Unaudited Pro Forma Condensed Consolidated Financial Information
The following unaudited pro forma condensed consolidated financial statements are based on the historical consolidated financial statements of Encore Capital Group, Inc. (the “Company”) and are adjusted to give effect to the divestiture of Propel Acquisition LLC (“Propel”) on March 31, 2016. The unaudited pro forma condensed consolidated statement of financial condition as of December 31, 2015 gives effect to the divestiture of Propel as if it had occurred on December 31, 2015. The unaudited pro forma condensed consolidated statements of income for the years ended December 31, 2015, 2014 and 2013 give effect to the divestiture of Propel as if it had occurred on January 1, 2013. The pro forma condensed consolidated financial statements do not necessarily reflect what the consolidated company’s financial condition or results of operations would have been had the divestiture occurred on the dates indicated. They also may not be useful in predicting the Company’s future financial condition and results of operations. The actual financial position and results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors. Beginning in the first quarter of fiscal 2016, the historical financial results of the Propel tax lien business for periods prior to the divestiture will be reflected in the Company’s consolidated financial statements as discontinued operations.
The unaudited pro forma consolidated financial statements should be read in conjunction with the historical consolidated financial statements and notes thereto in the Annual Report on Form 10-K for the fiscal year ended December 31, 2015.
ENCORE CAPITAL GROUP, INC.
Unaudited Pro Forma Condensed Consolidated Statement of Financial Condition as of December 31, 2015
(In Thousands)
|
| | | | | | | | | | | |
| | Historical Financial Statement | | Pro Forma Adjustments | | Pro Forma Financial Statement |
| Assets | | | | | |
| Cash and cash equivalents | $ | 153,593 |
| | $ | 113,157 |
| (a) | $ | 266,750 |
|
| Investment in receivable portfolios, net | 2,440,669 |
| | — |
| | 2,440,669 |
|
| Receivables secured by property tax liens, net | 306,380 |
| | (306,380 | ) | (b) | — |
|
| Property and equipment, net | 73,504 |
| | (958 | ) | (b) | 72,546 |
|
| Deferred court costs, net | 75,239 |
| | — |
| | 75,239 |
|
| Other assets | 245,620 |
| | (41,530 | ) | (b) | 204,090 |
|
| Goodwill | 924,847 |
| | — |
| | 924,847 |
|
| Total assets | $ | 4,219,852 |
| | $ | (235,711 | ) | | $ | 3,984,141 |
|
| Liabilities and equity | | | | | |
| Liabilities: | | | | | |
| Accounts payable and accrued liabilities | $ | 294,243 |
| | $ | (3,599 | ) | (c) | $ | 290,644 |
|
| Debt | 3,216,572 |
| | (230,854 | ) | (b) | 2,985,718 |
|
| Other liabilities | 60,549 |
| | (1,323 | ) | (b) | 59,226 |
|
| Total liabilities | 3,571,364 |
| | (235,776 | ) | | 3,335,588 |
|
| Commitments and contingencies | | | | | |
| Redeemable noncontrolling interest | 38,624 |
| | — |
| | 38,624 |
|
| Redeemable equity component of convertible senior notes | 6,126 |
| | — |
| | 6,126 |
|
| Equity: | | | | | |
| Convertible preferred stock | — |
| | — |
| | — |
|
| Common stock | 253 |
| | — |
| | 253 |
|
| Additional paid-in capital | 110,533 |
| | — |
| | 110,533 |
|
| Accumulated earnings | 543,489 |
| | 65 |
| (d) | 543,554 |
|
| Accumulated other comprehensive loss | (57,822 | ) | | — |
| | (57,822 | ) |
| Total Encore Capital Group, Inc. stockholders’ equity | 596,453 |
| | 65 |
| | 596,518 |
|
| Noncontrolling interest | 7,285 |
| | — |
| | 7,285 |
|
| Total equity | 603,738 |
| | 65 |
| | 603,803 |
|
| Total liabilities, redeemable equity and equity | $ | 4,219,852 |
| | $ | (235,711 | ) | | $ | 3,984,141 |
|
See accompanying notes to the Unaudited Pro Forma Condensed Consolidated Financial Statements
ENCORE CAPITAL GROUP, INC.
