What changed in this filing

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Item 9A. Controls and Procedures

2023-02-22 compared with 2022-02-23 · 263 added, 406 removed, 1204 unchanged (36% 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 (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.

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, 2022, our disclosure controls and procedures were effective, at the reasonable assurance level, as of such date.

Management’s Report on Internal Control over Financial Reporting

4 unchanged sentences

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, 2022, 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:

As disclosed in “Part II Item 9A Controls and Procedures” in our Annual Report on Form 10-K for the year ended December 31, 2021, we identified a material weakness in internal control related to ineffective controls within our Midland Credit Management operating unit with respect to the determination of certain qualitative factors applied to our estimates of future recoveries.

During the year ended December 31, 2022, management implemented our previously disclosed remediation plan that included documenting and maintaining 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.

During the fourth quarter of 2022, we completed our testing of the operating effectiveness of the implemented controls and found them to be effective.

As a result, we have concluded the material weakness has been remediated as of 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, 2022, 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 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.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, 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, 2022 and 2021, the related consolidated statements of income, comprehensive income, equity, and cash flows for each of the three years in the period ended December 31, 2022, and the related notes and our report dated February 22, 2023 expressed an unqualified opinion thereon.

Basis for Opinion

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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

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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 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;

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 consolidated financial statements.

(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;

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

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.

Except for the changes in connection with our implementation of the remediation plan discussed in Item 9A, there have been no other changes in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) of the Exchange Act) that occurred during the quarter ended December 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B—Other Information

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10-Q 000-26489 3.1.3 8/7/2019

3.2 Bylaws, as amended through February 8, 2011

3.2 Amended and Restated Bylaws, as amended through December 13, 2022

8-K 000-26489 3.1 12/16/2022

8 unchanged sentences

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

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

4.2.2 Amendment No.

2 to the Fourth Amended and Restated Senior Secured Note Purchase Agreement, dated March 30, 2022, by and among Encore Capital Group, Inc.

and the noteholders party thereto

8-K 000-26489 10.2 4/1/2022

4.10.1 First Supplemental Indenture, dated October 29, 2020, to the Indenture, dated as of March 3, 2017, by and among Encore Capital Group, Inc., Midland Credit Management, Inc., as guarantor, and MUFG Union Bank, N.A., as trustee

10-Q 000-26489 4.5 11/2/2020

4.2.3 Amendment No.

3 to Fourth Amended and Restated Senior Secured Note Purchase Agreement, dated November 14, 2022, by and among Encore Capital Group, Inc.

and the purchasers named therein

4.11 Indenture, dated July 20, 2018, between Encore Capital Europe Finance Limited and MUFG Union Bank, N.A.

8-K 000-26489 4.1 7/20/2018

Incorporated By Reference

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

4.11.1 Supplemental Indenture (including the form of 4.50% Exchangeable Senior Notes due 2023), dated July 20, 2018, among Encore Capital Europe Finance Limited, Encore Capital Group, Inc.

1 unchanged sentence

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

8 unchanged sentences

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

4.15.1 First Supplemental Indenture, dated November 14, 2022, to the Indenture, dated September 24, 2020, by and 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

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

4.16.1 First Supplemental Indenture, dated November 14, 2022, to the Indenture, dated November 23, 2020, by and 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

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

Incorporated By Reference

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

4.17.1 First Supplemental Indenture, dated November 14, 2022, to the Indenture, dated December 21, 2020, by and 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

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

4.18.1 First Supplemental Indenture, dated November 14, 2022, to the Indenture, dated June 1, 2021, by and 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

10.1+ Form of Indemnification Agreement

1 unchanged sentence

10.4+ Encore Capital Group, Inc.

2005 Stock Incentive Plan, as amended and restated

8-K 000-26489 10.1 6/15/2009

10.3.2+ Form of Non-Incentive Stock Option Agreement under the Encore Capital Group, Inc.

2005 Stock Incentive Plan

10-Q 000-26489 10.3 11/1/2012

10.4+ Encore Capital Group, Inc.

2013 Incentive Compensation Plan

6 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

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

and Jonathan Clark

10-K 000-26489 10.5 2/23/2022

5 unchanged sentences

10-Q 000-26489 10.1 11/9/2016

10.9+ Letter, dated June 15, 2017, from Encore Capital Group, Inc.

to Ashish Masih

8-K 000-26489 10.1 6/20/2017

10.11+ The Encore Capital Group, Inc.

10 unchanged sentences

8-K 000-26489 10.6 6/20/2017

Incorporated By Reference

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

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

13 unchanged sentences

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

Incorporated By Reference

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

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

3 unchanged sentences

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

10-K 000-26489 10.11.10 2/23/2023

10.19 Amended and Restated Senior Facilities Agreement, dated March 29, 2022, 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 04/01/2022

10.19.1 Amendment Letter, dated November 9, 2022, to the Amended and Restated Senior Facilities Agreement, dated March 29, 2022, 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 Agen t

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

3 unchanged sentences

8-K 000-26489 10.1 7/20/2018

Incorporated By Reference

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

10.23.2 Letter Agreement, dated July 17, 2018, between Credit Suisse International and Encore Capital Group, Inc.

17 unchanged sentences

10-Q 000-26489 10.2+ 5/11/2020

10.26.1+ Letter Agreement, dated November 1, 2022, between Encore Capital Group, Inc.

and Craig Buick

10-Q 000-26489 10.1+ 11/2/2022

21 List of Subsidiaries

2 unchanged sentences

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

Incorporated By Reference

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

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

1 unchanged sentence

Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)

101.INS XBRL Instance Document X

101.SCH XBRL Taxonomy Extension Schema Document X

101.CAL XBRL Taxonomy Extension Calculation Linkbase Document X

101.DEF XBRL Taxonomy Extension Definition Linkbase Document X

101.LAB XBRL Taxonomy Extension Label Linkbase Document X

101.PRE XBRL Taxonomy Extension Presentation Linkbase Document X

104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) X

101.INS Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document X

101.SCH Inline XBRL Taxonomy Extension Schema Document X

101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document X

101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document X

101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document X

Incorporated By Reference

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

101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document X

104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

+ Management contract or compensatory plan or arrangement.

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Chief Financial Officer and Treasurer

(Principal Financial Officer) February 23, 2022

/s/ P ETER R ECK

Vice President,

Chief Accounting Officer

(Principal Accounting Officer) February 23, 2022

(Principal Financial and Accounting Officer) February 22, 2023

/s/ W ILLIAM C.

