What changed in this filing

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Item 9A. Controls and Procedures

2022-02-23 compared with 2021-02-24 · 447 added, 479 removed, 1163 unchanged (44% of the section changed)

1 unchanged sentence

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Exchange Act Rule 13a-15(e) and 15d-15(e).

Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this Annual Report on Form 10-K, our disclosure controls and procedures are effective at the reasonable assurance level in enabling us to record, process, summarize and report information required to be included in our periodic SEC filings within the required time period.

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Exchange Act Rule 13a-15(e) and 15d-15(e).

Based upon that evaluation, our CEO and CFO concluded that, as of December 31, 2021, our disclosure controls and procedures were not effective as of such date due to a material weakness in internal control over financial reporting, described below.

Management’s Report on Internal Control over Financial Reporting

The Company’s management, including our Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting (as such term is defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for Encore Capital Group, Inc.

and its subsidiaries (the “Company”).

The Company’s internal control system was designed to provide reasonable assurance to the Company’s management and Board of Directors regarding the preparation and fair presentation of published consolidated financial statements in accordance with accounting principles generally accepted in the United States of America.

Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable assurance and may not prevent or detect misstatements.

Further, because of changing conditions, effectiveness of internal control over financial reporting may vary over time.

The Company’s processes contain self-monitoring mechanisms and actions are taken to correct deficiencies as they are identified.

Management has assessed the effectiveness of Encore’s internal control over financial reporting as of December 31, 2020, based on the criteria for effective internal control described in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Based on its assessment, management concluded that the Company’s internal control over financial reporting was effective as of December 31, 2020.

BDO USA, LLP, the independent registered public accounting firm that audited the consolidated financial statements included in this Annual Report on Form 10-K, was engaged to attest to and report on the effectiveness of Encore’s internal control over financial reporting as of December 31, 2020, as stated in its report below.

Our management is responsible for establishing and maintaining adequate internal control over our financial reporting.

Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Securities and Exchange Act of 1934 as a process designed by, or under the supervision of, our executive management and effected by our board of directors, to provide reasonable assurance regarding the reliability of financial reporting and the preparations of financial statements for external purposes in accordance with U.S.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Projections of any evaluation of effectiveness for future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Under the supervision of and with the participation of our management, we assessed the effectiveness of our internal control over financial reporting as of December 31, 2021, using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

During the year ended December 31, 2021, we determined that we did not design and maintain effective controls within our Midland Credit Management operating unit with respect to the determination of certain qualitative factors applied to our estimates of future recoveries.

This was evidenced by our failure to sufficiently document and substantiate certain qualitative factors that were applied to the output of our quantitative forecasting model during the year ended December 31, 2021.

Accordingly, management has determined that this is a control deficiency that constitutes a material weakness.

As a result of the above, the Company’s independent registered public accounting firm, BDO USA, LLP (BDO) has issued an adverse audit report on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2021.

Following identification of the material weakness and prior to filing this Annual Report on Form 10-K, we completed substantive procedures for the year ended December 31, 2021.

Based on these procedures, management believes that our consolidated financial statements included in this Form 10-K have been prepared in accordance with U.S.

Our CEO and CFO have certified that, based on their knowledge, the financial statements, and other financial information included in this Form 10-K, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this Form 10-K.

BDO has issued an unqualified opinion on our financial statements, which is included in Item 8 of this Form 10-K.

Remediation Plan for the Material Weakness

To remediate the material weakness identified above, management will document and maintain evidence that demonstrates:

(1) that the application of qualitative factors to our forecasts operates at a level of precision that would prevent or detect a material misstatement, (2) that a review of the application of the qualitative factors occurred and (3) that any findings related to the review are appropriately resolved.

We believe that these actions will remediate the material weakness.

The weakness will not be considered remediated, however, until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.

We expect that the remediation of this material weakness will be completed no later than December 31, 2022.

Report of Independent Registered Public Accounting Firm

4 unchanged sentences

We have audited Encore Capital Group, Inc.’s (the “Company’s”) internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”).

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated statements of financial condition of the Company as of December 31, 2020 and 2019 and the related consolidated statements of operations, comprehensive income, equity, and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and our report dated February 24, 2021 expressed an unqualified opinion thereon.

In our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated statements of financial condition of the Company as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, equity, and cash flows for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as “the consolidated financial statements”) and our report dated February 23, 2022 expressed an unqualified opinion thereon.

Basis for Opinion

8 unchanged sentences

We believe that our audit provides a reasonable basis for our opinion.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim consolidated financial statements will not be prevented or detected on a timely basis.

A material weakness regarding management’s failure to design and maintain controls over the qualitative adjustments to estimates of future recoveries, a component of revenues, has been identified and described in management’s assessment.

This material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2021 consolidated financial statements, and this report does not affect our report dated February 23, 2022 on those consolidated financial statements.

Definition and Limitations of Internal Control over Financial Reporting

1 unchanged sentence

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

4 unchanged sentences

Changes in Internal Control over Financial Reporting

We implemented certain internal controls related to the adoption of Topic 326, “Financial Instruments – Credit Losses” to ensure we adequately interpreted the guidance and properly assessed the impact of the standard on our financial statements to facilitate its adoption effective January 1, 2020.

There were no other changes in our system of internal control over financial reporting (as defined in Rule 13a-15(f) and Rule 15d-15(f) under the Exchange Act) that occurred during the year ended December 31, 2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

In the course of our ongoing preparations for management’s report on internal control over financial reporting as required by Section 404 of the Sarbanes-Oxley Act of 2002, we have identified areas in need of improvement and have taken remedial actions to strengthen the affected controls as appropriate.

We make these and other changes, which do not have a material effect on our overall internal control over financial reporting, to enhance the effectiveness of our internal control over financial reporting.

Except as described above, based on the evaluation of our management as required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act, we believe that there were no changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B—Other Information

Item 9C—Disclosure Regarding Foreign Jurisdictions that Prevent Inspection

Item 10—Directors, Executive Officers and Corporate Governance

14 unchanged sentences

Consolidated Statements of Financial Condition at December 31, 202 1 and 20 20

Consolidated Statements of Operations for the years ended December 31, 2020, 2019 and 2018

Consolidated Statements of Income for the years ended December 31, 202 1 , 2 020 and 201 9

Consolidated Statements of Comprehensive Income for the years ended December 31, 202 1 , 20 20 and 201 9

18 unchanged sentences

8-K 000-26489 10.2 9/1/2020

4.6 Indenture (including form of note), dated as of March 11, 2014, by and between Encore Capital Group, Inc., Midland Credit Management, Inc., as guarantor, and Union Bank, N.A., as trustee

8-K 000-26489 4.1 3/11/2014

4.6.1 Supplemental Indenture, dated November 6, 2018, to the Indenture, dated as of March 11, 2014, by and between Encore Capital Group, Inc., Midland Credit Management, Inc., as guarantor, and Union Bank, N.A., as trustee

10-Q 000-26489 4.6 11/7/2018

4.6.2 Second Supplemental Indenture, dated October 29, 2020, to the Indenture, dated as of March 11, 2014, by and among Encore Capital Group, Inc., Midland Credit Management, Inc., as guarantor, and MUFG Union Bank, N.A., as trustee

4.2.1 Amendment No.

1 to Fourth Amended and Restated Senior Secured Note Purchase Agreement, dated August 17, 2021, by and among Encore Capital Group, Inc.

and the purchasers named therein

10-Q 000-26489 10.2 11/3/2021

Incorporated By Reference

Exhibit Number Exhibit Description Form File Number Exhibit Filing Date Filed or Furnished Herewith

4.9 Indenture (including form of note), dated October 6, 2016, between Cabot Financial (Luxembourg) S.A., Cabot Credit Management Limited, Cabot Financial Limited, the subsidiary guarantors party thereto, J.P.

Morgan Europe Limited, as security agent, Citibank, N.A., London Branch as trustee, principal paying agent and transfer agent and Citigroup Global Markets Deutschland AG, as registrar

8-K 000-26489 4.1 10/7/2016

4.9.1 First Supplemental Indenture dated September 7, 2020 to Indenture dated October 6, 2016

8-K 000-26489 4.3 9/24/2020

4.9.2 Second Supplemental Indenture dated September 24, 2020 to Indenture dated October 6, 2016

8-K 000-26489 4.5 9/24/2020

4.10 Indenture (including form of note), dated March 3, 2017, by and among Encore Capital Group, Inc., Midland Credit Management, Inc., as guarantor, and MUFG Union Bank, N.A., as trustee

4.10 Indenture (including form of note), dated March 3, 2017, by and among Encore Capital Group, Inc., Midland Credit Management, Inc., as guarantor, and MUFG Union Bank, N.A., as trustee for 2022 Convertible Notes

8-K 000-26489 4.1 3/3/2017

6 unchanged sentences

8-K 000-26489 4.2 7/20/2018

Incorporated By Reference

Exhibit Number Exhibit Description Form File Number Exhibit Filing Date Filed or Furnished Herewith

4.11.2 Second Supplemental Indenture, dated October 29, 2020, to the Indenture, dated as of July 20, 2018, by and among Encore Capital Europe Finance Limited, Encore Capital Group, Inc., as guarantor, and MUFG Union Bank, N.A., as trustee

10-Q 000-26489 4.6 11/2/2020

4.13 Indenture (including form of note), dated September 9, 2019, by and among Encore Capital Group, Inc., Midland Credit Management, Inc., as guarantor, and MUFG Union Bank, N.A., as trustee.

4.13 Indenture (including form of note), dated September 9, 2019, by and among Encore Capital Group, Inc., Midland Credit Management, Inc., as guarantor, and MUFG Union Bank, N.A., as trustee for 2025 Convertible Notes

8-K 000-26489 4.1 9/10/2019

3 unchanged sentences

10-K 000-26489 4.14 2/26/2020

4.15 Indenture dated September 24, 2020 between Encore Capital Group, Inc., the subsidiary guarantors party thereto, Citibank, N.A., London Branch as trustee and Truist Bank as security agent

4.15 Indenture dated September 24, 2020 between Encore Capital Group, Inc., the subsidiary guarantors party thereto, Citibank, N.A., London Branch as trustee and Truist Bank as security agent for Encore 2025 Notes

8-K 000-26489 4.1 9/24/2020

Incorporated By Reference

Exhibit Number Exhibit Description Form File Number Exhibit Filing Date Filed or Furnished Herewith

4.16 Indenture dated November 23, 2020 between Encore Capital Group, Inc., the subsidiary guarantors party thereto, Citibank, N.A., London Branch as trustee and Truist Bank as security agent

4.16 Indenture dated November 23, 2020 between Encore Capital Group, Inc., the subsidiary guarantors party thereto, Citibank, N.A., London Branch as trustee and Truist Bank as security agent for Encore 2026 Notes

8-K 000-26489 4.1 11/23/2020

4.17 Indenture dated December 21, 2020 between Encore Capital Group, Inc., the subsidiary guarantors party thereto, Citibank, N.A., London Branch as trustee and Truist Bank as security agent

4.17 Indenture dated December 21, 2020 between Encore Capital Group, Inc., the subsidiary guarantors party thereto, Citibank, N.A., London Branch as trustee and Truist Bank as security agent for Encore 2028 Floating Rate Notes

8-K 000-26489 4.1 12/21/2020

4.18 Indenture dated June 1, 2021 between Encore Capital Group, Inc., the subsidiary guarantors party thereto, GLAS Trust Company LLC as trustee and Truist Bank as security agent for Encore 2028 Notes

8-K 000-26489 4.1 6/1/2021

10.1+ Form of Indemnification Agreement

15 unchanged sentences

10-Q 000-26489 10.5 8/8/2013

Incorporated By Reference

Exhibit Number Exhibit Description Form File Number Exhibit Filing Date Filed or Furnished Herewith

10.4.8+ Form of Restricted Stock Unit Grant Notice and Agreement (Non-Employee Director) under the Encore Capital Group, Inc.

6 unchanged sentences

Executive Separation Plan

10-Q 000-26489 10.2 11/6/2014

10.6+ Employment offer letter dated October 9, 2014 by and between Encore Capital Group, Inc.

19 unchanged sentences

8-K 000-26489 10.5 6/20/2017

Incorporated By Reference

Exhibit Number Exhibit Description Form File Number Exhibit Filing Date Filed or Furnished Herewith

10.11.3+ Form of Restricted Stock Award Grant Notice and Award Agreement under the Encore Capital Group, Inc.

16 unchanged sentences

8-K 000-26489 10.4 3/15/2018

10.11.9+ Form of Performance Share Unit Award Grant Notice and Award Agreement (ROAE) under the Encore Capital Group, Inc.

2017 Incentive Award Plan

10-K 000-26489 10.11.9 2/26/2020

10.19 Amended and Restated Senior Facilities Agreement, dated September 1, 2020, by and among Encore Capital Group, Inc., the several guarantors, banks and other financial institutions and lenders from time to time party thereto and Truist Bank as Agent and Security Agent

8-K 000-26489 10.1 9/1/2020

10.21.1 Letter Agreement, dated March 5, 2014, between Citibank, N.A.

and Encore Capital Group, Inc., regarding the Base Capped Call Transaction

8-K 000-26489 10.1 3/11/2014

10.21.2 Letter Agreement, dated March 5, 2014, between Credit Suisse International and Encore Capital Group, Inc., regarding the Base Capped Call Transaction

8-K 000-26489 10.2 3/11/2014

10.21.3 Letter Agreement, dated March 5, 2014, between Morgan Stanley & Co.

LLC and Encore Capital Group, Inc., regarding the Base Capped Call Transaction

8-K 000-26489 10.3 3/11/2014

10.21.4 Letter Agreement, dated March 5, 2014, between Société Générale and Encore Capital Group, Inc., regarding the Base Capped Call Transaction

8-K 000-26489 10.4 3/11/2014

10.21.5 Letter Agreement, dated March 6, 2014, between Citibank, N.A.

and Encore Capital Group, Inc., regarding the Additional Capped Call Transaction

8-K 000-26489 10.5 3/11/2014

Incorporated By Reference

Exhibit Number Exhibit Description Form File Number Exhibit Filing Date Filed or Furnished Herewith

10.21.6 Letter Agreement, dated March 6, 2014, between Credit Suisse International and Encore Capital Group, Inc., regarding the Additional Capped Call Transaction

8-K 000-26489 10.6 3/11/2014

10.21.7 Letter Agreement, dated March 6, 2014, between Morgan Stanley & Co.

LLC and Encore Capital Group, Inc., regarding the Additional Capped Call Transaction

10.11.9+ Form of Performance Share Unit Award Grant Notice and Award Agreement (ROAE) under the Encore Capital Group, Inc.

2017 Incentive Award Plan

10-K 000-26489 10.11.9 2/26/2020

10.21.8 Letter Agreement, dated March 6, 2014, between Société Générale and Encore Capital Group, Inc., regarding the Additional Capped Call Transaction

10.11.10+ Form of Performance Share Unit Award Grant Notice and Award Agreement (ROIC) under the Encore Capital Group, Inc.

