
Collections operations that
optimize effort and profitability
OUR ANALYTIC REACH EXTENDS FROM PRE-PURCHASE THROUGHOUT OUR
ENTIRE OWNERSHIP PERIOD
33
Continuous feedback between
operations and valuation |
 Collections lift over deciles, comparing Encore’s ability-to-pay model
against both competitor scores and random servicing strategies
Commercial score 1
Random
servicing
Commercial score 2
Encore
AND IS SUPERIOR TO WHAT CAN BE ACQUIRED COMMERCIALLY
34 |
 OUR
SUCCESS IN INDIA IS A TESTAMENT TO OUR PERSEVERANCE 35
2006
Year of
growing pains
•
Only working low
balance accounts
•
Limited connection to
the U.S.
•
High attrition and low
performance
147 staff
2005
Journey
begins
33 staff
2007
First taste
of success
•
Shifted to higher balance
accounts drives strong
performance
•
Started competing with
U.S. on paper of similar
balance and age
207 staff |
 AS A
RESULT, THE INDIA TEAM IS NOW AN INTEGRAL PART OF THE COMPANY
36
2010
Enabling
future growth
•
India now accounting for
more than 40% of all call
center collections
•
Fundamentally improved
internal cost to collect
•
Enhancing our ability to
purchase portfolios and
win new bankruptcy
servicing contracts
900+ staff
2008
Accelerating
confidence
and trust
•
Successfully ramped
up hiring without
compromising
performance
•
New work groups
established
•
Meaningfully
reduced attrition
333 staff
2009
Expansion
of influence
and impact
•
Significant involvement
in collection strategy
•
Built analytics, IT and
bankruptcy servicing
teams
•
Invested in world-class
facility
625 staff |
 Monthly gross collections (India)
($ millions)
THE GREATEST EVIDENCE OF THIS CAN BE SEEN IN THE DRAMATIC
INCREASE IN MONTHLY CONTRIBUTION
37
Nov
-
Jan
-
Mar
-
May
-
Jul
-
Sep
-
Nov
-
Jan
-
Mar
-
May
-
Jul
-
Sep
-
Nov
-
Jan
-
Mar
-
May
-
Jul
-
Sep
-
Nov
-
Jan
-
Mar
-
May
-
Jul
-
Sep
-
Nov
-
Jan
-
Mar
- |
 GOING
FORWARD, WE ARE FOCUSED ON MAINTAINING PERFORMANCE AND TAKING A LEADING ROLE IN
COLLECTION INNOVATION 38
Expertise
and process
support for
corporate
initiatives
Sustain
strengths
as we grow
Push
innovation
Co-create
global
synergies |
 ONE OF
OUR GREATEST CHALLENGES IS THAT OUR CONSUMERS GENERALLY DO NOT RESPOND TO OUR
ATTEMPTS TO CONTACT THEM 39
7.22M in 2009
18.1% or 1.30M
7.20M in 2009
6.1% or 440K
As
a
result,
we
often
find
ourselves
with
no
recourse
other
than
to
pursue
litigation, a decision we do not take lightly |
 56.4
57.2
Q1 09
Q1 10
Legal collections and costs as a percentage of collections
53.1%
46.2%
$
$
($ millions)
OUR SUCCESS IN THE CHANNEL VALIDATES OUR DECISION TO PURSUE THIS
STRATEGY AND WE ARE BECOMING MORE EFFICIENT OVER TIME
40 |
 SUMMARY
41
•
Favorable supply and demand dynamics are expected to drive a
strong purchasing year
•
Strong financial performance is expected to continue
•
Operational and financial leverage is increasing, largely due to
our
successful operating center in India
•
Insights revealed through rigorous analytics inform our strategy
and allow for a closer partnership with consumers |
 QUESTIONS & ANSWERS |
 APPENDIX |
 APPENDIX: ENCORE IS A LEADING PLAYER IN THE DEBT RECOVERY
INDUSTRY
Distressed consumer debt
purchasing
(95% of revenue)
•Purchase
and
collection
of
charged-off
consumer
receivables (primarily credit
card)
•Robust
business
model
emphasizing consumer
intelligence and operational
