PRA Group
PRA GROUP INC (Form: 10-K, Received: 02/26/2016 19:17:04)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K
ý Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2015
¨ Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from ________ to ________
Commission File Number: 000-50058

PRA Group, Inc.
(Exact name of registrant as specified in its charter)
Delaware
 
 
 
75-3078675
(State or other jurisdiction of incorporation or organization)
 
 
 
(I.R.S. Employer Identification No.)
 
 
 
 
 
120 Corporate Boulevard, Norfolk, Virginia
 
23502
 
(888) 772-7326
(Address of principal executive offices)
 
(Zip Code)
 
(Registrant's Telephone No., including area code)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $0.01 par value per share
 
NASDAQ Global Select Market
(Title of Class)
 
(Name of Exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES   þ    NO   ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15 (d) of the Act. YES   ¨    NO   þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES   þ    NO   ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES   þ    NO   ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer   þ    Accelerated filer   ¨    Non-accelerated filer   ¨    Smaller reporting company   ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES   ¨    NO   þ
The aggregate market value of the common stock held by non-affiliates of the registrant as of June 30, 2015 was $2,970,224,983 based on the $62.31 closing price as reported on the NASDAQ Global Select Market.
The number of shares of the registrant's Common Stock outstanding as of February 25, 2016 was 46,221,037 .
Documents incorporated by reference: Portions of the registrant's definitive Proxy Statement for our 2016 Annual Meeting of Shareholders are incorporated by reference into Part III of this Form 10-K.



Table of Contents

 
 
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
 
 
 
 
 
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 9.
Item 9A.
Item 9B.
 
 
 
 
 
 
 
 
 
continued

2


Table of Contents

continued
 
 
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
 
 
 
 
 
Item 15.
 
 
 
Signatures
 

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Cautionary Statements Pursuant to Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995:
This report contains forward-looking statements within the meaning of the federal securities laws. These forward-looking statements involve risks, uncertainties and assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. All statements, other than statements of historical fact, are forward-looking statements, including statements regarding overall cash collection trends, gross margin trends, operating cost trends, liquidity and capital needs and other statements of expectations, beliefs, future plans and strategies, anticipated events or trends, and similar expressions concerning matters that are not historical facts. The risks, uncertainties and assumptions referred to above may include the following:
changes in the credit or capital markets, which affect our ability to borrow money or raise capital;
a prolonged economic recovery or a deterioration in the economic or inflationary environment in North America or Europe, including the interest rate environment;
our ability to replace our nonperforming loans with additional receivables portfolios;
our ability to purchase nonperforming loans at appropriate prices;
our reliance on third-party vendors having procedures and controls which are compliant or error free;
our ability to obtain accurate and authentic account documents relating to accounts that we acquire and the possibility that documents that we provide could contain errors;
our ability to collect sufficient amounts on our nonperforming loans;
our ability to successfully acquire receivables of new asset types;
changes in, or interpretations of, bankruptcy or collection laws that could negatively affect our business, including by causing an increase in certain types of bankruptcy filings involving liquidations, which may cause our collections to decrease;
changes in, or interpretations of, federal, state, local, or foreign laws or the administrative practices of various bankruptcy courts, which may impact our ability to collect on our nonperforming loans;
our ability to obtain adequate insurance coverage at reasonable prices;
our ability to manage risks associated with our international operations;
changes in tax laws regarding earnings of our subsidiaries located outside of the United States ("U.S.");
the possibility that we could incur goodwill or other intangible asset impairment charges;
our ability to retain members of our senior management team;
the possibility that our U.S. work force could become unionized in the future, which could adversely affect the stability of our production and increase our costs;
the imposition of additional taxes on us;
the possibility that we could incur significant allowance charges on our finance receivables;
our loss contingency accruals may not be adequate to cover actual losses;
the possibility that class action suits and other litigation could divert our management's attention and increase our expenses;
adverse outcomes in pending litigations;
the possibility that we could incur business to technology disruptions or cyber incidents;
the degree, nature, and resources of our competition;
the possibility that new business acquisitions prove unsuccessful or strain or divert our resources;
the potential effects of threatened or actual terrorism and war;
our ability to compete in markets where we do business;
our ability to manage growth successfully or to successfully integrate our growth strategy;
the possibility that we or our industry could experience negative publicity or reputational attacks;
the possibility that a sudden collapse of one of the financial institutions in which we are depositors could negatively affect our financial results;
our ability to collect and enforce our finance receivables may be limited under federal, state, and foreign laws;
our ability to adjust to debt collection and debt-buying regulations that may be promulgated by the Consumer Financial Protection Bureau ("CFPB") and the regulatory and enforcement activities of the CFPB;
our ability to comply with existing and new regulations of the collection industry, the failure of which could result in penalties, fines, litigation, damage to our reputation, or the suspension or termination of or required modification to our ability to conduct our business;
changes in accounting standards, governmental laws and regulations or the manner in which they are interpreted or applied which could increase our costs and liabilities or impact our operations;
investigations or enforcement actions by governmental authorities, which could result in changes to our business practices; negatively impact our portfolio purchasing volume; make collection of account balances more difficult or expose us to the risk of fines, penalties, restitution payments, and litigation;
the possibility that compliance with foreign and U.S. laws and regulations that apply to our international operations could increase our cost of doing business in international jurisdictions;

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net capital requirements pursuant to the European Union Capital Requirements Directive ("CRD IV"), which could impede the business operations of our subsidiaries;
our ability to maintain, renegotiate or replace our credit facility;
our ability to satisfy the restrictive covenants in our debt agreements;
the possibility that the accounting for convertible debt securities could have an adverse effect on our financial results;
our ability to raise the funds necessary to repurchase the convertible senior notes or to settle conversions in cash;
the possibility that conversion of the convertible senior notes could affect the price of our common stock;
changes in interest or exchange rates, which could reduce our net income, and the possibility that future hedging strategies may not be successful, which could adversely affect our results of operations and financial condition, as could our failure to comply with hedge accounting principles and interpretations; and
the risk factors listed from time to time in our filings with the Securities and Exchange Commission (the "SEC").
You should assume that the information appearing in this annual report is accurate only as of the date it was issued. Our business, financial condition, results of operations and prospects may have changed since that date.
For a discussion of the risks, uncertainties and assumptions that could affect our future events, developments or results, you should carefully review the " Risk Factors " section beginning on page 18, as well as the " Management's Discussion and Analysis of Financial Condition and Results of Operations " section beginning on page 35 and the " Business " section beginning on page 6.
Our forward-looking statements could be wrong in light of these and other risks, uncertainties and assumptions. The future events, developments or results described in this report could turn out to be materially different. Except as required by law, we assume no obligation to publicly update or revise our forward-looking statements after the date of this report and you should not expect us to do so.
Investors should also be aware that while we do, from time to time, communicate with securities analysts and others, we do not, by policy, selectively disclose to them any material nonpublic information or other confidential commercial information. Accordingly, stockholders should not assume that we agree with any statement or report issued by any analyst regardless of the content of the statement or report. We do not, by policy, confirm forecasts or projections issued by others. Thus, to the extent that reports issued by securities analysts contain any projections, forecasts or opinions, such reports are not our responsibility.

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PART I
Item 1. Business .
General
Headquartered in Norfolk, Virginia and incorporated in Delaware, we are a leading company in the acquisition and collection of nonperforming loans in the Americas and Europe. Our business focuses upon the acquisition, collection, and processing of both unpaid and normal-course accounts receivable originally owed to credit grantors, government entities, and others. Our primary business is the purchase, collection and management of portfolios of nonperforming consumer loans. The accounts we acquire are the unpaid obligations of individuals owed to credit grantors, which primarily include banks and other types of consumer, retail, and auto finance companies. We also provide the following fee-based services:
Contingent collections of nonperforming loans in Europe;
Vehicle location, skip tracing and collateral recovery for auto lenders, government entities and law enforcement;
Revenue administration, audit and debt discovery services for local government entities; and
Class action claims recovery services and related payment processing.
We have one reportable segment, accounts receivable management, based on similarities among the operating units including the nature of the products and services, the nature of the production processes, the types or classes of customers for our products and services, the methods used to distribute our products and services, and the nature of the regulatory environment.
On August 3, 2015 we acquired 55% of the equity interest in RCB Investimentos S.A. ("RCB"). The remaining 45% of the equity interest in RCB is owned by the executive team and previous owners of RCB. RCB was founded in 2007 and is a leading master servicing platform for nonperforming loans in Brazil. RCB specializes in structuring, investing and operating receivable and credit-related assets. The founders of RCB each entered into long-term employment agreements with us and will continue to manage RCB's local business in Brazil. Our investment for the 55% ownership of RCB was paid for with approximately $55.2 million in cash which was borrowed under our existing domestic revolving credit facility. The majority of cash paid to acquire the equity interest in RCB is expected to be used in the ordinary course of business. As part of the investment and call option agreements, we have the right to purchase the remaining 45% of RCB at certain multiples of earnings before interest, taxes, depreciation and amortization ("EBITDA") beginning August 3, 2019 and lasting for two years.
The scale and scope of our international business expanded substantially during 2014 primarily due to the acquisition of Aktiv Kapital ("Aktiv"), a Norway-based leader in acquiring and servicing nonperforming consumer debt throughout Europe and Canada. With the Aktiv acquisition, we became one of the world's largest acquirers of nonperforming consumer loans from banks and other creditors. The Aktiv acquisition provided us entry into several new markets, resulting in additional geographic diversity in portfolio purchasing and collection. Aktiv's executive team and the more than 400 Aktiv employees joined our workforce upon the closing of the transaction.
We believe that the strengths of our business are our analytical approach to portfolio pricing and servicing, our processing systems and procedures, our relationships with many of the largest consumer lenders, and our extensive compliance systems and culture. The success of our business depends on our ability to purchase nonperforming loans at appropriate valuations and to collect on those receivables in a compliant, effective and efficient manner.
Our Core business specializes in receivables that have been charged-off by the credit grantor. Because the credit grantor and/or other debt servicing companies have unsuccessfully attempted to fully collect these receivables, we are able to purchase them at a substantial discount to their face value.
Our Insolvency business consists primarily of purchasing and collecting accounts that are involved in a Chapter 13 bankruptcy proceeding from credit grantors based in the United States. During 2014, the geographic footprint of the Insolvency business expanded into Canada and Europe.
We were initially formed as Portfolio Recovery Associates, L.L.C., a Delaware limited liability company, on March 20, 1996. In connection with our 2002 initial public offering, all of the membership units of Portfolio Recovery Associates, L.L.C. were exchanged, simultaneously with the effectiveness of our registration statement, for a single class of Portfolio Recovery Associates, Inc. common stock, a new Delaware corporation formed on August 7, 2002. Accordingly, the members of Portfolio Recovery Associates, L.L.C. became the common stockholders of Portfolio Recovery Associates, Inc., which became the parent company of Portfolio Recovery Associates, L.L.C. and its subsidiaries. On October 23, 2014, we changed our name to PRA Group, Inc.

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Frequently Used Terms
We use the following terminology throughout this document:
"Allowance charges" refers to a reduction in income recognized on finance receivables on pools of finance receivables whose cash collection estimates were below expectations or are projected to be below expectations.
"Amortization rate" refers to cash collections applied to principal on finance receivables as a percentage of total cash collections.
"Buybacks" refers to purchase price refunded by the seller due to the return of ineligible accounts.
"Cash collections" refers to collections on our owned finance receivables portfolios.
"Cash receipts" refers to collections on our owned finance receivables portfolios plus fee income.
"Core" accounts or portfolios refer to accounts or portfolios that are nonperforming loans and are not in an insolvent status upon purchase. These accounts are aggregated separately from insolvency accounts.
"Estimated remaining collections" or "ERC" refers to the sum of all future projected cash collections on our owned finance receivables portfolios.
"Fee income" refers to revenues generated from our fee-for-service businesses.
"Income recognized on finance receivables" refers to income derived from our owned finance receivables portfolios.
"Income recognized on finance receivables, net" refers to income derived from our owned finance receivables portfolios and is shown net of allowance charges/reversals.
"Insolvency" accounts or portfolios refer to accounts or portfolios of receivables that are in an insolvent status when we purchase them and as such are purchased as a pool of insolvent accounts. These include Individual Voluntary Arrangements ("IVAs"), Trust Deeds in the United Kingdom, Consumer Proposals in Canada and bankruptcy accounts in the United States, Canada and the United Kingdom.
"Net finance receivable balance" is recorded on our balance sheet and refers to the purchase price less principal amortization and net allowance charges/reversals.
"Principal amortization" refers to cash collections applied to principal on finance receivables.
"Purchase price" refers to the cash paid to a seller to acquire nonperforming loans, plus certain capitalized costs, less buybacks.
"Purchase price multiple" refers to the total estimated collections (as defined below) on owned finance receivables portfolios divided by purchase price.
"Total estimated collections" refers to actual cash collections, including cash sales, plus estimated remaining collections on our finance receivables portfolios.
All references in this report on Form 10-K to the "PRA Group," "our," "we," "us," the "Company" or similar terms are to PRA Group, Inc. and its subsidiaries.
Available Information
We maintain an Internet website at the following address: www.pragroup.com .
We make available on or through our website certain reports that we file with or furnish to the SEC in accordance with the Securities Exchange Act of 1934. These include our annual reports on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended. We make this information available on our website free of charge as soon as reasonably practicable after we electronically file the information with or furnish it to the SEC. The information that is filed with the SEC may be read or copied at the SEC's Public Reference Room at 100 F Street, NE, Washington, DC 20549. In addition, information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC at: www.sec.gov .
Reports filed with or furnished to the SEC are also available free of charge upon request by contacting our corporate office at:
PRA Group, Inc.
Attn: Investor Relations
120 Corporate Boulevard, Suite 100
Norfolk, Virginia 23502

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Competitive Strengths
We Offer a Compelling Alternative to Global Debt Owners and Domestic Governmental Entities
We offer global debt owners the ability to realize immediate value for their charged-off and insolvent receivables, through either one-time spot purchase contracts or forward flow contracts that arrange for regular purchases from the debt owner. Our transactional flexibility helps us to meet the needs of global debt owners, leverages our access to capital, and provides us with the opportunity to create consistent and enduring supply relationships. Through our government services business and our European and South American businesses, we have the ability to service receivables in various ways including collecting on a contingent fee basis. For our government services business, this also includes such services as processing tax payments on behalf of the client and extends to more complicated tax audit and discovery work, as well as additional services that fill the needs of our clients.
Disciplined and Proprietary Underwriting Process
One of the key components of our growth has been our ability to price portfolio acquisitions at levels that have generated profitable returns on investment. Since inception, we have been able to consistently collect more than our purchase price and costs over the collection life cycle of the finance receivables portfolios we have acquired. In doing so, we have generated profits and operational cash flow from these portfolio acquisitions, without relying on the resale of portfolios to achieve these results. In the United States, we have not resold any of our purchased portfolios since 2002 and sold a minimal number of accounts prior to this time frame.
By retaining and collecting, as opposed to selling, the accounts we purchase over the long term, we create static pool history that we believe is unique among our peers. Our portfolio underwriting process utilizes collection results, customer data, and account attributes to effectively value portfolios. Our modeling capabilities continuously evolve as we incorporate new data and develop, test, and adopt new analytical tools that help us improve our underwriting accuracy.
The Core portfolio underwriting process includes both quantitative analytical modeling and qualitative judgment-based analysis that considers the effects of the origination, servicing, and collection history of the portfolios we price. With the addition of data from the Aktiv acquisition and our interest in RCB in Brazil, we have similar capabilities in European and South American markets. We believe the combination of our deep sample of purchase data, our sophisticated analytical modeling, and the underwriting judgment gained from thousands of portfolios affords us a significant competitive advantage.
Established Systems and Infrastructure
We have devoted significant effort to developing our systems, including statistical models, databases and reporting packages, to optimize our portfolio purchases and collection efforts. In addition, we believe that our technology infrastructure is flexible, secure, reliable and redundant, to protect the privacy of our sensitive data and to mitigate exposure to systems failure or unauthorized access.
We have developed financial models and systems for pricing portfolio acquisitions, managing the collections process and monitoring operating results. We regularly prepare a static pool report for each of our portfolios, populating actual results back into our acquisition models to enhance their accuracy. We monitor collection results continuously, seeking to identify and resolve negative trends promptly. By retaining and collecting upon our purchased finance receivables over the long-term, we enhance our knowledge of a portfolio's performance. The combination of hardware, software and proprietary modeling and systems has been developed by our management team through years of experience in this industry and we believe provides us with an important competitive advantage from the acquisition process all the way through collection and payment operations.
Our systems and infrastructure also enhance our compliance activities. We employ a staff of Quality Assurance employees in our Compliance function who monitor calls and observe collection system entries and monitor and test our daily activities. To enhance this process, where permissible, we employ sophisticated call and work action recording systems which allow us to better monitor compliance and quality of our customer contacts.
Strong Relationships with Major Credit Grantors
We have done business with most of the largest consumer lenders in the United States and in Europe. We maintain an active marketing effort and our senior management team is in contact on a regular basis with existing and potential sellers of nonperforming loans. In addition, we protect our reputation as a reliable and compliant purchaser of nonperforming loans. Management views our reputation as compliant collectors as an integral part of our value proposition for existing and potential sellers. Moreover, we consistently attempt to negotiate reasonable and mutually acceptable contract terms, resulting in a confident and expeditious closing process for both parties. We believe our strong relationships with major credit grantors provide us with access to quality opportunities for portfolio purchases.

