EX-99 3 exhibit_991.htm BYLAWS AND PRESS RELEASE Form 8k - March 3, 2005

EXHIBIT 99.1

Encore Reports a 50% Increase in Fully Diluted Earnings Per Share in the 4th Quarter of 2004

4th Quarter Highlights:

  • Collections increase 12%
  • Revenues increase 46%
  • Net income increases 48%
  • Earnings per fully diluted share increase 50%
  • Pre-tax cash flows from operations increase 64%

San Diego – (Business Wire) – March 3, 2005 – Encore Capital Group, Inc. (Nasdaq: ECPG), a leading accounts receivable management firm, today reported consolidated financial results for the fourth quarter and full year ended December 31, 2004.

For the fourth quarter of 2004:

  • Gross collections were $53.4 million, a 12% increase over the $47.7 million in the same period of the prior year
  • Total revenues were $46.0 million, a 46% increase over the $31.4 million in the same period of the prior year
  • Net income was $5.7 million compared with $3.8 million in the same period of the prior year, a 48% increase
  • Earnings per fully diluted share were $0.24, a 50% increase over the $0.16 in the same period of the prior year. Earnings per fully diluted share in the fourth quarter of 2004 were up 26% over the $0.19 earned in the same period of the prior year excluding the one-time other charge.

For the full year 2004:

  • Gross collections were $234.7 million, a 23% increase over the $190.5 million in 2003
  • Total revenues were $178.5 million, a 52% increase over the $117.5 million in 2003
  • Net income was $23.2 million, a 26% increase over $18.4 million in 2003
  • Earnings per fully diluted share were $0.99 a 12% increase over $0.88 in 2003. Earnings per fully diluted share in 2004 were up 41% over the $0.70 earned in 2003 excluding the one-time benefit and other charge.
“Our fourth quarter performance capped a very strong year for Encore, as we generated record levels of collections, revenues, and earnings per share,” commented Carl C. Gregory, III, Vice Chairman and CEO of Encore Capital Group, Inc. “We were able to achieve this strong growth despite scaling back on our purchasing of new portfolios throughout much of 2004 in response to less attractive pricing in the marketplace. Total purchases during 2004 were $103.4 million compared to $89.8 million in 2003. We continue to effectively develop alternative collection channels, such as legal and agency outsourcing, which increase our ability to penetrate our portfolios further. For the full year, our collections through alternative channels, other than sales, more than doubled, and we expect that our continued development of these channels will be valuable in enhancing the productivity of our collection efforts and the profitability of our operations.”

Fourth Quarter Financial Highlights

Revenue recognized, as a percentage of collections, was 86% in the fourth quarter of 2004, compared to 66% in the fourth quarter of 2003. The increase in the percentage of revenue recognized in the fourth quarter of 2004 is primarily attributable to high levels of zero-basis income, deeper penetration of more tenured portfolios, and a larger portion of portfolio purchases occurring later in the quarter.

Total operating expenses for the fourth quarter of 2004 were $27.9 million, compared with $19.8 million in the fourth quarter of 2003. The increase in total operating expenses is largely volume driven and reflects growth in the utilization of the legal collection channel and the expansion of the agency outsourcing collection channel. General and administrative expenses included approximately $0.8 million related to Sarbanes-Oxley compliance efforts and $0.1 million in SEC reporting fees and legal fees related to the Company’s secondary offering completed in January 2005.

Pretax cash flows from operations for the fourth quarter of 2004 were $14.5 million, an increase of 64% over the $8.9 million generated in the same period of 2003. (Adjustments to arrive at pre-tax cash flow from operations consisted of income tax payments of $1.4 million in the fourth quarter of 2004 and $0.9 million in the fourth quarter of 2003.) The Company exhausted its Federal net operating loss carry forward in the fourth quarter of 2003 and began to make income tax payments at the statutory rates in 2004.

The Company spent $46.1 million to purchase approximately $1.2 billion in face value of portfolios during the fourth quarter of 2004, a blended purchase price of 3.86% of face value. 96% of the portfolios purchased in the fourth quarter of 2004 were credit card receivables.

“The current purchasing market remains highly competitive,” said Mr. Gregory. “However, we believe there are opportunities to purchase portfolios that can yield acceptable returns. During the fourth quarter, we spent approximately $46.1 million on portfolios that we expect to be profitable for the Company, though to a lesser degree than portfolios purchased in prior years.”

