Document




UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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): February 23, 2017
______________________
ENCORE CAPITAL GROUP, INC.
(Exact Name of Registrant as Specified in Charter)
______________________
Delaware
(State or Other Jurisdiction of Incorporation)
000-26489
(Commission
File Number)
48-1090909
(IRS Employer
Identification No.)

3111 Camino Del Rio North, Suite 103, San Diego, California
(Address of Principal Executive Offices)
92108
(Zip Code)
(877) 445-4581
(Registrant’s telephone number, including area code)
______________________
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):
o
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))









Item 2.02.    Results of Operations and Financial Condition.

On February 23, 2017, Encore Capital Group, Inc. issued a press release announcing its financial results for the fourth quarter and full fiscal year ended December 31, 2016. A copy of the press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated by reference herein.

The information in Item 2.02 of 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 2.02, and shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), 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, as amended, or the Exchange Act, except as shall be expressly set forth by a specific reference in such filing.

Item 9.01.    Financial Statements and Exhibits.
Exhibit Number
Description
99.1
Press release dated February 23, 2017







SIGNATURE

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: February 23, 2017
/s/ Jonathan C. Clark
 
Jonathan C. Clark
 
Executive Vice President, Chief Financial Officer and Treasurer







EXHIBIT INDEX
Exhibit Number
Description
99.1
Press release dated February 23, 2017










Exhibit
https://cdn.kscope.io/b8ce6bbccb698683e324fde9675cd655-encorelogoa12.jpg
 
Exhibit 99.1

Encore Capital Group Announces Fourth Quarter and Full-Year 2016 Financial Results


Fourth quarter deployments of $210 million worldwide included $148 million in the U.S.
Estimated Remaining Collections increased to $5.8 billion
Encore and J.C. Flowers exploring a potential Cabot IPO
 
SAN DIEGO, February 23, 2017 -- Encore Capital Group, Inc. (NASDAQ: ECPG), an international specialty finance company, today reported consolidated financial results for the fourth quarter and full year ended December 31, 2016.

“Encore continued to see the favorable trend of lower pricing driven by higher volume in the U.S. market during the fourth quarter,” said Kenneth A. Vecchione, the Company’s President and Chief Executive Officer. “We believe the turn we’ve been seeing in the domestic industry cycle continues as supply overtakes capacity and capital availability within the marketplace. Our consumer-centric liquidation programs, combined with lower pricing, continue to drive better returns.”

“Today we are announcing that we are exploring an initial public offering of Cabot Credit Management, which we believe will help crystallize the value we’ve created within our European franchise. Since we purchased Cabot with our partner J.C. Flowers, we believe Cabot’s equity value has grown through operational improvement, market consolidation and expansion into other European countries. We are in the very early stages of the IPO process, but we believe that it could be completed as early as the back end of 2017,” said Vecchione.

Financial Highlights for the Fourth Quarter of 2016:

Estimated Remaining Collections (ERC) grew $129 million compared to the same period of the prior year, to $5.8 billion.
Gross collections were $397 million, compared to $417 million in the same period of the prior year.
Investment in receivable portfolios was $210 million, compared to $293 million in the same period of the prior year. Encore deployed $148 million in the U.S., $42 million in Europe and $20 million in other geographies during the fourth quarter of 2016.
Total revenues were $271 million, compared to $291 million in the same period of the prior year.
Total operating expenses decreased 11% to $184 million, compared to $206 million in the same period of the prior year. Adjusted operating expenses (defined as operating expenses excluding stock-based compensation expense, expenses related to non-portfolio purchasing and recovery business, acquisition, integration and restructuring related expenses and other charges or gains that are not indicative of ongoing operations) per dollar collected decreased to 38.4% compared to 41.5% in the same period of the prior year.
Total interest expense decreased to $48.4 million, compared to $50.2 million in the same period of the prior year.
GAAP net income from continuing operations attributable to Encore was $22.0 million, or $0.85 per fully diluted share, compared to $28.2 million, or $1.08 per fully diluted share, in the same period of the prior year.
Adjusted income from continuing operations attributable to Encore (defined as net income from continuing operations attributable to Encore excluding non-cash interest and issuance cost amortization, acquisition, integration and restructuring related expenses, settlement fees and related administrative expenses, amortization of certain acquired intangible assets and other