8



Experienced Management Team
Prior to our formation, our founders played key roles in the development and management of a receivables acquisition and divestiture operation of Household Recovery Services, a subsidiary of Household International. As we have grown, we have expanded our management team with seasoned executives to better sustain our business growth strategy. Our team has considerable expertise in the accounts receivable management industry.
Following is a summary of our executive management team as of February 26, 2016 , including each executive officer's principal occupation, business experience, and employment during the past five years. The principal occupation, employment and business experience history of each member provides a brief explanation as to the nature of responsibility undertaken by such individual in their prior positions to provide adequate disclosure of his or her prior business experience.
Executive Officers of the Registrant
Tenure, Experience and Age in years
Name
Current Position
Prior Experience
PRA Group Tenure
Relevant Industry Experience
Age
Steven D. Fredrickson (1)
Chairman of the Board of Directors, and Chief Executive Officer
Household Recovery Services, Continental Illinois National Bank and Trust Company
20
30+
56
Kevin P. Stevenson (2)
President, Chief Administrative Officer, and Interim Chief Financial Officer
Household Recovery Services, Household Bank
20
27
51
Chris Graves (3)
Executive Vice President, Americas Core Acquisitions & Core Operations
Capital One, Signet Bank, First Union
10
23
47
Chris Lagow (4)
Senior Vice President and General Counsel
Togut, Segal & Segal, LLP, LeClair Ryan, PC
10
15
42
Michelle Link (5)
Chief Human Resources Officer
Amerigroup, Corning, Cigna, Blue Cross Blue Shield
5
18
41
Tiku Patel (6)
Chief Executive Officer, PRA Group Europe
Aktiv Kapital, Experian, Barclays, Kingfisher, Redland
2
14
50
Michael Petit (7)
President, Insolvency Investment Services
Pacific Crest Securities, Caterpillar, Banc One Capital Markets, Ford Motor Company, Jefferies and Company, Continental Bank
12
30
56
Steve Roberts (8)
Chief Strategy and Business Development Officer
ShopText, Interpublic Group, Otis, Carrier, Digitas, United Technologies
3
30
54
Neal Stern  (9)
Executive Vice President, Chief Investment, Analytics and Operations Strategy Officer
Target Financial Services, US Bank, Transamerica
9
25
47
Laura White (10)
Chief Compliance Officer
Allianz, Federal Reserve Bank of Richmond, Capital One
2
24
45
Deborah Cassidy (11)
Senior Vice President, Chief Information Officer
Genworth Financial, Allianz Assistance, Tredegar Corporation
1
11
58
Neil Chakravarty (12)
Senior Vice President, Corporate Audit Services
Genworth Financial, Capital One Financial, KPMG
1
18
38
(1)
Mr. Fredrickson, co-founder, served as PRA Group's President until 2015 when he assumed his current position.
(2)
Mr. Stevenson, co-founder, served as PRA Group's Executive Vice President until 2015 when he assumed his current position.
(3)
Mr. Graves joined PRA Group in 2006. He served as Vice President, Portfolio Acquisitions until 2009, and Executive Vice President, Core Acquisitions until 2013 when he assumed his current position.
(4)
Mr. Lagow joined PRA Group in 2006. He served as U.S. Counsel-Litigation until 2014 and Deputy General Counsel until 2015 when he assumed his current position.
(5)
Ms. Link joined PRA Group in 2011. She served as Senior Vice President, Human Resources until 2014 when she assumed her current position.

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(6)
Mr. Patel transitioned to PRA Group from Aktiv Kapital where he served as Chief Operating Officer for six years. Aktiv Kapital was acquired by PRA Group, Inc. in 2014; following the transition he continued his role as Chief Operating Officer for PRA Group Europe until 2016 when he took on the role of Chief Executive Officer, PRA Group Europe. His extensive operational knowledge of Aktiv Kapital, his background and skills in the financial services industry, and his leadership capabilities are highly leveraged in his continued role with PRA Group.
(7)
Mr. Petit joined PRA Group in 2004. He served as President, Bankruptcy Services from 2011 until 2015 when he assumed his current position.
(8)
Mr. Roberts was the Chief Executive Officer of ShopText for the six years prior to joining PRA Group. He has a significant background in marketing and operations and worked as a chief operating officer and chief financial officer at subsidiaries of the publicly-held McCann Erikson and Modem Media organizations. He served as President, Business and Government Services at PRA Group until 2015 when he assumed his current position.
(9)
Mr. Stern joined PRA Group in 2007. He served as Senior Vice President, Operations from 2008 until 2011, and Executive Vice President, Chief Operating Officer Owned Portfolios until 2015 when he assumed his current position.
(10)
Prior to joining PRA Group, Ms. White was the Chief Risk and Compliance Officer, Americas Zone for Allianz Global Assistance from 2010-2014. Ms. White has more than 20 years of leadership experience in the financial services industry. In her role with Allianz she was responsible for risk management and compliance, including operational risk, internal controls, business continuity and regulatory compliance. A significant amount of this experience is leveraged in her role at PRA Group.
(11)
Ms. Cassidy served as Vice President and Business Chief Information Officer at Genworth Financial and Vice President and Americas Chief Information Officer at Allianz prior to joining PRA Group. She has over 25 years of experience within information technology; 11 years were focused within financial services.
(12)
Prior to joining PRA Group, Mr. Chakravarty served as Senior Manager, Card Operations Audit, Capital One Financial for over two years before transitioning to Genworth Financial where he served as Audit Director for three years. He has an extensive background in the audit and risk management industry and leverages these skills at PRA Group.
Portfolio Acquisitions
Our portfolio of finance receivables includes a diverse set of accounts that can be categorized by asset type, age and size of account, level of previous collection efforts, payment history, and geography. To identify buying opportunities, we maintain an extensive marketing effort with our senior officers contacting known and prospective sellers of finance receivables. We have acquired receivables of Visa ® , MasterCard ® , private label and other credit cards, installment loans, lines of credit, insolvency accounts, deficiency balances of various types, legal judgments, trade payables, and other types, all from a variety of receivable owners. These sellers include major banks, credit unions, consumer finance companies, telecommunication providers, retailers, utilities, auto finance companies, student loan companies, and other debt owners. In addition, we make periodic visits to the operating sites of sellers of receivables and attend numerous industry events in an effort to develop account purchase opportunities. We also maintain active relationships with brokers of nonperforming loans.
We purchase accounts from a variety of debt owners. We have acquired portfolios at various price levels, depending on the age of the portfolio, its geographic distribution, our historical experience with a certain asset type or credit grantor and similar factors. A typical nonperforming loan portfolio that we acquire in the United States ranges from $1 million to $150 million in face value and contains receivables from diverse geographic locations with average initial individual account balances of $400 to $7,000. Our portfolio purchases outside the United States can vary from these ranges based upon a number of factors.
In the United States, the age of a Core portfolio (the time since the underlying account has been charged-off) is an important factor in determining the value we place on the portfolio. Generally, there is an inverse relationship between the age of a Core portfolio and the price we can pay to purchase the portfolio. This relationship is due to the fact that older Core portfolio receivables typically liquidate at lower rates. The accounts receivables management industry places U.S. Core portfolio receivables into categories depending on the number of collection agencies that have previously attempted to collect on the receivables. Fresh accounts are typically past due 120 to 270 days, charged-off by the credit grantor and are typically sold prior to the seller conducting any post-charge-off collection activity. These accounts typically sell for the highest purchase price. Primary accounts are charged-off, are typically 360 to 450 days past due, and have been previously placed with one contingent fee servicer and receive a lower purchase price. Secondary and tertiary accounts are charged-off, are typically more than 540 days past due, and have been placed with two or three contingent fee servicers and receive even lower purchase prices. We also occasionally purchase portfolios of charged-off accounts previously worked by four or more agencies and these are typically older and receive an even lower price. In Europe we also purchase portfolios of paying, charged-off accounts. Such pools have liquidation results that can have much in common with Insolvency portfolios.
In addition, we purchase portfolios of accounts that are included in certain types of consumer insolvency proceedings. Given our United States focus historically, these insolvency accounts are typically those filed under Chapter 13 of the U.S. Bankruptcy Code and have an associated payment plan that generally ranges from 3 to 5 years in duration. We purchase portfolios of insolvency accounts in both forward flow and spot transactions and, consequently, they can be at any age in the bankruptcy plan life cycle.

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Non-U.S. Insolvency accounts may have some slight differences, but will generally operate similarly. In Canada, we purchase Consumer Proposal, Consumer Credit Counseling and Bankrupt Accounts. In the United Kingdom, we purchase IVAs, Company Voluntary Arrangements, Trust Deeds and Bankrupt Accounts. In Germany, we acquire consumer bankruptcies which may also consist of small business loans with a personal guarantee.
We also review the geographic distribution of accounts within a portfolio because we have found that state-specific laws and rules can have an effect on the collectability of accounts located there. In addition, economic factors and bankruptcy trends vary regionally and are factored into our purchase price equation.
Purchasing Process
We acquire portfolios from debt owners through auctions and negotiated sales. In an auction process, the seller will assemble a portfolio of receivables and will seek purchase prices from specifically invited potential purchasers. In a privately negotiated sale process, the debt owner will contact one or more purchasers directly, receive a bid, and negotiate the terms of sale. In either case, typically, invited purchasers will have already successfully completed a qualification process that can include the owner's reviews of any or all of the following: the purchaser's experience, reputation, financial standing, operating procedures, business practices, and compliance oversight.
We also acquire accounts through forward flow contracts. Under a forward flow contract we agree to purchase nonperforming loans from a debt owner on a periodic basis, at a price equal to a set percentage of face value of the receivables over a specified time period, generally from three to twelve months. These agreements often contain a requirement that the attributes and selection criteria of the receivables to be sold will not significantly change each month. If this requirement is not adhered to, the contract will typically allow for the correction of any material file deficiencies by the seller or other appropriate remedies as mutually agreed upon. Forward flow contracts provide debt owners with a predictable source of value for nonperforming loans and provide the debt purchaser with a steady and reliable source of receivables for its collection operation.
In a typical U.S. and Canadian Core portfolio sale transaction, after signing a non-disclosure agreement, a debt owner distributes a computer data file containing ten to fifteen essential data fields on each account in the portfolio offered for sale. Such fields typically include, but are not limited to, the customer's name, address, outstanding balance, date of charge-off, date and amount of last payment and the date the account was opened. Customer information may be masked or altogether excluded from the pricing file provided by the seller. Additionally, we typically receive a survey from the debt owner, which describes the origination, servicing, and collection history of the accounts selected for sale. We may also receive representative samples of account documentation for review, to include statements, account agreements, promissory notes, and other documents, as applicable. We perform our data due diligence on the portfolio by electronically checking the data, provided to us through secured delivery, using proprietary data quality algorithms, and when possible, cross-check the data against the accounts in our owned portfolio database. We compile a variety of portfolio level reports, examining all available data. In certain markets, we will also perform on-site due diligence at the debt owner's operation.
In order to determine a purchase price for a Core portfolio in the United States, we generally use two separate internally developed computer models. We analyze the portfolio using our proprietary multiple linear regression model, which analyzes the accounts of the portfolio using predictive variables and projects a portfolio liquidation rate. We also analyze the portfolio as a whole using an adjustment model, which is used in combination with a cash flow model that utilizes our collections results from similar portfolios we have previously purchased. We supplement the adjustment model with qualitative background information about the origination, servicing and collection history of the portfolio. Finally, we may employ a model that creates statistically similar portfolios from our existing accounts across our purchased inventory and develops estimated collection curves that are used in our price modeling. From these models we derive our quantitative projections which are used to help price transactions. The multiple linear regression model is also used to prioritize collection work efforts subsequent to purchase. With respect to prospective forward flow contracts and other long-term relationships, we obtain a representative file that we use to determine the price of the forward flow arrangement. Then each month during the flow term, we receive the actual sale file to be funded, and compare it to the representative file noted above to determine if the delivered file meets the file quality standards established by the initial pricing file. This process allows us to confirm that the accounts we are purchasing are materially consistent with those we agreed to purchase under the forward flow contract. When purchasing insolvency receivables, we follow a similar analytical process but utilize completely separate, specifically designed pricing models.
In order to determine a purchase price for a Core portfolio in Europe, we use a combination of models. One is a reference model that utilizes actual collections and cost experience yielded from other comparable portfolios previously acquired within the same country as the portfolio being considered for purchase. Other models utilize data from our data warehouse and employ statistical approaches to project the likelihood and amount of receiving payments over the economic life of the portfolio being considered. Models that use decay and amortization approaches can also be employed, depending on the portfolio. When available, external data sources are utilized to enhance underwriting accuracy. As in the United States, quantitative projections of collections

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and costs are adjusted based upon qualitative background information we collect that describes the origination, servicing and collection history of the portfolio.
We maintain a detailed static pool profile for each portfolio that we have acquired, capturing demographic data and revenue and expense items for further analysis. We use our static pool analysis to refine the underwriting models that we use to price future portfolio purchases. The results of the static pool analysis are input back into our models, increasing the accuracy of the models as the data set increases with every portfolio purchase and each day's collection efforts. We generally do not sell our purchased receivables, but rather we work them over the long-term, enhancing our knowledge of a pool's long-term performance.
The quantitative and qualitative data derived in our due diligence process is evaluated, considering both any subjective factors about the portfolio or the debt owner and our knowledge of the current nonperforming loan market. A portfolio acquisition approval memorandum is then prepared for each prospective portfolio before a binding purchase price is submitted to the debt owner. This approval memorandum, which outlines the portfolio's anticipated collectability, costs, returns, risks, and purchase structure, is distributed to members of an Investment Committee, which varies depending on the country. The approval by the Investment Committee sets a maximum purchase price for the portfolio.
Once a portfolio purchase has been approved by the applicable Investment Committee and the terms of the sale have been agreed to with the debt owner, the acquisition is documented in an agreement that contains mutually agreeable terms and conditions. Provisions are typically incorporated for disputed, fraudulent, deceased, bankrupt (in the case of Core portfolio purchases), or other ineligible accounts and the debt owner typically either agrees to repurchase these accounts or replace them with acceptable replacement accounts within certain time frames.
Owned-Portfolio Collection Operations
Call Center Operations
In higher volume markets our collection efforts leverage call centers. In some newer markets or in markets that have less consistent debt purchasing patterns, most notably outside the United States, we may utilize external vendors to do some or all of this work. Whether the accounts are being worked internally or externally we utilize our analysis to proportionally direct work efforts to those customers most likely to pay. The analysis driving those decisions relies on various models, and variables that have the highest correlation to profitable collection call activity.
The collectability forecast for a newly acquired portfolio will help determine our initial collection strategy. Accounts that are initially determined to have the highest predicted collection probability will be worked with greater efforts. Less collectible accounts may be set aside to be worked with less frequency or with lower cost methods. After owning an account for a month we begin reassessing the collectability based on a set of observed account characteristics and behaviors. Some accounts may be worked using a letter and/or settlement strategy.
On the initial contact call, a customer is given a standardized presentation on resolving his or her account with us. During this call, emphasis is placed on determining the reason for the customer's default to better assess the customer's situation and create a plan for repayment. The collectors work to obtain a repayment plan that is appropriate to the customer's ability to make a repayment. At times, when determined to be appropriate, and in many cases with management approval, a reduced lump-sum settlement may be agreed upon.
If a collector or an external vendor is unable to establish contact with a customer based on information received or stored, the systems generally will supplement the account information by leveraging a series of automated skip tracing procedures. Skip tracing is the process of developing new phone, address, job or asset information on a customer, or verifying the accuracy of such information.
Legal Recovery – Core Portfolios
An important component of our collections effort involves our legal recovery department and the judicial collection of accounts of customers who we believe have the ability, but not the willingness, to resolve their obligations. There are some markets in which the collection process follows a prescribed time-sensitive and sequential set of legal actions, but in the majority of instances we use models and analysis and select those accounts reflecting a high propensity to pay in a legal environment. Depending on the balance of the receivable and the applicable local collection laws, we determine whether to commence legal action to judicially collect on the receivable. The legal process can take an extended period of time and can be costly, but it also generates net cash collections that likely would not have been realized otherwise.
We use a combination of internal staff (attorney and support), as well as external attorneys, to pursue legal collections under certain circumstances. Over the past several years we have focused on developing our internal legal collection capability. Throughout

