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Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2019
Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Delaware
(State or other jurisdiction of incorporation or organization)
75-3078675
(I.R.S. Employer Identification (cid:49)o.)
For the transition period from ________ to ________
Commission File (cid:49)umber: 000-50058
PRA Group, Inc.
(Exact name of registrant as specified in its charter)
120 Corporate Boulevard, (cid:49)orfolk, Virginia 23502
(888) 772-7326
(Address of principal executive offices, zip code, telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
(cid:49)ame of each exchange on which registered
Common Stock, $0.01 par value per share
PRAA
(cid:49)ASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act: (cid:49)one
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
(cid:49)o
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
(cid:49)o
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
(cid:49)o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
Yes
(cid:49)o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company
or emerging growth company. See the definitions of "large accelerated filer", "accelerated filer", "smaller reporting company" and "emerging
growth company" in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer
filer
Smaller reporting company
Emerging growth company
Accelerated filer
(cid:49)on-accelerated
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
(cid:49)o
The aggregate market value of the common stock held by non-affiliates of the registrant as of June 28, 2019 was $1,255,667,779 based on the
$28.14 closing price as reported on the (cid:49)ASDAQ Global Select Market.
The number of shares of the registrant's Common Stock outstanding as of February 25, 2020 was 45,416,258.
Documents incorporated by reference: Portions of the Registrant's definitive Proxy Statement for its 2020 Annual Meeting of Stockholders are
incorporated by reference into Part III of this Form 10-K.
fp0052934_PRA_10k_2020_combined4.indd 2
4/20/2020 12:52:33 PM
U(cid:49)ITED STATES SECURITIES A(cid:49)D EXCHA(cid:49)GE COMMISSIO(cid:49)
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2019
Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from ________ to ________
Commission File (cid:49)umber: 000-50058
PRA Group, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
75-3078675
(I.R.S. Employer Identification (cid:49)o.)
120 Corporate Boulevard, (cid:49)orfolk, Virginia 23502
(888) 772-7326
(Address of principal executive offices, zip code, telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $0.01 par value per share
Trading Symbol(s)
PRAA
(cid:49)ame of each exchange on which registered
(cid:49)ASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act: (cid:49)one
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
(cid:49)o
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
(cid:49)o
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
(cid:49)o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
Yes
(cid:49)o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company
or emerging growth company. See the definitions of "large accelerated filer", "accelerated filer", "smaller reporting company" and "emerging
(cid:49)on-accelerated
growth company" in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer
filer
Smaller reporting company
Emerging growth company
Accelerated filer
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
(cid:49)o
The aggregate market value of the common stock held by non-affiliates of the registrant as of June 28, 2019 was $1,255,667,779 based on the
$28.14 closing price as reported on the (cid:49)ASDAQ Global Select Market.
The number of shares of the registrant's Common Stock outstanding as of February 25, 2020 was 45,416,258.
Documents incorporated by reference: Portions of the Registrant's definitive Proxy Statement for its 2020 Annual Meeting of Stockholders are
incorporated by reference into Part III of this Form 10-K.
fp0052934_PRA_10k_2020_combined4.indd 3
4/20/2020 12:52:33 PM
Table of Contents
continued
Directors, Executive Officers and Corporate Governance
Executive Compensation
Stockholder Matters
Security Ownership of Certain Beneficial Owners and Management and Related
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Exhibits and Financial Statement Schedules
Form 10-K Summary
Part III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Part IV
Item 15.
Item 16.
Signatures
80
80
80
80
80
80
82
83
Part I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Part II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Table of Contents
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosure
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Income Statements
Consolidated Statements of Comprehensive Income
Consolidated Statements of Changes in Equity
Consolidated Statements of Cash Flows
(cid:49)otes to Consolidated Financial Statements
1 – General and Summary of Significant Accounting Policies
2 – Finance Receivables, net
3 – Investments
4 – Leases
5 – Goodwill and Intangible Assets, net
6 – Borrowings
7 – Property and Equipment, net
8 – Fair Value
9 – Derivatives
10 – Accumulated Other Comprehensive Income
11 – Share-Based Compensation
12 – Earnings Per Share
13 – Income Taxes
14 – Commitments and Contingencies
15 – Retirement Plans
16 – Redeemable (cid:49)oncontrolling interest
17 – Sales of Subsidiaries
Item 9.
Item 9A.
Item 9B.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
5
9
17
17
17
18
19
21
24
40
42
43
45
46
47
48
49
50
50
57
59
60
61
62
66
66
69
70
70
72
73
75
76
76
77
78
78
80
2
3
fp0052934_PRA_10k_2020_combined4.indd 4
4/20/2020 12:52:33 PM
Table of Contents
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosure
of Equity Securities
Selected Financial Data
Part I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Part II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Table of Contents
continued
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Exhibits and Financial Statement Schedules
Form 10-K Summary
Part III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Part IV
Item 15.
Item 16.
Signatures
80
80
80
80
80
80
82
83
5
9
17
17
17
18
19
21
24
40
42
43
45
46
47
48
49
50
50
57
59
60
61
62
66
66
69
70
70
72
73
75
76
76
77
78
78
80
Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Income Statements
Consolidated Statements of Comprehensive Income
Consolidated Statements of Changes in Equity
Consolidated Statements of Cash Flows
(cid:49)otes to Consolidated Financial Statements
1 – General and Summary of Significant Accounting Policies
2 – Finance Receivables, net
10 – Accumulated Other Comprehensive Income
5 – Goodwill and Intangible Assets, net
7 – Property and Equipment, net
3 – Investments
4 – Leases
6 – Borrowings
8 – Fair Value
9 – Derivatives
11 – Share-Based Compensation
12 – Earnings Per Share
13 – Income Taxes
14 – Commitments and Contingencies
15 – Retirement Plans
16 – Redeemable (cid:49)oncontrolling interest
17 – Sales of Subsidiaries
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9.
Item 9A.
Item 9B.
Controls and Procedures
Other Information
2
3
fp0052934_PRA_10k_2020_combined4.indd 5
4/20/2020 12:52:33 PM
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 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, 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:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
a deterioration in the economic or inflationary environment in the Americas or Europe, including the interest rate
environment;
changes in the credit or capital markets, which affect our ability to borrow money or raise capital;
our ability to replace our portfolios of nonperforming loans with additional portfolios sufficient to operate efficiently and
profitably;
our ability to purchase nonperforming loans at appropriate prices;
our ability to collect sufficient amounts on our nonperforming loans to fund our operations;
the possibility that we could recognize significant decreases in our estimate of future recoveries on nonperforming loans;
changes in, or interpretations of, federal, state, local, or international laws, including bankruptcy and collection laws, or
changes in the administrative practices of various bankruptcy courts, which could negatively affect our business or our
ability to collect on nonperforming loans;
changes in accounting standards and their interpretations;
our ability to manage risks associated with our international operations;
changes in tax laws and interpretations regarding earnings of our domestic and international operations;
the impact of the Tax Cuts and Jobs Act ("Tax Act") including interpretations and determinations by tax authorities;
the possibility that we could incur goodwill or other intangible asset impairment charges;
adverse effects from the exit of the United Kingdom ("UK") from the European Union ("EU");
our loss contingency accruals may not be adequate to cover actual losses;
adverse outcomes in pending litigation or administrative proceedings;
the possibility that class action suits and other litigation could divert management's attention and increase our expenses;
the possibility that we could incur business or technology disruptions or cyber incidents;
disruptions of business operations caused by the under performance or failure of information technology infastructure,
networks or telephone systems;
our ability to collect and enforce our nonperforming loans may be limited under federal, state, and international laws,
regulations, and policies;
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;
investigations, reviews, or enforcement actions by governmental authorities, including the Consumer Financial Protection
Bureau ("CFPB"), which could result in changes to our business practices, negatively impact our portfolio acquisitions
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 complex and evolving international and United States ("U.S.") laws and regulations
that apply to our international operations could increase our cost of doing business in international jurisdictions;
our ability to comply with data privacy regulations such as the General Data Protection Regulation ("GDPR");
our ability to retain, expand, renegotiate or replace our credit facilities and our ability to comply with the covenants under
our financing arrangements;
our ability to raise the funds necessary to repurchase our convertible senior notes or to settle conversions in cash;
our ability to refinance our indebtedness, including our outstanding convertible senior notes;
changes in interest or exchange rates, which could reduce our net income, and the possibility that future hedging strategies
may not be successful;
the possibility that the adoption of future accounting standards could negatively impact our business;
default by or failure of one or more of our counterparty financial institutions could cause us to incur significant losses;
uncertainty about the future of the London Inter-Bank Offer Rate ("LIBOR") may adversely affect our business; and
the risk factors discussed herein and in our other filings with the Securities and Exchange Commission ("SEC").
You should carefully consider the factors listed above and review the "Risk Factors" section beginning on page 9, as well
as the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section beginning on page 24
and the "Business" section beginning on page 5.
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, or implied by, this Form 10-K 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 Form
10-K 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, investors 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.
Item 1. Business.
General
PART I
Headquartered in (cid:49)orfolk, Virginia and incorporated in Delaware, we are a global financial and business services company
with operations in the Americas, Europe, and Australia.
Our primary business is the purchase, collection, and management of portfolios of nonperforming loans. The accounts we
purchase are primarily the unpaid obligations of individuals owed to credit grantors, which include banks and other types of
consumer, retail, and auto finance companies. We purchase portfolios of nonperforming loans at a discount in two broad categories:
Core and Insolvency. Our Core operation specializes in purchasing and collecting nonperforming loans, which we purchased since
either the credit grantor and/or other third-party collection agencies have been unsuccessful in collecting the full balance owed.
Our Insolvency operation consists primarily of purchasing and collecting on nonperforming loan accounts where the customer is
involved in a bankruptcy proceeding or the equivalent in some European countries. We also provide fee-based services on class
action claims recoveries and by servicing consumer bankruptcy accounts in the U.S.
We have one reportable segment 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.
We were initially formed as Portfolio Recovery Associates, L.L.C., a Delaware limited liability company, on March 20, 1996.
We formed Portfolio Recovery Associates, Inc. in August 2002 in order to become a publicly traded company and our common
stock began trading on the (cid:49)asdaq Global Select Market ("(cid:49)asdaq") on (cid:49)ovember 8, 2002. We changed our legal name to PRA
Group, Inc. on October 23, 2014.
We acquired Aktiv Kapital AS ("Aktiv"), a (cid:49)orway-based company specializing in the purchase, collection, and management
of portfolios of nonperforming loans throughout Europe and Canada, on July 16, 2014. On April 26, 2016, we acquired DTP S.A.
("DTP"), a Polish-based debt collection company, further building our in-house collection efforts in Poland.
We expanded into South America on August 3, 2015 by acquiring 55% of the equity interest in RCB Investimentos S.A.
("RCB"), a servicing platform for nonperforming loans in Brazil. On December 20, 2018, we entered into a strategic partnership
with Banco Bradesco S.A. (“Bradesco”), under which Bradesco purchased 79% of our interest in RCB's servicing platform with
PRA Group retaining an 11.7% equity interest. The sale did not impact the nonperforming loan purchasing business that we have
established in Brazil in partnership with the previous owners of RCB, as it was not part of the sale to Bradesco.
On March 1, 2019, we entered into a share purchase agreement to acquire the majority of the assets of a business in Canada,
which was consolidated through our current Canadian business.
Additionally, we are planning to begin operations in Australia in the future, leveraging an entity we set up in 2011.
You should assume that the information appearing in this Annual Report on Form 10-K ("Form 10-K") 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.
Inc. and its subsidiaries.
All references in this Form 10-K to the "PRA Group," "our," "we," "us," the "Company" or similar terms are to PRA Group,
4
5
fp0052934_PRA_10k_2020_combined4.indd 6
4/20/2020 12:52:33 PM
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 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, 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:
a deterioration in the economic or inflationary environment in the Americas or Europe, including the interest rate
environment;
profitably;
changes in the credit or capital markets, which affect our ability to borrow money or raise capital;
our ability to replace our portfolios of nonperforming loans with additional portfolios sufficient to operate efficiently and
our ability to purchase nonperforming loans at appropriate prices;
our ability to collect sufficient amounts on our nonperforming loans to fund our operations;
the possibility that we could recognize significant decreases in our estimate of future recoveries on nonperforming loans;
changes in, or interpretations of, federal, state, local, or international laws, including bankruptcy and collection laws, or
changes in the administrative practices of various bankruptcy courts, which could negatively affect our business or our
ability to collect on nonperforming loans;
changes in accounting standards and their interpretations;
our ability to manage risks associated with our international operations;
changes in tax laws and interpretations regarding earnings of our domestic and international operations;
the impact of the Tax Cuts and Jobs Act ("Tax Act") including interpretations and determinations by tax authorities;
the possibility that we could incur goodwill or other intangible asset impairment charges;
adverse effects from the exit of the United Kingdom ("UK") from the European Union ("EU");
our loss contingency accruals may not be adequate to cover actual losses;
adverse outcomes in pending litigation or administrative proceedings;
the possibility that class action suits and other litigation could divert management's attention and increase our expenses;
the possibility that we could incur business or technology disruptions or cyber incidents;
disruptions of business operations caused by the under performance or failure of information technology infastructure,
our ability to collect and enforce our nonperforming loans may be limited under federal, state, and international laws,
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
networks or telephone systems;
regulations, and policies;
ability to conduct our business;
•
investigations, reviews, or enforcement actions by governmental authorities, including the Consumer Financial Protection
Bureau ("CFPB"), which could result in changes to our business practices, negatively impact our portfolio acquisitions
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 complex and evolving international and United States ("U.S.") laws and regulations
that apply to our international operations could increase our cost of doing business in international jurisdictions;
our ability to comply with data privacy regulations such as the General Data Protection Regulation ("GDPR");
our ability to retain, expand, renegotiate or replace our credit facilities and our ability to comply with the covenants under
our ability to raise the funds necessary to repurchase our convertible senior notes or to settle conversions in cash;
our ability to refinance our indebtedness, including our outstanding convertible senior notes;
changes in interest or exchange rates, which could reduce our net income, and the possibility that future hedging strategies
our financing arrangements;
may not be successful;
the possibility that the adoption of future accounting standards could negatively impact our business;
default by or failure of one or more of our counterparty financial institutions could cause us to incur significant losses;
uncertainty about the future of the London Inter-Bank Offer Rate ("LIBOR") may adversely affect our business; and
the risk factors discussed herein and in our other filings with the Securities and Exchange Commission ("SEC").
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
You should carefully consider the factors listed above and review the "Risk Factors" section beginning on page 9, as well
as the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section beginning on page 24
and the "Business" section beginning on page 5.
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, or implied by, this Form 10-K 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 Form
10-K 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, investors 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.
Item 1. Business.
General
PART I
Headquartered in (cid:49)orfolk, Virginia and incorporated in Delaware, we are a global financial and business services company
with operations in the Americas, Europe, and Australia.
Our primary business is the purchase, collection, and management of portfolios of nonperforming loans. The accounts we
purchase are primarily the unpaid obligations of individuals owed to credit grantors, which include banks and other types of
consumer, retail, and auto finance companies. We purchase portfolios of nonperforming loans at a discount in two broad categories:
Core and Insolvency. Our Core operation specializes in purchasing and collecting nonperforming loans, which we purchased since
either the credit grantor and/or other third-party collection agencies have been unsuccessful in collecting the full balance owed.
Our Insolvency operation consists primarily of purchasing and collecting on nonperforming loan accounts where the customer is
involved in a bankruptcy proceeding or the equivalent in some European countries. We also provide fee-based services on class
action claims recoveries and by servicing consumer bankruptcy accounts in the U.S.
We have one reportable segment 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.
We were initially formed as Portfolio Recovery Associates, L.L.C., a Delaware limited liability company, on March 20, 1996.
We formed Portfolio Recovery Associates, Inc. in August 2002 in order to become a publicly traded company and our common
stock began trading on the (cid:49)asdaq Global Select Market ("(cid:49)asdaq") on (cid:49)ovember 8, 2002. We changed our legal name to PRA
Group, Inc. on October 23, 2014.
We acquired Aktiv Kapital AS ("Aktiv"), a (cid:49)orway-based company specializing in the purchase, collection, and management
of portfolios of nonperforming loans throughout Europe and Canada, on July 16, 2014. On April 26, 2016, we acquired DTP S.A.
("DTP"), a Polish-based debt collection company, further building our in-house collection efforts in Poland.
We expanded into South America on August 3, 2015 by acquiring 55% of the equity interest in RCB Investimentos S.A.
("RCB"), a servicing platform for nonperforming loans in Brazil. On December 20, 2018, we entered into a strategic partnership
with Banco Bradesco S.A. (“Bradesco”), under which Bradesco purchased 79% of our interest in RCB's servicing platform with
PRA Group retaining an 11.7% equity interest. The sale did not impact the nonperforming loan purchasing business that we have
established in Brazil in partnership with the previous owners of RCB, as it was not part of the sale to Bradesco.
On March 1, 2019, we entered into a share purchase agreement to acquire the majority of the assets of a business in Canada,
which was consolidated through our current Canadian business.
Additionally, we are planning to begin operations in Australia in the future, leveraging an entity we set up in 2011.
You should assume that the information appearing in this Annual Report on Form 10-K ("Form 10-K") is accurate only as
All references in this Form 10-K to the "PRA Group," "our," "we," "us," the "Company" or similar terms are to PRA Group,
of the date it was issued. Our business, financial condition, results of operations and prospects may have changed since that date.
Inc. and its subsidiaries.
4
5
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(cid:49)onperforming Loan Portfolio Acquisitions
Fee-Based Services
To identify buying opportunities, we maintain an extensive marketing effort with our senior officers contacting known and
prospective sellers of nonperforming loans. From these sellers, we have aquired a variety of nonperforming loans including Visa®
and MasterCard® credit cards, private label and other credit cards, installment loans, lines of credit, deficiency balances of various
types, legal judgments, and trade payables. Sellers of nonperforming loans include major banks, credit unions, consumer finance
companies, retailers, utilities, automobile finance companies, and other debt owners. The price at which we purchase portfolios
depends on the age of the portfolio, whether it is a Core or Insolvency portfolio, geographic distribution, the seller's selection
criteria, our historical experience with a certain asset type or credit grantor, and other similar factors.
We purchase portfolios of nonperforming loans from credit grantors through auctions and negotiated sales. In an auction
process, the seller will assemble a portfolio of nonperforming loans and will seek purchase prices from specifically invited potential
purchasers. In a privately negotiated sale process, the credit grantor 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 seller's review of any or all of the following: the purchaser's experience, reputation, financial standing,
operating procedures, business practices, and compliance oversight.
We purchase portfolios of nonperforming loans through either single portfolio transactions, referred to as spot sales, or
through the pre-arranged purchase of multiple portfolios over time, referred to as forward flow sales. Under a forward flow contract,
we agree to purchase statistically similar nonperforming loan portfolios from credit grantors on a periodic basis, at a negotiated
price over a specified time period, generally from three to twelve months.
(cid:49)onperforming Loan Portfolio Collection Operations
Call Center Operations
In higher volume markets, our collection efforts leverage internally staffed call centers. In some newer markets or in markets
that have less consistent debt purchasing patterns, most notably outside the U.S., we may utilize external vendors to do some of
this work. Whether the accounts are being worked internally or externally, we utilize our proprietary analysis to proportionally
direct work efforts to those customers most likely to pay. The analysis driving those decisions relies on models and variables that
have the highest correlation to profitable collections from call activity.
Compliance
Legal Recovery - Core Portfolios
An important component of our collections effort involves our legal recovery operations and the judicial collection of balances
from customers who, in general, 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 to select those accounts reflecting a high propensity to pay in a legal environment.
Depending on the characteristics 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
when accounts are selected properly, it also usually generates net cash collections that likely would not have been realized otherwise.
We use a combination of internal staff (attorney and support) and external staff to pursue legal collections under certain
circumstances, as we deem appropriate.
Insolvency Operations
Insolvency Operations in the U.S. manages customer filings under the U.S. Bankruptcy Code on debtor accounts derived
from two sources: (1) our purchased pools of bankrupt nonperforming loans and (2) our Core purchased pools of nonperforming
loans that have filed for bankruptcy protection after being purchased by us. We file proofs of claim ("POCs") or claim transfers
and actively manage these accounts through the entire life cycle of the bankruptcy proceeding to substantiate our claims and ensure
that we participate in any distributions to creditors. Outside of the U.S., similar insolvency work is primarily outsourced to third
parties.
Insolvency accounts in the U.S. are typically those filed under Chapter 13 of the U.S. Bankruptcy Code, have an associated
payment plan that generally ranges from three to five years in duration, and can be purchased at any stage in the bankruptcy plan
life cycle. Portfolios sold close to the filing of the bankruptcy plan will generally take months to generate cash flow; however,
aged portfolios sold years after the filing of the bankruptcy plan will typically generate cash flows immediately. (cid:49)on-U.S. insolvency
accounts may have some slight differences, but generally operate in a similar manner. In Canada, we purchase consumer proposal,
consumer credit counseling and bankrupt accounts. In the UK, we purchase individual voluntary arrangements, company voluntary
arrangements, trust deeds, and bankrupt accounts. In Germany, we purchase consumer bankruptcies, which may also consist of
small business loans with a personal guarantee.
In addition to the purchase, collection, and management of portfolios of nonperforming loans, we provide fee-based services
including class action claims recovery purchasing and servicing through Claims Compensation Bureau, LLC ("CCB") and third-
party servicing of bankruptcy accounts in the U.S.
Cash collections in the Americas tend to be higher in the first half of the year due to the high volume of income tax refunds
received by individuals in the U.S., and trend lower as the year progresses. Customer payment patterns in all of the countries in
which we operate can be affected by seasonal employment trends, income tax refunds, and holiday spending habits.
Seasonality
Competition
Purchased portfolio competition is derived from both third-party contingent fee collection agencies and other purchasers of
debt that manage their own nonperforming loans or outsource such servicing. Our primary competitors in our fee-based business
are providers of outsourced receivables management services. Regulatory complexity and burdens, combined with seller preference
for experienced portfolio purchasers, create significant barriers to successful entry for new competitors particularly in the U.S.
While both markets remain competitive, the contingent fee industry is more fragmented than the purchased portfolio industry.
We face bidding competition in our purchase of nonperforming loans and in obtaining placements for our fee-based businesses.
We also compete on the basis of reputation, industry experience, and performance. We believe that our competitive strengths
include our disciplined and proprietary underwriting process, the extensive data set we have developed since our founding in 1996,
our ability to bid on portfolios at appropriate prices, our capital position, our reputation from previous portfolio purchase
transactions, our ability to close transactions in a timely fashion, our strong relationships with credit grantors, 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.
Our approach to compliance is multifaceted and comprehensive and is overseen by both the Board of Directors and
management. Our compliance management system includes policies and procedures, training, monitoring, and consumer complaint
response. In addition, our compliance expectations extend to our service providers. Our compliance management system is
predicated on the following:
•
our Code of Conduct, which applies to all directors, officers, and employees, is available at the Investor Relations page
of our website at www.pragroup.com;
compliance and ethics training for our directors, officers, and employees;
•
•
a confidential telephone and email hotline and web-based portals to report suspected compliance violations, fraud, financial
reporting, accounting, and auditing matters, and other acts that may be illegal and/or unethical;
•
regular testing by our compliance and internal audit departments of controls embedded in business processes designed to
foster compliance with laws, regulations, and internal policy; and
•
regular evaluation of the legislative and regulatory environment and monitoring of statutory and regulatory changes and
relevant case law, so that operations personnel are aware of and in compliance with the laws and judicial decisions that
may impact their job duties.
Regulation
We are subject to a variety of federal, state, local, and international laws that establish specific guidelines and procedures
that debt collectors must follow when collecting customer accounts, including laws relating to the collection, use, retention, security,
and transfer of personal information. It is our policy to comply with applicable federal, state, local, and international laws in all
our activities even though there are inconsistencies between jurisdictions and frequent changes in these laws and regulations,
including their interpretation and application. Our failure to comply with these laws could result in enforcement action against
us, the payment of significant fines and penalties, restrictions upon our operations, or our inability to recover amounts owed to us.
Significant laws and regulations applicable to our business include the following:
• Fair Debt Collection Practices Act ("FDCPA"), which imposes certain obligations and restrictions on the practices of
debt collectors, including specific restrictions regarding the time, place and manner of the communications.
6
7
fp0052934_PRA_10k_2020_combined4.indd 8
4/20/2020 12:52:33 PM
To identify buying opportunities, we maintain an extensive marketing effort with our senior officers contacting known and
prospective sellers of nonperforming loans. From these sellers, we have aquired a variety of nonperforming loans including Visa®
and MasterCard® credit cards, private label and other credit cards, installment loans, lines of credit, deficiency balances of various
types, legal judgments, and trade payables. Sellers of nonperforming loans include major banks, credit unions, consumer finance
companies, retailers, utilities, automobile finance companies, and other debt owners. The price at which we purchase portfolios
depends on the age of the portfolio, whether it is a Core or Insolvency portfolio, geographic distribution, the seller's selection
criteria, our historical experience with a certain asset type or credit grantor, and other similar factors.
We purchase portfolios of nonperforming loans from credit grantors through auctions and negotiated sales. In an auction
process, the seller will assemble a portfolio of nonperforming loans and will seek purchase prices from specifically invited potential
purchasers. In a privately negotiated sale process, the credit grantor 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 seller's review of any or all of the following: the purchaser's experience, reputation, financial standing,
operating procedures, business practices, and compliance oversight.
We purchase portfolios of nonperforming loans through either single portfolio transactions, referred to as spot sales, or
through the pre-arranged purchase of multiple portfolios over time, referred to as forward flow sales. Under a forward flow contract,
we agree to purchase statistically similar nonperforming loan portfolios from credit grantors on a periodic basis, at a negotiated
price over a specified time period, generally from three to twelve months.
(cid:49)onperforming Loan Portfolio Collection Operations
Call Center Operations
In higher volume markets, our collection efforts leverage internally staffed call centers. In some newer markets or in markets
that have less consistent debt purchasing patterns, most notably outside the U.S., we may utilize external vendors to do some of
this work. Whether the accounts are being worked internally or externally, we utilize our proprietary analysis to proportionally
direct work efforts to those customers most likely to pay. The analysis driving those decisions relies on models and variables that
have the highest correlation to profitable collections from call activity.
Legal Recovery - Core Portfolios
An important component of our collections effort involves our legal recovery operations and the judicial collection of balances
from customers who, in general, 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 to select those accounts reflecting a high propensity to pay in a legal environment.
Depending on the characteristics 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
when accounts are selected properly, it also usually generates net cash collections that likely would not have been realized otherwise.
We use a combination of internal staff (attorney and support) and external staff to pursue legal collections under certain
circumstances, as we deem appropriate.
Insolvency Operations
Insolvency Operations in the U.S. manages customer filings under the U.S. Bankruptcy Code on debtor accounts derived
from two sources: (1) our purchased pools of bankrupt nonperforming loans and (2) our Core purchased pools of nonperforming
loans that have filed for bankruptcy protection after being purchased by us. We file proofs of claim ("POCs") or claim transfers
that we participate in any distributions to creditors. Outside of the U.S., similar insolvency work is primarily outsourced to third
parties.
Insolvency accounts in the U.S. are typically those filed under Chapter 13 of the U.S. Bankruptcy Code, have an associated
payment plan that generally ranges from three to five years in duration, and can be purchased at any stage in the bankruptcy plan
life cycle. Portfolios sold close to the filing of the bankruptcy plan will generally take months to generate cash flow; however,
aged portfolios sold years after the filing of the bankruptcy plan will typically generate cash flows immediately. (cid:49)on-U.S. insolvency
accounts may have some slight differences, but generally operate in a similar manner. In Canada, we purchase consumer proposal,
consumer credit counseling and bankrupt accounts. In the UK, we purchase individual voluntary arrangements, company voluntary
arrangements, trust deeds, and bankrupt accounts. In Germany, we purchase consumer bankruptcies, which may also consist of
small business loans with a personal guarantee.
(cid:49)onperforming Loan Portfolio Acquisitions
Fee-Based Services
In addition to the purchase, collection, and management of portfolios of nonperforming loans, we provide fee-based services
including class action claims recovery purchasing and servicing through Claims Compensation Bureau, LLC ("CCB") and third-
party servicing of bankruptcy accounts in the U.S.
Seasonality
Cash collections in the Americas tend to be higher in the first half of the year due to the high volume of income tax refunds
received by individuals in the U.S., and trend lower as the year progresses. Customer payment patterns in all of the countries in
which we operate can be affected by seasonal employment trends, income tax refunds, and holiday spending habits.
Competition
Purchased portfolio competition is derived from both third-party contingent fee collection agencies and other purchasers of
debt that manage their own nonperforming loans or outsource such servicing. Our primary competitors in our fee-based business
are providers of outsourced receivables management services. Regulatory complexity and burdens, combined with seller preference
for experienced portfolio purchasers, create significant barriers to successful entry for new competitors particularly in the U.S.
While both markets remain competitive, the contingent fee industry is more fragmented than the purchased portfolio industry.
We face bidding competition in our purchase of nonperforming loans and in obtaining placements for our fee-based businesses.
We also compete on the basis of reputation, industry experience, and performance. We believe that our competitive strengths
include our disciplined and proprietary underwriting process, the extensive data set we have developed since our founding in 1996,
our ability to bid on portfolios at appropriate prices, our capital position, our reputation from previous portfolio purchase
transactions, our ability to close transactions in a timely fashion, our strong relationships with credit grantors, 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.
Compliance
Our approach to compliance is multifaceted and comprehensive and is overseen by both the Board of Directors and
management. Our compliance management system includes policies and procedures, training, monitoring, and consumer complaint
response. In addition, our compliance expectations extend to our service providers. Our compliance management system is
predicated on the following:
•
•
•
•
•
our Code of Conduct, which applies to all directors, officers, and employees, is available at the Investor Relations page
of our website at www.pragroup.com;
compliance and ethics training for our directors, officers, and employees;
a confidential telephone and email hotline and web-based portals to report suspected compliance violations, fraud, financial
reporting, accounting, and auditing matters, and other acts that may be illegal and/or unethical;
regular testing by our compliance and internal audit departments of controls embedded in business processes designed to
foster compliance with laws, regulations, and internal policy; and
regular evaluation of the legislative and regulatory environment and monitoring of statutory and regulatory changes and
relevant case law, so that operations personnel are aware of and in compliance with the laws and judicial decisions that
may impact their job duties.
and actively manage these accounts through the entire life cycle of the bankruptcy proceeding to substantiate our claims and ensure
Regulation
We are subject to a variety of federal, state, local, and international laws that establish specific guidelines and procedures
that debt collectors must follow when collecting customer accounts, including laws relating to the collection, use, retention, security,
and transfer of personal information. It is our policy to comply with applicable federal, state, local, and international laws in all
our activities even though there are inconsistencies between jurisdictions and frequent changes in these laws and regulations,
including their interpretation and application. Our failure to comply with these laws could result in enforcement action against
us, the payment of significant fines and penalties, restrictions upon our operations, or our inability to recover amounts owed to us.
Significant laws and regulations applicable to our business include the following:
• Fair Debt Collection Practices Act ("FDCPA"), which imposes certain obligations and restrictions on the practices of
debt collectors, including specific restrictions regarding the time, place and manner of the communications.
6
7
fp0052934_PRA_10k_2020_combined4.indd 9
4/20/2020 12:52:33 PM
• Fair Credit Reporting Act ("FCRA"), which obligates credit information providers to verify the accuracy of information
Available Information
provided to credit reporting agencies and investigate consumer disputes concerning the accuracy of such information.
• Gramm-Leach-Bliley Act, which 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.
• Electronic Funds Transfer Act, which regulates electronic fund transfer transactions, including a consumer’s right to stop
payments on a pre-approved fund transfer and right to receive certain documentation of the transaction.
We make available on or through our website, www.pragroup.com, certain reports that we file with or furnish to the SEC in
accordance with the Securities Exchange Act of 1934, as amended (the "Exchange Act"). 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 Exchange Act ("SEC Filings"). 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 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.
•
•
Telephone Consumer Protection Act ("TCPA"), which, along with similar state laws, places certain restrictions on users
of certain automated dialing equipment and pre-recorded messages that place telephone calls to consumers.
The information contained on, or that can be accessed through our website, is not, and shall not be deemed to be, a part of
this Form 10-K or incorporated into any of our other SEC Filings.
Servicemembers Civil Relief Act ("SCRA"), which 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.
at:
Reports filed with, or furnished to, the SEC are also available free of charge upon request by contacting our corporate office
• Health Insurance Portability and Accountability Act, which provides standards to protect the confidentiality of patients'
personal healthcare and financial information in the U.S.
• U.S. Bankruptcy Code, which prohibits certain contacts with consumers after the filing of bankruptcy petitions and dictates
what types of claims will or will not be allowed in a bankruptcy proceeding including how such claims may be discharged.
• Americans with Disabilities Act, which requires that telecommunications companies operating in the U.S. 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.
• U.S. Foreign Corrupt Practices Act ("FCPA"), United Kingdom Bribery Act ("UK Bribery Act") and Similar Laws. Our
operations outside the U.S. are subject to various U.S. and international laws and regulations, such as the FCPA and the
UK Bribery Act, which prohibit corrupt payments to governmental officials and certain other individuals. The FCPA
prohibits U.S. 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 or help obtain or
retain business. Although similar to the FCPA, the UK Bribery Act is broader in scope and covers bribes given to or
received by any person with improper intent.
• Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act"), which restructured the regulation
and supervision of the financial services industry in the U.S. and created the CFPB. The CFPB has rulemaking, supervisory,
and enforcement authority over larger consumer debt collectors. The Dodd-Frank Act, along with the Unfair, Deceptive,
or Abusive Acts or Practices ("UDAAP") provisions included therein, and the Federal Trade Commission Act, prohibit
unfair, deceptive, and/or abusive acts and practices.
•
International data protection and privacy laws, which include relevant country specific legislation in the United Kingdom
and other European countries where we operate that regulate the processing of information relating to individuals, including
the obtaining, holding, use or disclosure of such information; the Personal Information Protection and Electronic
Documents Act, which aims to protect personal information that is collected, used or disclosed in certain circumstances
for purposes of electronic commerce in Canada; and the EU GDPR, which regulates the processing and free movement
of personal data within the EU and transfer of such data outside the EU.
• Consumer Credit Act 1974 (and its related regulations), Unfair Terms in Consumer Contracts Regulations of 1999 and
the Financial Conduct Authority's consumer credit conduct of business rules, which apply to our international operations
and govern consumer credit agreements.
In addition, certain of our EU subsidiaries are subject to capital adequacy and liquidity requirements.
Employees
As of December 31, 2019, we employed 4,412 full-time equivalents globally. Management considers our employee relations
to be good. While none of our (cid:49)orth 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.
PRA Group, Inc.
Attn: Investor Relations
120 Corporate Boulevard, Suite 100
(cid:49)orfolk, Virginia 23502
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 business, results of operations, financial condition, liquidity, cash flows,
and the value of, and return on, an investment in our Company.
Risks related to our operations and industry
A deterioration in the economic or inflationary environment in the Americas or Europe could have an adverse effect on our business
and results of operations.
Our performance may be adversely affected by economic, political or inflationary conditions in any market in which we
operate. These conditions could include regulatory developments, changes in global or domestic economic policy, legislative
changes, the sovereign debt crises experienced in several European countries and the uncertainty regarding the EU’s future as a
result of the UK's departure from the EU. Deterioration in economic conditions, 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 business and financial results. Deteriorating economic conditions could also adversely impact
the businesses 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 which could adversely affect our business, financial results, and ability to succeed
in international markets. If conditions in major credit markets deteriorate, the amount of consumer or commercial lending and
financing could be reduced, thus decreasing the volume of nonperforming loans available for our purchase.
Other factors associated with the economy that could influence our performance include the financial stability of the lenders
on our bank loans and credit facilities and our access to capital and credit. The financial turmoil that adversely affected the banking
system and financial markets during the last domestic recession resulted in the tightening of credit markets. Although there has
since been improvement, a worsening of current conditions could have a negative impact on our business, including a decrease in
the value of our financial investments and the insolvency of lending institutions, including the lenders providing our bank loans
and credit facilities, 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 nonperforming loans with additional portfolios sufficient to operate efficiently and
profitably, and/or we may not be able to purchase nonperforming loans at appropriate prices.
To operate profitably, we must purchase and service a sufficient amount of nonperforming loans 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 nonperforming loan 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 portfolios.
These practices could lead to negative consequences such as:
8
9
fp0052934_PRA_10k_2020_combined4.indd 10
4/20/2020 12:52:34 PM
• Fair Credit Reporting Act ("FCRA"), which obligates credit information providers to verify the accuracy of information
Available Information
provided to credit reporting agencies and investigate consumer disputes concerning the accuracy of such information.
• Gramm-Leach-Bliley Act, which 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.
• Electronic Funds Transfer Act, which regulates electronic fund transfer transactions, including a consumer’s right to stop
payments on a pre-approved fund transfer and right to receive certain documentation of the transaction.
We make available on or through our website, www.pragroup.com, certain reports that we file with or furnish to the SEC in
accordance with the Securities Exchange Act of 1934, as amended (the "Exchange Act"). 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 Exchange Act ("SEC Filings"). 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 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.
•
Telephone Consumer Protection Act ("TCPA"), which, along with similar state laws, places certain restrictions on users
of certain automated dialing equipment and pre-recorded messages that place telephone calls to consumers.
The information contained on, or that can be accessed through our website, is not, and shall not be deemed to be, a part of
this Form 10-K or incorporated into any of our other SEC Filings.
•
Servicemembers Civil Relief Act ("SCRA"), which 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.
at:
Reports filed with, or furnished to, the SEC are also available free of charge upon request by contacting our corporate office
• Health Insurance Portability and Accountability Act, which provides standards to protect the confidentiality of patients'
personal healthcare and financial information in the U.S.
• U.S. Bankruptcy Code, which prohibits certain contacts with consumers after the filing of bankruptcy petitions and dictates
what types of claims will or will not be allowed in a bankruptcy proceeding including how such claims may be discharged.
• Americans with Disabilities Act, which requires that telecommunications companies operating in the U.S. 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.
• U.S. Foreign Corrupt Practices Act ("FCPA"), United Kingdom Bribery Act ("UK Bribery Act") and Similar Laws. Our
operations outside the U.S. are subject to various U.S. and international laws and regulations, such as the FCPA and the
UK Bribery Act, which prohibit corrupt payments to governmental officials and certain other individuals. The FCPA
prohibits U.S. 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 or help obtain or
retain business. Although similar to the FCPA, the UK Bribery Act is broader in scope and covers bribes given to or
received by any person with improper intent.
• Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act"), which restructured the regulation
and supervision of the financial services industry in the U.S. and created the CFPB. The CFPB has rulemaking, supervisory,
and enforcement authority over larger consumer debt collectors. The Dodd-Frank Act, along with the Unfair, Deceptive,
or Abusive Acts or Practices ("UDAAP") provisions included therein, and the Federal Trade Commission Act, prohibit
unfair, deceptive, and/or abusive acts and practices.
•
International data protection and privacy laws, which include relevant country specific legislation in the United Kingdom
and other European countries where we operate that regulate the processing of information relating to individuals, including
the obtaining, holding, use or disclosure of such information; the Personal Information Protection and Electronic
Documents Act, which aims to protect personal information that is collected, used or disclosed in certain circumstances
for purposes of electronic commerce in Canada; and the EU GDPR, which regulates the processing and free movement
of personal data within the EU and transfer of such data outside the EU.
• Consumer Credit Act 1974 (and its related regulations), Unfair Terms in Consumer Contracts Regulations of 1999 and
the Financial Conduct Authority's consumer credit conduct of business rules, which apply to our international operations
and govern consumer credit agreements.
In addition, certain of our EU subsidiaries are subject to capital adequacy and liquidity requirements.
Employees
As of December 31, 2019, we employed 4,412 full-time equivalents globally. Management considers our employee relations
to be good. While none of our (cid:49)orth 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.
PRA Group, Inc.
Attn: Investor Relations
120 Corporate Boulevard, Suite 100
(cid:49)orfolk, Virginia 23502
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 business, results of operations, financial condition, liquidity, cash flows,
and the value of, and return on, an investment in our Company.
Risks related to our operations and industry
A deterioration in the economic or inflationary environment in the Americas or Europe could have an adverse effect on our business
and results of operations.
Our performance may be adversely affected by economic, political or inflationary conditions in any market in which we
operate. These conditions could include regulatory developments, changes in global or domestic economic policy, legislative
changes, the sovereign debt crises experienced in several European countries and the uncertainty regarding the EU’s future as a
result of the UK's departure from the EU. Deterioration in economic conditions, 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 business and financial results. Deteriorating economic conditions could also adversely impact
the businesses 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 which could adversely affect our business, financial results, and ability to succeed
in international markets. If conditions in major credit markets deteriorate, the amount of consumer or commercial lending and
financing could be reduced, thus decreasing the volume of nonperforming loans available for our purchase.
Other factors associated with the economy that could influence our performance include the financial stability of the lenders
on our bank loans and credit facilities and our access to capital and credit. The financial turmoil that adversely affected the banking
system and financial markets during the last domestic recession resulted in the tightening of credit markets. Although there has
since been improvement, a worsening of current conditions could have a negative impact on our business, including a decrease in
the value of our financial investments and the insolvency of lending institutions, including the lenders providing our bank loans
and credit facilities, 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 nonperforming loans with additional portfolios sufficient to operate efficiently and
profitably, and/or we may not be able to purchase nonperforming loans at appropriate prices.
To operate profitably, we must purchase and service a sufficient amount of nonperforming loans 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 nonperforming loan 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 portfolios.
These practices could lead to negative consequences such as:
8
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•
•
•
•
•
•
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 nonperforming loan portfolios at prices that 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 nonperforming loan 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 nonperforming loans available
for purchase from debt owners. Conversely, lower regulatory barriers with respect to debt buyers could lead to increased participants
in the debt collection industry, which could, in turn, impact the supply of nonperforming loans available for purchase. We cannot
predict how our ability to identify and purchase nonperforming loans and the quality of those nonperforming loans would be
affected if there were a shift in lending practices, whether caused by changes in the regulations or accounting practices applicable
to debt owners or debt buyers, a sustained economic downturn or otherwise.
Moreover, there can be no assurance that debt owners will continue to sell their nonperforming loans consistent with recent
levels or at all, or that we will be able to bid competitively for those portfolios. Because of the length of time involved in collecting
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 maintain our business or adapt to changing market needs as
well as our current or future competitors, we may experience reduced access to nonperforming loan portfolios at appropriate prices
and, therefore, reduced profitability.
Currently, a number of large banks that historically sold nonperforming loans in the U.S., including sellers of bankrupt
accounts, are not selling such debt. Should these conditions worsen, it could negatively impact our ability to replace our
nonperforming loans with additional portfolios sufficient to operate profitably.
We may not be able to collect sufficient amounts on our nonperforming loans to fund our operations.
tribunals and works councils;
Our principal business consists of purchasing and liquidating nonperforming loans that consumers or others have failed to
pay. The debt owners have typically made numerous attempts to recover on their receivables, often using a combination of in-
house recovery efforts and third-party collection agencies. These nonperforming loans are difficult to collect, and we may not
collect a sufficient amount to cover our investment and the costs of running our business.
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 collections operations 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 nonperforming or insolvent
bankrupt receivables portfolio is significantly lower than the total amount we projected when we acquired the portfolio, our financial
condition and results of operations could be adversely impacted.
Changes in accounting standards and their interpretations could adversely affect our operating results.
U.S. Generally Accepted Accounting Principles ("GAAP"), as issued and amended by the Financial Accounting Standards
Board ("FASB"), is subject to interpretation by the SEC, and various other bodies that promulgate and interpret appropriate
10
11
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accounting principles. These principles and related implementation guidelines and interpretations can be highly complex and
involve subjective estimates. A change in these principles or interpretations could have a significant effect on our reported financial
results. For example, in June 2016 the FASB issued Accounting Standards Codification ("ASC") (cid:49)o. 2016-13, Financial Instruments
- Credit Losses (Topic 326): “Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”), which requires the
measurement of expected credit losses for financial instruments held at the reporting date based on historical experience, current
conditions and reasonable and supportable forecasts. Furthermore, in (cid:49)ovember 2019, FASB issued ASU 2019-11, “Codification
Improvements to Topic 326, Financial Instruments - Credit Losses” (“ASU 2019-11”), which amends the Purchase Credit
Deteriorated ("PCD") financial asset guidance in ASU 2016-13 to clarify that expected recoveries of amounts previously written
off and expected to be written off should be included in the valuation account and should not exceed the aggregate of amounts
previously written off and expected to be written off by an entity. ASU 2019-11 clarifies that a negative allowance is recognized
when an entity determines, after a full or partial writeoff of the amortized cost basis, that it will recover all or a portion of the basis.
ASU 2016-13 and ASU 2019-11 supersede ASC 310-30, "Loans and Debt Securities Acquired with Deteriorated Credit
Quality" ("ASC 310-30"), which we currently follow to account for income recognized on our finance receivables, and are effective
for the fiscal year beginning January 1, 2020. ASU 2016-13 and ASU 2019-11 represent a significant significant change from
existing U.S. GAAP and are expected to result in material changes to the Company’s accounting for its finance receivables.
Implementation efforts are nearly complete, including finalizing the accounting processes, fulfillment of additional data needs for
new disclosures and reporting requirements, and drafting accounting and internal control policies and procedures. ASU 2016-13
and ASU 2019-11, amendments thereof, and amendments to new and existing accounting standards could have an adverse effect
on our financial condition and results of operations.
Our international operations expose us to risks which could harm our business, results of operations and financial condition.
A significant portion of our operations is conducted outside the U.S. This could expose us to adverse economic, industry and
political conditions that 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 operations 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;
foreign exchange controls on currency conversion and the transfer of funds that might prevent us from repatriating cash
earned in countries outside the U.S. in a tax-efficient manner;
•
currency exchange rate fluctuations, currency restructurings, inflation or deflation, and our ability to manage these
fluctuations through a foreign exchange risk management program;
•
different employee/employer relationships, laws and regulations, union recognition and the existence of employment
laws and regulations imposed by international governments, including those governing data security, sharing and transfer;
potentially adverse tax consequences resulting from changes in tax laws in the jurisdictions in which we operate or
challenges to our interpretations and application of complex international tax laws;
•
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;
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 international governmental actions, whether through austerity or stimulus measures or initiatives, intended
to control or influence macroeconomic factors such as wages, unemployment, national output or consumption, inflation,
investment, credit, finance, taxation or other economic drivers;
•
•
•
•
•
•
•
•
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 nonperforming loan portfolios at prices that 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 nonperforming loan 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 nonperforming loans available
for purchase from debt owners. Conversely, lower regulatory barriers with respect to debt buyers could lead to increased participants
in the debt collection industry, which could, in turn, impact the supply of nonperforming loans available for purchase. We cannot
predict how our ability to identify and purchase nonperforming loans and the quality of those nonperforming loans would be
affected if there were a shift in lending practices, whether caused by changes in the regulations or accounting practices applicable
to debt owners or debt buyers, a sustained economic downturn or otherwise.
Moreover, there can be no assurance that debt owners will continue to sell their nonperforming loans consistent with recent
levels or at all, or that we will be able to bid competitively for those portfolios. Because of the length of time involved in collecting
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 maintain our business or adapt to changing market needs as
well as our current or future competitors, we may experience reduced access to nonperforming loan portfolios at appropriate prices
and, therefore, reduced profitability.
Currently, a number of large banks that historically sold nonperforming loans in the U.S., including sellers of bankrupt
accounts, are not selling such debt. Should these conditions worsen, it could negatively impact our ability to replace our
nonperforming loans with additional portfolios sufficient to operate profitably.
We may not be able to collect sufficient amounts on our nonperforming loans to fund our operations.
Our principal business consists of purchasing and liquidating nonperforming loans that consumers or others have failed to
pay. The debt owners have typically made numerous attempts to recover on their receivables, often using a combination of in-
house recovery efforts and third-party collection agencies. These nonperforming loans are difficult to collect, and we may not
collect a sufficient amount to cover our investment and the costs of running our business.
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 collections operations 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 nonperforming or insolvent
bankrupt receivables portfolio is significantly lower than the total amount we projected when we acquired the portfolio, our financial
condition and results of operations could be adversely impacted.
Changes in accounting standards and their interpretations could adversely affect our operating results.