2017 Incentive Award Plan

10.19 Amended and Restated Senior Facilities Agreement, dated August 5 , 202 1 , by and among Encore Capital Group, Inc., the several guarantors, banks and other financial institutions and lenders from time to time party thereto and Truist Bank as Agent and Security Agent

8-K 000-26489 10.1 8/11/2021

10.22 Senior Facility Agreement, dated February 18, 2020, between Cabot Securitisation UK Limited, Cabot Financial (UK) Limited, HSBC Corporate Trustee Company (UK) Limited as Security Trustee, HSBC Bank PLC as Senior Agent and Goldman Sachs International Bank as Senior Lender

10.22 Senior Facility Agreement, dated November 12, 2021, between Cabot Securitisation UK Limited, Cabot Financial (UK) Limited, HSBC Corporate Trustee Company (UK) Limited as Security Trustee, HSBC Bank PLC as Senior Agent and Goldman Sachs International Bank as Senior Lender

8-K 000-26489 10.1 11/12/2021

23 unchanged sentences

22 List of Issuers of Guaranteed Securities

23 Consent of Independent Registered Public Accounting Firm, BDO USA, LLP, dated February 24, 2021

23 Consent of Independent Registered Public Accounting Firm, BDO USA, LLP

31.1 Certification of the Principal Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934

28 unchanged sentences

Chief Financial Officer and Treasurer

(Principal Financial and Accounting Officer) February 24, 2021

(Principal Financial Officer) February 23, 2022

/s/ P ETER R ECK

Vice President,

Chief Accounting Officer

(Principal Accounting Officer) February 23, 2022

/s/ A SHWINI G UPTA

17 unchanged sentences

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm ( BDO USA, LLP ;

San Diego, California ;

PCAOB ID # 243 )

Consolidated Statements of Financial Condition at December 31, 2021 and 2020

Consolidated Statements of Operations for the years ended December 31, 2020, 2019 and 2018

Consolidated Statements of Income for the years ended December 31, 2021, 2020 and 2019

Consolidated Statements of Comprehensive Income for the years ended December 31, 2021, 2020 and 2019

6 unchanged sentences

Investment in Receivable Portfolios, Net

Deferred Court Costs, Net

Composition of Certain Financial Statement Items

Variable Interest Entities

Accumulated Other Comprehensive Loss

Stock-Based Compensation

8 unchanged sentences

We have audited the accompanying consolidated statements of financial condition of Encore Capital Group, Inc.

(the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income, equity, and cash flows for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”).

(the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, equity, and cash flows for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021 in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in I nternal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated February 24, 2021 expressed an unqualified opinion thereon.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated February 23, 2022 expressed an adverse opinion thereon.

Changes in Accounting Principles

As discussed in Note 1 to the consolidated financial statements, effective January 1, 2021, the Company adopted Accounting Standards Update (“ASU”) No.

2020-06, Debt — Debt with Conversion and Other Options (“Subtopic 470-20”) and Derivatives and Hedging — Contracts in Entity’s Own Equity (“Subtopic 815-40”):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”).

As discussed in Notes 1 and 4 to the consolidated financial statements, effective January 1, 2020, the Company adopted Accounting Standards Codification (“ASC”) Topic 326, Financial Instruments—Credit Losses.

As discussed in Notes 1 to the consolidated financial statements, effective January 1, 2019, the Company adopted ASC Topic 842, Leases .

Basis for Opinion

11 unchanged sentences

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

(1) relate to accounts or disclosures that are material to the consolidated financial statements, and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Investment in Receivable Portfolios, Revenue from Receivable Portfolios and Changes in Expected Current and Future Recoveries

As more fully described in Notes 1 and 4 to the consolidated financial statements, the Company’s investment in receivable portfolios balance was approximately $3.3 billion at December 31, 2020.

Investment in receivable portfolios are comprised of loans with deteriorated credit quality since origination upon purchase.

In accordance with the Company’s charge-off policy each loan is deemed to be uncollectible on an individual basis.

Receivable portfolio purchases are grouped based on similar risk

characteristics (“pool”) and a negative allowance is established based on future recoveries of the pool using a discounted cash flow approach.

The discount rate is an effective interest rate (or “EIR”) based on the purchase price of the portfolio and the expected future cash flows at the time of purchase and does not change over the life of the pool unless the risk characteristics of the pool change.

Revenue from receivable portfolios is recognized at an EIR through the accretion of the discount on the negative allowance, differences between actual versus expected recoveries and the present value of changes in expected future recoveries.

The Company reviews each pool for current trends, actual versus expected performance and expected timing of cash flows (curve shape).

The Company then re-forecasts the timing and amount of future recoveries.

We identified the recording of investment in receivable portfolios, revenue from receivable portfolios and changes in expected current and future recoveries as a critical audit matter.

Specifically, management is required to make significant judgments and assumptions to estimate future recoveries.

Estimated future recoveries are based on historical experience, current conditions, and reasonable and supportable forecasts.

Estimate of Expected Future Recoveries on Purchased Credit Deteriorated Assets

As more fully described in Notes 1 and 4 to the consolidated financial statements, the Company’s investment in receivable portfolios, net balance was approximately $3.1 billion at December 31, 2021, and the resulting changes in recoveries for the year ended December 31, 2021 were $199.1 million.

Investment in receivable portfolios, net is comprised of purchased loans that have experienced significant deterioration of credit quality since origination.

In accordance with the Company’s charge-off policy each individual loan is deemed to be uncollectible.

Receivable portfolio purchases are aggregated based on similar risk characteristics (“pool”), and a negative allowance is established based on expected future recoveries of the pool using a discounted cash flow approach.

Subsequent changes (favorable and unfavorable) in expected future recoveries are recognized within changes in recoveries in the Statements of Income.

The Company reviews each pool for current trends, actual versus expected performance, and expected timing of future recoveries (curve shape).

The Company then re-forecasts the timing and amounts of expected future recoveries.

We identified the estimate of expected future recoveries on purchased credit deteriorated assets as a critical audit matter.

Specifically, management is required to make significant judgments and assumptions to estimate expected future recoveries.

Estimated future recoveries are based on historical experience, current conditions, reasonable and supportable forecasts, and certain qualitative factors.

Auditing these elements involved especially challenging auditor judgment due to the nature and extent of audit effort required to address these matters.

The primary procedures we performed to address this critical audit matter included:

• Testing the design and operating effectiveness of controls over management’s assessment of the reasonableness of:

(i) inputs and outputs from the Company’s proprietary statistical and behavioral models used to forecast collections, (ii) cash collection performance of pools, and (iii) a pool’s EIR.

• Testing the completeness and accuracy of collection data used by management to calculate investment in receivable portfolios, revenue from receivable portfolios and changes in expected current and future recoveries.

• Evaluating the Company’s process used to develop estimates of future recoveries by testing source data and evaluating the reasonableness of assumptions by comparing to historical results, including current period forecasts to actual performance, recent performance trends, curve shape and changes to the expected recoveries.

• Testing the design and operating effectiveness of controls over management’s assessment of the reasonableness of inputs and outputs from the Company’s proprietary statistical and behavioral models used to forecast expected future recoveries, and performance monitoring of expected future recoveries.

• Testing the completeness and accuracy of collection data used by management to monitor each pool for current trends, actual versus expected performance, and the expected amount and timing of future recoveries (curve shape).

• Evaluating management’s process used to develop estimates of expected future recoveries and certain qualitative factors by testing source data and evaluating the reasonableness of assumptions by comparing to historical results, including current period forecasts to actual performance, recent performance trends, and curve shape.

Goodwill Impairment Assessment

As more fully described in Notes 1 and 14 to the consolidated financial statements, the Company’s goodwill balance was approximately $0.9 billion at December 31, 2020, which was allocated between two reporting units, MCM and Cabot, that carried goodwill.

As more fully described in Notes 1 and 15 to the consolidated financial statements, the Company’s goodwill balance was approximately $897.8 million at December 31, 2021, which was allocated between two reporting units, MCM and Cabot, that carried goodwill.

The Company’s evaluation of goodwill for impairment involves the comparison of the fair value of each reporting unit to its carrying value.

2 unchanged sentences

We identified the goodwill impairment assessment of the Cabot reporting unit as a critical audit matter because of the significant assumptions and judgments management makes as part of the assessment to estimate the fair value of the reporting unit.

The income approach requires significant management assumptions such as assumptions used in the cash flow forecasts, the discount rate, and the terminal value exit multiple.

The market approach requires significant management judgment in the selection of the appropriate peer group companies and the valuation multiples.

The income approach requires significant management assumptions such as assumptions used in the cash flow forecasts, the discount rate, and the terminal value.

The market approach requires significant management judgment in the selection of appropriate valuation multiples.

Auditing these significant assumptions and judgments involved a high degree of auditor judgment, and an increased extent of effort including the extent of specialized skill or knowledge needed.

The primary procedures we performed to address this critical audit matter included:

• Testing the design and operating effectiveness of controls over goodwill impairment assessment, including controls over significant management assumptions and judgments used in the income and the market approaches.

• Testing management’s process for developing fair value estimates including testing the completeness, accuracy, and relevance of underlying data and evaluating significant management assumptions by comparing to historical results and market participant data.

• Testing the design and operating effectiveness of controls over goodwill impairment assessment including controls over significant management assumptions and judgments used in the income and market approaches.

• Testing management’s process for developing fair value estimates including testing the completeness, accuracy, relevance and reliability of underlying data, and evaluating significant management assumptions within their cash flow forecasts by comparing to historical results and market participant data.

• Utilizing personnel with specialized knowledge and skill in valuation to assist in:

(i) assessing the appropriateness of the fair value methodology, (ii) evaluating the reasonableness of certain assumptions used including the discount rate and the terminal value exit multiple, and (iii) assessing the reasonableness of the discount rate by developing independent estimates and comparing estimates to those utilized by management.

(i) assessing the appropriateness of the fair value methodology, (ii) evaluating the reasonableness of certain assumptions used including the discount rate, valuation multiples, and the terminal value, and (iii) assessing the reasonableness of the discount rate by developing independent estimates and comparing estimates to those utilized by management.

/s/ BDO USA, LLP

8 unchanged sentences

Investment in receivable portfolios, net 3,065,553 3,291,918

Deferred court costs, net — 100,172

Property and equipment, net 119,857 127,297

27 unchanged sentences

Other assets 3,452 5,127

Accounts payable and accrued liabilities 105 —

Borrowings 473,443 478,131

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ENCORE CAPITAL GROUP, INC.

Consolidated Statements of Operations

Consolidated Statements of Income

(In Thousands, Except Per Share Amounts)

2 unchanged sentences

Revenue from receivable portfolios $ 1,287,730 $ 1,374,717 $ 1,269,288

Changes in expected current and future recoveries 7,246 — —

Changes in recoveries 199,136 7,246 —

Total debt purchasing revenue 1,486,866 1,381,963 1,269,288

Servicing revenue 120,778 115,118 126,527

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Total revenues 1,614,499 1,501,400 1,405,789

(Allowances) allowance reversals on receivable portfolios, net ( 8,108 ) 41,473

Allowances on receivable portfolios, net ( 8,108 )

Total revenues, adjusted by net allowances 1,397,681

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Net income 351,201 212,524 168,909

Net (income) loss attributable to noncontrolling interest ( 676 ) ( 1,040 ) 6,150

Net income attributable to noncontrolling interest ( 419 ) ( 676 ) ( 1,040 )

Net income attributable to Encore Capital Group, Inc.

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Net income $ 351,201 $ 212,524 $ 168,909

Other comprehensive income (loss), net of tax:

Other comprehensive income, net of tax:

Change in unrealized gain (loss) on derivative instruments:

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Change in foreign currency translation:

Unrealized gain (loss) on foreign currency translation 17,160 23,169 ( 36,927 )

Unrealized (loss) gain on foreign currency translation ( 15,309 ) 17,160 23,169

Removal of other comprehensive loss in connection with divestiture 19,904 2,632 3,814

Unrealized gain (loss) on foreign currency translation, net of divestiture 19,792 26,983 ( 33,264 )

Other comprehensive income (loss), net of tax 19,960 22,715 ( 39,179 )

Unrealized gain on foreign currency translation, net of divestiture 4,595 19,792 26,983

Other comprehensive income, net of tax 15,265 19,960 22,715

Comprehensive income 366,466 232,484 191,624

Comprehensive (income) loss attributable to noncontrolling interest:

Net (income) loss attributable to noncontrolling interest ( 676 ) ( 1,040 ) 6,150

Unrealized (income) loss on foreign currency translation ( 7 ) ( 494 ) 5,548

Comprehensive (income) loss attributable to noncontrolling interest ( 683 ) ( 1,534 ) 11,698

Comprehensive income attributable to noncontrolling interest:

Net income attributable to noncontrolling interest ( 419 ) ( 676 ) ( 1,040 )

Unrealized income on foreign currency translation — ( 7 ) ( 494 )

Comprehensive income attributable to noncontrolling interest ( 419 ) ( 683 ) ( 1,534 )

Comprehensive income attributable to Encore Capital Group, Inc.

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Balance as of December 31, 2018 30,884 $ 309 $ 208,498 $ 720,189 $ ( 110,987 ) $ 1,679 $ 819,688

Net income (loss) — — — 115,886 — ( 1,359 ) 114,527

Other comprehensive (loss) income, net of tax — — — — ( 37,294 ) 920 ( 36,374 )

Change in fair value of redeemable noncontrolling interest — — 19,430 ( 12,011 ) — — 7,419

Purchase of noncontrolling interest — — — — — 9,626 9,626

Exercise of stock options and issuance of share-based awards, net of shares withheld for employee taxes 163 2 ( 2,510 ) — — — ( 2,508 )

Issuance of common stock 4,920 49 181,138 — — — 181,187

Stock-based compensation — — 12,980 — — — 12,980

Issuance of exchangeable notes — — 14,009 — — — 14,009

Exchangeable notes hedge transactions — — ( 17,785 ) — — — ( 17,785 )

Net equity adjustment on Cabot Transaction — — ( 43,097 ) — — — ( 43,097 )

Other — — 1,687 — 3,663 2,421 7,771

Balance as of December 31, 2018 30,884 309 208,498 720,189 ( 110,987 ) 1,679 819,688

Net income — — — 167,869 — 1,040 168,909

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Exchangeable notes hedge transactions — — 1,792 — — — 1,792

Other — — ( 116 ) — 3,814 — 3,698

Removal of other comprehensive loss in connection with divestiture — — ( 116 ) — 3,814 — 3,698

Balance as of December 31, 2019 31,097 311 222,590 888,058 ( 88,766 ) 3,213 1,025,406

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Stock-based compensation — — 16,560 — — — 16,560

Other — — — — 2,632 — 2,632

Removal of other comprehensive loss in connection with divestiture — — — — 2,632 — 2,632

Balance as of December 31, 2020 31,345 313 230,440 1,055,668 ( 68,813 ) 2,468 1,220,076

Cumulative adjustment — — ( 40,372 ) 22,458 — — ( 17,914 )

Net income — — — 350,782 — 419 351,201

Other comprehensive loss, net of tax — — — — ( 4,639 ) — ( 4,639 )

Purchase of noncontrolling interest — — ( 2,669 ) — — ( 2,887 ) ( 5,556 )

Exercise of stock options and issuance of share-based awards, net of shares withheld for employee taxes 266 2 ( 5,537 ) — — — ( 5,535 )

Repurchase of common stock ( 7,070 ) ( 70 ) ( 200,192 ) ( 190,344 ) — — ( 390,606 )

Stock-based compensation — — 18,330 — — — 18,330

Removal of other comprehensive loss in connection with divestiture — — — — 19,904 — 19,904

Balance as of December 31, 2021 24,541 $ 245 $ — $ 1,238,564 $ ( 53,548 ) $ — $ 1,185,261

See accompanying notes to consolidated financial statements

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Goodwill impairment — — 10,718

Changes in expected current and future recoveries ( 7,246 ) — —

Provision for (reversal of) allowances on receivable portfolios, net — 8,108 ( 41,473 )

Changes in recoveries ( 199,136 ) ( 7,246 ) —

Provision for allowances on receivable portfolios, net — — 8,108

Other, net 17,130 16,260 9,794

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Repayment of senior secured notes ( 359,175 ) ( 1,033,765 ) ( 470,768 )

Proceeds from issuance of convertible and exchangeable senior notes — 100,000 172,500

Proceeds from issuance of convertible senior notes — — 100,000

Repayment of convertible senior notes ( 161,000 ) ( 89,355 ) ( 84,600 )

Payment for the purchase of PECs and noncontrolling interest — — ( 234,101 )

Repurchase of common stock ( 390,606 ) — —

Other, net ( 12,208 ) ( 40,822 ) ( 24,594 )

Net cash (used in) provided by financing activities ( 403,200 ) ( 19,770 ) 166,377

Net cash used in by financing activities ( 655,692 ) ( 403,200 ) ( 19,770 )

Net (decrease) increase in cash and cash equivalents ( 12,743 ) ( 7,510 ) 22,630

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Supplemental schedule of non-cash investing and financing activities:

Stock consideration for the Cabot Transaction $ — $ — $ 180,559

Investment in receivable portfolios transferred to real estate owned $ 768 $ 2,214 $ 5,058

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Defaulted receivables may also include receivables subject to bankruptcy proceedings.