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our markets, we have the capability to initiate lawsuits in amounts up to the jurisdictional limits of the respective courts. Our legal recovery department, using external vendors, also collects claims where appropriate against estates in cases involving deceased debtors having assets at the time of death. Our legal recovery department oversees our internal legal collections and coordinates nationwide collections attorney networks which are responsible for the preparation and filing of judicial collection proceedings in multiple jurisdictions, determining the suit criteria, and instituting wage garnishments to satisfy judgments. Our external law firms usually work on a contingent fee basis.
Insolvency Operations
Insolvency Operations in the United States manages customer filings under the U.S. Bankruptcy Code on debtor accounts derived from three sources; (1) our purchased pools of bankrupt accounts, (2) our Core purchased pools of charged-off accounts that have filed for bankruptcy or insolvency protection after being acquired by us, and (3) our third-party servicing client relationships. On PRA Group owned accounts, we file proofs of claim ("POCs") or claim transfers and actively manage these accounts through the entire life cycle of the insolvency proceeding in order to substantiate our claims and ensure that we participate in any distributions to creditors. On accounts managed under a third-party relationship, we work on either a full service contingency fee basis or a menu style fee-for-service basis.
We developed our proprietary Bankruptcy Management System ("BMS") as a highly secured, access controlled platform for providing bankruptcy notification services, filing POCs and claim transfers, managing documents, administering our case load, posting and reconciling payments and providing customized reports. BMS is a robust system designed to manage claims processing and case management in a high-volume, compliance-sensitive environment. The system is highly flexible and its capacity is easily expanded. Daily processing volumes are managed to meet individual bar dates associated with each bankruptcy case and specific client turnaround times. BMS and its underlying business rules were developed with emphasis first on minimizing risks through strict compliance to the bankruptcy code and applicable laws, rules and regulation, and then on maximizing recoveries from electronic claim filing and strategic case administration.
Each of our insolvency operations employees goes through an entry-level training program to familiarize them with BMS and the bankruptcy process, including a general overview of how we interact with the courts, debtors' attorneys and trustees. We also use a tiered process of cross training designed to familiarize advancing employees with a variety of operational assignments and analytical tasks. For example, we utilize specially trained employees to perform advanced data matching and analytics for clients, while others are tasked with resolving various case matters directly with attorneys and trustees.
Our global insolvency business operates under the name Insolvency Investment Services. Non-U.S. insolvency operations involve relationships with third-party servicing organizations that are well established in their specific market. We closely monitor and manage these relationships, which include regular audits to verify compliance with PRA Group requirements, as well as local laws and regulations.
Fee-for-Service Businesses
Through our subsidiaries, we provide fee-based services, including vehicle location, skip tracing and collateral recovery services for auto lenders, governments and law enforcement via PRA Location Services, LLC ("PLS"); revenue administration, audit, and discovery/recovery services for government entities through PRA Government Services, LLC and MuniServices, LLC, (collectively "PGS"); class action claims recovery services and related payment processing through Claims Compensation Bureau, LLC ("CCB") and contingent collection of finance receivables through PRA Group Europe ("PRA Europe").
PLS, through call center operations, performs national skip tracing, asset location and collateral recovery services, principally for auto finance companies, for a fee. In addition, PLS locates clients' inventories for a fee with a fleet of cars equipped with license plate recognition cameras. The amount of fee earned is generally dependent on several different outcomes: whether the debtor was found and a resolution on the account occurred, if the collateral was repossessed or if payment was made by the debtor to the debt owner.
PGS primarily derives its revenue from servicing taxing authorities in several different ways, including processing their tax payments and tax forms, collecting delinquent taxes, identifying taxes that are not being paid and auditing tax payments. The processing and collection services are standard commission-based billings or fee-for-service transactions. When audits are conducted, there are two components. The first is a charge for the hours incurred on conducting the audit, based on a contractual billing rate. The gross billing amount based on the aforementioned billing rate is a component of the line item "Fee income" while the salary expense is included in the line item "Compensation and employee services." The second item is for expenses incurred while conducting the audit. Most jurisdictions will reimburse us for direct expenses incurred for the audit including such items as travel and meals. The billed amounts are included in the line item "Fee income" and the expense component is included in its appropriate expense category, generally, "Other operating expenses."

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CCB derives its revenue from filing anti-trust and securities class action claims on behalf of institutional investors, retailers, manufacturers, and other businesses. CCB's process allows clients to maximize settlement recoveries, in many cases participating in settlements they would otherwise not know existed. CCB charges fees for its services and works with clients to identify, prepare and submit claims to class action administrators charged with disbursing class action settlement funds. In addition, we purchase the rights to existing and future class action claims identified by CCB.
PRA Europe contributes to the fee-for-service business through its servicing of finance receivables on a contingent fee basis. These receivables are owned by our clients and placed under a contingent fee commission arrangement. PRA Europe is paid to collect funds from the client's debtors and earns a commission generally expressed as a percentage of the gross cash collections amount. This portion of the "Fee income" line of our income statement reflects the contingent fee amount earned, and not the gross collection amount.
Competition
We face competition in both of the markets we serve: receivables purchasing and collecting, and fee-for-service receivables management. Purchased portfolio competition comes from both third-party contingent fee collection agencies and other purchasers of debt that manage their own nonperforming loans or outsource such servicing. Fee-for-service competition comes from new and existing providers of outsourced receivables management services. Many debt owners have become more cautious recently, preferring to sell to experienced portfolio purchasers that maintain compliance with all applicable regulations. This trend effectively constitutes significant barriers to successful entry for new competitors. While both markets remain competitive, the contingent fee industry is more fragmented than the purchased portfolio industry.
We face bidding competition in our acquisition of nonperforming loans and in obtaining placements for our fee-for-service businesses. We also compete on the basis of reputation, industry experience and performance. Among the positive factors which we believe influence our ability to compete effectively in this market are our ability to bid on portfolios at appropriate prices, our reputation from previous portfolio purchase transactions regarding our ability to close transactions in a timely fashion, our relationships with grantors of receivables, our team of well-trained collectors who provide quality customer service while complying with applicable collection laws, and our ability to efficiently and effectively collect on various asset types. Competitors that have a substantially greater number of personnel; financial and other resources; greater adaptability to changing market needs; or more established relationships in our industry than we currently have, could influence our ability to compete effectively.
Information Technology
The information and technology resources of PRA Group support our global businesses through compliant, secure and customer-focused solutions. Continuous review and improvement of our platforms and services ensure that proprietary and third-party solutions are aligned with a customer oriented business strategy.
Through collaboration with technology and industry leaders our information technology teams have developed a responsive roadmap structured to meet the needs of the unique businesses that make up PRA Group.
Protecting customer information is a fundamental aspect of our application development and ongoing technology operations. We employ security focused strategies in the development and delivery of systems supporting our global businesses.
Our Virginia headquarters has two separate telecommunication feeds, uninterruptible power supplies and natural gas and diesel generators, all of which provide a level of redundancy should a power outage or interruption occur. We have generators installed at each of our domestic call centers, as well as some of our subsidiary locations in the United States. The configuration of our locally distributed call control systems provides enterprise-wide call and data distribution between our call centers for efficient portfolio collection and business operations. In addition to data replication between the sites, backups of both software and databases are performed on a daily basis. We employ rigorous physical and electronic security to protect our data. Our call centers have restricted card key access and appropriate additional physical security measures. Electronic protections include data encryption, firewalls and multi-level access controls.
As PRA Group continues to grow, our information and technology work will remain focused on the evaluation of partnerships, products and services that provide quality, secure, scalable solutions to further position us as a global industry leader.
Employees
As of December 31, 2015 , we employed 3,799 persons on a full-time basis in the Americas and Europe. We believe that our relations with our employees are generally satisfactory. While none of our North American employees are represented by a union or covered by a collective bargaining agreement, in Europe we work closely with a number of Works Councils, and in countries where it is the customary local practice, such as Finland and Spain, we have collective bargaining agreements.

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Office of General Counsel
Our Office of General Counsel provides legal evaluation and guidance to all business units across the entire enterprise and manages general corporate governance; litigation; insurance; corporate and commercial transactions; intellectual property; contract and document preparation and review; compliance with federal securities laws and other applicable regulations and statutes; business acquisitions; and dispute and complaint resolution. Our Office of General Counsel also partners with other risk management functions such as Compliance and Corporate Audit Services.
Compliance
Our Code of Ethics is available at the Investor Relations page of our website at www.pragroup.com . We have implemented company-wide compliance training for our employees and directors, ethics training and annual compliance testing. In addition, we have established a confidential telephone hotline and email and web-based portals to report suspected policy violations, fraud, embezzlement, deception in record keeping and reporting, accounting, auditing matters and other acts which are inappropriate, criminal and/or unethical. Our Chief Compliance Officer is a direct report to the Chief Executive Officer ("CEO") and reports to the Compliance Committee of the Board of Directors. Our compliance department regularly tests controls embedded in business processes designed to provide for compliance with laws, regulations and internal policy. These practices of regular internal monitoring and testing assist in identifying compliance risks and detecting and preventing deviations from policy. So that our employees may carry out their job responsibilities in a compliant way, our Office of General Counsel continuously evaluates the legislative and regulatory environment and provides our operations personnel and our training department with summaries and updates on statutory and regulatory changes and relevant case law, so that they are aware of and in compliance with the laws and judicial decisions that may impact their job duties. The Office of General Counsel also works with business units to pro-actively adjust our practices as needed, and advises employees on compliance with the laws and regulations that govern the various industries and markets within which the Company operates.
Regulation
We are subject to a variety of federal, state, local, and foreign statutes that establish specific guidelines and procedures which debt collectors must follow when collecting customer accounts, including domestic and foreign laws relating to the collection, use, retention, security and transfer of personal information. It is our policy to comply with the provisions of all applicable federal laws and corresponding state and local statutes in all of our activities; however, these laws continue to develop and may be inconsistent from jurisdiction to jurisdiction, and inconsistent in their interpretation. Our failure to comply with these laws could have an adverse effect on us in the event and to the extent that they apply to some or all of our activities. Federal, state, local, and foreign consumer protection, privacy and related laws and regulations extensively regulate the relationship between debt collectors and debtors, and the relationship between customers and credit card issuers. Significant laws and regulations applicable to our business include the following:
Fair Debt Collection Practices Act. The U.S. Fair Credit Debt Collection Practices Act ("FDCPA") imposes certain obligations and restrictions on the practices of debt collectors, including specific restrictions regarding communications with customers, including the time, place and manner of the communications. This act also gives consumers certain rights, including the right to dispute the validity of their obligations and a right to sue debt collectors who fail to comply with its provisions, including the right to recover their attorney fees.
Fair Credit Reporting Act. The U.S. Fair Credit Reporting Act ("FCRA") places certain requirements on credit information providers regarding the verification of the accuracy of information provided to credit reporting agencies and investigating consumer disputes concerning the accuracy of such information. We provide information concerning our accounts to the three major credit reporting agencies, and it is our practice to correctly report this information and to investigate credit reporting disputes. The Fair and Accurate Credit Transactions Act amended the Fair Credit Reporting Act to include additional duties applicable to data furnishers with respect to information in the consumer's credit file that the consumer identifies as resulting from identity theft, and requires that data furnishers have procedures in place to prevent such information from being furnished to credit reporting agencies.
Gramm-Leach-Bliley Act. The U.S. Gramm-Leach Bliley Act requires that certain financial institutions, including collection agencies, develop policies to protect the privacy of consumers' private financial information and provide notices to consumers advising them of their privacy policies. This act also requires that if private personal information concerning a consumer is shared with another unrelated institution, the consumer must be given an opportunity to opt out of having such information shared. Since we do not share consumer information with non-related entities, except as required by law, or except as needed to collect on receivables, our consumers are not entitled to any opt-out rights under this act. This act is enforced by the U.S. Federal Trade Commission (the "FTC"), which has retained exclusive jurisdiction over its enforcement, and does not afford a private cause of action to consumers who may wish to pursue legal action against a financial institution for violations of this act.

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Electronic Funds Transfer Act. The U.S. Electronic Funds Transfer Act regulates the use of the Automated Clearing House ("ACH") system to make electronic funds transfers. All ACH transactions must comply with the rules of the National Automated Check Clearing House Association ("NACHA") and Uniform Commercial Code §3-402. This act, the NACHA regulations and the Uniform Commercial Code give the consumer, among other things, certain privacy rights with respect to electronic fund transfer transactions, the right to stop payments on a pre-approved fund transfer, and the right to receive certain documentation of the transaction. This act also gives consumers a right to sue institutions which cause financial damages as a result of their failure to comply with its provisions.
Telephone Consumer Protection Act. In the process of collecting accounts, we use a variety of methods to communicate with our customers. This U.S. act and similar state laws place certain restrictions on users of certain automated dialing equipment and pre-recorded messages that place telephone calls to consumers.
Servicemembers Civil Relief Act. The Soldiers' and Sailors' Civil Relief Act of 1940 was amended in December 2003 as the Servicemembers Civil Relief Act ("SCRA"). The SCRA gives U.S. military service personnel relief from credit obligations they may have incurred prior to entering military service, and may also apply in certain circumstances to obligations and liabilities incurred by a servicemember while serving on active duty. The SCRA prohibits creditors from taking specified actions to collect the nonperforming loans of servicemembers. The SCRA impacts many different types of credit obligations, including installment contracts and court proceedings, and tolls the statute of limitations during the time that the servicemember is engaged in active military service. The SCRA also places a cap on interest bearing obligations of servicemembers to an amount not greater than 6% per year, inclusive of all related charges and fees.
Health Insurance Portability and Accountability Act. The Health Insurance Portability and Accountability Act ("HIPAA") provides standards to protect the confidentiality of patients' personal healthcare and financial information in the United States. Pursuant to HIPAA, business associates of health care providers, such as agencies which collect healthcare receivables, must comply with certain privacy and security standards established by HIPAA to ensure that the information provided will be safeguarded from misuse. This act is enforced by the Department of Health and Human Services and does not afford a private cause of action to consumers who may wish to pursue legal action against an institution for violations of this act.
U.S. Bankruptcy Code. In order to prevent any collection activity with bankrupt debtors by creditors and collection agencies, the U.S. Bankruptcy Code provides for an automatic stay, which prohibits certain contacts with consumers after the filing of bankruptcy petitions. The U.S. Bankruptcy Code also dictates what types of claims will or will not be allowed in a bankruptcy proceeding and how such claims may be discharged.
Americans with Disabilities Act. The Americans with Disabilities Act ("ADA"), signed into law in 1990, mandates equal treatment for people with disabilities in the United States. More specifically, the ADA requires that telecommunications companies operating in the United States take steps to ensure functionally equivalent services are available for their consumers with disabilities, and requires accommodation of consumers with disabilities, such as the implementation of telecommunications relay services.
Dodd-Frank Wall Street Reform and Consumer Protection Act . On July 21, 2010 the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") became law, and along with it, the Unfair, Deceptive, or Abusive Acts or Practices ("UDAAP") provisions included therein. The Dodd-Frank Act restructured the regulation and supervision of the financial services industry in the United States and created the CFPB, with rulemaking, supervisory, and enforcement authority over larger consumer debt collectors. The Dodd-Frank Act also provides for the CFPB to have the authority to adopt rules describing specified acts and practices as being "unfair," "deceptive," or "abusive," and hence unlawful. Additional prohibitions against unfair or deceptive acts or practices are included in Sec. 5 of the Federal Trade Commission Act, under which the Federal Trade Commission is empowered, among other things, to seek monetary redress and other relief for conduct considered injurious to consumers, prescribe rules defining acts or practices that are unfair or deceptive and conduct investigations relating to business practices.
U.S. Foreign Corrupt Practices Act, United Kingdom Bribery Act and Other Applicable Legislation . Our operations outside the United States are subject to the U.S. Foreign Corrupt Practices Act ("FCPA"), which prohibits United States companies and their agents and employees from providing anything of value to a foreign official for the purposes of influencing any act or decision of these individuals in order to obtain an unfair advantage, to help, obtain or retain business. Violations of these laws and related rules and regulations can result in the imposition of significant civil and criminal fines, penalties and sanctions.
The U.S. Congress and several states have enacted legislation concerning identity theft. Additional domestic and foreign consumer protection and privacy protection laws may be enacted relating to credit card or installment accounts.
Our United Kingdom subsidiaries are subject to regulatory oversight by the Financial Services Authority ("FSA") under the Financial Services and Markets Act 2000. In April 2013, the FSA was split into a new Prudential Regulatory Authority and the Financial Conduct Authority ("FCA"). In April 2014, the FCA took over regulation of the United Kingdom consumer credit regime previously regulated by the Office of Fair Trading. We must also comply with the provisions of the Data Protection Act of 1998,