U.S. Generally Accepted Accounting Principles ("GAAP"), as issued and amended by the Financial Accounting Standards
Board ("FASB"), is subject to interpretation by the SEC, and various other bodies that promulgate and interpret appropriate
accounting principles. These principles and related implementation guidelines and interpretations can be highly complex and
involve subjective estimates. A change in these principles or interpretations could have a significant effect on our reported financial
results. For example, in June 2016 the FASB issued Accounting Standards Codification ("ASC") (cid:49)o. 2016-13, Financial Instruments
- Credit Losses (Topic 326): “Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”), which requires the
measurement of expected credit losses for financial instruments held at the reporting date based on historical experience, current
conditions and reasonable and supportable forecasts. Furthermore, in (cid:49)ovember 2019, FASB issued ASU 2019-11, “Codification
Improvements to Topic 326, Financial Instruments - Credit Losses” (“ASU 2019-11”), which amends the Purchase Credit
Deteriorated ("PCD") financial asset guidance in ASU 2016-13 to clarify that expected recoveries of amounts previously written
off and expected to be written off should be included in the valuation account and should not exceed the aggregate of amounts
previously written off and expected to be written off by an entity. ASU 2019-11 clarifies that a negative allowance is recognized
when an entity determines, after a full or partial writeoff of the amortized cost basis, that it will recover all or a portion of the basis.
ASU 2016-13 and ASU 2019-11 supersede ASC 310-30, "Loans and Debt Securities Acquired with Deteriorated Credit
Quality" ("ASC 310-30"), which we currently follow to account for income recognized on our finance receivables, and are effective
for the fiscal year beginning January 1, 2020. ASU 2016-13 and ASU 2019-11 represent a significant significant change from
existing U.S. GAAP and are expected to result in material changes to the Company’s accounting for its finance receivables.
Implementation efforts are nearly complete, including finalizing the accounting processes, fulfillment of additional data needs for
new disclosures and reporting requirements, and drafting accounting and internal control policies and procedures. ASU 2016-13
and ASU 2019-11, amendments thereof, and amendments to new and existing accounting standards could have an adverse effect
on our financial condition and results of operations.
Our international operations expose us to risks which could harm our business, results of operations and financial condition.
A significant portion of our operations is conducted outside the U.S. This could expose us to adverse economic, industry and
political conditions that 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 operations 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;
foreign exchange controls on currency conversion and the transfer of funds that might prevent us from repatriating cash
earned in countries outside the U.S. in a tax-efficient manner;
currency exchange rate fluctuations, currency restructurings, inflation or deflation, and our ability to manage these
fluctuations through a foreign exchange risk management program;
different employee/employer relationships, laws and regulations, union recognition and the existence of employment
tribunals and works councils;
laws and regulations imposed by international governments, including those governing data security, sharing and transfer;
potentially adverse tax consequences resulting from changes in tax laws in the jurisdictions in which we operate or
challenges to our interpretations and application of complex international tax laws;
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;
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 international governmental actions, whether through austerity or stimulus measures or initiatives, intended
to control or influence macroeconomic factors such as wages, unemployment, national output or consumption, inflation,
investment, credit, finance, taxation or other economic drivers;
10
11
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•
•
•
•
the presence of varying levels of business corruption in international markets and the effect of various anti-corruption
and other laws on our international operations;
the impact on our day-to-day operations and our ability to staff our international operations given our 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;
potential damage to our reputation due to non-compliance with international and local laws; and
the complexity and necessity of using non-U.S. representatives, consultants and other third-party vendors.
Any one of these factors could adversely affect our business, results of operations and financial condition.
The impact of worldwide tax audits, changes to international or domestic tax laws, the issuance of new tax guidance, and the
results of operations could have an adverse tax effect on our financial condition.
Our tax filings are subject to audit by domestic and international tax authorities. These audits may result in assessments of
additional taxes, adjustments to the timing of taxable income or deductions, or re-allocations of income among tax jurisdictions.
Any one of these factors could adversely affect our business, results of operations and financial condition.
In addition, many countries in the EU and around the world have adopted and/or proposed changes to current tax laws.
Further, organizations such as the Organization for Economic Cooperation and Development have published actions that, if adopted
by countries where we do business, could increase our tax obligations in those countries. Due to the scale of our U.S. and international
business activities, many of these enacted and proposed changes to the taxation of our activities could increase our worldwide
effective tax rate potentially harming our financial position and results of operations.
While the Tax Act was enacted during December 2017, we still expect to see future regulatory, administrative or legislative
guidance. To the extent any future guidance differs from our current interpretation of the law, it could have a material effect on
our financial position and results of operations. The Tax Act included a broad range of tax reform provisions affecting businesses,
including the elimination of U.S. federal income taxes on dividends from international subsidiaries; requiring a current inclusion
in U.S. federal taxable income of certain earnings of controlled international corporations referred to as Global Intangible Low-
Taxed Income (“GILTI”); creating the base erosion anti-abuse tax, a new minimum tax; creating a new limitation on deductible
interest expense; and increased limitations on the deductibility of executive compensation.
Our future tax expense 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. The determination of
the provision for income taxes and other tax liabilities regarding our global operations 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(s) for which such determination is made.
Goodwill or other intangible asset impairment charges 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; or 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.
The UK's exit from the EU could adversely impact our business, results of operations and financial condition.
On June 23, 2016, the UK voted to leave the EU (commonly referred to as "Brexit"). Although Brexit occurred on January
31, 2020, there remains significant uncertainty about the future relationship between the UK and the EU and the impact of the
UK's withdrawal from the EU including its affect on business activity, impact on foreign currency, political stability and economic,
regulatory, and financial market conditions in the UK, the EU and globally.
As of December 31, 2019, the total estimated remaining collections ("ERC") of our UK portfolios constituted approximately
23% of our consolidated ERC. Our British pound assets are predominantly funded by British pound liabilities. However, British
pound net income and retained earnings could be affected when translated back to the U.S. dollar, positively or negatively, by
foreign exchange volatility in the short term resulting from the uncertainty of Brexit. In the longer term, any impact from Brexit on
our business, results of operations and financial condition will depend on the final terms negotiated by the UK and the EU, including
arrangements concerning taxes and financial services regulation.
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 believe that we have adopted reasonable compliance policies and 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 business, financial condition, results of operations, or liquidity. For more
information, refer to the "Litigation and Regulatory Matters" section of (cid:49)ote 14 to our Consolidated Financial Statements included
in Item 8 of this Form 10-K ("(cid:49)ote 14").
Class action suits and other litigation could divert our management's attention from operating our business and increase our
expenses.
Credit grantors, nonperforming loan 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. An unfavorable outcome in a class action suit
or other litigation could adversely affect our results of operations, financial condition, cash flows and liquidity. Even when we
prevail or the basis for the litigation is groundless, considerable time, energy and resources may be needed to respond, and such
class action lawsuits or other litigation could adversely affect our results of operations, financial condition, cash flows and liquidity.
A cyber incident could disrupt our operations, compromise or corrupt our confidential information or damage our reputation, all
of which could negatively impact our business and financial results.
Our business is highly dependent on our ability to process and monitor a large number of transactions across markets and in
multiple currencies. As we expand geographically, maintaining the security of our information technology systems and
infrastructure becomes more significant and difficult. As our reliance on technology has increased, so have the risks posed to our
systems, some of which are internal and others we have outsourced. The three primary risks we face from a cyber incident are
operational disruption, reputational damage and the exposure of private data such as customer information, our employees'
personally identifiable information, or proprietary business information such as underwriting and collections methodologies.
Although we take protective steps, including upgrading our systems and networks with intrusion and detection prevention
systems, monitoring firewalls to safeguard critical business applications and supervising third party providers that have access to
our systems, our computer systems, software and networks may still be vulnerable to unauthorized access, computer viruses or
other malicious code, and other events that could have a security impact. 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 business, reputation or financial results will not be impacted negatively 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. Additionally, we may be subject to fines,
penalties, litigation costs and settlements and financial losses that may not be fully covered by our cyber insurance.
12
13
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•
the presence of varying levels of business corruption in international markets and the effect of various anti-corruption
The UK's exit from the EU could adversely impact our business, results of operations and financial condition.
and other laws on our international operations;
•
the impact on our day-to-day operations and our ability to staff our international operations given our 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;
•
•
potential damage to our reputation due to non-compliance with international and local laws; and
the complexity and necessity of using non-U.S. representatives, consultants and other third-party vendors.
Any one of these factors could adversely affect our business, results of operations and financial condition.
The impact of worldwide tax audits, changes to international or domestic tax laws, the issuance of new tax guidance, and the
results of operations could have an adverse tax effect on our financial condition.
Our tax filings are subject to audit by domestic and international tax authorities. These audits may result in assessments of
additional taxes, adjustments to the timing of taxable income or deductions, or re-allocations of income among tax jurisdictions.
Any one of these factors could adversely affect our business, results of operations and financial condition.
In addition, many countries in the EU and around the world have adopted and/or proposed changes to current tax laws.
Further, organizations such as the Organization for Economic Cooperation and Development have published actions that, if adopted
by countries where we do business, could increase our tax obligations in those countries. Due to the scale of our U.S. and international
business activities, many of these enacted and proposed changes to the taxation of our activities could increase our worldwide
effective tax rate potentially harming our financial position and results of operations.
While the Tax Act was enacted during December 2017, we still expect to see future regulatory, administrative or legislative
guidance. To the extent any future guidance differs from our current interpretation of the law, it could have a material effect on
our financial position and results of operations. The Tax Act included a broad range of tax reform provisions affecting businesses,
including the elimination of U.S. federal income taxes on dividends from international subsidiaries; requiring a current inclusion
in U.S. federal taxable income of certain earnings of controlled international corporations referred to as Global Intangible Low-
Taxed Income (“GILTI”); creating the base erosion anti-abuse tax, a new minimum tax; creating a new limitation on deductible
interest expense; and increased limitations on the deductibility of executive compensation.
Our future tax expense 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. The determination of
the provision for income taxes and other tax liabilities regarding our global operations 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(s) for which such determination is made.
Goodwill or other intangible asset impairment charges 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; or 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.
12
On June 23, 2016, the UK voted to leave the EU (commonly referred to as "Brexit"). Although Brexit occurred on January
31, 2020, there remains significant uncertainty about the future relationship between the UK and the EU and the impact of the
UK's withdrawal from the EU including its affect on business activity, impact on foreign currency, political stability and economic,
regulatory, and financial market conditions in the UK, the EU and globally.
As of December 31, 2019, the total estimated remaining collections ("ERC") of our UK portfolios constituted approximately
23% of our consolidated ERC. Our British pound assets are predominantly funded by British pound liabilities. However, British
pound net income and retained earnings could be affected when translated back to the U.S. dollar, positively or negatively, by
foreign exchange volatility in the short term resulting from the uncertainty of Brexit. In the longer term, any impact from Brexit on
our business, results of operations and financial condition will depend on the final terms negotiated by the UK and the EU, including
arrangements concerning taxes and financial services regulation.
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 believe that we have adopted reasonable compliance policies and 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 business, financial condition, results of operations, or liquidity. For more
information, refer to the "Litigation and Regulatory Matters" section of (cid:49)ote 14 to our Consolidated Financial Statements included
in Item 8 of this Form 10-K ("(cid:49)ote 14").
Class action suits and other litigation could divert our management's attention from operating our business and increase our
expenses.
Credit grantors, nonperforming loan 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. An unfavorable outcome in a class action suit
or other litigation could adversely affect our results of operations, financial condition, cash flows and liquidity. Even when we
prevail or the basis for the litigation is groundless, considerable time, energy and resources may be needed to respond, and such
class action lawsuits or other litigation could adversely affect our results of operations, financial condition, cash flows and liquidity.
A cyber incident could disrupt our operations, compromise or corrupt our confidential information or damage our reputation, all
of which could negatively impact our business and financial results.
Our business is highly dependent on our ability to process and monitor a large number of transactions across markets and in
multiple currencies. As we expand geographically, maintaining the security of our information technology systems and
infrastructure becomes more significant and difficult. As our reliance on technology has increased, so have the risks posed to our
systems, some of which are internal and others we have outsourced. The three primary risks we face from a cyber incident are
operational disruption, reputational damage and the exposure of private data such as customer information, our employees'
personally identifiable information, or proprietary business information such as underwriting and collections methodologies.
Although we take protective steps, including upgrading our systems and networks with intrusion and detection prevention
systems, monitoring firewalls to safeguard critical business applications and supervising third party providers that have access to
our systems, our computer systems, software and networks may still be vulnerable to unauthorized access, computer viruses or
other malicious code, and other events that could have a security impact. 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 business, reputation or financial results will not be impacted negatively 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. Additionally, we may be subject to fines,
penalties, litigation costs and settlements and financial losses that may not be fully covered by our cyber insurance.
13
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The underperformance or failure of our information technology infrastructure, networks or telephone systems could result in loss
in productivity, loss of competitive advantage and business disruption.
Investigations, reviews, or enforcement actions by governmental authorities may result in changes to our business practices;
negatively impact our receivables portfolio acquisition volume; make collection of receivables more difficult; or expose us to the
We depend on effective information and telephone systems to operate our business. We have also acquired and expect to
acquire additional systems as a result of business acquisitions. Significant resources are required to maintain or enhance our
existing information and telephone systems and to replace obsolete systems. Although we are continually upgrading, streamlining,
and integrating our systems and have invested in strategies to prevent a failure, our systems are susceptible to outages due to natural
disasters, power loss, computer viruses, security breaches, hardware or software vulnerabilities, disruptions, and similar events.
Failure to adequately implement or maintain effective and efficient information systems with sufficiently advanced technological
capabilities, or our failure to efficiently and effectively consolidate our information systems to eliminate redundant or obsolete
applications, could cause us to lose our competitive advantage, divert management’s time, result in a loss of productivity or disrupt
business operations, which could have a material adverse effect on our business, financial condition and results of operations.
Risks associated with governmental regulation and laws
Our ability to collect and enforce our nonperforming loans may be limited under federal, state and international 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. Federal and state laws and the laws and regulations of the international
countries in which we operate may limit our ability to collect on and enforce our rights with respect to our nonperforming loans
regardless of any act or omission on our part. Some laws and regulations applicable to credit issuers may preclude us from collecting
on nonperforming loans we acquire 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 state, federal and international laws and regulations govern the collection, use, retention, transmission,
sharing and security of consumer data. 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 nonperforming loans and may harm our business. Our failure to comply with laws or
regulations applicable to us could limit our ability to collect on our receivables, which could reduce our profitability and harm our
business.
Failure to comply with 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. 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
business, results of operations and financial condition.
In a number of jurisdictions, we must maintain licenses to purchase or own debt, and/or to perform debt recovery services
and must satisfy related 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 certain jurisdictions,
subject us to increased regulation, increase our costs, or adversely affect our ability to purchase, own and/or collect our receivables.
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.
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 any applicable laws and regulations discussed above, 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 business, results of operations and financial condition.
risk of fines, penalties, restitution payments and litigation.
Our debt collection activities and business practices are subject to review from time to time by various governmental authorities
and regulators, including the CFPB, which may commence investigations, reviews, or enforcement actions, or reviews targeted
at businesses in the financial services industry. These investigations or 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 or reviews 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. The
CFPB 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), recover costs, and impose 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. Government authorities could also request or seek to
require us to cease certain of our practices or institute new practices. (cid:49)egative publicity relating to investigations or proceedings
brought by governmental authorities could have an adverse impact on our reputation, harm our ability to conduct business with
industry participants, and result in financial institutions reducing or eliminating sales of receivables portfolios to us which would
harm our business and negatively impact our results of operations. 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 periodically examines practices
regarding the collection of consumer debt. On September 9, 2015, Portfolio Associates, LLC ("PRA"), our wholly owned subsidiary,
entered into a consent order with the CFPB settling a previously disclosed investigation of certain debt collection practices of PRA
(the "Consent Order"). Among other things, the Consent Order required PRA to: (i) vacate 837 judgments obtained after the
applicable statute of limitations, refund $860,607 in payments received on account of such judgments and waive the remaining
$3.4 million in judgment balances; (ii) refund $18.2 million in Litigation Department Calls Restitution, as defined in the Consent
Order; and (iii) pay an $8.0 million civil money penalty to the CFPB. Although we have implemented the requirements of 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
monitors our compliance with the Consent Order and could make a determination that we have failed to adhere to our obligations.
Such a determination could result in additional inquiries, penalties or liabilities, which could have an adverse effect on our business,
results of operations, and financial condition.
Compliance with complex and evolving international and U.S. laws and regulations that apply to our international operations
could increase our cost of doing business in international jurisdictions.
We operate on a global basis with offices and activities in a number of jurisdictions throughout the Americas and Europe.
We face increased exposure to risks inherent in conducting business internationally, including compliance with complex
international and U.S. 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 those related to taxation and anti-corruption laws such
as the FCPA, the UK Bribery Act and other local laws prohibiting corrupt payments to governmental officials. Given the complexity
of these laws, there is a risk that we may inadvertently breach certain provisions of these laws, such as through the negligent
behavior of an employee or our failure to comply with certain formal documentation requirements. Violations of these laws and
regulations by us, any of our employees or our third-party vendors, either inadvertently or intentionally, could result in fines and
penalties, criminal sanctions, restrictions on our operations and limits on our ability to offer our products and services in one or
more countries. Violations of these laws could also adversely affect our business, brand, international expansion efforts, ability to
attract and retain employees and results of operations.
The regulation of data privacy in the U.S and globally could have an adverse effect on our business, results of operations, and
financial condition by increasing our compliance costs.
The regulation of data privacy, including interpretations and determinations by regulatory authorities in the U.S. and in the
countries in which we operate, continues to evolve. It is not possible to predict the effect of such rigorous data protection regulations
over time. For example, the EU and UK adopted the GDPR, which impacts our European operations. On May 25, 2018 the GDPR
14
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The underperformance or failure of our information technology infrastructure, networks or telephone systems could result in loss
in productivity, loss of competitive advantage and business disruption.
We depend on effective information and telephone systems to operate our business. We have also acquired and expect to
acquire additional systems as a result of business acquisitions. Significant resources are required to maintain or enhance our
existing information and telephone systems and to replace obsolete systems. Although we are continually upgrading, streamlining,
and integrating our systems and have invested in strategies to prevent a failure, our systems are susceptible to outages due to natural
disasters, power loss, computer viruses, security breaches, hardware or software vulnerabilities, disruptions, and similar events.
Failure to adequately implement or maintain effective and efficient information systems with sufficiently advanced technological
capabilities, or our failure to efficiently and effectively consolidate our information systems to eliminate redundant or obsolete
applications, could cause us to lose our competitive advantage, divert management’s time, result in a loss of productivity or disrupt
business operations, which could have a material adverse effect on our business, financial condition and results of operations.
Risks associated with governmental regulation and laws
Our ability to collect and enforce our nonperforming loans may be limited under federal, state and international 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. Federal and state laws and the laws and regulations of the international
countries in which we operate may limit our ability to collect on and enforce our rights with respect to our nonperforming loans
regardless of any act or omission on our part. Some laws and regulations applicable to credit issuers may preclude us from collecting
on nonperforming loans we acquire 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 state, federal and international laws and regulations govern the collection, use, retention, transmission,
sharing and security of consumer data. 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 nonperforming loans and may harm our business. Our failure to comply with laws or
regulations applicable to us could limit our ability to collect on our receivables, which could reduce our profitability and harm our
business.
Failure to comply with 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. 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
business, results of operations and financial condition.
In a number of jurisdictions, we must maintain licenses to purchase or own debt, and/or to perform debt recovery services
and must satisfy related 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 certain jurisdictions,
subject us to increased regulation, increase our costs, or adversely affect our ability to purchase, own and/or collect our receivables.
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.
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 any applicable laws and regulations discussed above, 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 business, results of operations and financial condition.
Investigations, reviews, or enforcement actions by governmental authorities may result in changes to our business practices;
negatively impact our receivables portfolio acquisition volume; make collection of receivables more difficult; or expose us to the
risk of fines, penalties, restitution payments and litigation.
Our debt collection activities and business practices are subject to review from time to time by various governmental authorities
and regulators, including the CFPB, which may commence investigations, reviews, or enforcement actions, or reviews targeted
at businesses in the financial services industry. These investigations or 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 or reviews 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. The
CFPB 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), recover costs, and impose 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. Government authorities could also request or seek to
require us to cease certain of our practices or institute new practices. (cid:49)egative publicity relating to investigations or proceedings
brought by governmental authorities could have an adverse impact on our reputation, harm our ability to conduct business with
industry participants, and result in financial institutions reducing or eliminating sales of receivables portfolios to us which would
harm our business and negatively impact our results of operations. 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 periodically examines practices
regarding the collection of consumer debt. On September 9, 2015, Portfolio Associates, LLC ("PRA"), our wholly owned subsidiary,
entered into a consent order with the CFPB settling a previously disclosed investigation of certain debt collection practices of PRA
(the "Consent Order"). Among other things, the Consent Order required PRA to: (i) vacate 837 judgments obtained after the
applicable statute of limitations, refund $860,607 in payments received on account of such judgments and waive the remaining
$3.4 million in judgment balances; (ii) refund $18.2 million in Litigation Department Calls Restitution, as defined in the Consent
Order; and (iii) pay an $8.0 million civil money penalty to the CFPB. Although we have implemented the requirements of 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
monitors our compliance with the Consent Order and could make a determination that we have failed to adhere to our obligations.
Such a determination could result in additional inquiries, penalties or liabilities, which could have an adverse effect on our business,
results of operations, and financial condition.
Compliance with complex and evolving international and U.S. laws and regulations that apply to our international operations
could increase our cost of doing business in international jurisdictions.
We operate on a global basis with offices and activities in a number of jurisdictions throughout the Americas and Europe.
We face increased exposure to risks inherent in conducting business internationally, including compliance with complex
international and U.S. 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 those related to taxation and anti-corruption laws such
as the FCPA, the UK Bribery Act and other local laws prohibiting corrupt payments to governmental officials. Given the complexity
of these laws, there is a risk that we may inadvertently breach certain provisions of these laws, such as through the negligent
behavior of an employee or our failure to comply with certain formal documentation requirements. Violations of these laws and
regulations by us, any of our employees or our third-party vendors, either inadvertently or intentionally, could result in fines and
penalties, criminal sanctions, restrictions on our operations and limits on our ability to offer our products and services in one or
more countries. Violations of these laws could also adversely affect our business, brand, international expansion efforts, ability to
attract and retain employees and results of operations.
The regulation of data privacy in the U.S and globally could have an adverse effect on our business, results of operations, and
financial condition by increasing our compliance costs.
The regulation of data privacy, including interpretations and determinations by regulatory authorities in the U.S. and in the
countries in which we operate, continues to evolve. It is not possible to predict the effect of such rigorous data protection regulations
over time. For example, the EU and UK adopted the GDPR, which impacts our European operations. On May 25, 2018 the GDPR
14
15
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updated data privacy compliance obligations, which required us to adapt our business practices accordingly. Financial penalties
for noncompliance with the GDPR can be significant. It is also the case that the U.S. federal government and states within the
U.S. have enacted or are considering legislation to enact data privacy protections. Data privacy regulations could result in increased
costs of conducting business to maintain compliance with such regulations. Although we take significant steps to protect the
security of our data and the personal data of our customers, we may be required to expend significant resources to comply with
regulations if third parties improperly obtain and use such data.
Risks associated with indebtedness
We utilize bank loans, credit facilities and convertible notes to finance our business activities, which could negatively impact our
liquidity and business operations if we are unable to retain, renegotiate, expand or replace our bank loans and credit facilities or
raise the necessary funds to repurchase our convertible notes.
As described in (cid:49)ote 6 to our Consolidated Financial Statements included in Item 8 of this Form 10-K, our sources of liquidity
include a (cid:49)orth American credit facility, a European multicurrency revolving credit facility and convertible senior notes. The
credit facilities contain financial and other restrictive covenants, including restrictions on how we operate our business and our
ability to pay dividends to our stockholders. Failure to satisfy any one of these covenants could result in negative consequences
including the following:
•
•
•
•
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 nonperforming loans needed to operate our business; or
our inability to secure alternative financing on favorable terms, if at all.
If we are unable to retain, renegotiate, expand or replace our credit facilities, including as a result of failure to satisfy the
restrictive covenants contained in them, our liquidity and business operations could be impacted negatively.
As referenced above, we have indebtedness in the form of Convertible Senior (cid:49)otes due 2020 and 2023 (collectively the
"(cid:49)otes") and may not have the ability to raise the funds necessary to repurchase the (cid:49)otes upon a fundamental change or to settle
conversions in cash. Our ability to make scheduled payments of the principal of, to pay interest on, or to refinance our indebtedness,
including the (cid:49)otes, or to make cash payments in connection with any conversion of the (cid:49)otes depends on our future performance,
which could be negatively impacted by economic, financial, competitive and other factors beyond our control. 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. In addition, in the event the conditional conversion features of the (cid:49)otes are triggered, holders of the (cid:49)otes are entitled
to convert the (cid:49)otes into shares of our common stock at any time during specified periods at their option, subject to the terms of
the indenture governing the (cid:49)otes. Upon conversion, unless we elect to deliver solely shares of our common stock 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 (cid:49)otes. However, we may not have enough available cash or be able to obtain financing at the time
we are required to repurchase (cid:49)otes surrendered to settle conversions in cash, and our ability to repurchase the (cid:49)otes or pay cash
upon conversion may be limited by law. Any issuance of shares of our common stock upon conversion of the (cid:49)otes would dilute
the ownership interest of our stockholders.
We may be restricted from paying cash upon conversion of the (cid:49)otes, repurchasing the (cid:49)otes for cash when required and repaying
the (cid:49)otes at maturity or upon acceleration following an event of default under the (cid:49)otes unless we repay all amounts outstanding
under, and terminate, our (cid:49)orth American Credit Agreement. Additionally, our future indebtedness may contain limitations on our
ability to pay cash upon conversion of the (cid:49)otes and on our ability to repurchase the (cid:49)otes.
The terms of our (cid:49)orth American Credit Agreement prohibit us from paying cash upon conversion of the (cid:49)otes, repurchasing
the (cid:49)otes for cash when required upon the occurrence of a fundamental change and repaying the (cid:49)otes at maturity or upon
acceleration following an event of default under the indenture governing the (cid:49)otes if a default or an event of default exists on the
date of such required payment, repurchase or repayment, as applicable, or certain other conditions are not met, including pro forma
compliance with the financial covenants and having “Sufficient Liquidity” (described below). As a result, we will be restricted
from making such payments unless the default or event of default under our (cid:49)orth American Credit Agreement is cured or waived,
such conditions are met and/or we repay all amounts then outstanding under, and terminate, our (cid:49)orth American Credit Agreement.
16
In addition, under our (cid:49)orth American Credit Agreement our ability to settle conversions of the (cid:49)otes in cash requires that
immediately prior to any such conversion, our cash and cash equivalents (including our availability under our domestic and multi-
currency revolving facilities under our (cid:49)orth American Credit Agreement) be at least 115% of the sum of the principal amount of
the (cid:49)otes to be paid in cash (“Sufficient Liquidity”). The terms of any additional indebtedness incurred as permitted by our (cid:49)orth
American Credit Agreement may contain similar or more onerous restrictions than the foregoing.
Our failure to repurchase (cid:49)otes, to pay, when due, cash upon conversion of the (cid:49)otes or repay the (cid:49)otes at maturity or upon
acceleration following an event of default under the indenture governing the (cid:49)otes would constitute a default under the indenture
governing the (cid:49)otes. A default under the indenture may constitute a default under our (cid:49)orth American Credit Agreement.
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.
Default by or failure of one or more of our counterparty financial institutions could cause us to incur significant losses.
As part of our risk management activities, we enter into transactions involving derivative financial instruments, including,
among others, forward contracts and interest rate swap contracts, with various financial institutions. In addition, we have significant
amounts of cash and cash equivalents on deposit or in accounts with banks or other financial institutions in the U.S. and abroad.
As a result, we are exposed to the risk of default by, or failure of, counterparty financial institutions. The risk of counterparty
default or failure may be heightened during economic downturns and periods of uncertainty in the financial markets. If one of our
counterparties were to become insolvent or file for bankruptcy, our ability to recover losses incurred as a result of default or to
retrieve our assets that are deposited or held in accounts with such counterparty may be limited by the counterparty's liquidity or
the applicable laws governing the insolvency or bankruptcy proceedings.
Uncertainty about the future of the LIBOR may adversely affect our business.
LIBOR is a reference rate used for over $110 trillion of financial contracts on a global basis. We incorporate LIBOR in both
our bank loan and derivative hedging agreements. Due to reforms coming out of the 2008 financial crisis, LIBOR is scheduled
to sunset at the end of 2021 and be replaced by an Alternative Reference Rate ("ARR"). A number of regulatory institutions are
involved in coordinating this transition including the Financial Conduct Authority in the UK, the U.S. Federal Reserve, the SEC,
and the FASB. Key industry-wide issues regarding the transition are still unresolved; these include the fact that a term structure
(1 month, 3 month, 6 month, etc.) for the ARR has not yet been developed and a way to ensure neither borrowers nor lenders gain
an unfair advantage has yet to be finalized. It is unknown whether proposed alternative reference rates will attain market acceptance
as replacements for LIBOR or whether the outstanding issues related to them will be satisfactorily resolved. As a result, while we
do not expect the impact to have a significant effect on our cost of capital, financial results, and cash flows, the final impact cannot
Item 1B. Unresolved Staff Comments.
yet be determined.
(cid:49)one.
Item 2. Properties.
leased).
Item 3. Legal Proceedings.
Our corporate headquarters and primary domestic operations facilities are located in (cid:49)orfolk, Virginia. In addition, at
December 31, 2019, we had operational centers in the Americas (13 leased and 3 owned), Europe (12 leased) and Australia (1
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 (cid:49)ote 14 to our Consolidated Financial Statements included in Item 8 of this Form 10-K for information regarding
legal proceedings in which we are involved.
17
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updated data privacy compliance obligations, which required us to adapt our business practices accordingly. Financial penalties
for noncompliance with the GDPR can be significant. It is also the case that the U.S. federal government and states within the
U.S. have enacted or are considering legislation to enact data privacy protections. Data privacy regulations could result in increased
costs of conducting business to maintain compliance with such regulations. Although we take significant steps to protect the
security of our data and the personal data of our customers, we may be required to expend significant resources to comply with
regulations if third parties improperly obtain and use such data.
Risks associated with indebtedness
We utilize bank loans, credit facilities and convertible notes to finance our business activities, which could negatively impact our
raise the necessary funds to repurchase our convertible notes.
As described in (cid:49)ote 6 to our Consolidated Financial Statements included in Item 8 of this Form 10-K, our sources of liquidity
include a (cid:49)orth American credit facility, a European multicurrency revolving credit facility and convertible senior notes. The
credit facilities contain financial and other restrictive covenants, including restrictions on how we operate our business and our
ability to pay dividends to our stockholders. Failure to satisfy any one of these covenants could result in negative consequences
including the following:
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 nonperforming loans needed to operate our business; or
our inability to secure alternative financing on favorable terms, if at all.
If we are unable to retain, renegotiate, expand or replace our credit facilities, including as a result of failure to satisfy the
restrictive covenants contained in them, our liquidity and business operations could be impacted negatively.
As referenced above, we have indebtedness in the form of Convertible Senior (cid:49)otes due 2020 and 2023 (collectively the
"(cid:49)otes") and may not have the ability to raise the funds necessary to repurchase the (cid:49)otes upon a fundamental change or to settle
conversions in cash. Our ability to make scheduled payments of the principal of, to pay interest on, or to refinance our indebtedness,
including the (cid:49)otes, or to make cash payments in connection with any conversion of the (cid:49)otes depends on our future performance,
which could be negatively impacted by economic, financial, competitive and other factors beyond our control. 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. In addition, in the event the conditional conversion features of the (cid:49)otes are triggered, holders of the (cid:49)otes are entitled
to convert the (cid:49)otes into shares of our common stock at any time during specified periods at their option, subject to the terms of
the indenture governing the (cid:49)otes. Upon conversion, unless we elect to deliver solely shares of our common stock 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 (cid:49)otes. However, we may not have enough available cash or be able to obtain financing at the time
we are required to repurchase (cid:49)otes surrendered to settle conversions in cash, and our ability to repurchase the (cid:49)otes or pay cash
upon conversion may be limited by law. Any issuance of shares of our common stock upon conversion of the (cid:49)otes would dilute
the ownership interest of our stockholders.
We may be restricted from paying cash upon conversion of the (cid:49)otes, repurchasing the (cid:49)otes for cash when required and repaying
the (cid:49)otes at maturity or upon acceleration following an event of default under the (cid:49)otes unless we repay all amounts outstanding
under, and terminate, our (cid:49)orth American Credit Agreement. Additionally, our future indebtedness may contain limitations on our
ability to pay cash upon conversion of the (cid:49)otes and on our ability to repurchase the (cid:49)otes.
The terms of our (cid:49)orth American Credit Agreement prohibit us from paying cash upon conversion of the (cid:49)otes, repurchasing
acceleration following an event of default under the indenture governing the (cid:49)otes if a default or an event of default exists on the
date of such required payment, repurchase or repayment, as applicable, or certain other conditions are not met, including pro forma
compliance with the financial covenants and having “Sufficient Liquidity” (described below). As a result, we will be restricted
from making such payments unless the default or event of default under our (cid:49)orth American Credit Agreement is cured or waived,
such conditions are met and/or we repay all amounts then outstanding under, and terminate, our (cid:49)orth American Credit Agreement.
16
liquidity and business operations if we are unable to retain, renegotiate, expand or replace our bank loans and credit facilities or
Changes in interest rates could increase our interest expense and reduce our net income.
In addition, under our (cid:49)orth American Credit Agreement our ability to settle conversions of the (cid:49)otes in cash requires that
immediately prior to any such conversion, our cash and cash equivalents (including our availability under our domestic and multi-
currency revolving facilities under our (cid:49)orth American Credit Agreement) be at least 115% of the sum of the principal amount of
the (cid:49)otes to be paid in cash (“Sufficient Liquidity”). The terms of any additional indebtedness incurred as permitted by our (cid:49)orth
American Credit Agreement may contain similar or more onerous restrictions than the foregoing.
Our failure to repurchase (cid:49)otes, to pay, when due, cash upon conversion of the (cid:49)otes or repay the (cid:49)otes at maturity or upon
acceleration following an event of default under the indenture governing the (cid:49)otes would constitute a default under the indenture
governing the (cid:49)otes. A default under the indenture may constitute a default under our (cid:49)orth American Credit Agreement.
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.
Default by or failure of one or more of our counterparty financial institutions could cause us to incur significant losses.
As part of our risk management activities, we enter into transactions involving derivative financial instruments, including,
among others, forward contracts and interest rate swap contracts, with various financial institutions. In addition, we have significant
amounts of cash and cash equivalents on deposit or in accounts with banks or other financial institutions in the U.S. and abroad.
As a result, we are exposed to the risk of default by, or failure of, counterparty financial institutions. The risk of counterparty
default or failure may be heightened during economic downturns and periods of uncertainty in the financial markets. If one of our
counterparties were to become insolvent or file for bankruptcy, our ability to recover losses incurred as a result of default or to
retrieve our assets that are deposited or held in accounts with such counterparty may be limited by the counterparty's liquidity or
the applicable laws governing the insolvency or bankruptcy proceedings.
Uncertainty about the future of the LIBOR may adversely affect our business.
LIBOR is a reference rate used for over $110 trillion of financial contracts on a global basis. We incorporate LIBOR in both
our bank loan and derivative hedging agreements. Due to reforms coming out of the 2008 financial crisis, LIBOR is scheduled
to sunset at the end of 2021 and be replaced by an Alternative Reference Rate ("ARR"). A number of regulatory institutions are
involved in coordinating this transition including the Financial Conduct Authority in the UK, the U.S. Federal Reserve, the SEC,
and the FASB. Key industry-wide issues regarding the transition are still unresolved; these include the fact that a term structure
(1 month, 3 month, 6 month, etc.) for the ARR has not yet been developed and a way to ensure neither borrowers nor lenders gain
an unfair advantage has yet to be finalized. It is unknown whether proposed alternative reference rates will attain market acceptance
as replacements for LIBOR or whether the outstanding issues related to them will be satisfactorily resolved. As a result, while we
do not expect the impact to have a significant effect on our cost of capital, financial results, and cash flows, the final impact cannot
yet be determined.
Item 1B. Unresolved Staff Comments.
(cid:49)one.
Item 2. Properties.
Our corporate headquarters and primary domestic operations facilities are located in (cid:49)orfolk, Virginia. In addition, at
December 31, 2019, we had operational centers in the Americas (13 leased and 3 owned), Europe (12 leased) and Australia (1
leased).
the (cid:49)otes for cash when required upon the occurrence of a fundamental change and repaying the (cid:49)otes at maturity or upon
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 (cid:49)ote 14 to our Consolidated Financial Statements included in Item 8 of this Form 10-K for information regarding
legal proceedings in which we are involved.
17
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Item 4. Mine Safety Disclosures.
(cid:49)ot applicable.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
PART II
Securities.
Common Stock
Stock Performance
Our common stock is traded on (cid:49)asdaq under the symbol "PRAA." Based on information provided by our transfer agent
and registrar, as of February 14, 2020, there were 46 holders of record.
The following graph and subsequent table compare from December 31, 2014 to December 31, 2019, the cumulative
stockholder returns assuming an initial investment of $100 in our common stock (PRAA), the stocks comprising the (cid:49)asdaq
Financial 100 (IXF) and the stocks comprising the (cid:49)asdaq Global Market Composite Index ((cid:49)QGM) at the beginning of the
period. Any dividends paid during the five-year period are assumed to be reinvested.
PRA Group, Inc.
(cid:49)asdaq Financial 100
(cid:49)asdaq Global Market Composite Index
Ticker
2014
2015
2016
2017
2018
2019
PRAA $
IXF
$
(cid:49)QGM $
100
100
100
$
$
$
60
106
100
$
$
$
68
135
96
$
$
$
57
155
120
$
$
$
42
142
112
$
$
$
63
184
155
The comparisons of stock performance shown above are not intended to forecast or be indicative of possible future performance
of our common stock. We do not make or endorse any predictions as to our future stock performance.
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, 2019; however, our board of directors may determine in the future to
declare or pay dividends on our common stock. Under the terms of (cid:49)orthern American Credit Agreement, 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.
18
19
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Item 4. Mine Safety Disclosures.
(cid:49)ot applicable.
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities.
Common Stock
Our common stock is traded on (cid:49)asdaq under the symbol "PRAA." Based on information provided by our transfer agent
and registrar, as of February 14, 2020, there were 46 holders of record.
Stock Performance
The following graph and subsequent table compare from December 31, 2014 to December 31, 2019, the cumulative
stockholder returns assuming an initial investment of $100 in our common stock (PRAA), the stocks comprising the (cid:49)asdaq
Financial 100 (IXF) and the stocks comprising the (cid:49)asdaq Global Market Composite Index ((cid:49)QGM) at the beginning of the
period. Any dividends paid during the five-year period are assumed to be reinvested.
PRA Group, Inc.
(cid:49)asdaq Financial 100
(cid:49)asdaq Global Market Composite Index
Ticker
2014
2015
2016
2017
2018
2019
PRAA $
IXF
$
(cid:49)QGM $
100
100
100
$
$
$
60
106
100
$
$
$
68
135
96
$
$
$
57
155
120
$
$
$
42
142
112
$
$
$
63
184
155
The comparisons of stock performance shown above are not intended to forecast or be indicative of possible future performance
of our common stock. We do not make or endorse any predictions as to our future stock performance.
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, 2019; however, our board of directors may determine in the future to
declare or pay dividends on our common stock. Under the terms of (cid:49)orthern American Credit Agreement, 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.
18
19
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Recent Sales of Unregistered Securities
(cid:49)one.
Securities Authorized for Issuance Under Equity Compensation Plans
For information regarding securities authorized for issuance under equity compensation plans see (cid:49)ote 11 to our Consolidated
Financial Statements included in Item 8 of this Form 10-K.
Share Repurchase Programs
(cid:49)one.
Item 6. Selected Financial Data.
The following selected financial data should be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included in Item 7 of this Form 10-K and our Consolidated Financial Statements and the
related notes thereto included in Item 8 of this Form 10-K. Certain prior year amounts have been reclassified for consistency with
the current period presentation.
Consolidated Income Statements, Operating and Other Financial Data
$ in thousands, except per share amounts
2019
2018
2017
2016
2015
Years Ended December 31,
Income recognized on finance receivables
$
998,361
$
891,899
$
795,435
$
845,142
$
894,491
24,916
7,855
828,206
77,381
8,080
930,603
64,383
12,513
971,387
(24,025)
(33,425)
(11,898)
(98,479)
(29,369)
Compensation and employee services
273,033
258,846
268,345
15,769
2,951
1,017,081
310,441
55,261
134,156
55,812
63,513
44,057
17,854
17,464
46,811
745,369
247,687
—
(141,918)
11,954
(364)
117,359
19,680
97,679
11,521
$1.90
$1.89
45,387
45,577
14,916
1,441
908,256
319,400
42,941
104,988
33,854
61,492
43,224
16,906
19,322
47,444
689,571
185,260
26,575
(121,078)
(944)
(316)
89,497
13,763
75,734
10,171
$1.45
$1.44
45,280
45,413
43,351
76,047
35,530
62,792
33,132
14,823
19,763
44,103
602,574
213,734
48,474
(98,041)
(1,104)
(2,790)
160,273
(10,852)
171,125
6,810
$3.60
$3.59
45,671
45,823
47,717
84,485
44,922
63,098
33,771
15,710
24,359
39,466
612,374
219,750
—
(80,864)
2,564
(5,823)
135,627
43,577
92,050
5,795
$1.86
$1.86
46,316
46,388
53,393
76,063
32,188
65,155
33,113
14,714
19,874
68,829
631,674
310,344
—
(60,336)
7,514
—
257,522
89,391
168,131
205
$3.49
$3.47
48,128
48,405
$
86,158
$
65,563
$
164,315
$
86,255
$
167,926
Income Statement Data:
Revenues:
Fee income
Other revenue
Total revenues
(cid:49)et allowance charges
Operating expenses:
Legal collection fees
Legal collection costs
Agency fees
Outside fees and services
Communication
Rent and occupancy
Depreciation and amortization
Other operating expenses
Total operating expenses
Income from operations
Other income and (expense):
Gain on sale of subsidiaries
Interest expense, net
Foreign exchange gain/(loss)
Other
Income before income taxes
Income tax expense/(benefit)
(cid:49)et income
Adjustment for net income attributable to
noncontrolling interests
(cid:49)et income attributable to PRA Group, Inc.
(cid:49)et income per share attributable to PRA Group, Inc.:
Weighted average number of shares outstanding:
Basic
Diluted
Basic
Diluted
Operating and Other Financial Data:
Cash receipts
Cash Efficiency Ratio (1)
Acquisitions of finance receivables, at cost (2)
Full-time equivalents at period end
$
$
1,857,040
1,640,121
1,537,521
1,569,367
1,603,878
59.9%
58.0%
60.8%
61.0%
60.6%
1,289,327
4,412
1,117,997
5,377
1,108,959
5,154
947,331
4,019
963,811
3,799
$
$
$
$
$
$
$
$
(1) Calculated by dividing cash receipts less operating expenses by cash receipts.
(2) Represents cash paid for finance receivables through the ordinary course of business as well as the acquisition date finance receivable portfolios that were
acquired through our business acquisitions.
20
21
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Recent Sales of Unregistered Securities
Item 6. Selected Financial Data.
Securities Authorized for Issuance Under Equity Compensation Plans
For information regarding securities authorized for issuance under equity compensation plans see (cid:49)ote 11 to our Consolidated
Financial Statements included in Item 8 of this Form 10-K.
Share Repurchase Programs
(cid:49)one.
(cid:49)one.
The following selected financial data should be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included in Item 7 of this Form 10-K and our Consolidated Financial Statements and the
related notes thereto included in Item 8 of this Form 10-K. Certain prior year amounts have been reclassified for consistency with
the current period presentation.
Consolidated Income Statements, Operating and Other Financial Data
$ in thousands, except per share amounts
Income Statement Data:
Revenues:
Income recognized on finance receivables
Fee income
Other revenue
Total revenues
$
2019
998,361
15,769
2,951
1,017,081
Years Ended December 31,
2017
2018
2016
$
$
891,899
14,916
1,441
908,256
$
795,435
24,916
7,855
828,206
$
845,142
77,381
8,080
930,603
2015
894,491
64,383
12,513
971,387
(cid:49)et allowance charges
Operating expenses:
Compensation and employee services
Legal collection fees
Legal collection costs
Agency fees
Outside fees and services
Communication
Rent and occupancy
Depreciation and amortization
Other operating expenses
Total operating expenses
Income from operations
Other income and (expense):
Gain on sale of subsidiaries
Interest expense, net
Foreign exchange gain/(loss)
Other
Income before income taxes
Income tax expense/(benefit)
(cid:49)et income
Adjustment for net income attributable to
noncontrolling interests
(cid:49)et income attributable to PRA Group, Inc.
(cid:49)et income per share attributable to PRA Group, Inc.:
Basic
Diluted
Weighted average number of shares outstanding:
Basic
Diluted
Operating and Other Financial Data:
Cash receipts
Cash Efficiency Ratio (1)
Acquisitions of finance receivables, at cost (2)
Full-time equivalents at period end
(24,025)
(33,425)
(11,898)
(98,479)
(29,369)
310,441
55,261
134,156
55,812
63,513
44,057
17,854
17,464
46,811
745,369
247,687
—
(141,918)
11,954
(364)
117,359
19,680
97,679
319,400
42,941
104,988
33,854
61,492
43,224
16,906
19,322
47,444
689,571
185,260
26,575
(121,078)
(944)
(316)
89,497
13,763
75,734
11,521
10,171
273,033
43,351
76,047
35,530
62,792
33,132
14,823
19,763
44,103
602,574
213,734
48,474
(98,041)
(1,104)
(2,790)
160,273
(10,852)
171,125
6,810
258,846
47,717
84,485
44,922
63,098
33,771
15,710
24,359
39,466
612,374
219,750
—
(80,864)
2,564
(5,823)
135,627
43,577
92,050
5,795
268,345
53,393
76,063
32,188
65,155
33,113
14,714
19,874
68,829
631,674
310,344
—
(60,336)
7,514
—
257,522
89,391
168,131
205
$
86,158
$
65,563
$
164,315
$
86,255
$
167,926
$1.90
$1.89
45,387
45,577
$1.45
$1.44
45,280
45,413
$3.60
$3.59
45,671
45,823
$1.86
$1.86
46,316
46,388
$3.49
$3.47
48,128
48,405
$
$
1,857,040
59.9%
1,289,327
4,412
$
$
1,640,121
58.0%
1,117,997
5,377
$
$
1,537,521
60.8%
1,108,959
5,154
$
$
1,569,367
61.0%
947,331
4,019
$
$
1,603,878
60.6%
963,811
3,799
(1) Calculated by dividing cash receipts less operating expenses by cash receipts.
(2) Represents cash paid for finance receivables through the ordinary course of business as well as the acquisition date finance receivable portfolios that were
acquired through our business acquisitions.
20
21
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Cash and cash equivalents
Finance receivables, net
Total assets
Borrowings
Total equity
Key Balance Sheet Data
Amounts in thousands
As of December 31,
2019
2018
2017
2016
2015
$
119,774
$
98,695
$
120,516
$
94,287
$
71,372
3,514,165
4,423,891
2,808,425
1,227,013
3,084,777
3,909,559
2,473,656
1,123,969
2,776,199
3,700,972
2,170,182
1,140,717
2,309,513
3,165,157
1,784,101
918,321
2,202,113
2,990,567
1,717,129
839,747
Quarterly Income Statement Data
Amounts in thousands, except per share amounts
Dec 31,
2019
Sep 30,
2019
Jun 30,
2019
Mar 31,
2019
Dec 31,
2018
Sep 30,
2018
Jun 30,
2018
Mar 31,
2018
Revenues:
Income recognized on finance
receivables
Fee income
Other revenue
Total revenues
$
262,835
$
247,471
$
249,219
$
238,836
$
231,029
$
223,228
$
219,018
$
218,624
4,297
2,001
269,133
2,391
152
250,014
2,707
131
252,057
6,374
667
245,877
4,686
1,027
236,742
2,561
99
225,888
2,342
158
221,518
5,327
157
224,108
(cid:49)et allowance charges
(12,598)
(4,136)
(1,196)
(6,095)
(21,381)
(8,285)
(2,834)
(925)
Operating expenses:
Compensation and employee
services
Legal collection fees
Legal collection costs
Agency fees
Outside fees and services
Communication
Rent and occupancy
Depreciation and amortization
Other operating expenses
Total operating expenses
Income from operations
Other income and (expense):
Gain on sale of subsidiaries
Interest expense, net
Foreign exchange gain/(loss)
Other
Income before income taxes
Income tax expense
(cid:49)et income
Adjustment for net income
attributable to
noncontrolling interests
(cid:49)et income attributable to
PRA Group, Inc.