Director February 22, 2023

/s/ A SHWINI G UPTA

11 unchanged sentences

Director February 22, 2023

/s/ R ICHARD J.

Director February 23, 2022

/s/ R ICHARD P.

30 unchanged sentences

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, 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, 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

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, 2022, 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 22, 2023 expressed an unqualified opinion thereon.

Change in Accounting Principle

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

1 unchanged sentence

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.

Basis for Opinion

17 unchanged sentences

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.

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 consolidated statements of income.

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

10 unchanged sentences

As more fully described in Notes 1 and 15 to the consolidated financial statements, the Company’s goodwill balance was approximately $821.2 million at December 31, 2022, 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.

For the MCM reporting unit, management performed a qualitative assessment and determined it was not necessary to perform a quantitative test.

For the Cabot reporting unit, management performed a quantitative analysis which utilized a combination of the income approach and the market approach.

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.

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 Company performed its annual goodwill impairment assessment as of October 1, 2022 and determined that the fair value of each reporting unit was in excess of its carrying value.

For the MCM and Cabot reporting units, management performed a quantitative analysis, which utilized a combination of the income and the market approaches.

The Company also evaluated the aggregate fair value of its reporting units to its aggregate market capitalization at the testing date.

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

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

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

Auditing these elements involved a high degree of auditor judgment due to the nature and extent of audit 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 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.

• Evaluating management’s process for developing fair value estimates determined using the income and market approaches including testing the relevance and reliability of underlying data, and evaluating significant management assumptions to historical results and market participant data.

• Testing the reconciliation of the estimated fair value of the Company’s reporting units to the indicated market capitalization of the Company, as a whole.

• 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, 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.

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

/s/ BDO USA, LLP

24 unchanged sentences

Accumulated other comprehensive loss ( 98,816 ) ( 53,548 )

Total Encore Capital Group, Inc.

stockholders’ equity 1,185,261 1,217,608

Noncontrolling interest — 2,468

Total equity 1,185,261 1,220,076

Total liabilities and equity $ 4,608,125 $ 4,864,523

Total stockholders’ equity 1,179,627 1,185,261

Total liabilities and stockholders’ equity $ 4,508,360 $ 4,608,125

The following table presents certain assets and liabilities of consolidated variable interest entities (“VIEs”) included in the consolidated statements of financial condition above.

21 unchanged sentences

Total revenues 1,398,347 1,614,499 1,501,400

Allowances on receivable portfolios, net ( 8,108 )

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

Operating expenses

5 unchanged sentences

Depreciation and amortization 50,494 50,079 42,780

Goodwill impairment — — 10,718

Total operating expenses 936,173 981,227 967,838

3 unchanged sentences

Loss on extinguishment of debt — ( 9,300 ) ( 40,951 )

Other expense ( 17,784 ) ( 357 ) ( 18,343 )

Other income (expense) 2,123 ( 17,784 ) ( 357 )

Total other expense ( 151,185 ) ( 196,731 ) ( 250,664 )

18 unchanged sentences

Net income $ 194,564 $ 351,201 $ 212,524

Other comprehensive income, net of tax:

Change in unrealized gain (loss) on derivative instruments:

Unrealized gain (loss) on derivative instruments 12,835 234 ( 5,029 )

Other comprehensive (loss) income, net of tax:

Change in unrealized gain on derivative instruments:

Unrealized gain on derivative instruments 36,385 12,835 234

Income tax effect ( 407 ) ( 2,165 ) ( 66 )

Unrealized gain (loss) on derivative instruments, net of tax 10,670 168 ( 4,268 )

Unrealized gain on derivative instruments, net of tax 35,978 10,670 168

Change in foreign currency translation:

Unrealized (loss) gain on foreign currency translation ( 78,232 ) ( 15,309 ) 17,160

Income tax effect ( 3,014 ) — —

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

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

Unrealized (loss) gain on foreign currency translation, net of divestiture ( 81,246 ) 4,595 19,792

Other comprehensive (loss) income, net of tax ( 45,268 ) 15,265 19,960

Comprehensive income 149,296 366,466 232,484

16 unchanged sentences

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

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

Other comprehensive income, net of tax — — — — 18,407 494 18,901

Exercise of stock options and issuance of share-based awards, net of shares withheld for employee taxes 213 2 ( 4,874 ) — — — ( 4,872 )

Stock-based compensation — — 12,557 — — — 12,557

Issuance of exchangeable notes — — 4,733 — — — 4,733

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

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

Cumulative adjustment — — — ( 44,238 ) — — ( 44,238 )

11 unchanged sentences

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 )

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

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

1 unchanged sentence

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

Net income — — — 194,564 — — 194,564

Other comprehensive loss, net of tax — — — — ( 45,268 ) — ( 45,268 )

Exercise of stock options and issuance of share-based awards, net of shares withheld for employee taxes 279 3 ( 3,949 ) ( 7,434 ) — — ( 11,380 )

Repurchase and retirement of common stock ( 1,497 ) ( 15 ) ( 10,659 ) ( 76,332 ) — — ( 87,006 )

Stock-based compensation — — 15,402 — — — 15,402

Settlement of convertible senior notes — — — ( 71,152 ) — — ( 71,152 )

Other — — ( 794 ) — — — ( 794 )

Balance as of December 31, 2022 23,323 $ 233 $ — $ 1,278,210 $ ( 98,816 ) $ — $ 1,179,627

See accompanying notes to consolidated financial statements

12 unchanged sentences

Deferred income taxes 46,410 35,371 8,549

Goodwill impairment — — 10,718

Changes in recoveries ( 93,145 ) ( 199,136 ) ( 7,246 )

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

Other, net 18,798 17,130 16,260

Changes in operating assets and liabilities

Deferred court costs — — ( 3,646 )

Other assets ( 6,722 ) 38,941 ( 33,663 )

Prepaid income tax and income taxes payable 7,758 ( 24,344 ) ( 24,045 )

Accounts payable, accrued liabilities and other liabilities ( 30,995 ) ( 35,948 ) ( 17,656 )

3 unchanged sentences

Collections applied to investment in receivable portfolios, net 709,176 1,019,629 737,131

Purchases of assets held for sale ( 39,340 ) ( 17,090 ) ( 1,502 )

Purchases of property and equipment ( 37,224 ) ( 33,372 ) ( 34,600 )

Proceeds from sale of portfolios — — 107,937

Other, net 27,722 28,009 25,845

Net cash provided by (used in) investing activities 339,896 82,826 ( 202,333 )

Net cash (used in) provided by investing activities ( 130,235 ) 339,896 82,826

Financing activities:

4 unchanged sentences

Repayment of senior secured notes ( 39,080 ) ( 359,175 ) ( 1,033,765 )

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

Repayment of convertible senior notes ( 221,153 ) ( 161,000 ) ( 89,355 )

Repurchase of common stock ( 390,606 ) — —

Repurchase and retirement of common stock ( 87,006 ) ( 390,606 ) —

Other, net ( 22,357 ) ( 12,208 ) ( 40,822 )

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

Net cash used in financing activities ( 107,445 ) ( 655,692 ) ( 403,200 )

Net decrease in cash and cash equivalents ( 26,999 ) ( 12,743 ) ( 7,510 )

Effect of exchange rate changes on cash and cash equivalents ( 18,734 ) 13,204 4,359

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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.

