Attached files
file | filename |
---|---|
EX-31.1 - EX-31.1 - PRA GROUP INC | w80879exv31w1.htm |
EX-32.1 - EX-32.1 - PRA GROUP INC | w80879exv32w1.htm |
EX-31.2 - EX-31.2 - PRA GROUP INC | w80879exv31w2.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
Amendment No. 1
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2010.
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 000-50058
Portfolio Recovery Associates, Inc.
(Exact name of registrant as specified in its charter)
Delaware | 75-3078675 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) | |
120 Corporate Boulevard, Norfolk, Virginia | 23502 | |
(Address of principal executive offices) | (zip code) |
(888) 772-7326
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YES þ NO o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files).
YES o NO o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer. See the definitions of large accelerated filer, accelerated
filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large
accelerated filer þ
|
Accelerated filer o | Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act).
YES o NO þ
The number of shares outstanding of each of the issuers classes of common stock, as of the
latest practicable date.
Class | Outstanding as of November 3, 2010 | |||
Common Stock, $0.01 par value |
17,061,914 |
EXPLANATORY NOTE
The purpose of this Quarterly Report on Form 10-Q/A is to amend the Supplemental Performance
Data section in Part I, Item 2, Part II, Items 1 and 1A and Item 5 of our Quarterly Report on Form
10-Q for the period ended September 30, 2010, which was filed with the Securities and Exchange
Commission (the SEC) on November 9, 2010 (the Original 10-Q).
The Amended Items have been amended and restated to respond to comments issued by the Staff of
the Securities and Exchange Commission and to supplement and clarify previous disclosures. Except
as stated herein, this Form 10-Q/A does not reflect events occurring after the filing of the
Original 10-Q on November 9, 2010 and no attempt has been made in this Quarterly Report on Form
10-Q/A to modify or update other disclosures as presented in the Original 10-Q. Accordingly, this
Form 10-Q/A should be read in conjunction with the Original 10-Q and our filings with the SEC
subsequent to the filing of the Original 10-Q.
Pursuant to the rules of the Securities and Exchange Commission, we have also included
currently dated certifications from our principal executive and principal financial officers, as
required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002, attached as Exhibits 31.1, 31.2
and 32.1 to this report.
No other changes have been made to the Original 10-Q.
2
PORTFOLIO RECOVERY ASSOCIATES, INC.
INDEX
Page(s) | ||||
4-14 | ||||
14 | ||||
15 | ||||
15 | ||||
16 |
3
Part I. FINANCIAL INFORMATION
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Supplemental Performance Data
Owned Portfolio Performance:
The following tables show certain data related to our owned portfolio. These tables describe
the purchase price, cash collections and related multiples. Further, these tables disclose our
entire portfolio, the portfolio of purchased bankrupt accounts and our entire portfolio less the
impact of our purchased bankrupt accounts. The accounts represented in the purchased bankruptcy
tables are those portfolios of accounts that were bankrupt at the time of purchase. This contrasts
with accounts that file bankruptcy after we purchase them.
The purchase price multiples for 2005 through 2008 described in the table below are lower than
historical multiples in previous years. This trend is primarily, but not entirely related to
pricing competition. When competition increases, and or supply decreases so that pricing becomes
negatively impacted on a relative basis (total lifetime collections in relation to purchase price),
yields tend to trend lower. This was the situation during 2005-2007 and this situation also
extended into 2008 to the extent that deals purchased in 2008 were part of forward flow agreements
priced in earlier periods.
Additionally however, the way we initially book newly acquired pools of accounts and how we
forecast future estimated collections for any given portfolio of accounts has evolved over the
years due to a number of factors including the current economic situation. Since our revenue
recognition under ASC 310-30 is driven by both the ultimate magnitude of estimated lifetime
collections as well as the timing of those collections, we have progressed towards booking new
portfolio purchases using a higher confidence level for both estimated collection amounts and pace.
Subsequent to the initial booking, as we gain collection experience and comfort with a pool of
accounts, we continuously update ERC as time goes on. Since our inception, these processes have
tended to cause the ratio of collections, including ERC, to purchase price multiple for any given
year of buying to gradually increase over time. As a result, our estimate of lifetime collections
to purchase price has shown relatively steady increases as pools have aged. Thus, all factors
being equal in terms of pricing, one would naturally tend to see a higher collection to purchase
price ratio from a pool of accounts that were six years from purchase than say a pool that was just
two years from purchase.
To the extent that lower purchase price multiples are the ultimate result of more competitive
pricing and lower yields, this will generally lead to higher amortization rates (payments applied
to principal as a percentage of cash collections), lower operating margins and ultimately lower
profitability. As portfolio pricing becomes more favorable on a relative basis, our profitability
will tend to increase. It is important to consider, however, that to the extent we can improve our
collection operations by extracting additional cash from a discreet quantity and quality of
accounts, and/or by extracting cash at a lower cost structure, we can put upward pressure on the
collection to purchase price ratio and also on our operating margins. During 2008 and continuing
through all of 2009, we made significant enhancements in our analytical abilities, management
personnel and automated dialing capabilities, all with the intent to collect more cash at lower
cost.