(cid:49)et income per share attributable to
PRA Group, Inc.:
Basic
Diluted
Weighted average number of shares
outstanding:
Basic
Diluted
$
$
$
75,671
13,822
34,411
15,979
15,239
9,722
4,586
4,123
12,198
185,751
70,784
—
(36,046)
595
(241)
35,092
4,073
31,019
75,317
14,083
31,395
12,788
16,733
10,310
4,414
4,046
12,102
181,188
64,690
—
(35,864)
5,406
(19)
34,213
6,665
27,548
79,808
14,297
33,121
13,013
16,293
10,824
4,491
4,723
10,926
187,496
63,365
—
(36,027)
(311)
248
27,275
5,075
22,200
79,645
13,059
35,229
14,032
15,248
13,201
4,363
4,572
11,585
190,934
48,848
—
(33,981)
6,264
(352)
20,779
3,867
16,912
79,123
11,501
33,281
9,088
17,068
10,645
4,319
5,092
13,030
183,147
32,214
26,575
(33,549)
(4,553)
(381)
20,306
1,980
18,326
78,350
10,428
30,769
8,350
15,701
10,240
4,270
4,776
10,602
173,486
44,117
—
(30,624)
626
222
14,341
1,789
12,552
80,690
10,343
18,695
8,138
14,565
10,782
4,003
4,525
11,628
163,369
55,315
—
(31,124)
1,690
(400)
25,481
3,857
21,624
81,237
10,669
22,243
8,278
14,158
11,557
4,314
4,929
12,184
169,569
53,614
—
(25,781)
1,293
243
29,369
6,137
23,232
3,678
2,577
3,581
1,685
3,384
2,625
2,036
2,126
27,341
$
24,971
$
18,619
$
15,227
$
14,942
$
9,927
$
19,588
$
21,106
0.60
0.60
$
$
0.55
0.55
$
$
0.41
0.41
$
$
0.34
0.34
$
$
0.33
0.33
$
$
0.22
0.22
$
$
0.43
0.43
$
$
0.47
0.47
45,413
45,748
45,410
45,645
45,387
45,495
45,338
45,419
45,304
45,394
45,302
45,440
45,283
45,449
45,231
45,370
Quarterly Balance Sheet Data
Amounts in thousands
Dec 31,
2019
Sep 30,
2019
Jun 30,
2019
Mar 31,
2019
Dec 31,
2018
Sep 30,
2018
Jun 30,
2018
Mar 31,
2018
Cash and cash equivalents
$
119,774
$
90,000
$
105,496
$
102,102
$
98,695
$
114,176
$
71,570
$
101,418
56,176
55,204
85,911
85,082
45,173
21,750
80,541
87,764
3,514,165
3,238,813
3,230,949
3,177,229
3,084,777
2,823,622
2,734,673
2,771,408
46,157
16,809
61,453
54,136
—
5,522
32,721
9,067
8,912
63,724
55,010
—
17,369
27,296
14,688
12,163
60,944
53,364
—
18,914
31,650
14,308
10,271
59,377
53,788
—
22,523
37,639
480,794
465,572
489,293
480,518
464,116
519,045
519,811
544,293
$ 4,423,891
$ 4,118,280
$ 4,165,414
$ 4,106,334
$ 3,909,559
$ 3,659,971
$ 3,598,318
$ 3,702,789
10,606
17,918
63,225
56,501
68,972
4,497
31,263
88,925
4,046
85,390
73,377
15,808
23,479
60,697
56,847
70,723
4,757
36,380
84,753
624
95,441
74,428
13,770
11,323
66,401
51,484
72,817
5,219
32,751
74,950
372
100,742
76,750
107,840
18,082
15,472
61,619
54,463
70,550
5,247
35,970
77,838
389
74,308
95,314
$
4,258
$
3,469
$
3,279
$
5,682
$
6,110
$
3,773
$
5,090
$
2,330
79,396
15,080
81,445
13,408
78,852
466
85,137
23,872
108,367
114,979
120,990
140,224
146,410
—
—
—
Interest-bearing deposits
106,246
112,024
82,666
79,282
82,613
90,769
2,808,425
2,567,086
2,618,382
2,586,409
2,473,656
2,194,687
2,133,997
2,150,873
26,211
29,607
27,307
25,789
7,370
8,474
8,061
15,146
3,196,878
2,967,432
3,009,622
2,974,096
2,779,257
2,502,059
2,449,303
2,514,537
Redeemable noncontrolling interest
—
4,535
4,935
6,199
6,333
6,955
8,322
9,697
Assets
Investments
Finance receivables, net
Other receivables, net
Income taxes receivable
Deferred tax asset, net
Property and equipment, net
Right-of-use assets
Goodwill
Intangible assets, net
Other assets
Total assets
Liabilities and Equity
Liabilities:
Accounts payable
Accrued expenses
Income taxes payable
Deferred tax liability, net
Lease liabilities
Borrowings
Other liabilities
Total liabilities
Equity:
Common stock
Additional paid-in capital
Retained earnings
Accumulated other
comprehensive loss
Total stockholders' equity -
PRA Group, Inc.
454
67,321
454
64,631
454
61,705
454
59,091
453
60,303
453
58,713
453
56,410
453
54,271
1,362,631
1,335,290
1,310,319
1,291,700
1,276,473
1,261,531
1,251,604
1,232,016
(261,018)
(305,956)
(252,124)
(248,521)
(242,109)
(213,078)
(209,167)
(155,687)
1,169,388
1,094,419
1,120,354
1,102,724
1,095,120
1,107,619
1,099,300
1,131,053
(cid:49)oncontrolling interests
57,625
51,894
30,503
23,315
28,849
43,338
41,393
47,502
Total equity
1,227,013
1,146,313
1,150,857
1,126,039
1,123,969
1,150,957
1,140,693
1,178,555
Total liabilities
and equity
$ 4,423,891
$ 4,118,280
$ 4,165,414
$ 4,106,334
$ 3,909,559
$ 3,659,971
$ 3,598,318
$ 3,702,789
22
23
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Cash and cash equivalents
Finance receivables, net
Total assets
Borrowings
Total equity
Key Balance Sheet Data
Amounts in thousands
As of December 31,
2019
2018
2017
2016
2015
$
119,774
$
98,695
$
120,516
$
94,287
$
71,372
3,514,165
4,423,891
2,808,425
1,227,013
3,084,777
3,909,559
2,473,656
1,123,969
2,776,199
3,700,972
2,170,182
1,140,717
2,309,513
3,165,157
1,784,101
918,321
2,202,113
2,990,567
1,717,129
839,747
Quarterly Income Statement Data
Amounts in thousands, except per share amounts
Dec 31,
2019
Sep 30,
2019
Jun 30,
2019
Mar 31,
2019
Dec 31,
2018
Sep 30,
2018
Jun 30,
2018
Mar 31,
2018
Revenues:
Income recognized on finance
receivables
Fee income
Other revenue
Total revenues
$
262,835
$
247,471
$
249,219
$
238,836
$
231,029
$
223,228
$
219,018
$
218,624
4,297
2,001
2,391
152
2,707
131
6,374
667
4,686
1,027
2,561
99
2,342
158
5,327
157
269,133
250,014
252,057
245,877
236,742
225,888
221,518
224,108
(cid:49)et allowance charges
(12,598)
(4,136)
(1,196)
(6,095)
(21,381)
(8,285)
(2,834)
(925)
Gain on sale of subsidiaries
—
—
—
—
—
—
Interest expense, net
(36,046)
(35,864)
(36,027)
(33,981)
(30,624)
(31,124)
(25,781)
Operating expenses:
Compensation and employee
services
Legal collection fees
Legal collection costs
Agency fees
Outside fees and services
Communication
Rent and occupancy
Depreciation and amortization
Other operating expenses
Total operating expenses
Income from operations
Other income and (expense):
Foreign exchange gain/(loss)
Other
Income before income taxes
Income tax expense
(cid:49)et income
Adjustment for net income
attributable to
noncontrolling interests
(cid:49)et income attributable to
PRA Group, Inc.
(cid:49)et income per share attributable to
PRA Group, Inc.:
Weighted average number of shares
Basic
Diluted
outstanding:
Basic
Diluted
$
$
$
75,671
13,822
34,411
15,979
15,239
9,722
4,586
4,123
12,198
185,751
70,784
75,317
14,083
31,395
12,788
16,733
10,310
4,414
4,046
12,102
181,188
64,690
79,808
14,297
33,121
13,013
16,293
10,824
4,491
4,723
10,926
187,496
63,365
79,645
13,059
35,229
14,032
15,248
13,201
4,363
4,572
11,585
190,934
48,848
595
(241)
35,092
4,073
31,019
5,406
(19)
34,213
6,665
27,548
(311)
248
27,275
5,075
22,200
6,264
(352)
20,779
3,867
16,912
79,123
11,501
33,281
9,088
17,068
10,645
4,319
5,092
13,030
183,147
32,214
26,575
(33,549)
(4,553)
(381)
20,306
1,980
18,326
78,350
10,428
30,769
8,350
15,701
10,240
4,270
4,776
10,602
173,486
44,117
—
626
222
14,341
1,789
12,552
80,690
10,343
18,695
8,138
14,565
10,782
4,003
4,525
11,628
163,369
55,315
1,690
(400)
25,481
3,857
21,624
81,237
10,669
22,243
8,278
14,158
11,557
4,314
4,929
12,184
169,569
53,614
1,293
243
29,369
6,137
23,232
3,678
2,577
3,581
1,685
3,384
2,625
2,036
2,126
27,341
$
24,971
$
18,619
$
15,227
$
14,942
$
9,927
$
19,588
$
21,106
0.60
0.60
$
$
0.55
0.55
$
$
0.41
0.41
$
$
0.34
0.34
$
$
0.33
0.33
$
$
0.22
0.22
$
$
0.43
0.43
$
$
0.47
0.47
45,413
45,748
45,410
45,645
45,387
45,495
45,338
45,419
45,304
45,394
45,302
45,440
45,283
45,449
45,231
45,370
Quarterly Balance Sheet Data
Amounts in thousands
Dec 31,
2019
Sep 30,
2019
Jun 30,
2019
Mar 31,
2019
Dec 31,
2018
Sep 30,
2018
Jun 30,
2018
Mar 31,
2018
Assets
Cash and cash equivalents
$
119,774
$
90,000
$
105,496
$
102,102
$
98,695
$
114,176
$
71,570
$
101,418
Investments
Finance receivables, net
Other receivables, net
Income taxes receivable
Deferred tax asset, net
Property and equipment, net
Right-of-use assets
Goodwill
Intangible assets, net
Other assets
Total assets
Liabilities and Equity
Liabilities:
Accounts payable
Accrued expenses
Income taxes payable
Deferred tax liability, net
Lease liabilities
56,176
55,204
85,911
85,082
45,173
21,750
80,541
87,764
3,514,165
3,238,813
3,230,949
3,177,229
3,084,777
2,823,622
2,734,673
2,771,408
10,606
17,918
63,225
56,501
68,972
15,808
23,479
60,697
56,847
70,723
13,770
11,323
66,401
51,484
72,817
18,082
15,472
61,619
54,463
70,550
46,157
16,809
61,453
54,136
—
9,067
8,912
63,724
55,010
—
14,688
12,163
60,944
53,364
—
14,308
10,271
59,377
53,788
—
480,794
465,572
489,293
480,518
464,116
519,045
519,811
544,293
4,497
31,263
4,757
36,380
5,219
32,751
5,247
35,970
5,522
32,721
17,369
27,296
18,914
31,650
22,523
37,639
$ 4,423,891
$ 4,118,280
$ 4,165,414
$ 4,106,334
$ 3,909,559
$ 3,659,971
$ 3,598,318
$ 3,702,789
$
4,258
$
3,469
$
3,279
$
5,682
$
6,110
$
3,773
$
5,090
$
2,330
88,925
4,046
85,390
73,377
84,753
624
95,441
74,428
74,950
372
100,742
76,750
107,840
77,838
389
79,396
15,080
81,445
13,408
78,852
466
85,137
23,872
108,367
114,979
120,990
140,224
146,410
74,308
95,314
—
—
—
82,666
79,282
82,613
90,769
Interest-bearing deposits
106,246
112,024
Borrowings
Other liabilities
Total liabilities
2,808,425
2,567,086
2,618,382
2,586,409
2,473,656
2,194,687
2,133,997
2,150,873
26,211
29,607
27,307
25,789
7,370
8,474
8,061
15,146
3,196,878
2,967,432
3,009,622
2,974,096
2,779,257
2,502,059
2,449,303
2,514,537
Redeemable noncontrolling interest
—
4,535
4,935
6,199
6,333
6,955
8,322
9,697
Equity:
Common stock
Additional paid-in capital
Retained earnings
Accumulated other
comprehensive loss
Total stockholders' equity -
PRA Group, Inc.
454
67,321
454
64,631
454
61,705
454
59,091
453
60,303
453
58,713
453
56,410
453
54,271
1,362,631
1,335,290
1,310,319
1,291,700
1,276,473
1,261,531
1,251,604
1,232,016
(261,018)
(305,956)
(252,124)
(248,521)
(242,109)
(213,078)
(209,167)
(155,687)
1,169,388
1,094,419
1,120,354
1,102,724
1,095,120
1,107,619
1,099,300
1,131,053
(cid:49)oncontrolling interests
57,625
51,894
30,503
23,315
28,849
43,338
41,393
47,502
Total equity
1,227,013
1,146,313
1,150,857
1,126,039
1,123,969
1,150,957
1,140,693
1,178,555
Total liabilities
and equity
$ 4,423,891
$ 4,118,280
$ 4,165,414
$ 4,106,334
$ 3,909,559
$ 3,659,971
$ 3,598,318
$ 3,702,789
22
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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Results of Operations
Overview
We are a global financial and business services company with operations in the Americas, Europe, and Australia. Our primary
business is the purchase, collection, and management of portfolios of nonperforming loans.
Certain prior year amounts have been reclassified for consistency with the current period presentation.
Revenues:
Frequently Used Terms
We use the following terminology throughout this document:
•
•
•
•
•
•
•
•
•
•
•
•
•
"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 acquisition. 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.
"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 accounts include Individual Voluntary
Arrangements ("IVAs"), Trust Deeds in the UK, Consumer Proposals in Canada and bankruptcy accounts in the U.S.,
Canada, Germany and the UK.
"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" or "TEC" refers to actual cash collections, including cash sales, plus estimated remaining
collections on our finance receivables portfolios.
"Portfolio purchases" refers to all portfolios purchased in the normal course of business and excludes those purchased via
business acquisitions.
"Portfolio acquisitions" refers to all portfolios added as a result of a purchase, but also includes portfolios added as a result
of a business acquisition.
Unless otherwise specified, references to 2019, 2018 and 2017 are for the years ended December 31, 2019, December 31,
2018 and December 31, 2017, respectively.
The results of operations include the financial results of the Company and all of our subsidiaries. The following table sets
forth consolidated income statement amounts as a percentage of total revenues for the periods indicated (dollars in thousands):
2019
2018
2017
Income recognized on finance
receivables
Fee income
Other revenue
Total revenues
$
998,361
98.2% $
891,899
98.2% $
795,435
96.0%
15,769
2,951
1.5
0.3
1,017,081
100.0
14,916
1,441
908,256
1.6
0.2
100.0
24,916
7,855
828,206
3.0
0.9
100.0
(cid:49)et allowance charges
(24,025)
(2.4)
(33,425)
(3.7)
(11,898)
(1.4)
Operating expenses:
Compensation and employee services
273,033
33.0
Legal collection fees
Legal collection costs
Agency fees
Outside fees and services
Communication
Rent and occupancy
Depreciation and amortization
Other operating expenses
Total operating expenses
Income from operations
Other income and (expense):
Gain on sale of subsidiaries
Interest expense, net
Foreign exchange gain/(loss)
Other
Income before income taxes
Income tax expense/(benefit)
(cid:49)et income
310,441
55,261
134,156
55,812
63,513
44,057
17,854
17,464
46,811
745,369
247,687
11,954
(364)
117,359
19,680
97,679
11,521
86,158
$
30.5
5.4
13.2
5.5
6.2
4.3
1.8
1.7
4.6
73.2
24.4
1.2
(0.1)
11.5
1.9
9.6
1.1
319,400
42,941
104,988
33,854
61,492
43,224
16,906
19,322
47,444
689,571
185,260
(944)
(316)
89,497
13,763
75,734
10,171
65,563
—
—
26,575
(141,918)
(14.0)
(121,078)
35.2
4.7
11.6
3.7
6.8
4.8
1.9
2.1
5.1
75.9
20.4
2.9
(13.3)
(0.1)
(0.1)
9.8
1.5
8.3
1.1
43,351
76,047
35,530
62,792
33,132
14,823
19,763
44,103
602,574
213,734
48,474
(98,041)
(1,104)
(2,790)
160,273
(10,852)
171,125
6,810
5.2
9.2
4.3
7.6
4.0
1.8
2.4
5.3
72.8
25.8
5.9
(11.8)
(0.1)
(0.3)
19.4
(1.3)
20.7
0.8
19.9%
Adjustment for net income attributable to
noncontrolling interests
(cid:49)et income attributable to PRA Group, Inc.
8.5% $
7.2% $
164,315
24
25
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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Results of Operations
Overview
We are a global financial and business services company with operations in the Americas, Europe, and Australia. Our primary
business is the purchase, collection, and management of portfolios of nonperforming loans.
The results of operations include the financial results of the Company and all of our subsidiaries. The following table sets
forth consolidated income statement amounts as a percentage of total revenues for the periods indicated (dollars in thousands):
2019
2018
2017
Certain prior year amounts have been reclassified for consistency with the current period presentation.
Revenues:
Income recognized on finance
receivables
Fee income
Other revenue
Total revenues
$
998,361
98.2% $
891,899
98.2% $
795,435
96.0%
15,769
2,951
1.5
0.3
1,017,081
100.0
14,916
1,441
908,256
1.6
0.2
100.0
24,916
7,855
828,206
3.0
0.9
100.0
(cid:49)et allowance charges
(24,025)
(2.4)
(33,425)
(3.7)
(11,898)
(1.4)
Operating expenses:
Compensation and employee services
Legal collection fees
Legal collection costs
Agency fees
Outside fees and services
Communication
Rent and occupancy
Depreciation and amortization
Other operating expenses
Total operating expenses
Income from operations
Other income and (expense):
Gain on sale of subsidiaries
Interest expense, net
Foreign exchange gain/(loss)
Other
Income before income taxes
Income tax expense/(benefit)
(cid:49)et income
Adjustment for net income attributable to
noncontrolling interests
(cid:49)et income attributable to PRA Group, Inc.
310,441
55,261
134,156
55,812
63,513
44,057
17,854
17,464
46,811
745,369
247,687
30.5
5.4
13.2
5.5
6.2
4.3
1.8
1.7
4.6
73.2
24.4
319,400
42,941
104,988
33,854
61,492
43,224
16,906
19,322
47,444
689,571
185,260
—
—
26,575
(141,918)
(14.0)
(121,078)
11,954
(364)
117,359
19,680
97,679
11,521
86,158
$
1.2
(0.1)
11.5
1.9
9.6
1.1
8.5% $
(944)
(316)
89,497
13,763
75,734
10,171
65,563
273,033
33.0
35.2
4.7
11.6
3.7
6.8
4.8
1.9
2.1
5.1
75.9
20.4
2.9
(13.3)
(0.1)
(0.1)
9.8
1.5
8.3
1.1
43,351
76,047
35,530
62,792
33,132
14,823
19,763
44,103
602,574
213,734
48,474
(98,041)
(1,104)
(2,790)
160,273
(10,852)
171,125
6,810
7.2% $
164,315
5.2
9.2
4.3
7.6
4.0
1.8
2.4
5.3
72.8
25.8
5.9
(11.8)
(0.1)
(0.3)
19.4
(1.3)
20.7
0.8
19.9%
Frequently Used Terms
We use the following terminology throughout this document:
•
•
•
•
•
•
•
•
•
•
•
•
•
"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 acquisition. 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.
"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 accounts include Individual Voluntary
Arrangements ("IVAs"), Trust Deeds in the UK, Consumer Proposals in Canada and bankruptcy accounts in the U.S.,
"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
"Purchase price multiple" refers to the total estimated collections (as defined below) on owned finance receivables
"Total estimated collections" or "TEC" refers to actual cash collections, including cash sales, plus estimated remaining
collections on our finance receivables portfolios.
"Portfolio purchases" refers to all portfolios purchased in the normal course of business and excludes those purchased via
"Portfolio acquisitions" refers to all portfolios added as a result of a purchase, but also includes portfolios added as a result
business acquisitions.
of a business acquisition.
Canada, Germany and the UK.
buybacks.
portfolios divided by purchase price.
Unless otherwise specified, references to 2019, 2018 and 2017 are for the years ended December 31, 2019, December 31,
2018 and December 31, 2017, respectively.
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Cash Collections
Cash collections were as follows for the periods indicated:
(Amounts in millions)
Americas Core
Americas Insolvency
Europe Core
Europe Insolvency
Total cash collections
Cash collections adjusted (1)
Cash collections on fully amortized pools
Cash collections on pools on cost recovery
(cid:49)et finance receivables on cost recovery at year-end
Year Ended December 31,
2018
2017
2019
$ 1,141.5
180.9
480.1
38.8
$ 1,841.3
$ 1,841.3
47.1
13.5
33.7
$
945.2
207.8
443.4
28.8
$ 1,625.2
$ 1,595.5
54.0
35.8
48.0
$
860.9
222.5
407.0
22.2
$ 1,512.6
$ 1,518.7
57.6
37.7
166.6
Variances
2019 vs. 2018
196.3
$
(26.9)
36.7
10.0
216.1
$
2018 vs. 2017
84.3
$
(14.7)
36.4
6.6
112.6
$
$
$
245.8
(6.9)
(22.3)
(14.3)
76.8
(3.6)
(1.9)
(118.6)
(1) Cash collections adjusted refers to 2018 cash collections remeasured using 2019 exchange rates and 2017 cash collections remeasured using
2018 exchange rates.
(cid:49)et Allowance Charges
Cash collections were $1,841.3 million in 2019, an increase of $216.1 million or 13.3%, compared to $1,625.2 million in
2018. The increase was largely due to our U.S. legal collections increasing $91.1 million, or 30.6%, due primarily to the increase
in the number of accounts placed in the legal channel, and our U.S. call center and other collections increasing $48.6 million, or
8.5%, due primarily to higher Americas Core portfolio purchasing in 2018. Additionally, as a result of increased portfolio purchasing
in South America and the acquisition of a business in Canada in the first quarter of 2019, Americas Core outside the U.S. cash
collections increased $56.6 million or 73.8%. Furthermore, our Europe Core cash collections increased $36.7 million or 8.3%,
due primarily to increased portfolio purchasing, the consolidation of a Polish fund in the third quarter of 2018, and operational
improvements. These increases were partially offset by a decline of $26.9 million, or 13.0%, in Americas Insolvency cash collections
caused mainly by investment volumes in the U.S. not offsetting the runoff of our older portfolios.
Cash collections were $1,625.2 million in 2018, an increase of $112.6 million or 7.4%, compared to $1,512.6 million in
2017. The increase was largely due to U.S. call center collections increasing 15.7%, due primarily to record U.S. Core portfolio
purchasing in 2018 and 2017, and U.S. legal collections increasing 8.0%. Additionally, Europe Core and Europe Insolvency cash
collections increased 8.9% and 29.7%, respectively. The increase in Europe Core cash collections was primarily the result of
increased portfolio purchasing in the fourth quarter of 2017 and 2018. These increases were partially offset by a 6.6% decline in
Americas Insolvency cash collections caused mainly by a decline in portfolio buying in 2018 and the continued runoff of our older
portfolios.
Revenues
Total revenues were $1,017.1 million in 2019, $908.3 million in 2018, and $828.2 million in 2017.
A summary of how our revenues were generated during the years indicated is as follows (amounts in thousands):
Cash collections
Principal amortization
Income recognized on finance receivables
Fee income
Other revenue
Total revenues
Income Recognized on Finance Receivables
2019
1,841,271
(842,910)
998,361
15,769
2,951
1,017,081
$
$
2018
1,625,205
(733,306)
891,899
14,916
1,441
908,256
$
$
2017
1,512,605
(717,170)
795,435
24,916
7,855
828,206
$
$
Income recognized on finance receivables was $998.4 million in 2019, an increase of $106.5 million or 11.9% compared to
$891.9 million in 2018. The increase was primarily the result of the impact of recent Americas and Europe Core purchasing,
sustained over-performance and related yield increases on pools broadly across all geographies, recent increased portfolio
purchasing in South America, and the acquisition of a business in Canada in the first quarter of 2019.
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Income recognized on finance receivables was $891.9 million in 2018, an increase of $96.5 million or 12.1% compared to
$795.4 million in 2017. The increase was primarily the result of overperformance on select Americas Core and Europe Core
portfolios which resulted in several yield increases on certain pools and the impact of record Americas Core purchasing in 2017
and 2018. This was partially offset by a decline in our Americas Insolvency revenue caused mainly by a decline in Americas
Insolvency portfolio purchasing in 2018 and the continued runoff of our older portfolios.
Fee income was $15.8 million in 2019, $14.9 million in 2018, and $24.9 million in 2017. The decrease of $10.0 million or
40.2% in 2018 was primarily due to the sale of our government services businesses and the sale of PRA Location Services, LLC
Fee Income
("PLS") in 2017.
Other Revenue
Other revenue was $3.0 million in 2019, an increase of $1.6 million or 114.3% compared to $1.4 million in 2018, primarily
reflecting the variability of our CCB business. Other revenue was $1.4 million in 2018, a decrease of $6.5 million or 82.3%
compared to $7.9 million in 2017, primarily due to a decrease in revenue earned on our investments.
(cid:49)et allowance charges are recorded for decreases in expected cash flows or a change in timing of cash flows which would
otherwise require a reduction in the stated yield on a pool of accounts. In 2019, we recorded net allowance charges of $24.0 million
consisting of $24.5 million on our Americas Core portfolios, primarily on vintages purchased between 2013-2015 and $0.6 million
on our European portfolios partially offset by net allowance reversals of $1.1 million on our Americas Insolvency portfolios. In
2018, we recorded net allowance charges of $33.4 million consisting of $31.0 million on our Americas Core portfolios, primarily
on vintages impacted most by the Consent Order and purchased between 2013-2015, $0.4 million on our Americas Insolvency
portfolios, and $2.0 million on our European portfolios. In 2017, we recorded net allowance charges of $11.9 million consisting
of $7.4 million on our Americas Core portfolios, $1.5 million on our Americas Insolvency portfolios, and $3.0 million on our
European portfolios.
Operating Expenses
Compensation and Employee Services
Total operating expenses were $745.4 million in 2019, $689.6 million in 2018, and $602.6 million in 2017.
Compensation and employee service expenses were $310.4 million in 2019, a decrease of $9.0 million or 2.8% compared
to $319.4 million in 2018. The decrease in compensation expense was primarily attributable to a reduction in the U.S. call center
workforce, as we balance the volume between the legal collection channel and call centers and realize the impact of recent
investments in technology. Total full-time equivalents decreased 17.9% to 4,412 as of December 31, 2019 from 5,377 as of
December 31, 2018. Additionally, this category was impacted by the result of the sale of RCB operating platform in December
2018, which shifted certain expenses from fixed to variable and are now recorded as agency fees.
Compensation
and
employee
service
expenses
were $319.4
million in 2018, an increase of $46.4
million or 17.0% compared to $273.0 million in 2017. Compensation expense increased primarily as a result of larger average
staff sizes due mainly to the expansion of our domestic collector workforce, partially offset by a decrease resulting from the sale
of our government services businesses and PLS in 2017. Total full-time equivalents increased 4.3% to 5,377 as of December 31,
2018 from 5,154 as of December 31, 2017.
Legal Collection Fees
Legal collection fees represent contingent fees incurred for the cash collections generated by our independent third-party
attorney network. Legal collection fees were $55.3 million in 2019, $42.9 million in 2018, and $43.4 million in 2017. The increase
of $12.4 million or 28.9% in 2019 was primarily due to a 44.5% increase in external legal cash collections in the U.S.
Legal Collection Costs
Legal collection costs primarily consist of costs paid to courts where a lawsuit is filed for the purpose of attempting to collect
on an account. Legal collection costs were $134.2 million in 2019, an increase of $29.2 million or 27.8%, compared to $105.0
million in 2018. The increase was primarily due to additional court costs related to the expansion of the number of accounts placed
in the legal channel in the U.S. This expansion was the result of a change in the nature of the accounts purchased, the regulatory
environment and consumer behavior.
Income recognized on finance receivables was $891.9 million in 2018, an increase of $96.5 million or 12.1% compared to
$795.4 million in 2017. The increase was primarily the result of overperformance on select Americas Core and Europe Core
portfolios which resulted in several yield increases on certain pools and the impact of record Americas Core purchasing in 2017
and 2018. This was partially offset by a decline in our Americas Insolvency revenue caused mainly by a decline in Americas
Insolvency portfolio purchasing in 2018 and the continued runoff of our older portfolios.
Fee Income
Fee income was $15.8 million in 2019, $14.9 million in 2018, and $24.9 million in 2017. The decrease of $10.0 million or
40.2% in 2018 was primarily due to the sale of our government services businesses and the sale of PRA Location Services, LLC
("PLS") in 2017.
Other Revenue
Other revenue was $3.0 million in 2019, an increase of $1.6 million or 114.3% compared to $1.4 million in 2018, primarily
reflecting the variability of our CCB business. Other revenue was $1.4 million in 2018, a decrease of $6.5 million or 82.3%
compared to $7.9 million in 2017, primarily due to a decrease in revenue earned on our investments.
(1) Cash collections adjusted refers to 2018 cash collections remeasured using 2019 exchange rates and 2017 cash collections remeasured using
(cid:49)et Allowance Charges
2018 exchange rates.
(cid:49)et allowance charges are recorded for decreases in expected cash flows or a change in timing of cash flows which would
otherwise require a reduction in the stated yield on a pool of accounts. In 2019, we recorded net allowance charges of $24.0 million
consisting of $24.5 million on our Americas Core portfolios, primarily on vintages purchased between 2013-2015 and $0.6 million
on our European portfolios partially offset by net allowance reversals of $1.1 million on our Americas Insolvency portfolios. In
2018, we recorded net allowance charges of $33.4 million consisting of $31.0 million on our Americas Core portfolios, primarily
on vintages impacted most by the Consent Order and purchased between 2013-2015, $0.4 million on our Americas Insolvency
portfolios, and $2.0 million on our European portfolios. In 2017, we recorded net allowance charges of $11.9 million consisting
of $7.4 million on our Americas Core portfolios, $1.5 million on our Americas Insolvency portfolios, and $3.0 million on our
European portfolios.
Operating Expenses
Total operating expenses were $745.4 million in 2019, $689.6 million in 2018, and $602.6 million in 2017.
Compensation and Employee Services
Compensation and employee service expenses were $310.4 million in 2019, a decrease of $9.0 million or 2.8% compared
to $319.4 million in 2018. The decrease in compensation expense was primarily attributable to a reduction in the U.S. call center
workforce, as we balance the volume between the legal collection channel and call centers and realize the impact of recent
investments in technology. Total full-time equivalents decreased 17.9% to 4,412 as of December 31, 2019 from 5,377 as of
December 31, 2018. Additionally, this category was impacted by the result of the sale of RCB operating platform in December
2018, which shifted certain expenses from fixed to variable and are now recorded as agency fees.
Cash collections were as follows for the periods indicated:
Cash Collections
(Amounts in millions)
Americas Core
Americas Insolvency
Europe Core
Europe Insolvency
Total cash collections
Cash collections adjusted (1)
Cash collections on fully amortized pools
Cash collections on pools on cost recovery
(cid:49)et finance receivables on cost recovery at year-end
Year Ended December 31,
Variances
2019
2018
2017
2019 vs. 2018
2018 vs. 2017
$ 1,141.5
$
$
180.9
480.1
38.8
47.1
13.5
33.7
945.2
207.8
443.4
28.8
54.0
35.8
48.0
$
$
$
860.9
222.5
407.0
22.2
57.6
37.7
166.6
196.3
$
(26.9)
$
$
36.7
10.0
216.1
245.8
(6.9)
(22.3)
(14.3)
84.3
(14.7)
36.4
6.6
112.6
76.8
(3.6)
(1.9)
(118.6)
$ 1,841.3
$ 1,625.2
$ 1,512.6
$ 1,841.3
$ 1,595.5
$ 1,518.7
Cash collections were $1,841.3 million in 2019, an increase of $216.1 million or 13.3%, compared to $1,625.2 million in
2018. The increase was largely due to our U.S. legal collections increasing $91.1 million, or 30.6%, due primarily to the increase
in the number of accounts placed in the legal channel, and our U.S. call center and other collections increasing $48.6 million, or
8.5%, due primarily to higher Americas Core portfolio purchasing in 2018. Additionally, as a result of increased portfolio purchasing
in South America and the acquisition of a business in Canada in the first quarter of 2019, Americas Core outside the U.S. cash
collections increased $56.6 million or 73.8%. Furthermore, our Europe Core cash collections increased $36.7 million or 8.3%,
due primarily to increased portfolio purchasing, the consolidation of a Polish fund in the third quarter of 2018, and operational
improvements. These increases were partially offset by a decline of $26.9 million, or 13.0%, in Americas Insolvency cash collections
caused mainly by investment volumes in the U.S. not offsetting the runoff of our older portfolios.
Cash collections were $1,625.2 million in 2018, an increase of $112.6 million or 7.4%, compared to $1,512.6 million in
2017. The increase was largely due to U.S. call center collections increasing 15.7%, due primarily to record U.S. Core portfolio
purchasing in 2018 and 2017, and U.S. legal collections increasing 8.0%. Additionally, Europe Core and Europe Insolvency cash
collections increased 8.9% and 29.7%, respectively. The increase in Europe Core cash collections was primarily the result of
increased portfolio purchasing in the fourth quarter of 2017 and 2018. These increases were partially offset by a 6.6% decline in
Americas Insolvency cash collections caused mainly by a decline in portfolio buying in 2018 and the continued runoff of our older
Total revenues were $1,017.1 million in 2019, $908.3 million in 2018, and $828.2 million in 2017.
A summary of how our revenues were generated during the years indicated is as follows (amounts in thousands):
portfolios.
Revenues
Cash collections
Principal amortization
Income recognized on finance receivables
Fee income
Other revenue
Total revenues
Income Recognized on Finance Receivables
2019
2018
2017
$
1,841,271
$
1,625,205
$
1,512,605
(842,910)
998,361
15,769
2,951
(733,306)
891,899
14,916
1,441
$
1,017,081
$
908,256
$
(717,170)
795,435
24,916
7,855
828,206
Income recognized on finance receivables was $998.4 million in 2019, an increase of $106.5 million or 11.9% compared to
$891.9 million in 2018. The increase was primarily the result of the impact of recent Americas and Europe Core purchasing,
sustained over-performance and related yield increases on pools broadly across all geographies, recent increased portfolio
purchasing in South America, and the acquisition of a business in Canada in the first quarter of 2019.
Legal Collection Fees
Legal collection fees represent contingent fees incurred for the cash collections generated by our independent third-party
attorney network. Legal collection fees were $55.3 million in 2019, $42.9 million in 2018, and $43.4 million in 2017. The increase
of $12.4 million or 28.9% in 2019 was primarily due to a 44.5% increase in external legal cash collections in the U.S.
Legal Collection Costs
Legal collection costs primarily consist of costs paid to courts where a lawsuit is filed for the purpose of attempting to collect
on an account. Legal collection costs were $134.2 million in 2019, an increase of $29.2 million or 27.8%, compared to $105.0
million in 2018. The increase was primarily due to additional court costs related to the expansion of the number of accounts placed
in the legal channel in the U.S. This expansion was the result of a change in the nature of the accounts purchased, the regulatory
environment and consumer behavior.
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million in 2018, an increase of $46.4
expenses
million or 17.0% compared to $273.0 million in 2017. Compensation expense increased primarily as a result of larger average
staff sizes due mainly to the expansion of our domestic collector workforce, partially offset by a decrease resulting from the sale
of our government services businesses and PLS in 2017. Total full-time equivalents increased 4.3% to 5,377 as of December 31,
2018 from 5,154 as of December 31, 2017.
Compensation
were $319.4
employee
service
and
Legal collection costs were $105.0 million in 2018, an increase of $29.0 million or 38.2%, compared
to $76.0
million in 2017. The increase was primarily due to additional court costs related to the expansion of the number of accounts brought
into the legal channel in the U.S. This expansion was the result of a change in the nature of the accounts purchased, the regulatory
environment and consumer behavior.
Interest expense, net was $121.1 million in 2018, an increase of $23.1 million or 23.6% compared to $98.0 million in 2017.
The increase was primarily due to higher levels of average borrowings outstanding and higher average interest rates.
Interest expense, net consisted of the following in 2019, 2018 and 2017 (amounts in thousands):
Stated interest on debt obligations and unused line
fees
Coupon interest on convertible debt
Amortization of convertible debt discount
Amortization of loan fees and other loan costs
Change in fair value on derivatives
Interest income
Interest expense, net
(cid:49)et Foreign Currency Transaction Gains/(Losses)
Twelve Months Ended December 31,
Variances
2019
2018
2017
2019 vs. 2018
2018 vs. 2017
$
94,841
$
83,983
$
71,656
$
10,858
$
12,327
20,700
12,398
10,589
5,636
(2,246)
20,700
11,725
10,332
(2,532)
(3,130)
15,870
8,583
9,569
(2,025)
(5,612)
—
673
257
8,168
884
4,830
3,142
763
(507)
2,482
$
141,918
$
121,078
$
98,041
$
20,840
$
23,037
(cid:49)et foreign currency transaction gains/(losses) were $12.0 million, $(0.9) million, and $(1.1) million in 2019, 2018, and
2017, respectively. In any given period, we may incur foreign currency transaction losses or gains from transactions in currencies
other than the functional currency. The $12.9 million increase in 2019 was primarily related to gains on U.S. Dollar linked
investments held in Brazil and foreign currency gains in Europe.
Other Expense
Income Tax Expense/(Benefit)
Other expense was $0.4 million in 2019, $0.3 million in 2018, and $2.8 million in 2017. In 2017, we incurred an other-than-
temporary impairment charge of $1.7 million on one of our investments in private equity funds. Additionally, during 2017 we
incurred a $1.0 million expense related to a performance guarantee on a Polish investment fund.
Income tax expense/(benefit) was $19.7 million, $13.8 million, and $(10.9) million in 2019, 2018 and 2017, respectively.
The increase from 2018 to 2019 was primarily driven by GILTI, which is included in the tax impact on international earnings
disclosed in (cid:49)ote 13. The change from 2017 to 2018 was primarily attributable to a $73.8 million after-tax benefit recorded in
2017 as a result of the revaluation of our net deferred tax liability per the Tax Act.
The effective tax rate increased from 15.4% in 2018 to 16.8% in 2019 primarily due to the GILTI taxes in the US. The
effective tax rate for 2018 increased and the 2017 effective tax rate decreased compared to their respective prior years due to the
revaluation of the deferred tax liability per the Tax Act. Our effective tax rate will vary from period to period due to these types
of items.
Agency Fees
Agency fees primarily represent third-party collection fees. Agency fees were $55.8 million in 2019, an increase of $21.9
million or 64.6% compared to $33.9 million in 2018. The increase was primarily due to the sale of the RCB operating platform,
which shifted certain expenses from fixed to variable and are now recorded as agency fees, the acquisition of a business in Canada
in the first quarter of 2019, and higher volumes of servicing activity in areas where we utilize third-party collection agencies.
Agency fees were $33.9 million in 2018, a decrease of $1.6 million or 4.5% compared to $35.5 million in 2017.
The decrease was primarily due to the impact of the sale of PLS partially offset by an increase in third-party collection fees incurred
by our international operations.
Outside Fees and Services
Outside fees and services expenses were $63.5 million in 2019, an increase of $2.0 million or 3.3% compared to $61.5
million in 2018. The increase was primarily the result of higher consulting fees and higher fees related to an increased number of
debit card transactions, mostly offset by a decrease in litigation expenses.
Outside fees and services expenses were $61.5 million in 2018, a decrease of $1.3 million or 2.1% compared to $62.8
million in 2017. The decrease was primarily the result of a decline in corporate legal expenses, due largely to legal costs not
associated with normal operations incurred during 2017. This was partially offset by an increase in payment processing and debit
card transactions and increased consulting fees.
Communication
Communication expenses primarily represent postage and telephone related expenses incurred as a result of our collection
efforts. Communication expenses were $44.1 million in 2019, $43.2 million in 2018, and $33.1 million in 2017. The $10.1
million increase in 2018 was driven primarily by higher letter and call volume associated with record portfolio purchasing of
Americas Core portfolios in 2017 and 2018 and additional U.S. collectors operating during 2018.
Rent and Occupancy
Rent and occupancy expenses were $17.9 million in 2019, $16.9 million in 2018, and $14.8 million in 2017. The $2.1
million increase in 2018 was primarily due to the opening of two new call centers in the U.S. in the fourth quarter of 2017 as well
as the expansion of our European facilities.
Depreciation and Amortization
Depreciation and amortization expense was $17.5 million in 2019, $19.3 million in 2018, and $19.8 million in 2017. The
$1.8 million or 9.3% decrease in 2019 was primarily due to the sale of the RCB operating platform which shifted certain expenses
from fixed to variable partially offset by the addition of certain capital software projects.
Other Operating Expenses
Other operating expenses were $46.8 million in 2019, $47.4 million in 2018, and $44.1 million in 2017. The $3.3
million increase in 2018 was primarily due to an increase in corporate technology and software related expenses partially offset
by a decrease as a result of the sale of our government services businesses and the sale of PLS in 2017.
Gain on Sale of Subsidiaries
We did not have any sales of subsidiaries during 2019. In 2018, we sold 79% of our interest in RCB's servicing platform
which resulted in a gain of $26.6 million. In 2017, we sold our government services businesses and PLS which resulted in a
combined gain of $48.5 million.
Interest Expense, (cid:49)et
Interest expense, net was $141.9 million in 2019, an increase of $20.8 million or 17.2% compared to $121.1 million in 2018.
The increase was primarily due to higher levels of average borrowings to fund increased portfolio acquisitions paired with slightly
higher interest rates and the impact of changes in the fair value of our derivatives.
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Legal collection costs were $105.0 million in 2018, an increase of $29.0 million or 38.2%, compared
to $76.0
Interest expense, net was $121.1 million in 2018, an increase of $23.1 million or 23.6% compared to $98.0 million in 2017.
million in 2017. The increase was primarily due to additional court costs related to the expansion of the number of accounts brought
The increase was primarily due to higher levels of average borrowings outstanding and higher average interest rates.
into the legal channel in the U.S. This expansion was the result of a change in the nature of the accounts purchased, the regulatory
Interest expense, net consisted of the following in 2019, 2018 and 2017 (amounts in thousands):
Stated interest on debt obligations and unused line
fees
Coupon interest on convertible debt
Amortization of convertible debt discount
Amortization of loan fees and other loan costs
Change in fair value on derivatives
Interest income
Interest expense, net
(cid:49)et Foreign Currency Transaction Gains/(Losses)
Twelve Months Ended December 31,
Variances
2019
2018
2017
2019 vs. 2018
2018 vs. 2017
$
94,841
$
83,983
$
71,656
$
10,858
$
12,327
20,700
12,398
10,589
5,636
(2,246)
20,700
11,725
10,332
(2,532)
(3,130)
15,870
8,583
9,569
(2,025)
(5,612)
—
673
257
8,168
884
4,830
3,142
763
(507)
2,482
$
141,918
$
121,078
$
98,041
$
20,840
$
23,037
(cid:49)et foreign currency transaction gains/(losses) were $12.0 million, $(0.9) million, and $(1.1) million in 2019, 2018, and
2017, respectively. In any given period, we may incur foreign currency transaction losses or gains from transactions in currencies
other than the functional currency. The $12.9 million increase in 2019 was primarily related to gains on U.S. Dollar linked
investments held in Brazil and foreign currency gains in Europe.
Other Expense
Other expense was $0.4 million in 2019, $0.3 million in 2018, and $2.8 million in 2017. In 2017, we incurred an other-than-
temporary impairment charge of $1.7 million on one of our investments in private equity funds. Additionally, during 2017 we
incurred a $1.0 million expense related to a performance guarantee on a Polish investment fund.
Income Tax Expense/(Benefit)
Income tax expense/(benefit) was $19.7 million, $13.8 million, and $(10.9) million in 2019, 2018 and 2017, respectively.
The increase from 2018 to 2019 was primarily driven by GILTI, which is included in the tax impact on international earnings
disclosed in (cid:49)ote 13. The change from 2017 to 2018 was primarily attributable to a $73.8 million after-tax benefit recorded in
2017 as a result of the revaluation of our net deferred tax liability per the Tax Act.
The effective tax rate increased from 15.4% in 2018 to 16.8% in 2019 primarily due to the GILTI taxes in the US. The
effective tax rate for 2018 increased and the 2017 effective tax rate decreased compared to their respective prior years due to the
revaluation of the deferred tax liability per the Tax Act. Our effective tax rate will vary from period to period due to these types
of items.
environment and consumer behavior.
Agency Fees
Agency fees primarily represent third-party collection fees. Agency fees were $55.8 million in 2019, an increase of $21.9
million or 64.6% compared to $33.9 million in 2018. The increase was primarily due to the sale of the RCB operating platform,
which shifted certain expenses from fixed to variable and are now recorded as agency fees, the acquisition of a business in Canada
in the first quarter of 2019, and higher volumes of servicing activity in areas where we utilize third-party collection agencies.
Agency fees were $33.9 million in 2018, a decrease of $1.6 million or 4.5% compared to $35.5 million in 2017.
The decrease was primarily due to the impact of the sale of PLS partially offset by an increase in third-party collection fees incurred
by our international operations.
Outside Fees and Services
Outside fees and services expenses were $63.5 million in 2019, an increase of $2.0 million or 3.3% compared to $61.5
million in 2018. The increase was primarily the result of higher consulting fees and higher fees related to an increased number of
debit card transactions, mostly offset by a decrease in litigation expenses.
Outside fees and services expenses were $61.5 million in 2018, a decrease of $1.3 million or 2.1% compared to $62.8
million in 2017. The decrease was primarily the result of a decline in corporate legal expenses, due largely to legal costs not
associated with normal operations incurred during 2017. This was partially offset by an increase in payment processing and debit
card transactions and increased consulting fees.
Communication
Communication expenses primarily represent postage and telephone related expenses incurred as a result of our collection
efforts. Communication expenses were $44.1 million in 2019, $43.2 million in 2018, and $33.1 million in 2017. The $10.1
million increase in 2018 was driven primarily by higher letter and call volume associated with record portfolio purchasing of
Americas Core portfolios in 2017 and 2018 and additional U.S. collectors operating during 2018.
Rent and occupancy expenses were $17.9 million in 2019, $16.9 million in 2018, and $14.8 million in 2017. The $2.1
million increase in 2018 was primarily due to the opening of two new call centers in the U.S. in the fourth quarter of 2017 as well
Rent and Occupancy
as the expansion of our European facilities.
Depreciation and Amortization
Depreciation and amortization expense was $17.5 million in 2019, $19.3 million in 2018, and $19.8 million in 2017. The
$1.8 million or 9.3% decrease in 2019 was primarily due to the sale of the RCB operating platform which shifted certain expenses
from fixed to variable partially offset by the addition of certain capital software projects.
Other operating expenses were $46.8 million in 2019, $47.4 million in 2018, and $44.1 million in 2017. The $3.3
million increase in 2018 was primarily due to an increase in corporate technology and software related expenses partially offset
by a decrease as a result of the sale of our government services businesses and the sale of PLS in 2017.
We did not have any sales of subsidiaries during 2019. In 2018, we sold 79% of our interest in RCB's servicing platform
which resulted in a gain of $26.6 million. In 2017, we sold our government services businesses and PLS which resulted in a
Other Operating Expenses
Gain on Sale of Subsidiaries
combined gain of $48.5 million.
Interest Expense, (cid:49)et
Interest expense, net was $141.9 million in 2019, an increase of $20.8 million or 17.2% compared to $121.1 million in 2018.