Encore Capital Group, Inc.
Page 2 of 9


charges or gains that are not indicative of ongoing operations, all net of tax) was $18.7 million, compared to $31.8 million in the same period of the prior year.
Adjusted income from continuing operations attributable to Encore per share (also referred to as Economic EPS) was $0.72, compared to $1.24 in the same period of the prior year.
Available capacity under Encore’s revolving credit facility, subject to borrowing base and applicable debt covenants, was $204 million as of December 31, 2016, not including the $250 million additional capacity provided by the facility’s accordion feature. Total debt was $2.8 billion as of December 31, 2016. Total debt fully consolidates the debt of Encore’s Cabot Credit Management subsidiary, which is non-recourse to Encore.

Financial Highlights for the Full Year of 2016:

Gross collections in 2016 were $1.69 billion, compared to $1.70 billion in 2015.
Investment in receivable portfolios in 2016 was $907 million, compared to $1.02 billion in 2015. Encore deployed $562 million in the U.S., $265 million in Europe and $80 million in other geographies during 2016.
Total revenues were $1.03 billion in 2016, compared to $1.13 billion in 2015.
Total operating expenses decreased 7% to $788 million in 2016, compared to $848 million in 2015. Adjusted operating expenses (defined as operating expenses excluding stock-based compensation expense, expenses related to non-portfolio purchasing and recovery business, and acquisition, integration and restructuring related expenses and other charges or gains that are not indicative of ongoing operations) per dollar collected in 2016 decreased to 38.5%, compared to 39.2% in 2015.
Total interest expense in 2016 was $198 million, compared to $187 million in 2015.
GAAP net income from continuing operations attributable to Encore was $78.9 million or $3.05 per fully diluted share. This compares to net income of $68.5 million or $2.57 per fully diluted share in 2015.
Adjusted income from continuing operations attributable to Encore (defined as net income from continuing operations attributable to Encore excluding non-cash interest and issuance cost amortization, acquisition, integration and restructuring related expenses, settlement fees and related administrative expenses, amortization of certain acquired intangible assets and other charges or gains that are not indicative of ongoing operations, all net of tax) was $90 million in 2016, compared to $126 million in 2015.
Adjusted income from continuing operations attributable to Encore per share (also referred to as Economic EPS) was $3.48 in 2016, compared to $4.85 in 2015.

This press release does not constitute or form part of, and should not be construed as, an offer or the solicitation of an offer to subscribe for or purchase the securities of Cabot Credit Management Group Limited or any of its affiliates. We cannot assure that any transaction will be consummated, or as to the timing or terms thereof.

Conference Call and Webcast
The Company will host a conference call and slide presentation today at 2:00 p.m. Pacific time / 5:00 p.m. Eastern time to discuss fourth quarter and full year results.



Encore Capital Group, Inc.
Page 3 of 9


Members of the public are invited to access the live webcast via the Internet by logging on at the Investor Relations page of Encore's website at www.encorecapital.com. To access the live, listen-only telephone conference portion, please dial (855) 541-0982 or (704) 288-0606.
For those who cannot listen to the live broadcast, a telephonic replay will be available for seven days by dialing (800) 585-8367 or (404) 537-3406 and entering the conference number 72990225. A replay of the webcast will also be available shortly after the call on the Company's website.


Non-GAAP Financial Measures
This news release includes certain financial measures that exclude the impact of certain items and therefore have not been calculated in accordance with U.S. generally accepted accounting principles (“GAAP”). The Company has included adjusted income attributable to Encore and adjusted income from continuing operations attributable to Encore per share (also referred to as economic EPS when adjusted for certain shares associated with our convertible notes that will not be issued but are reflected in the fully diluted share count for accounting purposes) because management uses this measure to assess operating performance, in order to highlight trends in the Company’s business that may not otherwise be apparent when relying on financial measures calculated in accordance with GAAP. The Company has included information concerning adjusted operating expenses in order to facilitate a comparison of approximate cash costs to cash collections for the portfolio purchasing and recovery business in the periods presented. Adjusted income attributable to Encore, adjusted income from continuing operations attributable to Encore per share/economic EPS, and adjusted operating expenses have not been prepared in accordance with GAAP. These non-GAAP financial measures should not be considered as alternatives to, or more meaningful than, net income, net income per share, and total operating expenses as indicators of the Company’s operating performance. Further, these non-GAAP financial measures, as presented by the Company, may not be comparable to similarly titled measures reported by other companies. The Company has attached to this news release a reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures.