4
Entire Portfolio ($ in thousands)
Unamortized | Percentage of | Percentage of Reserve | Actual Cash | |||||||||||||||||||||||||||||||||
Purchase Price | Life to Date | Reserve | Allowance to Unamortized | Collections | Estimated | Total Estimated | ||||||||||||||||||||||||||||||
Purchase | Purchase | Total Estimated | Balance at | Reserve | Allowance to | Purchase Price and | Including Cash | Remaining | Collections to | |||||||||||||||||||||||||||
Period | Price(1) | Collections (2) | September 30, 2010 (3) | Allowance (4) | Purchase Price (5) | Reserve Allowance (6) | Sales | Collections (7) | Purchase Price (8) | |||||||||||||||||||||||||||
1996 |
$ | 3,080 | $ | 10,094 | $ | 0 | $ | 0 | 0 | % | 0 | % | $ | 10,024 | $ | 70 | 328 | % | ||||||||||||||||||
1997 |
$ | 7,685 | $ | 25,244 | $ | 0 | $ | 0 | 0 | % | 0 | % | $ | 25,057 | $ | 187 | 328 | % | ||||||||||||||||||
1998 |
$ | 11,089 | $ | 36,913 | $ | 0 | $ | 0 | 0 | % | 0 | % | $ | 36,506 | $ | 407 | 333 | % | ||||||||||||||||||
1999 |
$ | 18,898 | $ | 68,282 | $ | 0 | $ | 0 | 0 | % | 0 | % | $ | 66,901 | $ | 1,381 | 361 | % | ||||||||||||||||||
2000 |
$ | 25,020 | $ | 113,442 | $ | 0 | $ | 0 | 0 | % | 0 | % | $ | 110,146 | $ | 3,296 | 453 | % | ||||||||||||||||||
2001 |
$ | 33,481 | $ | 169,035 | $ | 0 | $ | 0 | 0 | % | 0 | % | $ | 165,568 | $ | 3,467 | 505 | % | ||||||||||||||||||
2002 |
$ | 42,325 | $ | 187,309 | $ | 0 | $ | 0 | 0 | % | 0 | % | $ | 182,872 | $ | 4,437 | 443 | % | ||||||||||||||||||
2003 |
$ | 61,448 | $ | 248,438 | $ | 0 | $ | 0 | 0 | % | 0 | % | $ | 240,944 | $ | 7,494 | 404 | % | ||||||||||||||||||
2004 |
$ | 59,177 | $ | 184,196 | $ | 462 | $ | 1,225 | 2 | % | 2 | % | $ | 176,311 | $ | 7,885 | 311 | % | ||||||||||||||||||
2005 |
$ | 143,171 | $ | 309,500 | $ | 23,563 | $ | 15,985 | 11 | % | 10 | % | $ | 265,608 | $ | 43,892 | 216 | % | ||||||||||||||||||
2006 |
$ | 107,701 | $ | 218,553 | $ | 29,349 | $ | 17,695 | 16 | % | 14 | % | $ | 163,894 | $ | 54,659 | 203 | % | ||||||||||||||||||
2007 |
$ | 258,271 | $ | 505,819 | $ | 111,183 | $ | 17,165 | 7 | % | 6 | % | $ | 316,096 | $ | 189,723 | 196 | % | ||||||||||||||||||
2008 |
$ | 275,130 | $ | 538,306 | $ | 166,926 | $ | 18,895 | 7 | % | 6 | % | $ | 246,306 | $ | 292,000 | 196 | % | ||||||||||||||||||
2009 |
$ | 281,641 | $ | 713,656 | $ | 213,969 | $ | 0 | 0 | % | 0 | % | $ | 190,109 | $ | 523,547 | 253 | % | ||||||||||||||||||
YTD 2010 |
$ | 278,266 | $ | 585,030 | $ | 261,787 | $ | 0 | 0 | % | 0 | % | $ | 47,901 | $ | 537,129 | 210 | % | ||||||||||||||||||
Total |
$ | 1,606,383 | $ | 3,913,817 | $ | 807,239 | $ | 70,965 | 4 | % | 4 | % | $ | 2,244,243 | $ | 1,669,574 | 244 | % | ||||||||||||||||||
Purchased Bankruptcy Portfolio ($ in thousands)
Unamortized | Percentage of | Percentage of Reserve | Actual Cash | |||||||||||||||||||||||||||||||||
Purchase Price | Life to Date | Reserve | Allowance to Unamortized | Collections | Estimated | Total Estimated | ||||||||||||||||||||||||||||||
Purchase | Purchase | Total Estimated | Balance at | Reserve | Allowance to | Purchase Price and | Including Cash | Remaining | Collections to | |||||||||||||||||||||||||||
Period | Price(1) | Collections (2) | September 30, 2010 (3) | Allowance (4) | Purchase Price (5) | Reserve Allowance (6) | Sales | Collections (7) | Purchase Price (8) | |||||||||||||||||||||||||||
1996-2003 |
$ | 0 | $ | 0 | $ | 0 | $ | 0 | 0 | % | 0 | % | $ | 0 | $ | 0 | 0 | % | ||||||||||||||||||
2004 |
$ | 7,469 | $ | 14,160 | $ | 13 | $ | 1,225 | 16 | % | 14 | % | $ | 14,113 | $ | 47 | 190 | % | ||||||||||||||||||
2005 |
$ | 29,302 | $ | 43,020 | $ | 340 | $ | 920 | 3 | % | 3 | % | $ | 42,577 | $ | 443 | 147 | % | ||||||||||||||||||
2006 |
$ | 17,643 | $ | 30,450 | $ | 269 | $ | 1,430 | 8 | % | 7 | % | $ | 28,321 | $ | 2,129 | 173 | % | ||||||||||||||||||
2007 |
$ | 78,933 | $ | 112,658 | $ | 31,286 | $ | 1,910 | 2 | % | 2 | % | $ | 74,210 | $ | 38,448 | 143 | % | ||||||||||||||||||
2008 |
$ | 108,603 | $ | 183,195 | $ | 72,428 | $ | 0 | 0 | % | 0 | % | $ | 78,709 | $ | 104,486 | 169 | % | ||||||||||||||||||
2009 |
$ | 156,094 | $ | 360,983 | $ | 132,970 | $ | 0 | 0 | % | 0 | % | $ | 75,372 | $ | 285,611 | 231 | % | ||||||||||||||||||
YTD 2010 |
$ | 172,703 | $ | 324,795 | $ | 167,846 | $ | 0 | 0 | % | 0 | % | $ | 21,327 | $ | 303,468 | 188 | % | ||||||||||||||||||
Total |
$ | 570,747 | $ | 1,069,261 | $ | 405,152 | $ | 5,485 | 1 | % | 1 | % | $ | 334,629 | $ | 734,632 | 187 | % | ||||||||||||||||||
Entire Portfolio Less Purchased Bankruptcy Portfolio ($ in thousands)
Unamortized | Percentage of | Percentage of Reserve | Actual Cash | |||||||||||||||||||||||||||||||||
Purchase Price | Life to Date | Reserve | Allowance to Unamortized | Collections | Estimated | Total Estimated | ||||||||||||||||||||||||||||||
Purchase | Purchase | Total Estimated | Balance at | Reserve | Allowance to | Purchase Price and | Including Cash | Remaining | Collections to | |||||||||||||||||||||||||||
Period | Price(1) | Collections (2) | September 30, 2010 (3) | Allowance (4) | Purchase Price (5) | Reserve Allowance (6) | Sales | Collections (7) | Purchase Price (8) | |||||||||||||||||||||||||||
1996 |
$ | 3,080 | $ | 10,094 | $ | 0 | $ | 0 | 0 | % | 0 | % | $ | 10,024 | $ | 70 | 328 | % | ||||||||||||||||||
1997 |
$ | 7,685 | $ | 25,244 | $ | 0 | $ | 0 | 0 | % | 0 | % | $ | 25,057 | $ | 187 | 328 | % | ||||||||||||||||||
1998 |
$ | 11,089 | $ | 36,913 | $ | 0 | $ | 0 | 0 | % | 0 | % | $ | 36,506 | $ | 407 | 333 | % | ||||||||||||||||||
1999 |
$ | 18,898 | $ | 68,282 | $ | 0 | $ | 0 | 0 | % | 0 | % | $ | 66,901 | $ | 1,381 | 361 | % | ||||||||||||||||||
2000 |
$ | 25,020 | $ | 113,442 | $ | 0 | $ | 0 | 0 | % | 0 | % | $ | 110,146 | $ | 3,296 | 453 | % | ||||||||||||||||||
2001 |
$ | 33,481 | $ | 169,035 | $ | 0 | $ | 0 | 0 | % | 0 | % | $ | 165,568 | $ | 3,467 | 505 | % | ||||||||||||||||||
2002 |
$ | 42,325 | $ | 187,309 | $ | 0 | $ | 0 | 0 | % | 0 | % | $ | 182,872 | $ | 4,437 | 443 | % | ||||||||||||||||||
2003 |
$ | 61,448 | $ | 248,438 | $ | 0 | $ | 0 | 0 | % | 0 | % | $ | 240,944 | $ | 7,494 | 404 | % | ||||||||||||||||||