The increase was primarily due to higher levels of average borrowings to fund increased portfolio acquisitions paired with slightly
higher interest rates and the impact of changes in the fair value of our derivatives.
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Supplemental Performance Data
Finance Receivables Portfolio Performance
The following tables show certain data related to our finance receivables portfolios. Certain adjustments, as noted in the
footnotes to these tables, have been made to reduce the impact of foreign currency fluctuations on ERC and purchase price multiples.
The accounts represented in the insolvency tables are those portfolios of accounts that were in an insolvency status at the
time of purchase. This contrasts with accounts in our Core portfolios that file for bankruptcy/insolvency protection after we purchase
them, which continue to be tracked in their corresponding Core portfolio. Core customers sometimes file for bankruptcy/insolvency
protection subsequent to our purchase of the related Core portfolio. When this occurs, we adjust our collection practices to comply
with bankruptcy/insolvency rules and procedures; however, for accounting purposes, these accounts remain in the original Core
portfolio. Insolvency accounts may be dismissed voluntarily or involuntarily subsequent to our purchase of the Insolvency portfolio.
Dismissal occurs when the terms of the bankruptcy are not met by the petitioner. When this occurs, we are typically free to pursue
collection outside of bankruptcy procedures; however, for accounting purposes, these accounts remain in the original Insolvency
pool.
Purchase price multiples can vary over time due to a variety of factors, including pricing competition, supply levels, age of
the receivables acquired, and changes in our operational efficiency. For example, increased pricing competition during the 2005
to 2008 period negatively impacted purchase price multiples of our Core portfolio compared to prior years. Conversely, during
the 2009 to 2011 period, additional supply occurred as a result of the economic downturn. This created unique and advantageous
purchasing opportunities, particularly within the Insolvency market, relative to the prior four years. Purchase price multiples can
also vary among types of finance receivables. For example, we generally incur lower collection costs on our Insolvency portfolio
compared with our Core portfolio. This allows us, in general, to pay more for an Insolvency portfolio and experience lower purchase
price multiples, while generating similar net income margins when compared with a Core portfolio.
When competition increases and/or supply decreases, pricing often becomes negatively impacted relative to expected
collections, and yields tend to trend lower. The opposite tends to occur when competition decreases and/or supply increases.
Within a given portfolio type, to the extent that lower purchase price multiples are the result of more competitive pricing and
lower net yields, this will generally lead to higher amortization rates and lower profitability. As portfolio pricing becomes more
favorable on a relative basis, our profitability will tend to increase. Profitability within given Core portfolio types may also be
impacted by the age and quality of the receivables, which impact the cost to collect those accounts. Fresher accounts, for example,
typically carry lower associated collection expenses, while older accounts and lower balance accounts typically carry higher costs
and, as a result, require higher purchase price multiples to achieve the same net profitability as fresher paper.
Revenue recognition under ASC 310-30 is driven by estimates of the amount and timing of collections as well as the timing
of those collections. We record new portfolio acquisitions based on our best estimate of the cash flows expected at acquisition,
which reflects the uncertainties inherent in the acquisition of nonperforming loans and the results of our underwriting process.
Subsequent to the initial booking, as we gain collection experience and confidence with a pool of accounts, we regularly update
ERC. As a result, our estimate of total collections has often increased as pools have aged. These processes have tended to cause
the ratio of ERC to purchase price for any given year of buying to gradually increase over time. Thus, all factors being equal in
terms of pricing, one would typically tend to see a higher collection to purchase price ratio from a pool of accounts that was six
years from acquisition than a pool that was just two years from acquisition.
We hold a beneficial interest in certain pools of finance receivables in Europe. Revenue recognition is under ASC Topic
310-20, "Receivables - (cid:49)onrefundable Fees and Other Costs" where we compute a life-to-date yield on a retrospective basis and
apply it to the ERC of the portfolio. Revenue on these pools is included in income recognized on finance receivables. In addition,
these portfolios are included in the tables below as they perform economically similar to finance receivables accounted for under
ASC 310-30.
The numbers presented in the following tables represent gross cash collections and do not reflect any costs to collect; therefore,
they may not represent relative profitability. Due to all the factors described above, readers should be cautious when making
comparisons of purchase price multiples among periods and between types of receivables.
Purchase Price Multiples
as of December 31, 2019
Amounts in thousands
Purchase Period Purchase Price (1)(2)
Americas Core
1996-2009
$
930,026 $
9,279 $
42,102 $
2,885,906 $
(cid:49)et Finance
Receivables (3)
ERC-Historical
Period Exchange
Rates (4)
Total Estimated
Collections (5)
ERC-Current
Period Exchange
Rates (6)
Current
Estimated
Purchase Price
Multiple
Original
Estimated
Purchase Price
Multiple (7)
Subtotal
Americas Insolvency
1996-2009
5,002,100
1,594,787
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2012
2013
2014
2015
2016
2017
2014
2015
2016
2017
2018
2019
148,193
209,602
254,076
390,826
405,169
443,779
453,158
533,442
655,548
578,281
397,453
208,942
180,432
251,395
227,834
148,689
63,170
92,264
275,257
97,879
123,039
20,409
20,334
796,762
419,909
348,270
246,752
345,256
512,702
10,876
19,226
41,858
38,409
45,586
75,588
3,485
7,707
16,011
33,648
55,033
93,385
139,380
242,129
460,797
533,933
—
—
—
—
—
756
5,783
17,433
95,421
74,459
114,892
308,744
1,903,531
—
—
188,892
161,210
190,927
157,850
269,292
488,468
306
3,083
12,507
24,417
39,424
74,258
28,669
48,551
60,711
94,733
152,639
226,865
354,399
521,715
852,246
1,048,207
3,430,837
917
1,181
973
953
2,143
3,598
9,917
22,491
121,498
93,120
144,228
401,019
3,831,856
875
431
823,116
345,214
333,375
232,858
407,945
730,704
1,061
5,970
18,160
28,931
46,969
93,518
535,684
739,158
680,352
931,194
929,179
965,671
1,081,376
1,167,831
1,338,876
1,191,940
12,447,167
835,958
546,872
370,103
392,377
354,923
218,044
87,773
116,896
348,811
127,257
157,675
3,556,689
16,003,856
40,542
24,995
2,278,261
748,127
578,421
351,216
522,374
779,136
18,155
29,294
60,651
47,604
56,199
98,439
310%
361%
353%
268%
238%
229%
218%
239%
219%
204%
206%
210%
262%
205%
156%
156%
147%
139%
127%
127%
130%
128%
199%
123%
286%
178%
166%
142%
151%
152%
167%
152%
145%
124%
123%
130%
42,102
28,669
48,551
60,711
94,733
150,012
226,755
349,699
519,181
848,727
1,053,332
3,422,472
917
1,181
973
953
2,143
3,578
9,917
22,501
121,498
93,120
144,279
401,060
3,823,532
709
343
704,192
314,643
332,857
229,035
413,728
739,345
941
5,262
18,272
28,707
47,240
95,509
195,931
2,930,783
6,754,315
238%
247%
245%
226%
211%
204%
205%
201%
193%
202%
206%
178%
184%
155%
136%
133%
124%
125%
123%
125%
127%
128%
187%
119%
208%
160%
167%
144%
148%
152%
129%
139%
130%
128%
123%
130%
2,710,394
1,456,639
2,874,518
5,323,072
2,734,852
Subtotal
Total Americas
Europe Core
2,066,354
7,068,454
2018 (8)
2019
Subtotal
Europe Insolvency
Subtotal
Total Europe
231,543
2,941,937
153,995
1,610,634
194,609
3,069,127
310,342
5,633,414
Total PRA Group $
10,010,391 $
3,514,165 $
6,900,983 $
21,637,270 $
(1)
Includes the acquisition date finance receivables portfolios that were acquired through our business acquisitions.
(2) For our non-U.S. amounts, Purchase Price is presented at the exchange rate at the end of the quarter in which the pool was purchased. In addition, any
purchase price adjustments that occur throughout the life of the pool are presented at the period-end exchange rate for the respective quarter of purchase.
(3) For our non-U.S. amounts, (cid:49)et Finance Receivables are presented at the December 31, 2019 exchange rate.
(4) For our non-U.S. amounts, ERC-Historical Period Exchange Rates is presented at the period-end exchange rate for the respective quarter of purchase.
(5) For our non-U.S. amounts, TEC is presented at the period-end exchange rate for the respective quarter of purchase.
(6) For our non-U.S. amounts, ERC-Current Period Exchange Rates is presented at the December 31, 2019 exchange rate.
(7) The Original Purchase Price Multiple represents the purchase price multiple at the end of the year of acquisition.
(8)
Includes a $34.9 million finance receivables portfolio addition in the third quarter of 2018 relating to the accounting consolidation of a Polish investment
fund.
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Supplemental Performance Data
Finance Receivables Portfolio Performance
The following tables show certain data related to our finance receivables portfolios. Certain adjustments, as noted in the
footnotes to these tables, have been made to reduce the impact of foreign currency fluctuations on ERC and purchase price multiples.
The accounts represented in the insolvency tables are those portfolios of accounts that were in an insolvency status at the
time of purchase. This contrasts with accounts in our Core portfolios that file for bankruptcy/insolvency protection after we purchase
them, which continue to be tracked in their corresponding Core portfolio. Core customers sometimes file for bankruptcy/insolvency
protection subsequent to our purchase of the related Core portfolio. When this occurs, we adjust our collection practices to comply
with bankruptcy/insolvency rules and procedures; however, for accounting purposes, these accounts remain in the original Core
portfolio. Insolvency accounts may be dismissed voluntarily or involuntarily subsequent to our purchase of the Insolvency portfolio.
Dismissal occurs when the terms of the bankruptcy are not met by the petitioner. When this occurs, we are typically free to pursue
collection outside of bankruptcy procedures; however, for accounting purposes, these accounts remain in the original Insolvency
pool.
Purchase price multiples can vary over time due to a variety of factors, including pricing competition, supply levels, age of
the receivables acquired, and changes in our operational efficiency. For example, increased pricing competition during the 2005
to 2008 period negatively impacted purchase price multiples of our Core portfolio compared to prior years. Conversely, during
the 2009 to 2011 period, additional supply occurred as a result of the economic downturn. This created unique and advantageous
purchasing opportunities, particularly within the Insolvency market, relative to the prior four years. Purchase price multiples can
also vary among types of finance receivables. For example, we generally incur lower collection costs on our Insolvency portfolio
compared with our Core portfolio. This allows us, in general, to pay more for an Insolvency portfolio and experience lower purchase
price multiples, while generating similar net income margins when compared with a Core portfolio.
When competition increases and/or supply decreases, pricing often becomes negatively impacted relative to expected
collections, and yields tend to trend lower. The opposite tends to occur when competition decreases and/or supply increases.
Within a given portfolio type, to the extent that lower purchase price multiples are the result of more competitive pricing and
lower net yields, this will generally lead to higher amortization rates and lower profitability. As portfolio pricing becomes more
favorable on a relative basis, our profitability will tend to increase. Profitability within given Core portfolio types may also be
impacted by the age and quality of the receivables, which impact the cost to collect those accounts. Fresher accounts, for example,
typically carry lower associated collection expenses, while older accounts and lower balance accounts typically carry higher costs
and, as a result, require higher purchase price multiples to achieve the same net profitability as fresher paper.
Revenue recognition under ASC 310-30 is driven by estimates of the amount and timing of collections as well as the timing
of those collections. We record new portfolio acquisitions based on our best estimate of the cash flows expected at acquisition,
which reflects the uncertainties inherent in the acquisition of nonperforming loans and the results of our underwriting process.
Subsequent to the initial booking, as we gain collection experience and confidence with a pool of accounts, we regularly update
ERC. As a result, our estimate of total collections has often increased as pools have aged. These processes have tended to cause
the ratio of ERC to purchase price for any given year of buying to gradually increase over time. Thus, all factors being equal in
terms of pricing, one would typically tend to see a higher collection to purchase price ratio from a pool of accounts that was six
years from acquisition than a pool that was just two years from acquisition.
We hold a beneficial interest in certain pools of finance receivables in Europe. Revenue recognition is under ASC Topic
310-20, "Receivables - (cid:49)onrefundable Fees and Other Costs" where we compute a life-to-date yield on a retrospective basis and
apply it to the ERC of the portfolio. Revenue on these pools is included in income recognized on finance receivables. In addition,
these portfolios are included in the tables below as they perform economically similar to finance receivables accounted for under
ASC 310-30.
The numbers presented in the following tables represent gross cash collections and do not reflect any costs to collect; therefore,
they may not represent relative profitability. Due to all the factors described above, readers should be cautious when making
comparisons of purchase price multiples among periods and between types of receivables.
Purchase Price Multiples
as of December 31, 2019
Amounts in thousands
Purchase Period Purchase Price (1)(2)
Americas Core
(cid:49)et Finance
Receivables (3)
ERC-Historical
Period Exchange
Rates (4)
Total Estimated
Collections (5)
ERC-Current
Period Exchange
Rates (6)
Current
Estimated
Purchase Price
Multiple
Original
Estimated
Purchase Price
Multiple (7)
$
310%
361%
353%
268%
238%
229%
218%
239%
219%
204%
206%
238%
247%
245%
226%
211%
204%
205%
201%
193%
202%
206%
42,102
28,669
48,551
60,711
94,733
150,012
226,755
349,699
519,181
848,727
1,053,332
3,422,472
917
1,181
973
953
2,143
3,598
9,917
22,491
121,498
93,120
144,228
401,019
3,831,856
—
—
—
—
—
756
5,783
17,433
95,421
74,459
114,892
308,744
1,903,531
397,453
208,942
180,432
251,395
227,834
148,689
63,170
92,264
275,257
97,879
123,039
2,066,354
7,068,454
930,026 $
148,193
209,602
254,076
390,826
405,169
443,779
453,158
533,442
655,548
578,281
5,002,100
42,102 $
28,669
48,551
60,711
94,733
152,639
226,865
354,399
521,715
852,246
1,048,207
3,430,837
9,279 $
3,485
7,707
16,011
33,648
55,033
93,385
139,380
242,129
460,797
533,933
1,594,787
2,885,906 $
535,684
739,158
680,352
931,194
929,179
965,671
1,081,376
1,167,831
1,338,876
1,191,940
12,447,167
1996-2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Subtotal
Americas Insolvency
1996-2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Subtotal
Total Americas
Europe Core
2012
2013
2014
2015
2016
2017
2018 (8)
2019
Subtotal
Europe Insolvency
2014
2015
2016
2017
2018
2019
Subtotal
Total Europe
Total PRA Group $
(1)
(2) For our non-U.S. amounts, Purchase Price is presented at the exchange rate at the end of the quarter in which the pool was purchased. In addition, any
941
5,262
18,272
28,707
47,240
95,509
195,931
2,930,783
6,754,315
Includes the acquisition date finance receivables portfolios that were acquired through our business acquisitions.
835,958
546,872
370,103
392,377
354,923
218,044
87,773
116,896
348,811
127,257
157,675
3,556,689
16,003,856
917
1,181
973
953
2,143
3,578
9,917
22,501
121,498
93,120
144,279
401,060
3,823,532
18,155
29,294
60,651
47,604
56,199
98,439
310,342
5,633,414
21,637,270 $
10,876
19,226
41,858
38,409
45,586
75,588
231,543
2,941,937
10,010,391 $
306
3,083
12,507
24,417
39,424
74,258
153,995
1,610,634
3,514,165 $
1,061
5,970
18,160
28,931
46,969
93,518
194,609
3,069,127
6,900,983 $
709
343
704,192
314,643
332,857
229,035
413,728
739,345
2,734,852
40,542
24,995
2,278,261
748,127
578,421
351,216
522,374
779,136
5,323,072
875
431
823,116
345,214
333,375
232,858
407,945
730,704
2,874,518
20,409
20,334
796,762
419,909
348,270
246,752
345,256
512,702
2,710,394
—
—
188,892
161,210
190,927
157,850
269,292
488,468
1,456,639
210%
262%
205%
156%
156%
147%
139%
127%
127%
130%
128%
178%
184%
155%
136%
133%
124%
125%
123%
125%
127%
128%
199%
123%
286%
178%
166%
142%
151%
152%
187%
119%
208%
160%
167%
144%
148%
152%
129%
139%
130%
128%
123%
130%
167%
152%
145%
124%
123%
130%
purchase price adjustments that occur throughout the life of the pool are presented at the period-end exchange rate for the respective quarter of purchase.
(3) For our non-U.S. amounts, (cid:49)et Finance Receivables are presented at the December 31, 2019 exchange rate.
(4) For our non-U.S. amounts, ERC-Historical Period Exchange Rates is presented at the period-end exchange rate for the respective quarter of purchase.
(5) For our non-U.S. amounts, TEC is presented at the period-end exchange rate for the respective quarter of purchase.
(6) For our non-U.S. amounts, ERC-Current Period Exchange Rates is presented at the December 31, 2019 exchange rate.
(7) The Original Purchase Price Multiple represents the purchase price multiple at the end of the year of acquisition.
(8)
Includes a $34.9 million finance receivables portfolio addition in the third quarter of 2018 relating to the accounting consolidation of a Polish investment
fund.
30
31
fp0052934_PRA_10k_2020_combined4.indd 33
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Portfolio Financial Information
For the Year Ended December 31, 2019
Amounts in thousands
The following table, which excludes any proceeds from cash sales of finance receivables, illustrates historical cash collections,
by year, on our portfolios.
Cash
(cid:49)et Allowance
Charges/
(Reversals) (3) (cid:49)et Revenue (3)(4)
(cid:49)et Finance
Receivables as of
December 31, 2019 (5)
9,279
3,485
7,707
16,011
33,648
55,033
93,385
139,380
242,129
460,797
533,933
1,594,787
$
Collections (3) Gross Revenue (3) Amortization (3)
(3,700) $
40
755
(370)
6,325
8,317
9,247
3,364
265
254
34
24,531
397,453
208,942
180,432
251,395
227,834
148,689
63,170
92,264
275,257
97,879
123,039
2,066,354
7,068,454
652
663
743
1,870
2,862
15,785
16,657
19,918
80,906
27,438
13,449
180,943
1,322,450
4,173 $
1,112
1,967
3,936
10,378
17,639
31,123
52,390
127,961
165,817
46,987
463,483
18,705 $
8,050
13,915
14,300
20,152
29,384
43,222
84,836
128,294
195,828
96,807
653,493
15,005 $
8,090
14,670
13,930
26,477
37,701
52,469
88,200
128,559
196,082
96,841
678,024
19,178 $
9,202
16,637
17,866
36,855
55,340
83,592
140,590
256,520
361,899
143,828
1,141,507
930,026 $
148,193
209,602
254,076
390,826
405,169
443,779
453,158
533,442
655,548
578,281
5,002,100
Purchase Period Purchase Price (1)(2)
Americas Core
1996-2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Subtotal
Americas Insolvency
1996-2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Subtotal
Total Americas
Europe Core
2012
2013
2014
2015
2016
2017
2018 (6)
2019
Subtotal
Europe Insolvency
2014
2015
2016
2017
2018
2019
Subtotal
Total Europe
Total PRA Group $
(1)
(2) For our non-U.S. amounts, Purchase Price is presented at the exchange rate at the end of the quarter in which the pool was purchased. In addition, any
—
(72)
(42)
522
—
—
408
644
24,025 $
Includes the acquisition date finance receivables portfolios that were acquired through our business acquisitions.
10,876
19,226
41,858
38,409
45,586
75,588
231,543
2,941,937
10,010,391 $
1,547
3,904
10,664
9,240
8,422
4,985
38,762
518,821
1,841,271 $
652
663
743
1,870
2,862
9,476
6,221
5,299
20,754
8,210
5,264
62,014
740,038
652
663
743
1,870
2,862
9,166
6,221
6,759
20,754
8,210
5,264
63,164
716,657
—
—
—
—
—
6,309
10,436
14,619
60,152
19,228
8,185
118,929
582,412
—
—
—
—
—
310
—
(1,460)
—
—
—
(1,150)
23,381
907
1,889
4,161
2,300
2,552
2,095
13,904
258,323
998,361 $
640
2,015
6,503
6,940
5,870
2,890
24,858
260,498
842,910 $
907
1,961
4,203
1,778
2,552
2,095
13,496
257,679
974,336 $
20,409
20,334
796,762
419,909
348,270
246,752
345,256
512,702
2,710,394
1,450
820
123,296
36,174
25,683
12,424
26,645
17,691
244,183
1,450
820
121,450
32,821
28,594
14,239
27,309
17,736
244,419
1,450
901
172,885
66,074
57,989
44,085
88,699
47,976
480,059
—
81
51,435
33,253
29,395
29,846
61,390
30,240
235,640
—
—
(1,846)
(3,353)
2,911
1,815
664
45
236
—
—
—
—
—
756
5,783
17,433
95,421
74,459
114,892
308,744
1,903,531
306
3,083
12,507
24,417
39,424
74,258
153,995
1,610,634
3,514,165
—
—
188,892
161,210
190,927
157,850
269,292
488,468
1,456,639
purchase price adjustments that occur throughout the life of the pool are presented at the period-end exchange rate for the respective quarter of purchase.
(3) For our non-U.S. amounts, amounts are presented using the average exchange rates during the current reporting period.
(4) (cid:49)et Revenue refers to income recognized on finance receivables, net of allowance charges/(reversals).
(5) For our non-U.S. amounts, net finance receivables are presented at the December 31, 2019 exchange rate.
(6)
Includes a $34.9 million finance receivables portfolio addition in the third quarter of 2018 relating to the accounting consolidation of a Polish investment
fund.
32
33
fp0052934_PRA_10k_2020_combined4.indd 34
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Cash Collections by Year, By Year of Purchase (1)
as of December 31, 2019
Amounts in thousands
Cash Collections
47,076
113,554
109,873
61,971
174,461
56,901
82,014
152,908
173,589
101,614
55,946
108,513
146,198
247,849
92,660
Purchase
Period
Purchase
Price (2)(3)
1996-
2009
Americas Core
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Total
1996-2009 $
930,026 $1,647,666 $ 295,679 $ 253,544 $ 201,640 $ 146,383 $ 101,829 $
71,173 $
45,734 $
30,452 $
23,272 $
19,178 $ 2,836,550
Subtotal
5,002,100
1,647,666
342,755
429,069
542,875
656,508
752,995
844,768
837,196
860,927
945,179
1,141,507
9,001,445
Americas Insolvency
1996-2009
204,343
147,101
156,704
145,418
39,486
104,499
125,020
15,218
66,379
17,388
109,259
121,717
82,752
103,610
52,528
56,980
101,873
85,816
94,141
82,596
37,045
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
38,110
73,793
97,267
194,026
253,448
116,951
—
—
—
—
7,617
43,649
76,915
80,079
81,679
50,880
3,395
—
—
—
—
3,175
2,347
45,760
—
—
—
—
—
—
—
—
4,297
2,954
24,515
48,711
59,981
120,789
170,311
228,432
138,723
—
—
—
3,629
5,008
35,996
60,715
63,386
44,313
17,892
18,869
—
—
—
2,198
1,326
246,365
100,263
40,368
—
—
—
3,921
4,366
6,175
—
—
—
15,587
31,991
40,042
78,880
114,219
185,898
256,531
107,327
—
—
11,140
21,622
27,797
56,449
82,244
126,605
194,605
278,733
122,712
—
9,202
16,637
17,866
36,855
55,340
83,592
140,590
256,520
361,899
143,828
2,234
2,425
3,726
29,337
47,781
37,350
20,143
30,426
49,093
—
—
2,038
1,239
86,156
78,915
17,894
—
—
3,207
5,013
12,703
1,233
—
—
1,103
1,352
1,584
4,284
21,948
28,759
19,769
25,047
97,315
6,700
—
1,996
1,331
80,858
72,603
56,033
24,326
—
2,620
4,783
12,856
7,862
642
—
652
663
743
1,870
2,862
15,785
16,657
19,918
80,906
27,438
13,449
1,450
901
66,074
57,989
44,085
88,699
47,976
1,547
3,904
10,664
9,240
8,422
4,985
507,017
690,607
619,641
836,462
768,222
741,478
730,449
642,580
484,611
143,828
835,040
545,692
369,129
391,424
352,780
214,132
77,856
94,260
227,314
34,138
13,449
37,097
22,752
379,111
249,875
118,012
113,025
47,976
15,597
21,020
42,398
18,335
9,064
4,985
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
5
—
—
—
—
—
5
2,066,354
204,343
186,587
276,421
354,205
469,866
458,451
344,214
249,808
222,515
207,861
180,943
3,155,214
7,068,454
1,852,009
529,342
705,490
897,080
1,126,374
1,211,446
1,188,982
1,087,004
1,083,442
1,153,040
1,322,450
12,156,659
11,604
8,995
7,068
5,641
8,540
153,180
291,980
220,765
206,255
172,885
1,291,430
2,941,937
11,604
16,063
167,366
350,513
404,982
429,163
472,165
518,821
2,370,677
7,251
14,462
22,156
28,763
38,762
111,399
$10,010,391 $1,852,009 $ 529,342 $ 705,490 $ 908,684 $1,142,437 $1,378,812 $1,539,495 $1,491,986 $1,512,605 $1,625,205 $1,841,271 $14,527,336
(1) For our non-U.S. amounts, cash collections are presented using the average exchange rates during the cash collection period.
(2)
Includes the acquisition date finance receivables portfolios that were acquired through our business acquisitions.
(3) For our non-U.S. amounts, Purchase Price is presented at the exchange rate at the end of the quarter in which the portfolio was purchased. In addition, any
purchase price adjustments that occur throughout the life of the pool are presented at the period end exchange rate for the respective quarter of purchase.
(4)
Includes a $34.9 million finance receivables portfolio addition in the third quarter of 2018 relating to the accounting consolidation of a Polish investment
148,193
209,602
254,076
390,826
405,169
443,779
453,158
533,442
655,548
578,281
397,453
208,942
180,432
251,395
227,834
148,689
63,170
92,264
275,257
97,879
123,039
20,409
20,334
796,762
419,909
348,270
246,752
345,256
512,702
10,876
19,226
41,858
38,409
45,586
75,588
231,543
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Subtotal
Total
Americas
Europe Core
2012
2013
2014
2015
2016
2017
2018 (4)
2019
2014
2015
2016
2017
2018
2019
Subtotal
Total
Europe
Total PRA
Group
fund.
Subtotal
2,710,394
Europe Insolvency
11,604
16,063
167,361
343,262
390,520
407,007
443,402
480,059
2,259,278
Portfolio Financial Information
For the Year Ended December 31, 2019
Amounts in thousands
Purchase Period Purchase Price (1)(2)
Collections (3) Gross Revenue (3) Amortization (3)
(Reversals) (3) (cid:49)et Revenue (3)(4)
Cash
(cid:49)et Allowance
Charges/
(cid:49)et Finance
Receivables as of
December 31, 2019 (5)
Americas Core
1996-2009
$
930,026 $
19,178 $
15,005 $
4,173 $
(3,700) $
18,705 $
Subtotal
5,002,100
1,141,507
Americas Insolvency
1996-2009
Subtotal
Total Americas
Europe Core
2,066,354
7,068,454
180,943
1,322,450
148,193
209,602
254,076
390,826
405,169
443,779
453,158
533,442
655,548
578,281
397,453
208,942
180,432
251,395
227,834
148,689
63,170
92,264
275,257
97,879
123,039
20,409
20,334
796,762
419,909
348,270
246,752
345,256
512,702
10,876
19,226
41,858
38,409
45,586
75,588
231,543
2,941,937
9,202
16,637
17,866
36,855
55,340
83,592
140,590
256,520
361,899
143,828
652
663
743
1,870
2,862
15,785
16,657
19,918
80,906
27,438
13,449
1,450
901
172,885
66,074
57,989
44,085
88,699
47,976
1,547
3,904
10,664
9,240
8,422
4,985
38,762
518,821
8,090
14,670
13,930
26,477
37,701
52,469
88,200
128,559
196,082
96,841
678,024
652
663
743
1,870
2,862
9,476
6,221
5,299
20,754
8,210
5,264
62,014
740,038
1,450
820
121,450
32,821
28,594
14,239
27,309
17,736
907
1,889
4,161
2,300
2,552
2,095
13,904
258,323
1,112
1,967
3,936
10,378
17,639
31,123
52,390
127,961
165,817
46,987
463,483
—
—
—
—
—
6,309
10,436
14,619
60,152
19,228
8,185
118,929
582,412
—
81
51,435
33,253
29,395
29,846
61,390
30,240
640
2,015
6,503
6,940
5,870
2,890
24,858
260,498
40
755
(370)
6,325
8,317
9,247
3,364
265
254
34
24,531
—
—
—
—
—
310
—
—
—
—
(1,460)
(1,150)
23,381
—
—
(1,846)
(3,353)
2,911
1,815
664
45
236
—
(72)
(42)
522
—
—
408
644
8,050
13,915
14,300
20,152
29,384
43,222
84,836
128,294
195,828
96,807
653,493
652
663
743
1,870
2,862
9,166
6,221
6,759
20,754
8,210
5,264
63,164
716,657
1,450
820
123,296
36,174
25,683
12,424
26,645
17,691
244,183
907
1,961
4,203
1,778
2,552
2,095
13,496
257,679
2,710,394
480,059
244,419
235,640
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2012
2013
2014
2015
2016
2017
2014
2015
2016
2017
2018
2019
2018 (6)
2019
Subtotal
Europe Insolvency
Subtotal
Total Europe
fund.
Total PRA Group $
10,010,391 $
1,841,271 $
998,361 $
842,910 $
24,025 $
974,336 $
(1)
Includes the acquisition date finance receivables portfolios that were acquired through our business acquisitions.
(2) For our non-U.S. amounts, Purchase Price is presented at the exchange rate at the end of the quarter in which the pool was purchased. In addition, any
purchase price adjustments that occur throughout the life of the pool are presented at the period-end exchange rate for the respective quarter of purchase.
(3) For our non-U.S. amounts, amounts are presented using the average exchange rates during the current reporting period.
(4) (cid:49)et Revenue refers to income recognized on finance receivables, net of allowance charges/(reversals).
(5) For our non-U.S. amounts, net finance receivables are presented at the December 31, 2019 exchange rate.
(6)
Includes a $34.9 million finance receivables portfolio addition in the third quarter of 2018 relating to the accounting consolidation of a Polish investment
9,279
3,485
7,707
16,011
33,648
55,033
93,385
139,380
242,129
460,797
533,933
1,594,787
—
—
—
—
—
756
5,783
17,433
95,421
74,459
114,892
308,744
1,903,531
—
—
188,892
161,210
190,927
157,850
269,292
488,468
1,456,639
306
3,083
12,507
24,417
39,424
74,258
153,995
1,610,634
3,514,165
The following table, which excludes any proceeds from cash sales of finance receivables, illustrates historical cash collections,
by year, on our portfolios.
Cash Collections by Year, By Year of Purchase (1)
as of December 31, 2019
Amounts in thousands
Cash Collections
Purchase
Period
Purchase
Price (2)(3)
1996-
2009
Americas Core
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Total
1996-2009 $
930,026 $1,647,666 $ 295,679 $ 253,544 $ 201,640 $ 146,383 $ 101,829 $
71,173 $
45,734 $
30,452 $
23,272 $
19,178 $ 2,836,550
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
148,193
209,602
254,076
390,826
405,169
443,779
453,158
533,442
655,548
578,281
—
—
—
—
—
—
—
—
—
—
47,076
113,554
109,873
—
—
—
—
—
—
—
—
—
61,971
174,461
—
—
—
—
—
—
—
—
56,901
—
—
—
—
—
—
—
82,014
152,908
173,589
101,614
—
—
—
—
—
—
55,946
108,513
146,198
247,849
92,660
—
—
—
—
—
38,110
73,793
97,267
194,026
253,448
116,951
—
—
—
—
24,515
48,711
59,981
120,789
170,311
228,432
138,723
—
—
—
15,587
31,991
40,042
78,880
114,219
185,898
256,531
107,327
—
—
11,140
21,622
27,797
56,449
82,244
126,605
194,605
278,733
122,712
—
9,202
16,637
17,866
36,855
55,340
83,592
140,590
256,520
361,899
143,828
507,017
690,607
619,641
836,462
768,222
741,478
730,449
642,580
484,611
143,828
Subtotal
5,002,100
1,647,666
342,755
429,069
542,875
656,508
752,995
844,768
837,196
860,927
945,179
1,141,507
9,001,445
Americas Insolvency
1996-2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
397,453
208,942
180,432
251,395
227,834
148,689
63,170
92,264
275,257
97,879
123,039
204,343
147,101
156,704
145,418
—
—
—
—
—
—
—
—
—
—
39,486
104,499
125,020
—
—
—
—
—
—
—
—
—
15,218
—
—
—
—
—
—
—
—
66,379
17,388
—
—
—
—
—
—
—
109,259
121,717
82,752
103,610
52,528
—
—
—
—
—
—
56,980
101,873
85,816
94,141
82,596
37,045
—
—
—
—
—
7,617
43,649
76,915
80,079
81,679
50,880
3,395
—
—
—
—
3,629
5,008
35,996
60,715
63,386
44,313
17,892
18,869
—
—
—
2,234
2,425
3,726
29,337
47,781
37,350
20,143
30,426
49,093
—
—
1,103
1,352
1,584
4,284
21,948
28,759
19,769
25,047
97,315
6,700
—
652
663
743
1,870
2,862
15,785
16,657
19,918
80,906
27,438
13,449
835,040
545,692
369,129
391,424
352,780
214,132
77,856
94,260
227,314
34,138
13,449
Subtotal
2,066,354
204,343
186,587
276,421
354,205
469,866
458,451
344,214
249,808
222,515
207,861
180,943
3,155,214
7,068,454
1,852,009
529,342
705,490
897,080
1,126,374
1,211,446
1,188,982
1,087,004
1,083,442
1,153,040
1,322,450
12,156,659
Subtotal
2,710,394
Europe Insolvency
Total
Americas
Europe Core
2012
2013
2014
2015
2016
2017
2018 (4)
2019
2014
2015
2016
2017
2018
2019
Subtotal
Total
Europe
Total PRA
Group
20,409
20,334
796,762
419,909
348,270
246,752
345,256
512,702
10,876
19,226
41,858
38,409
45,586
75,588
231,543
2,941,937
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
11,604
—
—
—
—
—
—
—
8,995
7,068
5,641
8,540
3,175
2,347
—
—
—
—
—
—
153,180
291,980
—
—
—
—
—
45,760
—
—
—
—
2,198
1,326
246,365
100,263
40,368
—
—
—
2,038
1,239
1,996
1,331
1,450
901
37,097
22,752
220,765
206,255
172,885
1,291,430
86,156
78,915
17,894
—
—
80,858
72,603
56,033
24,326
—
66,074
57,989
44,085
88,699
47,976
379,111
249,875
118,012
113,025
47,976
11,604
16,063
167,361
343,262
390,520
407,007
443,402
480,059
2,259,278
—
—
—
—
—
—
—
—
—
—
—
—
—
—
5
—
—
—
—
—
5
4,297
2,954
—
—
—
—
3,921
4,366
6,175
—
—
—
3,207
5,013
12,703
1,233
—
—
2,620
4,783
12,856
7,862
642
—
1,547
3,904
10,664
9,240
8,422
4,985
15,597
21,020
42,398
18,335
9,064
4,985
7,251
14,462
22,156
28,763
38,762
111,399
11,604
16,063
167,366
350,513
404,982
429,163
472,165
518,821
2,370,677
$10,010,391 $1,852,009 $ 529,342 $ 705,490 $ 908,684 $1,142,437 $1,378,812 $1,539,495 $1,491,986 $1,512,605 $1,625,205 $1,841,271 $14,527,336
32
33
(1) For our non-U.S. amounts, cash collections are presented using the average exchange rates during the cash collection period.
(2)
(3) For our non-U.S. amounts, Purchase Price is presented at the exchange rate at the end of the quarter in which the portfolio was purchased. In addition, any
Includes the acquisition date finance receivables portfolios that were acquired through our business acquisitions.
(4)
purchase price adjustments that occur throughout the life of the pool are presented at the period end exchange rate for the respective quarter of purchase.
Includes a $34.9 million finance receivables portfolio addition in the third quarter of 2018 relating to the accounting consolidation of a Polish investment
fund.
fp0052934_PRA_10k_2020_combined4.indd 35
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Estimated Remaining Collections
Collections Productivity (U.S. Portfolio)
The following chart shows our ERC of $6,754.3 million at December 31, 2019 by geographical region (amounts in
The following table displays certain collections productivity measures.
millions).
Cash Collections per Collector Hour Paid
U.S. Portfolio
Call center and other cash collections (1)
2019
2018
2017
2016
2015
$
$
$
$
$
139
139
124
128
121
101
107
104
161
129
125
112
168
167
177
153
143
141
145
139
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
(1) Represents total cash collections less internal legal cash collections, external legal cash collections and Insolvency cash
collections from trustee-administered accounts.
Portfolio Acquisitions
The following graph shows the purchase price of our portfolios by year since 2009. It also includes the acquisition date
finance receivable portfolios that were acquired through our business acquisitions.
Seasonality
Cash collections in the Americas tend to be higher in the first half of the year due to the high volume of income tax refunds
received by individuals in the U.S., and trend lower as the year progresses. Customer payment patterns in all of the countries in
which we operate can be affected by seasonal employment trends, income tax refunds, and holiday spending habits.
Cash Collections
The following table displays our quarterly cash collections by geography and portfolio type, for the periods indicated.
Cash Collections by Geography and Type
Amounts in thousands
2019
2018
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
Americas Core
$ 276,639
$ 279,902
$ 294,243
$ 290,723
$ 233,937
$ 231,253
$ 233,752
$ 246,237
Americas Insolvency
40,801
45,759
49,770
44,613
48,000
48,518
56,063
55,280
Europe Core
126,649
118,917
117,635
116,858
113,154
102,780
109,359
118,109
Europe Insolvency
12,520
8,639
8,626
8,977
7,618
6,731
7,460
6,954
Total Cash Collections
$ 456,609
$ 453,217
$ 470,274
$ 461,171
$ 402,709
$ 389,282
$ 406,634
$ 426,580
The following table provides additional details on the composition of our U.S. Core cash collections for the periods indicated.
U.S. Core Portfolio Cash Collections by Source
Amounts in thousands
2019
2018
The following table displays our quarterly portfolio acquisitions for the periods indicated.
Portfolio Acquisitions by Geography and Type
Amounts in thousands
2019
2018
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
Americas Core
$ 118,153
$ 168,185
$ 121,996
$ 169,189
$172,511
$ 170,426
$ 182,768
$ 131,427
Americas Insolvency
Europe Core
Europe Insolvency
22,650
218,919
42,613
26,311
64,728
19,772
26,092
136,344
4,715
48,243
94,283
7,134
52,871
231,810
33,661
17,151
45,754
4,159
16,651
19,403
2,577
13,436
18,000
5,392
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
Total Portfolio Acquisitions
$ 402,335
$ 278,996
$ 289,147
$ 318,849
$ 490,853
$ 237,490
$ 221,399
$ 168,255
Call Center and Other
Collections
External Legal
Collections
Internal Legal
Collections
Total U.S.-Core Cash
Collections
$ 139,399
$ 149,782
$ 160,479
$ 169,753
$ 134,543
$ 137,325
$ 143,527
$ 155,448
58,831
64,301
63,490
57,419
47,410
41,935
40,631
38,891
33,944
35,679
38,065
37,018
30,724
32,064
32,532
33,423
$ 232,174
$ 249,762
$ 262,034
$ 264,190
$ 212,677
$ 211,324
$ 216,690
$ 227,762
34
35
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Estimated Remaining Collections
millions).
The following chart shows our ERC of $6,754.3 million at December 31, 2019 by geographical region (amounts in
The following table displays certain collections productivity measures.
Collections Productivity (U.S. Portfolio)
Cash Collections per Collector Hour Paid
U.S. Portfolio
Call center and other cash collections (1)
2019
2018
2017
2016
2015
$
$
139
139
124
128
$
121
101
107
104
$
161
129
125
112
$
168
167
177
153
143
141
145
139
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
(1) Represents total cash collections less internal legal cash collections, external legal cash collections and Insolvency cash
collections from trustee-administered accounts.
Portfolio Acquisitions
The following graph shows the purchase price of our portfolios by year since 2009. It also includes the acquisition date
finance receivable portfolios that were acquired through our business acquisitions.
Seasonality
Cash Collections
Cash collections in the Americas tend to be higher in the first half of the year due to the high volume of income tax refunds
received by individuals in the U.S., and trend lower as the year progresses. Customer payment patterns in all of the countries in
which we operate can be affected by seasonal employment trends, income tax refunds, and holiday spending habits.
The following table displays our quarterly cash collections by geography and portfolio type, for the periods indicated.
Cash Collections by Geography and Type
Amounts in thousands
2019
2018
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
Americas Core
$ 276,639
$ 279,902
$ 294,243
$ 290,723
$ 233,937
$ 231,253
$ 233,752
$ 246,237
Americas Insolvency
40,801
45,759
49,770
44,613
48,000
48,518
56,063
55,280
Europe Core
126,649
118,917
117,635
116,858
113,154
102,780
109,359
118,109
Europe Insolvency
12,520
8,639
8,626
8,977
7,618
6,731
7,460
6,954
Total Cash Collections
$ 456,609
$ 453,217
$ 470,274
$ 461,171
$ 402,709
$ 389,282
$ 406,634
$ 426,580
The following table provides additional details on the composition of our U.S. Core cash collections for the periods indicated.
U.S. Core Portfolio Cash Collections by Source
Amounts in thousands
2019
2018
Call Center and Other
Collections
External Legal
Collections
Internal Legal
Collections
Total U.S.-Core Cash
Collections
$ 139,399
$ 149,782
$ 160,479
$ 169,753
$ 134,543
$ 137,325
$ 143,527
$ 155,448
58,831
64,301
63,490
57,419
47,410
41,935
40,631
38,891
33,944
35,679
38,065
37,018
30,724
32,064
32,532
33,423
$ 232,174
$ 249,762
$ 262,034
$ 264,190
$ 212,677
$ 211,324
$ 216,690
$ 227,762
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
Total Portfolio Acquisitions
$ 402,335
$ 278,996
$ 289,147
$ 318,849
$ 490,853
$ 237,490
$ 221,399
$ 168,255
The following table displays our quarterly portfolio acquisitions for the periods indicated.
Portfolio Acquisitions by Geography and Type
Amounts in thousands
2019
2018
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
Americas Core
$ 118,153
$ 168,185
$ 121,996
$ 169,189
$172,511
$ 170,426
$ 182,768
$ 131,427
Americas Insolvency
Europe Core
Europe Insolvency
22,650
218,919
42,613
26,311
64,728
19,772
26,092
136,344
4,715
48,243
94,283
7,134
52,871
231,810
33,661
17,151
45,754
4,159
16,651
19,403
2,577
13,436
18,000
5,392
34
35
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Portfolio Acquisitions by Stratifications (U.S. Only)
The following table categorizes our quarterly U.S. portfolio acquisitions for the periods indicated into major asset type and
delinquency category. Since our inception in 1996, we have acquired more than 54 million customer accounts in the U.S.
of 2019.
In December 2018, we sold 79% of our interest in RCB's servicing platform which provided us with approximately $40
million of net cash proceeds. We received 25% of the proceeds on December 20, 2018 and the remaining 75% in the first quarter
U.S. Portfolio Acquisitions by Major Asset Type
Amounts in thousands
2019
Q4
Q3
Q2
Q1
2018
Q4
Major Credit Cards
Private Label Credit
Cards
Consumer Finance
Auto Related
Total
$ 30,337
24.3% $ 50,500
40.1% $ 39,468
28.2% $ 43,440
27.0% $ 65,025
32.5%
85,351
68.4%
72,714
57.7%
2,046
6,991
1.7%
5.6%
2,090
638
1.7%
0.5%
70,536
28,649
1,407
50.4% 84,515
52.6% 100,633
50.3%
20.4%
2,424
1.5%
2,619
1.3%
1.0% 30,358
18.9%
31,892
15.9%
$124,725
100.0% $125,942 100.0% $ 140,060 100.0% $160,737 100.0% $200,169
100.0%
U.S. Portfolio Acquisitions by Delinquency Category
Amounts in thousands
2019
Q4
Q3
Q2
Q1
2018
Q4
Fresh (1)
Primary (2)
Secondary (3)
Tertiary (3)
Other (4)
Total Core
$ 35,330
34.6% $ 27,600
27.1% $
33,288
29.3% $ 51,212
45.6% $ 61,730
5,796
5.7%
52,899
51.8%
4,409
3,641
4.3%
3.6%
17,658
50,082
6,483
—
17.3%
49.2%
6.4%
—%
40,027
34,920
5,733
—
35.1%
30.6%
5.0%
—%
19,725
35,857
4,435
1,265
17.5%
31.9%
3.9%
1.1%
39,690
45,878
—
—
42.0%
26.9%
31.1%
—%
—%
102,075
100.0%
101,823
100.0%
113,968
100.0%
112,494
100.0%
147,298
100.0%
Insolvency
22,650
Total
$ 124,725
24,119
$ 125,942
26,092
$ 140,060
48,243
$ 160,737
52,871
$ 200,169
(1) Fresh accounts are typically past due 120 to 270 days, charged-off by the credit originator and are either being sold prior to
any post-charge-off collection activity or placement with a third-party for the first time.
(2) Primary accounts are typically 360 to 450 days past due and charged-off and have been previously placed with one contingent
fee servicer.
(3) Secondary and tertiary accounts are typically more than 660 days past due and charged-off and have been placed with two or
three contingent fee servicers.
(4) Other accounts are typically two to three years or more past due and charged-off and have previously been worked by four
or more contingent fee servicers.
Liquidity and Capital Resources
We manage our liquidity to help provide access to sufficient funding to meet our business needs and financial obligations.
As of December 31, 2019, cash and cash equivalents totaled $119.8 million. Of the cash and cash equivalent balance as of
December 31, 2019, $109.7 million consisted of cash on hand related to international operations with indefinitely reinvested
earnings. See the "Undistributed Earnings of International Subsidiaries" section below for more information.
At December 31, 2019, we had approximately $2.8 billion in borrowings outstanding with $474.6 million of availability
under all of our credit facilities (subject to the borrowing base and applicable debt covenants). Considering borrowing base
restrictions, as of December 31, 2019, the amount available to be drawn was $271.1 million. Of the $474.6 million of borrowing
availability, $122.5 million was available under our European credit facility, and $349.2 million was available under our (cid:49)orth
American credit facility. Of the $271.1 million available considering borrowing base restrictions, $121.8 million was available
under our European credit facility, and $146.5 million was available under our (cid:49)orth American credit facility. For more information,
see (cid:49)ote 6 to our Consolidated Financial Statements included in Item 8 of this Form 10-K.
An additional funding source for our Europe operations is interest-bearing deposits. Per the terms of our European credit
facility, we are permitted to obtain interest-bearing deposit funding of up to SEK 1.2 billion (approximately $128.4 million as of
December 31, 2019). Interest-bearing deposits as of December 31, 2019 were $106.2 million.
We determined that we were in compliance with the covenants of our financing arrangements as of December 31, 2019.
We have the ability to slow the purchase of finance receivables if necessary, with low impact to current year cash collections.
For example, we invested $1,289.3 million in portfolio acquisitions in 2019. The portfolios acquired in 2019 generated $210.2
million of cash collections, representing only 11.4% of 2019 cash collections.
Contractual obligations over the next year are primarily related to debt maturities and purchase commitments. Our (cid:49)orth
American credit facility expires in May 2022. Our European credit facility expires in February 2021. Of our $425.0 million in
long-term debt outstanding at December 31, 2019, $10.0 million in principal is due within one year. Additionally, the $287.5
million principal amount of the 3.00% Convertible Senior (cid:49)otes due 2020 is due August 1, 2020. Based upon our current availability
considering borrowing base restrictions in (cid:49)orth America ($146.5 million), our cash on hand, our current ability to negotiate
extensions or renew our lines of credit and to secure additional financing in the open market, and our strong operating cash flows,
we believe that we have the ability to settle this instrument in cash at maturity.
We have in place forward flow commitments for the purchase of nonperforming loans primarily over the next 12 months
with a maximum purchase price of $497.5 million, as of December 31, 2019. The $497.5 million includes $226.0 million for the
Americas and $271.5 million for Europe. We may also enter into new or renewed forward flow commitments and close on spot
transactions in addition to the aforementioned forward flow agreements.