About Encore Capital Group, Inc.
Encore Capital Group is an international specialty finance company that provides debt recovery solutions and other related services for consumers across a broad range of financial assets. Through its subsidiaries around the globe, Encore purchases portfolios of consumer receivables from major banks, credit unions, and utility providers. 

Encore partners with individuals as they repay their debt obligations, helping them on the road to financial recovery and ultimately improving their economic well-being. Encore is the first and only company of its kind to operate with a Consumer Bill of Rights that provides industry-leading commitments to consumers. Headquartered in San Diego, Encore is a publicly traded NASDAQ Global Select company (ticker symbol: ECPG) and a component stock of the Russell 2000, the S&P Small Cap 600 and the Wilshire 4500. More information about the company can be found at http://www.encorecapital.com. More information about the Company's Cabot Credit Management subsidiary can be found at 
http://www.cabotcm.com. Information found on the company’s or Cabot’s website is not incorporated by reference.


Forward Looking Statements
The statements in this press release that are not historical facts, including, most importantly, those statements preceded by, or that include, the words “will,” “may,” “believe,” “projects,” “expects,” “anticipates” or the



Encore Capital Group, Inc.
Page 4 of 9


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, performance, business plans or prospects. 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 and 10-Q, each as it may be amended from time to time. The Company disclaims any intent or obligation to update these forward-looking statements.

Contact:
Bruce Thomas
Encore Capital Group, Inc.
Vice President, Investor Relations
(858) 309-6442
bruce.thomas@encorecapital.com

SOURCE: Encore Capital Group, Inc.



FINANCIAL TABLES FOLLOW





Encore Capital Group, Inc.
Page 5 of 9


ENCORE CAPITAL GROUP, INC.
Consolidated Statements of Financial Condition
(In Thousands, Except Par Value Amounts)
 
December 31,
2016
 
December 31,
2015
Assets
 
 
 
Cash and cash equivalents
$
149,765

 
$
123,993

Investment in receivable portfolios, net
2,382,809

 
2,440,669

Property and equipment, net
72,257

 
72,546

Deferred court costs, net
65,187

 
75,239

Other assets
215,447

 
148,762

Goodwill
785,032

 
924,847

Assets associated with discontinued operations

 
388,763

Total assets
$
3,670,497

 
$
4,174,819

Liabilities and equity
 
 
 
Liabilities:
 
 
 
Accounts payable and accrued liabilities
$
234,398

 
$
290,608

Debt
2,805,983

 
2,944,063

Other liabilities
29,601

 
59,226

Liabilities associated with discontinued operations

 
232,434

Total liabilities
3,069,982

 
3,526,331

Commitments and contingencies


 


Redeemable noncontrolling interest
45,755

 
38,624

Redeemable equity component of convertible senior notes
2,995

 
6,126

Equity:
 
 
 
Convertible preferred stock, $.01 par value, 5,000 shares authorized, no shares issued and outstanding

 

Common stock, $.01 par value, 50,000 shares authorized, 25,593 shares and 25,288 shares issued and outstanding as of December 31, 2016 and December 31, 2015, respectively
256

 
253

Additional paid-in capital
103,392

 
110,533

Accumulated earnings
560,567

 
543,489

Accumulated other comprehensive loss
(104,911
)
 
(57,822
)
Total Encore Capital Group, Inc. stockholders’ equity
559,304

 
596,453

Noncontrolling interest
(7,539
)
 
7,285

Total equity
551,765

 
603,738

Total liabilities, redeemable equity and equity
$
3,670,497

 
$
4,174,819

The following table includes assets that can only be used to settle the liabilities of the Company’s consolidated variable interest entities (“VIEs”) and the creditors of the VIEs have no recourse to the Company. These assets and liabilities are included in the consolidated statements of financial condition above.
 