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authorization, notification and reporting requirements specific to our operations in the United Kingdom, and in Canada, the Personal Information Protection and Electronic Documents Act.
Under the United Kingdom's consumer credit regime, the requirements for entering into, and ongoing management of, consumer credit agreements are included in the Consumer Credit Act 1974 (and its related regulations), the Unfair Terms in Consumer Contracts Regulations of 1999 and the FCA's consumer credit conduct of business rules. Failure to comply with the Consumer Credit Act 1974 and the Unfair Terms in Consumer Contracts Regulations of 1999 can make agreements (or particular unfair terms contained within agreements) unenforceable or can result in a requirement that charged and collected interest be repaid. The failure to comply with the FCA's consumer credit conduct of business rules can result in enforcement action being taken against us. In addition, a debt owner under a regulated consumer credit agreement who is a private person may have a right of action against us where it has suffered a loss as a result of our failure to comply with such rules.
In addition to the regulations on debt collection and debt purchase activities, we must comply with requirements established by the United Kingdom Data Protection Act of 1998 in relation to processing the personal data of its consumers and similar national legislation in other European countries. Similarly, the European Union's (the "EU") Data Protection Directive regulates the processing and free movement of personal data within the EU and transfer of such data outside the EU.
Various domestic and foreign legislative or regulatory bodies may enact new or additional laws and regulations, including those concerning privacy, data-retention and data-protection issues. Any new laws, rules or regulations that may be adopted, as well as existing consumer protection and privacy protection laws, may adversely affect our ability to recover the receivables. In addition, our failure to comply with these requirements could result in damage awards, fines, criminal actions, sanctions, or penalties against us, our officers or our employees, prohibitions on the conduct of our business, damage to our reputation and adverse effects on our ability to enforce the receivables.
Additionally, there are some state statutes and regulations comparable to the above federal laws, and specific licensing requirements which affect our operations. State laws may also limit credit account interest rates and fees, as well as limit the time frame in which judicial and non-judicial actions may be undertaken.
Some of the following United States laws, which apply principally to credit grantors, may also affect our operations to some extent:
Truth in Lending Act;
Fair Credit Billing Act; and
Equal Credit Opportunity Act.
United States federal laws which regulate credit grantors require, among other things, that credit card issuers disclose to consumers the interest rates, fees, grace periods and balance calculation methods associated with their credit card accounts. Consumers are entitled under current laws to have payments and credits applied to their accounts promptly, to receive prescribed notices and to require billing errors to be resolved promptly. Some laws prohibit discriminatory practices in connection with the extension of credit. Federal statutes further provide that, in some cases, consumers cannot be held liable for, or their liability is limited with respect to, charges to the credit card account that were a result of an unauthorized use of the credit card. These laws, among others, may give consumers a legal cause of action against us, or may limit our ability to recover amounts owing with respect to the receivables, whether or not we committed any wrongful act or omission in connection with the account. If the credit grantor fails to comply with applicable statutes, rules and regulations, it could create claims and rights for consumers that could reduce or eliminate their obligations to repay the account and have a possible adverse effect on us. Accordingly, when we acquire nonperforming loans, typically we contractually require credit grantors to indemnify us against any losses caused by their failure to comply with applicable statutes, rules and regulations relating to the receivables before they are sold to us.
The U.S. Congress and several states have enacted legislation concerning identity theft. Additional consumer protection and privacy protection laws may be enacted domestically or in foreign jurisdictions that would impose additional requirements on the enforcement of and recovery on consumer credit card or installment accounts. As a purchaser of nonperforming loans, we may acquire receivables subject to legitimate defenses on the part of the consumer. Typically our account purchase contracts allow us to return to the debt owners certain receivables that may not be collectible, due to these and other circumstances. Upon return, the debt owners are required to compensate us or replace the receivables with similar receivables or repurchase the receivables. These provisions limit to some extent our losses on such accounts.
In addition to our obligation to comply with applicable federal, state and local laws and regulations in the jurisdictions in which we operate, we are also obligated to comply with judicial decisions reached in court cases involving legislation passed by any such governmental bodies. Specifically, in accordance with the CRD IV, the Swedish Banking and Financing Business Act and the Supervision of Credit and Investment Institutions Act, certain of our EU subsidiaries are subject to capital adequacy and liquidity requirements as prescribed by the Swedish Financial Supervisory Authority ("SFSA"). As part of our acquisition of Aktiv,

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the SFSA made an initial determination that these requirements would apply to our European business on a consolidated basis because they are included in a group that includes an entity which has been determined to be an EU authorized credit institution (AK Nordic AB). If the SFSA affirms this position, our European operations could be subject to SFSA's prudential supervision of our consolidated regulatory capital requirements and certain other applicable provisions.
Item 1A. Risk Factors .
An investment in our Company involves risk, including the possibility that the value of the investment could fall substantially. The following are risks that could materially affect our financial results and condition, and the value of, and return on, an investment in our Company.
Risks related to our operations and industry
A prolonged economic recovery or deterioration in the economic or inflationary environment in North America or Europe may have an adverse effect on our results of operations.
Our performance may be affected by economic or inflationary conditions in any market in which we operate. Economic conditions may be impacted by domestic conditions or by global political and economic conditions such as the sovereign debt crises experienced in several European countries and the uncertainty on the future of the European Union. Deterioration in economic conditions, a prolonged economic recovery, or a significant rise in inflation could cause personal bankruptcy and insolvency filings to increase, and the ability of consumers to pay their debts could be adversely affected. This may in turn adversely impact our financial results. Deteriorating economic conditions or a prolonged recovery could also adversely impact the businesses and governmental entities to which we provide fee-based services, which could reduce our fee income and cash flow.
If global credit market conditions and the stability of global banks deteriorate, it could negatively impact the generation of comprehensive receivable buying opportunities and our business, financial performance, and ability to succeed in foreign markets could be adversely affected. If conditions in major credit markets deteriorate, the amount of consumer or commercial lending and financing could be reduced, thus decreasing the amount of potentially purchasable defaulted receivables which we depend on for our operations.
Other factors associated with the economy that could influence our performance include the financial stability of the lenders on our line of credit and our access to capital and credit. The financial turmoil which affected the banking system and financial markets in recent years resulted in a tightening in the credit markets. There could be a number of follow-on effects from the financial turmoil on our business, including a decrease in the value of our financial investments and the insolvency of lending institutions, including the lenders on our line of credit, resulting in our difficulty in or inability to obtain credit. These and other economic factors could have an adverse effect on our financial condition and results of operations.
We may not be able to continually replace our defaulted receivables with additional receivables portfolios sufficient to operate efficiently and profitably, and/or we may not be able to purchase defaulted receivables at appropriate prices.
To operate profitably, we must acquire and service a sufficient amount of defaulted receivables to generate revenue that exceeds our expenses. Fixed costs such as salaries and other compensation expense constitute a significant portion of our overhead and, if we do not replace the defaulted receivables portfolios we service with additional portfolios, we may have to reduce the number of our collection personnel. We would then have to rehire collection staff if we subsequently obtain additional defaulted receivables portfolios. These practices could lead to:
low employee morale;
fewer experienced employees;
higher training costs;
disruptions in our operations;
loss of efficiency; and
excess costs associated with unused space in our facilities.
The availability of receivables portfolios at prices which generate an appropriate return on our investment depends on a number of factors both within and outside of our control, including the following:
the continuation of high levels of consumer debt obligations;
sales of defaulted receivables portfolios by debt owners; and
competitive factors affecting potential purchasers and credit grantors of receivables.
Furthermore, heightened regulation of the credit card and consumer lending industry or changing credit origination strategies may result in decreased availability of credit to consumers, potentially leading to a future reduction in defaulted consumer

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receivables available for purchase from debt owners. We cannot predict how our ability to identify and purchase receivables and the quality of those receivables would be affected if there were a shift in consumer lending practices, whether caused by changes in the regulations or accounting practices applicable to debt owners, a sustained economic downturn or otherwise.
Moreover, there can be no assurance that debt owners will continue to sell their defaulted receivables at recent levels or at all, or that we will be able to continue to offer competitive bids for defaulted receivables portfolios. Because of the length of time involved in collecting defaulted receivables on acquired portfolios and the variability in the timing of our collections, we may not be able to identify trends and make changes in our purchasing strategies in a timely manner. If we are unable to expand our business or adapt to changing market needs as well as our current or future competitors, we may experience reduced access to defaulted receivables portfolios at appropriate prices and reduced profitability.
Currently, a number of large banks that historically sold defaulted consumer debt in the United States are out of the debt sale market. This includes sellers of bankrupt accounts, some of whom feel that regulatory guidance concerning sales of bankruptcy accounts has been ambiguous. Should these conditions worsen, it could negatively impact our ability to replace our receivables with additional portfolios sufficient to operate profitably.
We utilize third-party vendors for many services, including the judicial collection of certain accounts. Should they fail to adhere to regulatory requirements, it could negatively impact our business.
We depend on third-party vendors for a wide array of services, systems and applications, including the collection of accounts through the legal channel. If one of our vendors fails to adhere to applicable regulatory requirements, their failure could negatively impact our business and could subject us to litigation and regulatory risk. Management implemented a formal vendor management governance program in 2014 which outlines certain processes intended to mitigate risks involved with third-party vendors. These processes include but are not limited to due diligence and risk assessment for material vendors; specific contractual requirements, ongoing oversight of our vendors and vendor performance reporting. Some of our service providers are subject to the CFPB's supervisory and enforcement authority, which includes on-site examination of their operations and the CFPB's authority to make findings of unfair, deceptive or abusive acts or practices. Violations of federal consumer financial protection laws by our service providers could result in our legal responsibility for their actions.
A portion of our collections depends on success in individual lawsuits. Additionally, in pursuing legal collections, we may be unable to obtain accurate and authentic account documents for accounts that we purchase, and despite our quality control measures, we cannot be certain that all of the documents we provide are error free.
A portion of our collections on accounts is achieved through the legal channel. Accordingly, a percentage of our future collections is dependent on success in individual lawsuits, and a portion of those are dependent on the success of third-party attorney firms. In addition, when we collect accounts judicially, certain legal and regulatory requirements, as well as courts in certain jurisdictions require that a copy of certain account documents be attached to the pleadings in order to obtain a judgment against the account debtors. If we are unable to produce accurate and authentic account documents, these courts will deny our claims. We rely on the debt owners that we purchase from to fulfill their contractual obligations, and if applicable, to provide account documents to us in an accurate and timely fashion. Our inability to obtain these documents from the debt owners may negatively impact the liquidation rate on such accounts that are subject to judicial collections. Additionally, our ability to collect non-judicially may be negatively impacted by orders, laws or regulations which require that certain types of account documentation be in our possession prior to the institution of any collection activities.
We may not be able to collect sufficient amounts on our defaulted receivables to fund our operations.
Our principal business consists of acquiring and liquidating receivables that consumers have failed to pay and that the credit grantor has deemed uncollectible and has charged-off. The debt owners have typically made numerous attempts to recover on their defaulted receivables, often using a combination of in-house recovery efforts and third-party collection agencies. These defaulted receivables are difficult to collect and we may not collect a sufficient amount to cover our investment and the costs of running our business.
We may not be successful at acquiring and collecting receivables of new asset types.
We may pursue the acquisition of receivables portfolios of new asset types, and in countries in which we have little current experience. We may not be successful in completing acquisitions of receivables of these asset types or in these countries, and our limited experience in these asset types and in these countries may impair our ability to collect on these receivables. This may cause us to pay too much for these receivables and, consequently, we may not generate a profit from these receivables portfolio acquisitions.

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Our collections may decrease if certain types of insolvency proceedings and bankruptcy filings involving liquidations increase.
Various economic trends and potential changes to existing legislation may contribute to an increase in the amount of personal bankruptcy and insolvency filings. Under certain of these filings a debtor's assets may be sold to repay creditors, but because most of the receivables we collect through our collections operations are unsecured, we typically would not be able to collect on those receivables. Although our insolvency collections business could benefit from an increase in personal bankruptcies and insolvencies, we cannot ensure that our operations collections business would not decline with an increase in personal insolvencies or bankruptcy filings or changes in related regulations or practices. If our actual collection experience with respect to a defaulted or insolvent bankrupt consumer receivables portfolio is significantly lower than the total amount we projected when we purchased the portfolio, our financial condition and results of operations could be adversely impacted.
Increases in insurance costs or limitations in insurance coverage may adversely impact our operations and financial results.
We purchase insurance to cover potential risks and liabilities, including, but not limited to, property and casualty insurance, cyber risk insurance, general liability insurance, directors' and officers' insurance and errors and omissions liability insurance. The premiums that we pay for our insurance coverage may increase significantly, thereby increasing our costs. Also, our insurance does not cover all potential losses, costs or liabilities that we may incur; the successful assertion of one or more large claims against us could exceed available insurance coverage; and some policies may carry high deductibles, limits on liability or exclusions, causing us to self-insure a portion of our liabilities. Additionally, our insurance carriers may in the future decline to provide insurance coverage to us. If we do not have sufficient insurance to cover the full amount of claims against us and we are found liable for a substantial uninsured claim, we could suffer losses and may be forced to expend a significant amount to resolve any uninsurable or uninsured risks.
Our international operations expose us to risks which could harm our business, operating results, and financial condition.
A significant portion of our operations is conducted outside the United States. This could expose us to increased adverse economic and industry conditions which may have a negative impact on our ability to manage our existing operations or pursue alternative strategic transactions, which could have a negative effect on our business, results of operations and financial condition.
The global nature of our acquisitions expands the risks and uncertainties described elsewhere in this section, including the following:
changes in local political, economic, social and labor conditions in the markets in which we operate, including Europe, Brazil and Canada;
foreign exchange controls on currency conversion and the transfer of funds that might prevent us from repatriating cash earned in countries outside the United States in a tax-efficient manner;
currency exchange rate fluctuations, currency restructurings, and hyperinflation or deflation, and our ability to manage these fluctuations through a foreign exchange risk management program;
different employee/employer relationships, laws and regulations and existence of employment tribunals;
laws and regulations imposed by foreign governments, including those relating to governing data security, sharing and transfer;
potentially adverse tax consequences resulting from changes in tax laws in the foreign jurisdictions in which we operate;
logistical, communications and other challenges caused by distance and cultural and language differences, each making it harder to do business in certain jurisdictions;
risks related to crimes, strikes, riots, civil disturbances, terrorist attacks, wars and natural disasters in a variety of new geographical locations;
volatility of global credit markets and the availability of consumer credit and financing in our international markets
uncertainty as to the enforceability of contract and intellectual property rights under local laws;
the potential of forced nationalization of certain industries, or the impact on creditors' rights, consumer disposable income levels, flexibility and availability of consumer credit, and the ability to enforce and collect aged or charged-off debts stemming from foreign governmental actions, whether through austerity or stimulus measures or initiative, intended to control or influence macroeconomic factors such as wages, unemployment, national output or consumption, inflation, investment, credit, finance, taxation or other economic drivers;
rapid changes in government policy, political or civil unrest, acts of terrorism, or threat of international boycotts or United States anti-boycott legislation;
increases in anti-American sentiment and the identification of international acquisitions with American sentiments;
the presence of varying levels of business corruption in international markets and the effect of various anti-corruption and other laws on our foreign operations;