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.”

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 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.

Basis of Consolidation

The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and reflect the accounts and operations of the Company and those of its subsidiaries in which the Company has a controlling financial interest.

The Company also consolidates VIEs for which it is the primary beneficiary.

The Company also consolidates variable interest entities (“VIEs”) for which it is the primary beneficiary.

The primary beneficiary has both (a) the power to direct the activities of the VIE that most significantly affect the entity’s economic performance and (b) either the obligation to absorb losses or the right to receive benefits.

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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.

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

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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 Company adopted ASU 2020-06 using the modified-retrospective approach.

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.

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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.

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Investment in Receivable Portfolios

Current Accounting Policy

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.

These financial assets are defined as purchased credit deteriorated (or “PCD”) assets under CECL.

These financial assets are defined as purchased credit deteriorated (or “PCD”) assets under the accounting standard for Financial Instruments - Credit Losses (“CECL”).

Under the PCD accounting model, the purchased assets are recognized at their face value with an offsetting allowance and noncredit discount allocated to the individual receivables as the unit of account is at the individual loan level.

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The Company further groups these static pools by geographic location.

Once a pool is established, the portfolios will remain in the designated pool unless the underlying risk characteristics change, which is not expected due to the delinquent nature of the individual loans.

Once a pool is established, the portfolios will remain in

the designated pool unless the underlying risk characteristics change, which is not expected due to the delinquent nature of the individual loans.

The purchase EIR of a pool will not change over the life of the pool even if expected future cash flows change.

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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

Discrete receivable portfolio purchases during the same fiscal quarter were aggregated into pools based on common risk characteristics.

Once a static pool was established, the portfolios were permanently assigned to the pool.

Receivable portfolios were recorded at cost at the time of acquisition.

The purchase cost of the portfolios included certain fees paid to third parties incurred in connection with the direct acquisition of the receivable portfolios.

Revenues were calculated using either the interest method or the cost recovery method.

The interest method applies an internal rate of return (“IRR”) to the cost basis of the pool, which remained unchanged throughout the life of the pool, unless there was an increase in subsequent expected cash flows.

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 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.

The Company accounted for each static pool as a unit for the economic life of the pool (similar to one loan) for recognition of revenue from receivable portfolios, for collections applied to the cost basis of receivable portfolios and for provision for loss or allowance.

Revenue from receivable portfolios was accrued based on each pool’s IRR applied to each pool’s adjusted cost basis.

The cost basis of each pool was increased by revenue earned and portfolio allowance reversals and decreased by gross collections and portfolio allowances.

Once the net book value of a static pool has been fully recovered, it became ZBA and all subsequent collections were recognized as ZBA revenue.

If the amount and timing of future cash collections on a pool of receivables were not reasonably estimable, the Company accounted for such portfolios on the cost recovery method as Cost Recovery Portfolios.

The accounts in these portfolios had different risk characteristics than those included in other portfolios acquired during the same quarter, or the necessary information was not available to estimate future cash flows and, accordingly, they were not aggregated with other portfolios.

Under the cost recovery method of accounting, no revenue was recognized until the carrying value of a Cost Recovery Portfolio has been fully recovered.

Investment in Receivable Portfolios, Net” for further discussion of investment in receivable portfolios.

Transfers of Financial Assets

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Concentration of Supply Risk

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 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 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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Basic earnings per share is calculated by dividing net earnings attributable to Encore by the weighted average number of shares of common stock outstanding during the period.

Diluted earnings per share is calculated on the basis of the weighted average number of shares of common stock plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method.

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

Diluted earnings per share is calculated based on the weighted average number of shares of common stock plus the effect of dilutive potential common shares outstanding during the period.

Dilutive potential common shares include outstanding stock based awards, 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.

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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) :

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

Year Ended December 31,

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Diluted earnings per share $ 7.46 $ 11.26 $ 6.68

Anti-dilutive employee stock options outstanding were approximately 3,000 , 51,000 and 64,000 during the years ended December 31, 2021, 2020, and 2019, respectively.

Anti-dilutive employee stock options outstanding were approximately zero , 3,000 and 51,000 during the years ended December 31, 2022, 2021, and 2020, respectively.

Fair Value Measurements

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Cross-currency swap agreements — ( 36,918 ) — ( 36,918 )

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

Fair Value Measurements as of December 31, 2021

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 )

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Fair values of these derivative instruments are estimated using industry standard valuation models.

These models project future cash flows and discount the future amounts to a present value using market-based observable inputs, including interest rate curves, foreign currency exchange rates, and forward and spot prices for currencies.

models project future cash flows and discount the future amounts to a present value using market-based observable inputs, including interest rate curves, foreign currency exchange rates, and forward and spot prices for currencies.

Contingent Consideration:

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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.

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) :

All of the Company’s contingent consideration obligations were fully resolved as of December 31, 2022.

The following table provides a roll-forward of the fair value of contingent consideration, for the years ended December 31, 2022, 2021 and 2020 (in thousands) :

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 2,848

Payment of contingent consideration ( 88 )

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Issuance of contingent consideration in connection with purchase of noncontrolling interest

Change in fair value of contingent consideration ( 388 )

Payment of contingent consideration ( 180 )

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Balance as of December 31, 2021 5,218

Issuance of contingent consideration in connection with purchase of noncontrolling interest

Change in fair value of contingent consideration 794

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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 based on appraised values using market comparable.

The fair value estimate of the assets held for sale was approximately $ 68.2 million and $ 44.6 million as of December 31, 2022 and December 31, 2021, respectively.