On May 10, 2017, we reached a settlement with the Internal Revenue Service (“IRS”) in regard to the IRS assertion that tax
revenue recognition using the cost recovery method did not clearly reflect taxable income. In accordance with the settlement, our
tax accounting method to recognize finance receivables revenue changed effective with tax year 2017. Under the new method, a
portion of the annual collections amortizes principal and the remaining portion is taxable income. The revenue related to the
difference in timing between the new method and the cost recovery method will be included evenly into our tax filings over four
years effective with tax year 2017. We estimate the related tax payments to be approximately $9.3 million per quarter through the
year 2020. (cid:49)o interest or penalties were assessed as part of the settlement.
We believe that funds generated from operations and from cash collections on finance receivables, together with existing
cash and available borrowings under our revolving credit facilities will be sufficient to finance our operations, planned capital
expenditures, forward flow purchase commitments, and additional portfolio purchases during the next twelve months. Business
acquisitions, adverse outcomes in pending litigation or higher than expected levels of portfolio purchasing could require additional
The following table summarizes our cash flow activity for the years ended December 31, 2019, 2018 and 2017 (amounts
financing from other sources.
Cash Flows Analysis
in thousands):
Total cash provided by (used in):
Operating activities
Investing activities
Financing activities
Effect of exchange rate on cash
Operating Activities
2019
2018
2017
$
133,388
$
80,866
$
(441,190)
339,523
(6,609)
(387,251)
294,926
(10,362)
15,475
(294,960)
295,698
10,016
(cid:49)et increase/(decrease) in cash and cash equivalents
$
25,112
$
(21,821) $
26,229
The change in our cash flows from operating activities in 2019 was primarily due to cash collections recognized as revenue
offset by cash paid for operating expenses, interest, and income taxes. Key drivers of operating activities were adjusted for (i)
non-cash items included in net income such as provisions for unrealized gains and losses, depreciation and amortization, deferred
taxes, hedged derivatives, and stock-based compensation and (ii) changes in the balances of operating assets and liabilities, which
can vary significantly in the normal course of business due to the amount and timing of payments.
36
37
fp0052934_PRA_10k_2020_combined4.indd 38
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Portfolio Acquisitions by Stratifications (U.S. Only)
The following table categorizes our quarterly U.S. portfolio acquisitions for the periods indicated into major asset type and
delinquency category. Since our inception in 1996, we have acquired more than 54 million customer accounts in the U.S.
U.S. Portfolio Acquisitions by Major Asset Type
Amounts in thousands
2019
Q4
Q3
Q2
Q1
2018
Q4
2018
Q4
Major Credit Cards
$ 30,337
24.3% $ 50,500
40.1% $ 39,468
28.2% $ 43,440
27.0% $ 65,025
32.5%
Private Label Credit
Cards
Consumer Finance
Auto Related
Total
85,351
68.4%
72,714
57.7%
50.4% 84,515
52.6% 100,633
50.3%
2,046
6,991
1.7%
5.6%
2,090
638
1.7%
0.5%
20.4%
2,424
1.5%
2,619
1.3%
1.0% 30,358
18.9%
31,892
15.9%
70,536
28,649
1,407
$124,725
100.0% $125,942 100.0% $ 140,060 100.0% $160,737 100.0% $200,169
100.0%
U.S. Portfolio Acquisitions by Delinquency Category
Amounts in thousands
2019
Q4
Q3
Q2
Q1
Fresh (1)
Primary (2)
Tertiary (3)
Other (4)
Total Core
Insolvency
Total
$ 35,330
34.6% $ 27,600
27.1% $
33,288
29.3% $ 51,212
45.6% $ 61,730
5,796
5.7%
Secondary (3)
52,899
51.8%
4,409
3,641
4.3%
3.6%
17,658
50,082
6,483
—
17.3%
49.2%
6.4%
—%
40,027
34,920
5,733
—
35.1%
30.6%
5.0%
—%
19,725
35,857
4,435
1,265
17.5%
31.9%
3.9%
1.1%
39,690
45,878
—
—
42.0%
26.9%
31.1%
—%
—%
102,075
100.0%
101,823
100.0%
113,968
100.0%
112,494
100.0%
147,298
100.0%
22,650
$ 124,725
24,119
$ 125,942
26,092
$ 140,060
48,243
$ 160,737
52,871
$ 200,169
(1) Fresh accounts are typically past due 120 to 270 days, charged-off by the credit originator and are either being sold prior to
any post-charge-off collection activity or placement with a third-party for the first time.
(2) Primary accounts are typically 360 to 450 days past due and charged-off and have been previously placed with one contingent
(3) Secondary and tertiary accounts are typically more than 660 days past due and charged-off and have been placed with two or
(4) Other accounts are typically two to three years or more past due and charged-off and have previously been worked by four
fee servicer.
three contingent fee servicers.
or more contingent fee servicers.
Liquidity and Capital Resources
We manage our liquidity to help provide access to sufficient funding to meet our business needs and financial obligations.
As of December 31, 2019, cash and cash equivalents totaled $119.8 million. Of the cash and cash equivalent balance as of
December 31, 2019, $109.7 million consisted of cash on hand related to international operations with indefinitely reinvested
earnings. See the "Undistributed Earnings of International Subsidiaries" section below for more information.
At December 31, 2019, we had approximately $2.8 billion in borrowings outstanding with $474.6 million of availability
under all of our credit facilities (subject to the borrowing base and applicable debt covenants). Considering borrowing base
restrictions, as of December 31, 2019, the amount available to be drawn was $271.1 million. Of the $474.6 million of borrowing
availability, $122.5 million was available under our European credit facility, and $349.2 million was available under our (cid:49)orth
American credit facility. Of the $271.1 million available considering borrowing base restrictions, $121.8 million was available
under our European credit facility, and $146.5 million was available under our (cid:49)orth American credit facility. For more information,
see (cid:49)ote 6 to our Consolidated Financial Statements included in Item 8 of this Form 10-K.
An additional funding source for our Europe operations is interest-bearing deposits. Per the terms of our European credit
facility, we are permitted to obtain interest-bearing deposit funding of up to SEK 1.2 billion (approximately $128.4 million as of
December 31, 2019). Interest-bearing deposits as of December 31, 2019 were $106.2 million.
In December 2018, we sold 79% of our interest in RCB's servicing platform which provided us with approximately $40
million of net cash proceeds. We received 25% of the proceeds on December 20, 2018 and the remaining 75% in the first quarter
of 2019.
We determined that we were in compliance with the covenants of our financing arrangements as of December 31, 2019.
We have the ability to slow the purchase of finance receivables if necessary, with low impact to current year cash collections.
For example, we invested $1,289.3 million in portfolio acquisitions in 2019. The portfolios acquired in 2019 generated $210.2
million of cash collections, representing only 11.4% of 2019 cash collections.
Contractual obligations over the next year are primarily related to debt maturities and purchase commitments. Our (cid:49)orth
American credit facility expires in May 2022. Our European credit facility expires in February 2021. Of our $425.0 million in
long-term debt outstanding at December 31, 2019, $10.0 million in principal is due within one year. Additionally, the $287.5
million principal amount of the 3.00% Convertible Senior (cid:49)otes due 2020 is due August 1, 2020. Based upon our current availability
considering borrowing base restrictions in (cid:49)orth America ($146.5 million), our cash on hand, our current ability to negotiate
extensions or renew our lines of credit and to secure additional financing in the open market, and our strong operating cash flows,
we believe that we have the ability to settle this instrument in cash at maturity.
We have in place forward flow commitments for the purchase of nonperforming loans primarily over the next 12 months
with a maximum purchase price of $497.5 million, as of December 31, 2019. The $497.5 million includes $226.0 million for the
Americas and $271.5 million for Europe. We may also enter into new or renewed forward flow commitments and close on spot
transactions in addition to the aforementioned forward flow agreements.
On May 10, 2017, we reached a settlement with the Internal Revenue Service (“IRS”) in regard to the IRS assertion that tax
revenue recognition using the cost recovery method did not clearly reflect taxable income. In accordance with the settlement, our
tax accounting method to recognize finance receivables revenue changed effective with tax year 2017. Under the new method, a
portion of the annual collections amortizes principal and the remaining portion is taxable income. The revenue related to the
difference in timing between the new method and the cost recovery method will be included evenly into our tax filings over four
years effective with tax year 2017. We estimate the related tax payments to be approximately $9.3 million per quarter through the
year 2020. (cid:49)o interest or penalties were assessed as part of the settlement.
We believe that funds generated from operations and from cash collections on finance receivables, together with existing
cash and available borrowings under our revolving credit facilities will be sufficient to finance our operations, planned capital
expenditures, forward flow purchase commitments, and additional portfolio purchases during the next twelve months. Business
acquisitions, adverse outcomes in pending litigation or higher than expected levels of portfolio purchasing could require additional
financing from other sources.
Cash Flows Analysis
The following table summarizes our cash flow activity for the years ended December 31, 2019, 2018 and 2017 (amounts
in thousands):
Total cash provided by (used in):
Operating activities
Investing activities
Financing activities
Effect of exchange rate on cash
2019
2018
2017
$
133,388
$
80,866
$
(441,190)
339,523
(6,609)
(387,251)
294,926
(10,362)
15,475
(294,960)
295,698
10,016
(cid:49)et increase/(decrease) in cash and cash equivalents
$
25,112
$
(21,821) $
26,229
Operating Activities
The change in our cash flows from operating activities in 2019 was primarily due to cash collections recognized as revenue
offset by cash paid for operating expenses, interest, and income taxes. Key drivers of operating activities were adjusted for (i)
non-cash items included in net income such as provisions for unrealized gains and losses, depreciation and amortization, deferred
taxes, hedged derivatives, and stock-based compensation and (ii) changes in the balances of operating assets and liabilities, which
can vary significantly in the normal course of business due to the amount and timing of payments.
36
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(cid:49)et cash provided by operating activities increased $52.5 million or 65.0% in 2019 mainly driven by higher net income of
Critical Accounting Policies and Estimates
$21.9 million and a $26.6 million gain on sale in 2018 of RCB.
Investing Activities
Cash used in investing activities is normally driven by acquisitions of nonperforming loans and purchases of investments.
Cash provided by investing activities is mainly driven by cash collections applied on finance receivables and proceeds from the
sale of investments and subsidiaries.
(cid:49)et cash used in investing activities increased $53.9 million or 13.9% in 2019, primarily from a $125.6 million increase in
acquisitions of finance receivables, $57.6 million of cash used related to a business acquisition in the first quarter of 2019, a $40.7
million increase in purchases of investments, and $17.5 million related to the consolidation of a Polish investment fund in 2018.
These activities were partially offset by a $109.6 million increase in collections applied to principal on finance receivables, a
$49.1 million increase in proceeds from sales and maturities of investments, and $26.3 million in proceeds in the first quarter of
2019 from the sale of RCB in the fourth quarter of 2018.
Financing Activities
Cash for financing activities is normally provided by draws on our lines of credit and proceeds from debt offerings. Cash
used in financing activities is primarily driven by principal payments on our lines of credit and long-term debt.
Cash provided by financing activities increased $44.6 million or 15.1% primarily from a $603.2 million increase in proceeds
from our lines of credit, a $36.1 million increase from interest bearing deposits, and a $32.3 million increase in net contributions
from noncontrolling interests, partially offset by a $628.1 million increase in payments on our lines of credit and long term debt.
Undistributed Earnings of International Subsidiaries
recognized immediately.
We intend to use predominantly all of our accumulated and future undistributed earnings of international subsidiaries to
expand operations outside the U.S.; therefore, such undistributed earnings of international subsidiaries are considered to be
indefinitely reinvested outside the U.S. Accordingly, no provision for income tax or withholding tax has been provided thereon.
If management's intentions change and eligible undistributed earnings of international subsidiaries are repatriated, we could be
subject to additional income taxes and withholding taxes. This could result in a higher effective tax rate in the period in which
such a decision is made to repatriate accumulated or future undistributed international earnings. The amount of cash on hand related
to international operations with indefinitely reinvested earnings was $109.7 million and $78.6 million as of December 31, 2019
and 2018, respectively. Refer to the (cid:49)ote 13 to our Consolidated Financial Statements included in Item 8 of this Form 10-K for
further information related to our income taxes and undistributed international earnings.
Off Balance Sheet Arrangements
We do not have any off-balance sheet arrangements as of December 31, 2019 as defined by Item 303(a)(4) of Regulation S-
K promulgated under the Exchange Act.
Contractual Obligations
Our contractual obligations as of December 31, 2019 were as follows (amounts in thousands):
Contractual Obligations
Operating leases
Revolving credit (1)
Long-term debt (2)
Purchase commitments (3)
Employment agreements
Derivatives
Total
Payments due by period
Total
Less than 1
year
1 - 3 years
3 - 5 years
More than 5
years
$
95,373
$
11,846
$
20,702
$
13,411
$
49,414
1,936,402
1,260,070
506,907
7,988
83,533
1,847,611
3,535
1,723
337,161
497,503
7,927
571,871
351,038
9,404
61
—
—
—
—
—
$
23,663
$ 3,830,403
$
$
10,294
$
10,222
948,264
$ 2,459,871
$
$
3,047
371,031
$
$
100
51,237
(1) Includes estimated interest and unused line fees due on our revolving credit facilities and assumes that the outstanding balances
on the revolving credit facilities remain constant from the December 31, 2019 balances to maturity.
(2) Includes scheduled interest and principal payments on our term loans and convertible senior notes.
(3) Reflects the maximum remaining amount to be purchased under forward flow and other contracts for the purchase of
nonperforming loans in the amount of $506.9 million.
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Our consolidated financial statements have been prepared in accordance with GAAP. Our significant accounting policies are
discussed in (cid:49)ote 1 to our Consolidated Financial Statements included in Item 8 of this Form 10-K. Our significant accounting
policies are fundamental to understanding our results of operations and financial condition because they require that we use
estimates, assumptions and judgments that affect the reported amounts of revenues, expenses, assets, and liabilities.
Three of these policies are considered to be critical because they are important to the portrayal of our financial condition
and results, and because they require management to make judgments and estimates that are difficult, subjective, and complex
regarding matters that are inherently uncertain.
We base our estimates on historical experience, current trends and various other assumptions that we believe are reasonable
under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. If these estimates differ significantly from actual results, the impact on our
consolidated financial statements may be material.
Management has reviewed these critical accounting policies with the Audit Committee of our board of directors.
Revenue Recognition - Finance Receivables
We account for the vast majority of our investment in finance receivables under the guidance of ASC 310-30. Revenue
recognition for finance receivables accounted for under ASC 310-30 involves the use of estimates and the exercise of judgment
on the part of management. These estimates include projections of the quantity and timing of future cash flows and economic lives
of our pools of finance receivables. Significant changes in such estimates could result in increased revenue via yield increases
which are recognized prospectively or increased allowance charges resulting from decreased cash flow estimates which are
We implement the accounting for income recognized on finance receivables under ASC 310-30 as follows:
We create each accounting pool using our projections of estimated cash flows and expected economic life. We then compute
the effective yield that fully amortizes the pool over a reasonable expectation of its economic life based on the current projections
of estimated cash flows. As actual cash flow results are recorded, we review each pool watching for trends, actual performance
versus projections and curve shape (a graphical depiction of the timing of cash flows). We then re-forecast future cash flows
utilizing our proprietary analytical models.
Significant judgment is used in evaluating whether variances in actual performance are due to changes in the total amount
or changes in the timing of expected cash flows. Significant changes in either may result in yield increases or allowance charges
if necessary for the pool's amortization period to fall within a reasonable expectation of its economic life.
Refer to (cid:49)ote 1 of our Consolidated Financial Statements included in Item 8 of this Form 10-K under Recently Issued
Accounting Standards (cid:49)ot Yet Adopted for further information on revenue recognition of expected credit losses for loans effective
January 1, 2020.
Valuation of Acquired Intangibles and Goodwill
In accordance with FASB ASC Topic 350, "Intangibles-Goodwill and Other" ("ASC 350"), we amortize intangible assets
over their estimated useful lives. Goodwill, pursuant to ASC 350, is not amortized but rather evaluated for impairment annually
and more frequently if indicators of potential impairment exist. Goodwill is reviewed for potential impairment at the reporting
unit level. A reporting unit is an operating segment or one level below an operating segment.
Goodwill is evaluated for impairment either under the qualitative assessment option or the two-step test approach depending
on facts and circumstances of a reporting unit, including the excess of fair value over carrying amount in the last valuation or
changes in business environment. If we qualitatively determine it is more likely than not that the fair value of a reporting unit is
greater than its carrying amount, the two-step impairment test is unnecessary. Otherwise, goodwill is evaluated for impairment
using the two-step test, where the carrying amount of a reporting unit is compared to its fair value in Step 1; if the fair value exceeds
the carrying amount, Step 2 is unnecessary. If the carrying amount exceeds the reporting unit’s fair value, this could indicate
potential impairment and Step 2 of the goodwill evaluation process is required to determine if goodwill is impaired and to measure
the amount of impairment loss to recognize, if any. When Step 2 is necessary, the fair value of individual assets and liabilities is
determined using valuations (which in some cases may be based in part on third-party valuation reports), or other observable
sources of fair value, as appropriate. If the carrying amount of goodwill exceeds its implied fair value, the excess is recognized
as an impairment loss.
39
$21.9 million and a $26.6 million gain on sale in 2018 of RCB.
Investing Activities
Cash used in investing activities is normally driven by acquisitions of nonperforming loans and purchases of investments.
Cash provided by investing activities is mainly driven by cash collections applied on finance receivables and proceeds from the
sale of investments and subsidiaries.
(cid:49)et cash used in investing activities increased $53.9 million or 13.9% in 2019, primarily from a $125.6 million increase in
acquisitions of finance receivables, $57.6 million of cash used related to a business acquisition in the first quarter of 2019, a $40.7
million increase in purchases of investments, and $17.5 million related to the consolidation of a Polish investment fund in 2018.
These activities were partially offset by a $109.6 million increase in collections applied to principal on finance receivables, a
$49.1 million increase in proceeds from sales and maturities of investments, and $26.3 million in proceeds in the first quarter of
2019 from the sale of RCB in the fourth quarter of 2018.
Financing Activities
Cash for financing activities is normally provided by draws on our lines of credit and proceeds from debt offerings. Cash
used in financing activities is primarily driven by principal payments on our lines of credit and long-term debt.
Cash provided by financing activities increased $44.6 million or 15.1% primarily from a $603.2 million increase in proceeds
from our lines of credit, a $36.1 million increase from interest bearing deposits, and a $32.3 million increase in net contributions
from noncontrolling interests, partially offset by a $628.1 million increase in payments on our lines of credit and long term debt.
Undistributed Earnings of International Subsidiaries
We intend to use predominantly all of our accumulated and future undistributed earnings of international subsidiaries to
expand operations outside the U.S.; therefore, such undistributed earnings of international subsidiaries are considered to be
indefinitely reinvested outside the U.S. Accordingly, no provision for income tax or withholding tax has been provided thereon.
If management's intentions change and eligible undistributed earnings of international subsidiaries are repatriated, we could be
subject to additional income taxes and withholding taxes. This could result in a higher effective tax rate in the period in which
such a decision is made to repatriate accumulated or future undistributed international earnings. The amount of cash on hand related
to international operations with indefinitely reinvested earnings was $109.7 million and $78.6 million as of December 31, 2019
and 2018, respectively. Refer to the (cid:49)ote 13 to our Consolidated Financial Statements included in Item 8 of this Form 10-K for
further information related to our income taxes and undistributed international earnings.
We do not have any off-balance sheet arrangements as of December 31, 2019 as defined by Item 303(a)(4) of Regulation S-
Off Balance Sheet Arrangements
K promulgated under the Exchange Act.
Contractual Obligations
Contractual Obligations
Operating leases
Revolving credit (1)
Long-term debt (2)
Purchase commitments (3)
Employment agreements
Derivatives
Total
Payments due by period
Total
Less than 1
year
1 - 3 years
3 - 5 years
More than 5
years
$
95,373
$
11,846
$
20,702
$
13,411
$
49,414
1,936,402
1,260,070
506,907
7,988
83,533
1,847,611
3,535
1,723
337,161
497,503
7,927
571,871
351,038
9,404
61
—
—
—
—
—
$
23,663
$ 3,830,403
$
$
10,294
$
10,222
3,047
948,264
$ 2,459,871
371,031
$
$
$
$
100
51,237
(1) Includes estimated interest and unused line fees due on our revolving credit facilities and assumes that the outstanding balances
on the revolving credit facilities remain constant from the December 31, 2019 balances to maturity.
(2) Includes scheduled interest and principal payments on our term loans and convertible senior notes.
(3) Reflects the maximum remaining amount to be purchased under forward flow and other contracts for the purchase of
nonperforming loans in the amount of $506.9 million.
38
(cid:49)et cash provided by operating activities increased $52.5 million or 65.0% in 2019 mainly driven by higher net income of
Critical Accounting Policies and Estimates
Our consolidated financial statements have been prepared in accordance with GAAP. Our significant accounting policies are
discussed in (cid:49)ote 1 to our Consolidated Financial Statements included in Item 8 of this Form 10-K. Our significant accounting
policies are fundamental to understanding our results of operations and financial condition because they require that we use
estimates, assumptions and judgments that affect the reported amounts of revenues, expenses, assets, and liabilities.
Three of these policies are considered to be critical because they are important to the portrayal of our financial condition
and results, and because they require management to make judgments and estimates that are difficult, subjective, and complex
regarding matters that are inherently uncertain.
We base our estimates on historical experience, current trends and various other assumptions that we believe are reasonable
under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. If these estimates differ significantly from actual results, the impact on our
consolidated financial statements may be material.
Management has reviewed these critical accounting policies with the Audit Committee of our board of directors.
Revenue Recognition - Finance Receivables
We account for the vast majority of our investment in finance receivables under the guidance of ASC 310-30. Revenue
recognition for finance receivables accounted for under ASC 310-30 involves the use of estimates and the exercise of judgment
on the part of management. These estimates include projections of the quantity and timing of future cash flows and economic lives
of our pools of finance receivables. Significant changes in such estimates could result in increased revenue via yield increases
which are recognized prospectively or increased allowance charges resulting from decreased cash flow estimates which are
recognized immediately.
We implement the accounting for income recognized on finance receivables under ASC 310-30 as follows:
We create each accounting pool using our projections of estimated cash flows and expected economic life. We then compute
the effective yield that fully amortizes the pool over a reasonable expectation of its economic life based on the current projections
of estimated cash flows. As actual cash flow results are recorded, we review each pool watching for trends, actual performance
versus projections and curve shape (a graphical depiction of the timing of cash flows). We then re-forecast future cash flows
utilizing our proprietary analytical models.
Significant judgment is used in evaluating whether variances in actual performance are due to changes in the total amount
or changes in the timing of expected cash flows. Significant changes in either may result in yield increases or allowance charges
if necessary for the pool's amortization period to fall within a reasonable expectation of its economic life.
Refer to (cid:49)ote 1 of our Consolidated Financial Statements included in Item 8 of this Form 10-K under Recently Issued
Accounting Standards (cid:49)ot Yet Adopted for further information on revenue recognition of expected credit losses for loans effective
January 1, 2020.
Our contractual obligations as of December 31, 2019 were as follows (amounts in thousands):
Valuation of Acquired Intangibles and Goodwill
In accordance with FASB ASC Topic 350, "Intangibles-Goodwill and Other" ("ASC 350"), we amortize intangible assets
over their estimated useful lives. Goodwill, pursuant to ASC 350, is not amortized but rather evaluated for impairment annually
and more frequently if indicators of potential impairment exist. Goodwill is reviewed for potential impairment at the reporting
unit level. A reporting unit is an operating segment or one level below an operating segment.
Goodwill is evaluated for impairment either under the qualitative assessment option or the two-step test approach depending
on facts and circumstances of a reporting unit, including the excess of fair value over carrying amount in the last valuation or
changes in business environment. If we qualitatively determine it is more likely than not that the fair value of a reporting unit is
greater than its carrying amount, the two-step impairment test is unnecessary. Otherwise, goodwill is evaluated for impairment
using the two-step test, where the carrying amount of a reporting unit is compared to its fair value in Step 1; if the fair value exceeds
the carrying amount, Step 2 is unnecessary. If the carrying amount exceeds the reporting unit’s fair value, this could indicate
potential impairment and Step 2 of the goodwill evaluation process is required to determine if goodwill is impaired and to measure
the amount of impairment loss to recognize, if any. When Step 2 is necessary, the fair value of individual assets and liabilities is
determined using valuations (which in some cases may be based in part on third-party valuation reports), or other observable
sources of fair value, as appropriate. If the carrying amount of goodwill exceeds its implied fair value, the excess is recognized
as an impairment loss.
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We determine the fair value of a reporting unit by applying the approaches prescribed under the fair value measurement
accounting framework: the income approach and the market approach. Depending on the availability of public data and suitable
comparables, we may or may not use the market approach or we may emphasize the results from the approach differently. Under
the income approach, we estimate the fair value of a reporting unit based on the present value of estimated future cash flows and
a residual terminal value. Cash flow projections are based on management's estimates of revenue growth rates, operating margins,
necessary working capital, and capital expenditure requirements, taking into consideration industry and market conditions. The
discount rate used is based on the weighted-average cost of capital adjusted for the relevant risk associated with business-specific
characteristics and the uncertainty related to the reporting unit's ability to execute on the projected cash flows. Under the market
approach, we estimate fair value based on prices and other relevant market transactions involving comparable publicly-traded
companies with operating and investment characteristics similar to the reporting unit.
Income Taxes
We are subject to the income tax laws of the various jurisdictions in which we operate, including U.S. federal, state, local,
and international jurisdictions. These tax laws are complex and are subject to different interpretations by the taxpayer and the
relevant government taxing authorities. When determining our domestic and international income tax expense, we must make
judgments about the application of these inherently complex laws.
We follow the guidance of FASB ASC Topic 740 "Income Taxes" ("ASC 740") as it relates to the provision for income taxes
and uncertainty in income taxes. Accordingly, we record a tax provision for the anticipated tax consequences of the reported results
of operations. In accordance with ASC 740, the provision for income taxes is computed using the asset and liability method, under
which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between
the financial reporting and tax basis of assets and liabilities, and for operating losses and tax credit carry-forwards. Deferred tax
assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in effect for the years in which
those tax assets and liabilities are expected to be realized or settled. The evaluation of a tax position in accordance with the guidance
is a two-step process. The first step is recognition: the Company determines whether it is more-likely-than-not that a tax position
will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical
merits of the position. In evaluating whether a tax position has met the more-likely-than-not recognition threshold, the Company
should presume that the position will be examined by the appropriate taxing authority that would have full knowledge of all relevant
information. The second step is measurement: a tax position that meets the more-likely-than-not recognition threshold is measured
to determine the amount of benefit to recognize in the financial statements. The tax position is measured as the largest amount of
benefit that is greater than fifty percent likely of being realized upon ultimate settlement. Tax positions that previously failed to
meet the more-likely-than-not recognition threshold should be recognized in the first subsequent financial reporting period in
which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not recognition threshold
should be derecognized in the first subsequent financial reporting period in which that threshold is no longer met. We record
interest and penalties related to unrecognized tax benefits as a component of income tax expense.
In the event that all or part of the deferred tax assets are determined not to be realizable in the future, a valuation allowance
would be established and charged to earnings in the period such determination is made. If we subsequently realize deferred tax
assets that were previously determined to be unrealizable, the respective valuation allowance would be reversed, resulting in a
positive adjustment to earnings in the period such determination is made. The establishment or release of a valuation allowance
does not have an impact on cash, nor does such an allowance preclude the use of loss carry-forwards or other deferred tax assets
in future periods. The calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties in the
application of complex tax laws. Resolution of these uncertainties in a manner inconsistent with our expectations could have a
material impact on our results of operations and financial position.
Recent Accounting Pronouncements
For a summary of recent accounting pronouncements and the anticipated effects on our consolidated financial statements
see (cid:49)ote 1 to our Consolidated Financial Statements included in Item 8 of this Form 10-K.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Our activities are subject to various financial risks including market risk, currency and interest rate risk, credit risk, liquidity
risk and cash flow risk. Our financial risk management program focuses on the unpredictability of financial markets and seeks to
minimize potential adverse effects on our financial performance. We may periodically enter into derivative financial instruments,
typically interest rate and currency derivatives, to reduce our exposure to fluctuations in interest rates on variable-rate debt,
fluctuations in currency rates and their impact on earnings and cash flows. We do not utilize derivative financial instruments with
a level of complexity or with a risk greater than the exposure to be managed nor do we enter into or hold derivatives for trading
or speculative purposes. Derivative instruments involve, to varying degrees, elements of non-performance, or credit risk. We do
40
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not believe that we currently face a significant risk of loss in the event of non-performance by the counterparties associated with
these instruments, as these transactions were executed with a diversified group of major financial institutions with an investment-
grade credit rating. Our intention is to spread our counterparty credit risk across a number of counterparties so that exposure to a
single counterparty is minimized.
Interest Rate Risk
We are subject to interest rate risk from outstanding borrowings on our variable rate credit facilities. As such, our consolidated
financial results are subject to fluctuations due to changes in the market rate of interest. We assess this interest rate risk by estimating
the increase or decrease in interest expense that would occur due to a change in short-term interest rates. The borrowings on our
variable rate credit facilities were approximately $2.2 billion as of December 31, 2019. Based on our current debt structure,
assuming a 50 basis point decrease in interest rates, for example, interest expense over the following 12 months would decrease
by an estimated $7.2 million. Assuming a 50 basis point increase in interest rates, interest expense over the following 12 months
would increase by an estimated $7.4 million.
To reduce the exposure to changes in the market rate of interest and to be in compliance with the terms of our European
credit facility, we have entered into interest rate derivative contracts for a portion of our borrowings under our floating rate financing
arrangements. Further, effective in the second quarter of 2018, we began to apply hedge accounting to certain of our interest rate
derivative contracts. By applying hedge accounting, changes in market value are reflected as adjustments in Other Comprehensive
Income. All derivatives to which we have applied hedge accounting were evaluated and remain highly effective at December 31,
2019. Terms of the interest rate derivative contracts require us to receive a variable interest rate and pay a fixed interest rate. The
sensitivity calculations above consider the impact of our interest rate derivative contracts.
Currency Exchange Risk
We operate internationally and enter into transactions denominated in various foreign currencies. In 2019, we generated
$343.8 million of revenues from operations outside the U.S. and used eleven functional currencies, excluding the U.S. dollar.
Weakness in one particular currency might be offset by strength in other currencies over time.
As a result of our international operations, fluctuations in foreign currencies could cause us to incur foreign currency exchange
gains and losses, and could adversely affect our comprehensive income and stockholders' equity. Additionally, our reported financial
results could change from period to period due solely to fluctuations between currencies.
Foreign currency gains and losses are primarily the result of the re-measurement of transactions in certain other currencies
into an entity's functional currency. Foreign currency gains and losses are included as a component of other income and (expense)
in our consolidated income statements. From time to time we may elect to enter into foreign exchange derivative contracts to
reduce these variations in our consolidated income statements.
When an entity's functional currency is different than the reporting currency of its parent, foreign currency translation
adjustments may occur. Foreign currency translation adjustments are included as a component of other comprehensive (loss)/
income in our consolidated statements of comprehensive income and as a component of equity in our consolidated balance sheets.
We have taken measures to mitigate the impact of foreign currency fluctuations. We have organized our European operations
so that portfolio ownership and collections generally occur within the same entity. Our European credit facility is a multi-currency
facility, allowing us to better match funding and portfolio purchasing by currency. We actively monitor the value of our finance
receivables by currency. In the event adjustments are required to our liability composition by currency we may, from time to time,
execute re-balancing foreign exchange contracts to more closely align funding and portfolio purchasing by currency.
41
We determine the fair value of a reporting unit by applying the approaches prescribed under the fair value measurement
accounting framework: the income approach and the market approach. Depending on the availability of public data and suitable
comparables, we may or may not use the market approach or we may emphasize the results from the approach differently. Under
the income approach, we estimate the fair value of a reporting unit based on the present value of estimated future cash flows and
a residual terminal value. Cash flow projections are based on management's estimates of revenue growth rates, operating margins,
necessary working capital, and capital expenditure requirements, taking into consideration industry and market conditions. The
discount rate used is based on the weighted-average cost of capital adjusted for the relevant risk associated with business-specific
characteristics and the uncertainty related to the reporting unit's ability to execute on the projected cash flows. Under the market
approach, we estimate fair value based on prices and other relevant market transactions involving comparable publicly-traded
companies with operating and investment characteristics similar to the reporting unit.
Income Taxes
We are subject to the income tax laws of the various jurisdictions in which we operate, including U.S. federal, state, local,
and international jurisdictions. These tax laws are complex and are subject to different interpretations by the taxpayer and the
relevant government taxing authorities. When determining our domestic and international income tax expense, we must make
judgments about the application of these inherently complex laws.
We follow the guidance of FASB ASC Topic 740 "Income Taxes" ("ASC 740") as it relates to the provision for income taxes
and uncertainty in income taxes. Accordingly, we record a tax provision for the anticipated tax consequences of the reported results
of operations. In accordance with ASC 740, the provision for income taxes is computed using the asset and liability method, under
which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between
the financial reporting and tax basis of assets and liabilities, and for operating losses and tax credit carry-forwards. Deferred tax
assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in effect for the years in which
those tax assets and liabilities are expected to be realized or settled. The evaluation of a tax position in accordance with the guidance
is a two-step process. The first step is recognition: the Company determines whether it is more-likely-than-not that a tax position
will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical
merits of the position. In evaluating whether a tax position has met the more-likely-than-not recognition threshold, the Company
should presume that the position will be examined by the appropriate taxing authority that would have full knowledge of all relevant
information. The second step is measurement: a tax position that meets the more-likely-than-not recognition threshold is measured
to determine the amount of benefit to recognize in the financial statements. The tax position is measured as the largest amount of
benefit that is greater than fifty percent likely of being realized upon ultimate settlement. Tax positions that previously failed to
meet the more-likely-than-not recognition threshold should be recognized in the first subsequent financial reporting period in
which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not recognition threshold
should be derecognized in the first subsequent financial reporting period in which that threshold is no longer met. We record
interest and penalties related to unrecognized tax benefits as a component of income tax expense.
In the event that all or part of the deferred tax assets are determined not to be realizable in the future, a valuation allowance
would be established and charged to earnings in the period such determination is made. If we subsequently realize deferred tax
assets that were previously determined to be unrealizable, the respective valuation allowance would be reversed, resulting in a
positive adjustment to earnings in the period such determination is made. The establishment or release of a valuation allowance
does not have an impact on cash, nor does such an allowance preclude the use of loss carry-forwards or other deferred tax assets
in future periods. The calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties in the
application of complex tax laws. Resolution of these uncertainties in a manner inconsistent with our expectations could have a
material impact on our results of operations and financial position.
Recent Accounting Pronouncements
For a summary of recent accounting pronouncements and the anticipated effects on our consolidated financial statements
see (cid:49)ote 1 to our Consolidated Financial Statements included in Item 8 of this Form 10-K.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Our activities are subject to various financial risks including market risk, currency and interest rate risk, credit risk, liquidity
risk and cash flow risk. Our financial risk management program focuses on the unpredictability of financial markets and seeks to
minimize potential adverse effects on our financial performance. We may periodically enter into derivative financial instruments,
typically interest rate and currency derivatives, to reduce our exposure to fluctuations in interest rates on variable-rate debt,
fluctuations in currency rates and their impact on earnings and cash flows. We do not utilize derivative financial instruments with
a level of complexity or with a risk greater than the exposure to be managed nor do we enter into or hold derivatives for trading
or speculative purposes. Derivative instruments involve, to varying degrees, elements of non-performance, or credit risk. We do
not believe that we currently face a significant risk of loss in the event of non-performance by the counterparties associated with
these instruments, as these transactions were executed with a diversified group of major financial institutions with an investment-
grade credit rating. Our intention is to spread our counterparty credit risk across a number of counterparties so that exposure to a
single counterparty is minimized.
Interest Rate Risk
We are subject to interest rate risk from outstanding borrowings on our variable rate credit facilities. As such, our consolidated
financial results are subject to fluctuations due to changes in the market rate of interest. We assess this interest rate risk by estimating
the increase or decrease in interest expense that would occur due to a change in short-term interest rates. The borrowings on our
variable rate credit facilities were approximately $2.2 billion as of December 31, 2019. Based on our current debt structure,
assuming a 50 basis point decrease in interest rates, for example, interest expense over the following 12 months would decrease
by an estimated $7.2 million. Assuming a 50 basis point increase in interest rates, interest expense over the following 12 months
would increase by an estimated $7.4 million.
To reduce the exposure to changes in the market rate of interest and to be in compliance with the terms of our European
credit facility, we have entered into interest rate derivative contracts for a portion of our borrowings under our floating rate financing
arrangements. Further, effective in the second quarter of 2018, we began to apply hedge accounting to certain of our interest rate
derivative contracts. By applying hedge accounting, changes in market value are reflected as adjustments in Other Comprehensive
Income. All derivatives to which we have applied hedge accounting were evaluated and remain highly effective at December 31,
2019. Terms of the interest rate derivative contracts require us to receive a variable interest rate and pay a fixed interest rate. The
sensitivity calculations above consider the impact of our interest rate derivative contracts.
Currency Exchange Risk
We operate internationally and enter into transactions denominated in various foreign currencies. In 2019, we generated
$343.8 million of revenues from operations outside the U.S. and used eleven functional currencies, excluding the U.S. dollar.
Weakness in one particular currency might be offset by strength in other currencies over time.
As a result of our international operations, fluctuations in foreign currencies could cause us to incur foreign currency exchange
gains and losses, and could adversely affect our comprehensive income and stockholders' equity. Additionally, our reported financial
results could change from period to period due solely to fluctuations between currencies.
Foreign currency gains and losses are primarily the result of the re-measurement of transactions in certain other currencies
into an entity's functional currency. Foreign currency gains and losses are included as a component of other income and (expense)
in our consolidated income statements. From time to time we may elect to enter into foreign exchange derivative contracts to
reduce these variations in our consolidated income statements.
When an entity's functional currency is different than the reporting currency of its parent, foreign currency translation
adjustments may occur. Foreign currency translation adjustments are included as a component of other comprehensive (loss)/
income in our consolidated statements of comprehensive income and as a component of equity in our consolidated balance sheets.
We have taken measures to mitigate the impact of foreign currency fluctuations. We have organized our European operations
so that portfolio ownership and collections generally occur within the same entity. Our European credit facility is a multi-currency
facility, allowing us to better match funding and portfolio purchasing by currency. We actively monitor the value of our finance
receivables by currency. In the event adjustments are required to our liability composition by currency we may, from time to time,
execute re-balancing foreign exchange contracts to more closely align funding and portfolio purchasing by currency.
40
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Item 8. Financial Statements and Supplementary Data.
See Item 6 for quarterly consolidated financial statements for 2019 and 2018.
Index to Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Income Statements
Consolidated Statements of Comprehensive Income
Consolidated Statements of Changes in Equity
Consolidated Statements of Cash Flows
(cid:49)otes to Consolidated Financial Statements
1 – General and Summary of Significant Accounting Policies
2 – Finance Receivables, net
3 – Investments
4 – Leases
5 – Goodwill and Intangible Assets, net
6 – Borrowings
7 – Property and Equipment, net
8 – Fair Value
9 – Derivatives
10 – Accumulated Other Comprehensive Income
11 – Share-Based Compensation
12 – Earnings Per Share
13 – Income Taxes
14 – Commitments and Contingencies
15 – Retirement Plans
16 – Redeemable (cid:49)oncontrolling interest
17 – Sales of Subsidiaries
43
45
46
47
48
49
50
50
57
59
60
61
62
66
66
69
70
70
72
73
75
76
76
77
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
PRA Group, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of PRA Group, Inc. and subsidiaries (the Company) as of
December 31, 2019 and 2018, the related consolidated income statements, statements of comprehensive income, changes in
equity, and cash flows for each of the years in the three-year period ended December 31, 2019, and the related notes
(collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations
and its cash flows for each of the years in the three-year period ended December 31, 2019, in conformity with U.S. generally
accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in
Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission, and our report dated March 2, 2020 expressed an unqualified opinion on the effectiveness of the Company’s
internal control over financial reporting.
Change in Accounting Principle
Basis for Opinion
As discussed in (cid:49)otes 1 and 4 to the consolidated financial statements, the Company has changed its method of accounting for
leases as of January 1, 2019 due to the adoption of Accounting Standards Codification (ASC) Topic 842, Leases.
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the
PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws
and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement,
whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the
consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by management,
as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a
reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial
statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or
disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or
complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated
financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate
opinion on the critical audit matter or on the accounts or disclosures to which they relate.
Assessment of income recognized on finance receivables and the valuation allowance and net allowance charges
As discussed in (cid:49)otes 1 and 2 to the consolidated financial statements, the Company’s finance receivables balance as
of December 31, 2019 was $3.5 billion and the related valuation allowance was $281.3 million. Income recognized on
finance receivables for the year ended December 31, 2019 was $998.4 million and net allowances charges for the year
ended December 31, 2019 were $24.0 million. The Company accounts for its investment in finance receivables and
recognizes revenue under ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality, which
involves the use of estimates and the exercise of judgment on the part of the Company. These estimates include
projections of the amount and timing of future cash flows and economic lives of the pools of finance receivables.
42
43
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Item 8. Financial Statements and Supplementary Data.
See Item 6 for quarterly consolidated financial statements for 2019 and 2018.
Index to Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Income Statements
Consolidated Statements of Comprehensive Income
Consolidated Statements of Changes in Equity
Consolidated Statements of Cash Flows
(cid:49)otes to Consolidated Financial Statements
1 – General and Summary of Significant Accounting Policies
2 – Finance Receivables, net
3 – Investments
4 – Leases
6 – Borrowings
8 – Fair Value
9 – Derivatives
5 – Goodwill and Intangible Assets, net
7 – Property and Equipment, net
11 – Share-Based Compensation
12 – Earnings Per Share
13 – Income Taxes
14 – Commitments and Contingencies
15 – Retirement Plans
16 – Redeemable (cid:49)oncontrolling interest
17 – Sales of Subsidiaries
10 – Accumulated Other Comprehensive Income
43
45
46
47
48
49
50
50
57
59
60
61
62
66
66
69
70
70
72
73
75
76
76
77
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
PRA Group, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of PRA Group, Inc. and subsidiaries (the Company) as of
December 31, 2019 and 2018, the related consolidated income statements, statements of comprehensive income, changes in
equity, and cash flows for each of the years in the three-year period ended December 31, 2019, and the related notes
(collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations
and its cash flows for each of the years in the three-year period ended December 31, 2019, in conformity with U.S. generally
accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in
Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission, and our report dated March 2, 2020 expressed an unqualified opinion on the effectiveness of the Company’s
internal control over financial reporting.
Change in Accounting Principle
As discussed in (cid:49)otes 1 and 4 to the consolidated financial statements, the Company has changed its method of accounting for
leases as of January 1, 2019 due to the adoption of Accounting Standards Codification (ASC) Topic 842, Leases.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the
PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws
and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement,
whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the
consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by management,
as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a
reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial
statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or
disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or
complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated
financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate
opinion on the critical audit matter or on the accounts or disclosures to which they relate.
Assessment of income recognized on finance receivables and the valuation allowance and net allowance charges
As discussed in (cid:49)otes 1 and 2 to the consolidated financial statements, the Company’s finance receivables balance as
of December 31, 2019 was $3.5 billion and the related valuation allowance was $281.3 million. Income recognized on
finance receivables for the year ended December 31, 2019 was $998.4 million and net allowances charges for the year
ended December 31, 2019 were $24.0 million. The Company accounts for its investment in finance receivables and
recognizes revenue under ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality, which
involves the use of estimates and the exercise of judgment on the part of the Company. These estimates include
projections of the amount and timing of future cash flows and economic lives of the pools of finance receivables.
42
43
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Significant changes in such estimates could result in increased revenue through yield increases which are recognized
prospectively or increased allowance charges resulting from decreased cash flow estimates which are recognized
immediately. As actual cash flow results are recorded, the Company reviews each pool for trends, actual performance
versus projections and curve shape (a graphical depiction of the timing of cash flows). The Company then re-forecasts
future cash flows.
We identified the assessment of income recognized on finance receivables and the valuation allowance and net
allowance charges as a critical audit matter because it involved significant measurement uncertainty that required
complex auditor judgment and specialized knowledge and experience. In addition, auditor judgment was required to
evaluate the sufficiency of audit evidence obtained. The future cash flows and economic lives of each pool have
sensitivity such that minor changes could have had a significant impact on the total income recognized on finance
receivables, and the valuation allowance and net allowance charges. Additionally, there was a high level of subjectivity
in performing procedures related to the estimation of future cash flows and the economic lives used to determine (1)
income recognized on finance receivables, including the yield rate, and (2) the valuation allowance and net allowance
charges.
The primary procedures we performed to address this critical audit matter included the following. We tested certain
internal controls over the Company's process to (1) develop estimates of future cash flows and determine the economic
lives used to recognize income and (2) determine the valuation allowance and net allowance charges. We evaluated the
Company’s process to develop the estimates by testing certain sources of data, factors, and assumptions. This included
considering the relevance and reliability of such data, factors and assumptions including historical trends, operational
factors related to the collections process, and actual performance versus projections. We compared the Company's
historical cash collection estimates to actual results to assess the Company's ability to accurately forecast. In addition,
we involved credit risk professionals with specialized industry knowledge and experience who assisted in:
–
–
performing sensitivity analyses utilizing different assumptions of the future cash flows to assess the
magnitude of the impact on the Company's income recognition on finance receivables, the valuation
allowance and net allowance charges and economic lives;
assessing the Company's estimates of future cash flows of a selection of pools of finance receivables, by
comparing to historical trends and evaluating relevant metrics.
We evaluated the collective results of the procedures performed to assess the sufficiency of the audit evidence obtained
related to the Company’s income recognized on finance receivables and the valuation allowance and net allowance
charges.
/s/ KPMG
We have served as the Company’s auditor since 2007.
(cid:49)orfolk, Virginia
March 2, 2020
Cash and cash equivalents
Investments
Finance receivables, net
Other receivables, net
Income taxes receivable
Deferred tax asset, net
Right-of-use assets
Property and equipment, net
Goodwill
Intangible assets, net
Other assets
Liabilities:
Accounts payable
Accrued expenses
Income taxes payable
Deferred tax liability, net
Lease liabilities
Interest-bearing deposits
Borrowings
Other liabilities
Total liabilities
Redeemable noncontrolling interest
Equity:
outstanding
PRA Group, Inc.
Consolidated Balance Sheets
December 31, 2019 and 2018
(Amounts in thousands, except per share amounts)
Assets
2019
2018
$
119,774
$
Total assets
Liabilities and Equity
4,423,891
$
3,909,559
$
$
4,258
$
56,176
3,514,165
10,606
17,918
63,225
68,972
56,501
480,794
4,497
31,263
88,925
4,046
85,390
73,377
106,246
2,808,425
26,211
3,196,878
—
—
454
67,321
1,362,631
(261,018)
1,169,388
57,625
1,227,013
98,695
45,173
3,084,777
46,157
16,809
61,453
—
54,136
464,116
5,522
32,721
6,110
79,396
15,080
114,979
—
82,666
2,473,656
7,370
2,779,257
6,333
—
453
60,303
1,276,473
(242,109)
1,095,120
28,849
1,123,969
3,909,559
Preferred stock, $0.01 par value, 2,000 shares authorized, no shares issued and
Common stock, $0.01 par value, 100,000 shares authorized, 45,416 shares
issued and outstanding at December 31, 2019; 100,000 shares authorized,
45,304 shares issued and outstanding at December 31, 2018
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Total stockholders' equity - PRA Group, Inc.
(cid:49)oncontrolling interests
Total equity
Total liabilities and equity
$
4,423,891
$
The accompanying notes are an integral part of these consolidated financial statements.
44
45
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Significant changes in such estimates could result in increased revenue through yield increases which are recognized
prospectively or increased allowance charges resulting from decreased cash flow estimates which are recognized
immediately. As actual cash flow results are recorded, the Company reviews each pool for trends, actual performance
versus projections and curve shape (a graphical depiction of the timing of cash flows). The Company then re-forecasts
future cash flows.