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given our high employee turnover rates, changing labor conditions and long-term trends towards higher wages in developed and emerging international markets as well as the potential impact of union organizing efforts on day-to-day operations and our ability to staff our international operations;
potential damage to our reputation due to non-compliance with foreign and local laws; and
the complexity and necessity of using non-U.S. representatives and consultants.
Any one of these factors could adversely affect our business, results of operations and financial condition.
Exchange rate fluctuations could adversely affect our results of operations and financial position.
We operate internationally, enter into transactions denominated in foreign currencies, and report our financial results in U.S. dollars. As a result, we face exposure to fluctuations in currency exchange rates. Significant fluctuations in exchange rates between the U.S. dollar and foreign currencies or amongst the foreign currencies may adversely affect our net income. We may or may not implement a hedging program related to currency exchange rate fluctuations. Additionally, if implemented, such hedging programs could expose us to additional risks that could adversely affect our results of operations and financial condition.
Goodwill or other intangible asset impairment could negatively impact our net income and stockholders' equity.
We have recorded a significant amount of goodwill as a result of our acquisitions. Goodwill is not amortized, but is tested for impairment at the reporting unit level. Goodwill is required to be tested for impairment annually and between annual tests if events or circumstances indicate that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. There are numerous risks that may cause the fair value of a reporting unit to fall below its carrying amount, which could lead to the recognition of goodwill impairment. These risks include, but are not limited to, adverse changes in macroeconomic conditions, the business climate, or the market for the entity's products or services; significant variances between actual and expected financial results; negative or declining cash flows; lowered expectations of future results; failure to realize anticipated synergies from acquisitions; significant expense increases; a more likely-than-not expectation of selling or disposing all or a portion of a reporting unit; the loss of key personnel; an adverse action or assessment by a regulator; and a sustained decrease in the Company's share price.
Our goodwill impairment testing involves the use of estimates and the exercise of judgment, including judgments regarding expected future business performance and market conditions. Significant changes in our assessment of such factors, including the deterioration of market conditions, could affect our assessment of the fair value of one or more of our reporting units and could result in a goodwill impairment charge in a future period.
Other intangible assets, such as client and customer relationships, non-compete agreements and trademarks, are amortized. Risks such as those that could lead to the recognition of goodwill impairment, could also lead to the recognition of other intangible asset impairment.
Our senior management team is important to our continued success and the loss of one or more members of senior management could negatively affect our operations.
The loss of the services of one or more of our key executive officers or key employees could disrupt our operations. We have employment agreements with our CEO and several of our other senior executives. The current agreements contain non-compete provisions that survive termination of employment. However, these agreements do not and will not assure the continued services of these officers and we cannot ensure that the non-compete provisions will be enforceable. Our success depends on the continued service and performance of our key executive officers, and we cannot guarantee that we will be able to retain those individuals.
Our U.S. work force could become unionized in the future, which could adversely affect the stability of our operations and increase our costs.
Currently, none of our employees in the United States are represented by unions. However, our U.S. employees have the right at any time under the National Labor Relations Act to form or affiliate with a union. If some of our U.S. workforce were to become unionized and the terms of the collective bargaining agreement were significantly different from our current compensation arrangements, it could adversely affect the stability of our work force and increase our costs.
Additional tax obligations, results of tax audits, or unanticipated changes in our effective tax rate could harm our financial results.
We are subject to taxes in the markets in which we operate. Our future effective tax rates could be affected by changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, or changes in tax laws or their interpretation. Recent proposals by the current U.S. administration for fundamental U.S. international tax reform, including without limitation provisions that would limit the ability of U.S. multinationals to defer U.S. taxes on foreign

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income, if enacted, could have a significant adverse impact on our effective tax rate. Any of these changes could have an adverse effect on our profitability. The determination of the worldwide provision for income taxes and other tax liabilities requires significant judgment. Although we believe our estimates are reasonable, the ultimate tax outcome may differ from the amounts recorded in our financial statements and may adversely affect our financial results in the period or periods for which such determination is made.
Our tax filings are subject to audit by domestic and foreign tax authorities. These audits may result in assessments of additional taxes, adjustments to the timing of taxable income or deductions or allocations of income among tax jurisdictions. If any such challenges are made and are not resolved in our favor, they could have an adverse effect on our results of operations and financial condition.
For tax purposes, we utilize the cost recovery method of accounting for our finance receivables. Under the cost recovery method, collections on finance receivables are applied first to principal to reduce the finance receivables to zero before taxable income is recognized. The Internal Revenue Service ("IRS") examined our 2005 through 2012 tax returns and asserted that tax revenue recognition using the cost recovery method does not clearly reflect taxable income. We believe we have sufficient support for the technical merits of our position, and believe cost recovery to be an acceptable tax revenue recognition method for our industry. We received Notices of Deficiency for tax years ended December 31, 2005 through 2012. The proposed deficiencies relate to the cost recovery method of tax accounting for finance receivables. In response to the notices, we filed petitions in the United States Tax Court (the "Tax Court") challenging the deficiency. On July 10, 2015 and July 21, 2015, the IRS filed motions for summary judgment for tax years 2008 through 2012 and 2005 through 2007, respectively. On October 30, 2015, the Tax Court held oral arguments on the IRS motions. On November 12, 2015, the IRS Motions for Summary Judgment were denied. The Tax Court also set this matter for trial, to begin on September 19, 2016. If we are unsuccessful in the Tax Court and any potential appeals, we may ultimately be required to pay the related deferred taxes, and possibly interest and penalties. Any adverse determination on this matter could result in our amending state tax returns for prior years, increasing our taxable income in those states. We file tax returns in multiple state jurisdictions; therefore, any underpayment of state tax will accrue interest in accordance with the respective state statute. Deferred tax liabilities related to this item were $251.7 million at December 31, 2015 . Any adverse determination on this matter could result in our amending state tax returns for prior years, increasing our taxable income in those states. Our estimate of the potential federal and state interest is $91.0 million as of December 31, 2015 . See Note  15 to the Consolidated Financial Statements " Commitments and Contingencies " as included in this Annual Report on Form 10-K for the year ended December 31, 2015 for more information.
For financial reporting purposes, we utilize the interest method of revenue recognition for determining our income recognized on finance receivables, which is based on an analysis of projected cash flows that may prove to be less than anticipated and could lead to reductions in future revenues or the incurrence of allowance charges.
We utilize the interest method to determine income recognized on finance receivables under the guidance of Financial Accounting Standards Board ("FASB") Accounting Standards Codification 310-30, "Loans and Debt Securities Acquired with Deteriorated Credit Quality" ("ASC 310-30"). Under this method, pools of receivables we acquire are modeled upon their projected cash flows. A yield is then established which, when applied to the unamortized purchase price of the receivables, results in the recognition of income at a constant yield relative to the remaining balance in the pool. Each pool is analyzed regularly to assess the actual performance compared to that derived from our models. Under ASC 310-30, rather than lowering the estimated yield if the collection estimates are not received or projected to be received, the carrying value of a pool would be written down to maintain the then current yield and is shown as a reduction in revenue in the consolidated income statements with a corresponding valuation allowance offsetting finance receivables, net, on the consolidated balance sheets. As a result, if the accuracy of the modeling process deteriorates or there is a significant decline in anticipated future cash flows, we could incur reductions in future revenues resulting from additional allowance charges, which could reduce our profitability in a given period.
Our loss contingency accruals may not be adequate to cover actual losses.
We are involved in judicial, regulatory, and arbitration proceedings or investigations concerning matters arising from our business activities. We have adopted reasonable compliance procedures and believe we have meritorious defenses in all material litigation pending against us; however, there can be no assurance as to the ultimate outcome. We establish accruals for potential liability arising from legal proceedings when it is probable that such liability has been incurred and the amount of the loss can be reasonably estimated. We may still incur legal costs for a matter even if we have not accrued a liability. In addition, actual losses may be higher than the amount accrued for a certain matter, or in the aggregate. An unfavorable resolution of a legal proceeding or claim could adversely impact our financial condition, results of operations, or cash flows. For more information, refer to the " Litigation and Regulatory Matters " section of Note 15 to the Consolidated Financial Statements " Commitments and Contingencies " as included in this Annual Report on Form 10-K for the year ended December 31, 2015 .

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Class action suits and other litigation could divert our management's attention from operating our business and increase our expenses.
Grantors, debt purchasers and third-party collection agencies and attorneys in the consumer credit industry are frequently subject to putative class action lawsuits and other litigation. Claims include failure to comply with applicable laws and regulations and improper or deceptive origination and servicing practices. Even when the basis for the litigation is groundless, considerable resources may be needed to respond, and such class action lawsuits or other litigation could adversely affect our results of operations, financial condition and cash flows.
Adverse litigation outcomes could have an adverse effect on our results of operations, cash flows and financial position.
It is likely that legal actions, proceedings and other claims arising out of the collection of nonperforming loans will continue to be filed against us and our debt collection affiliates for the foreseeable future. Victories by plaintiffs in highly publicized cases against us or other debt collection companies may stimulate further claims. A material increase in the number of pending claims could significantly increase our defense costs. In addition, adverse outcomes in pending cases could have adverse effects on our results of operations, financial condition and cash flows, and our ability to prevail in other related litigation. For more information, refer to the "Legal Proceedings" section below.
We rely on our systems, including our telecommunications and computers systems, our employees, significant vendors, and certain failures or disruptions could adversely affect the continuity of our business operations.
We may be subject to disruptions of our operating systems arising from events that are not entirely within our control. Those events may include, for example, terrorist attacks, war and the outcome of war and threats of attacks; computer viruses; electrical or telecommunications outages; natural disasters; computer hacking attacks; malicious employee acts; other intentional destructive human acts; loss or disruption of significant vendors; and disease pandemics. We could be subject to both private and public legal actions if consumer information stored in our systems is lost or misappropriated, as we are subject to extensive laws and regulations concerning the use and safeguarding of this information. Any or all of these occurrences could have an adverse effect on our results of operations and financial condition.
Additionally, our success depends in large part on sophisticated telecommunications and computer systems. The temporary or permanent loss of our computer and telecommunications equipment and software systems, through casualty or operating malfunction, could disrupt our operations. In the normal course of our business, we must record and process significant amounts of data quickly and accurately to access, maintain and expand the databases we use for our collection activities. A failure of our information systems or software and our backup systems would interrupt our business operations and harm our business. Our headquarters are located in a region that is susceptible to hurricane damage, which may increase the risk of disruption of information systems and telephone service for sustained periods.
Further, our business depends heavily on services provided by various local and long distance telephone companies. A significant increase in telephone service costs or any significant interruption in telephone services could reduce our profitability or disrupt our operations and harm our business.
The occurrence of cyber incidents, or a deficiency in our cyber-security, could negatively impact our business by causing a disruption in our operations, a compromise or corruption of our confidential information or damage to our Company's image, all of which could negatively impact our financial results.
A cyber incident is considered to be any adverse event that threatens the confidentiality, integrity or availability of our information resources. More specifically, a cyber incident is an intentional or unintentional event that can include gaining unauthorized access to systems to disrupt operations, corrupt data or steal confidential information. Our business is highly dependent on our ability to process and monitor a large number of transactions across markets and in multiple currencies. As our geographical reach expands, maintaining the security of our systems and infrastructure becomes more significant. Privacy laws in the United States, Europe and elsewhere govern the collection and transmission of personal data. As our reliance on technology has increased, so have the risks posed to our systems, both internal and those we have outsourced. Our three primary risks that could directly result from the occurrence of a cyber incident are operational interruption, damage to our image, and private data exposure. Private data may include customer information, our employees' personally identifiable information, or proprietary business information such as underwriting and collections methodologies. We have implemented solutions, processes, and procedures to help mitigate these risks, but these measures, as well as our organization's increased awareness of our risk of a cyber incident do not guarantee that our financial results will not be negatively impacted by such an incident. Should such a cyber incident occur, we may be required to expend significant additional resources to notify affected consumers, modify our protective measures or to investigate and remediate vulnerabilities or other exposures, and we may be subject to fines, penalties, litigation costs and settlements and financial losses that may not be fully covered by our cyber insurance.

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We serve markets that are highly competitive, and we may be unable to compete with businesses that may have greater resources than us.
We face competition in the markets we serve from new and existing providers of outsourced receivables management services, including other purchasers of defaulted receivables portfolios, contingent fee businesses and debt owners that manage their own defaulted receivables rather than outsourcing them.
We face bidding competition in our acquisition of defaulted receivables and in our placement of fee based receivables, and we also compete on the basis of reputation, industry experience and performance. Some of our current competitors and possible new competitors may have greater financial, personnel and other resources, and greater adaptability to changing market needs. There has been substantial activity in mergers and consolidation of companies in our industry, and efforts by our competitors to gain market share have resulted in significant portfolio pricing pressure. Moreover, our competitors may elect to pay prices that we determine are not reasonable and, in that event, our volume of purchases may be diminished.
We may make business acquisitions that prove unsuccessful or strain or divert our resources.
Through acquisitions, we may enter markets in which we have no or limited experience. Further, acquisitions may place additional constraints on our resources by diverting the attention of our management team from other business concerns. Moreover, any acquisition may result in a potentially dilutive issuance of equity securities or may result in the incurrence of additional debt and amortization expenses of related intangible assets, which could reduce our profitability and harm our business.
We intend to consider additional acquisitions of companies that could complement our business, including the acquisition of entities offering greater access and expertise in other asset types and markets that are related but that we do not currently serve. We may not be able to successfully operate future acquired entities, or integrate these businesses with our own, and we may be unable to maintain our standards, controls and policies.
We may not be able to maintain and manage our growth effectively.
Our strategy is to grow organically and supplement that growth with select acquisitions. We have grown significantly since our formation and we intend to maintain this focus. Our growth places additional demands on our resources and we cannot ensure that we will be able to manage our growth effectively. In order to successfully manage our growth, we may need to:
expand and enhance our administrative infrastructure;
continue to improve our management, financial and information systems and controls; and
recruit, train, manage and retain our employees effectively.
Continued growth could place a strain on our management, operations and financial resources. We cannot ensure that our infrastructure, facilities and personnel will be adequate to support our future operations or to effectively adapt to future growth. If we cannot manage our growth effectively, our results of operations may be adversely affected.
Negative publicity or reputational attacks could damage our reputation and our business.
From time to time there are negative news stories about our industry or company, especially with respect to alleged conduct in collecting debt from customers. Internet sites are maintained where consumers can list their concerns about the activities of debt collectors and seek guidance from other website posters on how to handle the situation. Advertisements by debt relief attorneys and credit counseling centers are becoming more common, adding to the negative attention given to our industry. Negative public opinion about our alleged or actual debt collection practices or about the debt collection industry, including those expressed via television, newspapers, radio, or social media such as blogs, websites or newsletters, regardless of the factual accuracy of the assertions, could adversely impact our stock price and our ability to retain and attract customers and employees and customers may be more reluctant to pay their debts and more likely to pursue legal action against us regardless of whether those actions are warranted. Furthermore, such negative publicity could result in financial institutions reducing or eliminating sales of portfolios to us which would harm our business and negatively impact our financial results.
The sudden collapse of one of the financial institutions in which we are depositors could negatively affect our financial results.
We maintain depository accounts with financial institutions in the Americas and Europe for daily cash flow needs. If one of the financial institutions in which we have significant deposits were to collapse suddenly, we could potentially be unable to retrieve our deposits and therefore incur significant losses relating to the lost deposits in excess of the insured amounts. This could have an adverse effect on our financial results. The International Association of Deposit Insurers, a non-profit organization based in Switzerland, provides guidance for deposit insurance which is provided either publicly or privately by each country in which we hold deposit accounts.