December 31,
2016
 
December 31,
2015
Assets
 
 
 
Cash and cash equivalents
$
55,823

 
$
50,483

Investment in receivable portfolios, net
972,841

 
1,197,513

Property and equipment, net
19,284

 
19,767

Deferred court costs, net
22,760

 
33,296

Other assets
79,767

 
31,679

Goodwill
584,868

 
706,812

Liabilities
 
 
 
Accounts payable and accrued liabilities
$
99,689

 
$
142,375

Debt
1,514,799

 
1,665,009

Other liabilities
1,921

 
839

 





Encore Capital Group, Inc.
Page 6 of 9


ENCORE CAPITAL GROUP, INC.
Consolidated Statements of Income
(In Thousands, Except Per Share Amounts)
 
 
(Unaudited)
Three Months Ended December 31,
 
Year Ended
December 31,
 
2016
 
2015
 
2016
 
2015
Revenues
 
 
 
 
 
 
 
Revenue from receivable portfolios, net
$
249,535

 
$
272,502

 
$
946,615

 
$
1,072,436

Other revenues
21,849

 
18,107

 
82,643

 
57,531

Total revenues
271,384

 
290,609

 
1,029,258

 
1,129,967

Operating expenses
 
 
 
 
 
 
 
Salaries and employee benefits
68,173

 
68,165

 
281,097

 
262,281

Cost of legal collections
42,808

 
59,013

 
200,855

 
229,847

Other operating expenses
25,317

 
24,932

 
100,737

 
93,210

Collection agency commissions
7,899

 
9,326

 
36,141

 
37,858

General and administrative expenses
31,002

 
35,733

 
134,046

 
191,357

Depreciation and amortization
8,740

 
9,102

 
34,868

 
33,160

Total operating expenses
183,939

 
206,271

 
787,744

 
847,713

Income from operations
87,445

 
84,338

 
241,514

 
282,254

Other (expense) income
 
 
 
 
 
 
 
Interest expense
(48,447
)
 
(50,187
)
 
(198,367
)
 
(186,556
)
Other (expense) income
(130
)
 
647

 
14,228

 
2,235

Total other expense
(48,577
)
 
(49,540
)
 
(184,139
)
 
(184,321
)
Income from continuing operations before income taxes
38,868

 
34,798

 
57,375

 
97,933

Provision for income taxes
(28,374
)
 
(3,988
)
 
(38,205
)
 
(27,162
)
Income from continuing operations
10,494

 
30,810

 
19,170

 
70,771

Income (loss) from discontinued operations, net of tax
829

 
(29,214
)
 
(2,353
)
 
(23,387
)
Net income
11,323

 
1,596

 
16,817

 
47,384

Net loss (income) attributable to noncontrolling interest
11,489

 
(2,584
)
 
59,753

 
(2,249
)
Net income (loss) attributable to Encore Capital Group, Inc. stockholders
$
22,812

 
$
(988
)
 
$
76,570

 
$
45,135

Amounts attributable to Encore Capital Group, Inc.:
 
 
 
 
 
 
 
Income from continuing operations
$
21,983

 
$
28,226

 
$
78,923

 
$
68,522

Income (loss) from discontinued operations, net of tax
829

 
(29,214
)
 
(2,353
)
 
(23,387
)
Net income (loss)
$
22,812

 
$
(988
)
 
$
76,570

 
$
45,135

Earnings (loss) per share attributable to Encore Capital Group, Inc.:
 
 
 
 
 
 
 
Basic earnings (loss) per share from:
 
 
 
 
 
 
 
Continuing operations
$
0.85

 
$
1.11

 
$
3.07

 
$
2.66

Discontinued operations
$
0.03

 
$
(1.15
)
 
$
(0.09
)
 
$
(0.91
)
Net basic earnings (loss) per share
$
0.88

 
$
(0.04
)
 
$
2.98

 
$
1.75

Diluted earnings (loss) per share from:
 
 
 
 
 
 
 
Continuing operations
$
0.85

 
$
1.08

 
$
3.05

 
$
2.57

Discontinued operations
$
0.03

 
$
(1.12
)
 
$
(0.09
)
 
$
(0.88
)
Net diluted earnings (loss) per share
$
0.88

 
$
(0.04
)
 
$
2.96

 
$
1.69

Weighted average shares outstanding:
 