The Company also provides debt servicing and other portfolio management services to credit originators for non-performing loans.

The Company also provides debt servicing and other portfolio management services to credit originators for non-performing loans in Europe.

Through Midland Credit Management, Inc.

and its domestic affiliates (collectively, “MCM”), the Company is a market leader in portfolio purchasing and recovery in the United States.

Through Cabot Credit Management Limited (“CCM”) and its subsidiaries and European affiliates (collectively, “Cabot”) the Company is one of the largest credit management services providers in Europe and a market leader in the United Kingdom and Ireland.

These are the Company’s primary operations.

The Company also has investments and operations in Latin America and Asia-Pacific, which the Company refers to as “LAAP.” In August 2019, the Company completed the sale of Baycorp, which represented the Company’s investments and operations in Australia and New Zealand.

The Company also has investments and operations in Latin America and Asia-Pacific, which the Company refers to as “LAAP.”

On March 11, 2020, the World Health Organization declared the outbreak of a novel coronavirus (“COVID-19”) as a global pandemic, which continues to spread throughout the United States and around the world.

The COVID-19 outbreak and resulting containment measures implemented by governments around the world, as well as increased business uncertainty, have impacted the Company.

The circumstances around the COVID-19 pandemic are rapidly evolving and will continue to impact the Company’s business and its estimation of expected recoveries in future periods.

The circumstances around the COVID-19 pandemic continue to rapidly evolve and will continue to impact the Company’s business and its estimation of expected recoveries in future periods.

The Company will continue to closely monitor the COVID-19 situation and update its assumptions accordingly.

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Translation gains or losses are the material components of accumulated other comprehensive income or loss and are reclassified to earnings upon the substantial sale or liquidation of investments in foreign operations.

Reclassifications

Certain immaterial reclassifications have been made to the prior years’ consolidated financial statements to conform to current year presentation.

The Company presented certain refinancing charges such as make-whole provisions, call premiums, and write-offs of unamortized debt issuance costs and debt discount as interest expense in prior periods, and have reclassed such costs as loss on extinguishment of debt as a single line item in the Company’s consolidated statements of operations rather than presenting them as part of interest expense.

These reclassifications have no effect on net income, total assets, accumulated earnings or cash flow statements as previously reported.

Change in Accounting Principle

On January 1, 2020, the Company adopted the new accounting standard for Financial Instruments - Credit Losses (“CECL”).

CECL introduces a new impairment approach for credit loss recognition based on current expected lifetime losses rather than incurred losses.

CECL applies to all financial assets carried at amortized costs, including the Company’s investment in receivable portfolios, which are defined as purchased credit deteriorated (“PCD”) financial assets under CECL.

The adoption of CECL represents a significant change from the previous U.S.

GAAP guidance relating to purchased credit impaired assets and resulted in changes to the Company’s accounting for its investment in receivable portfolios and the related income from the receivable portfolios.

As part of the adoption of CECL, the Company changed its accounting methodology for its court costs spent in its legal collection channel effective January 1, 2020.

Previously, the Company capitalized its upfront court costs spent in its consolidated financial statements (“Deferred Court Costs”) and provided a reserve for those costs that it believed would ultimately be uncollectible.

Effective January 1, 2020, the Company expenses all of its court costs as incurred.

All expected cash flows, including all the expected collections from the legal channel, are included in the measurement of the negative allowance, or investment in receivable portfolios, at a discounted value.

Upon transition, an adjustment was made to retained earnings to reflect the net change from an undiscounted to discounted value prior to writing-off uncollectible receivables and establishing a balance for discounted value of future recoveries of amounts expected to be collected.

Immaterial Error Corrections

During 2021, the Company identified immaterial disclosure errors relating to presentation of its deferred tax assets and deferred tax liabilities in the Income Taxes footnote of Form 10-K for the year ended December 31, 2020.

The disclosure error was primarily related to incorrect netting of deferred tax assets and deferred tax liabilities in various tax jurisdictions.

Nonetheless, the consolidated net deferred taxes positions for the periods presented were reported correctly.

The Company revised the previously reported deferred tax assets and deferred tax liabilities in this Form 10-K for the year ended December 31, 2021.

The disclosure error had no effect on the Company’s consolidated financial statements.

Recently Adopted Accounting Guidance

On January 1, 2021, the Company adopted Accounting Standards Update (“ASU”) No.

2020-06, Debt — Debt with Conversion and Other Options (“Subtopic 470-20”) and Derivatives and Hedging — Contracts in Entity’s Own Equity (“Subtopic 815-40”):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”).

The Company adopted ASU 2020-06 using the modified-retrospective approach, by recording a net cumulative-effect adjustment to equity of approximately $ 17.9 million.

The ASU simplifies the accounting for convertible instruments by removing certain models in Subtopic 470-20 and revises the guidance in Subtopic 815-40 to simplify the accounting for contracts in an entity’s own equity.

The ASU also amends the guidance to improve the consistency of earnings per share calculations, which requires the if-converted method be used for convertible instruments.

Under ASU 2020-06, the Company’s convertible and exchangeable notes are no longer bifurcated to a debt component and an equity component, instead, they are carried as a single liability which reflects the principal amount of the convertible and exchangeable notes.

The interest expense recognized on the convertible and exchangeable notes is based on coupon rates, rather than higher effective interest rates.

As a result, the Company recognizes lower interest expense after the adoption.

Additionally, effective January 1, 2021, the Company uses the if-converted method in calculating the dilutive effect of its convertible and exchangeable notes for earnings per share.

The adoption of ASU 2020-06 had a positive impact to the Company’s diluted earnings per share of $ 0.19 for the year ended December 31, 2021.

The Company has not adjusted prior period comparative information and will continue to disclose prior period financial information in accordance with the previous accounting guidance.

The following table summarizes the cumulative effects of adopting the CECL guidance on the Company’s consolidated statements of financial condition as of January 1, 2020 ( in thousands ):

The following table summarizes the cumulative effects of adopting the new guidance on the Company’s consolidated statements of financial condition at January 1, 2021 ( in thousands ):

Balance as of December 31, 2020 Adjustment Opening Balance as of January 1, 2021

Investment in receivable portfolios, net $ 3,283,984 $ 44,166 $ 3,328,150

Deferred court costs, net 100,172 ( 100,172 ) —

Convertible notes and exchangeable notes $ 583,500 $ — $ 583,500

Debt discount ( 19,364 ) 19,364 —

Other liabilities (for deferred tax liabilities) 146,893 ( 1,450 ) 145,443

Additional paid-in capital 230,440 ( 40,372 ) 190,068

Accumulated earnings 1,055,668 22,458 1,078,126

In March 2020, the FASB issued ASU No.

2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting.

The ASU provides optional expedients and exceptions for applying GAAP to transactions affected by reference rate (e.g., LIBOR) reform if certain criteria are met, for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting.

Additionally, in January 2021, the FASB issued ASU 2021-01, which clarifies the scope of Topic 848 and allows entities to elect certain optional expedients and exceptions when accounting for derivative contracts and certain hedging relationships affected by changes in the interest rates.

These ASUs are effective as of March 12, 2020 through December 31, 2022 and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022.

The Company is currently evaluating its contracts and the optional expedients provided by the new standards.

The ASUs are currently not expected to have a material impact on the Company’s consolidated financial statements.

Effective January 1, 2019, the Company adopted Accounting Standard Codification 842 - Leases using the modified retrospective method.

Refer to “Note 11:

Leases” for details of the Company’s leases.

Recent Accounting Pronouncements

Recent Accounting Pronouncements Not Yet Effective

In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

2020-06, Debt — Debt with Conversion and Other Options (“Subtopic 470-20”) and Derivatives and Hedging — Contracts in Entity’s Own Equity (“Subtopic 815-40”):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”).

also amends the guidance to improve the consistency of earnings per share calculations, which requires the if-converted method be used for convertible instruments.

ASU 2020-06 is effective for reporting periods beginning after December 15, 2021 with early adoption permitted for reporting periods beginning after December 15, 2020.

The amendment is to be adopted through either a modified retrospective or fully retrospective method of transition.

Under ASU 2020-06, the Company’s convertible and exchangeable notes will no longer be bifurcated to a debt component and an equity component, instead, they will be carried as a single liability.

The interest expense recognized on the convertible and exchangeable notes will be based on coupon rates, rather than higher effective interest rates.

As a result, the Company will recognize lower interest expense.

The Company’s convertible and exchangeable notes require net share settlement.

Additionally, the if-converted method will not substantially change the dilutive effect for convertible instruments that require net share settlement, only in-the-money shares will be included in the dilutive effect.

The Company will early adopt ASU 2020-06 as of January 1, 2021 using a modified-retrospective approach, by recording a decrease to opening accumulated earnings of approximately $ 16.1 million, which represents the debt discount of all outstanding convertible and exchangeable notes as of December 31, 2020, adjusted for income tax effect.

Implementation efforts have been substantially complete.

With the exception of the updated standards discussed above, there have been no new accounting pronouncements not yet effective as of December 31, 2020 that have significance, or potential significance, to the Company’s consolidated financial statements.

With the exception of the updated standard discussed above, there have been no recent accounting pronouncements or changes in accounting pronouncements during the year ended December 31, 2021.

Use of Estimates

The preparation of financial statements, in conformity with GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

The inputs into the judgments and estimates consider the economic implications of the COVID-19 pandemic on the Company’s critical and significant accounting estimates.

On an ongoing basis, the Company evaluates significant estimates, including changes in estimated future recoveries on its investment in receivable portfolios, fair value of goodwill, and income taxes, among others.

The Company bases its estimates on assumptions, both historical and forward looking, that are believed to be reasonable.

Actual results could materially differ from those estimates.

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Current Accounting Policy

As a result of the adoption of CECL, the Company revised its accounting policy for investment in receivable portfolios effective January 1, 2020:

On January 1, 2020, the Company adopted the new accounting standard for Financial Instruments - Credit Losses (“CECL”).

The adoption resulted in a reduction to the Company’s accumulated earnings of $ 44.2 million.

The Company purchases portfolios of loans that have experienced significant deterioration of credit quality since origination from banks and other financial institutions.

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Revenue is recognized for each static pool over the economic life of the pool.

The Company makes significant assumptions in determining the economic life of a pool, including the reasonable and supportable economic forecast period based on asset type and geography, which considers the availability of forward-looking scenarios and their respective time horizons.

In general, the Company forecasts recoveries over one or two years prior to reverting to historical averages at an estimate-level over the remaining life using various methodologies depending on the asset type and geography.

The speed at which forecasts revert varies based on the spread between the forecast period and historical data.

In addition, estimated recoveries include a qualitative component, which generally reflects management’s assessment of macroeconomic environment and business initiatives.

The Company continues to evaluate the reasonable economic life of a pool and reversion method annually.

Revenue primarily includes two components:

(1) accretion of the discount on the negative allowance due to the passage of time, which is included in “Revenue from receivable portfolios” and (2) changes in expected cash flows, which includes (a) the current period variances between actual cash collected and expected cash recoveries and (b) the present value change of expected future recoveries, and is presented in our consolidated statements of operations as “Changes in expected current and future recoveries.”

The Company measures expected future recoveries based on historical experience, current conditions, and reasonable and supportable forecasts.

Debt purchasing revenue includes two components:

(1) Revenue from receivable portfolios, which is the accretion of the discount on the negative allowance due to the passage of time (generally the portfolio balance multiplied by the EIR) and also includes all revenue from zero basis portfolio (“ZBA”) collections, and

(2) Changes in recoveries, which includes

(a) Recoveries above or below forecast, which is the difference between (i) actual cash collected/recovered during the current period and (ii) expected cash recoveries for the current period, which generally represents over or under performance for the period;

(b) Changes in expected future recoveries, which is the present value change of expected future recoveries, where such change generally results from (i) collections “pulled forward from” or “pushed out to” future periods (i.e.

amounts either collected early or expected to be collected later) and (ii) magnitude and timing changes to estimates of expected future collections (which can be increases or decreases).

The Company measures expected future recoveries based on historical experience, current conditions, reasonable and supportable forecasts, and other quantitative and qualitative factors.

Factors that may change the expected future recoveries may include both internal as well as external factors.

Internal factors include operational performance, such as capacity and the productivity of our collection staff.

External factors that may have an impact on our collections include macroeconomic conditions, new laws or regulations, and new interpretations of existing laws or regulations.

Internal factors include operational performance, such as capacity and the productivity of the Company’s collection staff.

External factors that may have an impact on the Company’s collections include new laws or regulations, new interpretations of existing laws or regulations, and macroeconomic conditions.

The Company elected not to maintain its previously formed pool groups with amortized costs at transition.

Certain pools already fully recovered their cost basis and became zero basis portfolios (“ZBA”) prior to the transition.

Certain pools already fully recovered their cost basis and became ZBA prior to the transition.

The Company did not establish a negative allowance from ZBA pools as the Company elected the Transition Resource Group for Credit Losses’ practical expedient to retain the integrity of its legacy pools.

All subsequent collections to the ZBA pools are recognized as ZBA revenue, which is included in revenue from receivable portfolios in the Company’s consolidated statements of operations.

All subsequent collections to the ZBA pools are recognized as ZBA revenue, which is included in revenue from receivable portfolios in the Company’s consolidated statements of income.

Accounting Policy Prior to January 1, 2020

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Subsequent increases in expected cash flows were recognized prospectively through an upward adjustment of the pool’s IRR over its remaining life.

Subsequent decreases in expected cash flows did not change the IRR, but were recognized as an allowance to the cost basis of the pool, and were reflected in the consolidated statements of operations as an adjustment to revenue, with a corresponding valuation allowance, offsetting the investment in receivable portfolios in the consolidated statements of financial condition.

Subsequent decreases in expected cash flows did not change the IRR, but were recognized as an allowance to the cost basis of the pool, and were reflected in the consolidated statements of income as an adjustment to revenue, with a corresponding valuation allowance, offsetting the investment in receivable portfolios in the consolidated statements of financial condition.

With gross collections being discounted at monthly IRRs, when collections were lower in the near term, even if substantially higher collections were expected later in the collection curve, an allowance charge could result.