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Risks associated with governmental regulation and laws
Our ability to collect and enforce our finance receivables may be limited under federal, state and foreign laws, regulations and policies.
The businesses conducted by our operating subsidiaries are subject to licensing and regulation by governmental and regulatory bodies in the many jurisdictions in which we operate and conduct our business. Federal and state laws and the laws and regulations of the foreign countries in which we operate may limit our ability to collect and enforce our defaulted consumer receivables regardless of any act or omission on our part. Some laws and regulations applicable to credit issuers may preclude us from collecting on defaulted consumer receivables we purchase if the credit issuer previously failed to comply with applicable laws in generating or servicing those receivables. Collection laws and regulations also directly apply to our business. Such laws and regulations are extensive and subject to change. A variety of federal, state and international laws and regulations govern the collection, use, retention, transmission, sharing and security of consumer data. Additional consumer protection and privacy protection laws may be enacted that would impose additional requirements on the enforcement of and collection on consumer credit receivables, including regulations that are expected to be adopted by the CFPB, and any other laws that U.S. and non-U.S. governments are implementing or considering concerning the regulation and supervision of financial institutions and consumer lending. Any new laws, rules or regulations that may be adopted, as well as existing consumer protection and privacy protection laws, changes in the ways that existing rules or laws are interpreted or enforced and any procedures that may be implemented as a result of regulatory consent orders may adversely affect our ability to collect on our receivables and may harm our business. In addition to the oversight of our industry by the CFPB noted below, other federal, state and local governmental bodies are also considering, and may consider in the future, legislative proposals that would regulate the collection of our receivables. Further, certain tax laws could negatively impact our ability to collect or cause us to incur additional expenses. Although we cannot predict if or how any future legislation would impact our business, our failure to comply with any current or future laws or regulations applicable to us could limit our ability to collect on our receivables, which could reduce our profitability and harm our business.
Our ability to collect on portfolios of bankrupt or insolvent consumer receivables may be impacted by changes in, or interpretations of, laws or changes in the administrative practices of the various courts.
We file claims on consumer receivables in which consumers have filed for insolvency or bankruptcy protection under relevant laws. We receive payments from courts, receivers and liquidators on receivables which became bankrupt after we acquired them, and we also purchase accounts that are currently in bankruptcy or insolvency proceedings. Our ability to collect on portfolios of bankrupt or insolvent receivables may be impacted by changes in, or interpretations of, laws or changes in administrative practices of the various courts.
Failure to comply with existing and new government regulation of the collections industry could result in penalties, fines, litigation, damage to our reputation or the suspension or termination of our ability to conduct our business.
The collections industry throughout the markets in which we operate is governed by various laws and regulations, many of which require us to be a licensed debt collector. Our industry is also at times investigated by regulators and offices of state attorneys general, and subpoenas and other requests or demands for information may be issued by governmental authorities who are investigating debt collection activities. These investigations may result in enforcement actions, fines and penalties, or the assertion of private claims and lawsuits. For instance, in the United States the FTC has the authority to investigate consumer complaints against debt collection companies and to recommend enforcement actions and seek monetary penalties. In the United Kingdom our operations are subject to regulation and supervision by the Prudential Regulation Authority. As discussed below, our U.S. debt collection activities are also subject to supervision and enforcement action by the CFPB. Refer to " Compliance with complex and evolving foreign and United States laws and regulations that apply to our international operations, which have expanded as a result of our foreign acquisitions, could increase our cost of doing business in international jurisdictions. " If any such investigations result in findings that we or our vendors have failed to comply with applicable laws and regulations, we could be subject to penalties, litigation losses and expenses, damage to our reputation, or the suspension or termination of, or required modification to, our ability to conduct collections, which would adversely affect our financial results and condition. In addition, new laws or regulations or changes in the ways that existing rules or laws are interpreted or enforced could limit our activities in the future or significantly increase the cost of compliance. Furthermore, judges or regulatory bodies could interpret current rules or laws differently than the way we do, leading to such adverse consequences described above.
In a number of jurisdictions, we must maintain licenses to perform debt recovery services and must satisfy related bonding requirements. It is our policy to comply with all applicable licensing and bonding requirements. Our failure to comply with existing licensing requirements, changing interpretations of existing requirements, or adoption of new licensing requirements, could restrict our ability to collect in regions, subject us to increased regulation, increase our costs, or adversely affect our ability to collect our receivables.

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Some laws, among other things, also may limit the interest rate and the fees that a credit grantor may impose on our consumers, limit the time in which we may file legal actions to enforce consumer accounts, and require specific account information for certain collection activities. In addition, local requirements and court rulings in various jurisdictions also may affect our ability to collect.
Moreover, the relationship between consumers and credit card issuers is extensively regulated by consumer protection and related laws and regulations. These laws may affect some of our operations because the majority of our receivables originate through credit card transactions. If the originating institution fails to comply with applicable statutes, rules, and regulations, it could create claims and rights for the consumers that could reduce or eliminate their obligations related to those receivables. When we acquire receivables, we generally require the credit grantor or portfolio reseller to represent that they have complied with applicable statutes, rules and regulations relating to the origination and collection of the receivables before they were sold to us.
Regulations and statutes applicable to our industry further provide that, in some cases, consumers cannot be held liable for, or their liability may be limited with respect to, charges to their debt or credit card accounts that resulted from unauthorized use of their credit. These laws, among others, may limit our ability to recover amounts owing with respect to the receivables, whether or not we committed any wrongful act or omission in connection with the account. If we fail to comply with applicable laws and regulations, such failure could result in penalties, litigation losses and expenses, damage to our reputation, or otherwise impact our ability to conduct collections efforts, which could adversely affect our financial results and condition.
Investigations or enforcement actions by governmental authorities may result in changes to our business practices; negatively impact our receivables portfolio purchasing volume; make collection of receivables more difficult or expose us to the risk of fines, penalties, restitution payments and litigation .
Our business practices are subject to review from time to time by various governmental authorities and regulators, including the CFPB, who may commence investigations or enforcement actions or reviews targeted at businesses in the financial services industry. These reviews may involve governmental authority consideration of individual consumer complaints, or could involve a broader review of our debt collection policies and practices. Such investigations could lead to assertions by governmental authorities that we are not complying with applicable laws or regulations. In such circumstances, authorities may request or seek to impose a range of remedies that could involve potential compensatory or punitive damage claims, fines, restitution payments, sanctions or injunctive relief, that if agreed to or granted, could require us to make payments or incur other expenditures that could have an adverse effect on our financial position. Government authorities could also request or seek to require us to cease certain of our practices or institute new practices. We may also elect to change practices that we believe are compliant with applicable law and regulations in order to respond to the concerns of governmental authorities. In addition, we may become required to make changes to our internal policies and procedures in order to comply with new statutory and regulatory requirements under the Dodd-Frank Act or other applicable laws. Such changes in practices or procedures could negatively impact our results of operations. Negative publicity relating to investigations or proceedings brought by governmental authorities could have an adverse impact on our reputation, could harm our ability to conduct business with industry participants, and could result in financial institutions reducing or eliminating sales of receivables portfolios to us which would harm our business and negatively impact our financial results. Moreover, changing or modifying our internal policies or procedures, responding to governmental inquiries and investigations and defending lawsuits or other proceedings could require significant efforts on the part of management and result in increased costs to our business. In addition, such efforts could divert management's full attention from our business operations. All of these factors could have an adverse effect on our business, results of operations, and financial condition.
The CFPB has issued civil investigative demands to many companies that it regulates, and is currently examining practices regarding the collection of consumer debt. We responded to such an investigation regarding our debt collection practices and provided documents and data to the CFPB. In addition to providing the CFPB with the data and documents requested, we engaged in discussions, including a number of face-to-face meetings with the CFPB staff wherein we shared our views on potential changes to the debt collection industry. Subsequently, in September 2015, we entered into a consent order with the CFPB (the "Consent Order"), which resulted in the payment of $19 million in consumer refunds and an $8 million penalty. In addition, we were required to cease collection of approximately $3 million of consumer debt and modify some of our collections practices. Although we do not anticipate any material adverse impact on our operations as a result of our entry into the Consent Order, there can be no assurance that additional litigation or new industry regulations currently under consideration by the CFPB would not have an adverse effect on our business, results of operations, and financial condition.
In addition, the CFPB may monitor our compliance with the Consent Order and could make a determination that we have failed to appropriately adhere to our obligations. Such a determination could result in additional inquiries, penalties or liabilities, which could have an adverse effect on our business.

26


Changes in governmental laws and regulations could increase our costs and liabilities or impact our operations.
Title X of the Dodd-Frank Act (also referred to as the Consumer Financial Protection Act) created a new independent regulator, the CFPB. The CFPB has rulemaking, supervisory, and enforcement and other authorities relating to consumer financial products and services, including debt collection, provided by covered persons. We are subject to the CFPB's supervisory and enforcement authority.
As stated above, the relationship between consumers, lenders and credit card issuers is extensively regulated by consumer protection and related laws and regulations. Changes in laws and regulations or the manner in which they are interpreted or applied may alter our business environment. This could affect our results of operations or increase our liabilities. These negative impacts could result from changes in collection laws, laws related to credit reporting, statutes of limitation, laws related to consumer bankruptcy or insolvency, privacy protection, accounting standards, taxation requirements, employment laws and communications laws, among others. For example, the CFPB is currently in the process of formulating new debt collection regulations.
The CFPB also accepts debt collection consumer complaints and has provided form letters for consumers to use in their correspondences with debt collectors. The CFPB makes publicly available its data on consumer complaints, and consumer complaints against us could result in reputational damage to us. The Dodd-Frank Act also mandates the submission of multiple studies and reports to Congress by the CFPB, and CFPB staff is regularly making speeches on topics related to credit and debt. All of these activities could trigger additional legislative or regulatory action.
The CFPB has rulemaking authority with respect to significant federal statutes that impact the debt collection industry, including the FDCPA, the FCRA, and Section 5 of the FTC Act, which prohibits unfair or deceptive acts or practices. As a result, the CFPB has the authority to adopt regulations that interpret the FDCPA, and the FTC Act, potentially describing specified acts and practices as being "unfair," "deceptive" or "abusive," impacting the manner in which we conduct our debt collection business.
The CFPB has the authority to conduct hearings and adjudication proceedings, impose monetary penalties for violations of applicable federal consumer financial laws (including Title X of the Dodd-Frank Act, FDCPA, and FCRA, among other consumer protection statutes) which may require remediation of practices and include enforcement actions. The CFPB also has the authority to obtain cease and desist orders (which can include orders for restitution or rescission of contracts, as well as other kinds of affirmative relief), costs, and monetary penalties (ranging from $5,000 per day to over $1 million per day, depending on the nature and gravity of the violation). In addition, where a company has violated Title X of the Dodd-Frank Act or CFPB regulations implemented thereunder, the Dodd-Frank Act empowers state Attorneys General and other state regulators to bring civil actions to remedy violations under state law. The CFPB has been active in its supervision, examination and enforcement of financial services companies, most notably bringing enforcement actions imposing fines and mandating large refunds to customers of several financial institutions for practices relating to the extension and collection of consumer credit. If the CFPB, the FTC, acting under the FTC Act or other applicable statute such as the FDCPA, or one or more state Attorneys General or other state regulators make findings that we have violated any of the applicable laws or regulations, they could exercise their enforcement powers in ways that could have an adverse effect on our business, results of operations, cash flows, or financial condition.
We may become subject to additional costs or liabilities in the future resulting from our own, or our vendors' supervision or examination by the CFPB, or by changes in, or additions to laws and regulations that could adversely affect our results of operations and financial condition. Further, we cannot definitively predict the scope and substance of any such laws or regulations ultimately adopted by the CFPB related to our activities and the exact efforts required by us to comply therewith, nor can we have any way to know with certainty the ultimate impact on our business, results of operations, and financial condition that such regulations may have.
Compliance with complex and evolving foreign and United States laws and regulations that apply to our international operations, which have expanded as a result of our foreign acquisitions, could increase our cost of doing business in international jurisdictions.
As a result of our foreign acquisitions, we will operate on an expanded international basis with additional offices or activities in a number of new jurisdictions throughout Europe, Canada and Brazil. We will face increased exposure to risks inherent in conducting business internationally, including compliance with complex foreign and United States laws and regulations that apply to our international operations, which could increase our cost of doing business in international jurisdictions. These laws and regulations include anti-corruption laws such as the FCPA, the United Kingdom Bribery Act of 2010 and other local laws prohibiting corrupt payments to governmental officials, and those related to taxation. The FCPA and similar anti-bribery laws in other jurisdictions generally prohibit U.S.-based companies and their intermediaries from making improper payments to non-U.S. officials for the purpose of obtaining or retaining business. The United Kingdom Bribery Act of 2010 prohibits certain entities from making improper payments to governmental officials and to commercial entities. Given the high level of complexity of these laws, there is a risk that we may inadvertently breach certain provisions of these laws, for example through fraudulent or negligent behavior of individual employees, our failure to comply with certain formal documentation requirements, or otherwise. Violations

27


of these laws and regulations could result in fines and penalties; criminal sanctions against us, our officers, or our employees; prohibitions on the conduct of our business and on our ability to offer our products and services in one or more countries, and could also adversely affect our brand, our international expansion efforts, our ability to attract and retain employees, our business and our operating results. Although we have implemented and, with respect to any new jurisdictions we will enter, will implement, policies and procedures designed to ensure compliance with these laws and regulations, there can be no assurance that our employees, contractors or agents will not violate our policies. Additionally, in accordance with the CRD IV, the Swedish Banking and Financing Business Act and the Supervision of Credit and Investment Institutions Act, certain of our EU subsidiaries are subject to capital adequacy requirements as prescribed by the SFSA, because they are included in a group that includes an entity which has been determined to be an EU authorized credit institution (AK Nordic AB), thereby resulting in their supervision by the SFSA and regulatory capital requirements.
Net capital requirements pursuant to the CRD IV may impede the business operations of our subsidiaries.
A sub-group of the Company's EU subsidiaries has been determined by the SFSA to be financial institutions subject to consolidated capital requirements under EU Directives and regulatory oversight, supervision and reporting requirements by the SFSA. These and other similar provisions of applicable law may limit our ability to withdraw capital from our subsidiaries . Additionally, we have limited experience with the regulatory oversight, supervision, and reporting requirements of the SFSA.
Risks associated with indebtedness
We may not be able to retain, renegotiate or replace our credit facilities.
Our sources of financing include a domestic credit facility along with a European multicurrency revolving credit facility. The domestic facility includes an aggregate principal amount of $945 million which consists of a $170 million variable rate term loan, a $725 million domestic revolving credit facility and a $50 million Canadian revolving credit facility, all which mature on December 19, 2017. The European multicurrency revolving credit facility includes an aggregate principal amount of $790 million which consists of a $750 million revolving facility and a $40 million overdraft facility, and matures on October 23, 2019. Both facilities include financial and other restrictive covenants. If we are unable to retain, renegotiate or replace our credit facilities, our growth could be adversely affected, which could negatively impact liquidity and our business operations.
We may not be able to continue to satisfy the restrictive covenants in the agreements governing our debt.
The agreements governing our debt impose a number of covenants, including restrictive covenants on how we operate our business. Failure to satisfy any one of these covenants could result in negative consequences including the following, each of which could have an adverse effect on our liquidity and our ability to conduct business:
acceleration of outstanding indebtedness;
exercise by our lenders of rights with respect to the collateral pledged under certain of our outstanding indebtedness;
our inability to continue to purchase receivables needed to operate our business; or
our inability to secure alternative financing on favorable terms, if at all.
We have additional indebtedness in the form of Convertible Senior Notes.
In August 2013, we completed a private offering of $287.5 million aggregate principal amount of 3.00% Convertible Senior Notes due 2020 (the “Notes”). Our ability to make scheduled payments of the principal of, to pay interest on, or to refinance our indebtedness, including the Notes, or to make cash payments in connection with any conversion of the Notes depends on our future performance, which is subject to economic, financial, competitive and other factors beyond our control. Our business may not continue to generate cash flow from operations in the future sufficient to service our indebtedness and make necessary capital expenditures. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring indebtedness or obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability to refinance our indebtedness will depend on the capital markets and our financial condition at that time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations.
We may not have the ability to raise the funds necessary to repurchase the Notes upon a fundamental change or to settle conversions in cash.
Holders of the Notes will have the right to require us to repurchase their Notes upon the occurrence of a fundamental change at a repurchase price equal to 100% of their principal amount, plus accrued and unpaid interest, if any. In addition, in the event the conditional conversion feature of the Notes is triggered, holders of the Notes will be entitled to convert the Notes at any time during specified periods at their option. Upon a conversion of Notes, unless we elect to deliver solely shares of our common stock