2004 |
$ | 51,708 | $ | 170,036 | $ | 449 | $ | 0 | 0 | % | 0 | % | $ | 162,198 | $ | 7,838 | 329 | % | ||||||||||||||||||
2005 |
$ | 113,869 | $ | 266,480 | $ | 23,223 | $ | 15,065 | 13 | % | 12 | % | $ | 223,032 | $ | 43,448 | 234 | % | ||||||||||||||||||
2006 |
$ | 90,058 | $ | 188,103 | $ | 29,080 | $ | 16,265 | 18 | % | 15 | % | $ | 135,572 | $ | 52,531 | 209 | % | ||||||||||||||||||
2007 |
$ | 179,338 | $ | 393,161 | $ | 79,897 | $ | 15,255 | 9 | % | 8 | % | $ | 241,887 | $ | 151,274 | 219 | % | ||||||||||||||||||
2008 |
$ | 166,527 | $ | 355,111 | $ | 94,498 | $ | 18,895 | 11 | % | 10 | % | $ | 167,597 | $ | 187,514 | 213 | % | ||||||||||||||||||
2009 |
$ | 125,547 | $ | 352,673 | $ | 80,999 | $ | 0 | 0 | % | 0 | % | $ | 114,737 | $ | 237,936 | 281 | % | ||||||||||||||||||
YTD 2010 |
$ | 105,563 | $ | 260,235 | $ | 93,941 | $ | 0 | 0 | % | 0 | % | $ | 26,573 | $ | 233,662 | 247 | % | ||||||||||||||||||
Total |
$ | 1,035,636 | $ | 2,844,556 | $ | 402,087 | $ | 65,480 | 6 | % | 6 | % | $ | 1,909,614 | $ | 934,942 | 275 | % | ||||||||||||||||||
(1) | Purchase price refers to the cash paid to a seller to acquire defaulted consumer receivables, plus certain capitalized costs, less the purchase price refunded by the seller due to the return of non-compliant accounts (also defined as buybacks). Non-compliant refers to the contractual representations and warranties provided for in the purchase and sale contract between the seller and us. These representations and warranties from the sellers generally cover account holders death or bankruptcy and accounts settled or disputed prior to sale. The seller can replace or repurchase these accounts. | |
(2) | Total estimated collections refers to the actual cash collections, including cash sales, plus estimated remaining collections. |
5
(3) | Unamortized purchase price balance refers to the purchase price less finance receivable amortization over the life of the portfolio. | |
(4) | Life to date reserve allowance refers to the total amount of allowance charges incurred on our owned portfolios net of any reversals. | |
(5) | Percentage of reserve allowance to purchase price refers to the total amount of allowance charges incurred on our owned portfolios net of any reversals, divided by the purchase price. | |
(6) | Percentage of reserve allowance to unamortized purchase price and reserve allowance refers to the total amount of allowance charges incurred on our owned portfolios net of any reversals, divided by the sum of the unamortized purchase price and the life to date reserve allowance. | |
(7) | Estimated remaining collections refers to the sum of all future projected cash collections on our owned portfolios. | |
(8) | Total estimated collections to purchase price refers to the total estimated collections divided by the purchase price. |
The following table shows our net valuation allowances booked since we began accounting for
our investment in finance receivables under the guidance of ASC 310-30.
($ in thousands)
Purchase Period | Allowance | |||||||||||||||||||||||||||||||||||
Allowance | Charge as | |||||||||||||||||||||||||||||||||||
Period (1) | 1996-2003 | 2004 | 2005 | 2006 | 2007 | 2008 | 2009-2010 | Total | % of NFR (2) | |||||||||||||||||||||||||||
Q1 05 |
$ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | 0.0% | |||||||||||||||||||
Q2 05 |
| | | | | | | | 0.0 | % | ||||||||||||||||||||||||||
Q3 05 |
| | | | | | | | 0.0 | % | ||||||||||||||||||||||||||
Q4 05 |
200 | | | | | | | 200 | 0.1 | % | ||||||||||||||||||||||||||
Q1 06 |
| | 175 | | | | | 175 | 0.1 | % | ||||||||||||||||||||||||||
Q2 06 |
75 | | 125 | | | | | 200 | 0.1 | % | ||||||||||||||||||||||||||
Q3 06 |
200 | | 75 | | | | | 275 | 0.1 | % | ||||||||||||||||||||||||||
Q4 06 |
| | 450 | | | | | 450 | 0.2 | % | ||||||||||||||||||||||||||
Q1 07 |
(245 | ) | | 610 | | | | | 365 | 0.1 | % | |||||||||||||||||||||||||
Q2 07 |
90 | | | | | | | 90 | 0.0 | % | ||||||||||||||||||||||||||
Q3 07 |
200 | 320 | 660 | | | | | 1,180 | 0.4 | % | ||||||||||||||||||||||||||
Q4 07 |
190 | 150 | 615 | 340 | | | | 1,295 | 0.3 | % | ||||||||||||||||||||||||||
Q1 08 |
120 | 650 | 910 | 1,105 | | | | 2,785 | 0.6 | % | ||||||||||||||||||||||||||
Q2 08 |
260 | 720 | | 2,330 | 650 | | | 3,960 | 0.8 | % | ||||||||||||||||||||||||||
Q3 08 |
(90 | ) | 60 | 325 | 1,135 | 2,350 | | | 3,780 | 0.7 | % | |||||||||||||||||||||||||
Q4 08 |
(400 | ) | (140 | ) | 1,805 | 2,600 | 4,380 | 620 | | 8,865 | 1.6 | % | ||||||||||||||||||||||||
Q1 09 |
(225 | ) | 35 | 1,150 | 910 | 2,300 | 2,050 | | 6,220 | 1.1 | % | |||||||||||||||||||||||||
Q2 09 |
(230 | ) | (220 | ) | 495 | 765 | 685 | 2,425 | | 3,920 | 0.6 | % | ||||||||||||||||||||||||
Q3 09 |
(25 | ) | (190 | ) | 1,170 | 1,965 | 340 | 4,750 | | 8,010 | 1.2 | % | ||||||||||||||||||||||||
Q4 09 |
(120 | ) | | 1,375 | 1,220 | 110 | 6,900 | | 9,485 | 1.4 | % | |||||||||||||||||||||||||
Q1 10 |
| | 2,795 | 1,175 | 2,900 | | | 6,870 | 0.9 | % | ||||||||||||||||||||||||||
Q2 10 |
| (80 | ) | 1,600 | 2,100 | 700 | 2,000 | | 6,320 | 0.8 | % | |||||||||||||||||||||||||
Q3 10 |
| (80 | ) | 1,650 | 2,050 | 2,750 | 150 | | 6,520 | 0.8 | % | |||||||||||||||||||||||||
Total |
$ | | $ | 1,225 | $ | 15,985 | $ | 17,695 | $ | 17,165 | $ | 18,895 | $ | | $ | 70,965 | ||||||||||||||||||||
Portfolio Purchases, net |
$ | 203,026 | $ | 59,177 | $ | 143,171 | $ | 107,701 | $ | 258,271 | $ | 275,130 | $ | 559,907 | $ | 1,606,383 | ||||||||||||||||||||
(1) | Allowance period represents the quarter in which we recorded valuation allowances, net of any (reversals). | |
(2) | NFR refers to total net finance receivables as of the end of the allowance period presented. |
6
The following graph shows the purchase price of our owned portfolios by year and includes the
year to date acquisition amount for the nine months ended September 30, 2010. The purchase price
number represents the cash paid to the seller to acquire defaulted consumer receivables, plus
certain capitalized costs, less the purchase price refunded by the seller due to the return of
non-compliant accounts.