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Whether control has been relinquished requires, among other things, an evaluation of relevant legal considerations and an assessment of the nature and extent of the Company’s ongoing involvement with the assets transferred.

Gains and losses stemming from transfers reported as sales are included in “Other revenues” in the Company’s consolidated statements of operations.

Gains and losses stemming from transfers reported as sales are included in “Other revenues” in the Company’s consolidated statements of income.

Assets obtained and liabilities incurred in connection with transfers reported as sales are initially recognized in the statements of financial condition at fair value.

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If the asset is not recoverable, its carrying amount would be adjusted down to its fair value.

Deferred Court Costs

The Company pursues legal collections using a network of attorneys that specialize in collection matters and through its internal legal channel.

The Company generally pursues collections through legal means only when it believes a consumer has sufficient assets to repay their indebtedness but has, to date, been unwilling to pay.

In order to pursue legal collections, the Company is required to pay certain upfront costs to the applicable courts that are recoverable from the consumer.

Effective January 1, 2020, the Company expenses all of its court costs as incurred and no longer capitalizes such costs as Deferred Court Costs.

Prior to January 1, 2020, the Company capitalized Deferred Court Costs in its consolidated financial statements and provided a reserve for those costs that it estimated to be uncollectible.

The Company determined the reserve based on an estimated court cost recovery rate established based on its analysis of historical court costs recovery data.

The Company estimated deferral periods for Deferred Court Costs based on jurisdiction and nature of litigation and wrote off any Deferred Court Costs not recovered within the respective deferral period.

Collections received from debtors were first applied against related court costs with the balance applied to the debtors’ account balance.

Deferred Court Costs, Net” for further details.

The Company uses the asset and liability method of accounting for income taxes.

When the Company prepares its consolidated financial statements, it estimates income taxes based on the various jurisdictions and countries where it conducts business.

This requires the Company to estimate current tax exposure and to assess temporary differences that result from differing treatments of certain items for tax and accounting purposes.

Deferred income taxes are recognized based on the differences between the financial statement and income tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.

The Company then assesses the likelihood that deferred tax assets will be realized.

Valuation allowances are established, when it is more likely than not the deferred tax assets will not be realized.

When the Company establishes a valuation allowance or increases this allowance in an accounting period, it records a corresponding tax expense in the consolidated statements of operations.

The Company recognizes operating lease right-of-use (“ROU”) assets and operating lease liabilities in the consolidated statements of financial condition.

ROU assets represent the Company’s right to use an underlying asset during the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease.

ROU assets and lease liabilities are recognized at commencement date based on the net present value of fixed lease payments over the lease term.

The Company’s lease term includes options to extend or terminate the lease when it is reasonably certain that it will exercise that option.

ROU assets also include any advance lease payments made and are net of any lease incentives.

As most of the Company’s operating leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.

The incremental borrowing rate is the rate of interest that the Company would expect to pay to borrow over a similar term, and on a collateralized basis, an amount equal to the lease payments in a similar economic environment.

The Company elected not to apply the recognition requirements to short-term leases and not to separate non-lease components from lease components for operating leases.

The provision for income taxes is estimated using the asset and liability method of accounting for income taxes, under which deferred tax assets and liabilities are recognized based on temporary differences between the financial statement and income tax bases of assets and liabilities.

Deferred tax assets and liabilities are measured using enacted tax rates in effect for the years in which the differences are expected to be realized or settled.

At each reporting date, the Company considers new evidence, both positive and negative, that could affect future realization of deferred tax assets including historical earnings, taxable income in prior carryback years if permitted under tax law, projections of future income, timing of reversing temporary differences and the implementation of feasible and prudent tax planning strategies.

In the event that it is more likely than not that all or part of the deferred tax assets are determined not to be realizable in the future, the Company would establish or increase a valuation allowance in the period such determination is made, with a corresponding charge to earnings.

In the event the Company realizes deferred tax assets that were previously determined to be unrealizable, the Company would release or decrease the respective valuation allowance, with a corresponding positive adjustment to earnings.

The calculation of tax liabilities involves significant judgement in estimating the impact and timing of resolution of uncertainties in the application of complex tax laws.

Resolution of these uncertainties in a manner inconsistent with the Company’s expectations could have a material impact on the Company’s results of operation and financial position.

The Company records liabilities related to uncertain tax positions when it believes that it is more likely than not that those positions may not be fully sustained upon review by tax authorities, despite its belief that those tax return positions are supportable.

The Company includes interest and penalties related to income taxes within its provision for income taxes.

1 unchanged sentence

Income Taxes” for further discussion.

Management must make significant judgments to determine the provision for income taxes, deferred tax assets and liabilities, and any valuation allowance to be recorded against deferred tax assets.

Stock-Based Compensation

2 unchanged sentences

The Company has certain share awards that include market conditions that affect vesting, the fair value of these shares is estimated using a lattice model.

Compensation cost is not adjusted if the market condition is not met, as long as the requisite service is provided.

Compensation cost is not adjusted if the market condition is not met, as long as the

requisite service is provided.

For share awards that require service and performance conditions, the Company recognizes compensation cost only for those awards expected to meet the service and performance vesting conditions over the requisite service period of the award.

Forfeiture rates are estimated based on the Company’s historical experience.

Stock-based compensation expenses are included in “Salaries and Employee Benefits” in the Company’s consolidated statements of operations.

Stock-based compensation expenses are included in “Salaries and Employee Benefits” in the Company’s consolidated statements of income.

See “Note 10:

Stock-Based Compensation” for further discussion.

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Concentration of Supply Risk

A significant percentage of the Company’s portfolio purchases for any given fiscal quarter or year may be concentrated with a few large sellers, some of which may also involve forward flow arrangements.

A significant percentage of the Company’s portfolio purchases in the United States for any given fiscal quarter or year may be concentrated with a few large sellers, some of which may also involve forward flow arrangements.

A significant decrease in the volume of portfolio available from any of the Company’s principal sellers would force the Company to seek alternative sources of charged-off receivables.

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Dilutive potential common shares include outstanding stock options, restricted stock, and the dilutive effect of the convertible and exchangeable senior notes, if applicable.

The Company adopted ASU 2020-06 on January 1, 2021, using a modified retrospective approach.

Effective January 1, 2021, the dilutive effect of the Company’s convertible and exchangeable notes is calculated using the if-converted method.

Prior to the adoption, the dilutive effect of the convertible and exchangeable notes was calculated using the treasury stock method.

In September 2021, in accordance with the indenture for the convertible senior notes due in March 2022, the Company irrevocably elected cash settlement for these notes.

As a result, the convertible senior notes due in March 2022 were only dilutive prior to September 15, 2021.

All of the Company’s other convertible and exchangeable notes require net share settlement, using the if-converted method results in a similar dilutive effect as using the treasury stock method under the previous accounting standard, due to the fact that only in-the-money shares are included in the dilutive effect.

A reconciliation of shares used in calculating earnings per basic and diluted shares follows for the periods presented (in thousands, except per share amounts) :

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Dilutive effect of stock-based awards 407 283 264

Dilutive effect of convertible and exchangeable senior notes 617 — —

Total weighted-average dilutive shares outstanding 31,153 31,710 31,474

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Level 1 Level 2 Level 3 Total

Cross-currency swap agreements $ — $ 11,578 $ — $ 11,578

Interest rate cap contracts $ — $ 3,541 $ — $ 3,541

Interest rate swap agreements — ( 5,232 ) — ( 5,232 )

Cross-currency swap agreements — ( 16,902 ) — ( 16,902 )

Contingent consideration — — ( 5,218 ) ( 5,218 )

1 unchanged sentence

Level 1 Level 2 Level 3 Total

Foreign currency exchange contracts $ — $ 1,473 $ — $ 1,473

Cross-currency swap agreements $ — $ 11,578 $ — $ 11,578

Interest rate cap contracts — 659 — 659

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The earn-out payments are subsequently remeasured to fair value at each reporting date, based on actual and forecasted operating performance.

The following table provides a roll-forward of the fair value of contingent consideration for the years ended December 31, 2020, 2019 and 2018 (in thousands) :

Changes in fair value of contingent consideration are included in other operating expenses in the Company’s consolidated statements of income.

The following table provides a roll-forward of the fair value of contingent consideration, which is included in the accounts payable and accrued liabilities in the Company’s consolidated statements of financial position, for the years ended December 31, 2021, 2020 and 2019 (in thousands) :

Balance as of December 31, 2018 $ 6,198

Issuance of contingent consideration 1,728

Change in fair value of contingent consideration ( 2,300 )

2 unchanged sentences

Balance as of December 31, 2019 66

Change in fair value of contingent consideration ( 2,300 )

Issuance of contingent consideration in connection with purchase of noncontrolling interest

Payment of contingent consideration ( 88 )

1 unchanged sentence

Balance as of December 31, 2020 2,957

Issuance of contingent consideration 2,848

Issuance of contingent consideration in connection with purchase of noncontrolling interest

Change in fair value of contingent consideration ( 388 )

Payment of contingent consideration ( 180 )

1 unchanged sentence

Balance as of December 31, 2021 $ 5,218

Redeemable Noncontrolling Interest:

Some minority shareholders in certain subsidiaries of the Company had the right, at certain times, to require the Company to acquire their ownership interest in those entities at fair value and, in some cases, to force a sale of the subsidiary if the Company chose not to purchase their interests at fair value.

In connection with various business transactions, the Company redeemed or deconsolidated all of its redeemable noncontrolling interest during the year ended December 31, 2018 and no longer carried any redeemable noncontrolling interest as of December 31, 2018.

The components of the change in the redeemable noncontrolling interest for the years ended December 31, 2018 are presented in the following table (in thousands) :

Balance as of December 31, 2017 $ 151,978

Redemption of redeemable noncontrolling interest ( 138,835 )

Deconsolidation upon sale of redeemable noncontrolling interest 5,535

Net loss attributable to redeemable noncontrolling interest ( 4,791 )

Adjustment of the redeemable noncontrolling interest to fair value ( 7,419 )

Effect of foreign currency translation attributable to redeemable noncontrolling interest ( 6,468 )

Balance as of December 31, 2018 $ —

Non-Recurring Fair Value Measurement:

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These assets include real estate-owned assets classified as held for sale at the lower of their carrying value or fair value less cost to sell.

The fair value of the assets held for sale and estimated selling expenses were determined at the time of initial recognition and in each reporting period using Level 3 measurements.

The fair value of the assets held for sale and estimated selling expenses were determined at the time of initial recognition and in each reporting period using Level 3 measurements based on appraised values using market comparable.

The fair value estimate of the assets held for sale was approximately $ 44.6 million and $ 42.2 million as of December 31, 2021 and December 31, 2020, respectively.

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Investment in receivable portfolios $ 3,065,553 $ 3,416,926 $ 3,291,918 $ 3,705,672

Deferred court costs — — 100,172 100,172

Financial Liabilities

Convertible notes and exchangeable notes (1)

Convertible senior notes due March 2021 (1)

— — 160,406 161,349

Convertible senior notes due March 2022 (1)

150,000 195,009 146,644 160,905

Exchangeable senior notes due September 2023 (1)

172,500 257,782 164,339 190,737

Convertible senior notes due October 2025 (1)

100,000 165,887 92,747 109,090

Senior secured notes (2)

1,606,327 1,652,246 1,642,058 1,684,729

Encore private placement notes 107,470 108,652 146,550 141,860

________________________

(1) Carrying amount represents the portion of the convertible and exchangeable notes classified as debt, while estimated fair value pertains to the face amount of the notes.

(1) Prior to January 1, 2021, under the previous accounting standard, the convertible and exchangeable notes included a debt discount.

The carrying amount as of December 31, 2020 represented the principal amount of the notes, net of the debt discount.

(2) Carrying amount represents historical cost, adjusted for any related debt discount or debt premium.

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The Company evaluates the use of these key inputs on an ongoing basis and refines the data as it continues to obtain better information from market participants in the debt recovery and purchasing business.

Deferred Court Costs:

Effective January 1, 2020, the Company no longer carries Deferred Court Costs as a result of its change in accounting policy.

The fair value estimate for Deferred Court Costs as of December 31, 2019 involved Level 3 inputs as there was little observable market data available and management was required to use significant judgment in its estimates.

The Company’s convertible notes, exchangeable notes and senior secured notes are carried at historical cost, adjusted for the applicable debt discount.

The Company’s convertible notes, exchangeable notes, senior secured notes and private placement notes are carried at historical cost, adjusted for the applicable debt discount.

The fair value estimate for the convertible and exchangeable notes incorporates quoted market prices using Level 2 inputs.

The fair value of the senior secured notes is estimated using widely accepted valuation techniques, including discounted cash flow analyses using available market information on discount and borrowing rates with similar terms, maturities, and credit ratings.

The fair value of the senior secured notes and private placement notes is estimated using widely accepted valuation techniques, including discounted cash flow analyses using available market information on discount and borrowing rates with similar terms, maturities, and credit ratings.

Accordingly, the Company used Level 2 inputs for these debt instrument fair value estimates.

The carrying value of the Company’s senior secured revolving credit facility agreement approximates fair value due to the short-term nature of the interest rate period.

The Company’s borrowings also include private placement notes, securitisation senior facility and finance lease liabilities for which the carrying value approximates respective fair value.

The carrying value of the Company’s senior secured revolving credit facility and securitisation senior facility approximates fair value due to the use of current market rates that are repriced frequently.

Derivatives and Hedging Instruments

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Interest rate cap contracts Other assets $ 3,541 Other assets $ 659

Foreign currency exchange contracts Other assets — Other assets 443

Interest rate swap agreements Other liabilities ( 5,232 ) Other liabilities ( 9,116 )

Cross-currency swap agreements Other assets 11,578 Other assets —

Derivatives not designated as hedging instruments:

Foreign currency exchange contracts Other assets — Other assets 1,030

Interest rate swap agreements — — Other liabilities ( 5,232 )

Cross-currency swap agreements Other liabilities ( 16,902 ) Other assets 11,578

Derivatives Designated as Hedging Instruments

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The Company held certain foreign currency forward contracts designated as cash flow hedging instruments that matured in June 2020.

As of December 31, 2020, the Company had no outstanding forward contracts that were designated as cash flow hedging instruments.

No gains or losses were reclassified from OCI into earnings as a result of forecasted transactions that failed to occur during the years ended December 31, 2021, 2020, or 2019.

3 unchanged sentences

Previously, the Company held four interest rate swap agreements that hedged the risk of USD-LIBOR interest rate fluctuations for the Encore revolving credit facility and term loan facility.

As part of the financing transactions completed in September 2020, the Company settled two of the interest rate swap agreements.

As of December 31, 2020, there were two interest rate swap agreements outstanding with a total notional amount of $ 196.4 million.

The Company expects to reclassify approximately $ 8.7 million of net derivative loss from OCI into earnings relating to interest rate swaps within the next 12 months.

In connection with the financing transactions discussed above, the Company entered into cross-currency swap agreements, which are used to manage foreign currency exchange risk by converting fixed-rate Euro-denominated borrowings including periodic interest payments and the payment of principal at maturity to fixed-rate USD debt and are accounted for as cash flow hedges.

As of December 31, 2020, there were four cross-currency swap agreements outstanding with a total notional amount of € 350.0 million (approximately $ 426.8 million based on an exchange rate of $1.00 to €0.82, the exchange rate as of

December 31, 2020).