Outlook

Commenting on the outlook for the Company, Mr. Gregory said, “We believe that 2005 will be another year of strong earnings growth, driven primarily by disciplined expense control and lower interest costs resulting from our new revolving credit facility. We are intensely focused on optimizing our operating efficiency by leveraging our sophisticated analytics to assign accounts to the channel that can collect them in the most profitable manner. Our continual focus on improving the efficiency of our operations serves the Company particularly well during periods when conditions in the purchasing market present challenges to driving top-line growth.”

“Our strong performance over the past few years has significantly improved our financial strength and flexibility. We are now in a position to begin pursuing acquisition opportunities that can expand our footprint into additional asset classes or collection channels.”

The Company also provided the following information to assist the investment community:

  • Due to rising purchase prices for portfolios, an increase in the amount invested in portfolio purchases does not necessarily result in a corresponding increase in collections. This could also result in a lower revenue recognition percentage for the portfolios purchased under this scenario.
  • As a result of the replacement of its Secured Credit Facility with the new revolving credit facility, the Company anticipates that contingent interest expense will decline beginning in 2005. The Company has forecasted that its contingent interest expense could be approximately 65% of 2004 levels in 2005; 35% of 2004 levels in 2006; and subsequent lower levels beyond 2006. Contingent interest expense amounted to $32.3 million for the year 2004 which represents $0.81 per fully diluted share, net of taxes.

GAAP Reconciliation

The table included in the attached supplemental financial information is a reconciliation of generally accepted accounting principles in the United States of America (“GAAP”) income before taxes, net income, fully diluted earnings per share and cash flows from operations to income before taxes, net income, fully diluted earnings per share, and cash flows from operations excluding one-time benefits, and the effects of income taxes with respect to cash flows from operations for the periods presented. We believe that these non-GAAP financial measures provide useful information to investors about our results of operations because the elimination of one-time benefits that are included in the GAAP financial measures results in enhanced comparability of certain key financial results between the periods presented.

Conference Call and Webcast
The Company will hold a conference call today at 2:00 P.M. Pacific time / 5:00 P.M. Eastern time to discuss the fourth quarter results. Members of the public are invited to listen to the live conference call via the Internet.

To hear the presentation and to access a slide presentation containing financial information that will be discussed in the conference call, log on at the Investor Relations page of the Company’s web site at www.encorecapitalgroup.com. For those who cannot listen to the live broadcast, a replay of the conference call will be available shortly after the call at the same location.

About Encore Capital Group, Inc.
Encore Capital Group, Inc. is a systems-driven purchaser and manager of charged-off consumer receivables portfolios. More information on the company can be found at www.encorecapitalgroup.com.

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 “may,” “believes,” “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, projections of future contingent interest expense, purchase volumes, revenues, income or loss (including our expectations regarding the current environment for portfolio purchases and its effect on revenue recognition rates and profitability); estimates of capital expenditures; plans for future operations, products or services; and financing needs or plans, as well as assumptions relating to those matters. 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 our subsidiaries to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Factors that could affect the Company’s results and cause them to materially differ from those contained in the forward-looking statements include: the Company’s ability to purchase receivables portfolios on acceptable terms and in sufficient quantities; the Company’s ability to acquire and collect on portfolios consisting of new types of receivables; the Company’s ability to recover sufficient amounts on or with respect to receivables to fund operations; the Company’s ability to successfully execute acquisitions; the Company’s continued servicing of receivables in its third party financing transactions; the Company’s ability to hire and retain qualified personnel to recover on its receivables efficiently; changes in, or failure to comply with, government regulations; the costs, uncertainties and other effects of legal and administrative proceedings; and risk factors and cautionary statements made in the Company’s Annual Report on Form 10-K as of and for the year ended December 31, 2004. Forward-looking statements speak only as of the date the statement was made. They are inherently subject to risks and uncertainties, some of which the Company cannot predict or quantify. Future events and actual results could differ materially from the forward-looking statements. The Company will not undertake and specifically declines any obligation to publicly release the result of any revisions to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events, whether as the result of new information, future events or for any other reason. In addition, it is the Company’s policy generally not to make any specific projections as to future earnings, and the Company does not endorse any projections regarding future performance that may be made by third parties.