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The total of the fair value calculations presented does not represent, and should not be construed to represent, the underlying value of the Company.

The carrying amounts in the following table are recorded in the consolidated statements of financial condition as of December 31, 2021 and December 31, 2020 (in thousands) :

The carrying amounts in the following table are included in the consolidated statements of financial condition as of December 31, 2022 and December 31, 2021 (in thousands) :

December 31, 2022 December 31, 2021

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Financial Assets

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

Investment in receivable portfolios, net $ 3,088,261 $ 3,242,506 $ 3,065,553 $ 3,416,926

Financial Liabilities

Convertible senior notes due March 2021 (1)

Global senior secured revolving credit facility 661,738 661,738 406,635 406,635

Encore private placement notes 68,390 66,947 107,470 108,652

Senior secured notes (1)

1,480,258 1,334,686 1,606,327 1,652,246

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Exchangeable senior notes due September 2023 172,500 205,227 172,500 257,782

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

Convertible senior notes due October 2025 100,000 130,556 100,000 165,887

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

Cabot securitisation senior facility 423,522 423,522 473,443 473,443

________________________

(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.

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

(2) The 2022 Convertible Senior Notes matured on March 15, 2022 and the Company repaid the notes in cash.

Investment in Receivable Portfolios:

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Location Fair Value

Derivatives designated as hedging instruments:

Interest rate cap contracts Other assets $ 36,807 Other assets $ 3,541

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

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

Cross-currency swap agreements Other liabilities ( 36,918 ) Other liabilities ( 16,902 )

Derivatives Designated as Hedging Instruments

The Company has operations in foreign countries, which expose the Company to foreign currency exchange rate fluctuations due to transactions denominated in foreign currencies.

To mitigate a portion of this risk, the Company enters into derivative financial instruments, principally foreign currency forward contracts with financial counterparties.

The Company adjusts the level and use of derivatives as soon as practicable after learning that an exposure has changed and reviews all exposures and derivative positions on an ongoing basis.

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

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.

The Company may periodically enter into interest rate swap agreements to reduce its exposure to fluctuations in interest rates on variable interest rate debt and their impact on earnings and cash flows.

Under the swap agreements, the Company receives floating interest rate payments and makes interest payments based on fixed interest rates.

The Company designates its interest rate swap instruments as cash flow hedges.

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 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.

As of December 31, 2022, there were no interest rate swap agreements outstanding.

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.

As of December 31, 2022, the Company held two interest rate cap contracts with a notional amount of approximately $ 852.5 million.

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 $ 428.9 million based on an exchange rate of $1.00 to € 0.93 , the exchange rate as of December 31, 2022) and matures in June 2024.

The interest rate cap hedging the fluctuations in sterling overnight index average (“SONIA”) bearing debt (“2021 Cap”) has a notional amount of £ 350.0 million (approximately $ 423.5 million based on an exchange rate of $1.00 to £ 0.83 , the exchange rate as of December 31, 2022) and matures in September 2024.

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 $ 20.3 million of net derivative gain from OCI into earnings relating to interest rate caps within the next 12 months.

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.

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The Company expects to reclassify approximately $ 4.4 million of net derivative loss from OCI into earnings relating to cross-currency swaps within the next 12 months.

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 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):

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

Derivatives Designated as Hedging Instruments Gain (Loss)

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Interest rate cap contracts 33,354 1,824 ( 3,001 ) Interest expense ( 653 ) ( 568 ) ( 2,846 )

Cross-currency swap agreements ( 33,464 ) 10,503 — Interest expense / Other expense ( 33,532 ) 10,121 —

Cross-currency swap agreements ( 27,617 ) ( 33,464 ) 10,503 Interest expense ( 7,601 ) ( 4,984 ) ( 1,075 )

Other (expense) income ( 22,394 ) ( 28,548 ) 11,196

Derivatives Not Designated as Hedging Instruments

The Company enters into currency exchange forward contracts to reduce the effects of currency exchange rate fluctuations between the British Pound and Euro.

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 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 Company did not have any derivatives that were not designated as hedging instruments during the year ended December 31, 2022.

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) :

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2022 2021 2020

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

Foreign currency exchange contracts Other (expense) income $ — $ ( 20 ) $ 3,564

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.

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 ):

Investment in receivable portfolios prior to transition $ 3,283,984

Initial transitioned deferred court costs 44,166

Allowance for credit losses 79,028,043

Amortized cost 82,356,193

Noncredit discount 132,533,142

Face value 214,889,335

Write-off of amortized cost ( 82,356,193 )

Write-off of noncredit discount ( 132,533,142 )

Negative allowance 3,328,150

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 subsequent to the adoption of CECL ( in thousands ):

Investment in receivable portfolios, net consist of the following as of the dates presented ( in thousands ):

Year Ended December 31,

Purchase price $ 664,529 $ 659,872

Allowance for credit losses 1,823,582 1,703,420

Amortized cost $ — $ —

Noncredit discount 3,284,369 3,464,670

Face value 5,772,480 5,827,962

Write-off of amortized cost ( 2,488,111 ) ( 2,363,292 )

Write-off of noncredit discount ( 3,284,369 ) ( 3,464,670 )

Negative allowance 664,529 659,872

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 subsequent to the adoption of CECL ( in thousands ):

Negative allowance for expected recoveries 3,088,261 3,065,553

Balance, end of period $ 3,088,261 $ 3,065,553

The following table summarizes the changes in the balance of investment in receivable portfolios, net during the periods presented ( in thousands ):

Year Ended December 31,

2022 2021 2020

Balance, beginning of period $ 3,065,553 $ 3,291,918 $ 3,328,150

Purchases of receivable portfolios 664,529 659,872

Negative allowance for expected recoveries - current period purchases (1)

800,507 664,529 659,872

Collections applied to investment in receivable portfolios, net (2)

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Disposals and transfers to real estate owned ( 8,335 ) ( 8,071 ) ( 9,459 )

Foreign currency adjustments ( 45,729 ) 61,886

Foreign currency translation adjustments ( 143,495 ) ( 45,729 ) 61,886

Balance, end of period $ 3,088,261 $ 3,065,553 $ 3,291,918

_______________________

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

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

Year Ended December 31,

2022 2021 2020

Purchase price $ 800,507 $ 664,529 $ 659,872

Allowance for credit losses 2,332,112 1,823,582 1,703,420

Amortized cost 3,132,619 2,488,111 2,363,292

Noncredit discount 3,216,500 3,284,369 3,464,670

Face value 6,349,119 5,772,480 5,827,962

Write-off of amortized cost ( 3,132,619 ) ( 2,488,111 ) ( 2,363,292 )