As shown in the above chart, the composition of our purchased portfolios has shifted in favor
of bankrupt accounts in recent years. We began buying bankrupt accounts during 2004 and slowly
increased the volume of accounts we acquired through 2006 as we tested our models, refined our
processes and proved out our operating assumptions. After observing a high level of modeling
confidence in our early purchases, we began increasing our level of purchases more dramatically
during the period from 2007 through the third quarter of 2010.
Our ability to profitably purchase and liquidate pools of bankrupt accounts provides diversity
to our distressed asset acquisition business. Although we generally buy bankrupt assets from many
of the same consumer lenders from whom we acquire charged off (Core) consumer accounts, the
volumes and pricing characteristics as well as the competitors are different. Based upon market
dynamics, the profitability of pools purchased in the bankrupt and Core markets may differ over
time. We have found periods when bankrupt accounts were more profitable and other times when Core
accounts were more profitable. From 2004 through 2008, our bankruptcy buying fluctuated between
13% and 39% of our total portfolio purchasing in those years. In 2009, for the first time in our
history, bankruptcy purchasing exceeded that of our Core buying, finishing at 55% of total
portfolio purchasing for the year. This occurred as severe dislocations in the financial markets,
coupled with legislative uncertainty, caused pricing in the bankruptcy market to decline
substantially thereby driving our strategy to make advantageous bankruptcy portfolio acquisitions
during this period.
In order to collect our Core portfolios, we generally need to employ relatively higher amounts
of labor and incur additional collection costs to generate each dollar of cash collections as
compared with bankruptcy portfolios. In order to achieve acceptable levels of net return on
investment (after direct expenses), we are generally targeting a total cash collections to purchase
price multiple in the 2.5-3.0x range. On the other hand, bankrupt accounts generate the majority
of cash collections through the efforts of the U.S. bankruptcy courts. In this process, cash is
remitted to our Company with no corresponding cost other than the cost of filing claims at the time
of purchase and general administrative costs for monitoring the progress of each account through
the bankruptcy process. As a result, overall collection costs are much lower for us when
liquidating a pool of bankrupt accounts as compared to a pool of Core accounts, but conversely the
price we pay for bankrupt accounts is generally higher than Core accounts. We generally target
similar returns on investment (measured after direct expenses) for bankrupt and Core portfolios at
any given point in the market cycles. However, because of the lower related collection costs, we
can pay more for bankrupt portfolios, which causes the estimated total cash collections to purchase
price multiples of bankrupt pools to be in the 1.4-2.0x range generally. In summary, compared to a
pool of Core accounts, to the
7
extent both pools had identical targeted returns on investment (measured after direct
expenses), the bankrupt pool would be expected to generate less revenue, a lower yield, less direct
expenses, similar operating income, and a higher operating margin.
In addition, collections on younger, newly filed bankrupt accounts tend to be of a lower
magnitude in the earlier months when compared to Core charge-off accounts. This lower level of
early period collections is due to the fact that 1) we purchase primarily accounts that represent
unsecured claims in bankruptcy, and 2) these unsecured claims are scheduled to begin paying out
after the secured and priority claims. As a result of the administrative processes regarding
payout priorities within the court-administered bankruptcy plans, unsecured creditors do not
generally begin receiving meaningful collections on unsecured claims until 12 to 18 months after
the bankruptcy filing date. Therefore, to the extent that we purchase portfolios with more recent
bankruptcy filing dates, as we did to a significant extent in 2009 and 2010, we would expect to
experience a delay in cash collections compared with Core charged-off accounts.
We utilize a long-term approach to collecting our owned pools of receivables. This
approach has historically caused us to realize significant cash collections and revenues from
purchased pools of finance receivables years after they are originally acquired. As a result, we
have in the past been able to reduce our level of current period acquisitions without a
corresponding negative current period impact on cash collections and revenue.