CONTACT:
Encore Capital Group, Inc. (Shareholders/Analysts)
Carl C. Gregory, III, 858-309-6961
carl.gregory@encorecapitalgroup.com
or
Financial Relations Board (Press)
Tony Rossi, 310-407-6563 (Investor Relations)
trossi@financialrelationsboard.com

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

December 31, December 31,
2004 2003
Assets            
Cash and cash equivalents     $ 49,731   $ 38,612  
Restricted cash       3,432     842  
Investment in receivable portfolios, net       137,963     89,136  
Investment in retained interest       -     1,231  
Property and equipment, net       3,360     2,786  
Deferred tax asset, net       361     1,358  
Other assets       6,295     4,320  
Total assets     $ 201,142   $ 138,285  
Liabilities and stockholders' equity    
Liabilities            
Accounts payable and accrued liabilities     $ 17,418   $ 11,644  
Accrued profit sharing arrangement       20,881     12,749  
Income tax payable       -     883  
Notes payable and other borrowings       66,567     41,178  
Capital lease obligations       261     460  
Total liabilities       105,127     66,914  
Commitments and contingencies    

Stockholders' equity

    
Convertible preferred stock, $.01 par value, 5,000 shares    
       authorized, and no shares issued and outstanding       -     -  
Common stock, $.01 par value, 50,000 shares authorized,    
       and 22,166 shares and 22,003 shares issued and outstanding    
       as of December 31, 2004 and 2003, respectively       222     220  
Additional paid-in capital       66,788     65,387  
Accumulated earnings       28,834     5,658  
Accumulated other comprehensive income       171     106  
Total stockholders' equity       96,015     71,371  
Total liabilities and stockholders' equity     $ 201,142   $ 138,285  

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

Years ended December 31,
2004 2003 2002
Revenues                
   Revenue from receivable portfolios     $ 175,296   $ 115,575   $ 80,961  
   Revenue from retained interest       2,487     307     5,707  
   Servicing fees and other related revenue       692     1,620     3,712  
Total revenues       178,475     117,502     90,380  
Operating expenses    
   Salaries and employee benefits       47,193     39,286     35,137  
   Other operating expenses       13,645     11,335     7,934  
   Cost of legal collections       28,202     15,827     11,028  
   Collection agency commissions       4,786     -     -  
   General and administrative expenses       9,212     6,509     6,314  
   Provision for portfolio losses       -     -     1,049  
   Depreciation and amortization       1,951     2,023     2,453  
Total operating expenses       104,989     74,980     63,915  
Income before other income (expense)                
    and income taxes       73,486     42,522     26,465  
Other income (expense)                
   Interest expense       (35,330 )   (20,479 )   (18,592 )
   Other income       690     7,380     213  
Total other expense       (34,640 )   (13,099 )   (18,379 )
Income before income taxes       38,846     29,423     8,086  
(Provision for) benefit from income taxes       (15,670 )   (11,003 )   5,703  
Net income       23,176     18,420     13,789  
Preferred stock dividends       -     (374 )   (440 )
Net income available to common stockholders     $ 23,176   $ 18,046   $ 13,349  
Weighted average shares outstanding       22,072     10,965     7,339  
Incremental shares from assumed conversion                
    of warrants, options, and preferred stock       1,409     9,908     9,120  
Adjusted weighted average shares outstanding       23,481     20,873     16,459  
Earnings per share - Basic     $ 1.05   $ 1.65   $ 1.82  
Earnings per share - Diluted     $ 0.99   $ 0.88   $ 0.84  

ENCORE CAPITAL GROUP, INC.
Consolidated Statements of Stockholders' Equity  and Comprehensive Income
(In Thousands)

Accumulated
Additional Accumulated Other
Common Stock Preferred Stock Paid-In Earnings Comprehensive
Shares Par Shares Cost Capital (Deficit) Income Total
Balance at December 31, 2001     7,161   $ 72   -   $ -   $ 22,111   $ (25,737 ) $ 1,196   $ (2,358 )
Net income       -     -     -     -     -     13,789     -     13,789  
Other comprehensive income:                                    
     unrealized gain on non-qualified    
     deferred compensation plan assets       -     -     -     -     -     -     39     39  
Other comprehensive loss: decrease in                                    
     unrealized gain on investment                                    
     retained interest, net of tax       -     -     -     -     -     -     (868 )   (868 )
Comprehensive income       -     -     -     -     -     -     -     12,960  
Net proceeds from issuance of Preferred Stock       -     -     1,000     10     4,578     -     -     4,588  
Preferred dividends       -     -     -     -     -     (440 )   -     (440 )
Forgiveness of debt, net       -     -     -     -     4,665     -     -     4,665  
Issuance of common stock warrants       -     -     -     -     125     -     -     125  
Exercise of common stock warrants       250     2     -     -     -     -     -     2  
Balance at December 31, 2002       7,411     74     1,000     10     31,479     (12,388 )   367     19,542  
Net income       -     -     -     -     -     18,420     -     18,420  
Other comprehensive income:                                    
     unrealized gain on non-qualified    
     deferred compensation plan assets       -     -     -     -     -     -     46     46  
Other comprehensive loss: decrease in    
     unrealized gain on investment                                    
     retained interest, net of tax       -     -     -     -     -     -     (307 )   (307 )
Comprehensive income       -     -     -     -     -     -     -     18,159  
Preferred dividends       -     -     -     -     -     (374 )   -     (374 )
Preferred stock converted to common stock       10,000     100     (1,000 )   (10 )   (90 )   -     -     -  
Net proceeds from issuance of common stock       3,000     30     -     -     30,101     -     -     30,131  
Exercise of common stock warrants       957     10     -     -     615     -     -     625  
Exercise of stock options       635     6     -     -     608     -     -     614  
Excess tax benefits related to stock options       -     -     -     -     2,546     -     -     2,546  
Amortization of stock options    
     issued at below market       -     -     -     -     128     -     -     128  
Balance at December 31, 2003       22,003     220     -     -     65,387     5,658     106     71,371  
Net income       -     -     -     -     -     23,176     -     23,176  
Other comprehensive income:                                    
     unrealized gain on non-qualified    
     deferred compensation plan assets       -     -     -     -     -     -     86     86  
Other comprehensive loss: decrease in    
     unrealized gain on investment                                    
     retained interest, net of tax       -     -     -     -     -     -     (21 )   (21 )
Comprehensive income       -     -     -     -     -     -     -     23,241  
Exercise of stock options       163     2     -     -     167     -     -     169  
Excess tax benefits related to stock options       -     -     -     -     1,125     -     -     1,125  
Amortization of stock options                                    
     issued at below market       -     -     -     -     109     -     -     109  
Balance at December 31, 2004     22,166   $ 222   -   $ -   $ 66,788   $ 28,834   $ 171   $ 96,015  