Unaudited Pro Forma Condensed Consolidated Statement of Income For The Year Ended December 31, 2015
(In Thousands, Except Per Share Amounts)
|
| | | | | | | | | | | |
| | Historical Financial Statement | | Pro Forma Adjustments (e) | | Pro Forma Financial Statement |
| Revenues | | | | | |
| Revenue from receivable portfolios, net | $ | 1,072,436 |
| | $ | — |
| | $ | 1,072,436 |
|
| Other revenues | 60,696 |
| | (3,165 | ) | | 57,531 |
|
| Net interest income | 28,440 |
| | (28,440 | ) | | — |
|
| Total revenues | 1,161,572 |
| | (31,605 | ) | | 1,129,967 |
|
| Operating expenses | | | | | |
| Salaries and employee benefits | 270,334 |
| | (8,053 | ) | | 262,281 |
|
| Cost of legal collections | 229,847 |
| | — |
| | 229,847 |
|
| Other operating expenses | 98,182 |
| | (4,972 | ) | | 93,210 |
|
| Collection agency commissions | 37,858 |
| | — |
| | 37,858 |
|
| General and administrative expenses | 196,827 |
| | (5,470 | ) | | 191,357 |
|
| Depreciation and amortization | 33,945 |
| | (785 | ) | | 33,160 |
|
| Goodwill impairment | 49,277 |
| | (49,277 | ) | | — |
|
| Total operating expenses | 916,270 |
| | (68,557 | ) | | 847,713 |
|
| Income from operations | 245,302 |
| | 36,952 |
| | 282,254 |
|
| Other (expense) income | | | | | |
| Interest expense | (186,556 | ) | | — |
| | (186,556 | ) |
| Other income | 2,235 |
| | — |
| | 2,235 |
|
| Total other expense | (184,321 | ) | | — |
| | (184,321 | ) |
| Income before income taxes | 60,981 |
| | 36,952 |
| | 97,933 |
|
| Provision for income taxes | (13,597 | ) | | (13,565 | ) | | (27,162 | ) |
| Net income | 47,384 |
| | 23,387 |
| | 70,771 |
|
| Net income attributable to noncontrolling interest | (2,249 | ) | | — |
| | (2,249 | ) |
| Net income attributable to Encore Capital Group, Inc. stockholders | $ | 45,135 |
| | $ | 23,387 |
| | $ | 68,522 |
|
| | | | | | |
| Earnings per share attributable to Encore Capital Group, Inc.: | | | | | |
| | | | | | |
| Basic | $ | 1.75 |
| | $ | 0.91 |
| | $ | 2.66 |
|
| Diluted | $ | 1.69 |
| | $ | 0.88 |
| | $ | 2.57 |
|
| | | | | | |
| Weighted average shares outstanding: | | | | | |
| Basic | 25,722 |
| | 25,722 |
| | 25,722 |
|
| Diluted | 26,647 |
| | 26,647 |
| | 26,647 |
|
See accompanying notes to the Unaudited Pro Forma Condensed Consolidated Financial Statements
ENCORE CAPITAL GROUP, INC.