As part of the financing transactions completed in September 2020, the Company settled two of the interest rate swap agreements but continued to amortize the remaining unrealized loss in OCI into earnings.

On September 30, 2021, the Company ceased hedge accounting for its interest rate swap instruments due to the forecasted transactions were no longer probable driven by the continued pay down of its USD-LIBOR denominated borrowings.

As a result, the Company reclassified all the remaining unrealized loss in OCI of approximately $ 1.9 million into earnings.

The two remaining interest swap agreements matured in December 2021 and were not designated as hedging instruments during the fourth quarter of 2021.

The Company uses cross-currency swap agreements to manage foreign currency exchange risk by converting fixed-rate Euro-denominated borrowings including periodic interest payments and the payment of principal at maturity to fixed-rate USD debt.

The cross-currency swap agreements are accounted for as cash flow hedges.

As of December 31, 2021, there were four cross-currency swap agreements outstanding with a total notional amount of € 350.0 million (approximately $ 397.9 million based on an exchange rate of $1.00 to € 0.88 , the exchange rate as of December 31, 2021).

The Company expects to reclassify approximately $ 5.2 million of net derivative loss from OCI into earnings relating to cross-currency swaps within the next 12 months.

Previously, the Company held two interest rate cap contracts (the “2018 Caps”) that hedged the risk of GBP-LIBOR interest rate fluctuations for the Cabot Securitisation Senior Facility interest payments.

In February 2020, the Company settled the 2018 Caps and ceased the hedge relationship, which resulted in the reclassification of the associated other comprehensive loss balance to interest expense for approximately $ 2.5 million during the first quarter of 2020.

As of December 31, 2020, the Company held two interest rate cap contracts with a notional amount of approximately $ 965.8 million that are used to manage its risk related to interest rate fluctuations on the Company’s variable interest rate bearing debt.

The interest rate cap hedging the fluctuations in three-month EURIBOR floating rate debt (“2019 Cap”) has a notional amount of € 400.0 million (approximately $ 487.7 million based on an exchange rate of $1.00 to €0.82, the exchange rate as of December 31, 2020) and matures in 2024.

The interest rate cap hedging the fluctuations in sterling overnight index average (“SONIA”) bearing debt (“2020 Cap”) has a notional amount of £ 350.0 million (approximately $ 478.1 million based on an exchange rate of $1.00 to £0.73, the exchange rate as of December 31, 2020) and matures in 2023.

The 2019 Cap is structured as a series of European call options (“Caplets”) such that if exercised, the Company will receive a payment equal to 3-months EURIBOR on a notional amount equal to the hedged notional amount net of a fixed strike price.

The 2020 Cap is also structured as a series of Caplets such that if exercised, the Company will receive a payment equal to SONIA on a notional amount equal to the hedged notional amount net of a fixed strike price.

Each interest rate reset date, the Company will elect to exercise the Caplet or let it expire.

The potential cash flows from each Caplet are expected to offset any variability in the cash flows of the interest payments to the extent EURIBOR or SONIA exceeds the strike price of the Caplets.

The Company also uses interest rate cap contracts to manage its risk related to the interest rate fluctuations in its variable interest rate bearing debt.

The Company has an interest rate cap (the “2019 Cap”) with a notional amount of € 400.0 million (approximately $ 454.8 million based on an exchange rate of $1.00 to € 0.88 , the exchange rate as of December 31, 2021).

The 2019 Cap hedges the fluctuations in three-month EURIBOR floating rate debt and matures in 2024.

The Company also had an interest rate cap that was used to hedge the fluctuations in debt bearing variable interest based on sterling overnight index average (“SONIA”) (the “2020 Cap”).

The 2020 Cap had a notional amount of £ 350.0 million (approximately $ 473.4 million based on an exchange rate of $1.00 to £ 0.74 , the exchange rate as of December 31, 2021) with a maturity date in March 2023.

In November 2021, the Company sold the 2020 Cap for approximately $ 0.9 million and paid approximately $ 2.1 million to purchase another interest rate cap (the “2021 Cap”) that matures in September 2024 with the same notional amount.

The Company expects the hedge relationships to be highly effective and designates the 2019 Cap and 2021 Cap as cash flow hedge instruments.

The Company expects to reclassify approximately $ 0.5 million of net derivative loss from OCI into earnings relating to interest rate caps within the next 12 months.

The remaining OCI associated with the terminated 2020 Cap will continue to be amortized through March 2023.

The Company expects to

reclassify approximately $ 0.9 million of net derivative loss from OCI into earnings relating to interest rate caps within the next 12 months.

The following table summarizes the effects of derivatives in cash flow hedging relationships designated as hedging instruments in the Company’s consolidated financial statements during the periods presented (in thousands):

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These derivative contracts generally mature within one to three months and are not designated as hedge instruments for accounting purposes.

As of December 31, 2021, the Company had no outstanding currency exchange forward contracts that were not designated as cash flow hedging instruments.

The Company continues to monitor the level of exposure of the foreign currency exchange risk and may enter into additional short-term forward contracts on an ongoing basis.

The gains or losses on these derivative contracts are recognized in other income or expense based on the changes in fair value.

As of December 31, 2020, the Company had no outstanding currency exchange forward contracts that were not designated as cash flow hedging instruments.

In May 2018, in anticipation of the completion of the purchase of all of the outstanding equity of CCM not owned by Encore (the “Cabot Transaction”), Encore entered into a foreign exchange forward contract with a notional amount of £ 176.0 million, which was approximately the amount of cash consideration for the Cabot Transaction.

The forward contract settled in August 2018 at a total loss of $ 9.3 million.

This loss was substantially offset by a decrease in the final purchase price in U.S.

dollars for the Cabot Transaction.

The following table summarizes the effects of derivatives not designated as hedging instruments on the Company’s consolidated statements of operations during the periods presented (in thousands) :

As discussed in “Derivatives Designed as Hedging Instruments,” on September 30, 2021, the Company ceased hedge accounting for its interest rate swap instruments due to the continued pay down of its USD-LIBOR denominated borrowings.

The interest rate swap agreements had a liability balance of $ 1.2 million as of September 30, 2021 and matured in December 2021.

The following table summarizes the effects of derivatives not designated as hedging instruments on the Company’s consolidated statements of income during the periods presented (in thousands) :

Derivatives Not Designated as Hedging Instruments Location of Gain (Loss) Recognized in Income on Derivative Amount of Gain (Loss) Recognized in Income

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Foreign currency exchange contracts Other expense $ ( 20 ) $ 3,564 $ ( 2,959 )

Interest rate cap contracts Interest expense — — ( 1,568 )

Interest rate swap agreements Other expense ( 73 ) — —

Investment in Receivable Portfolios, Net

As discussed in “Note 1:

Ownership, Description of Business, and Summary of Significant Accounting Policies,” effective January 1, 2020, the Company accounts for its investment in receivable portfolios as PCD assets under CECL and changed its accounting policy for reimbursable court costs.

As a result, the Company wrote-off the previous Deferred Court Costs balance that represented an undiscounted value of recoverable historic spend as a result of a loss-rate methodology, and established a discounted value of expected future recoveries of these reimbursable court costs, which is included in the beginning balance of the investment in receivable portfolios.

Refer to the “Investment in Receivable Portfolios” section in Note 1 for current accounting policy and accounting policy prior to January 1, 2020 for the Company’s purchased receivable portfolios.

The table below illustrates the Company’s transition approach for its investment in receivable portfolios as of January 1, 2020 ( in thousands ):

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Initial negative allowance from transition $ 3,328,150

The table below provides the detail on the establishment of negative allowance for expected recoveries of portfolios purchased during the periods presented ( in thousands ):

December 31, 2020

The table below provides the detail on the establishment of negative allowance for expected recoveries of portfolios purchased subsequent to the adoption of CECL ( in thousands ):

Year Ended December 31,

Purchase price $ 664,529 $ 659,872

7 unchanged sentences

Negative allowance for expected recoveries - current period purchases $ 664,529 $ 659,872

The following tables summarize the changes in the balance of the investment in receivable portfolios during the periods presented ( in thousands ):

The following tables summarize the changes in the balance of the investment in receivable portfolios during the periods subsequent to the adoption of CECL ( in thousands ):

Year Ended December 31,

2020 2019 2018

Balance, beginning of period $ 3,291,918 $ 3,328,150

Purchases of receivable portfolios 664,529 659,872

Deconsolidation of receivable portfolios (1)

Collections applied to investment in receivable portfolios, net (1)

( 1,019,629 ) ( 737,131 )

Changes in recoveries (2)

199,136 7,246

Put-backs and Recalls ( 7,249 ) ( 15,824 )

Deconsolidation of receivable portfolios ( 9,352 ) ( 2,822 )

Disposals and transfers to real estate owned ( 8,071 ) ( 9,459 )

Sale of receivable portfolios (2)

— ( 98,636 ) —

Cash collections ( 2,111,848 ) ( 2,026,928 ) ( 1,967,620 )

Revenue from receivable portfolios 1,374,717 1,269,288 1,167,132

Changes in expected current period recoveries 228,075 — —

Changes in expected future period recoveries ( 220,829 ) — —

Portfolio (allowance) reversals, net — ( 8,108 ) 41,473

Foreign currency adjustments ( 45,729 ) 61,886

1 unchanged sentence

________________________

(1) Deconsolidation of receivable portfolios as a result of the Company’s divestiture of its investment in Brazil for the year ended December 31, 2020 and as a result of the sale of Baycorp for the year ended December 31, 2019.

(2) Represents the sale of certain portfolios in the Company’s European operations under its co-investment framework.

Changes in expected current period recoveries represent over and under-performance in the reporting period.

(1) Collections applied to investment in receivable portfolios, net, is calculated as follows during the periods subsequent to the adoption of CECL:

Year Ended December 31,

Cash collections $ 2,307,359 $ 2,111,848

Less - amounts classified to revenue from receivable portfolios ( 1,287,730 ) ( 1,374,717 )

Collections applied to investment in receivable portfolios, net $ 1,019,629 $ 737,131

(2) Changes in recoveries is calculated as follows during the periods subsequent to the adoption of CECL, where recoveries include cash collections, put-backs and recalls, and other cash-based adjustments:

Year Ended December 31,

Recoveries above forecast $ 326,006 $ 228,075

Changes in expected future recoveries ( 126,870 ) ( 220,829 )

Changes in recoveries $ 199,136 $ 7,246

Recoveries above or below forecast represent over and under-performance in the reporting period, respectively.

Collections during the year ended December 31, 2021 significantly outperformed the projected cash flows by approximately $ 326.0 million.

The Company believes the collection over-performance was largely driven by the reduced near-term expected recoveries as a result of adjustments made to the projected cash flow forecast during the first quarter of 2020 associated with the COVID-19 pandemic.

The over-performance was also a result of sustained improvements in portfolio collections driven by liquidation improvement initiatives.

The Company believes the collection over-performance was a result of improvements in collections operations and changed consumer behavior during the COVID-19 pandemic.

While the Company now has additional information with respect to the impact on collections of the COVID-19 pandemic, the future outlook remains uncertain, and will continue to evolve depending on future developments, including the duration and spread of the pandemic and related actions taken by governments.

When reassessing the future forecasts of expected lifetime recoveries during the year ended December 31, 2020, management considered historical and current collection performance, uncertainty in economic forecasts in the geographies in which we operate, and believes that the operational disruption as a result of the COVID-19 pandemic has, for the near term, been resolved through a combination of social distancing in the workplace and working remotely.

However, the macroeconomic driven consumer distress is still present and will likely continue to impact the Company’s collections performance in the near future.

As a result, the Company has updated its forecast, resulting in a reduction of total estimated remaining collections which in turn, when discounted to present value, resulted in a provision for credit loss adjustment of approximately $ 220.8 million during the year ended December 31, 2020.

When reassessing the future forecasts of expected lifetime recoveries during the year ended December 31, 2021, management considered historical and current collection performance, uncertainty in economic forecasts in the geographies in which we operate, and believes that for certain static pools collections over-performance resulted in increased total expected recoveries.

Although management believes that the relevant macroeconomic conditions have improved and therefore no longer materially impact the Company’s collections performance, uncertainty still remains in the geographies in which the Company operates.

As a result, the Company has updated its forecast, resulting in a reduction of total estimated remaining collections which in turn, when discounted to present value, resulted in a negative change in expected future period recoveries of approximately $ 126.9 million during the year ended December 31, 2021.

The circumstances around this pandemic are evolving rapidly and will continue to impact the Company’s business and its estimation of expected recoveries in future periods.

The Company will continue to closely monitor the COVID-19 situation and update its assumptions accordingly.

Accretable yield represented the amount of revenue on purchased receivable portfolios the Company expected to recognize over the remaining life of its existing portfolios.

The following table summarizes the change in accretable yield under the previous accounting guidance during the period presented ( in thousands ):

Balance as of December 31, 2018 $ 4,026,206

Revenue from receivable portfolios ( 1,269,288 )

Allowance on receivable portfolios, net 8,108

Additions on existing portfolios, net 524,964

Additions for current purchases, net

Effect of foreign currency translation

Balance as of December 31, 2019 $ 4,449,071

The following table summarizes the change in the valuation allowance for investment in receivable portfolios as accounted for under the previous accounting guidance during the period presented ( in thousands ):

Valuation Allowance

Balance as of December 31, 2017 $ 102,576

Provision for portfolio allowances 14,421

Reversal of prior allowances ( 55,894 )

Effect of foreign currency translation ( 472 )

Balance as of December 31, 2018 60,631

Provision for portfolio allowances 36,806

Reversal of prior allowances ( 28,698 )

Sale of Baycorp ( 1,036 )

Effect of foreign currency translation 1,776

Balance as of December 31, 2019 $ 69,479

Deferred Court Costs, Net

As discussed in “Note 1:

Ownership, Description of Business, and Summary of Significant Accounting Policies,” effective January 1, 2020 and as part of the adoption of CECL, the Company changed its method of accounting for court costs spent in its legal collection channel.

The Company now expenses all of its court costs as incurred and includes all expected recoveries, including the recoveries from the legal channel, in the measurement of the investment in receivable portfolios at a discounted value.

As a result, the Company no longer carries deferred court costs.

Net deferred court costs under the previous accounting method consisted of the following as of the date presented ( in thousands ):

Court costs advanced $ 891,207

Court costs recovered ( 369,043 )

Court costs reserve ( 421,992 )

Deferred court costs, net $ 100,172

A roll-forward of the Company’s court cost reserve as accounted for under the previous accounting method is as follows for the periods presented ( in thousands ):

The following tables summarize the changes in the balance of the investment in receivable portfolios during the year ended December 31, 2019, prior to the adoption of CECL ( in thousands ):

Year Ended December 31,

Balance as of beginning of period $ ( 396,460 ) $ ( 364,015 )

Provision for court costs ( 82,987 ) ( 90,026 )

Charge-offs 60,618 53,383

Effect of foreign currency translation ( 3,163 ) 4,198

Balance as of end of period $ ( 421,992 ) $ ( 396,460 )

Balance, beginning of period $ 3,137,893

Purchases of receivable portfolios 1,046,696

Collections applied to investment in receivable portfolios, net ( 757,640 )

Put-backs and Recalls ( 11,591 )

Deconsolidation of receivable portfolios ( 51,935 )

Disposals and transfers to real estate owned ( 11,495 )

Sale of receivable portfolios (1)

Portfolio allowance, net ( 8,108 )

Foreign currency adjustments 38,800

Balance, end of period $ 3,283,984

________________________

(1) Represents the sale of certain portfolios in the Company’s European operations under its co-investment framework.