We identified the assessment of income recognized on finance receivables and the valuation allowance and net
allowance charges as a critical audit matter because it involved significant measurement uncertainty that required
complex auditor judgment and specialized knowledge and experience. In addition, auditor judgment was required to
evaluate the sufficiency of audit evidence obtained. The future cash flows and economic lives of each pool have
sensitivity such that minor changes could have had a significant impact on the total income recognized on finance
receivables, and the valuation allowance and net allowance charges. Additionally, there was a high level of subjectivity
in performing procedures related to the estimation of future cash flows and the economic lives used to determine (1)
income recognized on finance receivables, including the yield rate, and (2) the valuation allowance and net allowance
charges.
The primary procedures we performed to address this critical audit matter included the following. We tested certain
internal controls over the Company's process to (1) develop estimates of future cash flows and determine the economic
lives used to recognize income and (2) determine the valuation allowance and net allowance charges. We evaluated the
Company’s process to develop the estimates by testing certain sources of data, factors, and assumptions. This included
considering the relevance and reliability of such data, factors and assumptions including historical trends, operational
factors related to the collections process, and actual performance versus projections. We compared the Company's
historical cash collection estimates to actual results to assess the Company's ability to accurately forecast. In addition,
we involved credit risk professionals with specialized industry knowledge and experience who assisted in:
–
performing sensitivity analyses utilizing different assumptions of the future cash flows to assess the
magnitude of the impact on the Company's income recognition on finance receivables, the valuation
allowance and net allowance charges and economic lives;
–
assessing the Company's estimates of future cash flows of a selection of pools of finance receivables, by
comparing to historical trends and evaluating relevant metrics.
We evaluated the collective results of the procedures performed to assess the sufficiency of the audit evidence obtained
related to the Company’s income recognized on finance receivables and the valuation allowance and net allowance
charges.
/s/ KPMG
(cid:49)orfolk, Virginia
March 2, 2020
We have served as the Company’s auditor since 2007.
PRA Group, Inc.
Consolidated Balance Sheets
December 31, 2019 and 2018
(Amounts in thousands, except per share amounts)
2019
2018
Assets
$
119,774
$
56,176
3,514,165
10,606
17,918
63,225
68,972
56,501
480,794
4,497
31,263
98,695
45,173
3,084,777
46,157
16,809
61,453
—
54,136
464,116
5,522
32,721
Cash and cash equivalents
Investments
Finance receivables, net
Other receivables, net
Income taxes receivable
Deferred tax asset, net
Right-of-use assets
Property and equipment, net
Goodwill
Intangible assets, net
Other assets
4,423,891
$
3,909,559
$
$
Total assets
Liabilities and Equity
Liabilities:
Accounts payable
Accrued expenses
Income taxes payable
Deferred tax liability, net
Lease liabilities
Interest-bearing deposits
Borrowings
Other liabilities
Total liabilities
Redeemable noncontrolling interest
Equity:
Preferred stock, $0.01 par value, 2,000 shares authorized, no shares issued and
outstanding
Common stock, $0.01 par value, 100,000 shares authorized, 45,416 shares
issued and outstanding at December 31, 2019; 100,000 shares authorized,
45,304 shares issued and outstanding at December 31, 2018
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Total stockholders' equity - PRA Group, Inc.
(cid:49)oncontrolling interests
Total equity
4,258
$
88,925
4,046
85,390
73,377
106,246
2,808,425
26,211
3,196,878
—
—
454
67,321
1,362,631
(261,018)
1,169,388
57,625
1,227,013
6,110
79,396
15,080
114,979
—
82,666
2,473,656
7,370
2,779,257
6,333
—
453
60,303
1,276,473
(242,109)
1,095,120
28,849
1,123,969
3,909,559
Total liabilities and equity
$
4,423,891
$
The accompanying notes are an integral part of these consolidated financial statements.
44
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Less comprehensive income attributable to noncontrolling interests
Comprehensive income attributable to PRA Group, Inc.
$
67,249
$
2,061
$
237,651
The accompanying notes are an integral part of these consolidated financial statements.
PRA Group, Inc.
Consolidated Income Statements
For the years ended December 31, 2019, 2018 and 2017
(Amounts in thousands, except per share amounts)
PRA Group, Inc.
Consolidated Statements of Comprehensive Income
For the years ended December 31, 2019, 2018 and 2017
(Amounts in thousands)
Revenues:
Income recognized on finance receivables
$
998,361
$
891,899
$
Fee income
Other revenue
Total revenues
15,769
2,951
1,017,081
14,916
1,441
908,256
795,435
24,916
7,855
828,206
2019
2018
2017
(cid:49)et allowance charges
(24,025)
(33,425)
(11,898)
(cid:49)et income
Other comprehensive (loss)/income, net of tax:
Currency translation adjustments
Cash flow hedges
Debt securities available-for-sale
Other comprehensive (loss)/income
Total comprehensive income
2019
2018
2017
$
97,679
$
75,734
$
171,125
(6,359)
(13,132)
39
(19,452)
78,227
10,978
(63,505)
67,858
44
(83)
(63,544)
12,190
10,129
—
—
67,858
238,983
1,332
Operating expenses:
Compensation and employee services
Legal collection fees
Legal collection costs
Agency fees
Outside fees and services
Communication
Rent and occupancy
Depreciation and amortization
Other operating expenses
Total operating expenses
Income from operations
Other income and (expense):
Gain on sale of subsidiaries
Interest expense, net
Foreign exchange gain/(loss)
Other
Income before income taxes
Income tax expense/(benefit)
(cid:49)et income
310,441
55,261
134,156
55,812
63,513
44,057
17,854
17,464
46,811
745,369
247,687
—
(141,918)
11,954
(364)
117,359
19,680
97,679
Adjustment for net income attributable to
noncontrolling interests
(cid:49)et income attributable to PRA Group, Inc.
(cid:49)et income per share attributable to PRA Group, Inc.:
Basic
Diluted
Weighted average number of shares outstanding:
Basic
Diluted
$
$
$
$
$
$
11,521
86,158
1.90
1.89
45,387
45,577
The accompanying notes are an integral part of these consolidated financial statements.
319,400
42,941
104,988
33,854
61,492
43,224
16,906
19,322
47,444
689,571
185,260
26,575
(121,078)
(944)
(316)
89,497
13,763
75,734
10,171
65,563
1.45
1.44
45,280
45,413
$
$
$
273,033
43,351
76,047
35,530
62,792
33,132
14,823
19,763
44,103
602,574
213,734
48,474
(98,041)
(1,104)
(2,790)
160,273
(10,852)
171,125
6,810
164,315
3.60
3.59
45,671
45,823
46
47
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PRA Group, Inc.
Consolidated Income Statements
For the years ended December 31, 2019, 2018 and 2017
(Amounts in thousands, except per share amounts)
PRA Group, Inc.
Consolidated Statements of Comprehensive Income
For the years ended December 31, 2019, 2018 and 2017
(Amounts in thousands)
Income recognized on finance receivables
$
998,361
$
891,899
$
Other comprehensive (loss)/income, net of tax:
2019
2018
2017
(cid:49)et income
(cid:49)et allowance charges
(24,025)
(33,425)
(11,898)
15,769
2,951
1,017,081
14,916
1,441
908,256
Currency translation adjustments
Cash flow hedges
Debt securities available-for-sale
Other comprehensive (loss)/income
Total comprehensive income
Less comprehensive income attributable to noncontrolling interests
2019
2018
2017
$
97,679
$
75,734
$
171,125
(6,359)
(13,132)
39
(19,452)
78,227
10,978
(63,505)
67,858
44
(83)
(63,544)
12,190
10,129
—
—
67,858
238,983
1,332
Comprehensive income attributable to PRA Group, Inc.
$
67,249
$
2,061
$
237,651
The accompanying notes are an integral part of these consolidated financial statements.
Revenues:
Fee income
Other revenue
Total revenues
Operating expenses:
Compensation and employee services
Legal collection fees
Legal collection costs
Agency fees
Outside fees and services
Communication
Rent and occupancy
Depreciation and amortization
Other operating expenses
Total operating expenses
Income from operations
Other income and (expense):
Gain on sale of subsidiaries
Interest expense, net
Foreign exchange gain/(loss)
Other
Income before income taxes
Income tax expense/(benefit)
(cid:49)et income
Adjustment for net income attributable to
noncontrolling interests
(cid:49)et income attributable to PRA Group, Inc.
(cid:49)et income per share attributable to PRA Group, Inc.:
Weighted average number of shares outstanding:
Basic
Diluted
Basic
Diluted
$
$
$
$
$
$
11,521
86,158
1.90
1.89
45,387
45,577
The accompanying notes are an integral part of these consolidated financial statements.
795,435
24,916
7,855
828,206
273,033
43,351
76,047
35,530
62,792
33,132
14,823
19,763
44,103
602,574
213,734
48,474
(98,041)
(1,104)
(2,790)
160,273
(10,852)
171,125
6,810
164,315
3.60
3.59
45,671
45,823
310,441
55,261
134,156
55,812
63,513
44,057
17,854
17,464
46,811
745,369
247,687
—
(141,918)
11,954
(364)
117,359
19,680
97,679
319,400
42,941
104,988
33,854
61,492
43,224
16,906
19,322
47,444
689,571
185,260
26,575
(121,078)
(944)
(316)
89,497
13,763
75,734
10,171
65,563
1.45
1.44
45,280
45,413
$
$
$
46
47
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PRA Group, Inc.
Consolidated Statements of Changes in Equity
For the years ended December 31, 2019, 2018 and 2017
(Amounts in thousands)
PRA Group, Inc.
Consolidated Statements of Cash Flows
For the years ended December 31, 2019, 2018 and 2017
(Amounts in thousands)
Common Stock
Shares
Amount
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
(Loss)
(cid:49)oncontrolling
Interests
Total Equity
Balance at December 31, 2016
46,356
$
464
$
66,414
$ 1,050,525
$
(251,944) $
52,862
$
918,321
Cash flows from operating activities:
(cid:49)et income
activities:
Adjustments to reconcile net income to net cash provided by operating
2019
2018
2017
$
97,679
$
75,734
$
171,125
Components of comprehensive income,
net of tax:
(cid:49)et income
Currency translation adjustment
Distributions to noncontrolling interest
Vesting of restricted stock
Repurchase and cancellation of common
stock
Share-based compensation expense
Excess income tax benefit from share-
based compensation
Employee stock relinquished for payment
of taxes
Component of convertible debt
—
—
—
145
—
—
—
1
(1,312)
(13)
—
—
—
—
—
—
—
—
—
—
—
(1)
(44,896)
8,678
(3,022)
44,910
(18,213)
164,315
—
—
—
—
—
—
—
—
—
73,337
—
—
—
—
—
—
—
6,587
(7,202)
(2,085)
—
—
—
—
—
—
170,902
66,135
(2,085)
—
(44,909)
8,678
(3,022)
44,910
(18,213)
Balance at December 31, 2017
45,189
$
452
$
53,870
$ 1,214,840
$
(178,607) $
50,162
$
1,140,717
Cumulative effect of change in accounting
principle - equity securities (1)
Balance at January 1, 2018
Components of comprehensive income,
net of tax:
(cid:49)et income
Currency translation adjustment
Cash flow hedges
Debt securities available-for-sale
Distributions to noncontrolling interest
Vesting of restricted stock
Share-based compensation expense
Employee stock relinquished for payment
of taxes
Purchase of noncontrolling interest
—
—
—
(3,930)
—
—
(3,930)
45,189
$
452
$
53,870
$ 1,210,910
$
(178,607) $
50,162
$
1,136,787
—
—
—
—
—
115
—
—
—
—
—
—
—
—
1
—
—
—
—
—
—
—
—
(1)
8,521
(2,087)
—
65,563
—
—
—
—
—
—
—
—
—
(63,463)
44
(83)
—
—
—
—
—
10,171
(42)
—
—
75,734
(63,505)
44
(83)
(33,271)
(33,271)
—
—
—
1,829
—
8,521
(2,087)
1,829
Balance at December 31, 2018
45,304
$
453
$
60,303
$ 1,276,473
$
(242,109) $
28,849
$
1,123,969
Components of comprehensive income,
net of tax:
(cid:49)et income
Currency translation adjustments
Cash flow hedges
Debt securities available-for-sale
Distributions to noncontrolling interest
Contributions from noncontrolling interest
Vesting of restricted stock
Share-based compensation expense
Employee stock relinquished for payment
of taxes
Other
—
—
—
—
—
—
112
—
—
—
—
—
—
—
—
—
1
—
—
—
—
—
—
—
—
—
(1)
10,717
(1,609)
(2,089)
86,158
—
—
—
—
—
—
—
—
—
—
(5,816)
(13,132)
39
—
—
—
—
—
—
11,521
(543)
—
—
(6,877)
24,675
—
—
—
—
97,679
(6,359)
(13,132)
39
(6,877)
24,675
—
10,717
(1,609)
(2,089)
Balance at December 31, 2019
45,416
$
454
$
67,321
$ 1,362,631
$
(261,018) $
57,625
$
1,227,013
(1) Refer to (cid:49)ote 3 for further detail.
The accompanying notes are an integral part of these consolidated financial statements.
48
49
fp0052934_PRA_10k_2020_combined4.indd 50
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Share-based compensation expense
Depreciation and amortization
Gain on sale of subsidiaries
Amortization of debt discount and issuance costs
Impairment of investments
Deferred tax benefit
(cid:49)et unrealized foreign currency transactions
Fair value in earnings for equity securities
(cid:49)et allowance charges
Other operating activities
Changes in operating assets and liabilities:
Other assets
Other receivables, net
Accounts payable
Accrued expenses
Other liabilities
Income taxes (payable)/receivable, net
Right of use asset/lease liability
(cid:49)et cash provided by operating activities
Cash flows from investing activities:
Purchases of property and equipment
Acquisition of finance receivables
Collections applied to principal on finance receivables
Business acquisition, net of cash acquired
Cash received upon consolidation of Polish investment fund
Proceeds from sale of subsidiaries, net
Purchase of investments
Proceeds from sales and maturities of investments
(cid:49)et cash used in investing activities
Cash flows from financing activities:
Proceeds from lines of credit
Principal payments on lines of credit
Principal payments on notes payable and long-term debt
Proceeds from long-term debt
Proceeds from convertible debt
Repurchases of common stock
Tax withholdings related to share-based payments
Payments of origination costs and fees
Cash paid for purchase of portion of noncontrolling interest
Distributions paid to noncontrolling interest
Contributions from noncontrolling interest
(cid:49)et increase/(decrease) in interest-bearing deposits
Other financing activities
(cid:49)et cash provided by financing activities
Effect of exchange rate on cash
(cid:49)et increase/(decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Supplemental disclosure of cash flow information:
Cash paid for interest
Cash paid for income taxes
10,717
17,464
22,987
—
—
(37,561)
(4,543)
(5,826)
24,025
(234)
3,313
6,300
(2,070)
(12,375)
11,632
1,149
731
133,388
(18,033)
(1,231,351)
842,910
(57,610)
—
31,177
(83,291)
75,008
(441,190)
1,340,700
(728,282)
(313,165)
—
—
—
—
(1,609)
(1,255)
(6,877)
24,675
27,427
(2,091)
339,523
(6,609)
25,112
98,695
123,807
119,424
68,979
119,774
4,033
123,807
$
$
$
$
$
$
$
$
8,521
19,322
(26,575)
22,057
—
(56,208)
5,730
(3,502)
33,425
—
(2,180)
(4,269)
1,321
9,390
(1,334)
(566)
—
80,866
(20,521)
(1,105,759)
733,306
—
17,531
4,905
(42,622)
25,909
(387,251)
737,464
(403,348)
(10,000)
—
—
—
(2,087)
(2,260)
(1,664)
(14,486)
(8,693)
—
—
294,926
(10,362)
(21,821)
120,516
98,695
97,475
73,483
98,695
—
98,695
$
$
$
$
8,678
19,763
(48,474)
18,152
1,745
(130,138)
(1,098)
—
11,898
(4,033)
(460)
(3,461)
2,743
(22,715)
(5,752)
(2,498)
—
15,475
(22,840)
(1,086,029)
717,170
—
—
93,304
(6,688)
10,123
(294,960)
1,260,161
(1,549,833)
(15,021)
310,000
345,000
(44,909)
(3,022)
(18,240)
(1,429)
12,991
—
—
—
295,698
10,016
26,229
94,287
120,516
79,825
144,341
120,516
—
120,516
Cash, cash equivalents and restricted cash reconciliation:
Cash and cash equivalents per Consolidated Balance Sheets
Restricted cash included in Other Assets per Consolidated Balance Sheets
Total cash, cash equivalents and restricted cash
The accompanying notes are an integral part of these consolidated financial statements.
PRA Group, Inc.
Consolidated Statements of Changes in Equity
For the years ended December 31, 2019, 2018 and 2017
(Amounts in thousands)
Common Stock
Shares
Amount
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
(Loss)
Comprehensive
(cid:49)oncontrolling
Interests
Total Equity
Balance at December 31, 2016
46,356
$
464
$
66,414
$ 1,050,525
$
(251,944) $
52,862
$
918,321
164,315
73,337
(1,312)
(13)
Balance at December 31, 2017
45,189
$
452
$
53,870
$ 1,214,840
$
(178,607) $
50,162
$
1,140,717
45,189
$
452
$
53,870
$ 1,210,910
$
(178,607) $
50,162
$
1,136,787
—
(3,930)
65,563
(63,463)
—
44
(83)
(33,271)
(33,271)
Balance at December 31, 2018
45,304
$
453
$
60,303
$ 1,276,473
$
(242,109) $
28,849
$
1,123,969
86,158
(5,816)
(13,132)
Components of comprehensive income,
net of tax:
(cid:49)et income
Currency translation adjustment
Distributions to noncontrolling interest
Vesting of restricted stock
Repurchase and cancellation of common
stock
Share-based compensation expense
Excess income tax benefit from share-
based compensation
Employee stock relinquished for payment
of taxes
Component of convertible debt
Cumulative effect of change in accounting
principle - equity securities (1)
Balance at January 1, 2018
Components of comprehensive income,
net of tax:
(cid:49)et income
Currency translation adjustment
Cash flow hedges
Debt securities available-for-sale
Distributions to noncontrolling interest
Vesting of restricted stock
115
Share-based compensation expense
Employee stock relinquished for payment
of taxes
Purchase of noncontrolling interest
Components of comprehensive income,
net of tax:
(cid:49)et income
Currency translation adjustments
Cash flow hedges
Debt securities available-for-sale
Distributions to noncontrolling interest
Contributions from noncontrolling interest
Vesting of restricted stock
Share-based compensation expense
Employee stock relinquished for payment
of taxes
Other
(1) Refer to (cid:49)ote 3 for further detail.
—
—
—
145
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
112
—
—
—
—
—
—
1
—
—
—
—
—
—
—
—
—
—
1
—
—
—
—
—
—
—
—
—
1
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(1)
(44,896)
8,678
(3,022)
44,910
(18,213)
—
—
—
—
—
(1)
8,521
(2,087)
—
—
—
—
—
—
—
(1)
10,717
(1,609)
(2,089)
48
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
39
—
—
—
—
—
—
6,587
(7,202)
(2,085)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
10,171
(42)
1,829
11,521
(543)
(6,877)
24,675
170,902
66,135
(2,085)
—
(44,909)
8,678
(3,022)
44,910
(18,213)
(3,930)
75,734
(63,505)
44
(83)
—
8,521
(2,087)
1,829
97,679
(6,359)
(13,132)
39
(6,877)
24,675
—
10,717
(1,609)
(2,089)
Balance at December 31, 2019
45,416
$
454
$
67,321
$ 1,362,631
$
(261,018) $
57,625
$
1,227,013
The accompanying notes are an integral part of these consolidated financial statements.
PRA Group, Inc.
Consolidated Statements of Cash Flows
For the years ended December 31, 2019, 2018 and 2017
(Amounts in thousands)
Cash flows from operating activities:
(cid:49)et income
Adjustments to reconcile net income to net cash provided by operating
activities:
2019
2018
2017
$
97,679
$
75,734
$
171,125
Share-based compensation expense
Depreciation and amortization
Gain on sale of subsidiaries
Amortization of debt discount and issuance costs
Impairment of investments
Deferred tax benefit
(cid:49)et unrealized foreign currency transactions
Fair value in earnings for equity securities
(cid:49)et allowance charges
Other operating activities
Changes in operating assets and liabilities:
Other assets
Other receivables, net
Accounts payable
Income taxes (payable)/receivable, net
Accrued expenses
Other liabilities
Right of use asset/lease liability
Cash flows from investing activities:
(cid:49)et cash provided by operating activities
Purchases of property and equipment
Acquisition of finance receivables
Collections applied to principal on finance receivables
Business acquisition, net of cash acquired
Cash received upon consolidation of Polish investment fund
Proceeds from sale of subsidiaries, net
Purchase of investments
Proceeds from sales and maturities of investments
(cid:49)et cash used in investing activities
Cash flows from financing activities:
Proceeds from lines of credit
Principal payments on lines of credit
Principal payments on notes payable and long-term debt
Proceeds from long-term debt
Proceeds from convertible debt
Repurchases of common stock
Tax withholdings related to share-based payments
Payments of origination costs and fees
Cash paid for purchase of portion of noncontrolling interest
Distributions paid to noncontrolling interest
Contributions from noncontrolling interest
(cid:49)et increase/(decrease) in interest-bearing deposits
Other financing activities
(cid:49)et cash provided by financing activities
Effect of exchange rate on cash
(cid:49)et increase/(decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Supplemental disclosure of cash flow information:
Cash paid for interest
Cash paid for income taxes
Cash, cash equivalents and restricted cash reconciliation:
Cash and cash equivalents per Consolidated Balance Sheets
Restricted cash included in Other Assets per Consolidated Balance Sheets
$
$
$
10,717
17,464
—
22,987
—
(37,561)
(4,543)
(5,826)
24,025
(234)
3,313
6,300
(2,070)
(12,375)
11,632
1,149
731
133,388
(18,033)
(1,231,351)
842,910
(57,610)
—
31,177
(83,291)
75,008
(441,190)
1,340,700
(728,282)
(313,165)
—
—
—
(1,609)
—
(1,255)
(6,877)
24,675
27,427
(2,091)
339,523
(6,609)
25,112
98,695
123,807
119,424
68,979
119,774
4,033
123,807
8,521
19,322
(26,575)
22,057
—
(56,208)
5,730
(3,502)
33,425
—
(2,180)
(4,269)
1,321
9,390
(1,334)
(566)
—
80,866
(20,521)
(1,105,759)
733,306
—
17,531
4,905
(42,622)
25,909
(387,251)
737,464
(403,348)
(10,000)
—
—
—
(2,087)
(2,260)
(1,664)
(14,486)
—
(8,693)
—
294,926
(10,362)
(21,821)
120,516
98,695
97,475
73,483
98,695
—
98,695
$
$
$
$
8,678
19,763
(48,474)
18,152
1,745
(130,138)
(1,098)
—
11,898
(4,033)
(460)
(3,461)
2,743
(22,715)
(5,752)
(2,498)
—
15,475
(22,840)
(1,086,029)
717,170
—
—
93,304
(6,688)
10,123
(294,960)
1,260,161
(1,549,833)
(15,021)
310,000
345,000
(44,909)
(3,022)
(18,240)
—
(1,429)
—
12,991
—
295,698
10,016
26,229
94,287
120,516
79,825
144,341
120,516
—
120,516
$
$
$
$
Total cash, cash equivalents and restricted cash
The accompanying notes are an integral part of these consolidated financial statements.
$
49
fp0052934_PRA_10k_2020_combined4.indd 51
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PRA Group, Inc.
(cid:49)otes to Consolidated Financial Statements
PRA Group, Inc.
(cid:49)otes to Consolidated Financial Statements
1. General and Summary of Significant Accounting Policies:
(cid:49)ature of operations: As used herein, the terms "PRA Group," the "Company," or similar terms refer to PRA Group, Inc.
and its subsidiaries.
PRAGroup, Inc., a Delaware corporation, is a global financial and business services company with operations in the Americas,
Europe, and Australia. The Company's primary business is the purchase, collection and management of portfolios of nonperforming
loans. The Company also provides fee-based services on class action claims recoveries and by servicing of consumer bankruptcy
accounts in the United States ("U.S.").
Basis of presentation: The consolidated financial statements of the Company are prepared in accordance with U.S. generally
accepted accounting principles ("GAAP") and include the accounts of all of its subsidiaries. All significant intercompany accounts
and transactions have been eliminated. The preparation of the consolidated financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect reported amounts and disclosures. Realized results could differ from
those estimates and assumptions.
Reclassification of prior year presentation: Certain prior year amounts have been reclassified for consistency with the
current year presentation.
Foreign currency: Assets and liabilities have been translated to the reporting currency using the exchange rates in effect on
the consolidated balance sheet dates. Equity accounts are translated at historical rates, except for the change in retained earnings
during the year which is the result of the income statement translation process. Revenue and expense accounts are translated using
the weighted average exchange rate during the period. The cumulative translation adjustments associated with the net assets of
international subsidiaries are recorded in accumulated other comprehensive income (loss) in the accompanying consolidated
statements of changes in equity.
Segments: Under the guidance of the Financial Accounting Standards Board ("FASB") Accounting Standards Codification
("ASC") ASC Topic 280 "Segment Reporting" ("ASC 280"), the Company has determined that it has several operating segments
that meet the aggregation criteria of ASC 280, and, therefore, it has one reportable segment, accounts receivable management.
This conclusion is based on similarities among the operating units, including economic characteristics, the nature of the products
and services, the nature of the production processes, the types or class of customer for their products and services, the methods
used to distribute their products, and services and the nature of the regulatory environment.
Revenues and long-lived assets by geographical location: Revenue for the years ended December 31, 2019, 2018 and
2017, and long-lived assets held at December 31, 2019 and 2018, both for the U.S., the Company's country of domicile, and outside
of the U.S. were (amounts in thousands):
sheets.
Accumulated other comprehensive loss: The Company records unrealized gains and losses on certain available-for-sale
investments and foreign currency translation adjustments in other comprehensive income. Unrealized gains and losses on available
for sale investments are reclassified to earnings as the gains or losses are realized upon sale of the securities. Translation gains or
losses on foreign currency translation adjustments are reclassified to earnings upon the substantial sale or liquidation of investments
in international operations. For the Company’s financial derivative instruments that are designated as hedging instruments, the
change in fair value of the derivative is recorded in other comprehensive income.
Investments:
Debt Securities. The Company accounts for its investments in debt securities under the guidance of ASC Topic 320,
"Investments-Debt Securities" ("ASC 320"). The Company determines the appropriate classification of its investments in debt
securities at the time of purchase and reevaluates such determinations at each balance sheet date. Debt securities are classified as
held to maturity when the Company has the positive intent and ability to hold the securities to maturity. Debt securities for which
the Company does not have the intent or ability to hold to maturity are classified as available for sale. Held-to-maturity securities
are carried at amortized cost. Available for sale securities are carried at fair market value. Fair value is determined using quoted
market prices. Unrealized gains and losses are included in comprehensive income and reported in stockholders' equity. If the fair
value of the investment falls below its carrying amount and the decline is deemed to be other than temporary, the investment is
written down, with a corresponding charge to earnings.
Equity Securities. The Company accounts for its investments in equity securities in accordance with ASC Topic 321,
“Investments-Equity Securities” (“ASC 321”), which requires that investments in equity securities be measured at fair value with
changes in unrealized gains and losses reported in earnings. The Company's investment in equity securities have historically been
carried at cost with income recognized in Other Revenue in the consolidated income statements when distributions, up to reported
income, were received from the partnerships. As of first quarter of 2018, "Financial Instruments - Overall: Recognition and
Measurement of Financial Assets and Financial Liabilities" ("ASU 2016-01"), requires that investments in equity securities be
measured at fair value with changes in unrealized gains and losses reported in earnings. See (cid:49)ote 3 for additional information.
Equity Method Investments. Equity method investments that are not consolidated, but over which the Company exercises
significant influence, are accounted for under the equity method of accounting. Whether or not the Company exercises significant
influence with respect to an investee company depends on an evaluation of several factors including, among others, representation
on the investee company’s board of directors and ownership level, which is generally a 20% to 50% interest in the voting securities
of the investee company. Under the equity method of accounting, an investee company’s accounts are not reflected within the
Company’s consolidated balance sheets and income statements; however, the Company’s share of the earnings or losses of the
investee company is reflected in the caption ‘‘Other revenue’’ in the consolidated income statements. The Company’s carrying
value in an equity method investee company is reflected in the caption ‘‘Investments’’ in the Company’s consolidated balance
When the Company’s carrying value in an equity method investee company is reduced to zero, no further losses are recorded
in the Company’s consolidated financial statements unless the Company guaranteed obligations of the investee company or has
committed additional funding. When the investee company subsequently reports income, the Company will not record its share
of such income until it equals the amount of its share of losses not previously recognized.
Finance receivables and income recognition: The Company accounts for its investment in finance receivables under the
guidance of ASC Topic 310-30, "Loans and Debt Securities Acquired with Deteriorated Credit Quality" ("ASC 310-30"). The
Company acquires portfolios of accounts that have experienced deterioration of credit quality between origination and the
Company's acquisition of the accounts. The amount paid for a portfolio reflects the Company's determination that it is probable
the Company will be unable to collect all amounts due according to an account's contractual terms. At acquisition, the Company
reviews the accounts to determine whether there is evidence of deterioration of credit quality since origination, and if it is probable
that the Company will be unable to collect all amounts due according to the loan's contractual terms. If both conditions exist, the
Company then determines whether each such account is to be accounted for individually or whether such accounts will be assembled
into pools based on common risk characteristics. The Company considers expected prepayments and estimates the amount and
timing of undiscounted expected principal, interest and other cash flows (expected at acquisition) for each acquired portfolio based
on the Company's proprietary models, and the Company subsequently aggregates portfolios of accounts into quarterly pools. The
Company determines the excess of the pool's scheduled contractual principal and contractual interest payments over all cash flows
expected at acquisition as an amount that should not be accreted (nonaccretable difference). The remaining amount, representing
the excess of the pool's cash flows expected to be collected over the amount paid, is accreted into income recognized on finance
receivables over the remaining estimated life of the pool (accretable yield). ASC 310-30 requires that the excess of the contractual
cash flows over expected cash flows, based on the Company's estimates derived from proprietary collection models, not be
(1) (cid:49)one of the countries included in "Others" comprise greater than 10% of the Company's consolidated revenues or long-lived assets.
(2) 2019 includes right-of-use assets from the adoption of ASU 2016-02 on January 1, 2019. Refer to (cid:49)ote 4.
Revenues are attributed to countries based on the location of the related operations. Long-lived assets consist of net property
and equipment and right-of-use-assets. The Company reports revenues earned from nonperforming loan acquisitions and collection
activities, fee-based services and investments. For additional information on the Company's investments, see (cid:49)ote 3. It is
impracticable for the Company to report further breakdowns of revenues from external customers by product or service.
Cash and cash equivalents: The Company considers all highly liquid investments with a maturity of three months or less
when purchased to be cash equivalents.
Concentrations of credit risk: Financial instruments, which potentially expose the Company to concentrations of credit
recognized as an adjustment of revenue or expense or on the balance sheet.
risk, consist primarily of cash, investments and finance receivables.
50
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United States
United Kingdom
Others (1)
Total
2019
Years Ended December 31,
2018
Revenues
2017
$
$
673,264
120,377
223,440
1,017,081
$
$
619,172
99,817
189,267
908,256
$
$
560,278
81,322
186,606
828,206
$
$
2018
2019
Long-Lived Assets (2)
112,233
3,553
9,687
125,473
48,581
1,543
4,012
54,136
As of December 31,
$
$
PRA Group, Inc.
(cid:49)otes to Consolidated Financial Statements
PRA Group, Inc.
(cid:49)otes to Consolidated Financial Statements
1. General and Summary of Significant Accounting Policies:
(cid:49)ature of operations: As used herein, the terms "PRA Group," the "Company," or similar terms refer to PRA Group, Inc.
and its subsidiaries.
PRAGroup, Inc., a Delaware corporation, is a global financial and business services company with operations in the Americas,
Europe, and Australia. The Company's primary business is the purchase, collection and management of portfolios of nonperforming
loans. The Company also provides fee-based services on class action claims recoveries and by servicing of consumer bankruptcy
accounts in the United States ("U.S.").
Basis of presentation: The consolidated financial statements of the Company are prepared in accordance with U.S. generally
accepted accounting principles ("GAAP") and include the accounts of all of its subsidiaries. All significant intercompany accounts
and transactions have been eliminated. The preparation of the consolidated financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect reported amounts and disclosures. Realized results could differ from
those estimates and assumptions.
current year presentation.
Reclassification of prior year presentation: Certain prior year amounts have been reclassified for consistency with the
Foreign currency: Assets and liabilities have been translated to the reporting currency using the exchange rates in effect on
the consolidated balance sheet dates. Equity accounts are translated at historical rates, except for the change in retained earnings
during the year which is the result of the income statement translation process. Revenue and expense accounts are translated using
the weighted average exchange rate during the period. The cumulative translation adjustments associated with the net assets of
international subsidiaries are recorded in accumulated other comprehensive income (loss) in the accompanying consolidated
statements of changes in equity.
Segments: Under the guidance of the Financial Accounting Standards Board ("FASB") Accounting Standards Codification
("ASC") ASC Topic 280 "Segment Reporting" ("ASC 280"), the Company has determined that it has several operating segments
that meet the aggregation criteria of ASC 280, and, therefore, it has one reportable segment, accounts receivable management.
This conclusion is based on similarities among the operating units, including economic characteristics, the nature of the products
and services, the nature of the production processes, the types or class of customer for their products and services, the methods
used to distribute their products, and services and the nature of the regulatory environment.
Revenues and long-lived assets by geographical location: Revenue for the years ended December 31, 2019, 2018 and
2017, and long-lived assets held at December 31, 2019 and 2018, both for the U.S., the Company's country of domicile, and outside
of the U.S. were (amounts in thousands):
United States
United Kingdom
Others (1)
Total
Years Ended December 31,
As of December 31,
2019
2017
2019
2018
Long-Lived Assets (2)
2018
Revenues
$
673,264
$
619,172
$
560,278
$
112,233
$
120,377
223,440
99,817
189,267
81,322
186,606
3,553
9,687
$
1,017,081
$
908,256
$
828,206
$
125,473
$
48,581
1,543
4,012
54,136
(1) (cid:49)one of the countries included in "Others" comprise greater than 10% of the Company's consolidated revenues or long-lived assets.
(2) 2019 includes right-of-use assets from the adoption of ASU 2016-02 on January 1, 2019. Refer to (cid:49)ote 4.
Revenues are attributed to countries based on the location of the related operations. Long-lived assets consist of net property
and equipment and right-of-use-assets. The Company reports revenues earned from nonperforming loan acquisitions and collection
activities, fee-based services and investments. For additional information on the Company's investments, see (cid:49)ote 3. It is
impracticable for the Company to report further breakdowns of revenues from external customers by product or service.
Cash and cash equivalents: The Company considers all highly liquid investments with a maturity of three months or less
when purchased to be cash equivalents.
Concentrations of credit risk: Financial instruments, which potentially expose the Company to concentrations of credit
risk, consist primarily of cash, investments and finance receivables.
Accumulated other comprehensive loss: The Company records unrealized gains and losses on certain available-for-sale
investments and foreign currency translation adjustments in other comprehensive income. Unrealized gains and losses on available
for sale investments are reclassified to earnings as the gains or losses are realized upon sale of the securities. Translation gains or
losses on foreign currency translation adjustments are reclassified to earnings upon the substantial sale or liquidation of investments
in international operations. For the Company’s financial derivative instruments that are designated as hedging instruments, the
change in fair value of the derivative is recorded in other comprehensive income.
Investments:
Debt Securities. The Company accounts for its investments in debt securities under the guidance of ASC Topic 320,
"Investments-Debt Securities" ("ASC 320"). The Company determines the appropriate classification of its investments in debt
securities at the time of purchase and reevaluates such determinations at each balance sheet date. Debt securities are classified as
held to maturity when the Company has the positive intent and ability to hold the securities to maturity. Debt securities for which
the Company does not have the intent or ability to hold to maturity are classified as available for sale. Held-to-maturity securities
are carried at amortized cost. Available for sale securities are carried at fair market value. Fair value is determined using quoted
market prices. Unrealized gains and losses are included in comprehensive income and reported in stockholders' equity. If the fair
value of the investment falls below its carrying amount and the decline is deemed to be other than temporary, the investment is
written down, with a corresponding charge to earnings.
Equity Securities. The Company accounts for its investments in equity securities in accordance with ASC Topic 321,
“Investments-Equity Securities” (“ASC 321”), which requires that investments in equity securities be measured at fair value with
changes in unrealized gains and losses reported in earnings. The Company's investment in equity securities have historically been
carried at cost with income recognized in Other Revenue in the consolidated income statements when distributions, up to reported
income, were received from the partnerships. As of first quarter of 2018, "Financial Instruments - Overall: Recognition and
Measurement of Financial Assets and Financial Liabilities" ("ASU 2016-01"), requires that investments in equity securities be
measured at fair value with changes in unrealized gains and losses reported in earnings. See (cid:49)ote 3 for additional information.
Equity Method Investments. Equity method investments that are not consolidated, but over which the Company exercises
significant influence, are accounted for under the equity method of accounting. Whether or not the Company exercises significant
influence with respect to an investee company depends on an evaluation of several factors including, among others, representation
on the investee company’s board of directors and ownership level, which is generally a 20% to 50% interest in the voting securities
of the investee company. Under the equity method of accounting, an investee company’s accounts are not reflected within the
Company’s consolidated balance sheets and income statements; however, the Company’s share of the earnings or losses of the
investee company is reflected in the caption ‘‘Other revenue’’ in the consolidated income statements. The Company’s carrying
value in an equity method investee company is reflected in the caption ‘‘Investments’’ in the Company’s consolidated balance
sheets.
When the Company’s carrying value in an equity method investee company is reduced to zero, no further losses are recorded
in the Company’s consolidated financial statements unless the Company guaranteed obligations of the investee company or has
committed additional funding. When the investee company subsequently reports income, the Company will not record its share
of such income until it equals the amount of its share of losses not previously recognized.
Finance receivables and income recognition: The Company accounts for its investment in finance receivables under the
guidance of ASC Topic 310-30, "Loans and Debt Securities Acquired with Deteriorated Credit Quality" ("ASC 310-30"). The
Company acquires portfolios of accounts that have experienced deterioration of credit quality between origination and the
Company's acquisition of the accounts. The amount paid for a portfolio reflects the Company's determination that it is probable
the Company will be unable to collect all amounts due according to an account's contractual terms. At acquisition, the Company
reviews the accounts to determine whether there is evidence of deterioration of credit quality since origination, and if it is probable
that the Company will be unable to collect all amounts due according to the loan's contractual terms. If both conditions exist, the
Company then determines whether each such account is to be accounted for individually or whether such accounts will be assembled
into pools based on common risk characteristics. The Company considers expected prepayments and estimates the amount and
timing of undiscounted expected principal, interest and other cash flows (expected at acquisition) for each acquired portfolio based
on the Company's proprietary models, and the Company subsequently aggregates portfolios of accounts into quarterly pools. The
Company determines the excess of the pool's scheduled contractual principal and contractual interest payments over all cash flows
expected at acquisition as an amount that should not be accreted (nonaccretable difference). The remaining amount, representing
the excess of the pool's cash flows expected to be collected over the amount paid, is accreted into income recognized on finance
receivables over the remaining estimated life of the pool (accretable yield). ASC 310-30 requires that the excess of the contractual
cash flows over expected cash flows, based on the Company's estimates derived from proprietary collection models, not be
recognized as an adjustment of revenue or expense or on the balance sheet.
50
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PRA Group, Inc.
(cid:49)otes to Consolidated Financial Statements
PRA Group, Inc.
(cid:49)otes to Consolidated Financial Statements
Each pool is recorded at cost and is accounted for as a single unit for the recognition of income, payments applied to principal
and loss provision. Once a pool is established for a calendar quarter, individual receivable accounts are not added to the pool
(unless replaced by the seller) or removed from the pool (unless sold or returned to the seller). The yield is estimated and periodically
recalculated based on the timing and amount of anticipated cash flows. Income on finance receivables is accrued quarterly based
on each pool's effective yield. Significant increases in expected future cash flows may be recognized prospectively, through an
upward adjustment of the yield, over a pool's remaining life. Under ASC 310-30, rather than lowering the estimated yield if the
collection estimates are below previous expectations, the carrying value of a pool would be written down to maintain the then
current yield and is shown as an allowance charge in the consolidated income statements with a corresponding valuation allowance
offsetting finance receivables on the consolidated balance sheets. Cash flows greater than the interest accrual will reduce the
carrying value of the pool. This reduction in carrying value is defined as payments applied to principal (also referred to as principal
amortization). Likewise, cash flows that are less than the interest accrual will accrete the carrying balance. Generally, the Company
does not record accretion in the first six to twelve months of the estimated life of the pool; accordingly, the Company utilizes either
the cost recovery method or cash method when necessary to prevent accretion as permitted by ASC 310-30. Under the cash method,
revenue is recognized as it would be under the interest method up to the amount of cash collections. Under the cost recovery
method, no revenue is recognized until the Company has fully collected the cost of the pool, or until such time that the Company
considers the collections to be probable and estimable and begins to recognize income based on the interest method as described
above. The Company also uses the cost recovery method when collections on a particular pool of accounts cannot be reasonably
estimated.
A pool can become fully amortized (zero carrying balance on the balance sheet) while still generating cash collections. In
this case, all subsequent cash collections are recognized as revenue when received.
The Company records a valuation allowance when significant decreases in expected cash flows are identified or there are
changes in the timing of expected cash flows that would otherwise require a reduction in the stated yield on a pool of accounts.
Factors that may contribute to the recording of valuation allowances include both external and internal factors. External factors
that may have an impact on the collectability, and subsequently on the overall profitability of acquired pools of nonperforming
loans, would include new laws or regulations relating to collections, new interpretations of existing laws or regulations, and the
overall condition of the economy. Internal factors that may have an impact on the collectability, and subsequently the overall
profitability of acquired pools of nonperforming loans, would include necessary revisions to initial and post-acquisition scoring
and modeling estimates, non-optimal operational activities, and decreases in productivity related to turnover and tenure of the
Company's collection staff.
The Company capitalizes certain fees paid to third parties related to the direct acquisition of a portfolio of accounts. These
fees are added to the acquisition cost of the portfolio and accordingly are amortized over the life of the portfolio using the interest
method.
The agreements to purchase the aforementioned nonperforming loans include general representations and warranties from
the sellers covering account holder death or insolvency and accounts settled or disputed prior to sale. The representation and
warranty period permitting the return of these accounts from the Company to the seller is typically 90 to 180 days. Any funds
received from the seller as a return of purchase price are referred to as buybacks. Buyback funds are applied against the finance
receivable balance received and are not included in the Company's cash collections from operations. In some cases, the seller will
replace the returned accounts with new accounts in lieu of returning the purchase price. In that case, the old account is removed
from the pool and the new account is added.
Fee income recognition: The Company recognizes revenue from its class action claims recovery services when there is
persuasive evidence that an arrangement exists, delivery has occurred or services have been rendered, the amount is fixed or
determinable, and collectability is reasonably assured.
Property and equipment: Property and equipment, including improvements that significantly add to the productive capacity
or extend useful life, are recorded at cost. Maintenance and repairs are expensed as incurred. Property and equipment are depreciated
over their useful lives using the straight-line method of depreciation. Software and computer equipment are amortized or depreciated
over three to five years. Furniture and fixtures are depreciated over five to ten years. Equipment is depreciated over five to seven
years. Leasehold improvements are depreciated over the lesser of the useful life, which ranges from three to ten years, or the
remaining term of the lease. Building improvements are depreciated straight-line over ten to thirty-nine years. When property is
sold or retired, the cost and related accumulated depreciation are removed from the balance sheet and any gain or loss is included
in the income statement.
Business combinations: The Company accounts for business combinations under the acquisition method in accordance with
ASC 805, "Business Combinations" ("ASC 805"). The cost of an acquired company is assigned to the tangible and intangible
assets acquired and the liabilities assumed on the basis of their fair values at the date of acquisition. The determination of fair
values of assets acquired and liabilities assumed requires management to make estimates and use valuation techniques when market
values are not readily available. Any excess of purchase price over the fair value of net tangible and intangible assets acquired is
allocated to goodwill. Transaction costs associated with business combinations are expensed as incurred.
Goodwill and intangible assets: Goodwill, in accordance with ASC Topic 350, "Intangibles-Goodwill and
Other" ("ASC 350"), is not amortized but rather is reviewed for impairment annually or more frequently if indicators of potential
impairment exist. The Company performs its annual assessment as of October 1. The Company may first assess qualitative factors
to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including
goodwill. If management concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying
amount, management conducts a two-step quantitative goodwill impairment test. The first step of the impairment test involves
comparing the fair value of the applicable reporting unit with its carrying value. The Company estimates the fair values of its
reporting units using a combination of the income approach, which uses present value techniques, and the market approach, which
uses market multiples from comparable transactions where the acquisition target has similar operating and investment characteristics
to the reporting unit. If the carrying amount of a reporting unit exceeds the reporting unit's fair value, management performs the
second step of the goodwill impairment test. The second step of the goodwill impairment test involves comparing the implied fair
value of the affected reporting unit's goodwill with the carrying value of that goodwill. The amount by which the carrying value
of the goodwill exceeds its implied fair value, if any, is recognized as an impairment loss. See (cid:49)ote 5 for additional information.
Convertible senior notes: The Company accounts for its 3.00% Convertible Senior (cid:49)otes due 2020 (the "2020 (cid:49)otes") and
its 3.50% Convertible (cid:49)otes due 2023 (the "2023 (cid:49)otes" and, together with the 2020 (cid:49)otes, the "(cid:49)otes") in accordance with
ASC 470-20, "Debt with Conversion and Other Options" ("ASC 470-20"). ASC 470-20 requires that, for convertible debt
instruments that must be settled fully or partially in cash upon conversion, issuers must separately account for the liability and
equity components in a manner that will reflect the entity's nonconvertible debt borrowing rate when interest cost is recognized
in subsequent periods. The excess of the principal amount of the liability component over its carrying amount is amortized to
interest expense over the expected life of a similar liability that does not have an associated equity component, using the effective
interest method. The equity component is not remeasured as long as it continues to meet the conditions for equity classification
under ASC 815-40, "Derivatives and Hedging - Contracts in an Entity's Own Equity." Transaction costs incurred with third parties
are allocated to the liability and equity components in proportion to the allocation of proceeds and accounted for as debt issuance
costs and equity issuance costs, respectively.
For diluted earnings per share purposes, based upon the Company's intent and ability to settle conversions of the (cid:49)otes
through a combination of cash and shares, only the conversion spread is included in the diluted earnings per share calculation, if
dilutive. Under such method, the settlement of the conversion spread has a dilutive effect when the average share price of the
Company's common stock during any quarter exceeds $65.72 for the 2020 (cid:49)otes or $46.24 for the 2023 (cid:49)otes, neither of which
occurred during the respective periods from when the (cid:49)otes were issued through December 31, 2019.
Income taxes: The Company follows the guidance of ASC Topic 740 "Income Taxes" ("ASC 740") as it relates to the
provision for income taxes and uncertainty in income taxes. Accordingly, the Company records a tax provision for the anticipated
tax consequences of the reported results of operations. The provision for income taxes is estimated using the asset and liability
method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary
differences between the financial reporting and tax basis of assets and liabilities, and for operating losses and tax credit carry-
forwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in
effect for the years in which those tax assets are expected to be realized or settled.
The evaluation of a tax position in accordance with the guidance is a two-step process. The first step is recognition: the
enterprise determines whether it is more-likely-than-not that a tax position will be sustained upon examination, including resolution
of any related appeals or litigation processes, based on the technical merits of the position. In evaluating whether a tax position
has met the more-likely-than-not recognition threshold, the enterprise should presume that the position will be examined by the
appropriate taxing authority that would have full knowledge of all relevant information. The second step is measurement: a tax
position that meets the more-likely-than-not recognition threshold is measured to determine the amount of benefit to recognize in
the financial statements. The tax position is measured as the largest amount of benefit that is greater than 50 percent likely of being
realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold
should be recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax
positions that no longer meet the more-likely-than-not recognition threshold should be derecognized in the first subsequent financial
reporting period in which that threshold is no longer met. The Company records interest and penalties related to unrecognized tax
benefits as a component of income tax expense when positions are not met.
In the event that all or part of the deferred tax assets are determined not to be realizable in the future, a valuation allowance
would be established and charged to earnings in the period such determination is made. If the Company subsequently realizes
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PRA Group, Inc.
(cid:49)otes to Consolidated Financial Statements
PRA Group, Inc.