 
 
 
 
 
 
Basic
25,792

 
25,489

 
25,713

 
25,722

Diluted
25,993

 
26,017

 
25,909

 
26,647




Encore Capital Group, Inc.
Page 7 of 9


ENCORE CAPITAL GROUP, INC.
Consolidated Statements of Cash Flows
(In Thousands)
 
Year Ended December 31,
 
2016
 
2015
 
2014
Operating activities:
 
 
 
 
 
Net income
$
16,817

 
$
47,384

 
$
98,278

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
 
Loss (income) from discontinued operations, net of income taxes
2,353

 
23,387

 
(6,816
)
Depreciation and amortization
34,868

 
33,160

 
27,100

Other non-cash expense, net
30,623

 
35,104

 
27,660

Stock-based compensation expense
12,627

 
22,008

 
17,181

Gain on derivative instruments, net
(7,816
)
 

 

Deferred income taxes
(52,905
)
 
(16,665
)
 
(48,078
)
Excess tax benefit from stock-based payment arrangements

 
(1,724
)
 
(11,928
)
Provision for (reversal of) allowances on receivable portfolios, net
84,177

 
(6,763
)
 
(17,407
)
Changes in operating assets and liabilities
 
 
 
 
 
Deferred court costs and other assets
(20,364
)
 
(33,430
)
 
(11,282
)
Prepaid income tax and income taxes payable
25,417

 
(29,504
)
 
22,180

Accounts payable, accrued liabilities and other liabilities
2,439

 
43,135

 
9,832

Net cash provided by operating activities from continuing operations
128,236

 
116,092

 
106,720

Net cash provided by (used in) operating activities from discontinued operations
2,096

 
(1,667
)
 
4,824

Net cash provided by operating activities
130,332

 
114,425

 
111,544

Investing activities:
 
 
 
 
 
Cash paid for acquisitions, net of cash acquired
(675
)
 
(276,575
)
 
(446,165
)
Proceeds from divestiture of business, net of cash divested
106,041

 

 

Purchases of assets held for sale
(19,874
)
 

 

Purchases of receivable portfolios, net of put-backs
(907,413
)
 
(749,760
)
 
(862,997
)
Collections applied to investment in receivable portfolios, net
659,321

 
635,899

 
633,960

Purchases of property and equipment
(31,668
)
 
(28,624
)
 
(23,084
)
Proceeds from derivative instruments, net
8,800

 

 

Other, net
1,994

 
(1,233
)
 
(5,102
)
Net cash used in investing activities from continuing operations
(183,474
)
 
(420,293
)
 
(703,388
)
Net cash provided by (used in) used in investing activities from discontinued operations
14,685

 
(52,416
)
 
(51,809
)
Net cash used in investing activities
(168,789
)
 
(472,709
)
 
(755,197
)
Financing activities:
 
 
 
 
 
Payment of loan costs
(32,338
)
 
(17,995
)
 
(20,101
)
Proceeds from credit facilities
586,016

 
1,084,393

 
1,343,417

Repayment of credit facilities
(615,857
)
 
(898,086
)
 
(1,184,244
)
Proceeds from senior secured notes
442,610

 
332,693

 
288,645

Repayment of senior secured notes
(352,549
)
 
(15,000
)
 
(15,000
)
Proceeds from issuance of convertible senior notes

 

 
161,000

Proceeds from issuance of securitized notes

 

 
134,000

Repayment of securitized notes
(935
)
 
(44,251
)
 
(29,753
)
Purchases of convertible hedge instruments

 

 
(33,576
)
Repurchase of common stock

 
(33,185
)
 
(16,815
)
Taxes paid related to net share settlement of equity awards
(4,829
)
 
(6,289
)
 
(20,324
)
Excess tax benefit from stock-based payment arrangements

 
1,724

 
11,928

Proceeds from other debt
36,172

 

 

Other, net
(15,037
)
 
(2,159
)
 
7,146

Net cash provided by financing activities
43,253

 
401,845

 
626,323

Net increase (decrease) in cash and cash equivalents
4,796

 
43,561

 
(17,330
)
Effect of exchange rate changes on cash and cash equivalents
(8,624
)
 
(14,131
)
 