The Company recognized a gain of approximately $ 9.3 million in connection with the transaction.

The gain was included in Other Revenues in the Company’s consolidated statements of income during the year ended December 31, 2019.

Composition of Certain Financial Statement Items

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Operating lease right-of-use assets $ 68,812 $ 72,164

Identifiable intangible assets, net 45,012 51,371

Real estate owned 42,173 46,717

Income tax deposit 35,853 5,822

Deferred tax assets 51,451 33,202

Real estate owned 44,640 42,173

Identifiable intangible assets, net 36,320 45,012

Prepaid expenses 26,943 26,717

Service fee receivables 22,610 26,539

Other financial receivables 12,238 17,308

Income tax deposits 19,315 35,853

Other 65,184 67,502

4 unchanged sentences

Global senior secured revolving credit facility $ 406,635 $ 481,007

Encore revolving credit facility — 492,000

Encore term loan facility — 171,677

Encore private placement notes 107,470 146,550

1 unchanged sentence

Convertible notes and exchangeable notes 422,500 583,500

Cabot senior revolving credit facility — 285,749

Cabot securitisation senior facility 473,443 478,131

4 unchanged sentences

Total $ 2,997,331 $ 3,281,634

In September 2020 the Company entered into various transactions, agreements and amendments related to its borrowings including (collectively, the “Financing Transactions”):

• an amended multi-currency revolving credit facility that formerly supported only Cabot that now supports the operations of all operating units;

• an issuance of € 350.0 million (approximately $ 410.8 million) in 4.875 % senior secured notes due 2025;

• an amendment to the terms of the existing Senior Secured Notes (defined below).

Following the Financing Transactions, Encore is the parent of the restricted group for the Global Senior Facility, the Senior Secured Notes and the Private Placement Notes, each of which is now guaranteed by the same group of material Encore subsidiaries and secured by the same collateral, which represents substantially all of the assets of those subsidiaries.

In connection with the Financing Transactions, Encore repaid and terminated the Encore Senior Secured Credit Facilities (defined below) and prepaid a portion of its Encore Private Placement Notes (defined below).

The total fees paid to the lenders and third-party costs incurred relating to the Financing Transactions were approximately $ 49.7 million, a portion of which were capitalized as debt issuance costs.

Additionally, certain of the unamortized debt issuance costs prior to the Financing Transaction were written-off.

The Company recorded a pre-tax expense of approximately $ 24.6 million (approximately $ 18.9 million net of tax) relating to the Financing Transactions, $ 15.0 million of which was included in loss on extinguishment of debt, $ 2.7 million was included in interest expense, and $ 6.9 million was included in general and administrative expense in the Company’s consolidated statements of operations during the year ended December 31, 2020.

Encore is the parent of the restricted group for the Global Senior Facility, the Senior Secured Notes and the Encore Private Placement Notes, each of which is guaranteed by the same group of material Encore subsidiaries and secured by the same collateral, which represents substantially all of the assets of those subsidiaries.

Global Senior Secured Revolving Credit Facility

The Company has entered into a multi-currency senior secured revolving credit facility agreement (as amended and restated, the “Global Senior Facility”).

In September 2020, the Company entered into a multi-currency senior secured revolving credit facility agreement (as amended and restated, the “Global Senior Facility”).

In previous periods, the Company referred to this facility as the Cabot Credit Facility.

As of December 31, 2021, the Global Senior Facility provided for a total committed facility of $ 1,050.0 million that matures in September 2025 and included the following key provisions:

• Interest at LIBOR (or EURIBOR for any loan drawn in euro) plus 2.50 % per annum, with a LIBOR (or EURIBOR) floor of 0.75 %;

• A restrictive covenant that limits the LTV Ratio (defined in the Global Senior Facility) to 0.75 in the event that the Global Senior Facility is more than 20 % utilized;

• A restrictive covenant that limits the SSRCF Ratio (defined in the Global Senior Facility) to 0.275 ;

• Interest at LIBOR (or EURIBOR for any loan drawn in euro or a rate based on SONIA for any loan drawn in British Pound) plus 2.50 % per annum, with a LIBOR (or EURIBOR or SONIA) floor of 0.00 %;

• An unused commitment fee of 0.40 % per annum, payable quarterly in arrears;

• A restrictive covenant that limits the LTV Ratio (as defined in the Global Senior Facility) to 0.75 in the event that the Global Senior Facility is more than 20 % utilized;

• A restrictive covenant that limits the SSRCF Ratio (as defined in the Global Senior Facility) to 0.275 ;

• A restrictive covenant that requires the Company to maintain a Fixed Charge Coverage Ratio (as defined in the Global Senior Facility) of at least 2.0 ;

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As of December 31, 2021, the outstanding borrowings under the Global Senior Facility were $ 406.6 million.

Since the completion of the Financing Transactions, the weighted average interest rate of the Global Senior Facility was 3.25 %.

The weighted average interest rate of the previous Cabot Credit Facility was 3.30 % and 3.52 % for the years ended December 31, 2020 and December 31, 2019, respectively.

The weighted average interest rate of the previous Encore Revolving Credit Facility was 3.90 % and 5.27 % for the years ended December 31, 2020 and December 31, 2019, respectively.

The weighted average interest rate of the Global Senior Facility was 3.07 % and 3.25 % for the years ended December 31, 2021 and December 31, 2020, respectively.

The weighted average interest rate of the previous Cabot Credit Facility was 3.30 % for the year ended December 31, 2020.

The weighted average interest rate of the previous Encore Revolving Credit Facility was 3.90 % for the year ended December 31, 2020.

Available capacity under the Global Senior Facility was $ 643.4 million as of December 31, 2021.

Encore Revolving Credit Facility and Term Loan Facility

The Company had a revolving credit facility (the “Revolving Credit Facility”) and term loan facility (the “Term Loan Facility,” and together with the Revolving Credit Facility, the “Encore Senior Secured Credit Facilities”) pursuant to a Third Amended and Restated Credit Agreement dated December 20, 2016 (as amended, the “Restated Credit Agreement”) that was previously used to support the Company’s domestic operations.

In connection with the Financing Transactions on September 24, 2020, the Company repaid the Encore Senior Secured Credit Facilities and terminated the Restated Credit Agreement.

Encore Private Placement Notes

In August 2017, Encore entered into $ 325.0 million in senior secured notes with a group of insurance companies (the “Encore Private Placement Notes”).

In September 2020, as part of the Financing Transactions, the Company prepaid approximately $ 103.7 million of the Encore Private Placement Notes and made a $ 10.4 million make-whole payment to the holders of notes that were prepaid.

The make-whole payment was included in loss on extinguishment of debt in the Company’s consolidated statements of operations during the year ended December 31, 2020.

In September 2020 the Company prepaid approximately $ 103.7 million of the Encore Private Placement Notes and made a $ 10.4 million make-whole payment to the holders of notes that were prepaid.

The make-whole payment was included in loss on extinguishment of debt in the Company’s consolidated statements of income during the year ended December 31, 2020.

As of December 31, 2021, $ 107.5 million of the Encore Private Placement Notes remained outstanding.

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The following table provides a summary of the Senior Secured Notes ( $ in thousands ):

December 31, 2020 December 31, 2019 Maturity Date Interest Rate

Cabot 2023 Notes $ 309,034 $ 680,118 Oct 1, 2023 7.500 %

Cabot 2024 Floating Rate Notes — 448,921 Jun 1, 2024 EURIBOR + 6.375 %

Encore 2025 Notes 426,752 — Oct 15, 2025 4.875 %

Encore 2026 Notes 409,827 — Feb 15, 2026 5.375 %

Encore 2028 Floating Rate Notes 506,006 — Jan 15, 2028 EURIBOR + 4.250 %

December 31, 2021 December 31, 2020 Maturity Date Interest Payment Dates Interest Rate

Cabot 2023 Notes $ — $ 309,034 Oct 1, 2023 Apr 1, Oct 1 7.500 %

Encore 2025 Notes 397,928 426,752 Oct 15, 2025 Apr 15, Oct 15 4.875 %

Encore 2026 Notes 405,808 409,827 Feb 15, 2026 Feb 15, Aug 15 5.375 %

Encore 2028 Notes 338,174 — Jun 1, 2028 Jun 1, Dec 1 4.250 %

Encore 2028 Floating Rate Notes 471,829 506,006 Jan 15, 2028 Jan 15, Apr 15, Jul 15, Oct 15 EURIBOR + 4.250 % (1)

$ 1,613,739 $ 1,651,619

In September 2020, as part of the Financing Transactions, Encore issued € 350.0 million (approximately $ 426.8 million based on an exchange rate of $1.00 to €0.82, the exchange rate as of December 31, 2020) in aggregate principal amount of 4.875 % Senior Secured Notes due 2025 at an issue price of 98.889 % (the “Encore 2025 Notes”).

______________________

(1) Interest rate is based on three-month EURIBOR (subject to a 0 % floor) plus 4.250 % per annum, resets quarterly.

In September 2020 Encore issued € 350.0 million (approximately $ 397.9 million based on an exchange rate of $1.00 to € 0.88 , the exchange rate as of December 31, 2021) in aggregate principal amount of 4.875 % Senior Secured Notes due 2025 at an issue price of 98.889 % (the “Encore 2025 Notes”).

Interest on the Encore 2025 Notes is payable semi-annually, in arrears, on April 15 and October 15 of each year, commencing on April 15, 2021.

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Interest on the Encore 2026 Notes is payable semi-annually, in arrears, on February 15 and August 15 of each year, commencing on February 15, 2021.

The Company used the proceeds from this

offering to redeem £ 286.7 million (approximately $ 391.7 million based on an exchange rate of $1.00 to £0.73, the exchange rate as of December 31, 2020) of the outstanding £ 512.9 million (approximately $ 700.7 million based on an exchange rate of $1.00 to £0.73, the exchange rate as of December 31, 2020) aggregate principal amount of 7.500 % Senior Secured Notes due 2023 (the “Cabot 2023 Notes”) at a redemption price of 101.875 %, and pay certain transaction fees and expenses incurred in connection with this offering.

The Company recognized a loss on extinguishment of debt of approximately $ 12.8 million (approximately $ 10.3 million net of tax) associated with this transaction during the year ended December 31, 2020.

As of December 31, 2020, £ 226.2 million (approximately $ 309.0 million based on an exchange rate of $1.00 to £0.73, the exchange rate as of December 31, 2020) of the Cabot 2023 Notes were outstanding, interest is payable semi-annually, in arrears, on April 1 and October 1 of each year.

In December 2020, Encore issued € 415.0 million (approximately $ 506.0 million based on an exchange rate of $1.00 to €0.82, the exchange rate as of December 31, 2020) in aggregate principal amount of senior secured floating rate notes due 2028 at an issue price of 99.000 % (the “Encore 2028 Floating Rate Notes” and together with the Cabot 2023 Notes, Encore 2025 Notes and Encore 2026 Notes, the “Senior Secured Notes”).

The Company used the proceeds from this offering to redeem £ 286.7 million (approximately $ 387.8 million based on an exchange rate of $1.00 to £ 0.74 , the exchange rate as of December 31, 2021) of the outstanding £ 512.9 million (approximately $ 693.8 million based on an exchange rate of $1.00 to £ 0.74 , the exchange rate as of December 31, 2021) aggregate principal amount of 7.500 % Senior Secured Notes due 2023 (the “Cabot 2023 Notes”) at a redemption price of 101.875 %, and pay certain transaction fees and expenses incurred in connection with this offering.

The Company recognized a loss on extinguishment of debt of approximately $ 12.8 million associated with this transaction during the year ended December 31, 2020.

In December 2020, Encore issued € 415.0 million (approximately $ 471.8 million based on an exchange rate of $1.00 to € 0.88 , the exchange rate as of December 31, 2021) in aggregate principal amount of senior secured floating rate notes due 2028 at an issue price of 99.000 % (the “Encore 2028 Floating Rate Notes”).

The Encore 2028 Floating Rate Notes bear interest at a rate equal to the sum of (i) three-month EURIBOR (subject to a 0 % floor) plus (ii) 4.250 % per annum, reset quarterly.

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The Company used the proceeds from this offering to redeem the outstanding € 400.0 million (approximately $ 454.8 million based on an exchange rate of $1.00 to € 0.88 , the exchange rate as of December 31, 2021) aggregate principal amount Senior Secured Floating Rate Notes due 2024 (the “Cabot 2024 Floating Rate Notes”) in full and pay certain transaction fees and expenses incurred in connection with this offering.

The Company recognized a loss on extinguishment of debt of approximately $ 13.1 million (approximately $ 10.6 million net of tax) associated with this transaction during the year ended December 31, 2020.

The Company recognized a loss on extinguishment of debt of approximately $ 13.1 million associated with this transaction during the year ended December 31, 2020.

The Cabot 2024 Floating Rate Notes bore interest at a rate equal to the sum of (i) three-month EURIBOR (subject to a 0 % floor) plus (ii) 6.375 %, reset quarterly.

In June 2021, Encore issued £ 250.00 million (approximately $ 338.2 million based on an exchange rate of $1.00 to £ 0.74 , the exchange rate as of December 31, 2021) aggregate principal amount of senior secured notes due 2028 (the “Encore 2028 Notes” and together with the Cabot 2023 Notes, Encore 2025 Notes, Encore 2026 Notes and the Encore 2028 Floating Rate Notes, the “Senior Secured Notes”).

The Encore 2028 Notes accrue interest at a rate of 4.250 % per annum, payable semi-annually in arrears on June 1 and December 1 of each year, commencing on December 1, 2021.

Encore used the proceeds from the offering to redeem in full the then outstanding £ 226.2 million (approximately $ 306.0 million based on an exchange rate of $1.00 to £ 0.74 , the exchange rate as of December 31, 2021) aggregate principal amount of 7.500 % Cabot 2023 Notes at a redemption price of 101.875 %, and to pay certain transaction fees and expenses incurred in connection with the offering.

The Company recognized a loss on extinguishment of debt of approximately $ 9.3 million associated with this transaction during the year ended December 31, 2021.

The Senior Secured Notes are secured by the same collateral as the Global Senior Facility and the Encore Private Placement Notes.

The guarantees provided in respect of the Senior Secured Notes are pari passu with each such guarantee given in respect of the Global Senior Facility and Encore Private Placement Notes.

Subject to the intercreditor agreement described above under “Global Senior Secured Revolving Credit Facility,” Super Senior Liabilities that are secured by assets that also secure the Senior Secured Notes will receive priority with respect to any proceeds received upon any enforcement action over any such assets.

Subject to the intercreditor agreement described above under the section “Global Senior Secured Revolving Credit Facility,” Super Senior Liabilities that are secured by assets that also secure the Senior Secured Notes will receive priority with respect to any proceeds received upon any enforcement action over any such assets.

Convertible Notes and Exchangeable Notes

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2021 Convertible Notes (1)

$ — $ 89,355 Jul 1, 2020 3.000 %

2021 Convertible Notes 161,000 161,000 Mar 15, 2021 2.875 %

$ — $ 161,000 Mar 15, 2021 2.875 %

2022 Convertible Notes 150,000 150,000 Mar 15, 2022 3.250 %

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_______________________

(1) The 2020 Convertible Notes matured on July 1, 2020 and the Company repaid the outstanding principal in cash.

(1) The 2021 Convertible Notes matured on March 15, 2021 and the Company repaid the outstanding principal in cash.