The following table, which excludes any proceeds from cash sales of finance receivables,
demonstrates our ability to realize significant multi-year cash collection streams on our owned
pools:
Cash Collections By Year, By Year of Purchase Entire Portfolio
($in thousands)
Purchase | Purchase | Cash Collection Period | ||||||||||||||||||||||||||||||||||||||||||||||||||
Period | Price | 1996-2000 | 2001 | 2002 | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 | YTD 2010 | Total | |||||||||||||||||||||||||||||||||||||||
1996 |
$ | 3,080 | $ | 7,295 | $ | 730 | $ | 496 | $ | 398 | $ | 285 | $ | 210 | $ | 237 | $ | 102 | $ | 83 | $ | 78 | $ | 48 | $ | 9,962 | ||||||||||||||||||||||||||
1997 |
7,685 | 15,138 | 2,630 | 1,829 | 1,324 | 1,022 | 860 | 597 | 437 | 346 | 215 | 151 | 24,549 | |||||||||||||||||||||||||||||||||||||||
1998 |
11,089 | 16,981 | 5,152 | 3,948 | 2,797 | 2,200 | 1,811 | 1,415 | 882 | 616 | 397 | 281 | 36,480 | |||||||||||||||||||||||||||||||||||||||
1999 |
18,898 | 18,207 | 12,090 | 9,598 | 7,336 | 5,615 | 4,352 | 3,032 | 2,243 | 1,533 | 1,328 | 875 | 66,209 | |||||||||||||||||||||||||||||||||||||||
2000 |
25,020 | 6,894 | 19,498 | 19,478 | 16,628 | 14,098 | 10,924 | 8,067 | 5,202 | 3,604 | 3,198 | 2,093 | 109,684 | |||||||||||||||||||||||||||||||||||||||
2001 |
33,481 | | 13,048 | 28,831 | 28,003 | 26,717 | 22,639 | 16,048 | 10,011 | 6,164 | 5,299 | 3,317 | 160,077 | |||||||||||||||||||||||||||||||||||||||
2002 |
42,325 | | | 15,073 | 36,258 | 35,742 | 32,497 | 24,729 | 16,527 | 9,772 | 7,444 | 4,819 | 182,861 | |||||||||||||||||||||||||||||||||||||||
2003 |
61,448 | | | | 24,308 | 49,706 | 52,640 | 43,728 | 30,695 | 18,818 | 13,135 | 7,915 | 240,945 | |||||||||||||||||||||||||||||||||||||||
2004 |
59,177 | | | | | 18,019 | 46,475 | 40,424 | 30,750 | 19,339 | 13,677 | 7,622 | 176,306 | |||||||||||||||||||||||||||||||||||||||
2005 |
143,171 | | | | | | 18,968 | 75,145 | 69,862 | 49,576 | 33,366 | 18,691 | 265,608 | |||||||||||||||||||||||||||||||||||||||
2006 |
107,701 | | | | | | | 22,971 | 53,192 | 40,560 | 29,749 | 17,422 | 163,894 | |||||||||||||||||||||||||||||||||||||||
2007 |
258,271 | | | | | | | | 42,263 | 115,011 | 94,805 | 64,017 | 316,096 | |||||||||||||||||||||||||||||||||||||||
2008 |
275,130 | | | | | | | | | 61,277 | 107,974 | 77,055 | 246,306 | |||||||||||||||||||||||||||||||||||||||
2009 |
281,641 | | | | | | | | | | 57,338 | 132,771 | 190,109 | |||||||||||||||||||||||||||||||||||||||
YTD 2010 |
278,266 | | | | | | | | | | | 47,901 | 47,901 | |||||||||||||||||||||||||||||||||||||||
Total |
$ | 1,606,383 | $ | 64,515 | $ | 53,148 | $ | 79,253 | $ | 117,052 | $ | 153,404 | $ | 191,376 | $ | 236,393 | $ | 262,166 | $ | 326,699 | $ | 368,003 | $ | 384,978 | $ | 2,236,987 | ||||||||||||||||||||||||||
Cash Collections By Year, By Year of Purchase Purchased Bankruptcy only Portfolio
($in thousands)
Purchase | Purchase | Cash Collection Period | ||||||||||||||||||||||||||||||||||||||||||||||||||
Period | Price | 1996-2000 | 2001 | 2002 | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 | YTD 2010 | Total | |||||||||||||||||||||||||||||||||||||||
2004 |
$ | 7,469 | $ | | $ | | $ | | $ | | $ | 743 | $ | 4,554 | $ | 3,956 | $ | 2,777 | $ | 1,455 | $ | 496 | $ | 132 | $ | 14,113 | ||||||||||||||||||||||||||
2005 |
29,302 | | | | | | 3,777 | 15,500 | 11,934 | 6,845 | 3,318 | 1,203 | 42,577 | |||||||||||||||||||||||||||||||||||||||
2006 |
17,643 | | | | | | | 5,608 | 9,455 | 6,522 | 4,398 | 2,338 | 28,321 | |||||||||||||||||||||||||||||||||||||||
2007 |
78,933 | | | | | | | | 2,850 | 27,972 | 25,630 | 17,758 | 74,210 | |||||||||||||||||||||||||||||||||||||||
2008 |
108,603 | | | | | | | | | 14,024 | 35,894 | 28,791 | 78,709 | |||||||||||||||||||||||||||||||||||||||
2009 |
156,094 | | | | | | | | | | 16,635 | 58,737 | 75,372 | |||||||||||||||||||||||||||||||||||||||
YTD 2010 |
172,703 | | | | | | | | | | | 21,327 | 21,327 | |||||||||||||||||||||||||||||||||||||||
Total |
$ | 570,747 | $ | | $ | | $ | | $ | | $ | 743 | $ | 8,331 | $ | 25,064 | $ | 27,016 | $ | 56,818 | $ | 86,371 | $ | 130,286 | $ | 334,629 | ||||||||||||||||||||||||||
8
Cash Collections By Year, By Year of Purchase Entire Portfolio less Purchased Bankruptcy
Portfolio
($ in thousands)
Purchase | Purchase | Cash Collection Period | ||||||||||||||||||||||||||||||||||||||||||||||||||
Period | Price | 1996-2000 | 2001 | 2002 | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 | YTD 2010 | Total | |||||||||||||||||||||||||||||||||||||||
1996 |
$ | 3,080 | $ | 7,295 | $ | 730 | $ | 496 | $ | 398 | $ | 285 | $ | 210 | $ | 237 | $ | 102 | $ | 83 | $ | 78 | $ | 48 | $ | 9,962 | ||||||||||||||||||||||||||
1997 |
7,685 | 15,138 | 2,630 | 1,829 | 1,324 | 1,022 | 860 | 597 | 437 | 346 | 215 | 151 | 24,549 | |||||||||||||||||||||||||||||||||||||||
1998 |
11,089 | 16,981 | 5,152 | 3,948 | 2,797 | 2,200 | 1,811 | 1,415 | 882 | 616 | 397 | 281 | 36,480 | |||||||||||||||||||||||||||||||||||||||
1999 |
18,898 | 18,207 | 12,090 | 9,598 | 7,336 | 5,615 | 4,352 | 3,032 | 2,243 | 1,533 | 1,328 | 875 | 66,209 | |||||||||||||||||||||||||||||||||||||||
2000 |
25,020 | 6,894 | 19,498 | 19,478 | 16,628 | 14,098 | 10,924 | 8,067 | 5,202 | 3,604 | 3,198 | 2,093 | 109,684 | |||||||||||||||||||||||||||||||||||||||
2001 |
33,481 | | 13,048 | 28,831 | 28,003 | 26,717 | 22,639 | 16,048 | 10,011 | 6,164 | 5,299 | 3,317 | 160,077 | |||||||||||||||||||||||||||||||||||||||
2002 |
42,325 | | | 15,073 | 36,258 | 35,742 | 32,497 | 24,729 | 16,527 | 9,772 | 7,444 | 4,819 | 182,861 | |||||||||||||||||||||||||||||||||||||||
2003 |
61,448 | | | | 24,308 | 49,706 | 52,640 | 43,728 | 30,695 | 18,818 | 13,135 | 7,915 | 240,945 | |||||||||||||||||||||||||||||||||||||||
2004 |
51,708 | | | | | 17,276 | 41,921 | 36,468 | 27,973 | 17,884 | 13,181 | 7,490 | 162,193 | |||||||||||||||||||||||||||||||||||||||
2005 |
113,869 | | | | | | 15,191 | 59,645 | 57,928 | 42,731 | 30,048 | 17,489 | 223,032 | |||||||||||||||||||||||||||||||||||||||
2006 |
90,058 | | | | | | | 17,363 | 43,737 | 34,038 | 25,351 | 15,083 | 135,572 | |||||||||||||||||||||||||||||||||||||||
2007 |
179,338 | | | | | | | | 39,413 | 87,039 | 69,175 | 46,260 | 241,887 | |||||||||||||||||||||||||||||||||||||||
2008 |
166,527 | | | | | | | | | 47,253 | 72,080 | 48,264 | 167,597 | |||||||||||||||||||||||||||||||||||||||
2009 |
125,547 | | | | | | | | | | 40,703 | 74,034 | 114,737 | |||||||||||||||||||||||||||||||||||||||
YTD 2010 |
105,563 | | | | | | | | | | | 26,573 | 26,573 | |||||||||||||||||||||||||||||||||||||||
Total |
$ | 1,035,636 | $ | 64,515 | $ | 53,148 | $ | 79,253 | $ | 117,052 | $ | 152,661 | $ | 183,045 | $ | 211,329 | $ | 235,150 | $ | 269,881 | $ | 281,632 | $ | 254,692 | $ | 1,902,358 | ||||||||||||||||||||||||||
When we acquire a new pool of finance receivables, our estimates typically result in an 84 -
96 month projection of cash collections. The following chart shows our historical cash collections
(including cash sales of finance receivables) in relation to the aggregate of the total estimated
collection projections made at the time of each respective pool purchase, adjusted for buybacks.