Write-off of noncredit discount ( 3,216,500 ) ( 3,284,369 ) ( 3,464,670 )

Negative allowance 800,507 664,529 659,872

Negative allowance for expected recoveries - current period purchases $ 800,507 $ 664,529 $ 659,872

(2) Collections applied to investment in receivable portfolios, net, is calculated as follows during the periods presented:

Year Ended December 31,

2022 2021 2020

Cash Collections $ 1,911,537 $ 2,307,359 $ 2,111,848

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Collections applied to investment in receivable portfolios, net $ 709,176 $ 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:

(3) Changes in recoveries is calculated as follows during the periods presented, where recoveries include cash collections, put-backs and recalls, and other cash-based adjustments:

Year Ended December 31,

2022 2021 2020

Recoveries above forecast $ 29,253 $ 326,006 $ 228,075

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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 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, 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.

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, 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.

Collections during the year ended December 31, 2022 outperformed the projected cash flows by approximately $ 29.3 million.

Changes in expected future recoveries are reassessed each quarter, the Company considers, among other factors, historical and current collection performance, changes in consumer behavior, and the macroeconomic environment when updating the forecasts of expected lifetime recoveries.

The Company recorded a net positive change in expected future period recoveries of approximately $ 63.9 million during the year ended December 31, 2022.

Composition of Certain Financial Statement Items

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Furniture, fixtures and equipment 20,155 19,959

Telecommunications equipment and other 3,075 3,450

Construction in process 2,546 2,487

Telecommunications equipment and other 1,600 3,075

269,054 272,898

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Operating lease right-of-use assets $ 70,074 $ 68,812

Deferred tax assets 51,451 33,202

Real estate owned 68,242 44,640

Identifiable intangible assets, net 36,320 45,012

Derivative instruments 36,807 3,541

Prepaid expenses 30,376 26,943

Service fee receivables 22,610 26,539

Identifiable intangible assets, net 22,112 36,320

Income tax deposits 18,259 19,315

Deferred tax assets 18,069 51,451

Service fee receivables 16,094 22,610

Other 61,040 61,643

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The Company is in compliance in all material respects with all covenants under its financing arrangements as of December 31, 2022.

The components of the Company’s consolidated borrowings were as follows as of the dates presented (in thousands) :

The components of the Company’s consolidated borrowings were as follows (in thousands) :

2022 December 31,

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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 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 %;

On March 29, 2022, the Company amended and restated the Global Senior Facility to, among other things (1) upsize the facility by $ 90.0 million to $ 1.14 billion, (2) extend the termination date of the facility from September 2025 to September 2026, and (3) transition from LIBOR to Term SOFR for U.S.

dollar borrowings.

As of December 31, 2022, the Global Senior Facility provided for a total committed facility of $ 1.14 billion that matures in September 2026 and includes the following key provisions:

• Interest at Term SOFR (or EURIBOR for any loan drawn in Euro or a rate based on SONIA for any loan drawn in British Pound), with a Term SOFR (or EURIBOR or SONIA) floor of 0.00 %, plus a margin of 2.50 %, plus in the case of Term SOFR borrowings, a credit adjustment spread of 0.10 %;

• 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 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 LTV Ratio (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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The weighted average interest rate of the Global Senior Facility was 4.42 % and 3.07 % for the years ended December 31, 2022 and December 31, 2021, 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.

Available capacity under the Global Senior Facility, after taking into account applicable debt covenants, was approximately $ 478.3 million as of December 31, 2022.

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 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, 2022, $ 68.4 million of the Encore Private Placement Notes remained outstanding.

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Senior Secured Notes

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

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)

The following table provides a summary of the Company’s senior secured notes (the “Senior Secured Notes”) ( $ in thousands ):

December 31, 2022 December 31, 2021 Issue Currency Maturity Date Interest Payment Dates Interest Rate

Encore 2025 Notes $ 375,325 $ 397,928 EUR Oct 15, 2025 Apr 15, Oct 15 4.875 %

Encore 2026 Notes 363,019 405,808 GBP Feb 15, 2026 Feb 15, Aug 15 5.375 %

Encore 2028 Notes 302,516 338,174 GBP Jun 1, 2028 Jun 1, Dec 1 4.250 %

Encore 2028 Floating Rate Notes 445,028 471,829 EUR Jan 15, 2028 Jan 15, Apr 15, Jul 15, Oct 15 EURIBOR + 4.250 % (1)

$ 1,485,888 $ 1,613,739

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(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.

In November 2020, Encore issued £ 300.0 million (approximately $ 405.8 million based on an exchange rate of $1.00 to £ 0.74 , the exchange rate as of December 31, 2021) in aggregate principal amount of 5.375 % Senior Secured Notes due 2026 at an issue price of 100.000 % (the “Encore 2026 Notes”).

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 $ 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.

Interest is payable quarterly in arrears on January 15, April 15, July 15 and October 15 of each year, commencing on April 15, 2021.

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 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.

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Convertible Notes and Exchangeable Notes

The following table provides a summary of the principal balance, maturity date and interest rate for the outstanding convertible and exchangeable senior notes (the “Convertible Notes” or “Exchangeable Notes,” as applicable) ( $ in thousands ):

The following table provides a summary of the principal balance, maturity date and interest rate for the Company’s convertible and exchangeable senior notes (the “Convertible Notes” or “Exchangeable Notes,” as applicable) ( $ in thousands ):

December 31, 2022 December 31, 2021 Maturity Date Interest Rate

2021 Convertible Notes (1)

$ — $ 161,000 Mar 15, 2021 2.875 %

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

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$ 272,500 $ 422,500

_______________________

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

On March 15, 2022, the Company’s $ 150.0 million 2022 Convertible Notes matured.

The 2022 Convertible Notes had a conversion price of $ 45.33 .

In March 2022, the Company settled the conversion of the 2022 Convertible Notes entirely in cash for $ 221.2 million, of which $ 71.2 million (the excess above the principal amount) represents the conversion spread and was recognized in the Company’s stockholder’s equity.

No gain or loss was recognized as a result of the conversion of the 2022 Convertible Notes in the Company’s consolidated statements of income for the year ended December 31, 2022.

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.