The Exchangeable Notes were issued by Encore Capital Europe Finance Limited (“Encore Finance”), a 100% owned finance subsidiary of Encore, and are fully and unconditionally guaranteed by Encore.

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Amounts related to Encore Finance are included in the consolidated financial statements of Encore subsequent to April 30, 2018, the date of incorporation of Encore Finance.

Prior to the close of business on the business day immediately preceding their respective free conversion or exchange date (listed below), holders may convert or exchange their Convertible Notes or Exchangeable Notes under certain circumstances set forth in the applicable indentures.

On or after their respective free conversion or exchange dates until the close of business on the second scheduled trading day immediately preceding their respective maturity date, holders may convert or exchange their notes at any time.

Certain key terms related to the convertible and exchangeable features as of December 31, 2020 are listed below:

2021 Convertible Notes 2022 Convertible Notes 2023 Exchangeable Notes 2025 Convertible Notes

In order to reduce the risk related to the potential dilution and/or the potential cash payments the Company may be required to make in the event that the market price of the Company’s common stock becomes greater than the conversion or exchange prices of the Convertible Notes and the Exchangeable Notes, the Company maintains a hedge program that increases the effective conversion or exchange price for the Convertible Notes and the Exchangeable Notes.

The hedge instruments have been determined to be indexed to the Company’s own stock and meet the criteria for equity classification.

The Company recorded the cost of the hedge instruments as a reduction in additional paid-in capital, and does not recognize subsequent changes in fair value of these financial instruments in its consolidated financial statements.

As of December 31, 2021, the Company had one hedge program that increases the effective exchange price for the 2023 Exchangeable Notes.

The Company did not hedge the 2022 Convertible Notes or the 2025 Convertible Notes.

Pursuant to certain terms in the indentures of the Company’s Convertible Notes and Exchangeable Notes, the conversion or exchange rates have been adjusted upon the completion of the Company’s modified “Dutch Auction” tender offer effective in December 2021.

Refer to details of the tender offer in Note 8:

Common Stock.” Certain key terms related to the convertible and exchangeable features as of December 31, 2021 are listed below ($ in thousands, except conversion or exchange price) :

2022 Convertible Notes 2023 Exchangeable Notes 2025 Convertible Notes

Initial conversion or exchange price $ 45.57 $ 44.62 $ 40.00

Closing stock price at date of issuance $ 35.05 $ 36.45 $ 32.00

Closing stock price date Mar 5, 2014 Feb 27, 2017 Jul 20, 2018 Sep 4, 2019

Conversion or exchange rate (shares per $1,000 principal amount) 16.8386 21.9467 22.4090 25.0000

Conversion or exchange date Sep 15, 2020 Sep 15, 2021 Mar 1, 2023 Jul 1, 2025

Prior to October 29, 2020, in the event of conversion or exchange, holders of the Company’s Convertible Notes or Exchangeable Notes would receive cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, at the Company’s election.

The Company’s intent was to settle conversions and exchanges through combination settlement with a minimum specified dollar amount of $1,000 per $1,000 principal amount of notes (i.e., convertible or exchangeable into cash up to the aggregate principal amount, and shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, at the Company’s election and subject to certain restrictions contained in each of the indentures governing the Convertible Notes and Exchangeable Notes, for the remainder).

As a result, only the conversion or exchange spread was included in the diluted earnings per share calculation, if dilutive.

Under such method, the settlement of the conversion or exchange spread had a dilutive effect when, during any quarter, the average share price of the Company’s common stock exceeds the initial conversion or exchange prices listed in the above table.

On October 29, 2020, the Company entered into supplemental indentures for the Convertible Notes and Exchangeable Notes so that in the event of conversion or exchange, the notes are convertible or exchangeable into cash up to the aggregate principal amount of the notes and the excess conversion premium, if any, may be settled in cash or shares of the Company’s common stock at the Company’s election and subject to certain restrictions contained in each of the indentures governing the Convertible Notes and Exchangeable Notes.

Only the conversion or exchange spread is included in the diluted earnings per share calculation, if dilutive.

There was no dilutive effect relating to our convertible or exchangeable notes during the years ended December 31, 2020, 2019, or 2018.

The debt and equity components, the issuance costs related to the equity component, the stated interest rate, and the effective interest rate for each of the Convertible Notes and Exchangeable Notes at the time of the original offering are listed below (in thousands, except percentages) :

Closing stock price date Feb 27, 2017 Jul 20, 2018 Sep 4, 2019

Initial conversion or exchange rate (shares per $1,000 principal amount) 21.9467 22.4090 25.0000

Adjusted conversion or exchange rate (shares per $1,000 principal amount) 22.0617 22.5264 25.1310

Adjusted conversion or exchange price $ 45.33 $ 44.39 $ 39.79

Adjusted effective conversion or exchange price (1)

$ 45.33 $ 62.13 $ 39.79

Excess of if-converted value compared to principal (2)

$ 55,538 $ 68,847 $ 56,089

Conversion or exchange date (3)

Sep 15, 2021 Mar 1, 2023 Jul 1, 2025

_______________________

(1) As discussed above, the Company maintains a hedge program that increases the effective exchange price for the 2023 Exchangeable Notes to $ 62.13 .

(2) Represents the premium the Company would have to pay assuming the Convertible Notes and Exchangeable Notes were converted or exchanged on December 31, 2021.

The premium of the 2023 Exchangeable Notes would have been reduced to zero with the existing hedge program.

(3) During the quarter ending December 31, 2021, the closing price of the Company’s common stock exceeded 130 % of the exchange price of the 2023 Exchangeable Notes and the conversion price of the 2025 Convertible Notes for more than 20 trading days during a 30 consecutive trading day period, thereby satisfying one of the early exchange or conversion events.

As a result, the 2023 Exchangeable Notes and the 2025 Convertible Notes became exchangeable or convertible on demand on January 1, 2022.

Prior to the close of business on the business day immediately preceding their respective free conversion or exchange date (listed above), holders may convert or exchange their Convertible Notes or Exchangeable Notes under certain circumstances set forth in the applicable indentures.

In September 2021, in accordance with the indenture for the 2022 Convertible Notes, the Company irrevocably elected “combination settlement” with a specified dollar amount equal to $1,750 per $1,000 principal amount of the 2022 Convertible Notes for all conversions of the 2022 Convertible Notes that occur on or after September 15, 2021, the free conversion date, which effectively will result in an all cash settlement for the 2022 Convertible Notes so long as the stock price is less than $ 79.32 at the time of conversion.

None of the 2022 Convertible Notes have been converted.

In the event of conversion or exchange, the 2025 Convertible Notes and the 2023 Exchangeable Notes are convertible or exchangeable into cash up to the aggregate principal amount of the notes and the excess conversion premium, if any, may be settled in cash or shares of the Company’s common stock at the Company’s election and subject to certain restrictions contained in each of the indentures governing the Convertible Notes and Exchangeable Notes.

As discussed in “Note 1:

Ownership, Description of Business, and Summary of Significant Accounting Policies,” the Company adopted ASU 2020-06 on January 1, 2021 using a modified-retrospective approach.

The Company’s convertible and exchangeable notes are no longer bifurcated into a debt component and an equity component, instead, they are carried as a single liability, which reflects the principal amount of the convertible and exchangeable notes.

The interest expense recognized on the convertible and exchangeable notes is based on coupon rates, rather than higher effective interest rates.

The Company has not adjusted prior period comparative information and will continue to disclose prior period financial information in accordance with the previous accounting guidance.

Prior to the adoption of ASU 2020-06.

The Convertible Notes and Exchangeable Notes were bifurcated into a debt component and an equity component.

The debt discount was amortized into interest expense using effective interest rates.

thousands, except percentages) :

2021 Convertible Notes 2022 Convertible Notes 2023 Exchangeable Notes 2025 Convertible Notes

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Effective interest rate 4.700 % 5.200 % 6.500 % 5.000 %

The balances of the liability and equity components of all the Convertible Notes and Exchangeable Notes outstanding were as follows (in thousands) :

2020 December 31,

The balances of the liability and equity components of all the Convertible Notes and Exchangeable Notes outstanding prior to the adoption of ASU 2020-06 were as follows (in thousands) :

Liability component—principal amount $ 583,500

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Equity component $ 53,074

The debt discount is being amortized into interest expense over the remaining life of the Convertible Notes and Exchangeable Notes using the effective interest rates.

Interest expense related to the Convertible Notes and Exchangeable Notes was as follows during the periods presented (in thousands) :

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Interest expense—Convertible Notes and Exchangeable Notes $ 16,839 $ 32,802 $ 36,625

Hedge Transactions

All of the hedge instruments related to the Convertible Notes and the Exchangeable Notes have been determined to be indexed to the Company’s own stock and meet the criteria for equity classification.

The Company did not hedge the 2022 Convertible Notes or the 2025 Convertible Notes.

The details of the hedge program are listed below (in thousands, except conversion or exchange price) :

2021 Convertible Notes 2023 Exchangeable Notes

Cost of the hedge transaction(s) $ 19,545 $ 17,785

Initial conversion or exchange price $ 59.39 $ 44.62

Effective conversion or exchange price $ 83.14 $ 62.48

Cabot Securitisation Senior Facility

Cabot Securitisation UK Ltd (“Cabot Securitisation”), an indirect subsidiary of Encore, has a senior facility for a committed amount of £ 350.0 million (as amended, the “Cabot Securitisation Senior Facility”).

The Cabot Securitisation Senior Facility matures in March 2025.

Funds drawn under the Cabot Securitisation Senior Facility bear interest at a rate per annum equal to SONIA plus a margin of 3.06 % plus, for periods after March 15, 2023, a step-up margin ranging from zero to 1.00 %.

On November 12, 2021, the Cabot Securitisation Senior Facility was amended to extend the maturity date from March 15, 2025 to September 18, 2026.

Funds drawn under the Cabot Securitisation Senior Facility bear interest at a rate per annum equal to SONIA plus a margin of 3.00 % plus, for periods after September 18, 2024, a step-up margin ranging from zero to 1.00 %.

As of December 31, 2021, the outstanding borrowings under the Cabot Securitisation Senior Facility were £ 350.0 million (approximately $ 473.4 million based on an exchange rate of $1.00 to £ 0.74 , the exchange rate as of December 31, 2021).

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The weighted average interest rate was 3.11 % and 3.23 % for the years ended December 31, 2021 and 2020, respectively.

Cabot Securitisation and Cabot Securitisation II are securitized financing vehicles and are VIEs for consolidation purposes.

Cabot Securitisation is a securitized financing vehicle and is a VIE for consolidation purposes.

Refer to “Note 7:

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2022 $ 203,825

2025 1,008,727

Thereafter 810,003

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The Company consolidates VIEs when it is the primary beneficiary.

As of December 31, 2020, the Company’s VIEs include certain securitized financing vehicles and other immaterial special purpose entities that were created to purchase receivable portfolios in certain geographies.

As of December 31, 2021, the Company’s VIEs include certain securitized financing vehicle and other immaterial special purpose entities that were created to purchase receivable portfolios in certain geographies.

The Company is the primary beneficiary of these VIEs.

The Company has the power to direct the activities of the VIEs which includes but is not limited to the ability to exercise discretion in the servicing of the financial assets.

The Company has the power to exercise discretion in the servicing of the financial assets and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIEs.

The Company evaluates its relationships with its VIEs on an ongoing basis to ensure that it continues to be the primary beneficiary.

2 unchanged sentences

rather, they represent claims against the specific assets of the VIE.

Share Repurchase Plan

On August 12, 2015, the Company’s Board of Directors approved a $ 50.0 million share repurchase program.

On May 5, 2021, the Company announced that the Board of Directors had approved an increase in the size of the repurchase program from $ 50.0 million to $ 300.0 million (an increase of $ 250.0 million).

Repurchases under this program are expected to be made with cash on hand and may be made from time to time, subject to market conditions and other factors, in the open market, through private transactions, block transactions, or other methods as determined by the Company’s management and Board of Directors, and in accordance with market conditions, other corporate considerations, and applicable regulatory requirements.

The program does not obligate the Company to acquire any particular amount of common stock, and it may be modified or suspended at any time at the Company’s discretion.

During the year ended December 31, 2021, the Company repurchased 2,598,034 shares of its common stock for approximately $ 121.2 million.

The Company’s practice is to retire the shares repurchased.

On November 4, 2021, the Company commenced a modified “Dutch Auction” tender offer to purchase up to $ 300.0 million of shares of its common stock with a price range between $ 52.00 and $ 60.00 per share.

On December 9, 2021, the Company announced the final results of the tender offer.

Through the tender offer, the Company purchased 4,471,995 shares of common stock at a price of $ 60.00 per share, for a total cost of $ 268.3 million, excluding fees and expenses.

The shares purchased through the tender offer were immediately retired.

The Company records the excess of repurchase price over the par amount to additional paid-in capital, then to retained earnings once additional paid-in capital is reduced to zero.

Direct costs relating to the stock repurchases are treated as stock issuance costs and are included in stockholders’ equity.

Accumulated Other Comprehensive Loss

A summary of the Company’s changes in accumulated other comprehensive loss by component is presented below (in thousands):

Derivatives Currency Translation Adjustments Accumulated Other Comprehensive Loss

Balance at December 31, 2018 $ ( 6,054 ) $ ( 104,933 ) $ ( 110,987 )

Other comprehensive loss before reclassification ( 7,055 ) 22,675 15,620

Reclassification (1)

2,026 — 2,026

Removal of OCI in connection with divestiture — 3,814 3,814

Tax effect 761 — 761

Balance at December 31, 2019 ( 10,322 ) ( 78,444 ) ( 88,766 )

Other comprehensive loss before reclassification ( 324 ) 17,153 16,829

Reclassification 558 — 558

Removal of OCI in connection with divestiture — 2,632 2,632

Tax effect ( 66 ) — ( 66 )

Balance at December 31, 2020 ( 10,154 ) ( 58,659 ) ( 68,813 )

Other comprehensive loss before reclassification ( 31,709 ) ( 15,309 ) ( 47,018 )

Reclassification (1)

44,544 — 44,544

Removal of OCI in connection with divestiture — 19,904 19,904

Tax effect ( 2,165 ) — ( 2,165 )

Balance at December 31, 2021 $ 516 $ ( 54,064 ) $ ( 53,548 )

________________________

(1) Includes immaterial adjustment to true-up certain derivative related activities recorded in prior periods.

Stock-Based Compensation

22 unchanged sentences

Outstanding as of December 31, 2020 9,166 $ 22.17

Exercised ( 5,000 ) $ 22.17

Outstanding as of December 31, 2021 4,166 $ 22.17 0.26 $ 166

1 unchanged sentence

The total intrinsic value of options exercised during the years ended December 31, 2021 and 2019 was $ 0.2 million and $ 0.9 million, respectively.

Cash received from option exercise under all share-based payment arrangements during the years ended December 31, 2019 and 2018, was $ 0.3 million and $ 0.7 million, respectively.

There were no options exercised during the year ended December 31, 2020.

Cash received from option exercise under all share-based payment arrangements during the years ended December 31, 2021 and 2019, was negligible.

There were no stock options exercised during the year ended December 31, 2020.

Performance Stock Options

6 unchanged sentences

Outstanding as of December 31, 2020 164,013 $ 31.73

Exercised ( 50,083 ) $ 30.95

Expired ( 13,316 ) $ 40.50

Outstanding as of December 31, 2021 100,614 $ 30.95 2.19 $ 3,135

3 unchanged sentences

No performance stock options were granted during the years ended December 31, 2021, 2020, and 2019.