specialization
•Invested
~$1.5B
to
acquire
receivables with a face value
of ~$46B
•Acquired
~29MM
consumer
accounts since inception
Bankruptcy servicing
(5% of revenue)
•Process
secured
consumer
bankruptcy accounts for
leading auto lenders and
other financial institutions
•Proprietary
software
dedicated to bankruptcy
servicing
•Operational
platform
that
integrates lenders, trustees,
and consumers
44 |
 APPENDIX: WE OPERATE IN FIVE DIFFERENT SITES ACROSS THE U.S. AND
INDIA
45
San Diego,
CA
•
Headquarters
•
Call center
site
St Cloud,
MN
•
Call center site
Arlington, TX
•
Bankruptcy servicing
Phoenix, AZ
Delhi, India
Defaulted consumer debt purchasing
Bankruptcy servicing business
•
Call center site
•
Call center site |
 APPENDIX: AT THE PEAK OF THE CYCLE, WE WILL GENERATE PAYMENTS
FROM FEWER THAN 1% OF OUR ACCOUNTS PER MONTH
46
Portfolio Face Amount
$15,000,000
Average Balance
$3,000
Number of Accounts
5,000
Purchase Factor
$0.05
Purchase Price
$750,000
Projected Return (2.7x)
$2,025,000
Only requires 20% payers, at a 67.5% settlement rate, to achieve
expected returns over a seven year period. This equates to:
–
Year 1: ~ 7.0% (350 consumers)
–
Year 2: ~ 5.5% (270 consumers)
–
Year 3: ~ 4.5% (220 consumers)
–
Year 4: ~ 2.0% (100 consumers)
–
Years 5+: ~1.0% (60 consumers)
ILLUSTRATIVE |
 Cumulative Collections through March 31, 2010 (000’s)
Year
of
Purchase
Purchase
Price
<2004
2004
2005
2006
2007
2008
2009
2010
Total
CCM
<2004
$284,164
$517,451
$192,940
$144,775
$109,379
$50,708
$26,777
$16,345
$3,139
$1,061,514
3.7
2004
101,329
39,400
79,845
54,832
34,625
19,116
11,363
2,140
241,321
2.4
2005
192,591
66,491
129,809
109,078
67,346
42,387
7,721
422,832
2.2
2006
141,969
42,354
92,265
70,743
44,553
7,425
257,340
1.8
2007
204,298
68,048
145,272
111,117
20,888
345,325
1.7
2008
227,935
69,049
165,164
35,578
269,791
1.2
2009
254,127
96,529
55,927
152,456
0.6
2010
81,621
8,354
8,354
0.1
Total
$1,488,034
$517,451
$232,340
$291,111
$336,374
$354,724
$398,303
$487,458
$141,172
$2,758,933
1.9
APPENDIX A: CUMULATIVE COLLECTIONS BY PORTFOLIO VINTAGE
47 |
 Reconciliation of Adjusted EBITDA to GAAP Net Income
(Unaudited, In Thousands)
Three Months Ended
Note:
The
periods
3/31/07
through
12/31/08
have
been
adjusted
to
reflect
the
retrospective
application
of
ASC
470-20
3/31/07
6/30/07
9/30/07
12/31/07
3/31/08
6/30/08
9/30/08
12/31/08
3/31/09
6/30/09
9/30/09
12/31/09
3/31/10
GAAP net income, as reported
4,991
(1,515)
4,568
4,187
6,751
6,162
3,028
(2,095)
8,997
6,641
9,004
8,405
10,861
Interest expense
4,042
4,506
4,840
5,260
5,200
4,831
5,140
5,401
4,273
3,958
3,970
3,959
4,538
Contingent interest expense
3,235
888
-
-
-
-
-
-
-
-
-
-
-
Pay-off of future contingent interest
-
11,733
-
-
-
-
-
-
-
-
-
-
-
Provision for income taxes
3,437
(1,031)
1,315
2,777
4,509
4,225
2,408
(1,442)
5,973
4,166
5,948
4,609
6,490
Depreciation and amortization
869
840
833
810
722
766
674
652
623
620
652
697
673
Amount applied to principal on receivable portfolios
28,259
29,452
26,114
29,498
40,212
35,785
35,140
46,364
42,851
48,303
49,188
47,384
58,265
Stock-based compensation expense
801
1,204
1,281
1,001
1,094
1,228
860
382
1,080
994
1,261
1,049
1,761
Adjusted EBITDA
45,634
46,077
38,951
43,533
58,488
52,997
47,250
49,262
63,797
64,682
70,023
66,103
82,588
APPENDIX B: RECONCILIATION OF ADJUSTED EBITDA
48 |