28


to settle such conversion (other than paying cash in lieu of delivering any fractional shares of our common stock), we will be required to make cash payments in respect of the Notes. However, we may not have enough available cash or be able to obtain financing at the time we are required to make repurchases of Notes surrendered to settle conversions in cash, and our ability to repurchase the Notes or pay cash upon conversion may be limited by law.
Conversion of the Notes may affect the price of our common stock.
The conversion of some or all of the Notes may dilute the ownership interest of existing stockholders to the extent we deliver shares of common stock upon conversion. Holders of the Notes will be able to convert them only upon the satisfaction of certain conditions prior to February 1, 2020. Upon conversion, holders of the Notes will receive cash, shares of common stock or a combination of cash and shares of common stock, at our election. Any sales in the public market of shares of common stock issued upon conversion of the Notes could adversely affect the trading price of our common stock.
Changes in interest rates could increase our interest expense and reduce our net income.
Our revolving credit facilities bear interest at variable rates. Increases in interest rates could increase our interest expense which would, in turn, lower our earnings. From time to time, we may enter into hedging transactions to mitigate our interest rate risk on all or a portion of our debt. Hedging strategies rely on assumptions and projections. If these assumptions and projections prove to be incorrect or our hedges do not adequately mitigate the impact of changes in interest rates, we may experience volatility in our earnings that could adversely affect our results of operations and financial condition.
Risks associated with ownership of our common stock
The market price of our shares of common stock could fluctuate significantly.
Wide fluctuations in the trading price or volume of our shares of common stock could be caused by many factors, including factors relating to our company or to investor perception of our company (including changes in financial estimates and recommendations by research analysts), but also factors relating to (or relating to investor perception of) the receivables management industry, debt collection or the economy in general.
Our certificate of incorporation, our by-laws and Delaware law contain provisions that may prevent or delay a change of control or that may otherwise be in the best interest of our stockholders.
Our certificate of incorporation and by-laws contain provisions that may make it more difficult, expensive or otherwise discourage a tender offer or a change in control or takeover attempt by a third-party, even if such a transaction would be beneficial to our stockholders. The existence of these provisions may have a negative impact on the price of our common stock by discouraging third-party investors from purchasing our common stock. In particular, our certificate of incorporation and by-laws include provisions that:
classify our board of directors into three groups, each of which will serve for staggered three-year terms;
permit a majority of the stockholders to remove our directors only for cause;
permit our directors, and not our stockholders, to fill vacancies on our board of directors;
require stockholders to give us advance notice to nominate candidates for election to our board of directors or to make stockholder proposals at a stockholders' meeting;
permit a special meeting of our stockholders to be called only by approval of a majority of the directors, the chairman of the board of directors, the chief executive officer, the president or the written request of holders owning at least 30% of our common stock;
permit our board of directors to issue, without approval of our stockholders, preferred stock with such terms as our board of directors may determine;
permit the authorized number of directors to be changed only by a resolution of the board of directors;
require that derivative actions or proceedings must be brought in a court located in the state of Delaware; and
require the vote of the holders of a majority of our voting shares for stockholder amendments to our by-laws.
In addition, we are subject to Section 203 of the Delaware General Corporation Law which provides certain restrictions on business combinations between us and any party acquiring a 15% or greater interest in our voting stock other than in a transaction approved by our board of directors and, in certain cases, by our stockholders. These provisions of our certificate of incorporation, our by-laws and Delaware law could delay or prevent a change in control, even if our stockholders support such proposals. Moreover, these provisions could diminish the opportunities for stockholders to participate in certain tender offers, including tender offers at prices above the then-current market value of our common stock, and may also inhibit increases in the trading price of our common stock that could result from takeover attempts or speculation.

29


Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
Our corporate headquarters and primary domestic operations facility are located in Norfolk, Virginia. In addition, we have operational centers, all of which are leased except the facilities in Kansas and Tennessee, in the following locations in the Americas and Europe:
Americas
 
- Birmingham, Alabama
 
- Lake Forest, California
 
 
- Conshohocken, Pennsylvania
 
- Las Vegas, Nevada
 
 
- Folsom, California
 
- London, Ontario, Canada
 
 
- Fresno, California
 
- North Richland Hills, Texas
 
 
- Hampton, Virginia
 
- Rosemont, Illinois
 
 
- Houston, Texas
 
- San Diego, California
 
 
- Hutchinson, Kansas
 
- São  Paulo, Brazil
 
 
- Jackson, Tennessee
 
 
 
Europe
 
- Bromley, United Kingdom
 
- Luxembourg, Luxembourg
 
 
- Duisburg, Germany
 
- Madrid, Spain
 
 
- Eisenstadt, Austria
 
- Oslo, Norway
 
 
- Helsinki, Finland
 
- Uppsala, Sweden
 
 
- Kilmarnock, Scotland
 
- Zug, Switzerland
 
 
- London, United Kingdom
 
 
 
We also lease several less significant facilities in various locations throughout North America and Europe which are not listed above. We do not consider any specific leased or owned facility to be material to our operations. We believe that equally suitable alternative facilities are available throughout our geographic market areas.
Item 3. Legal Proceedings.
We and our subsidiaries are from time to time subject to a variety of routine legal and regulatory claims, inquiries and proceedings, most of which are incidental to the ordinary course of our business. We initiate lawsuits against customers and are occasionally countersued by them in such actions. Also, customers, either individually, as members of a class action, or through a governmental entity on behalf of customers, may initiate litigation against us in which they allege that we have violated a state or federal law in the process of collecting on an account. From time to time, other types of lawsuits are brought against us.
Refer to Note 15 "Commitments and Contingencies" of our Consolidated Financial Statements (Part II, Item 8 of this Form 10-K) for information regarding legal proceedings in which we are involved.
Item 4. Mine Safety Disclosures.
Not applicable.



PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Price Range of Common Stock
The Company's common stock is traded on the NASDAQ Global Select Market ("NASDAQ") under the symbol "PRAA." The following table sets forth the high and low sales price for the Company's common stock, as reported by the NASDAQ, for the periods indicated.
 
2015
 
2014
 
High
 
Low
 
High
 
Low
Quarter ended March 31,
$58.42
 
$47.84
 
$60.48
 
$47.53
Quarter ended June 30,
$64.24
 
$52.92
 
$60.00
 
$50.29
Quarter ended September 30,
$64.82
 
$50.03
 
$62.20
 
$52.01
Quarter ended December 31,
$56.00
 
$32.49
 
$65.00
 
$52.30
Based on information provided by our transfer agent and registrar, as of February 17, 2016, there were 73 holders of record and 54,615 beneficial owners of the Company's common stock.
Stock Performance
The following graph and subsequent table compares from December 31, 2010 to December 31, 2015 , the cumulative stockholder returns assuming an initial investment of $100 in the Company's common stock ( PRAA ) at the beginning of the period, the stocks comprising the NASDAQ Financial 100 ( IXF ), and the stocks comprising the NASDAQ Global Market Composite Index ( NQGM ). Any dividends paid during the five year period are assumed to be reinvested.
 
Ticker
 
2010
 
2011
 
2012
 
2013
 
2014
 
2015
PRA Group, Inc.
PRAA
 
$
100

 
$
90

 
$
142

 
$
211

 
$
231

 
$
138

NASDAQ Financial 100
IXF
 
$
100

 
$
89

 
$
104

 
$
148

 
$
155

 
$
165

NASDAQ Global Market Composite Index
NQGM
 
$
100

 
$
87

 
$
100

 
$
167

 
$
177

 
$
177

The comparisons of stock performance shown above are not intended to forecast or be indicative of possible future performance of PRA Group's common stock. PRA Group does not make or endorse any predictions as to its future stock performance.

31



Dividend Policy
Our board of directors sets our dividend policy. We do not currently pay regular dividends on our common stock and did not pay dividends in the three years ended December 31, 2015 ; however, our board of directors may determine in the future to declare or pay dividends on our common stock. Under the terms of our credit facility, cash dividends may not exceed $20 million in any fiscal year without the consent of our lenders. Any future determination as to the declaration and payment of dividends will be at the discretion of our board of directors and will depend on then existing conditions, including our results of operations, financial condition, contractual restrictions, capital requirements, business prospects and other factors that our board of directors may consider relevant.
Recent Sales of Unregistered Securities
None.
Securities Authorized for Issuance Under Equity Compensation Plans
For information regarding securities authorized for issuance under equity compensation plans see Note 9 " Share-Based Compensation " of our Consolidated Financial Statements.
Share Repurchase Programs
On October 22, 2015 , the Company's board of directors authorized a new share repurchase program to purchase up to $125,000,000 of the Company's outstanding shares of common stock on the open market.
The following table provides information about the Company's common stock purchased during the fourth quarter of 2015 .
Month Ended
Total Number of Shares Purchased
Average Price Paid per Share
Total Number of Shares Purchased as Part of Publicly Announced Programs
Maximum Remaining Purchase Price for Share Repurchases Under the Program
October 31, 2015

$


$

November 30, 2015
2,072,721

38.60

2,072,721

45,000,920

December 31, 2015




Total
2,072.721

$
38.60

2,072.721

$
45,000,920

Item 6. Selected Financial Data.
The following selected financial data should be read in conjunction with the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section below, the audited consolidated financial statements and the notes to the audited consolidated financial statements. Certain prior year amounts have been reclassified for consistency with the current period presentation.

32



Consolidated Income Statement, Operating and Other Financial Data
Amounts in thousands, except per share amounts
 
Years Ended December 31,
Income Statement Data:
2015
 
2014
 
2013
 
2012
 
2011
Revenues:
 
 
 
 
 
 
 
 
 
Income recognized on finance receivables, net
$
865,122

 
$
807,474

 
$
663,546

 
$
530,635

 
$
401,895

Fee income
64,383

 
65,675

 
71,532

 
62,164

 
56,115

Other revenue
12,513

 
7,820

 
57

 
2

 
925

Total revenues
942,018

 
880,969

 
735,135

 
592,801

 
458,935

Operating expenses:
 
 
 
 
 
 
 
 
 
Compensation and employee services
268,345

 
234,531

 
192,474

 
168,356

 
138,202

Legal collection fees
53,393

 
51,107

 
41,488

 
34,393

 
23,621

Legal collection costs
76,063

 
88,054

 
83,063

 
72,325

 
38,659

Agency fees
32,188

 
16,399

 
5,901

 
5,906

 
7,653

Outside fees and services
65,155

 
55,821

 
31,615

 
28,867

 
19,310

Communication
33,113

 
33,085

 
28,161

 
25,225

 
20,328

Rent and occupancy
14,714

 
11,509

 
8,311

 
7,498

 
6,437

Depreciation and amortization
19,874

 
18,414

 
14,417

 
14,515

 
12,943

Other operating expenses
68,829

 
29,981

 
25,781

 
19,661

 
14,914

Impairment of goodwill

 

 
6,397

 

 

Total operating expenses
631,674

 
538,901

 
437,608

 
376,746

 
282,067

Gain on sale of property

 

 

 

 
1,157

Income from operations
310,344

 
342,068

 
297,527

 
216,055

 
178,025

Other income and (expense):
 
 
 
 
 
 
 
 
 
Interest expense
(60,336
)
 
(35,226
)
 
(14,466
)
 
(9,031
)
 
(10,562
)
Foreign exchange gain/(loss)
7,514

 
(5,829
)
 
4

 
9

 

Income before income taxes
257,522

 
301,013

 
283,065

 
207,033

 
167,463

Provision for income taxes
89,391

 
124,508

 
106,146

 
80,934

 
66,319

Net income
168,131

 
176,505

 
176,919

 
126,099

 
101,144

Adjustment for net income/(loss) attributable to noncontrolling interest
205

 

 
1,605

 
(494
)
 
353

Net income attributable to PRA Group, Inc.
$
167,926

 
$
176,505

 
$
175,314

 
$
126,593

 
$
100,791

Net income per common share attributable to PRA Group, Inc.:
 
 
 
 
 
 
 
 
 
Basic
$3.49
 
$3.53
 
$3.48
 
$2.48
 
$1.96
Diluted
$3.47
 
$3.50
 
$3.45
 
$2.46
 
$1.95
Weighted average number of shares outstanding:
 
 
 
 
 
 
 
 
 
Basic
48,128

 
49,990

 
50,366

 
50,991

 
51,330

Diluted
48,405

 
50,421

 
50,873

 
51,369

 
51,690

Operating and Other Financial Data:
 
 
 
 
 
 
 
 
 
Cash receipts
$
1,603,878

 
$
1,444,487

 
$
1,213,969

 
$
970,848

 
$
761,605

Operating expenses to cash receipts
39
%
 
37
%
 
36
%
 
39
%
 
37
%
Return on equity (1)
20
%
 
19
%
 
22
%
 
20
%
 
19
%
Acquisitions of finance receivables, at cost (2)
$
963,811

 
$
1,432,764

 
$
656,785

 
$
542,451

 
$
408,408

Employees at period end
3,799

 
3,880

 
3,543

 
3,221

 
2,641

(1)
Calculated by dividing net income attributable to PRA Group, Inc. for each year by average monthly stockholders' equity - PRA Group, Inc. for the same year.
(2)
Represents cash paid for finance receivables as well as the acquisition date finance receivable portfolio that was acquired in connection with the Aktiv acquisition in 2014. It does not include certain capitalized costs or buybacks.