The total intrinsic value of performance options exercised during the year ended December 31, 2021 and 2019 was $ 1.1 million and $ 0.1 million, respectively.

Cash received from performance option exercise during the years ended December 31, 2021 and 2019 was $ 1.6 million and $ 0.3 million, respectively.

There were no performance stock options exercised during the year ended December 31, 2020.

Non-Vested Shares

5 unchanged sentences

The fair value of these shares is estimated using a lattice model.

For the majority of non-vested shares,

shares are issued on the vesting dates net of the number of shares needed to satisfy minimal statutory tax withholding requirements.

For the majority of non-vested shares, shares are issued on the vesting dates net of the number of shares needed to satisfy minimal statutory tax withholding requirements.

The tax obligations are then paid by the Company on behalf of the employees.

41 unchanged sentences

( 1.0 ) % ( 0.5 ) % ( 2.2 ) %

Change in tax rate (2)

( 1.3 ) % ( 0.9 ) % 0.2 %

Change in valuation allowance (3)

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(1) Relates primarily to lower tax rates on income or loss attributable to international operations.

(2) In 2018, valuation allowance net increase recorded as a result of certain foreign subsidiaries' cumulative operating losses for tax purposes.

(2) In 2021 and 2020, includes impact of U.K.

tax rate increases.

(3) In 2021, valuation allowance net decrease resulted from releasing valuation allowances in certain foreign subsidiaries.

(4) In 2019, relates to tax benefit resulting from tax accounting method change.

(5) Non-deductible expense for tax purposes.

Refer to “Note 12:

Commitments and Contingencies” for details of the CFPB settlement.

The Company’s subsidiary in Costa Rica is operating under a 100 % tax holiday through December 31, 2026.

The impact of the tax holiday in Costa Rica for the year ended December 31, 2020 was immaterial.

The impact of the tax holiday in Costa Rica for the years ended December 31, 2021, 2020 and 2019 was immaterial.

The Company has not provided for applicable income or withholding taxes on the undistributed earnings from continuing operations for certain of its subsidiaries operating outside of the United States.

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The Company does not provide deferred taxes on translation adjustments of unremitted earnings under the indefinite reinvestment exemption.

Determination of the amount of unrecognized deferred tax liability related to these earnings is not practical due to the complexities of a hypothetical calculation.

Subsidiaries operating outside of the United States for which the Company does not consider under the indefinite reinvestment exemption have no material undistributed earnings or outside basis differences.

Determination of the amount of unrecognized deferred tax liability related to these earnings is not

practical due to the complexities of a hypothetical calculation.

taxes have been provided.

Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the carrying amounts for income tax purposes.

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Difference in basis of bond and loan costs — 16

Difference in basis of receivable portfolio 33,335 17,115

Stock-based compensation 4,528 2,787

Right-of-use asset 23 58

Difference in basis of depreciable and amortizable assets 5,326 4,242

Other 6,094 5,782

3 unchanged sentences

Deferred tax liabilities:

Deferred court cost — ( 23,682 )

Accrued expenses ( 750 ) ( 9 )

Difference in basis of bond and loan costs ( 1,725 ) ( 11,818 )

Difference in basis of receivable portfolio ( 105,743 ) ( 41,383 )

Stock-based compensation ( 672 ) —

Right-of-use asset ( 15,367 ) ( 14,717 )

6 unchanged sentences

________________________

(1) Certain adjustments have been made to the numbers reported in the Form 10-K for the year ended December 31, 2020, to reflect the revision of immaterial presentation errors in the prior period primarily due to incorrect netting of deferred tax assets and deferred tax liabilities in certain taxing jurisdictions.

The net deferred tax liability was correctly reported in the prior year.

(2) The Company operates in multiple jurisdictions.

Deferred tax assets and liabilities are netted for each tax-paying component of the Company within a particular tax jurisdiction and presented as a single amount in the statement of financial condition.

In accordance with authoritative guidance relating to income taxes, deferred taxes and liabilities are netted for each tax-paying component of the Company within a particular tax jurisdiction, and presented as a single amount in the statement of financial condition.

As of December 31, 2021, certain of the Company’s foreign subsidiaries have net operating loss carry forwards of approximately $ 274.3 million, which will begin to expire in 2024.

Certain of the Company’s domestic subsidiaries have state net operating losses which the Company expects to fully utilize upon filing the 2021 income tax returns.

Valuation allowances are recorded against deferred tax assets, including certain net operating losses recorded as deferred tax assets, if the Company believes that it is more likely than not that some or all of the deferred tax assets will not be realized.

As of December 31, 2020, valuation allowances increased to $ 38.5 million, as compared to $ 36.4 million as of December 31, 2019.

The increase was primarily related to current period losses at certain foreign entities with cumulative operating losses during the period ended December 31, 2020.

Valuation allowances are recorded against deferred tax assets, including certain net operating losses recorded as deferred tax assets, if the Company believes it is more likely than not that some or all of the deferred tax assets will not be realized.

As of December 31, 2021, valuation allowance decreased by $9.7 million, as compared to December 31, 2020.

The decrease in valuation allowance is primarily due to expected utilization of net operating losses in certain foreign jurisdictions that were previously limited due to forecasted income.

The Company believes it is more likely than not that the results of future operations will generate sufficient taxable income to realize the deferred tax assets in these jurisdictions.

A reconciliation of the beginning and ending amounts of unrecognized tax benefit is as follows (in thousands) :

Balance as of December 31, 2018 $ 18,552

Increases related to prior year tax positions 256

Increases related to current year tax positions 1,958

Decrease related to expiration of statute of limitations ( 3,221 )

Decreases related to settlements with taxing authorities ( 461 )

Balance as of December 31, 2018 18,552

Decreases related to prior year tax positions ( 10,673 )

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Balance as of December 31, 2020 6,781

Decrease related to prior year tax positions ( 2,034 )

Decrease related to expiration of statute of limitations ( 712 )

Increase related to prior year tax positions 261

Increase related to current year tax positions 251

Balance as of December 31, 2021 $ 4,547

The Company had gross unrecognized tax benefits, inclusive of penalties and interest, of $ 4.6 million, $ 6.9 million and $ 8.2 million as of December 31, 2021, 2020, and 2019 respectively.

As of December 31, 2021, 2020 and 2019, there was $ 1.6 million, $ 3.3 million and $ 5.0 million, respectively, of unrecognized tax benefit that if recognized, would result in a net tax benefit.

During the year ended December 31, 2021, the decrease in the Company’s gross unrecognized tax benefit was primarily related to the release of a prior year position related to a foreign entity.

During the year ended December 31, 2020, the decrease in the Company's gross unrecognized tax benefit was primarily related to the expiration of state statute of limitations.

During the year ended December 31, 2019, the decrease in the Company’s gross unrecognized tax benefit was primarily related to decreases in prior year tax positions from exam resolutions.

During the year ended December 31, 2018, the decrease in the Company’s gross unrecognized tax benefit was primarily related to expiration of state statute of limitations.

The Company believes that an adequate provision has been made for any adjustments that may result from tax examinations.

However, it is reasonably possible that certain changes may occur within the next 12 months, which could significantly increase or decrease the balance of the Company’s gross unrecognized tax benefits.

The Company recognizes interest and penalties related to unrecognized tax benefits as a component of tax expense.

The Company recognized expense of $ 0.2 million, benefit of $ 2.7 million and expense of $ 0.6 million in interest and penalties during the years ended December 31, 2020, 2019 and 2018, respectively.

Interest and penalties accrued as of December 31, 2020 and 2019 were $ 0.2 million and $ 0.3 million, respectively.

The Company recognizes interest and penalties related to income tax as a component of the provision for income taxes.

The Company recognized expense of $ 0.1 million, expense of $ 0.2 million and benefit of $ 2.7 million in net interest and penalties during the years ended December 31, 2021, 2020 and 2019, respectively.

Interest and penalties accrued as of December 31, 2021, 2020 and 2019 were immaterial.

The Company files federal, state and non-U.S.

income tax returns in jurisdictions with varying statutes of limitations.

The Company is no longer subject to federal tax examinations for years prior to 2018.

state tax returns, the Company is generally not subject to tax examinations prior to 2013.

The Company is subject to the examination of its income tax returns by various taxing authorities, and the timing of the resolution of income tax examinations cannot be predicted with certainty.

The Company’s management regularly assesses the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of the Company’s provision for income taxes.

The Company is subject to examination of its income tax returns by various taxing authorities, and the timing of the resolution of income tax examinations cannot be predicted with certainty.

In general, the Company is subject to examination for tax years after 2017 for the U.S.

federal jurisdiction, after 2012 for U.S state jurisdictions, and after 2014 in major foreign jurisdictions.

The Company's management regularly assesses the likelihood of adverse outcomes resulting from examinations, if any, to determine the adequacy of the Company's provision for income taxes.

If any issues addressed in the Company's tax examinations are resolved in a manner not consistent with management's expectations, the Company could be required to adjust its provision for income taxes in the period such resolution occurs.

The majority of the Company’s leases are for corporate offices, various facilities, and information technology equipment.

The Company elected not to apply the recognition requirements to short-term leases and not to separate non-lease components from lease components.

The Company recognizes operating lease right-of-use (“ROU”) assets and operating lease liabilities in the consolidated statements of financial condition.

ROU assets represent the Company’s right to use an underlying asset during the lease term

and lease liabilities represent the Company's obligation to make lease payments arising from the lease.

ROU assets and lease liabilities are recognized at commencement date based on the net present value of fixed lease payments over the lease term.

The Company’s lease term includes options to extend or terminate the lease when it is reasonably certain that it will exercise that option.

ROU assets also include any advance lease payments made and are net of any lease incentives.

The components of lease expense were as follows during the periods presented (in thousands) :

7 unchanged sentences

________________________

(1) Operating lease expenses are included in general and administrative expenses in the Company’s consolidated statements of operations.

(1) Operating lease expenses are included in general and administrative expenses in the Company’s consolidated statements of income.

Costs include short-term and variable lease components which were not material for the periods presented.

7 unchanged sentences

Total lease liabilities $ 91,319 $ 98,947

Supplemental lease information is summarized below (in thousands, except rate and lease term) :

Supplemental lease information is summarized below (in thousands) :

Year Ended December 31,

ROU assets obtained in exchange for new operating lease obligations $ 13,426 $ 8,990

$ 8,990 $ 123,477

ROU assets obtained in exchange for new finance lease obligations 2,664 3,276

3 unchanged sentences

Finance leases - financing cash flows 3,950 3,114

________________________

(1) During the year ended December 31, 2019, the amount includes $ 89.1 million for operating leases existing as of January 1, 2019.

Lease term and discount rate were as follows:

December 31, 2021 December 31, 2020

5 unchanged sentences

Finance leases 4.6 % 4.6 %

________________________

(1) Upon adoption of the new lease standard, discount rates used for existing operating leases were established at January 1, 2019.

Maturities of lease liabilities under non-cancelable leases as of December 31, 2021 are summarized as follows (in thousands) :

17 unchanged sentences

In September 2015, the Company entered into a consent order (the “2015 Consent Order”) with the Consumer Financial Protection Bureau (the “CFPB”) in which the Company settled allegations arising from its practices between 2011 and 2015.

On September 8, 2020, a suit captioned Bureau of Consumer Financial Protection v.

Encore Capital Group, Inc.

was filed in the United States District Court for the Southern District of California.

In the suit, the CFPB alleged that the Company did not perfectly adhere to certain operational provisions of the 2015 Consent Order, leading to alleged violations of federal consumer financial law.

On October 15, 2020, the parties entered into a stipulated judgment (“Stipulated Judgment”) to resolve the lawsuit.

The Stipulated Judgment includes obligations on the Company to, among other things:

(1) continue to follow a narrow subset of the operational requirements contained in the 2015 Consent Order, all of which have long been part of the Company’s routine practices;

(2) pay a $ 15.0 million civil monetary penalty;

and (3) provide redress of approximately $ 9,000 to 14 affected consumers, which is in addition to approximately $ 70,000 of redress that the Company had previously voluntarily provided.

Under the Stipulated Judgment, the Company neither admits nor denies the allegations in the CFPB’s suit.

In connection with the Stipulated Judgment the CFPB has formally terminated the 2015 Consent Order.

As a result of the Stipulated Judgment the Company recorded an after-tax charge of $ 15.0 million, which is included in the general and administration expenses in its consolidated statements of operations for the year ended December 31, 2020 .

In October 2020, the Company entered into a stipulated judgment (“Stipulated Judgment”) with the CFPB to resolve a subsequent lawsuit related to the 2015 Consent Order.

As a result of the Stipulated Judgment the Company recorded a charge of $ 15.0 million, which is included in the general and administration expenses in its consolidated statements of income for the year ended December 31, 2020.

Additionally, we are subject to ancillary state Attorney General investigations related to similar debt collection practices.

26 unchanged sentences

The Company conducts business through several operating segments.

The Company’s management relies on internal management reporting processes that provide segment revenue, segment operating income, and segment asset information in order to make financial decisions and allocate resources.

The Company’s Chief Operating Decision Maker relies on internal management reporting processes that provide segment revenue, segment operating income, and segment asset information in order to make financial decisions and allocate resources.

The Company determined its operating segments meet the aggregation criteria, and therefore, it has one reportable segment, portfolio purchasing and recovery, based on similarities among the operating units including economic characteristics, the nature of the services, the nature of the production process, customer types for their services, the methods used to provide their services and the nature of the regulatory environment.

7 unchanged sentences

Other geographies 12,397 18,099 59,555

498,927 508,484 579,988

Total $ 1,614,499 $ 1,501,400 $ 1,397,681

________________________

(1) Total revenues for periods in 2019 and 2018 are adjusted by net allowances.

(1) Total revenues during 2019 is adjusted by net allowances.

Total revenues are attributed to countries based on consumer location.

31 unchanged sentences

The Company uses a guideline company method under the market approach to estimate the fair value of equity and the market value of invested capital (“MVIC”).

The guideline company approach relies on estimated remaining collections data or the earnings before interest, tax, depreciation and amortization

(“EBITDA”) for each of the selected guideline companies, which enables a direct comparison between the reporting unit and the selected peer group.

The guideline company approach relies on estimated remaining collections data and the earnings before interest, tax, depreciation and amortization (“EBITDA”) for each of the selected guideline companies, which enables a direct comparison between the reporting unit and the selected peer group.

The Company believes that the current methodology used in determining the fair value at its reporting units represent its best estimates.

1 unchanged sentence

Based on the annual goodwill impairment tests performed at October 1, 2021, no goodwill impairment existed at these two reporting units.

On August 15, 2019, the Company completed the sale of Baycorp.

On August 15, 2019, the Company completed the sale of Baycorp, which represented the Company’s investments and operations in Australia and New Zealand.

The Company concluded that the fair value of Baycorp immediately prior to the sale was less than its recorded book value and, as a result, the entire goodwill balance carried at the Baycorp reporting unit of $ 10.7 million was impaired.

The goodwill impairment is included in operating expenses in the Company’s consolidated statements of operations during the year ended December 31, 2019.

The goodwill impairment is included in operating expenses in the Company’s consolidated statements of income during the year ended December 31, 2019.

Management continues to evaluate and monitor all key factors impacting the carrying value of the Company’s recorded goodwill and long-lived assets.

3 unchanged sentences

Year Ended December 31,

2021 2020 2019

Balance as of beginning of period:

24 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures