8-K

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 11, 2009

ENCORE CAPITAL GROUP, INC.

(Exact Name of Registrant as Specified in 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)

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 2.02. Results of Operations and Financial Condition.

On February 11, 2009, we issued a press release announcing our financial results for the fourth quarter and fiscal year ended December 31, 2008. 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.

Item 9.01. Financial Statements and Exhibits.

(d) Exhibits.

Exhibit Number	Description
99.1	Press release dated February 11, 2009.

The information in this Current Report on Form 8-K, including the exhibit, shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities under that Section, nor be deemed to be incorporated by reference into the filings of the registrant under the Securities Act of 1933.

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 11, 2009	/s/    Paul Grinberg
	Paul Grinberg
	Executive Vice President, Chief Financial Officer and Treasurer

EXHIBIT INDEX

Exhibit Number	Description
99.1	Press release dated February 11, 2009.

EX-99.1

Exhibit 99.1

For Immediate Release

Encore Capital Group Announces Fourth Quarter and Full Year 2008 Results

SAN DIEGO, February 11, 2009 /PRNewswire-FirstCall/ — Encore Capital Group, Inc. (Nasdaq: ECPG), a leading distressed consumer debt management company, today reported consolidated financial results for the fourth quarter and full year ended December 31, 2008.

For the fourth quarter of 2008:

• Gross collections were $94.4 million, a 10% increase over the $85.4 million in the same period of the prior year.

• Investment in receivable portfolios was $63.8 million, to purchase $1.7 billion in face value of debt, compared to $74.6 million, to purchase $1.8 billion in face value of debt in the same period of the prior year. Available capacity under the revolving credit facility, subject to borrowing base and applicable debt covenants, was $97.0 million as of December 31, 2008, compared to $57.8 million as of December 31, 2007.

• Revenue from receivable portfolios was $47.9 million, a 14% decrease from $55.8 million in the same period of the prior year. Revenue recognized on receivable portfolios, as a percentage of portfolio collections, excluding the effects of impairment provisions, was 78%, compared to 76% in the same period of the prior year.

• Revenue from bankruptcy servicing was $4.0 million, a 39% increase over the $2.9 million in the same period of the prior year.

• Total operating expenses were $54.2 million, a 14% increase over the $47.4 million in the same period of the prior year. Operating expense (excluding stock-based compensation expense and bankruptcy servicing operating expenses) per dollar collected increased to 53.6% compared to 50.7% in the same period of the prior year.

• Adjusted EBITDA, defined as net income before interest, taxes, depreciation and amortization, stock-based compensation expense and portfolio amortization, was $51.9 million, a 19% increase over the $43.5 million in the same period of the prior year.

• Total interest expense was $4.2 million, compared to $4.0 million in the same period of the prior year.

• Net income was $0.2 million or $0.01 per fully diluted share, compared to net income of $4.8 million or $0.21 per fully diluted share in the same period of the prior year.

For the full year of 2008:

• Gross collections were $398.6 million, a 12% increase over the $355.2 million in 2007.

• Total revenue was $255.9 million, a 1% increase over the $254.0 million in 2007.

Encore Capital Group, Inc.

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• Adjusted EBITDA was $211.3 million, a 21% increase over the $174.2 million in 2007.

• Net income was $18.8 million or $0.80 per fully diluted share, compared to net income of $15.0 million or $0.64 per fully diluted share in 2007.

Additional information:

Certain events affected the comparability of 2008 versus 2007 quarterly and annual results, as outlined below. For a more detailed comparison of 2008 versus 2007 results, refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.

• In the fourth quarter of 2008, the Company recorded a net impairment provision of $25.4 million, compared to a net impairment provision of $8.7 million in the same period of the prior year. For the full year of 2008, the Company recorded a net impairment provision of $41.4 million, compared to a net impairment provision of $11.2 million in the prior year.

• In the fourth quarter of 2008, the Company expensed $12.1 million in upfront court costs, compared to $6.5 million in the same period of the prior year. For the full year of 2008, the Company expensed $38.5 million in upfront court costs, compared to $28.3 million in the prior year.

• In the fourth quarter of 2008, the Company repurchased $23.6 million principal amount of its outstanding convertible senior notes, for a total price of $16.6 million, plus accrued interest. These repurchases resulted in a net gain of $6.7 million. For the full year of 2008, the Company repurchased $28.6 million principal amount of its outstanding convertible senior notes, for a total price of $20.1 million, plus accrued interest. These repurchases resulted in a net gain of $8.1 million.

• For the full year of 2008, the Company recorded an income tax provision of $13.0 million, reflecting an effective tax rate of 40.8%, compared to an income tax provision of $8.4 million, reflecting an effective tax rate of 35.9% in the prior year. This increase was primarily due to a net state effective tax rate increase in 2008 and to one-time state related tax benefits experienced in 2007.

• In the second quarter of 2007, approximately $11.7 million of total interest expense was attributable to the agreement reached with the Company’s previous lender to pay off all future contingent interest payments.

Non-GAAP Financial Measures

The Company has included information concerning Adjusted EBITDA because management utilizes this information, which is materially similar to a financial measure contained in covenants used in the Company’s credit agreement, in the evaluation of its operations and believes that this measure is a useful indicator of the Company’s ability to generate cash collections in excess of operating expenses through the liquidation of its receivable portfolios. The Company has included information concerning total operating expenses excluding stock-based compensation expense and bankruptcy servicing operating expenses in order to facilitate a comparison of approximate cash costs to cash collections for the debt purchasing business in the periods

Encore Capital Group, Inc.

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presented. These non-GAAP financial measures should not be considered as alternatives to, or more meaningful than, net income and total operating expenses as indicators of Encore Capital Group’s operating performance. Neither Adjusted EBITDA nor operating expenses excluding stock-based compensation expense and bankruptcy servicing operating expenses has been prepared in accordance with generally accepted accounting principles (GAAP). These non-GAAP financial measures, as presented by Encore Capital Group, may not be comparable to similarly titled measures reported by other companies. The Company has included a reconciliation of Adjusted EBITDA to reported earnings under GAAP, and a reconciliation of operating expenses excluding stock-based compensation expense and bankruptcy servicing operating expenses to the GAAP measure total operating expenses in the attached financial tables.

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.

Contact:

Encore Capital Group, Inc.

Paul Grinberg (858) 309-6904

paul.grinberg@encorecapitalgroup.com

or

Ren Zamora (858) 560-3598

ren.zamora@encorecapitalgroup.com

FINANCIAL TABLES FOLLOW

Encore Capital Group, Inc.

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ENCORE CAPITAL GROUP, INC.

Consolidated Statements of Financial Condition

(In Thousands, Except Par Value Amounts)

	December 31, 2008			December 31, 2007
Assets
Cash and cash equivalents	$	10,341		$	8,676
Accounts receivable, net		1,757			4,136
Investment in receivable portfolios, net		461,346			392,209
Deferred court costs		28,335			20,533
Property and equipment, net		6,272			4,390
Prepaid income tax		7,935			10,346
Forward flow asset		10,302			15,863
Other assets		5,286			8,800
Goodwill		15,985			15,985
Identifiable intangible assets, net		1,739			2,557
Total assets	$	549,298		$	483,495
Liabilities and stockholders’ equity
Liabilities:
Accounts payable and accrued liabilities	$	18,204		$	20,346
Deferred tax liabilities, net		15,199			13,669
Deferred revenue and purchased servicing obligation		5,203			3,898
Debt		311,319			272,420
Other liabilities		3,483			1,642
Total liabilities		353,408			311,975
Commitments and contingencies
Stockholders’ 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, 23,053 shares and 22,992 shares issued and outstanding as of December 31, 2008 and 2007, respectively		231			230
Additional paid-in capital		79,971			73,310
Accumulated earnings		117,809			98,975
Accumulated other comprehensive loss		(2,121	)		(995	)
Total stockholders’ equity		195,890			171,520
Total liabilities and stockholders’ equity	$	549,298		$	483,495

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ENCORE CAPITAL GROUP, INC.

Condensed Consolidated Statements of Operations

(In Thousands, Except Per Share Amounts)

	Three Months Ended December 31,						Years Ended December 31,
	2008			2007			2008			2007
Revenue
Revenue from receivable portfolios, net	$	47,902		$	55,813		$	240,802		$	241,402
Servicing fees and other related revenue		4,040			2,904			15,087			12,609
Total revenue		51,942			58,717			255,889			254,011
Operating expenses
Salaries and employee benefits (excluding stock-based compensation expense)		12,617			13,765			58,120			64,153
Stock-based compensation expense		382			1,001			3,564			4,287
Cost of legal collections		26,662			18,987			96,187			78,636
Other operating expenses		5,996			4,563			23,652			21,533
Collection agency commissions		2,310			3,772			13,118			12,411
General and administrative expenses		5,540			4,513			19,445			17,478
Depreciation and amortization		652			810			2,814			3,351
Total operating expenses		54,159			47,411			216,900			201,849
Income before other (expense) income and income taxes		(2,217	)		11,306			38,989			52,162
Other (expense) income
Interest expense		(4,220	)		(4,000	)		(15,629	)		(13,904	)
Contingent interest expense		—			—			—			(4,123	)
Pay-off of future contingent interest		—			—			—			(11,733	)
Gain on repurchase of convertible notes, net		6,679			—			8,096			—
Other income		17			918			358			1,071
Total other expense		2,476			(3,082	)		(7,175	)		(28,689	)
Income before income taxes		259			8,224			31,814			23,473
Provision for income taxes		(28	)		(3,376	)		(12,980	)		(8,431	)
Net income	$	231		$	4,848		$	18,834		$	15,042
Weighted average shares outstanding:
Basic		23,094			22,991			23,046			22,876
Diluted		23,632			23,466			23,577			23,386
Earnings per share:
Basic	$	0.01		$	0.21		$	0.82		$	0.66
Diluted	$	0.01		$	0.21		$	0.80		$	0.64