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

Years ended December 31,
2004 2003 2002
Operating activities                    
Gross collections from investment in receivable portfolios   $ 228,657     $ 178,950   $ 124,388    
Gross collections from investment in retained interest     3,682       6,819   13,929    
Gross collections for third parties     2,337       4,750   10,491    
Total gross collections     234,676       190,519   148,808    
               
Proceeds from litigation settlement     -       11,100   -    
Less:    
   Amounts collected on behalf of third parties     (2,337 )     (4,750 ) (10,491 )  
   Amounts applied to principal on receivable portfolios     (53,362 )     (63,374 ) (43,423 )  
   Amounts applied to principal of securitization 98-1     (1,195 )     (6,512 ) (7,808 )  
   Litigation settlement proceeds applied to principal of receivable
     portfolios     -       (692 ) -    
   Legal and other costs related to litigation settlement     -       (3,198 ) -    
Servicing fees     692       1,620   3,712    
Operating Expenses                
   Salaries and employee benefits     (44,526 )     (38,431 ) (32,909 )  
   Other operating expenses     (12,083 )     (11,044 ) (7,803 )  
   Cost of legal collections     (28,202 )     (15,827 ) (11,028 )  
   Collection agency commissions     (4,786 )     -   -    
   General and administrative     (8,873 )     (6,303 ) (6,707 )  
   Interest payments     (2,892 )     (5,222 ) (4,146 )  
   Contingent interest payments     (24,128 )     (14,455 ) (4,246 )  
   Other income     690       295   211    
   Decrease (Increase) in restricted cash     (2,590 )     2,263   (52 )  
   Income taxes     (14,672 )     (2,018 ) 572    
Net cash provided by operating activities     36,412       33,971   24,690    
Investing activities                
Purchases of receivable portfolios     (103,374 )     (89,834 ) (62,525 )  
Collections applied to principal of receivable portfolios     53,362       63,374   43,423    
Litigation settlement proceeds applied to principal of receivable    
   portfolios     -       692   -    
Collections applied to principal of securitization 98-1     1,195       6,512   7,808    
Proceeds from put-backs of receivable portfolios     1,185       799   882    
Proceeds from the sale of property and equipment     -       -   3    
Purchases of property and equipment     (2,525 )     (1,015 ) (749 )  
Net cash used in investing activities     (50,157 )     (19,472 ) (11,158 )  
Financing activities    
Proceeds from notes payable and other borrowings     78,676       78,226   62,183    
Repayment of notes payable and other borrowings     (53,288 )     (85,478 ) (79,669 )  
Capitalized loan costs relating to financing arrangement     (494 )     (245 ) (154 )  
Proceeds from sale of common stock, net     -       30,131   -    
Proceeds from exercise of common stock options     169       614   -    
Proceeds from exercise of common stock warrants     -       625   2    
Proceeds from sale of preferred stock     -       -   4,588    
Payments of preferred dividends     -       (374 ) (250 )  
Repayment of capital lease obligations     (199 )     (138 ) (892 )  
Net cash provided by (used in) financing activities     24,864       23,361   (14,192 )  
Net increase (decrease) in cash     11,119       37,860   (660 )  
Cash and cash equivalents, beginning of year     38,612       752   1,412    
Cash and cash equivalents, end of year     $ 49,731     $ 38,612   $ 752    