Unaudited Pro Forma Condensed Consolidated Statement of Income For The Year Ended December 31, 2014
(In Thousands, Except Per Share Amounts)
|
| | | | | | | | | | | |
| | Historical Financial Statement | | Pro Forma Adjustments (e) | | Pro Forma Financial Statement |
| Revenues | | | | | |
| Revenue from receivable portfolios, net | $ | 992,832 |
| | $ | — |
| | $ | 992,832 |
|
| Other revenues | 51,988 |
| | (1,391 | ) | | 50,597 |
|
| Net interest income | 27,969 |
| | (27,969 | ) | | — |
|
| Total revenues | 1,072,789 |
| | (29,360 | ) | | 1,043,429 |
|
| Operating expenses | | | | | |
| Salaries and employee benefits | 246,247 |
| | (7,305 | ) | | 238,942 |
|
| Cost of legal collections | 205,661 |
| | — |
| | 205,661 |
|
| Other operating expenses | 93,859 |
| | (3,925 | ) | | 89,934 |
|
| Collection agency commissions | 33,343 |
| | — |
| | 33,343 |
|
| General and administrative expenses | 146,286 |
| | (6,309 | ) | | 139,977 |
|
| Depreciation and amortization | 27,949 |
| | (848 | ) | | 27,101 |
|
| Total operating expenses | 753,345 |
| | (18,387 | ) | | 734,958 |
|
| Income from operations | 319,444 |
| | (10,973 | ) | | 308,471 |
|
| Other (expense) income | | | | | |
| Interest expense | (166,942 | ) | | — |
| | (166,942 | ) |
| Other income | 113 |
| | — |
| | 113 |
|
| Total other expense | (166,829 | ) | | — |
| | (166,829 | ) |
| Income before income taxes | 152,615 |
| | (10,973 | ) | | 141,642 |
|
| Provision for income taxes | (52,725 | ) | | 4,156 |
| | (48,569 | ) |
| Income from continuing operations | 99,890 |
| | (6,817 | ) | | 93,073 |
|
| Loss from discontinued operations, net of tax | (1,612 | ) | | — |
| | (1,612 | ) |
| Net income | 98,278 |
| | (6,817 | ) | | 91,461 |
|
| Net loss attributable to noncontrolling interest | 5,448 |
| | — |
| | 5,448 |
|
| Net income attributable to Encore Capital Group, Inc. stockholders | $ | 103,726 |
| | $ | (6,817 | ) | | $ | 96,909 |
|
| Amounts attributable to Encore Capital Group, Inc.: | | | | | |
| Income from continuing operations | $ | 105,338 |
| | $ | (6,817 | ) | | $ | 98,521 |
|
| Loss from discontinued operations, net of tax | (1,612 | ) | | — |
| | (1,612 | ) |
| Net income | $ | 103,726 |
| | $ | (6,817 | ) | | $ | 96,909 |
|
| | | | | | |
| Earnings per share attributable to Encore Capital Group, Inc.: | | | | | |
| | | | | | |
| Basic earnings (loss) per share from: | | | | | |
| Continuing operations | $ | 4.07 |
| | $ | (0.26 | ) | | $ | 3.81 |
|
| Discontinued operations | $ | (0.06 | ) | | $ | — |
| | $ | (0.06 | ) |
| Basic | $ | 4.01 |
| | $ | (0.26 | ) | | $ | 3.75 |
|
| Diluted earnings (loss) per share from: | | | | | |
| Continuing operations | $ | 3.83 |
| | $ | (0.25 | ) | | $ | 3.58 |
|
| Discontinued operations | $ | (0.06 | ) | | $ | — |
| | $ | (0.06 | ) |
| Diluted | $ | 3.77 |
| | $ | (0.25 | ) | | $ | 3.52 |
|
| | | | | | |
| Weighted average shares outstanding: | | | | | |
| Basic | 25,853 |
| | 25,853 |
| | 25,853 |
|
| Diluted | 27,495 |
| | 27,495 |
| | 27,495 |
|
See accompanying notes to the Unaudited Pro Forma Condensed Consolidated Financial Statements
ENCORE CAPITAL GROUP, INC.