Primarily as a result of the downturn in the economy, the decline in the availability of
consumer credit, our efforts to help customers establish reasonable payment plans, and improvements
in our collections capabilities which have allowed us to profitably collect on accounts with lower
balances or lower quality, our average payment size has decreased over the past several years.
However, due to improved scoring and segmentation, together with enhanced productivity, we have
been able to generate increased amounts of cash collections by generating enough incremental
payments to overcome the decrease in payment size.
Owned Portfolio Personnel Performance:
We measure the productivity of each collector each month, breaking results into groups of
similarly tenured collectors. The following tables display various productivity measures that we
track.
9
Number of Collectors by Tenure
One year + (1) | ||||||||||||||||||||||||
2005 | 2006 | 2007 | 2008 | 2009 | 2010 | |||||||||||||||||||
Q1 |
319 | 331 | 340 | 314 | 488 | 690 | ||||||||||||||||||
Q2 |
319 | 342 | 360 | 348 | 587 | 711 | ||||||||||||||||||
Q3 |
324 | 324 | 397 | 410 | 604 | 742 | ||||||||||||||||||
Q4 |
327 | 340 | 327 | 452 | 638 | |
Less than one year (2) | ||||||||||||||||||||||||
2005 | 2006 | 2007 | 2008 | 2009 | 2010 | |||||||||||||||||||
Q1 |
345 | 360 | 435 | 688 | 621 | 686 | ||||||||||||||||||
Q2 |
330 | 372 | 481 | 744 | 612 | 681 | ||||||||||||||||||
Q3 |
268 | 402 | 475 | 631 | 585 | 642 | ||||||||||||||||||
Q4 |
364 | 375 | 553 | 739 | 676 | |
Total (2) | ||||||||||||||||||||||||
2005 | 2006 | 2007 | 2008 | 2009 | 2010 | |||||||||||||||||||
Q1 |
664 | 691 | 775 | 1,002 | 1,109 | 1,376 | ||||||||||||||||||
Q2 |
649 | 714 | 841 | 1,092 | 1,199 | 1,392 | ||||||||||||||||||
Q3 |
592 | 726 | 872 | 1,041 | 1,189 | 1384 | ||||||||||||||||||
Q4 |
691 | 715 | 880 | 1,191 | 1,314 | |
(1) | Calculated based on actual employees (collectors) with one year of service or more. | |
(2) | Calculated using total hours worked by all collectors, including those in training to produce a full time equivalent FTE. |
The tables below contain our past five years of collector productivity metrics as defined by
calendar quarter.
QTD Cash Collections per Hour Paid (1)
Total cash collections | ||||||||||||||||||||||||
2005 | 2006 | 2007 | 2008 | 2009 | 2010 | |||||||||||||||||||
Q1 |
$ | 136 | $ | 152 | $ | 156 | $ | 133 | $ | 147 | $ | 182 | ||||||||||||
Q2 |
$ | 138 | $ | 146 | $ | 142 | $ | 136 | $ | 143 | $ | 188 | ||||||||||||
Q3 |
$ | 135 | $ | 145 | $ | 131 | $ | 134 | $ | 144 | $ | 200 | ||||||||||||
Q4 |
$ | 126 | $ | 142 | $ | 119 | $ | 123 | $ | 148 | |
Non-legal cash collections (2) | ||||||||||||||||||||||||
2005 | 2006 | 2007 | 2008 | 2009 | 2010 | |||||||||||||||||||
Q1 |
$ | 96 | $ | 106 | $ | 108 | $ | 96 | $ | 118 | $ | 154 | ||||||||||||
Q2 |
$ | 92 | $ | 99 | $ | 96 | $ | 99 | $ | 116 | $ | 160 | ||||||||||||
Q3 |
$ | 88 | $ | 98 | $ | 88 | $ | 99 | $ | 119 | $ | 170 | ||||||||||||
Q4 |
$ | 82 | $ | 94 | $ | 80 | $ | 94 | $ | 123 | |
Non-bankruptcy cash collections (3) | ||||||||||||||||||||||||
2005 | 2006 | 2007 | 2008 | 2009 | 2010 | |||||||||||||||||||
Q1 |
$ | 132 | $ | 141 | $ | 141 | $ | 116 | $ | 120 | $ | 135 | ||||||||||||
Q2 |
$ | 132 | $ | 132 | $ | 129 | $ | 115 | $ | 114 | $ | 127 | ||||||||||||
Q3 |
$ | 129 | $ | 129 | $ | 120 | $ | 110 | $ | 111 | $ | 127 | ||||||||||||
Q4 |
$ | 120 | $ | 127 | $ | 107 | $ | 98 | $ | 109 | |
10
Non-legal/non-bankruptcy cash collections (4) | ||||||||||||||||||||||||
2005 | 2006 | 2007 | 2008 | 2009 | 2010 | |||||||||||||||||||
Q1
|
$ | 92 | $ | 95 | $ | 92 | $ | 79 | $ | 90 | $ | 106 | ||||||||||||
Q2
|
$ | 85 | $ | 85 | $ | 83 | $ | 78 | $ | 87 | $ | 100 | ||||||||||||
Q3
|
$ | 82 | $ | 82 | $ | 76 | $ | 76 | $ | 87 | $ | 97 | ||||||||||||
Q4
|
$ | 77 | $ | 80 | $ | 68 | $ | 69 | $ | 84 | |
(1) | Cash collections (assigned and unassigned) divided by total hours paid (including holiday, vacation and sick time) to collectors (including those in training). | |
(2) | Represents total cash collections less external legal cash collections. | |
(3) | Represents total cash collections less purchased bankruptcy cash collections from trustee-administered accounts. | |
(4) | Represents total cash collections less external legal cash collections and less purchased bankruptcy cash collections from trustee-administered accounts. |
Cash collections have substantially exceeded income recognized on finance receivables in each
quarter since our formation. The following chart illustrates the consistent excess of our cash
collections on our owned portfolios over the income recognized on finance receivables, net on a
quarterly basis. The difference between cash collections and income recognized is referred to as
payments applied to principal. It is also referred to as finance receivable amortization. This
finance receivable amortization is the portion of cash collections that is used to recover the cost
of the portfolio investment represented on the balance sheet.