15,280

Cash and cash equivalents, beginning of period
153,593

 
124,163

 
126,213

Cash and cash equivalents, end of period
149,765

 
153,593

 
124,163

Cash and cash equivalents of discontinued operations, end of period

 
29,600

 
32,644

Cash and cash equivalents of continuing operations, end of period
$
149,765

 
$
123,993

 
$
91,519

Supplemental disclosures of cash flow information:
 
 
 
 
 
Cash paid for interest
$
147,899

 
$
151,946

 
$
95,034

Cash paid for income taxes, net
60,071

 
84,101

 
69,948

Supplemental schedule of non-cash investing and financing activities:
 
 
 
 
 
Fixed assets acquired through capital lease
$
55

 
$
2,220

 
$
8,341




Encore Capital Group, Inc.
Page 8 of 9


ENCORE CAPITAL GROUP, INC.
Supplemental Financial Information
Reconciliation of Adjusted Income Attributable to Encore to GAAP Net Income Attributable to Encore and Adjusted Operating Expenses Related to Portfolio Purchasing and Recovery Business to GAAP Total Operating Expenses
(In Thousands, Except Per Share amounts) (Unaudited)
 
 
Three Months Ended December 31,
 
2016
 
2015
 
$
 
Per Diluted
Share—
Accounting
 
Per  Diluted
Share—
Economic
 
$
 
Per Diluted
Share—
Accounting
 
Per  Diluted
Share—
Economic
GAAP net income from continuing operations attributable to Encore, as reported
$
21,983

 
$
0.85

 
$
0.85

 
$
28,226

 
$
1.08

 
$
1.10

Adjustments:
 
 
 
 
 
 
 
 
 
 
 
Convertible notes non-cash interest and issuance cost amortization
3,017

 
0.12

 
0.12

 
2,887

 
0.11

 
0.11

Acquisition, integration and restructuring related expenses(1)
7,457

 
0.29

 
0.29

 
2,635

 
0.10

 
0.10

Gain on reversal of contingent consideration(2)
(8,111
)
 
(0.31
)
 
(0.31
)
 

 

 

Amortization of certain acquired intangible assets(4)
415

 
0.02

 
0.02

 

 

 

Income tax effect of the adjustments(5)
(3,693
)
 
(0.15
)
 
(0.15
)
 
(1,687
)
 
(0.06
)
 
(0.06
)
Adjustments attributable to noncontrolling interest(6)
(2,402
)
 
(0.10
)
 
(0.10
)
 
(292
)
 
(0.01
)
 
(0.01
)
Adjusted income from continuing operations attributable to Encore
$
18,666

 
$
0.72

 
$
0.72

 
$
31,769

 
$
1.22

 
$
1.24


 
Year Ended December 31,
 
2016
 
2015
 
$
 
Per Diluted
Share—
Accounting
 
Per  Diluted
Share—
Economic
 
$
 
Per Diluted
Share—
Accounting
 
Per  Diluted
Share—
Economic
GAAP net income from continuing operations attributable to Encore, as reported
$
78,923

 
$
3.05

 
$
3.05

 
$
68,522

 
$
2.57

 
$
2.64

Adjustments:
 
 
 
 
 
 
 
 
 
 
 
Convertible notes non-cash interest and issuance cost amortization
11,830

 
0.46

 
0.46

 
11,332

 
0.43

 
0.44

Acquisition, integration and restructuring related expenses(1)
17,630

 
0.68

 
0.68

 
16,933

 
0.64

 
0.65

Gain on reversal of contingent consideration(2)
(8,111
)
 
(0.31
)
 
(0.31
)
 

 

 

Settlement fees and related administrative expenses(3)
6,299

 
0.24

 
0.24

 
63,019

 
2.36

 
2.43

Amortization of certain acquired intangible assets(4)
2,593

 
0.10

 
0.10

 

 

 

Income tax effect of the adjustments(5)
(12,577
)
 
(0.49
)
 
(0.49
)
 
(28,514
)
 
(1.07
)
 
(1.11
)
Adjustments attributable to noncontrolling interest(6)
(6,461
)
 
(0.25
)
 
(0.25
)
 
(5,273
)
 
(0.20
)
 
(0.20
)
Adjusted income from continuing operations attributable to Encore
$
90,126