ENCORE CAPITAL GROUP, INC.
Consolidated Statements of Cash Flows (continued)
Reconciliation of Net Income to Net Cash Provided by Operating Activities
(In Thousands)

Years ended December 31,
2004 2003 2002
Net income     $ 23,176   $ 18,420   $ 13,789  
Adjustments to reconcile net income to net cash    
   provided by operating activities:    
     Depreciation and amortization       1,951     2,023     2,452  
     Amortization of loan costs       76     603     661  
     Amortization of debt discount       -     742     112  
     Amortization of stock based compensation       109     128     -  
     Deferred income tax expense (benefit)       815     5,456     (6,234 )
     Excess tax benefits from stock options       1,125     2,722     -  
     Increase in income on retained interest       -     -     414  
     Provision for portfolio losses       -     -     1,049  
Changes in operating assets and liabilities    
     (Increase) decrease in restricted cash       (2,590 )   2,263     (52 )
     Increase in other assets       (2,254 )   (1,339 )   (783 )
     Increase in accrued profit sharing arrangement       8,132     1,569     8,802  
     Increase in accounts payable and accrued liabilities       5,872     1,384     4,480  
Net cash provided by operating activities     $ 36,412   $ 33,971   $ 24,690  
Supplemental schedules of non-cash investing activities:    
   
     Property and equipment acquired under capital leases     $ -   $ 253   $ -  
Supplemental schedules of non-cash financing activities:    
   
     Issuance of common stock warrants    
          in connection with debt agreements     $ -   $ -   $ 125  
     Recordation of equity in connection with debt forgiveness     $ -   $ -   $ 4,665  

Encore Capital Group, Inc.
Supplemental Financial Information
Reconciliation of GAAP Income Before Taxes, Net Income, Fully Diluted Earnings Per Share and Cash Flow
From Operations to Income Before Taxes, Net Income, Fully Diluted Earnings Per Share and Cash Flow From
Operations Excluding One-Time Benefits and Charges
For the Quarters and the Years Ended December 31, 2004 and 2003
(In Thousands, Except Percentages and Earning Per Share)

Quarters Ended Years Ended
December 31, December 31,
2004 2003 2004 2003
Income Before Taxes                    
GAAP, as reported     $ 9,674   $ 5,071   $ 38,846   $ 29,423  
Gain on settlement of litigation       -     -     -     (7,210 )
Write off of deferred costs       -     870     -     870  
Income before taxes, excluding    
     one-time benefit and charges     $ 9,674   $ 5,941   $ 38,846   $ 23,083  
Percentage increase over prior period       62.8 %     68.3 %
Net Income    
GAAP, as reported     $ 5,683   $ 3,841   $ 23,176   $ 18,420  
Gain on settlement of litigation       -     -     -     (4,376 )
Write off of deferred costs       -     528     -     528  
Net income, excluding    
     one-time benefits and charges     $ 5,683   $ 4,369   $ 23,176   $ 14,572  
Percentage increase over prior period       30.1 %     59.0 %
Fully Diluted Earnings Per Share    
GAAP, as reported     $ 0.24   $ 0.16   $ 0.99   $ 0.88  
Gain on settlement of litigation1       -     -     -     (0.21 )
Write off of deferred costs       -     0.03     -     0.03  
Fully diluted earnings per share,    
     excluding one-time benefits and charges     $ 0.24   $ 0.19   $ 0.99   $ 0.70  
Percentage increase over prior period       26.3 %     41.4 %
Cash Flow From Operations:    
GAAP, as reported     $ 13,158   $ 7,911   $ 36,412   $ 33,971  
Income taxes paid       1,377     941     14,672     2,018  
Pre-tax cash flows from operations     $ 14,535   $ 8,852   $ 51,084   $ 35,989  
Proceeds from litigation settlement1       -     -     -     (11,100 )
Legal and other costs related to    
     litigation settlement1       -     -     -     3,198  
Litigation proceeds applied to portfolio1       -     -     -     692  
Pre-tax cash flow from operations    
     excluding one-time benefit     $ 14,535   $ 8,852   $ 51,084   $ 28,779  
Percentage increase over prior period       64.2 %     77.5 %

1 This is the result of a net pretax gain of $7.2 million, a net after-tax gain of $4.4 million, or $0.21 per fully diluted share associated with a litigation settlement during the first quarter of 2003.