Unaudited Pro Forma Condensed Consolidated Statement of Income For The Year Ended December 31, 2013
(In Thousands, Except Per Share Amounts)
|
| | | | | | | | | | | |
| | Historical Financial Statement | | Pro Forma Adjustments (e) | | Pro Forma Financial Statement |
| Revenues | | | | | |
| Revenue from receivable portfolios, net | $ | 744,870 |
| | $ | — |
| | $ | 744,870 |
|
| Other revenues | 12,588 |
| | (1,181 | ) | | 11,407 |
|
| Net interest income | 15,906 |
| | (15,906 | ) | | — |
|
| Total revenues | 773,364 |
| | (17,087 | ) | | 756,277 |
|
| Operating expenses | | | | | |
| Salaries and employee benefits | 165,040 |
| | (5,721 | ) | | 159,319 |
|
| Cost of legal collections | 186,959 |
| | — |
| | 186,959 |
|
| Other operating expenses | 66,649 |
| | (3,420 | ) | | 63,229 |
|
| Collection agency commissions | 33,097 |
| | — |
| | 33,097 |
|
| General and administrative expenses | 109,713 |
| | (2,900 | ) | | 106,813 |
|
| Depreciation and amortization | 13,547 |
| | (490 | ) | | 13,057 |
|
| Total operating expenses | 575,005 |
| | (12,531 | ) | | 562,474 |
|
| Income from operations | 198,359 |
| | (4,556 | ) | | 193,803 |
|
| Other (expense) income | | | | | |
| Interest expense | (73,269 | ) | | — |
| | (73,269 | ) |
| Other expense | (4,222 | ) | | (3 | ) | | (4,225 | ) |
| Total other expense | (77,491 | ) | | (3 | ) | | (77,494 | ) |
| Income before income taxes | 120,868 |
| | (4,559 | ) | | 116,309 |
|
| Provision for income taxes | (45,388 | ) | | 1,735 |
| | (43,653 | ) |
| Income from continuing operations | 75,480 |
| | (2,824 | ) | | 72,656 |
|
| Loss from discontinued operations, net of tax | (1,740 | ) | | — |
| | (1,740 | ) |
| Net income | 73,740 |
| | (2,824 | ) | | 70,916 |
|
| Net loss attributable to noncontrolling interest | 1,559 |
| | — |
| | 1,559 |
|
| Net income attributable to Encore Capital Group, Inc. stockholders | $ | 75,299 |
| | $ | (2,824 | ) | | $ | 72,475 |
|
| Amounts attributable to Encore Capital Group, Inc.: | | | | | |
| Income from continuing operations | $ | 77,039 |
| | $ | (2,824 | ) | | $ | 74,215 |
|
| Loss from discontinued operations, net of tax | (1,740 | ) | | — |
| | (1,740 | ) |
| Net income | $ | 75,299 |
| | $ | (2,824 | ) | | $ | 72,475 |
|
| | | | | | |
| Earnings per share attributable to Encore Capital Group, Inc.: | | | | | |
| | | | | | |
| Basic earnings (loss) per share from: | | | | | |
| Continuing operations | $ | 3.12 |
| | $ | (0.11 | ) | | $ | 3.01 |
|
| Discontinued operations | $ | (0.07 | ) | | $ | — |
| | $ | (0.07 | ) |
| Basic | $ | 3.05 |
| | $ | (0.11 | ) | | $ | 2.94 |
|
| Diluted earnings (loss) per share from: | | | | | |
| Continuing operations | $ | 2.94 |
| | $ | (0.11 | ) | | $ | 2.83 |
|
| Discontinued operations | $ | (0.07 | ) | | $ | — |
| | $ | (0.06 | ) |
| Diluted | $ | 2.87 |
| | $ | (0.11 | ) | | $ | 2.77 |
|
| | | | | | |
| Weighted average shares outstanding: | | | | | |
| Basic | 24,659 |
| | 24,659 |
| | 24,659 |
|
| Diluted | 26,204 |
| | 26,204 |
| | 26,204 |
|
See accompanying notes to the Unaudited Pro Forma Condensed Consolidated Financial Statements
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
The pro forma adjustments are based on our preliminary estimates and assumptions that are subject to change. The following adjustments have been reflected in the unaudited pro forma condensed consolidated financial information:
Adjustments to the pro forma condensed consolidated statement of financial condition
(a) Represents net cash received on sale less cash held at Propel which will transfer to buyer. The Company expects to use the proceeds to pay down the revolving credit facility and for general corporate purposes.
(b) Reflects the elimination of Propel’s historical assets and liabilities.
(c) Reflects the elimination of Propel’s historical accounts payable and accrued liabilities and adjustment for income taxes payable related to gain on sale.
(d) Represents the estimated gain on sale of Propel, less estimated income taxes payable. The actual gain to be recognized will be adjusted by the actual closing adjustments and actual transaction fees incurred. This estimated gain has not been reflected in the pro forma consolidated statement of income as it is considered to be nonrecurring in nature. No adjustment has been made to the sale proceeds to give effect to any potential post-closing adjustments under the terms of the purchase agreement.
Adjustments to the pro forma condensed consolidated statements of income
(e) Represents the elimination of Propel’s historical operating results for the periods presented. The anticipated nonrecurring after-tax gain on the sale is not reflected in the pro forma condensed consolidated statements of income.