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.

exchange prices of the Convertible Notes and the Exchangeable Notes, the Company may enter into hedge programs that increase the effective conversion or exchange price for the Convertible Notes and the Exchangeable Notes.

As of December 31, 2022, the Company had one hedge program that increases the effective exchange price for the 2023 Exchangeable Notes.

The hedge instrument has been determined to be indexed to the Company’s own stock and meets the criteria for equity classification.

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

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

Certain key terms related to the convertible and exchangeable features as of December 31, 2022 are listed below ($ in thousands, except conversion or exchange price) :

2023 Exchangeable Notes 2025 Convertible Notes

Initial conversion or exchange price $ 44.62 $ 40.00

Closing stock price at date of issuance $ 36.45 $ 32.00

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

Closing stock price date Jul 20, 2018 Sep 4, 2019

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

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Adjusted conversion or exchange price (1)

$ 44.39 $ 39.79

Adjusted effective conversion or exchange price (2)

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$ 13,785 $ 20,478

Conversion or exchange date (3)

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

Conversion or exchange date 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.

(1) Pursuant to the indentures for the Company’s Convertible Notes and Exchangeable Notes, the conversion and exchange rates were adjusted upon the completion of the Company’s tender offer in December 2021.

(2) The Company maintains a hedge program that increases the effective exchange price for the 2023 Exchangeable Notes to $ 62.13 .

(3) Represents the premium the Company would have to pay assuming the Convertible Notes and Exchangeable Notes were converted or exchanged on December 31, 2022 using a hypothetical share price based on the closing stock price on December 31, 2022.

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.

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.

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.

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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.

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) :

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

Debt component $ 143,645 $ 137,266 $ 157,971 $ 91,024

Equity component $ 17,355 $ 12,734 $ 14,009 $ 8,976

Equity issuance cost $ 581 $ 398 $ — $ 224

Stated interest rate 2.875 % 3.250 % 4.500 % 3.250 %

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 prior to the adoption of ASU 2020-06 were as follows (in thousands) :

Liability component—principal amount $ 583,500

Unamortized debt discount ( 19,364 )

Liability component—net carrying amount $ 564,136

Equity component $ 53,074

The Company has not adjusted comparative information for the year ended December 31, 2020.

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

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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”).

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

The Cabot Securitisation Senior Facility matures in September 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 %.

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Maturity Schedule

The aggregate amounts of the Company’s borrowings, maturing in each of the next five years and thereafter are as follows (in thousands) :

The aggregate amounts of the Company’s borrowings, including finance lease liabilities, maturing in each of the next five years and thereafter are as follows (in thousands) :

2023 $ 224,828

2026 1,448,865

Thereafter 747,544

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decision-making rights, the obligation to absorb expected losses, or the right to receive expected residual returns of the entity.

The primary beneficiary is identified as the variable interest holder that has both the power to direct the activities of the VIE that most significantly affect the entity’s economic performance and the obligation to absorb expected losses or the right to receive benefits from the entity that could potentially be significant to the VIE.

The primary beneficiary is identified as the variable interest holder that has both the power to direct the activities of the VIE that most significantly affect the entity’s economic performance and the obligation to absorb expected losses or the right to receive residual returns from the entity that could potentially be significant to the VIE.

The Company consolidates VIEs when it is the primary beneficiary.

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.

As of December 31, 2022, 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.

The Company is the primary beneficiary of these VIEs.

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 has the power to direct the activities of the VIEs including the ability to exercise discretion in the servicing of the financial assets and has the right to receive residual returns that could potentially be significant to the VIEs.

The Company’s exposure to loss is limited to the total of the carrying value of the VIEs.

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

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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.

2 unchanged sentences

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.

During the years ended December 31, 2022 and 2021, the Company repurchased 1,497,184 and 2,598,034 shares of its common stock for approximately $ 86.9 million and $ 121.2 million, respectively.

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

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Reclassification 558 — 558

2,026 — 2,026

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

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Reclassification 30,648 — 30,648

44,544 — 44,544

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

Tax effect ( 407 ) ( 3,014 ) ( 3,421 )

Balance at December 31, 2022 $ 36,494 $ ( 135,310 ) $ ( 98,816 )

________________________

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

Stock-Based Compensation

5 unchanged sentences

The aggregate number of shares available for issuance under the 2017 Plan will be reduced by 2.12 shares for each share delivered in settlement of any full value award and by one share for each share delivered in settlement of any stock option or stock appreciation right.

If an award under the 2017 Plan or the 2013 Plan expires, lapses or is terminated, exchanged for cash, surrendered, repurchased, canceled without having been fully exercised or forfeited, the unused shares covered by such award will again become or again be available for award grants under the 2017 Plan.

award under the 2017 Plan or the 2013 Plan expires, lapses or is terminated, exchanged for cash, surrendered, repurchased, canceled without having been fully exercised or forfeited, the unused shares covered by such award will again become or again be available for award grants under the 2017 Plan.

Shares available under the 2017 Plan will be increased by 2.12 shares for each share subject to a full value award and by one share for each share subject to a stock option or a stock appreciation right, in each case, that become or again be available for issuance pursuant to the foregoing share counting provisions.

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Exercised ( 20,665 ) $ 30.95

Expired ( 13,316 ) $ 40.50

Outstanding as of December 31, 2022 79,949 $ 30.95 1.19 $ 1,358

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________________________

(1) Certain of the Company’s stock awards have a vesting matrix under which the stock awards can vest at a maximum level that is 200 % of the shares that would vest for achieving the performance goals at target.

(1) Certain of the Company’s stock awards have a vesting matrix under which the stock awards can vest at a maximum level that is up to 200 % of the shares that would vest for achieving the performance goals at target.

The number of shares presented is based on achieving the performance goals at target levels as defined in the stock award agreements.

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Total income before provision for income taxes $ 310,989 $ 436,541 $ 282,898

The provision for income tax on earnings from continuing operations consisted of the following (in thousands) :

The provision for income tax consisted of the following (in thousands) :

Year Ended December 31,

22 unchanged sentences

13.2 % ( 2.3 ) % 0.9 %

IRS settlement (4)

— % — % ( 2.4 ) %

Tax effect of CFPB settlement fees (5)

Non-deductible CFPB settlement fees — % — % 1.1 %

Deductible loss in foreign jurisdiction (4)

( 2.7 ) % — % — %

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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.

(3) Includes valuation allowance recorded on U.K.

deferred tax assets

(4) This represents a deductible loss recognized in a foreign subsidiary that maintains a full valuation allowance on its deferred tax assets.