(1) | Includes cash collections on finance receivables only and excludes cash proceeds from sales of defaulted consumer receivables. |
The following table displays our quarterly cash collections by source, for the periods
indicated.
Cash Collection Source ($ in thousands) | Q32010 | Q22010 | Q12010 | Q42009 | Q32009 | Q22009 | Q12009 | Q42008 | Q32008 | |||||||||||||||||||||||||||
Call Center & Other Collections |
$ | 51,711 | $ | 54,477 | $ | 56,987 | $ | 45,365 | $ | 48,590 | $ | 50,052 | $ | 50,914 | $ | 41,268 | $ | 43,949 | ||||||||||||||||||
External Legal Collections |
20,217 | 18,819 | 18,276 | 15,496 | 15,330 | 16,527 | 17,790 | 18,424 | 21,590 | |||||||||||||||||||||||||||
Internal Legal Collections |
12,130 | 11,362 | 10,714 | 7,570 | 6,196 | 4,263 | 3,539 | 2,652 | 2,106 | |||||||||||||||||||||||||||
Purchased Bankruptcy
Collections |
53,319 | 43,748 | 33,219 | 26,855 | 22,251 | 19,637 | 17,628 | 16,904 | 15,362 |
11
Rollforward of Net Finance Receivables
The following table shows the changes in finance receivables, including the amounts paid to
acquire new portfolios (amounts in thousands).
Three Months | Three Months | Nine Months | Nine Months | |||||||||||||
Ended | Ended | Ended | Ended | |||||||||||||
September 30, | September 30, | September 30, | September 30, | |||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Balance at beginning of period |
$ | 775,606 | $ | 624,592 | $ | 693,462 | $ | 563,830 | ||||||||
Acquisitions of finance receivables, net of buybacks (1) |
88,984 | 74,318 | 273,858 | 210,116 | ||||||||||||
Cash collections applied to principal on finance receivables (2) |
(57,351 | ) | (38,031 | ) | (160,081 | ) | (113,067 | ) | ||||||||
Balance at end of period |
$ | 807,239 | $ | 660,879 | $ | 807,239 | $ | 660,879 | ||||||||
Estimated Remaining Collections (ERC) (3) |
$ | 1,669,574 | $ | 1,331,912 | $ | 1,669,574 | $ | 1,331,912 | ||||||||
(1) | Agreements to purchase receivables typically include general representations and warranties from the sellers covering account holders death or bankruptcy and accounts settled or disputed prior to sale. The seller can replace or repurchase these accounts. We refer to repurchased accounts as buybacks. We also capitalize certain acquisition related costs. | |
(2) | Cash collections applied to principal (also referred to as finance receivable amortization) on finance receivables consists of cash collections less income recognized on finance receivables, net. | |
(3) | Estimated Remaining Collections refers to the sum of all future projected cash collections on our owned portfolios. ERC is not a balance sheet item; however, it is provided here for informational purposes. |
Seasonality
We depend on the ability to collect on our owned and serviced defaulted consumer receivables.
Cash collections tend to be higher in the first and second quarters of the year and lower in the
third and fourth quarters of the year, due to consumer payment patterns in connection with seasonal
employment trends, income tax refunds and holiday spending habits. Historically, our growth has
partially masked the impact of this cash collections seasonality.
Quarterly Cash Collections (1)
($ in
millions)
(1) | Includes cash collections on finance receivables only and excludes cash proceeds from sales of defaulted consumer receivables. |
12
Portfolios by Type and Geography
The following table categorizes our life to date owned portfolios at September 30, 2010 into
the major asset types represented (amounts in thousands):
Life to Date Purchased Face | ||||||||||||||||
Value of Defaulted Consumer | ||||||||||||||||
Asset Type | No. of Accounts | % | Receivables (1) | % | ||||||||||||
Major Credit Cards |
14,220 | 59.8 | % | $ | 38,321,385 | 72.3 | % | |||||||||
Consumer Finance |
5,285 | 22.2 | % | 6,195,641 | 11.7 | % | ||||||||||
Private Label Credit Cards |
3,776 | 15.9 | % | 5,171,199 | 9.8 | % | ||||||||||
Auto Deficiency |
510 | 2.1 | % | 3,278,611 | 6.2 | % | ||||||||||
Total: |
23,791 | 100.0 | % | 52,966,836 | 100.0 | % | ||||||||||
(1) | The Life to Date Purchased Face Value of Defaulted Consumer Receivables represents the original face amount purchased from sellers and has not been decremented by any adjustments including payments and buybacks. |
The following chart shows details of our life to date buying activity as of September 30, 2010
(amounts in thousands). We actively seek to purchase both bankrupt and non-bankrupt accounts at
any point in the delinquency cycle.
Life to Date Purchased Face | ||||||||||||||||
Value of Defaulted Consumer | ||||||||||||||||
Account Type | No. of Accounts | % | Receivables (1) | % | ||||||||||||
Fresh |
1,320 | 5.5 | % | $ | 4,109,213 | 7.8 | % | |||||||||
Primary |
3,620 | 15.2 | % | 6,212,667 | 11.7 | % | ||||||||||
Secondary |
3,825 | 16.1 | % | 6,121,552 | 11.6 | % | ||||||||||
Tertiary |
3,937 | 16.5 | % | 5,017,483 | 9.5 | % | ||||||||||
BK Trustees |
3,439 | 14.5 | % | 15,174,713 | 28.6 | % | ||||||||||
Other |
7,650 | 32.2 | % | 16,331,208 | 30.8 | % | ||||||||||
Total: |
23,791 | 100.0 | % | $ | 52,966,836 | 100.0 | % | |||||||||
(1) | The Life to Date Purchased Face Value of Defaulted Consumer Receivables represents the original face amount purchased from sellers and has not been decremented by any adjustments including payments and buybacks. |
We also review the geographic distribution of accounts within a portfolio because we have
found that certain states have more debtor-friendly laws than others and, therefore, are less
desirable from a collectability perspective. In addition, economic factors and bankruptcy trends
vary regionally and are factored into our maximum purchase price equation.
13
The following chart sets forth our overall life to date portfolio of defaulted consumer
receivables geographically at September 30, 2010 (amounts in thousands):
Life to Date Purchased Face | Original Purchase Price of | |||||||||||||||||||||||
Value of Defaulted | Defaulted Consumer | |||||||||||||||||||||||
Geographic Distribution | No. of Accounts | % | Consumer Receivables (1) | % | Receivables (2) | % | ||||||||||||||||||
California |
2,444 | 10 | % | $ | 6,799,417 | 13 | % | $ | 197,164 | 12 | % | |||||||||||||
Texas |
3,768 | 16 | % | 6,118,228 | 12 | % | 153,383 | 9 | % | |||||||||||||||
Florida |
1,864 | 8 | % | 5,059,455 | 10 | % | 145,930 | 9 | % | |||||||||||||||
New York |
1,401 | 6 | % | 3,283,264 | 6 | % | 94,105 | 6 | % | |||||||||||||||
Pennsylvania |
830 | 3 | % | 2,014,301 | 4 | % | 64,247 | 4 | % | |||||||||||||||
North Carolina |
842 | 4 | % | 1,865,383 | 4 | % | 55,885 | 3 | % | |||||||||||||||
Illinois |
935 | 4 | % | 1,852,381 | 3 | % | 62,859 | 4 | % | |||||||||||||||
Ohio |
825 | 3 | % | 1,842,272 | 3 | % | 68,544 | 4 | % | |||||||||||||||
Georgia |
748 | 3 | % | 1,708,829 | 3 | % | 64,948 | 4 | % | |||||||||||||||
New Jersey |
552 | 2 | % | 1,512,003 | 3 | % | 47,417 | 3 | % | |||||||||||||||
Michigan |
632 | 3 | % | 1,432,679 | 3 | % | 50,993 | 3 | % | |||||||||||||||
Virginia |
655 | 3 | % | 1,141,459 | 2 | % | 39,343 | 2 | % | |||||||||||||||
Tennessee |
501 | 2 | % | 1,105,474 | 2 | % | 41,156 | 3 | % | |||||||||||||||
Arizona |
399 | 2 | % | 1,070,902 | 2 | % | 31,577 | 2 | % | |||||||||||||||
Massachusetts |
423 | 2 | % | 1,023,540 | 2 | % | 30,855 | 2 | % | |||||||||||||||
South Carolina |
416 | 2 | % | 946,733 | 2 | % | 27,430 | 2 | % | |||||||||||||||
Other (3) |
6,556 | 27 | % | 14,190,516 | 26 | % | 466,934 | 28 | % | |||||||||||||||
Total: |
23,791 | 100 | % | $ | 52,966,836 | 100 | % | $ | 1,642,770 | 100 | % | |||||||||||||
(1) | The Life to Date Purchased Face Value of Defaulted Consumer Receivables represents the original face amount purchased from sellers and has not been decremented by any adjustments including payments and buybacks. | |
(2) | The Original Purchase Price of Defaulted Consumer Receivables represents the cash paid to sellers to acquire portfolios of defaulted consumer receivables. | |
(3) | Each state included in Other represents less than 2% of the face value of total defaulted consumer receivables. |
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We are from time to time subject to routine legal claims and proceedings, most of which are
incidental to the ordinary course of our business. We initiate lawsuits against consumers and are
occasionally countersued by them in such actions. Also, consumers, either individually, as members
of a class action, or through a governmental entity on behalf of consumers, may initiate litigation
against us, in which they allege that we have violated a state or federal law in the process of
collecting on an account. From time to time, other types of lawsuits are brought against us. We maintain appropriate levels of errors and omissions insurance coverage to protect us against
financial losses associated with potential litigation involving us, and while it is not expected
that these or any other legal proceedings or claims in which we are involved will, either
individually or in the aggregate, have a material adverse impact on our results of operations,
liquidity or our financial condition, the matters described below falls outside of the normal
parameters of our routine legal proceedings.
As previously disclosed, we are a defendant in another purported class action related to
matters previously brought before NAF, styled PRA v. Freeman (Case No.: 10-CVD-1003) which was
filed in the District Court for Wake County, North Carolina on or about March 26, 2010. The court
in PRA v. Freeman recently heard arguments on the motion to dismiss that the Company had filed
earlier this year and has informed the parties that the matter will be dismissed, pending
submission of an appropriate order. We anticipate submitting such an order and having the matter
dismissed imminently.
As previously disclosed, we were a defendant in a purported enforcement action brought by the
Attorney General for the State of Missouri. The action, filed in August 2009, sought relief for
Missouri consumers that had allegedly been injured as a result of certain of our alleged collection
practices. We denied any wrongdoing with
respect to the allegations in the complaint and on June 25, 2010, the Missouri Circuit Court
dismissed the matter in its entirety. On July 26, 2010, the Missouri Attorney General filed a
notice of appeal.
14
Item 1A. Risk Factors
An investment in our common stock involves a high degree of risk. You should carefully
consider the specific risk factors listed under Part I, Item 1A of our 2009 Annual Report on Form
10-K/A filed on December 17, 2010, together with all other information included or incorporated in
our reports filed with the SEC. Any such risks may materialize, and additional risks not known to
us, or that we now deem immaterial, may arise. In such event, our business, financial condition,
results of operations or prospects could be materially adversely affected. If that occurs, the
market price of our common stock could fall, and you could lose all or part of your investment.
Item 5. Exhibits
31.1 | Section 302 Certifications of Chief Executive Officer. | |
31.2 | Section 302 Certifications of Chief Financial Officer. | |
32.1 | Section 906 Certifications of Chief Executive Officer and Chief Financial Officer. |
15
SIGNATURES
Pursuant to the requirements of the Exchange Act, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
PORTFOLIO RECOVERY ASSOCIATES, INC. (Registrant) |
||||
Date: December 17, 2010 | By: | /s/ Steven D. Fredrickson | ||
Steven D. Fredrickson | ||||
Chief Executive Officer, President and Chairman of the Board of Directors (Principal Executive Officer) |
||||
Date: December 17, 2010 | By: | /s/ Kevin P. Stevenson | ||
Kevin P. Stevenson | ||||
Chief Financial and Administrative Officer, Executive Vice President, Treasurer and Assistant Secretary (Principal Financial and Accounting Officer) | ||||
16