(cid:49)otes to Consolidated Financial Statements
Each pool is recorded at cost and is accounted for as a single unit for the recognition of income, payments applied to principal
and loss provision. Once a pool is established for a calendar quarter, individual receivable accounts are not added to the pool
(unless replaced by the seller) or removed from the pool (unless sold or returned to the seller). The yield is estimated and periodically
recalculated based on the timing and amount of anticipated cash flows. Income on finance receivables is accrued quarterly based
on each pool's effective yield. Significant increases in expected future cash flows may be recognized prospectively, through an
upward adjustment of the yield, over a pool's remaining life. Under ASC 310-30, rather than lowering the estimated yield if the
collection estimates are below previous expectations, the carrying value of a pool would be written down to maintain the then
current yield and is shown as an allowance charge in the consolidated income statements with a corresponding valuation allowance
offsetting finance receivables on the consolidated balance sheets. Cash flows greater than the interest accrual will reduce the
carrying value of the pool. This reduction in carrying value is defined as payments applied to principal (also referred to as principal
amortization). Likewise, cash flows that are less than the interest accrual will accrete the carrying balance. Generally, the Company
does not record accretion in the first six to twelve months of the estimated life of the pool; accordingly, the Company utilizes either
the cost recovery method or cash method when necessary to prevent accretion as permitted by ASC 310-30. Under the cash method,
revenue is recognized as it would be under the interest method up to the amount of cash collections. Under the cost recovery
method, no revenue is recognized until the Company has fully collected the cost of the pool, or until such time that the Company
considers the collections to be probable and estimable and begins to recognize income based on the interest method as described
above. The Company also uses the cost recovery method when collections on a particular pool of accounts cannot be reasonably
estimated.
A pool can become fully amortized (zero carrying balance on the balance sheet) while still generating cash collections. In
this case, all subsequent cash collections are recognized as revenue when received.
The Company records a valuation allowance when significant decreases in expected cash flows are identified or there are
changes in the timing of expected cash flows that would otherwise require a reduction in the stated yield on a pool of accounts.
Factors that may contribute to the recording of valuation allowances include both external and internal factors. External factors
that may have an impact on the collectability, and subsequently on the overall profitability of acquired pools of nonperforming
loans, would include new laws or regulations relating to collections, new interpretations of existing laws or regulations, and the
overall condition of the economy. Internal factors that may have an impact on the collectability, and subsequently the overall
profitability of acquired pools of nonperforming loans, would include necessary revisions to initial and post-acquisition scoring
and modeling estimates, non-optimal operational activities, and decreases in productivity related to turnover and tenure of the
Company's collection staff.
method.
The Company capitalizes certain fees paid to third parties related to the direct acquisition of a portfolio of accounts. These
fees are added to the acquisition cost of the portfolio and accordingly are amortized over the life of the portfolio using the interest
The agreements to purchase the aforementioned nonperforming loans include general representations and warranties from
the sellers covering account holder death or insolvency and accounts settled or disputed prior to sale. The representation and
warranty period permitting the return of these accounts from the Company to the seller is typically 90 to 180 days. Any funds
received from the seller as a return of purchase price are referred to as buybacks. Buyback funds are applied against the finance
receivable balance received and are not included in the Company's cash collections from operations. In some cases, the seller will
replace the returned accounts with new accounts in lieu of returning the purchase price. In that case, the old account is removed
from the pool and the new account is added.
Fee income recognition: The Company recognizes revenue from its class action claims recovery services when there is
persuasive evidence that an arrangement exists, delivery has occurred or services have been rendered, the amount is fixed or
determinable, and collectability is reasonably assured.
Property and equipment: Property and equipment, including improvements that significantly add to the productive capacity
or extend useful life, are recorded at cost. Maintenance and repairs are expensed as incurred. Property and equipment are depreciated
over their useful lives using the straight-line method of depreciation. Software and computer equipment are amortized or depreciated
over three to five years. Furniture and fixtures are depreciated over five to ten years. Equipment is depreciated over five to seven
years. Leasehold improvements are depreciated over the lesser of the useful life, which ranges from three to ten years, or the
remaining term of the lease. Building improvements are depreciated straight-line over ten to thirty-nine years. When property is
sold or retired, the cost and related accumulated depreciation are removed from the balance sheet and any gain or loss is included
in the income statement.
Business combinations: The Company accounts for business combinations under the acquisition method in accordance with
ASC 805, "Business Combinations" ("ASC 805"). The cost of an acquired company is assigned to the tangible and intangible
assets acquired and the liabilities assumed on the basis of their fair values at the date of acquisition. The determination of fair
values of assets acquired and liabilities assumed requires management to make estimates and use valuation techniques when market
values are not readily available. Any excess of purchase price over the fair value of net tangible and intangible assets acquired is
allocated to goodwill. Transaction costs associated with business combinations are expensed as incurred.
Goodwill and intangible assets: Goodwill, in accordance with ASC Topic 350, "Intangibles-Goodwill and
Other" ("ASC 350"), is not amortized but rather is reviewed for impairment annually or more frequently if indicators of potential
impairment exist. The Company performs its annual assessment as of October 1. The Company may first assess qualitative factors
to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including
goodwill. If management concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying
amount, management conducts a two-step quantitative goodwill impairment test. The first step of the impairment test involves
comparing the fair value of the applicable reporting unit with its carrying value. The Company estimates the fair values of its
reporting units using a combination of the income approach, which uses present value techniques, and the market approach, which
uses market multiples from comparable transactions where the acquisition target has similar operating and investment characteristics
to the reporting unit. If the carrying amount of a reporting unit exceeds the reporting unit's fair value, management performs the
second step of the goodwill impairment test. The second step of the goodwill impairment test involves comparing the implied fair
value of the affected reporting unit's goodwill with the carrying value of that goodwill. The amount by which the carrying value
of the goodwill exceeds its implied fair value, if any, is recognized as an impairment loss. See (cid:49)ote 5 for additional information.
Convertible senior notes: The Company accounts for its 3.00% Convertible Senior (cid:49)otes due 2020 (the "2020 (cid:49)otes") and
its 3.50% Convertible (cid:49)otes due 2023 (the "2023 (cid:49)otes" and, together with the 2020 (cid:49)otes, the "(cid:49)otes") in accordance with
ASC 470-20, "Debt with Conversion and Other Options" ("ASC 470-20"). ASC 470-20 requires that, for convertible debt
instruments that must be settled fully or partially in cash upon conversion, issuers must separately account for the liability and
equity components in a manner that will reflect the entity's nonconvertible debt borrowing rate when interest cost is recognized
in subsequent periods. The excess of the principal amount of the liability component over its carrying amount is amortized to
interest expense over the expected life of a similar liability that does not have an associated equity component, using the effective
interest method. The equity component is not remeasured as long as it continues to meet the conditions for equity classification
under ASC 815-40, "Derivatives and Hedging - Contracts in an Entity's Own Equity." Transaction costs incurred with third parties
are allocated to the liability and equity components in proportion to the allocation of proceeds and accounted for as debt issuance
costs and equity issuance costs, respectively.
For diluted earnings per share purposes, based upon the Company's intent and ability to settle conversions of the (cid:49)otes
through a combination of cash and shares, only the conversion spread is included in the diluted earnings per share calculation, if
dilutive. Under such method, the settlement of the conversion spread has a dilutive effect when the average share price of the
Company's common stock during any quarter exceeds $65.72 for the 2020 (cid:49)otes or $46.24 for the 2023 (cid:49)otes, neither of which
occurred during the respective periods from when the (cid:49)otes were issued through December 31, 2019.
Income taxes: The Company follows the guidance of ASC Topic 740 "Income Taxes" ("ASC 740") as it relates to the
provision for income taxes and uncertainty in income taxes. Accordingly, the Company records a tax provision for the anticipated
tax consequences of the reported results of operations. The provision for income taxes is estimated using the asset and liability
method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary
differences between the financial reporting and tax basis of assets and liabilities, and for operating losses and tax credit carry-
forwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in
effect for the years in which those tax assets are expected to be realized or settled.
The evaluation of a tax position in accordance with the guidance is a two-step process. The first step is recognition: the
enterprise determines whether it is more-likely-than-not that a tax position will be sustained upon examination, including resolution
of any related appeals or litigation processes, based on the technical merits of the position. In evaluating whether a tax position
has met the more-likely-than-not recognition threshold, the enterprise should presume that the position will be examined by the
appropriate taxing authority that would have full knowledge of all relevant information. The second step is measurement: a tax
position that meets the more-likely-than-not recognition threshold is measured to determine the amount of benefit to recognize in
the financial statements. The tax position is measured as the largest amount of benefit that is greater than 50 percent likely of being
realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold
should be recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax
positions that no longer meet the more-likely-than-not recognition threshold should be derecognized in the first subsequent financial
reporting period in which that threshold is no longer met. The Company records interest and penalties related to unrecognized tax
benefits as a component of income tax expense when positions are not met.
In the event that all or part of the deferred tax assets are determined not to be realizable in the future, a valuation allowance
would be established and charged to earnings in the period such determination is made. If the Company subsequently realizes
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PRA Group, Inc.
(cid:49)otes to Consolidated Financial Statements
PRA Group, Inc.
(cid:49)otes to Consolidated Financial Statements
deferred tax assets that were previously determined to be unrealizable, the respective valuation allowance would be reversed,
resulting in a positive adjustment to earnings.
The estimate of income tax expense involves significant judgment in evaluating the impact of uncertainties in the application
of complex tax laws. Resolution of these uncertainties in a manner inconsistent with our expectations could have a material impact
on our results of operations and financial position.
Beginning with the 2017 tax year, the Company utilizes a new tax accounting method to recognize net finance receivables
income. Under the new method, a portion of the annual collections amortize principal and the remaining portion is taxable income.
The deferred tax liability related to the difference in timing between the new method and the cost recovery method will be
incorporated evenly into the Company’s tax filings over four years. For additional information, see (cid:49)ote 13.
Advertising costs: Advertising costs are expensed when incurred.
Leases: The Company accounts for leases in accordance with the provisions of FASB issued ASU 2016-02, "Leases (Topic
842) Section A - Leases: Amendments to the FASB Account Standards Codification" ("ASU 2016-02"). ASU 2016-02 requires
that a lessee should recognize a liability to make lease payments and a right-of-use asset representing its right to use the underlying
asset for the lease term on the balance sheet. The Company adopted ASC 842 on January 1, 2019 using the alternative method
which resulted in the recording of operating lease right-of-use ("ROU") assets and lease liabilities of $72.1 million and $75.8
million, respectively. The Company's balance sheets for reporting periods beginning on or after January 1, 2019 are presented
under the new guidance, while prior periods amounts are not adjusted and continue to be reported in accordance with previous
guidance.
The Company elected to apply the package of practical expedients permitted within the new standard, which among other
things, allows it to carry forward the historical lease classification. In addition, the Company elected the practical expedient to
exclude short-term leases (lease terms of less than one year) from its ROU assets and lease liabilities.
The Company's operating lease portfolio primarily includes corporate offices and call centers. The majority of its leases
have remaining lease terms of one year to twenty years, some of which include options to extend the leases for five years, and
others include options to terminate the leases within one year. Exercises of lease renewal options are typically at the Company's
sole discretion and are included in its ROU assets and lease liabilities based upon whether the Company is reasonably certain of
exercising the renewal options. The Company has lease agreements with lease and non-lease components, which are generally
accounted for separately. The Company's lease agreements do not contain any material residual value guarantees or material
restrictive covenants.
As most of the Company's leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on
the information available at the lease commencement date in determining the present value of the lease payments. The Company
used its incremental borrowing rate as of January 1, 2019 to calculate the present value of the lease payments of its existing leases
at adoption.
Share-based compensation: The Company accounts for share-based compensation in accordance with the provisions of
ASC Topic 718 "Compensation-Stock Compensation" ("ASC 718"). ASC 718 requires that compensation expense associated with
share equity awards be recognized in the income statement. The Company determines stock-based compensation expense for all
share-based payment awards based on the measurement date fair value. The Company has certain share awards that include market
conditions that affect vesting. The fair value of these shares is estimated using a lattice model. Compensation cost is not adjusted
if the market condition is not met, as long as the requisite service is provided. The Company estimates a forfeiture rate for most
equity share grants based on historical experience. Time-based equity share awards generally vest between one and three years
from the grant date and are expensed on a straight-line basis over the vesting period. Equity share awards that contain a performance
metric, are expensed over the requisite service period, generally three years, in accordance with the performance level achieved
at each reporting period. See (cid:49)ote 11 for additional information.
Derivatives: The Company periodically enters into derivative financial instruments, typically interest rate swap agreements,
interest rate caps, and foreign currency contracts to reduce its exposure to fluctuations in interest rates on variable-rate debt and
foreign currency exchange rates. The Company does not utilize derivative financial instruments with a level of complexity or with
a risk greater than the exposure to be managed nor does it enter into or hold derivatives for trading or speculative purposes.
The Company follows the guidance of ASC Topic 815 "Derivatives and Hedging" ("ASC 815") to account for its derivatives.
All of the Company's outstanding derivative financial instruments are recognized in the balance sheet at their fair values. The
effect on earnings from recognizing the fair values of these derivative financial instruments depends on their intended use, their
hedge designation, and their effectiveness in offsetting changes in the fair values of the exposures they are hedging. Changes in
the fair values of instruments designated to reduce or eliminate adverse fluctuations in the fair values of recognized assets and
liabilities and unrecognized firm commitments are reported currently in earnings along with changes in the fair values of the
hedged items. Changes in the effective portions of the fair values of instruments used to reduce or eliminate adverse fluctuations
in cash flows of anticipated or forecasted transactions are reported in equity as a component of accumulated other comprehensive
income. Amounts in accumulated other comprehensive income are reclassified to earnings when the related hedged items affect
earnings or the anticipated transactions are no longer probable. Changes in the fair values of derivative instruments that are not
designated as hedges or do not qualify for hedge accounting treatment are reported currently in earnings. The Company realizes
gains and losses from derivative instruments in the same financial statement line item as the hedged item/forecasted transaction.
Changes in unrealized gains and losses for derivatives not designated in a hedge accounting relationship are recorded directly in
earnings each period and are also recorded in the same financial statement line item as the hedged item/forecasted transaction.
Cash flows from the settlement of derivatives, including both economic hedges and those designated in hedge accounting
relationships, appear in the consolidated statements of cash flows in the same categories as the cash flows of the hedged item.
For derivative financial instruments accounted for as hedging instruments, the Company formally designates and documents,
at inception, the financial instrument as a hedge of a specific underlying exposure, the risk management objective, and the manner
in which effectiveness of the hedge will be assessed. The Company formally assesses, both at inception and at each reporting
period thereafter, whether the derivative financial instruments used in hedging transactions are effective in offsetting changes in
fair value or cash flows of the related underlying exposures. Any ineffective portion of the change in fair value of the instruments
is recognized immediately in earnings.
The Company discontinues the use of hedge accounting prospectively when (1) the derivative instrument is no longer effective
in offsetting changes in fair value or cash flows of the underlying hedged item; (2) the derivative instrument expires, is sold,
terminated, or exercised; or (3) designating the derivative instrument as a hedge is no longer appropriate. See (cid:49)ote 9 for additional
information.
Use of estimates: The preparation of the consolidated financial statements in conformity with U.S. GAAP requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Significant estimates have been made by management with respect to the timing and amount of future cash collections of
the Company's finance receivables portfolios. Actual results could differ from these estimates making it reasonably possible that
a change in these estimates could occur within one year.
Commitments and contingencies: The Company is subject to various claims and contingencies related to lawsuits, certain
taxes, and commitments under contractual and other obligations. The Company recognizes liabilities for contingencies and
commitments when a loss is probable and estimable. The Company expenses related legal costs as incurred. For additional
information, see (cid:49)ote 14.
Estimated fair value of financial instruments: The Company applies the provisions of ASC Topic 820 "Fair Value
Measurements and Disclosures" ("ASC 820"). ASC 820 defines fair value as the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 also requires
the consideration of differing levels of inputs in the determination of fair values. Disclosure of the estimated fair values of financial
instruments often requires the use of estimates. See (cid:49)ote 8 for additional information.
Recent accounting pronouncements:
Recently Issued Accounting Standards Adopted:
Codification Improvements to Leases
In February 2016, the FASB issued ASU 2016-02 which requires that a lessee should recognize a liability to make lease
payments and a ROU representing its right to use the underlying asset for the lease term on the balance sheet. In July 2018, FASB
issued ASU 2018-10, "Codification Improvements to Topic 842, Leases" and ASU 2018-11, "Leases (Topic 842) Targeted
Improvements" which among other things, allowed for an alternative transition method which eliminated the requirement to restate
the earliest prior period presented in an entity's financial statements. Entities that elected this transition option, including the
Company, were required to adopt the new lease standard using the modified retrospective transition method required by the
standard, but recognized a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption rather
than in the earliest period presented. The Company adopted the new leasing standard on January 1, 2019 and as a result recorded
operating lease ROU assets and lease liabilities of $72.1 million and $75.8 million, respectively. The adoption of the standard did
not have any other material impact on the Company's consolidated financial statements.
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deferred tax assets that were previously determined to be unrealizable, the respective valuation allowance would be reversed,
resulting in a positive adjustment to earnings.
The estimate of income tax expense involves significant judgment in evaluating the impact of uncertainties in the application
of complex tax laws. Resolution of these uncertainties in a manner inconsistent with our expectations could have a material impact
on our results of operations and financial position.
Beginning with the 2017 tax year, the Company utilizes a new tax accounting method to recognize net finance receivables
income. Under the new method, a portion of the annual collections amortize principal and the remaining portion is taxable income.
The deferred tax liability related to the difference in timing between the new method and the cost recovery method will be
incorporated evenly into the Company’s tax filings over four years. For additional information, see (cid:49)ote 13.
Advertising costs: Advertising costs are expensed when incurred.
Leases: The Company accounts for leases in accordance with the provisions of FASB issued ASU 2016-02, "Leases (Topic
842) Section A - Leases: Amendments to the FASB Account Standards Codification" ("ASU 2016-02"). ASU 2016-02 requires
that a lessee should recognize a liability to make lease payments and a right-of-use asset representing its right to use the underlying
asset for the lease term on the balance sheet. The Company adopted ASC 842 on January 1, 2019 using the alternative method
which resulted in the recording of operating lease right-of-use ("ROU") assets and lease liabilities of $72.1 million and $75.8
million, respectively. The Company's balance sheets for reporting periods beginning on or after January 1, 2019 are presented
under the new guidance, while prior periods amounts are not adjusted and continue to be reported in accordance with previous
guidance.
The Company elected to apply the package of practical expedients permitted within the new standard, which among other
things, allows it to carry forward the historical lease classification. In addition, the Company elected the practical expedient to
exclude short-term leases (lease terms of less than one year) from its ROU assets and lease liabilities.
The Company's operating lease portfolio primarily includes corporate offices and call centers. The majority of its leases
have remaining lease terms of one year to twenty years, some of which include options to extend the leases for five years, and
others include options to terminate the leases within one year. Exercises of lease renewal options are typically at the Company's
sole discretion and are included in its ROU assets and lease liabilities based upon whether the Company is reasonably certain of
exercising the renewal options. The Company has lease agreements with lease and non-lease components, which are generally
accounted for separately. The Company's lease agreements do not contain any material residual value guarantees or material
restrictive covenants.
at adoption.
As most of the Company's leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on
the information available at the lease commencement date in determining the present value of the lease payments. The Company
used its incremental borrowing rate as of January 1, 2019 to calculate the present value of the lease payments of its existing leases
Share-based compensation: The Company accounts for share-based compensation in accordance with the provisions of
ASC Topic 718 "Compensation-Stock Compensation" ("ASC 718"). ASC 718 requires that compensation expense associated with
share equity awards be recognized in the income statement. The Company determines stock-based compensation expense for all
share-based payment awards based on the measurement date fair value. The Company has certain share awards that include market
conditions that affect vesting. The fair value of these shares is estimated using a lattice model. Compensation cost is not adjusted
if the market condition is not met, as long as the requisite service is provided. The Company estimates a forfeiture rate for most
from the grant date and are expensed on a straight-line basis over the vesting period. Equity share awards that contain a performance
metric, are expensed over the requisite service period, generally three years, in accordance with the performance level achieved
at each reporting period. See (cid:49)ote 11 for additional information.
Derivatives: The Company periodically enters into derivative financial instruments, typically interest rate swap agreements,
interest rate caps, and foreign currency contracts to reduce its exposure to fluctuations in interest rates on variable-rate debt and
foreign currency exchange rates. The Company does not utilize derivative financial instruments with a level of complexity or with
a risk greater than the exposure to be managed nor does it enter into or hold derivatives for trading or speculative purposes.
The Company follows the guidance of ASC Topic 815 "Derivatives and Hedging" ("ASC 815") to account for its derivatives.
All of the Company's outstanding derivative financial instruments are recognized in the balance sheet at their fair values. The
effect on earnings from recognizing the fair values of these derivative financial instruments depends on their intended use, their
hedge designation, and their effectiveness in offsetting changes in the fair values of the exposures they are hedging. Changes in
the fair values of instruments designated to reduce or eliminate adverse fluctuations in the fair values of recognized assets and
PRA Group, Inc.
(cid:49)otes to Consolidated Financial Statements
PRA Group, Inc.
(cid:49)otes to Consolidated Financial Statements
liabilities and unrecognized firm commitments are reported currently in earnings along with changes in the fair values of the
hedged items. Changes in the effective portions of the fair values of instruments used to reduce or eliminate adverse fluctuations
in cash flows of anticipated or forecasted transactions are reported in equity as a component of accumulated other comprehensive
income. Amounts in accumulated other comprehensive income are reclassified to earnings when the related hedged items affect
earnings or the anticipated transactions are no longer probable. Changes in the fair values of derivative instruments that are not
designated as hedges or do not qualify for hedge accounting treatment are reported currently in earnings. The Company realizes
gains and losses from derivative instruments in the same financial statement line item as the hedged item/forecasted transaction.
Changes in unrealized gains and losses for derivatives not designated in a hedge accounting relationship are recorded directly in
earnings each period and are also recorded in the same financial statement line item as the hedged item/forecasted transaction.
Cash flows from the settlement of derivatives, including both economic hedges and those designated in hedge accounting
relationships, appear in the consolidated statements of cash flows in the same categories as the cash flows of the hedged item.
For derivative financial instruments accounted for as hedging instruments, the Company formally designates and documents,
at inception, the financial instrument as a hedge of a specific underlying exposure, the risk management objective, and the manner
in which effectiveness of the hedge will be assessed. The Company formally assesses, both at inception and at each reporting
period thereafter, whether the derivative financial instruments used in hedging transactions are effective in offsetting changes in
fair value or cash flows of the related underlying exposures. Any ineffective portion of the change in fair value of the instruments
is recognized immediately in earnings.
The Company discontinues the use of hedge accounting prospectively when (1) the derivative instrument is no longer effective
in offsetting changes in fair value or cash flows of the underlying hedged item; (2) the derivative instrument expires, is sold,
terminated, or exercised; or (3) designating the derivative instrument as a hedge is no longer appropriate. See (cid:49)ote 9 for additional
information.
Use of estimates: The preparation of the consolidated financial statements in conformity with U.S. GAAP requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Significant estimates have been made by management with respect to the timing and amount of future cash collections of
the Company's finance receivables portfolios. Actual results could differ from these estimates making it reasonably possible that
a change in these estimates could occur within one year.
Commitments and contingencies: The Company is subject to various claims and contingencies related to lawsuits, certain
taxes, and commitments under contractual and other obligations. The Company recognizes liabilities for contingencies and
commitments when a loss is probable and estimable. The Company expenses related legal costs as incurred. For additional
information, see (cid:49)ote 14.
Estimated fair value of financial instruments: The Company applies the provisions of ASC Topic 820 "Fair Value
Measurements and Disclosures" ("ASC 820"). ASC 820 defines fair value as the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 also requires
the consideration of differing levels of inputs in the determination of fair values. Disclosure of the estimated fair values of financial
instruments often requires the use of estimates. See (cid:49)ote 8 for additional information.
Recent accounting pronouncements:
equity share grants based on historical experience. Time-based equity share awards generally vest between one and three years
Recently Issued Accounting Standards Adopted:
Codification Improvements to Leases
In February 2016, the FASB issued ASU 2016-02 which requires that a lessee should recognize a liability to make lease
payments and a ROU representing its right to use the underlying asset for the lease term on the balance sheet. In July 2018, FASB
issued ASU 2018-10, "Codification Improvements to Topic 842, Leases" and ASU 2018-11, "Leases (Topic 842) Targeted
Improvements" which among other things, allowed for an alternative transition method which eliminated the requirement to restate
the earliest prior period presented in an entity's financial statements. Entities that elected this transition option, including the
Company, were required to adopt the new lease standard using the modified retrospective transition method required by the
standard, but recognized a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption rather
than in the earliest period presented. The Company adopted the new leasing standard on January 1, 2019 and as a result recorded
operating lease ROU assets and lease liabilities of $72.1 million and $75.8 million, respectively. The adoption of the standard did
not have any other material impact on the Company's consolidated financial statements.
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PRA Group, Inc.
(cid:49)otes to Consolidated Financial Statements
Statement of Cash Flows- Classification of Certain Cash Receipts and Cash Payments
In August 2016, FASB issued ASU 2016-15, "Statement of Cash Flows - Classification of Certain Cash Receipts and Cash
Payments (Topic 230)" ("ASU 2016-15"). ASU 2016-15 reduces diversity in practice of how certain transactions are classified in
the statement of cash flows. The new guidance clarifies the classification of cash activity related to debt prepayment or debt
extinguishment costs, settlement of zero-coupon debt instruments, contingent consideration payments made after a business
combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate and bank-owned life
insurance policies, distributions received from equity-method investments, and beneficial interests in securitization transactions.
The guidance also describes a predominance principle in which cash flows with aspects of more than one class that cannot be
separated should be classified based on the activity that is likely to be the predominant source or use of cash flow. ASU 2016-15
is effective for the Company for fiscal years beginning after December 15, 2018. The new standard must be adopted using a
retrospective transition method. The Company adopted ASU 2016-15 in the first quarter of 2019 which had no material impact
on its consolidated financial statements.
Reclassification of Certain Tax Effects From Accumulated Other Comprehensive Income
In February 2018, the FASB issued ASU 2018-02, "Reclassification of Certain Tax Effects from Accumulated Other
Comprehensive Income" ("ASU 2018-02"). Under existing GAAP, the effects of changes in tax rates and laws on deferred tax
balances are recorded as a component of income tax expense in the period in which the law was enacted. When deferred tax
balances related to items originally recorded in accumulated other comprehensive income are adjusted, certain tax effects become
stranded in accumulated other comprehensive income. The amendments in ASU 2018-02 allow a reclassification from accumulated
other comprehensive income to retained earnings for stranded income tax effects resulting from the 2017 Tax Cuts and Jobs Act
("Tax Act"). The amendments in this ASU also require certain disclosures about stranded income tax effects. The guidance is
effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. The Company’s
provisional adjustments recorded during the year ended December 31, 2017 to account for the impact of the Tax Act did not result
in stranded tax effects. The Company adopted ASU 2018-02 in the first quarter of 2019 which had no material impact on its
consolidated financial statements.
Recently Issued Accounting Standards (cid:49)ot Yet Adopted:
Financial Instruments - Credit Losses
In June 2016, FASB issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326)" ("ASU 2016-13"), which
introduces a new methodology requiring the measurement of expected credit losses for financial instruments held at the reporting
date based on historical experience, current conditions and reasonable and supportable forecasts. ASU 2016-13 utilizes a lifetime
“expected credit loss” measurement objective for the recognition of credit losses for loans, held-to-maturity debt securities and
other receivables measured at amortized cost. The new methodology requires an entity to present on the balance sheet the net
amount expected to be collected. This methodology replaces the multiple impairment methods under existing GAAP, including
for purchased credit impaired ("PCI") assets, and introduces the concept of purchased credit deteriorated (“PCD”) financial assets.
The Company's PCI assets currently accounted for under existing GAAP will be accounted for as PCD financial assets upon
adoption of ASU 2016-13. ASU 2016-13 requires PCD assets to be recognized at their purchase price plus the allowance for credit
losses expected at the time of acquisition. ASU 2016-13 also requires that financial assets should be written off when they are
deemed uncollectible.
In (cid:49)ovember 2019, FASB issued ASU 2019-11, “Codification Improvements to Topic 326, Financial Instruments - Credit
Losses” (“ASU 2019-11”), which amends the PCD financial asset guidance in ASU 2016-13 to clarify that expected recoveries
of amounts previously written off and expected to be written off should be included in the valuation account and should not exceed
the aggregate of amounts previously written off and expected to be written off by an entity. Further, ASU 2019-11 clarifies that a
negative allowance is recognized when an entity determines, after a full or partial writeoff of the amortized cost basis, that it will
recover all or a portion of the basis.
Based on the guidance in ASU 2016-13 and 2019-11, substantially all the Company’s PCI assets will transition using the
PCD guidance; the Company will gross up the amortized cost of the PCI assets by adding the allowance for credit losses estimated
at transition. The Company will then immediately write off the amortized cost basis of individual accounts and establish a negative
allowance for expected recoveries. The immediate writeoff and subsequent recognition of estimated recoveries are expected to
have no impact on the Company’s statement of income, balance sheet or retained earnings at the date of adoption. The Company
will estimate expected recoveries using a discounted cash flow approach and will recognize income over the estimated life of the
pool at an effective interest rate. Subsequent changes (favorable and unfavorable) in expected cash flows will be recognized in
current period earnings by adjusting the present value of the expected recoveries.
PRA Group, Inc.
(cid:49)otes to Consolidated Financial Statements
Subsequent to adoption, ASU 2016-13 and ASU 2019-11 represent a significant change from existing GAAP and are
expected to result in material changes to the Company’s accounting for its finance receivables, including recognizing revenue at
a fixed rate and recognizing both positive and negative changes to the forecast as an adjustment to current period earnings. The
guidance will be effective prospectively for the Company as of January 1, 2020. Implementation efforts, including model finalization
and drafting of accounting and internal control policies and procedures are nearly complete.
Intangibles - Goodwill and Other
In January 2017, FASB issued ASU 2017-04, "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for
Goodwill Impairment" ("ASU 2017-04"). ASU 2017-04 eliminates Step 2 of the goodwill impairment test. Instead, an entity should
perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount.
An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair
value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. An entity still
has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is
necessary. ASU 2017-04 is effective for annual and interim periods beginning after December 15, 2019, and early adoption was
permitted for interim or annual goodwill impairment tests performed after January 1, 2017. Based on the Company's most recent
goodwill impairment assessment, there were no reporting units for which it was more-likely-than-not that the carrying amount of
a reporting unit exceeded its respective fair value; therefore, the Company believes that ASU 2017-04 would not have an impact
on its consolidated financial statements or related disclosures. If subsequent to adoption, the carrying amount of a reporting unit
exceeds its respective fair value, the Company would be required to recognize an impairment charge. The Company will adopt
this standard on January 1, 2020 and does not expect that the adoption of these amendments will have a material effect on its
In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework - Changes
to the Disclosure Requirements for Fair Value Measurement” ("ASU 2018-13"). ASU 2018-13 eliminates, adds and modifies
certain disclosure requirements for fair value measurements as part of its disclosure framework project. The standard is effective
for all entities for financial statements issued for fiscal years beginning after December 15, 2019, and interim periods within those
fiscal years. Early adoption is permitted. The Company will adopt this standard on January 1, 2020 and expects the adoption of
ASU 2018-13 will result in additional and modified disclosures in its consolidated financial statements without any financial
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income
Taxes (“ASU 2019-12”), which simplifies the accounting for income taxes. This standard is effective for annual and interim periods
beginning after December 15, 2020 on a prospective basis, and early adoption is permitted. The Company is currently evaluating
the impact of ASU 2019-12 on our consolidated financial statements and expects it to result in additional and modified disclosures.
The Company does not expect that any other recently issued accounting pronouncements will have a material effect on its
Changes in finance receivables, net, for the years ended December 31, 2019 and 2018, were as follows (amounts in thousands):
Balance at beginning of year
Acquisitions of finance receivables (1)
Addition relating to consolidation of Polish investment fund
Foreign currency translation adjustment
Cash collections
Income recognized on finance receivables
(cid:49)et allowance charges
Balance at end of year
made during the first quarter of 2019.
2019
2018
$
3,084,777
$
1,274,317
—
22,006
998,361
(24,025)
2,776,199
1,105,423
34,871
(64,985)
891,899
(33,425)
(1,841,271)
(1,625,205)
$
3,514,165
$
3,084,777
(1) Includes portfolio purchases adjusted for buybacks and acquisition related costs and portfolios from the acquisition of a business in Canada
consolidated financial statements.
Fair Value Measurement
impact.
Income Taxes
consolidated financial statements.
2. Finance Receivables, net:
56
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PRA Group, Inc.
(cid:49)otes to Consolidated Financial Statements
Statement of Cash Flows- Classification of Certain Cash Receipts and Cash Payments
In August 2016, FASB issued ASU 2016-15, "Statement of Cash Flows - Classification of Certain Cash Receipts and Cash
Payments (Topic 230)" ("ASU 2016-15"). ASU 2016-15 reduces diversity in practice of how certain transactions are classified in
the statement of cash flows. The new guidance clarifies the classification of cash activity related to debt prepayment or debt
extinguishment costs, settlement of zero-coupon debt instruments, contingent consideration payments made after a business
combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate and bank-owned life
insurance policies, distributions received from equity-method investments, and beneficial interests in securitization transactions.
The guidance also describes a predominance principle in which cash flows with aspects of more than one class that cannot be
separated should be classified based on the activity that is likely to be the predominant source or use of cash flow. ASU 2016-15
is effective for the Company for fiscal years beginning after December 15, 2018. The new standard must be adopted using a
retrospective transition method. The Company adopted ASU 2016-15 in the first quarter of 2019 which had no material impact
on its consolidated financial statements.
Reclassification of Certain Tax Effects From Accumulated Other Comprehensive Income
In February 2018, the FASB issued ASU 2018-02, "Reclassification of Certain Tax Effects from Accumulated Other
Comprehensive Income" ("ASU 2018-02"). Under existing GAAP, the effects of changes in tax rates and laws on deferred tax
balances are recorded as a component of income tax expense in the period in which the law was enacted. When deferred tax
balances related to items originally recorded in accumulated other comprehensive income are adjusted, certain tax effects become
stranded in accumulated other comprehensive income. The amendments in ASU 2018-02 allow a reclassification from accumulated
other comprehensive income to retained earnings for stranded income tax effects resulting from the 2017 Tax Cuts and Jobs Act
("Tax Act"). The amendments in this ASU also require certain disclosures about stranded income tax effects. The guidance is
effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. The Company’s
provisional adjustments recorded during the year ended December 31, 2017 to account for the impact of the Tax Act did not result
in stranded tax effects. The Company adopted ASU 2018-02 in the first quarter of 2019 which had no material impact on its
consolidated financial statements.
Recently Issued Accounting Standards (cid:49)ot Yet Adopted:
Financial Instruments - Credit Losses
In June 2016, FASB issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326)" ("ASU 2016-13"), which
introduces a new methodology requiring the measurement of expected credit losses for financial instruments held at the reporting
date based on historical experience, current conditions and reasonable and supportable forecasts. ASU 2016-13 utilizes a lifetime
“expected credit loss” measurement objective for the recognition of credit losses for loans, held-to-maturity debt securities and
other receivables measured at amortized cost. The new methodology requires an entity to present on the balance sheet the net
amount expected to be collected. This methodology replaces the multiple impairment methods under existing GAAP, including
for purchased credit impaired ("PCI") assets, and introduces the concept of purchased credit deteriorated (“PCD”) financial assets.
The Company's PCI assets currently accounted for under existing GAAP will be accounted for as PCD financial assets upon
adoption of ASU 2016-13. ASU 2016-13 requires PCD assets to be recognized at their purchase price plus the allowance for credit
losses expected at the time of acquisition. ASU 2016-13 also requires that financial assets should be written off when they are
deemed uncollectible.
In (cid:49)ovember 2019, FASB issued ASU 2019-11, “Codification Improvements to Topic 326, Financial Instruments - Credit
Losses” (“ASU 2019-11”), which amends the PCD financial asset guidance in ASU 2016-13 to clarify that expected recoveries
of amounts previously written off and expected to be written off should be included in the valuation account and should not exceed
the aggregate of amounts previously written off and expected to be written off by an entity. Further, ASU 2019-11 clarifies that a
negative allowance is recognized when an entity determines, after a full or partial writeoff of the amortized cost basis, that it will
recover all or a portion of the basis.
Based on the guidance in ASU 2016-13 and 2019-11, substantially all the Company’s PCI assets will transition using the
PCD guidance; the Company will gross up the amortized cost of the PCI assets by adding the allowance for credit losses estimated
at transition. The Company will then immediately write off the amortized cost basis of individual accounts and establish a negative
allowance for expected recoveries. The immediate writeoff and subsequent recognition of estimated recoveries are expected to
have no impact on the Company’s statement of income, balance sheet or retained earnings at the date of adoption. The Company
will estimate expected recoveries using a discounted cash flow approach and will recognize income over the estimated life of the
pool at an effective interest rate. Subsequent changes (favorable and unfavorable) in expected cash flows will be recognized in
current period earnings by adjusting the present value of the expected recoveries.
PRA Group, Inc.
(cid:49)otes to Consolidated Financial Statements
Subsequent to adoption, ASU 2016-13 and ASU 2019-11 represent a significant change from existing GAAP and are
expected to result in material changes to the Company’s accounting for its finance receivables, including recognizing revenue at
a fixed rate and recognizing both positive and negative changes to the forecast as an adjustment to current period earnings. The
guidance will be effective prospectively for the Company as of January 1, 2020. Implementation efforts, including model finalization
and drafting of accounting and internal control policies and procedures are nearly complete.
Intangibles - Goodwill and Other
In January 2017, FASB issued ASU 2017-04, "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for
Goodwill Impairment" ("ASU 2017-04"). ASU 2017-04 eliminates Step 2 of the goodwill impairment test. Instead, an entity should
perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount.
An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair
value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. An entity still
has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is
necessary. ASU 2017-04 is effective for annual and interim periods beginning after December 15, 2019, and early adoption was
permitted for interim or annual goodwill impairment tests performed after January 1, 2017. Based on the Company's most recent
goodwill impairment assessment, there were no reporting units for which it was more-likely-than-not that the carrying amount of
a reporting unit exceeded its respective fair value; therefore, the Company believes that ASU 2017-04 would not have an impact
on its consolidated financial statements or related disclosures. If subsequent to adoption, the carrying amount of a reporting unit
exceeds its respective fair value, the Company would be required to recognize an impairment charge. The Company will adopt
this standard on January 1, 2020 and does not expect that the adoption of these amendments will have a material effect on its
consolidated financial statements.
Fair Value Measurement
In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework - Changes
to the Disclosure Requirements for Fair Value Measurement” ("ASU 2018-13"). ASU 2018-13 eliminates, adds and modifies
certain disclosure requirements for fair value measurements as part of its disclosure framework project. The standard is effective
for all entities for financial statements issued for fiscal years beginning after December 15, 2019, and interim periods within those
fiscal years. Early adoption is permitted. The Company will adopt this standard on January 1, 2020 and expects the adoption of
ASU 2018-13 will result in additional and modified disclosures in its consolidated financial statements without any financial
impact.
Income Taxes
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income
Taxes (“ASU 2019-12”), which simplifies the accounting for income taxes. This standard is effective for annual and interim periods
beginning after December 15, 2020 on a prospective basis, and early adoption is permitted. The Company is currently evaluating
the impact of ASU 2019-12 on our consolidated financial statements and expects it to result in additional and modified disclosures.
The Company does not expect that any other recently issued accounting pronouncements will have a material effect on its
consolidated financial statements.
2. Finance Receivables, net:
Changes in finance receivables, net, for the years ended December 31, 2019 and 2018, were as follows (amounts in thousands):
Balance at beginning of year
Acquisitions of finance receivables (1)
Addition relating to consolidation of Polish investment fund
Foreign currency translation adjustment
Cash collections
Income recognized on finance receivables
(cid:49)et allowance charges
Balance at end of year
2019
2018
$
3,084,777
$
1,274,317
—
22,006
2,776,199
1,105,423
34,871
(64,985)
(1,841,271)
(1,625,205)
998,361
(24,025)
891,899
(33,425)
$
3,514,165
$
3,084,777
(1) Includes portfolio purchases adjusted for buybacks and acquisition related costs and portfolios from the acquisition of a business in Canada
made during the first quarter of 2019.
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PRA Group, Inc.
(cid:49)otes to Consolidated Financial Statements
PRA Group, Inc.
(cid:49)otes to Consolidated Financial Statements
During the year ended December 31, 2019, the Company acquired finance receivable portfolios with a face value of $11.7
billion for $1.3 billion as compared to the same period last year with a face value of $9.2 billion for $1.1 billion. At December 31,
2019, the estimated remaining collections ("ERC") on the receivables acquired during the years ended December 31, 2019 and
2018 were $2.0 billion and $1.4 billion, respectively. At December 31, 2019 and 2018, ERC was $6.8 billion and $6.1 billion,
respectively.
At the time of acquisition and each quarter thereafter, the life of each pool is estimated based on projected amounts and
timing of future cash collections using the proprietary models of the Company. Based upon current projections, estimated cash
collections expected to be applied to principal are as follows for the twelve-month periods ending December 31, (amounts in
thousands):
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
Thereafter
Total ERC expected to be applied to principal
$
831,769
672,699
500,597
368,332
263,785
193,831
156,456
135,238
125,673
116,008
149,777
$
3,514,165
At December 31, 2019 and 2018, the Company had aggregate net finance receivables balances in pools accounted for under
the cost recovery method of $33.7 million and $48.0 million, respectively.
Accretable yield represents the amount of income on finance receivables the Company can expect to recognize over the
remaining life of its existing portfolios based on estimated future cash flows as of the balance sheet date. Additions represent the
original expected accretable yield, on portfolios acquired during the period. (cid:49)et reclassifications from nonaccretable difference
to accretable yield primarily result from the increase in the Company's estimate of future cash flows. When applicable, net
reclassifications to nonaccretable difference from accretable yield result from the decrease in the Company's estimates of future
cash flows and allowance charges that together exceed the increase in the Company's estimate of future cash flows.
Changes in accretable yield for the years ended December 31, 2019 and 2018 were as follows (amounts in thousands):
Balance at beginning of year
Income recognized on finance receivables
(cid:49)et allowance charges
Additions from portfolio acquisitions
Reclassifications from nonaccretable difference
Foreign currency translation adjustment
Balance at end of year
2019
2018
$
3,058,445
$
(998,361)
24,025
943,887
205,464
6,671
2,927,866
(891,899)
33,425
876,112
194,992
(82,051)
$
3,240,131
$
3,058,445
The following is a summary of activity within the Company's valuation allowance account, all of which relates to loans
acquired with deteriorated credit quality, for the years ended December 31, 2019, 2018 and 2017 (amounts in thousands):
Beginning balance
Allowance charges
Reversal of previous recorded allowance charges
(cid:49)et allowance charges
Foreign currency translation adjustment
Ending balance
3. Investments:
2019
2018
2017
257,148
$
225,555
$
211,465
38,662
(14,637)
24,025
122
48,856
(15,431)
33,425
(1,832)
13,826
(1,928)
11,898
2,192
281,295
$
257,148
$
225,555
$
$
Investments consisted of the following at December 31, 2019 and 2018 (amounts in thousands):
2019
2018
$
$
5,052
$
5,077
7,218
33,677
10,229
56,176
$
7,973
21,753
10,370
45,173
Debt securities
Available-for-sale
Equity securities
Private equity funds
Mutual funds
Equity method investments
Total investments
Debt Securities
Available-for-Sale
fair value.
(amounts in thousands):
Available-for-sale
Government bonds
Available-for-sale
Government bonds
Equity Securities
Government bonds: The Company's investments in government bonds are classified as available-for-sale and are stated at
The amortized cost and estimated fair value of investments in debt securities at December 31, 2019 and 2018 were as follows
Amortized Cost
Gains
Losses
Value
Gross Unrealized
Gross Unrealized
Aggregate Fair
December 31, 2019
5,095
$
— $
43
$
5,052
Amortized Cost
Gains
Losses
Value
Gross Unrealized
Gross Unrealized
Aggregate Fair
December 31, 2018
5,160
$
— $
83
$
5,077
$
$
Investments in private equity funds: Investments in private equity funds represent limited partnerships in which the
Company has less than a 3% interest. In the first quarter of 2018, the Company adopted ASU 2016-01. Upon adoption of ASU
2016-01, the investments are carried at the fair value reported by the fund manager. The Company recorded a cumulative effect
adjustment of $3.9 million, net of tax, to beginning retained earnings for the unrealized loss on the investment.
Mutual funds: The Company invests certain excess funds held in Brazil in a Brazilian real denominated mutual fund
benchmarked to the U.S. dollar that invests principally in Brazilian fixed income securities. The investments are carried at fair
value based on quoted market prices. Gains and losses from this investment are included as a foreign exchange component of
other income and (expense) in the Company's consolidated income statements.
58
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2019, the estimated remaining collections ("ERC") on the receivables acquired during the years ended December 31, 2019 and
2018 were $2.0 billion and $1.4 billion, respectively. At December 31, 2019 and 2018, ERC was $6.8 billion and $6.1 billion,
At the time of acquisition and each quarter thereafter, the life of each pool is estimated based on projected amounts and
timing of future cash collections using the proprietary models of the Company. Based upon current projections, estimated cash
collections expected to be applied to principal are as follows for the twelve-month periods ending December 31, (amounts in
respectively.
thousands):
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
Thereafter
Total ERC expected to be applied to principal
$
3,514,165
At December 31, 2019 and 2018, the Company had aggregate net finance receivables balances in pools accounted for under
the cost recovery method of $33.7 million and $48.0 million, respectively.
original expected accretable yield, on portfolios acquired during the period. (cid:49)et reclassifications from nonaccretable difference
to accretable yield primarily result from the increase in the Company's estimate of future cash flows. When applicable, net
reclassifications to nonaccretable difference from accretable yield result from the decrease in the Company's estimates of future
cash flows and allowance charges that together exceed the increase in the Company's estimate of future cash flows.
Changes in accretable yield for the years ended December 31, 2019 and 2018 were as follows (amounts in thousands):
Balance at beginning of year
Income recognized on finance receivables
(cid:49)et allowance charges
Additions from portfolio acquisitions
Reclassifications from nonaccretable difference
Foreign currency translation adjustment
Balance at end of year
(998,361)
24,025
943,887
205,464
6,671
2,927,866
(891,899)
33,425
876,112
194,992
(82,051)
$
3,240,131
$
3,058,445
PRA Group, Inc.
(cid:49)otes to Consolidated Financial Statements
PRA Group, Inc.
(cid:49)otes to Consolidated Financial Statements
During the year ended December 31, 2019, the Company acquired finance receivable portfolios with a face value of $11.7
The following is a summary of activity within the Company's valuation allowance account, all of which relates to loans
billion for $1.3 billion as compared to the same period last year with a face value of $9.2 billion for $1.1 billion. At December 31,
acquired with deteriorated credit quality, for the years ended December 31, 2019, 2018 and 2017 (amounts in thousands):
$
831,769
672,699
500,597
368,332
263,785
193,831
156,456
135,238
125,673
116,008
149,777
Beginning balance
Allowance charges
Reversal of previous recorded allowance charges
(cid:49)et allowance charges
Foreign currency translation adjustment
Ending balance
3. Investments:
2019
2018
2017
257,148
$
225,555
$
211,465
38,662
(14,637)
24,025
122
48,856
(15,431)
33,425
(1,832)
13,826
(1,928)
11,898
2,192
281,295
$
257,148
$
225,555
$
$
Investments consisted of the following at December 31, 2019 and 2018 (amounts in thousands):
Debt securities
Available-for-sale
Equity securities
Private equity funds
Mutual funds
Equity method investments
Total investments
Debt Securities
Available-for-Sale
2019
2018
$
$
5,052
$
5,077
7,218
33,677
10,229
56,176
$
7,973
21,753
10,370
45,173
Accretable yield represents the amount of income on finance receivables the Company can expect to recognize over the
Government bonds: The Company's investments in government bonds are classified as available-for-sale and are stated at
remaining life of its existing portfolios based on estimated future cash flows as of the balance sheet date. Additions represent the
fair value.