Accordingly, this deductible loss increased the valuation allowance and did not result in any tax benefit during the year ended December 31, 2022.

The Company’s subsidiary in Costa Rica is operating under a 100 % tax holiday through December 31, 2026.

15 unchanged sentences

Accrued expenses 10,800 11,885

Difference in basis of bond and loan costs — 16

Difference in basis of receivable portfolio 23,751 33,335

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________________________

(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.

(1) The Company operates in multiple jurisdictions.

1 unchanged sentence

As of December 31, 2022, certain of the Company’s foreign subsidiaries have net operating loss carry forwards of approximately $ 278.2 million, which will begin to expire in 2025.

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 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.

Certain of the Company’s domestic subsidiaries have state net operating losses with an indefinite carryover period.

As of December 31, 2022, valuation allowances increased by $ 30.7 million, as compared to December 31, 2021.

The increase in valuation allowance is primarily related to U.K.

deferred tax assets.

These deferred tax assets include revenue recognition differences between statutory reporting and US GAAP reporting.

In evaluating all positive and negative evidence available to determine whether all or some portion of the deferred tax assets will be realized, significant judgement is required and the weight of all available evidence must be considered.

A significant piece of objective negative evidence evaluated was the U.K.

loss before income taxes for the three-year period ended December 31, 2022.

Objective evidence limits the ability to consider subjective evidence, such as projections for future earnings growth.

The Company will continue to evaluate the realizability of deferred tax assets each quarter based on all available positive and negative evidence, including current and cumulative earnings, forecasts of future profitability, statutory carryback and carryforward periods and tax planning strategies.

In a period when positive evidence supports a conclusion that a valuation allowance is no longer needed, a tax benefit will be recorded.

A reconciliation of the beginning and ending amounts of unrecognized tax benefit is as follows (in thousands) :

Balance as of December 31, 2019 $ 7,908

Decreases related to prior year tax positions ( 10,673 )

Decrease related to prior year tax positions ( 608 )

Increases related to prior year tax positions 6

Increases related to current year tax positions 574

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Decrease related to prior year tax positions ( 2,034 )

Increases related to prior year tax positions 6

Increases related to current year tax positions 574

Decrease related to expiration of statute of limitations ( 712 )

Decreases related to settlements with taxing authorities ( 272 )

Increase related to prior year tax positions 261

Increase related to current year tax positions 251

Balance as of December 31, 2021 4,547

Decrease related to prior year tax positions ( 1,296 )

Decrease related to settlements with taxing authorities ( 713 )

Decrease related to expiration of statute of limitations ( 115 )

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As of December 31, 2022, 2021 and 2020, there was $ 2.5 million, $ 1.6 million and $ 3.3 million, respectively, of unrecognized tax benefit that if recognized, would result in a net tax benefit.

During the year ended December 31, 2022, the decrease in the Company's gross unrecognized tax benefit was primarily due to the release of a prior year position related to a foreign entity.

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.

The Company believes that an adequate provision has been made for any adjustments that may result from tax examinations.

1 unchanged sentence

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.

The Company recognized a benefit of $ 0.4 million, expense of $ 0.1 million and expense of $ 0.2 million in net interest and penalties during the years ended December 31, 2022, 2021 and 2020, respectively.

Interest and penalties accrued as of December 31, 2022, 2021 and 2020 were immaterial .

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Year Ended December 31,

2022 2021 2020

Operating lease costs (1)

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Year Ended December 31,

2022 2021 2020

ROU assets obtained in exchange for new operating lease obligations $ 22,582 $ 13,426 $ 8,990

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Lease term and discount rate were as follows:

December 31, 2021 December 31, 2020

December 31, 2022 December 31, 2021 December 31, 2020

Weighted-average remaining lease term ( in years )

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The Company is involved in disputes, legal actions, regulatory investigations, inquiries, and other actions from time to time in the ordinary course of business.

The Company, along with others in its industry, is routinely subject to legal actions based on the Fair Debt Collection Practices Act (“FDCPA”), comparable state statutes, the Telephone Consumer Protection Act (“TCPA”), state and federal unfair competition statutes, and common law causes of action.

The Company, along with others in its industry, is routinely subject to legal actions asserting various claims, including those based on the Fair Debt Collection Practices Act (“FDCPA”), the Fair Credit Reporting Act (“FCRA”), the Telephone Consumer Protection Act (“TCPA”), comparable state statutes, state and federal unfair competition statutes, and common law causes of action.

The violations of law investigated or alleged in these actions often include claims that the Company lacks specified licenses to conduct its business, attempts to collect debts on which the statute of limitations has run, has made inaccurate or unsupported assertions of fact in support of its collection actions and/or has acted improperly in connection with its efforts to contact consumers.

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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.

In 2018, we entered into settlement agreements with the Attorneys General of 42 U.S.

states and the District of Columbia in connection with our debt collection and litigation practices.

We have entered into settlement agreements with the Attorneys General of various U.S.

states in connection with our debt collection and litigation practices.

The Company has discussed with additional state attorneys general potential resolution of these investigations, which could include penalties, restitution, and/or the adoption of new operational requirements.

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As of December 31, 2022, the Company had entered into forward flow purchase agreements for the purchase of nonperforming loans with an estimated minimum aggregate purchase price of approximately $ 444.0 million.

We expect actual purchases under these forward flow purchase agreements to be significantly greater than the estimated minimum aggregate purchase price.

The Company expects actual purchases under these forward flow purchase agreements to be significantly greater than the estimated minimum aggregate purchase price.

Employee Savings and Retirement Plan

1 unchanged sentence

Under the 401(k) Plan, matching contributions are based upon the amount of the employees’ contributions subject to certain limitations.

The Company recognized expense of approximately $ 2.8 million, $ 2.9 million, and $ 2.8 million for the years ended December 31, 2021, 2020, and 2019, respectively.

The Company recognized expense of approximately $ 2.8 million, $ 2.8 million, and $ 2.9 million for the years ended December 31, 2022, 2021, and 2020, respectively, in salaries and employee benefits in its consolidated statements of income.

Encore’s Certificate of Incorporation and indemnification agreements between the Company and its officers and directors provide that the Company will indemnify and hold harmless its officers and directors for certain events or occurrences arising as a result of the officer or director serving in such capacity.