 
$
3.48

 
$
3.48

 
$
126,019

 
$
4.73

 
$
4.85




Encore Capital Group, Inc.
Page 9 of 9


________________________
(1)
Amount represents acquisition, integration and restructuring related expenses. We adjust for this amount because we believe these expenses are not indicative of ongoing operations; therefore adjusting for these expenses enhances comparability to prior periods, anticipated future periods, and our competitors’ results.
(2)
Amount represents a gain recognized as a result of reversing a liability for contingent consideration that was established in October 2015 when we acquired a debt solution service provider in Europe. We have adjusted for this amount because we do not believe this is indicative of ongoing operations.
(3)
Amount represents litigation and government settlement fees and related administrative expenses. For the year ended December 31, 2016 amount consists of settlement and administrative fees related to certain TCPA settlements. For the year ended December 31, 2015, amount relates to the consent order with the CFPB that we entered into in September 2015. We believe these fees and expenses are not indicative of ongoing operations; therefore adjusting for these expenses enhances comparability to prior periods, anticipated future periods, and our competitors’ results.
(4)
As we continue to acquire debt solution service providers around the world, the acquired intangible assets, such as trade names and customer relationships, have grown substantially, particularly in recent quarters. These intangible assets are valued at the time of the acquisition and amortized over their estimated lives. We believe that amortization of acquisition-related intangible assets, especially the amortization of an acquired company’s trade names and customer relationships, is the result of pre-acquisition activities. In addition, the amortization of these acquired intangibles is a non-cash static expense that is not affected by operations during any reporting period. As a result, the amortization of certain acquired intangible assets is excluded from our adjusted income from continuing operations attributable to Encore and adjusted income from continuing operations per share.
(5)
Amount represents the total income tax effect of the adjustments, which is calculated based on the applicable marginal tax rate of the jurisdiction in which the portion of the adjustment occurred.
(6)
Certain of the above pre-tax adjustments include expenses recognized by our partially-owned subsidiaries. This adjustment represents the portion of the non-GAAP adjustments that are attributable to noncontrolling interest.

 
Three Months Ended December 31,
 
Year Ended December 31,
2016
 
2015
 
2016
 
2015
GAAP total operating expenses, as reported
$
183,939

 
$
206,271

 
$
787,744

 
$
847,713

Adjustments:
 
 
 
 
 
 
 
Stock-based compensation expense
(3,125
)
 
(4,749
)
 
(12,627
)
 
(22,008
)
Operating expenses related to non-portfolio purchasing and recovery business(1)
(29,291
)
 
(26,144
)
 
(110,875
)
 
(88,548
)
Acquisition, integration and restructuring related operating expenses(2)
(7,457
)
 
(2,635
)
 
(17,630
)
 
(15,528
)
Gain on reversal of contingent consideration(3)
8,111

 

 
8,111

 

Settlement fees and related administrative expenses(4)

 

 
(6,299
)
 
(54,697
)
Adjusted operating expenses related to portfolio purchasing and recovery business
$
152,177

 
$
172,743

 
$
648,424

 
$
666,932

________________________
(1)
Operating expenses related to non-portfolio purchasing and recovery business include operating expenses from other operating segments that primarily engage in fee-based business, as well as corporate overhead not related to our portfolio purchasing and recovery business.
(2)
Amount represents acquisition, integration and restructuring related operating expenses. We adjust for this amount because we believe these expenses are not indicative of ongoing operations; therefore adjusting for these expenses enhances comparability to prior periods, anticipated future periods, and our competitors’ results.
(3)
Amount represents a gain recognized as a result of reversing a liability for contingent consideration that was established in October 2015 when we acquired a debt solution service provider in Europe. We have adjusted for this amount because we do not believe this is indicative of ongoing operations.
(4)
Amount represents litigation and government settlement fees and related administrative expenses. For the year ended December 31, 2016 amount consists of settlement and administrative fees related to certain TCPA settlements. For the year ended December 31, 2015, amount relates to the consent order with the CFPB that we entered into in September 2015. We believe these fees and expenses are not indicative of ongoing operations; therefore adjusting for these expenses enhances comparability to prior periods, anticipated future periods, and our competitors’ results.