33



Key Balance Sheet Data
Amounts in thousands
 
As of December 31,
 
2015
 
2014
 
2013
 
2012
 
2011
Cash and cash equivalents
$
71,372

 
$
39,661

 
$
162,004

 
$
32,687

 
$
26,697

Finance receivables, net
2,202,113

 
2,001,790

 
1,239,191

 
1,078,951

 
926,734

Total assets
2,996,706

 
2,778,751

 
1,601,232

 
1,288,956

 
1,071,123

Borrowings
1,723,268

 
1,482,456

 
451,780

 
327,542

 
221,246

Total equity
839,747

 
902,215

 
869,476

 
708,427

 
595,488

Quarterly Income Statement Data
Amounts in thousands, except per share amounts
 
Dec 31, 2015
 
Sep 30, 2015
 
Jun 30, 2015
 
Mar 31, 2015
 
Dec 31, 2014
 
Sep 30, 2014
 
Jun 30, 2014
 
Mar 31, 2014
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income recognized on finance receivables, net
$
208,471

 
$
208,184

 
$
220,064

 
$
228,403

 
$
222,660

 
$
224,326

 
$
182,518

 
$
177,970

Fee income
19,649

 
17,803

 
13,878

 
13,053

 
22,800

 
12,757

 
14,510

 
15,608

Other revenue
2,065

 
3,443

 
3,255

 
3,750

 
5,271

 
1,890

 
315

 
344

Total revenues
230,185

 
229,430

 
237,197

 
245,206

 
250,731

 
238,973

 
197,343

 
193,922

Operating expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Compensation and employee services
68,670

 
66,084

 
68,320

 
65,271

 
65,448

 
65,237

 
52,461

 
51,385

Legal collection fees
11,873

 
13,715

 
14,114

 
13,691

 
15,125

 
13,778

 
11,371

 
10,833

Legal collection costs
16,774

 
18,879

 
19,556

 
20,854

 
15,725

 
20,367

 
25,429

 
26,533

Agency fees
8,182

 
7,961

 
7,784

 
8,261

 
7,497

 
5,988

 
1,464

 
1,450

Outside fees and services
27,309

 
12,583

 
12,466

 
12,797

 
15,707

 
17,210

 
12,113

 
10,791

Communication
6,601

 
8,021

 
8,073

 
10,418

 
7,715

 
8,642

 
7,765

 
8,963

Rent and occupancy
3,991

 
3,684

 
3,479

 
3,560

 
3,477

 
3,283

 
2,411

 
2,338

Depreciation and amortization
4,935

 
5,413

 
4,916

 
4,610

 
5,307

 
4,949

 
4,211

 
3,947

Other operating expenses
10,678

 
38,963

 
9,610

 
9,578

 
4,870

 
11,330

 
7,681

 
6,100

Total operating expenses
159,013

 
175,303

 
148,318

 
149,040

 
140,871

 
150,784

 
124,906

 
122,340

Income from operations
71,172

 
54,127

 
88,879

 
96,166

 
109,860

 
88,189

 
72,437

 
71,582

Other income and (expense):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest expense
(15,321
)
 
(16,787
)
 
(13,452
)
 
(14,776
)
 
(13,493
)
 
(11,807
)
 
(5,067
)
 
(4,859
)
Foreign exchange gain/(loss)
301

 
(3,160
)
 
3,584

 
6,789

 
(2,898
)
 
3,258

 
(6,197
)
 
8

Income before income taxes
56,152

 
34,180

 
79,011

 
88,179

 
93,469

 
79,640

 
61,173

 
66,731

Provision for income taxes
15,164

 
16,597

 
27,586

 
30,044

 
46,478

 
28,473

 
23,666

 
25,891

Net income
40,988

 
17,583

 
51,425

 
58,135

 
46,991

 
51,167

 
37,507

 
40,840

Adjustment for net income attributable to noncontrolling interest
18

 
187

 

 

 

 

 

 

Net income attributable to PRA Group, Inc.
$
40,970

 
$
17,396

 
$
51,425

 
$
58,135

 
$
46,991

 
$
51,167

 
$
37,507

 
$
40,840

Net income per common share attributable to PRA Group, Inc.:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic
$
0.87

 
$
0.36

 
$
1.06

 
$
1.19

 
$
0.94

 
$
1.02

 
$
0.75

 
$
0.82

Diluted
$
0.86

 
$
0.36

 
$
1.06

 
$
1.19

 
$
0.93

 
$
1.01

 
$
0.74

 
$
0.81

Weighted average number of shares outstanding:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic
47,197

 
48,265

 
48,325

 
48,724

 
49,892

 
50,075

 
50,065

 
49,929

Diluted
47,539

 
48,498

 
48,529

 
49,052

 
50,444

 
50,439

 
50,437

 
50,363


34



Quarterly Balance Sheet Data
Amounts in thousands
 
Dec 31, 2015
 
Sep 30, 2015
 
Jun 30, 2015
 
Mar 31, 2015
 
Dec 31, 2014
 
Sep 30, 2014
 
Jun 30, 2014
 
Mar 31, 2014
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
71,372

 
$
69,111

 
$
56,811

 
$
40,542

 
$
39,661

 
$
70,300

 
$
270,526

 
$
191,819

Investments
73,799

 
75,985

 
88,295

 
91,470

 
89,703

 

 

 

Finance receivables, net
2,202,113

 
2,167,178

 
2,012,552

 
1,954,772

 
2,001,790

 
1,913,710

 
1,219,595

 
1,253,961

Other receivables, net
30,771

 
24,648

 
18,443

 
16,834

 
12,959

 
18,217

 
12,458

 
11,551

Income taxes receivable
1,717

 
12,840

 
1,580

 

 

 
11,506

 
6,072

 
1,015

Net deferred tax asset
13,068

 
831

 
125

 
5,771

 
6,126

 
4,639

 
1,404

 
1,369

Property and equipment, net
45,394

 
46,105

 
46,215

 
46,855

 
48,258

 
45,969

 
38,902

 
35,130

Goodwill
495,156

 
502,383

 
503,001

 
496,653

 
527,445

 
594,401

 
105,122

 
104,086

Intangible assets, net
23,788

 
24,458

 
9,450

 
10,042

 
10,933

 
12,315

 
13,805

 
14,714

Other assets
39,528

 
61,011

 
47,284

 
37,674

 
41,876

 
86,372

 
27,478

 
28,968

Total assets
$
2,996,706

 
$
2,984,550

 
$
2,783,756

 
$
2,700,613

 
$
2,778,751

 
$
2,757,429

 
$
1,695,362

 
$
1,642,613

Liabilities and Equity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accounts payable
$
4,190

 
$
3,693

 
$
3,933

 
$
7,838

 
$
4,446

 
$
6,934

 
$
10,928

 
$
9,173

Accrued expenses
95,380

 
97,123

 
77,007

 
69,250

 
89,361

 
88,991

 
47,897

 
37,248

Income taxes payable
21,236

 
9,534

 
9,758

 
22,120

 
11,020

 
5,547

 

 

Net deferred tax liability
261,498

 
267,587

 
252,638

 
265,661

 
255,587

 
237,201

 
226,011

 
220,883

Interest-bearing deposits
46,991

 
46,277

 
33,248

 
32,439

 
27,704

 
27,300

 

 

Borrowings
1,723,268

 
1,654,457

 
1,503,363

 
1,479,262

 
1,482,456

 
1,425,409

 
448,785

 
450,278

Other liabilities
4,396

 
4,460

 
5,933

 
6,725

 
5,962

 
6,187

 
9,485

 
14,813

Total liabilities
2,156,959

 
2,083,131

 
1,885,880

 
1,883,295

 
1,876,536

 
1,797,569

 
743,106

 
732,395

Equity:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stock
462

 
482

 
483

 
483

 
496

 
501

 
501

 
501

Additional paid-in capital
64,622

 
31,344

 
35,360

 
31,339

 
111,659

 
141,490

 
137,512

 
134,892

Retained earnings
964,270

 
1,032,966

 
1,015,570

 
964,145

 
906,010

 
859,019

 
807,852

 
770,345

Accumulated other comprehensive (loss)/gain
(228,861
)
 
(201,275
)
 
(153,537
)
 
(178,649
)
 
(115,950
)
 
(41,150
)
 
6,391

 
4,480

Total stockholders' equity - PRA Group, Inc.
800,493

 
863,517

 
897,876

 
817,318

 
902,215

 
959,860

 
952,256

 
910,218

Noncontrolling interest
39,254

 
37,902

 

 

 

 

 

 

Total equity
$
839,747

 
$
901,419

 
$
897,876

 
$
817,318

 
$
902,215

 
$
959,860

 
$
952,256

 
$
910,218

Total liabilities and equity
$
2,996,706

 
$
2,984,550

 
$
2,783,756

 
$
2,700,613

 
$
2,778,751

 
$
2,757,429

 
$
1,695,362

 
$
1,642,613

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations .
Overview
We are a global financial and business services company with operations in the Americas and Europe. Our primary business is the purchase, collection and management of portfolios of nonperforming loans. We also service receivables on behalf of clients on either a commission or transaction-fee basis, provide class action claims settlement recovery services and related payment processing to corporate clients, and provide vehicle location, skip tracing and collateral recovery services for auto lenders, governments and law enforcement.
We are headquartered in Norfolk, Virginia, and employ 3,799 full time equivalents. Our shares of common stock are traded on the NASDAQ Global Select Market under the symbol "PRAA." Effective October 23, 2014, we changed our name from Portfolio Recovery Associates, Inc. to PRA Group, Inc.
On August 3, 2015, we acquired 55% of the equity interest in RCB. The remaining 45% of the equity interest in RCB is owned by the executive team and previous owners of RCB. RCB was founded in 2007 and is a leading master servicing platform for nonperforming loans in Brazil. RCB specializes in structuring, investing and operating receivable and credit-related assets. The previous owners of RCB each entered into long-term employment agreements with us and will continue to manage RCB's local business in Brazil.

35



Our investment for the 55% ownership of RCB was paid for with approximately $55.2 million in cash which was borrowed under our existing domestic revolving credit facility. The majority of cash paid to acquire the equity interest in RCB is expected to be used in the ordinary course of business. As part of the investment and call option agreements, we have the right to purchase the remaining 45% of RCB at certain multiples of earnings before interest, taxes, depreciation and amortization ("EBITDA") beginning August 3, 2019 and lasting for two years.
On July 16, 2014, we completed the purchase of the outstanding equity of Aktiv, a Norway-based company specializing in the acquisition and servicing of nonperforming consumer loans throughout Europe and in Canada, for a purchase price of approximately $861.3 million, and assumed approximately $433.7 million of Aktiv's corporate debt, resulting in an enterprise acquisition value of approximately $1.3 billion.
The Aktiv acquisition provided us entry into several new markets, resulting in additional geographic diversity in portfolio purchasing and collection. Aktiv's executive team and the more than 400 Aktiv employees joined our workforce upon the closing of the transaction.
Our industry is highly regulated under various laws. In the United States they include the FDCPA, FCRA, Dodd-Frank Act, Telephone Consumer Protection Act and its prohibition against UDAAP and other federal and state laws. Likewise, our business is regulated by various laws in the European countries and Canadian territories in which we operate. We are subject to inspections, examinations, supervision and investigation by regulators in the United Kingdom, in each U.S. state in which we are licensed, and also by the CFPB. If any such inspections or investigations result in findings or there is an adjudication that we have failed to comply with applicable laws and regulations, we could be subject to penalties, litigation losses and expenses, damage to our reputation, or the suspension or termination of or required modification to our ability to conduct collections, which would adversely affect our financial results and condition. The CFPB is currently looking into practices regarding the collection of consumer debt in our industry. The CFPB is also expected to adopt additional rules that will affect our industry, and has sought feedback on a wide range of debt collection issues.
For the year ended December 31, 2015 , we incurred approximately $5.6 million of integration and other costs related to the business acquisitions. Additionally, as a result of expanding our international footprint into many countries with various currencies throughout Europe, we are exposed to foreign currency fluctuations between and among the U.S. dollar and each of the other currencies in which we now operate. As a result, for the year ended December 31, 2015 , we recorded a net foreign currency transaction gain of $7.5 million in our consolidated income statement, as compared to a loss of $5.8 million in the prior year.
Earnings Summary
For the year ended December 31, 2015 , net income attributable to PRA Group was $167.9 million , or $3.47 per diluted share, compared with $176.5 million , or $3.50 per diluted share, for the year ended December 31, 2014 . Total revenues were $942.0 million for the year ended December 31, 2015 , up 6.9% from the same year ago period. Revenues during the year ended December 31, 2015 consisted of $865.1 million in income recognized on finance receivables, net of allowance charges, $64.4 million in fee income and $12.5 million in other revenue. Income recognized on finance receivables, net of allowance charges, for the year ended December 31, 2015 increased $57.6 million , or 7.1% , over 2014 , primarily as a result of an increase in cash collections primarily due to the Aktiv acquisition. Cash collections were approximately $1.5 billion during the year ended December 31, 2015 , up 7.1% compared to approximately $1.4 billion in the year ended December 31, 2014 . During the year ended December 31, 2015 , PRA Group recorded $29.4 million in net allowance charges, compared with $4.9 million in net allowance charge reversals in the year ended December 31, 2014 . Our finance receivables amortization rate, including net allowance charges/reversals, was 43.8% for the year ended December 31, 2015 compared to 41.4% for the year ended December 31, 2014 . Our finance receivables amortization rate, excluding net allowance charges/reversals, was 41.9% for the year ended December 31, 2015 compared to 41.8% for the year ended December 31, 2014 .
Fee income decreased from $65.7 million for the year ended December 31, 2014 to $64.4 million in 2015 , primarily due to a decrease in revenues generated by CCB and PRA Europe. The decrease in revenue from CCB is due primarily to smaller distributions of class action settlements. The decline in fee income from PRA Europe is due primarily to a decline in the amount of contingent fee work provided to us by debt owners. This was partially offset by higher fee income generated by PLS, PGS and our operations in Brazil.

36



A summary of how our revenue was generated during the years ended December 31, 2015 , 2014 and 2013 is as follows (amounts in thousands):
 
2015
 
2014
 
2013
Cash collections
$
1,539,495

 
$
1,378,812

 
$
1,142,437

Amortization of investment
(645,004
)
 
(576,273
)
 
(480,913
)
Net allowance reversals/(charges)
(29,369
)
 
4,935

 
2,022

Income recognized on finance receivables, net
865,122

 
807,474

 
663,546

Fee income
64,383

 
65,675

 
71,532

Other revenue
12,513

 
7,820

 
57

Total revenues
$
942,018

 
$
880,969

 
$
735,135

Operating expenses were $631.7 million for the year ended December 31, 2015 , an increase of $92.8 million or 17.2% from the year ended December 31, 2014 , primarily due to the inclusion of Aktiv's expenses for the full year in 2015 compared to the period from July 16 through December 31 in 2014, as well as an increase in outside fees and services and other operating expenses. Outside fees and services expenses were $65.2 million for the year ended December 31, 2015 , an increase of $9.4 million or 16.8% compared to outside fees and services expenses of $55.8 million for the year ended December 31, 2014 . The increase was mainly attributable to an incremental increase of $13.3 million in corporate legal expenses incurred in 2015 as a result of outstanding litigation and regulatory matters. See Note 15 for a description of our litigation and regulatory matters. This increase was offset by a decrease of $12.3 million in transaction costs incurred during 2015 compared to 2014. The remaining increase is a result of the outside fees and services incurred by our European operations for the full year in 2015 as compared to the prior year period from July 16, 2014 to December 31, 2014. Other operating expenses were $68.8 million for the year ended December 31, 2015 , an increase of $38.8 million or 129.3% compared to other operating expenses of $30.0 million for the year ended December 31, 2014 . The increase was primarily due to the $28.8 million in expenses incurred during 2015 relating to the Consent order, as well as other operating expenses incurred by our European operations for the full year in 2015 as compared to the prior year period from July 16, 2014 to December 31, 2014.
During the years ended December 31, 2015 , 2014 and 2013 , we acquired finance receivables portfolios at an approximate cost of $963.8 million , $1.4 billion and $656.8 million , respectively. The figures for 2014 include the acquisition-date fair value of the Aktiv portfolios. In any period, we acquire nonperforming loans that can vary dramatically in their age, type and ultimate collectability. We may pay significantly different purchase rates for purchased receivables within any period as a result of this quality fluctuation. In addition, market forces can drive pricing rates up or down in any period, irrespective of other quality fluctuations. As a result, the average purchase rate paid for any given period can fluctuate dramatically based on our particular buying activity in that period. However, regardless of the average purchase price and for similar time frames, we intend to target a similar internal rate of return, after direct expenses, in pricing our portfolio acquisitions; therefore, the absolute rate paid is not necessarily relevant to the estimated profitability of a period's buying.
Results of Operations
The results of operations include the financial results of PRA Group and all of our subsidiaries, all of which are in the receivables management business. Under the guidance of the FASB ASC Topic 280 "Segment Reporting" ("ASC 280"), we have determined that we have several operating segments that meet the aggregation criteria of ASC 280, and therefore, we have one reportable segment, accounts receivables management, based on similarities among the operating units including homogeneity of services, service delivery methods and use of technology.

37



The following table sets forth certain operating data as a percentage of total revenues for the years indicated (amounts in thousands):
 
2015
 
2014
 
2013
Revenues:
 
 
 
 
 
 
 
 
 
 
 
Income recognized on finance receivables, net
$
865,122

 
91.8
 %
 
$
807,474

 
91.7
 %
 
$
663,546

 
90.3
 %
Fee income
64,383

 
6.8

 
65,675

 
7.5

 
71,532

 
9.7

Other revenue
12,513

 
1.4

 
7,820

 
0.8

 
57

 

Total revenues
942,018

 
100.0

 
880,969

 
100.0

 
735,135

 
100.0

Operating expenses:
 
 
 
 
 
 
 
 
 
 
 
Compensation and employee services
268,345

 
28.5

 
234,531

 
26.6

 
192,474

 
26.2

Legal collection fees
53,393

 
5.7

 
51,107

 
5.8

 
41,488

 
5.6

Legal collection costs
76,063

 
8.1

 
88,054

 
10.0

 
83,063

 
11.3

Agency fees
32,188

 
3.4

 
16,399

 
1.9

 
5,901

 
0.8

Outside fees and services
65,155