11 unchanged sentences

United States $ 995,470 $ 1,115,572 $ 992,916

International

United Kingdom 272,962 344,214 390,955

Other European countries (1)

129,737 142,316 99,430

Total Europe 402,699 486,530 490,385

Other geographies (1)

2 unchanged sentences

________________________

(1) Total revenues during 2019 is adjusted by net allowances.

Total revenues are attributed to countries based on consumer location.

(2) Based on the financial information that is used to produce the general-purpose financial statements, providing further geographic information is impracticable.

(1) None of these countries comprise greater than 10% of the Company's consolidated revenues.

2022 December 31,

4 unchanged sentences

58,034 62,205

India 25,337 4,571

Other foreign countries (2)

17,908 17,724

101,279 84,500

Total $ 183,974 $ 188,669

________________________

(1) Long-lived assets consist of property and equipment, net and finance leases.

(1) Long-lived assets consist of property and equipment, net and right of use assets.

(2) None of these countries comprise greater than 10% of the Company's consolidated long-lived assets.

Goodwill and Identifiable Intangible Assets

The Company’s goodwill is attributable to reporting units included in its portfolio purchasing and recovery segment.

Goodwill is tested for impairment at the reporting unit level annually and in interim periods if certain events occur that indicate that the fair value of a reporting unit may be below its carrying value.

The Company’s goodwill is tested for impairment at the reporting unit level annually and in interim periods if certain events occur that indicate that the fair value of a reporting unit may be below its carrying value.

Determining the number of reporting units and the fair value of a reporting unit requires the Company to make judgments and involves the use of significant estimates and assumptions .

The Company performs its annual goodwill impairment assessment as of October 1.

As of October 1, 2021, the Company had two reporting units, MCM and Cabot, that carried goodwill.

The Company first assesses qualitative factors to determine whether it is necessary to perform the quantitative goodwill impairment test.

The qualitative factors include economic environment, business climate, market capitalization, operating performance, competition, and other factors.

The Company may proceed directly to the quantitative test without performing the qualitative test.

For the goodwill impairment tests performed as of October 1, 2021, the Company updated its consideration of the current and expected future economic and market conditions surrounding the COVID-19 pandemic and its impact on each of the reporting units.

The Company performed qualitative analysis for the MCM reporting unit and proceeded directly to the quantitative test for its Cabot reporting unit.

If goodwill is quantitatively assessed for impairment and a reporting unit’s carrying value exceeds its fair value, the difference is recorded as an impairment.

The Company applies various valuation techniques to measure the fair value of each reporting unit, including the income approach and the market approach.

For goodwill impairment analyses, the Company uses the income approach in determining fair value, specifically the discounted cash flow method, or DCF.

When reviewing goodwill for impairment, the Company first performs a qualitative test to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value.

In performing its qualitative test, the Company considers various qualitative factors including, but not limited to economic environment, business climate, market capitalization, operating performance and competition.

If after performing the qualitative test, the Company determines that it is more likely than not that the fair value of a reporting unit is less than its carrying value, then the Company must perform a quantitative goodwill impairment test.

Instead of performing a qualitative test, the Company may also just proceed directly to performing a quantitative test.

A quantitative impairment test is performed by estimating the fair value of the reporting unit and comparing it to its carrying value.

If the carrying value of a reporting unit exceeds its fair value, the Company would record an impairment charge equal to the excess of the carrying value of the reporting unit over its fair value.

The Company applies various valuation techniques to estimate the fair value of each reporting unit when performing a quantitative impairment test, including the income approach and the market approach.

Under the income approach, the Company uses a discounted cash flow method, or DCF, to estimate the fair value of a reporting unit.

In applying the DCF method, an identified level of future cash flow is estimated.

The cash flow projections are based on five-year financial forecasts developed by management that include purchasing volume, collections forecasts, capital spending trends, and cost assumptions to support anticipated growth, which are updated annually and reviewed by management.

Annual estimated cash flows and a terminal value are then discounted to their present value at an appropriate discount rate to obtain an indication of fair value.

The discount rate utilized reflects estimates of required rates of return for investments that are seen as similar to an investment in the reporting unit.

DCF analyses are based on management’s long-term financial projections and require significant judgments.

Therefore, for the Company’s reporting units where the Company has access to reliable market participant data, the market approach is conducted in addition to the income approach in determining the fair value.

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 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.

Because DCF analyses are based on management’s long-term financial projections and require significant estimates and judgments, the market approach is conducted in addition to the income approach in estimating the fair value of a reporting unit.

Under the market approach, the Company uses both a Guideline Public Company Method and Guideline Merged & Acquired Company method to estimate the fair value of equity and the business enterprise value of a reporting unit.

The Guideline Public Company approach uses financial metrics from similar public traded companies to estimate fair value.

The Guideline Merged and Acquired Company method calculates fair value by analyzing the actual prices paid for recent mergers and acquisitions in the industry.

The Company believes that the current methodology used in determining the fair value at its reporting units represent its best estimates.

In addition, the Company compares the aggregate fair value of the reporting units to its overall market capitalization.

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, 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 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.

Further adverse changes in the Company’s actual or expected operating results, market capitalization, business climate, economic factors or other negative events that may be outside the control of management could result in a material non-cash impairment charge in the future.

As of October 1, 2022, the Company had two reporting units, MCM and Cabot, that carried goodwill.

Instead of performing qualitative tests, the Company chose to proceed directly to performing quantitative tests for both reporting units at October 1, 2022, and determined that no goodwill impairment existed at these two reporting units.

No indicators of impairment noted between the assessment date and December 31, 2022.

Management continues to evaluate and monitor all key factors impacting the carrying value of the Company’s recorded goodwill and intangible assets.

Adverse changes in the Company’s actual or expected operating results, market capitalization,

business climate, economic factors or other negative events that may be outside the control of management could result in a material non-cash impairment charge in the future.

The Company’s goodwill is attributable to reporting units included in its portfolio purchasing and recovery segment.

The following table summarizes the activity in the Company’s goodwill balance during the periods presented (in thousands):

The following table summarizes the activity in the Company’s goodwill balance (in thousands):

Year Ended December 31,

2 unchanged sentences

$ 897,795 $ 906,962 $ 884,185

Goodwill impairment — — ( 10,718 )

Effect of foreign currency translation ( 76,581 ) ( 9,167 ) 22,777

18 unchanged sentences

Estimated future amortization expense related to finite-lived intangible assets as of December 31, 2022 is as follows ( in thousands ):

Thereafter 3,379

Total $ 22,112

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