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ENCORE CAPITAL GROUP, INC.

Consolidated Statements of Cash Flows

(In Thousands)

	Years Ended December 31,
	2008			2007
Operating activities:
Net Income	$	18,834		$	15,042
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		2,814			3,351
Amortization of loan costs		1,377			1,219
Stock-based compensation expense		3,564			4,287
Gain on repurchase of convertible notes, net		(8,096	)		—
Deferred income tax expense		1,531			3,002
Other non-cash tax benefits, net		3,075			2,145
Tax benefit from stock-based payment arrangements		—			(698	)
Provision for impairment on receivable portfolios, net		41,400			11,230
Changes in operating assets and liabilities
Restricted cash		—			4,660
Other assets		4,135			545
Deferred court costs		(7,803	)		(9,599	)
Prepaid income tax		2,411			(6,619	)
Accrued profit sharing arrangement		—			(6,869	)
Deferred revenue and purchased service obligation		1,305			1,108
Accounts payable and accrued liabilities		(1,476	)		(3,194	)
Net cash provided by operating activities		63,071			19,610
Investing activities:
Cash paid for India membership interest		—			(2,250	)
Purchases of receivable portfolios, net of forward flow allocation		(224,717	)		(197,249	)
Collections applied to investment in receivable portfolios		116,101			102,093
Proceeds from put-backs of receivable portfolios		3,640			3,769
Purchases of property and equipment		(2,276	)		(1,422	)
Net cash used in investing activities		(107,252	)		(95,059	)
Financing activities:
Proceeds from notes payable and other borrowings		108,000			121,000
Repayment of notes payable and other borrowings		(42,169	)		(48,500	)
Repurchase of convertible notes		(20,101	)		—
Proceeds from exercise of stock options		23			348
Tax benefit from stock-based payment arrangements		—			698
Proceeds from capital lease		400			—
Repayment of capital lease obligations		(307	)		(212	)
Net cash provided by financing activities		45,846			73,334
Net increase (decrease) in cash		1,665			(2,115	)
Cash and cash equivalents, beginning of period		8,676			10,791
Cash and cash equivalents, end of period	$	10,341		$	8,676
Supplemental disclosures of cash flow information:
Cash paid for interest	$	14,427		$	35,707
Cash paid for income taxes	$	5,301		$	8,730
Supplemental schedule of non-cash investing and financing activities:
Fixed assets acquired through capital lease	$	1,602			—
Allocation of forward flow asset to acquired receivable portfolios	$	5,561		$	11,704

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ENCORE CAPITAL GROUP, INC.

SUPPLEMENTAL FINANCIAL INFORMATION

Reconciliation of Adjusted EBITDA to GAAP Net Income and Operating Expenses, Excluding Stock-based Compensation

Expense and Bankruptcy Servicing Operating Expenses to GAAP Total Operating Expenses

(Unaudited, In Thousands)

	Three Months Ended December 31,						Years Ended December 31,
	2008			2007			2008			2007
GAAP net income, as reported	$	231		$	4,848		$	18,834		$	15,042
Interest expense		4,220			4,000			15,629			13,904
Contingent interest expense		—			—			—			4,123
Pay-off of future contingent interest		—			—			—			11,733
Provision for income taxes		28			3,376			12,980			8,431
Depreciation and amortization		652			810			2,814			3,351
Amount applied to principal on receivable portfolios		46,364			29,498			157,501			113,323
Stock-based compensation expense		382			1,001			3,564			4,287
Adjusted EBITDA	$	51,877		$	43,533		$	211,322		$	174,194
GAAP total operating expenses, as reported	$	54,159		$	47,411		$	216,900		$	201,849
Stock-based compensation expense		(382	)		(1,001	)		(3,564	)		(4,287	)
Bankruptcy servicing operating expenses		(3,192	)		(3,076	)		(13,369	)		(14,801	)
Operating expenses, excluding stock-based compensation expense and bankruptcy servicing operating expenses	$	50,585		$	43,334		$	199,967		$	182,761

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