The amortized cost and estimated fair value of investments in debt securities at December 31, 2019 and 2018 were as follows
(amounts in thousands):
2019
2018
$
3,058,445
$
Available-for-sale
Government bonds
Available-for-sale
Government bonds
Equity Securities
Amortized Cost
Gross Unrealized
Gains
Gross Unrealized
Losses
Aggregate Fair
Value
December 31, 2019
5,095
$
— $
43
$
5,052
Amortized Cost
Gross Unrealized
Gains
Gross Unrealized
Losses
Aggregate Fair
Value
December 31, 2018
5,160
$
— $
83
$
5,077
$
$
Investments in private equity funds: Investments in private equity funds represent limited partnerships in which the
Company has less than a 3% interest. In the first quarter of 2018, the Company adopted ASU 2016-01. Upon adoption of ASU
2016-01, the investments are carried at the fair value reported by the fund manager. The Company recorded a cumulative effect
adjustment of $3.9 million, net of tax, to beginning retained earnings for the unrealized loss on the investment.
Mutual funds: The Company invests certain excess funds held in Brazil in a Brazilian real denominated mutual fund
benchmarked to the U.S. dollar that invests principally in Brazilian fixed income securities. The investments are carried at fair
value based on quoted market prices. Gains and losses from this investment are included as a foreign exchange component of
other income and (expense) in the Company's consolidated income statements.
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Total future minimum lease payments
5. Goodwill and Intangible Assets, net:
2019
2020
2021
2022
2023
Thereafter
was necessary.
thousands):
Goodwill:
Changes:
Acquisition
Sale of subsidiary
$
$
11,470
11,451
10,809
7,287
6,189
7,866
55,072
2019
2018
18,831
—
(2,153)
16,678
—
(36,053)
(26,344)
(62,397)
PRA Group, Inc.
(cid:49)otes to Consolidated Financial Statements
PRA Group, Inc.
(cid:49)otes to Consolidated Financial Statements
Unrealized gains and losses: (cid:49)et unrealized gains on equity securities were $5.8 million and $3.5 million for the twelve
future minimum lease payments for operating leases at December 31, 2018, were as follows for the years ending December 31,
months ended December 31, 2019 and December 31, 2018, respectively on the Company's equity securities.
(amounts in thousands):
Equity Method Investments
Effective December 20, 2018, the Company has an 11.7% interest in RCB Investimentos S.A. ("RCB"), a servicing platform
for nonperforming loans in Brazil, which is accounted for on the equity method because the Company exercises significant influence
over RCB’s operating and financial activities. Accordingly, the Company’s investment in RCB is adjusted for the Company’s
proportionate share of RCB’s earnings or losses. Refer to (cid:49)ote 17 for additional information.
4. Leases:
The components of lease expense for the year ended December 31, 2019 was as follows (amounts in thousands):
Operating lease cost
Short-term lease cost
Total lease cost
December 31, 2019
$
$
12,008
2,973
14,981
In connection with the Company's business acquisitions, the Company acquired certain tangible and intangible assets.
Intangible assets resulting from these acquisitions include client and customer relationships, non-compete agreements, trademarks
and technology. The Company performs an annual review of goodwill as of October 1 or more frequently if indicators of impairment
exist. The Company performed an annual review of goodwill as of October 1, 2019 and concluded that no goodwill impairment
Supplemental cash flow information and non-cash activity related to leases for the year ended December 31, 2019 were as
follows (amounts in thousands):
The following table represents the changes in goodwill for the years ended December 31, 2019 and 2018 (amounts in
Cash paid for amounts included in the measurement of operating lease liabilities
ROU assets obtained in exchange for operating lease obligations
December 31, 2019
$
$
11,438
80,725
Lease term and discount rate information related to operating leases were as follows as of the date indicated:
Balance at beginning of period
$
464,116
$
526,513
Weighted-average remaining lease terms (years)
Weighted-average discount rate
December 31, 2019
10.7
4.9%
Foreign currency translation adjustment
(cid:49)et change in goodwill
Balance at end of period
$
480,794
$
464,116
The $18.8 million addition to goodwill during the year ended December 31, 2019, is related to the acquisition of a business
The Company leases office space and equipment under operating leases. Lease expense was $15.0 million, $13.6 million
in Canada during the first quarter. The $36.1 million decrease in goodwill during the year ended December 31, 2018, is a result
and $11.8 million for the years ended December 31, 2019, 2018 and 2017, respectively.
of the sale of a portion of RCB's servicing platform in December of 2018.
Maturities of lease liabilities at December 31, 2019, are as follows for the years ending December 31, (amounts in thousands):
Intangible assets, excluding goodwill, consisted of the following at December 31, 2019 and 2018 (amounts in thousands):
2020
2021
2022
2023
2024
Thereafter
Total lease payments
Less imputed interest
Total
Operating Leases
11,846
11,378
9,324
7,132
6,279
49,414
95,373
(21,996)
73,377
$
$
$
As previously disclosed in the Company's Form 10-K for the year ended December 31, 2018 and under the previous lease
accounting standard (which excludes the impact of the Company's intent to exercise renewal options as required by ASU 2016-02),
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Client and customer relationships
(cid:49)on-compete agreements
Trademarks
Technology
Total
2019
2018
Gross
Amount
Accumulated
Amortization
Gross
Amount
Accumulated
Amortization
12,072
$
8,242
$
11,806
$
6,993
439
400
1,679
183
362
1,306
—
400
1,548
—
345
894
14,590
$
10,093
$
13,754
$
8,232
$
$
The Company amortizes the intangible assets over their estimated useful lives. Total amortization expense for the years
ended December 31, 2019, 2018 and 2017 was $1.6 million, $4.3 million and $4.3 million, respectively. The Company reviews
intangible assets for possible impairment whenever events or changes in circumstances indicate that the carrying amount may not
be recoverable and the carrying amount exceeds its fair value.
PRA Group, Inc.
(cid:49)otes to Consolidated Financial Statements
PRA Group, Inc.
(cid:49)otes to Consolidated Financial Statements
Unrealized gains and losses: (cid:49)et unrealized gains on equity securities were $5.8 million and $3.5 million for the twelve
months ended December 31, 2019 and December 31, 2018, respectively on the Company's equity securities.
future minimum lease payments for operating leases at December 31, 2018, were as follows for the years ending December 31,
(amounts in thousands):
Equity Method Investments
Effective December 20, 2018, the Company has an 11.7% interest in RCB Investimentos S.A. ("RCB"), a servicing platform
for nonperforming loans in Brazil, which is accounted for on the equity method because the Company exercises significant influence
over RCB’s operating and financial activities. Accordingly, the Company’s investment in RCB is adjusted for the Company’s
proportionate share of RCB’s earnings or losses. Refer to (cid:49)ote 17 for additional information.
The components of lease expense for the year ended December 31, 2019 was as follows (amounts in thousands):
2019
2020
2021
2022
2023
Thereafter
Total future minimum lease payments
5. Goodwill and Intangible Assets, net:
$
$
11,470
11,451
10,809
7,287
6,189
7,866
55,072
Supplemental cash flow information and non-cash activity related to leases for the year ended December 31, 2019 were as
follows (amounts in thousands):
Cash paid for amounts included in the measurement of operating lease liabilities
ROU assets obtained in exchange for operating lease obligations
Lease term and discount rate information related to operating leases were as follows as of the date indicated:
Weighted-average remaining lease terms (years)
Weighted-average discount rate
The Company leases office space and equipment under operating leases. Lease expense was $15.0 million, $13.6 million
and $11.8 million for the years ended December 31, 2019, 2018 and 2017, respectively.
In connection with the Company's business acquisitions, the Company acquired certain tangible and intangible assets.
Intangible assets resulting from these acquisitions include client and customer relationships, non-compete agreements, trademarks
and technology. The Company performs an annual review of goodwill as of October 1 or more frequently if indicators of impairment
exist. The Company performed an annual review of goodwill as of October 1, 2019 and concluded that no goodwill impairment
was necessary.
The following table represents the changes in goodwill for the years ended December 31, 2019 and 2018 (amounts in
thousands):
Goodwill:
2019
2018
Balance at beginning of period
$
464,116
$
526,513
Changes:
Acquisition
Sale of subsidiary
December 31, 2019
Foreign currency translation adjustment
(cid:49)et change in goodwill
18,831
—
(2,153)
16,678
—
(36,053)
(26,344)
(62,397)
Balance at end of period
$
480,794
$
464,116
The $18.8 million addition to goodwill during the year ended December 31, 2019, is related to the acquisition of a business
in Canada during the first quarter. The $36.1 million decrease in goodwill during the year ended December 31, 2018, is a result
of the sale of a portion of RCB's servicing platform in December of 2018.
Maturities of lease liabilities at December 31, 2019, are as follows for the years ending December 31, (amounts in thousands):
Intangible assets, excluding goodwill, consisted of the following at December 31, 2019 and 2018 (amounts in thousands):
Client and customer relationships
(cid:49)on-compete agreements
Trademarks
Technology
Total
2019
2018
Gross
Amount
Accumulated
Amortization
Gross
Amount
Accumulated
Amortization
12,072
$
8,242
$
11,806
$
6,993
439
400
1,679
183
362
1,306
—
400
1,548
—
345
894
14,590
$
10,093
$
13,754
$
8,232
$
$
The Company amortizes the intangible assets over their estimated useful lives. Total amortization expense for the years
ended December 31, 2019, 2018 and 2017 was $1.6 million, $4.3 million and $4.3 million, respectively. The Company reviews
intangible assets for possible impairment whenever events or changes in circumstances indicate that the carrying amount may not
be recoverable and the carrying amount exceeds its fair value.
60
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As previously disclosed in the Company's Form 10-K for the year ended December 31, 2018 and under the previous lease
accounting standard (which excludes the impact of the Company's intent to exercise renewal options as required by ASU 2016-02),
December 31, 2019
December 31, 2019
Operating Leases
12,008
2,973
14,981
11,438
80,725
10.7
4.9%
11,846
11,378
9,324
7,132
6,279
49,414
95,373
(21,996)
73,377
$
$
$
$
$
$
$
4. Leases:
Operating lease cost
Short-term lease cost
Total lease cost
2020
2021
2022
2023
2024
Thereafter
Total lease payments
Less imputed interest
Total
PRA Group, Inc.
(cid:49)otes to Consolidated Financial Statements
PRA Group, Inc.
(cid:49)otes to Consolidated Financial Statements
The future amortization of intangible assets is estimated to be as follows for the years ending December 31, (amounts in
interest at a rate per annum equal to the Canadian Prime Rate plus 1.50%. The revolving credit facilities also bear an unused line
thousands):
2020
2021
2022
2023
2024
Thereafter
Total
6. Borrowings:
$
$
1,402
880
750
707
758
—
4,497
The Company's borrowings consisted of the following as of the dates indicated (amounts in thousands):
subject to no default or event of default, cash dividends and distributions during any fiscal year cannot exceed $20.0
Americas revolving credit
Europe revolving credit
Term loans
Convertible senior notes
Less: Debt discount and issuance costs
Total
December 31,
2019
December 31,
2018
$
772,037
$
1,017,465
425,000
632,500
2,847,002
(38,577)
$
2,808,425
$
598,279
561,882
740,551
632,500
2,533,212
(59,556)
2,473,656
The following principal payments are due on the Company's borrowings at December 31, 2019 for the years ending
December 31, (amounts in thousands):
2020
2021
2022
2023
2024 and thereafter
Total
$
$
298,603
1,028,568
1,174,831
345,000
—
2,847,002
The Company believes it was in compliance with the covenants of its financing arrangements as of December 31, 2019.
(cid:49)orth American Revolving Credit and Term Loan
On May 5, 2017, the Company amended and restated its existing credit agreement (as amended, and modified from time to
time, the “(cid:49)orth American Credit Agreement”) with Bank of America, (cid:49).A., as administrative agent, Bank of America, (cid:49)ational
Association, acting through its Canada branch, as the Canadian administrative agent, and a syndicate of lenders named therein. In
the fourth quarter of 2018, the Company entered into a First Amendment (the "First Amendment") to the (cid:49)orth American Credit
Agreement which, among other things, increased the domestic revolving credit facility by $363.0 million and expanded the
accordion feature to allow the Company to increase the original principal amount of the commitments under the (cid:49)orth American
Credit Agreement by an additional $500.0 million, subject to certain terms and conditions. The total credit facility under the (cid:49)orth
American Credit Agreement includes an aggregate principal amount of $1,543.0 million (subject to compliance with a borrowing
base and applicable debt covenants), which consists of (i) a fully-funded $425.0 million term loan, (ii) a $1,068.0 million domestic
revolving credit facility and (iii) a $50.0 million Canadian revolving credit facility. The facility includes an accordion feature for
up to $500.0 million in additional commitments (at the option of the lender) and also provides for up to $25.0 million of letters of
credit and a $25.0 million swingline loan sublimit that would reduce amounts available for borrowing. The term and revolving
loans accrue interest, at the option of the Company, at either the base rate or the Eurodollar rate (as defined in the (cid:49)orth American
Credit Agreement) for the applicable term plus 2.50% per annum in the case of the Eurodollar rate loans and 1.50% in the case of
the base rate loans. The base rate is the highest of (a) the Federal Funds Rate (as defined in the (cid:49)orth American Credit Agreement)
plus 0.50%, (b) Bank of America's prime rate or (c) the one-month Eurodollar rate plus 1.00%. Canadian Prime Rate Loans bear
62
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•
•
•
•
•
•
•
•
fee of 0.375% per annum, payable quarterly in arrears. The loans under the (cid:49)orth American Credit Agreement mature May 5,
2022. As of December 31, 2019, the unused portion of the (cid:49)orth American Credit Agreement was $349.2 million. Considering
borrowing base restrictions as of December 31, 2019, the amount available to be drawn was $146.5 million.
The (cid:49)orth American Credit Agreement is secured by a first priority lien on substantially all of the Company's (cid:49)orth American
assets. The (cid:49)orth American Credit Agreement contains restrictive covenants and events of default including the following:
•
borrowings under each of the domestic revolving loan facility and the Canadian revolving loan facility are subject to
separate borrowing base calculations and may not exceed 35% of the ERC of all domestic or Canadian, as applicable,
core eligible asset pools, plus 55% of the ERC of domestic or Canadian, as applicable, insolvency eligible asset pools,
plus 75% of domestic or Canadian, as applicable, eligible accounts receivable;
the consolidated total leverage ratio cannot exceed 2.75 to 1.0 as of the end of any fiscal quarter;
the consolidated senior secured leverage ratio cannot exceed 2.25 to 1.0 as of the end of any fiscal quarter;
million;
of the prior year's consolidated net income;
permitted acquisitions by non-loan parties);
subject to no default or event of default, stock repurchases during any fiscal year cannot exceed $100.0 million plus 50%
permitted acquisitions during any fiscal year cannot exceed $250.0 million (with a $50.0 million per year sublimit for
indebtedness in the form of senior, unsecured convertible notes or other unsecured financings cannot exceed $750.0
million in the aggregate (without respect to the 2020 (cid:49)otes);
the Company must maintain positive consolidated income from operations during any fiscal quarter; and
restrictions on changes in control.
The outstanding balances and weighted average interest rates by type of borrowing under the credit facility as of the dates
indicated are as follows (dollar amounts in thousands):
December 31, 2019
December 31, 2018
Amount Outstanding
Amount Outstanding
Weighted Average
Interest Rate
Weighted Average
Interest Rate
Term loan
$
Revolving credit facilities
425,000
768,800
4.30% $
4.31%
435,000
598,279
5.02%
4.97%
European Revolving Credit Facility
On October 23, 2014, European subsidiaries of the Company ("PRA Europe") entered into a credit agreement with D(cid:49)B
Bank ASA for a Multicurrency Revolving Credit Facility (such agreement as later amended or modified, the "European Credit
Agreement"). In the first quarter of 2019, the Company entered into the Fifth Amendment and Restatement Agreement to its
European Credit Agreement which, among other things, merged the term loan facility with the revolving credit facility and increased
all applicable margins for the interest payable under the multicurrency revolving credit facility by 5 basis points.
Under the terms of the European Credit Agreement, the credit facility includes an aggregate amount of approximately $1.1
billion (subject to the borrowing base), accrues interest at the Interbank Offered Rate ("IBOR") plus 2.70% - 3.80% (as determined
by the LTV Ratio as defined in the European Credit Agreement), bears an unused line fee, currently 1.23% per annum, of 35% of
the margin, is payable monthly in arrears, and matures February 19, 2021. The European Credit Agreement also includes an
overdraft facility in the aggregate amount of $40.0 million (subject to the borrowing base), which accrues interest (per currency)
at the daily rates as published by the facility agent, bears a facility line fee of 0.125% per quarter, payable quarterly in arrears, and
matures February 19, 2021. As of December 31, 2019, the unused portion of the European Credit Agreement (including the
overdraft facility) was $122.5 million. Considering borrowing base restrictions and other covenants as of December 31, 2019, the
amount available to be drawn under the European Credit Agreement (including the overdraft facility) was $121.8 million.
The European Credit Agreement is secured by the shares of most of the Company's European subsidiaries and all intercompany
loans receivable in Europe. The European Credit Agreement contains restrictive covenants and events of default including the
following:
•
•
•
the LTV Ratio cannot exceed 75%;
the gross interest-bearing debt ratio in Europe cannot exceed 3.25 to 1.0 as of the end of any fiscal quarter;
interest bearing deposits in AK (cid:49)ordic AB cannot exceed SEK 1.2 billion; and
PRA Group, Inc.
(cid:49)otes to Consolidated Financial Statements
PRA Group, Inc.
(cid:49)otes to Consolidated Financial Statements
interest at a rate per annum equal to the Canadian Prime Rate plus 1.50%. The revolving credit facilities also bear an unused line
fee of 0.375% per annum, payable quarterly in arrears. The loans under the (cid:49)orth American Credit Agreement mature May 5,
2022. As of December 31, 2019, the unused portion of the (cid:49)orth American Credit Agreement was $349.2 million. Considering
borrowing base restrictions as of December 31, 2019, the amount available to be drawn was $146.5 million.
The (cid:49)orth American Credit Agreement is secured by a first priority lien on substantially all of the Company's (cid:49)orth American
assets. The (cid:49)orth American Credit Agreement contains restrictive covenants and events of default including the following:
•
•
•
•
•
•
•
•
•
borrowings under each of the domestic revolving loan facility and the Canadian revolving loan facility are subject to
separate borrowing base calculations and may not exceed 35% of the ERC of all domestic or Canadian, as applicable,
core eligible asset pools, plus 55% of the ERC of domestic or Canadian, as applicable, insolvency eligible asset pools,
plus 75% of domestic or Canadian, as applicable, eligible accounts receivable;
the consolidated total leverage ratio cannot exceed 2.75 to 1.0 as of the end of any fiscal quarter;
the consolidated senior secured leverage ratio cannot exceed 2.25 to 1.0 as of the end of any fiscal quarter;
subject to no default or event of default, cash dividends and distributions during any fiscal year cannot exceed $20.0
million;
subject to no default or event of default, stock repurchases during any fiscal year cannot exceed $100.0 million plus 50%
of the prior year's consolidated net income;
permitted acquisitions during any fiscal year cannot exceed $250.0 million (with a $50.0 million per year sublimit for
permitted acquisitions by non-loan parties);
indebtedness in the form of senior, unsecured convertible notes or other unsecured financings cannot exceed $750.0
million in the aggregate (without respect to the 2020 (cid:49)otes);
the Company must maintain positive consolidated income from operations during any fiscal quarter; and
restrictions on changes in control.
The outstanding balances and weighted average interest rates by type of borrowing under the credit facility as of the dates
indicated are as follows (dollar amounts in thousands):
December 31, 2019
December 31, 2018
The future amortization of intangible assets is estimated to be as follows for the years ending December 31, (amounts in
The Company's borrowings consisted of the following as of the dates indicated (amounts in thousands):
thousands):
2020
2021
2022
2023
2024
Thereafter
Total
6. Borrowings:
Total
2020
2021
2022
2023
Total
2024 and thereafter
Americas revolving credit
Europe revolving credit
Term loans
Convertible senior notes
Less: Debt discount and issuance costs
December 31,
2019
December 31,
2018
$
772,037
$
1,017,465
425,000
632,500
2,847,002
(38,577)
$
2,808,425
$
$
$
$
$
1,402
880
750
707
758
—
4,497
598,279
561,882
740,551
632,500
2,533,212
(59,556)
2,473,656
298,603
1,028,568
1,174,831
345,000
—
2,847,002
The following principal payments are due on the Company's borrowings at December 31, 2019 for the years ending
December 31, (amounts in thousands):
Term loan
Revolving credit facilities
$
Amount Outstanding
425,000
768,800
European Revolving Credit Facility
Weighted Average
Interest Rate
5.02%
4.97%
Amount Outstanding
435,000
598,279
Weighted Average
Interest Rate
The Company believes it was in compliance with the covenants of its financing arrangements as of December 31, 2019.
(cid:49)orth American Revolving Credit and Term Loan
On May 5, 2017, the Company amended and restated its existing credit agreement (as amended, and modified from time to
time, the “(cid:49)orth American Credit Agreement”) with Bank of America, (cid:49).A., as administrative agent, Bank of America, (cid:49)ational
Association, acting through its Canada branch, as the Canadian administrative agent, and a syndicate of lenders named therein. In
the fourth quarter of 2018, the Company entered into a First Amendment (the "First Amendment") to the (cid:49)orth American Credit
Agreement which, among other things, increased the domestic revolving credit facility by $363.0 million and expanded the
accordion feature to allow the Company to increase the original principal amount of the commitments under the (cid:49)orth American
Credit Agreement by an additional $500.0 million, subject to certain terms and conditions. The total credit facility under the (cid:49)orth
American Credit Agreement includes an aggregate principal amount of $1,543.0 million (subject to compliance with a borrowing
base and applicable debt covenants), which consists of (i) a fully-funded $425.0 million term loan, (ii) a $1,068.0 million domestic
revolving credit facility and (iii) a $50.0 million Canadian revolving credit facility. The facility includes an accordion feature for
up to $500.0 million in additional commitments (at the option of the lender) and also provides for up to $25.0 million of letters of
credit and a $25.0 million swingline loan sublimit that would reduce amounts available for borrowing. The term and revolving
loans accrue interest, at the option of the Company, at either the base rate or the Eurodollar rate (as defined in the (cid:49)orth American
Credit Agreement) for the applicable term plus 2.50% per annum in the case of the Eurodollar rate loans and 1.50% in the case of
the base rate loans. The base rate is the highest of (a) the Federal Funds Rate (as defined in the (cid:49)orth American Credit Agreement)
plus 0.50%, (b) Bank of America's prime rate or (c) the one-month Eurodollar rate plus 1.00%. Canadian Prime Rate Loans bear
On October 23, 2014, European subsidiaries of the Company ("PRA Europe") entered into a credit agreement with D(cid:49)B
Bank ASA for a Multicurrency Revolving Credit Facility (such agreement as later amended or modified, the "European Credit
Agreement"). In the first quarter of 2019, the Company entered into the Fifth Amendment and Restatement Agreement to its
European Credit Agreement which, among other things, merged the term loan facility with the revolving credit facility and increased
all applicable margins for the interest payable under the multicurrency revolving credit facility by 5 basis points.
Under the terms of the European Credit Agreement, the credit facility includes an aggregate amount of approximately $1.1
billion (subject to the borrowing base), accrues interest at the Interbank Offered Rate ("IBOR") plus 2.70% - 3.80% (as determined
by the LTV Ratio as defined in the European Credit Agreement), bears an unused line fee, currently 1.23% per annum, of 35% of
the margin, is payable monthly in arrears, and matures February 19, 2021. The European Credit Agreement also includes an
overdraft facility in the aggregate amount of $40.0 million (subject to the borrowing base), which accrues interest (per currency)
at the daily rates as published by the facility agent, bears a facility line fee of 0.125% per quarter, payable quarterly in arrears, and
matures February 19, 2021. As of December 31, 2019, the unused portion of the European Credit Agreement (including the
overdraft facility) was $122.5 million. Considering borrowing base restrictions and other covenants as of December 31, 2019, the
amount available to be drawn under the European Credit Agreement (including the overdraft facility) was $121.8 million.
The European Credit Agreement is secured by the shares of most of the Company's European subsidiaries and all intercompany
loans receivable in Europe. The European Credit Agreement contains restrictive covenants and events of default including the
following:
•
•
•
the LTV Ratio cannot exceed 75%;
the gross interest-bearing debt ratio in Europe cannot exceed 3.25 to 1.0 as of the end of any fiscal quarter;
interest bearing deposits in AK (cid:49)ordic AB cannot exceed SEK 1.2 billion; and
62
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4.30% $
4.31%
PRA Group, Inc.
(cid:49)otes to Consolidated Financial Statements
PRA Group, Inc.
(cid:49)otes to Consolidated Financial Statements
•
PRA Europe's cash collections must meet certain thresholds, measured on a quarterly basis.
The outstanding balances and weighted average interest rates by type of borrowing under the European Credit Agreement
as the dates indicated are as follows (dollar amounts in thousands):
December 31, 2019
December 31, 2018
Term loan
Revolving credit facility
Amount Outstanding
—
$
1,017,465
Colombian Revolving Credit Facility
Weighted Average
Interest Rate
—% $
4.31%
Amount Outstanding
305,551
561,882
Weighted Average
Interest Rate
3.75%
4.10%
On September 17, 2019, PRA Group Colombia Holding SAS ("PRA Colombia"), entered into a credit agreement with
Bancolombia in an aggregate amount of approximately $6.0 million. As of December 31, 2019, the outstanding balance under
the credit agreement was approximately $3.2 million, with a weighted average interest rate of 7.13%. The outstanding balance
accrues interest at the Indicador Bancario de Referencia rate ("IBR") plus a weighted average spread of 2.74%, is payable quarterly
in arrears, amortizes quarterly, and matures on October 17, 2022 (per the credit agreement, maturity represents three years from
the last draw). This credit facility is fully collateralized using time deposits with Bancolombia which are subject to certain limitations
regarding withdrawal and usage and are included within other assets on the consolidated balance sheet. As of December 31, 2019,
the unused portion of the Colombia Credit Agreement was $2.8 million.
Convertible Senior (cid:49)otes due 2020
On August 13, 2013, the Company completed the private offering of $287.5 million in aggregate principal amount of its
3.00% Convertible Senior (cid:49)otes due August 1, 2020 (the "2020 (cid:49)otes"). The 2020 (cid:49)otes were issued pursuant to an Indenture,
dated August 13, 2013 (the "2013 Indenture"), between the Company and Regions Bank, as successor trustee. The 2013 Indenture
contains customary terms and covenants, including certain events of default after which the 2020 (cid:49)otes may be due and payable
immediately. The 2020 (cid:49)otes are senior unsecured obligations of the Company. Interest on the 2020 (cid:49)otes is payable semi-annually,
in arrears, on February 1 and August 1 of each year, beginning on February 1, 2014. Prior to February 1, 2020, the 2020 (cid:49)otes
will be convertible only upon the occurrence of specified events. As of December 31, 2019, the the Company did not have the
right to redeem the 2020 (cid:49)otes and the Company did not believe that any of the conditions allowing holders of the 2020 (cid:49)otes to
convert their notes had occurred. All conversions occurring on or after February 1, 2020, shall be settled using the Settlement
Method as defined in the indenture.
The conversion rate for the 2020 (cid:49)otes is initially 15.2172 shares per $1,000 principal amount of 2020 (cid:49)otes, which is
equivalent to an initial conversion price of approximately $65.72 per share of the Company's common stock and is subject to
adjustment in certain circumstances pursuant to the 2013 Indenture. Upon conversion, holders of the 2020 (cid:49)otes will receive cash,
shares of the Company's common stock or a combination of cash and shares of the Company's common stock, at the Company's
election. The Company's intent is to settle conversions through combination settlement (i.e., the 2020 (cid:49)otes would be converted
into cash up to the aggregate principal amount and shares of the Company's common stock or a combination of cash and shares
of the Company's common stock, at the Company's election, for the remainder). As a result, and in accordance with authoritative
guidance related to derivatives and hedging and earnings per share, only the conversion spread is included in the diluted earnings
per share calculation, if dilutive. Under such method, the settlement of the conversion spread has a dilutive effect when the average
share price of the Company's common stock during any quarter exceeds $65.72.
The Company determined that the fair value of the 2020 (cid:49)otes at the date of issuance was approximately $255.3 million and
designated the residual value of approximately $32.2 million as the equity component. Additionally, the Company allocated
approximately $7.3 million of the $8.2 million issuance cost as debt issuance cost and the remaining $0.9 million as equity issuance
cost.
Convertible Senior (cid:49)otes due 2023
On May 26, 2017, the Company completed the private offering of $345.0 million in aggregate principal amount of its 3.50%
Convertible Senior (cid:49)otes due June 1, 2023 (the "2023 (cid:49)otes" and, together with the 2020 (cid:49)otes, the "(cid:49)otes"). The 2023 (cid:49)otes
were issued pursuant to an Indenture, dated May 26, 2017 (the "2017 Indenture"), between the Company and Regions Bank, as
trustee. The 2017 Indenture contains customary terms and covenants, including certain events of default after which the 2023
(cid:49)otes may be due and payable immediately. The 2023 (cid:49)otes are senior unsecured obligations of the Company. Interest on the
64
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2023 (cid:49)otes is payable semi-annually, in arrears, on June 1 and December 1 of each year, beginning on December 1, 2017. Prior
to March 1, 2023, the 2023 (cid:49)otes will be convertible only upon the occurrence of specified events. On or after March 1, 2023, the
2023 (cid:49)otes will be convertible at any time. The Company has the right, at its election, to redeem all or any part of the outstanding
2023 (cid:49)otes at any time on or after June 1, 2021 for cash, but only if the last reported sale price (as defined in the 2017 Indenture)
exceeds 130% of the conversion price on each of at least 20 trading days during the 30 consecutive trading days ending on and
including the trading day immediately before the date the Company sends the related redemption notice. As of December 31, 2019,
the Company does not believe that any of the conditions allowing holders of the 2023 (cid:49)otes to convert their notes had occurred.
The conversion rate for the 2023 (cid:49)otes is initially 21.6275 shares per $1,000 principal amount of 2023 (cid:49)otes, which is
equivalent to an initial conversion price of approximately $46.24 per share of the Company's common stock and is subject to
adjustment in certain circumstances pursuant to the 2017 Indenture. Upon conversion, holders of the 2023 (cid:49)otes will receive cash,
shares of the Company's common stock or a combination of cash and shares of the Company's common stock, at the Company's
election. The Company's intent is to settle conversions through combination settlement (i.e., the 2023 (cid:49)otes would be converted
into cash up to the aggregate principal amount and shares of the Company's common stock or a combination of cash and shares
of the Company's common stock, at the Company's election, for the remainder). As a result, and in accordance with authoritative
guidance related to derivatives and hedging and earnings per share, only the conversion spread is included in the diluted earnings
per share calculation, if dilutive. Under such method, the settlement of the conversion spread has a dilutive effect when the average
share price of the Company's common stock during any quarter exceeds $46.24.
The Company determined that the fair value of the 2023 (cid:49)otes at the date of issuance was approximately $298.8 million and
designated the residual value of approximately $46.2 million as the equity component. Additionally, the Company allocated
approximately $8.3 million of the $9.6 million issuance cost as debt issuance cost and the remaining $1.3 million as equity issuance
The balances of the liability and equity components of the (cid:49)otes outstanding were as follows as of the dates indicated
cost.
(amounts in thousands):
Liability component - principal amount
Unamortized debt discount
Liability component - net carrying amount
Equity component
Interest expense - stated coupon rate
Interest expense - amortization of debt discount
Total interest expense - convertible senior notes
Interest Expense, (cid:49)et
The debt discount is being amortized into interest expense over the remaining life of the 2020 (cid:49)otes and the 2023 (cid:49)otes
using the effective interest rate, which is 4.92% and 6.20%, respectively.
Interest expense related to the (cid:49)otes was as follows for the years ended December 31, 2019, 2018 and 2017 (amounts in
thousands):
December 31,
2019
December 31,
2018
$
$
$
632,500
(31,414)
601,086
76,216
$
$
$
632,500
(43,812)
588,688
76,216
2019
2018
2017
20,700
$
20,700
$
12,398
11,725
33,098
$
32,425
$
15,870
8,583
24,453
$
$
$
$
The Company incurs interest expense on its borrowings, interest-bearing deposits, and interest rate derivative agreements.
The Company earns interest income on certain of its cash and cash equivalents and its interest rate derivative agreements. Interest
expense, net, was as follows for the years ended December 31, 2019, 2018 and 2017 (amounts in thousands):
Interest expense
Interest (income)
Interest expense, net
2019
2018
2017
144,165
(2,247)
141,918
$
$
124,208
(3,130)
121,078
$
$
103,653
(5,612)
98,041
•
PRA Europe's cash collections must meet certain thresholds, measured on a quarterly basis.
The outstanding balances and weighted average interest rates by type of borrowing under the European Credit Agreement
as the dates indicated are as follows (dollar amounts in thousands):
December 31, 2019
December 31, 2018
Amount Outstanding
Amount Outstanding
Weighted Average
Interest Rate
Weighted Average
Interest Rate
Term loan
Revolving credit facility
$
—
1,017,465
—% $
4.31%
305,551
561,882
3.75%
4.10%
Colombian Revolving Credit Facility
On September 17, 2019, PRA Group Colombia Holding SAS ("PRA Colombia"), entered into a credit agreement with
Bancolombia in an aggregate amount of approximately $6.0 million. As of December 31, 2019, the outstanding balance under
the credit agreement was approximately $3.2 million, with a weighted average interest rate of 7.13%. The outstanding balance
accrues interest at the Indicador Bancario de Referencia rate ("IBR") plus a weighted average spread of 2.74%, is payable quarterly
in arrears, amortizes quarterly, and matures on October 17, 2022 (per the credit agreement, maturity represents three years from
the last draw). This credit facility is fully collateralized using time deposits with Bancolombia which are subject to certain limitations
regarding withdrawal and usage and are included within other assets on the consolidated balance sheet. As of December 31, 2019,
the unused portion of the Colombia Credit Agreement was $2.8 million.
Convertible Senior (cid:49)otes due 2020
On August 13, 2013, the Company completed the private offering of $287.5 million in aggregate principal amount of its
3.00% Convertible Senior (cid:49)otes due August 1, 2020 (the "2020 (cid:49)otes"). The 2020 (cid:49)otes were issued pursuant to an Indenture,
dated August 13, 2013 (the "2013 Indenture"), between the Company and Regions Bank, as successor trustee. The 2013 Indenture
contains customary terms and covenants, including certain events of default after which the 2020 (cid:49)otes may be due and payable
immediately. The 2020 (cid:49)otes are senior unsecured obligations of the Company. Interest on the 2020 (cid:49)otes is payable semi-annually,
in arrears, on February 1 and August 1 of each year, beginning on February 1, 2014. Prior to February 1, 2020, the 2020 (cid:49)otes
will be convertible only upon the occurrence of specified events. As of December 31, 2019, the the Company did not have the
right to redeem the 2020 (cid:49)otes and the Company did not believe that any of the conditions allowing holders of the 2020 (cid:49)otes to
convert their notes had occurred. All conversions occurring on or after February 1, 2020, shall be settled using the Settlement
Method as defined in the indenture.
The conversion rate for the 2020 (cid:49)otes is initially 15.2172 shares per $1,000 principal amount of 2020 (cid:49)otes, which is
equivalent to an initial conversion price of approximately $65.72 per share of the Company's common stock and is subject to
adjustment in certain circumstances pursuant to the 2013 Indenture. Upon conversion, holders of the 2020 (cid:49)otes will receive cash,
shares of the Company's common stock or a combination of cash and shares of the Company's common stock, at the Company's
election. The Company's intent is to settle conversions through combination settlement (i.e., the 2020 (cid:49)otes would be converted
into cash up to the aggregate principal amount and shares of the Company's common stock or a combination of cash and shares
of the Company's common stock, at the Company's election, for the remainder). As a result, and in accordance with authoritative
guidance related to derivatives and hedging and earnings per share, only the conversion spread is included in the diluted earnings
per share calculation, if dilutive. Under such method, the settlement of the conversion spread has a dilutive effect when the average
share price of the Company's common stock during any quarter exceeds $65.72.
The Company determined that the fair value of the 2020 (cid:49)otes at the date of issuance was approximately $255.3 million and
designated the residual value of approximately $32.2 million as the equity component. Additionally, the Company allocated
approximately $7.3 million of the $8.2 million issuance cost as debt issuance cost and the remaining $0.9 million as equity issuance
cost.
Convertible Senior (cid:49)otes due 2023
PRA Group, Inc.
(cid:49)otes to Consolidated Financial Statements
PRA Group, Inc.
(cid:49)otes to Consolidated Financial Statements
2023 (cid:49)otes is payable semi-annually, in arrears, on June 1 and December 1 of each year, beginning on December 1, 2017. Prior
to March 1, 2023, the 2023 (cid:49)otes will be convertible only upon the occurrence of specified events. On or after March 1, 2023, the
2023 (cid:49)otes will be convertible at any time. The Company has the right, at its election, to redeem all or any part of the outstanding
2023 (cid:49)otes at any time on or after June 1, 2021 for cash, but only if the last reported sale price (as defined in the 2017 Indenture)
exceeds 130% of the conversion price on each of at least 20 trading days during the 30 consecutive trading days ending on and
including the trading day immediately before the date the Company sends the related redemption notice. As of December 31, 2019,
the Company does not believe that any of the conditions allowing holders of the 2023 (cid:49)otes to convert their notes had occurred.
The conversion rate for the 2023 (cid:49)otes is initially 21.6275 shares per $1,000 principal amount of 2023 (cid:49)otes, which is
equivalent to an initial conversion price of approximately $46.24 per share of the Company's common stock and is subject to
adjustment in certain circumstances pursuant to the 2017 Indenture. Upon conversion, holders of the 2023 (cid:49)otes will receive cash,
shares of the Company's common stock or a combination of cash and shares of the Company's common stock, at the Company's
election. The Company's intent is to settle conversions through combination settlement (i.e., the 2023 (cid:49)otes would be converted
into cash up to the aggregate principal amount and shares of the Company's common stock or a combination of cash and shares
of the Company's common stock, at the Company's election, for the remainder). As a result, and in accordance with authoritative
guidance related to derivatives and hedging and earnings per share, only the conversion spread is included in the diluted earnings
per share calculation, if dilutive. Under such method, the settlement of the conversion spread has a dilutive effect when the average
share price of the Company's common stock during any quarter exceeds $46.24.
The Company determined that the fair value of the 2023 (cid:49)otes at the date of issuance was approximately $298.8 million and
designated the residual value of approximately $46.2 million as the equity component. Additionally, the Company allocated
approximately $8.3 million of the $9.6 million issuance cost as debt issuance cost and the remaining $1.3 million as equity issuance
cost.
The balances of the liability and equity components of the (cid:49)otes outstanding were as follows as of the dates indicated
(amounts in thousands):
Liability component - principal amount
Unamortized debt discount
Liability component - net carrying amount
Equity component
December 31,
2019
December 31,
2018
$
$
$
632,500
(31,414)
601,086
76,216
$
$
$
632,500
(43,812)
588,688
76,216
The debt discount is being amortized into interest expense over the remaining life of the 2020 (cid:49)otes and the 2023 (cid:49)otes
using the effective interest rate, which is 4.92% and 6.20%, respectively.
Interest expense related to the (cid:49)otes was as follows for the years ended December 31, 2019, 2018 and 2017 (amounts in
thousands):
Interest expense - stated coupon rate
Interest expense - amortization of debt discount
Total interest expense - convertible senior notes
Interest Expense, (cid:49)et
2019
2018
2017
$
$
20,700
$
20,700
$
12,398
11,725
33,098
$
32,425
$
15,870
8,583
24,453
The Company incurs interest expense on its borrowings, interest-bearing deposits, and interest rate derivative agreements.
The Company earns interest income on certain of its cash and cash equivalents and its interest rate derivative agreements. Interest
expense, net, was as follows for the years ended December 31, 2019, 2018 and 2017 (amounts in thousands):
On May 26, 2017, the Company completed the private offering of $345.0 million in aggregate principal amount of its 3.50%
Convertible Senior (cid:49)otes due June 1, 2023 (the "2023 (cid:49)otes" and, together with the 2020 (cid:49)otes, the "(cid:49)otes"). The 2023 (cid:49)otes
were issued pursuant to an Indenture, dated May 26, 2017 (the "2017 Indenture"), between the Company and Regions Bank, as
trustee. The 2017 Indenture contains customary terms and covenants, including certain events of default after which the 2023
(cid:49)otes may be due and payable immediately. The 2023 (cid:49)otes are senior unsecured obligations of the Company. Interest on the
Interest expense
Interest (income)
Interest expense, net
64
65
2019
2018
2017
$
$
144,165
(2,247)
141,918
$
$
124,208
(3,130)
121,078
$
$
103,653
(5,612)
98,041
fp0052934_PRA_10k_2020_combined4.indd 67
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PRA Group, Inc.
(cid:49)otes to Consolidated Financial Statements
PRA Group, Inc.
(cid:49)otes to Consolidated Financial Statements
7. Property and Equipment, net:
The carrying amounts in the table are recorded in the consolidated balance sheets at December 31, 2019 and December 31,
Property and equipment, at cost, consisted of the following as of December 31, 2019 and 2018 (amounts in thousands):
Software
Computer equipment
Furniture and fixtures
Equipment
Leasehold improvements
Building and improvements
Land
Accumulated depreciation and amortization
Assets in process
Property and equipment, net
2019
2018
$
62,758
$
20,847
16,324
13,869
16,709
7,900
1,296
(93,207)
10,005
$
56,501
$
64,670
22,153
16,061
12,390
16,556
7,431
1,296
(92,877)
6,456
54,136
Depreciation and amortization expense relating to property and equipment for the years ended December 31, 2019, 2018
and 2017 was $15.9 million, $15.1 million and $15.4 million, respectively.
8. Fair Value:
As defined by ASC 820, fair value is the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date. ASC 820 also requires the consideration of differing
levels of inputs in the determination of fair values.
Those levels of input are summarized as follows:
• Level 1: Quoted prices in active markets for identical assets and liabilities.
• Level 2: Observable inputs other than Level 1 quoted prices, such as quoted prices for similar instruments in active
markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation
techniques for which all significant assumptions are observable in the market.
• Level 3: Unobservable inputs that are supported by little or no market activity. Level 3 assets and liabilities include
financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar
techniques as well as instruments for which the determination of fair value requires significant management judgment
or estimation.
The level in the fair value hierarchy within which a fair value measurement in its entirety falls is based on the lowest level
input that is significant to the fair value measurement in its entirety.
Financial Instruments (cid:49)ot Required To Be Carried at Fair Value
In accordance with the disclosure requirements of ASC Topic 825, "Financial Instruments" ("ASC 825"), the table below
summarizes fair value estimates for the Company's financial instruments that are not required to be carried at fair value. The total
of the fair value calculations presented does not represent, and should not be construed to represent, the underlying value of the
Company.
2018 (amounts in thousands):
Financial assets:
Cash and cash equivalents
Finance receivables, net
Financial liabilities:
Interest-bearing deposits
Revolving lines of credit
Term loans
Convertible senior notes
December 31, 2019
December 31, 2018
Carrying
Amount
Estimated
Fair Value
Carrying
Amount
Estimated
Fair Value
119,774
3,514,165
106,246
1,789,502
425,000
601,086
119,774
$
98,695
$
98,695
3,645,610
3,084,777
3,410,475
106,246
1,789,502
425,000
648,968
82,666
1,160,161
740,551
588,688
82,666
1,160,161
740,551
557,122
Disclosure of the estimated fair values of financial instruments often requires the use of estimates. The carrying amount and
estimates of the fair value of the Company's debt obligations outlined above do not include any related debt issuance costs associated
with the debt obligations. The Company uses the following methods and assumptions to estimate the fair value of financial
instruments:
Cash and cash equivalents: The carrying amount approximates fair value and quoted prices for identical assets in active
markets. Accordingly, the Company estimates the fair value of cash and cash equivalents using Level 1 inputs.
Finance receivables, net: The Company estimates the fair value of these receivables using proprietary pricing models that
the Company utilizes to make portfolio acquisition decisions. Accordingly, the Company's fair value estimates use Level 3 inputs
as there is little observable market data available and management is required to use significant judgment in its estimates.
Interest-bearing deposits: The carrying amount approximates fair value due to the short-term nature of the deposits and
the observable quoted prices for similar instruments in active markets. Accordingly, the Company uses Level 2 inputs for its fair
Revolving lines of credit: The carrying amount approximates fair value due to the short-term nature of the interest rate
periods and the observable quoted prices for similar instruments in active markets. Accordingly, the Company uses Level 2 inputs
Term loans: The carrying amount approximates fair value due to the short-term nature of the interest rate periods and the
observable quoted prices for similar instruments in active markets. Accordingly, the Company uses Level 2 inputs for its fair value
Convertible senior notes: The fair value estimates for the (cid:49)otes incorporate quoted market prices which were obtained
from secondary market broker quotes which were derived from a variety of inputs including client orders, information from their
pricing vendors, modeling software, and actual trading prices when they occur. Accordingly, the Company uses Level 2 inputs for
its fair value estimates. Furthermore, in the table above, carrying amount represents the portion of the (cid:49)otes classified as debt,
while estimated fair value pertains to the face amount of the (cid:49)otes.
value estimates.
for its fair value estimates.
estimates.
66
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PRA Group, Inc.
(cid:49)otes to Consolidated Financial Statements
PRA Group, Inc.
(cid:49)otes to Consolidated Financial Statements
7. Property and Equipment, net:
The carrying amounts in the table are recorded in the consolidated balance sheets at December 31, 2019 and December 31,
Property and equipment, at cost, consisted of the following as of December 31, 2019 and 2018 (amounts in thousands):
2019
2018
$
62,758
$
20,847
16,324
13,869
16,709
7,900
1,296
(93,207)
10,005
$
56,501
$
64,670
22,153
16,061
12,390
16,556
7,431
1,296
(92,877)
6,456
54,136
Software
Computer equipment
Furniture and fixtures
Equipment
Leasehold improvements
Building and improvements
Land
Assets in process
Property and equipment, net
8. Fair Value:
Accumulated depreciation and amortization
Depreciation and amortization expense relating to property and equipment for the years ended December 31, 2019, 2018
and 2017 was $15.9 million, $15.1 million and $15.4 million, respectively.
As defined by ASC 820, fair value is the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date. ASC 820 also requires the consideration of differing
levels of inputs in the determination of fair values.
Those levels of input are summarized as follows:
• Level 1: Quoted prices in active markets for identical assets and liabilities.
• Level 2: Observable inputs other than Level 1 quoted prices, such as quoted prices for similar instruments in active
markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation
techniques for which all significant assumptions are observable in the market.
• Level 3: Unobservable inputs that are supported by little or no market activity. Level 3 assets and liabilities include
financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar
techniques as well as instruments for which the determination of fair value requires significant management judgment
or estimation.
The level in the fair value hierarchy within which a fair value measurement in its entirety falls is based on the lowest level
input that is significant to the fair value measurement in its entirety.
Financial Instruments (cid:49)ot Required To Be Carried at Fair Value
In accordance with the disclosure requirements of ASC Topic 825, "Financial Instruments" ("ASC 825"), the table below
summarizes fair value estimates for the Company's financial instruments that are not required to be carried at fair value. The total
of the fair value calculations presented does not represent, and should not be construed to represent, the underlying value of the
Company.
2018 (amounts in thousands):
Financial assets:
Cash and cash equivalents
Finance receivables, net
Financial liabilities:
Interest-bearing deposits
Revolving lines of credit
Term loans
Convertible senior notes
December 31, 2019
December 31, 2018
Carrying
Amount
Estimated
Fair Value
Carrying
Amount
Estimated
Fair Value
119,774
3,514,165
106,246
1,789,502
425,000
601,086
119,774
$
98,695
$
98,695
3,645,610
3,084,777
3,410,475
106,246
1,789,502
425,000
648,968
82,666
1,160,161
740,551
588,688
82,666
1,160,161
740,551
557,122
Disclosure of the estimated fair values of financial instruments often requires the use of estimates. The carrying amount and
estimates of the fair value of the Company's debt obligations outlined above do not include any related debt issuance costs associated
with the debt obligations. The Company uses the following methods and assumptions to estimate the fair value of financial
instruments:
Cash and cash equivalents: The carrying amount approximates fair value and quoted prices for identical assets in active
markets. Accordingly, the Company estimates the fair value of cash and cash equivalents using Level 1 inputs.
Finance receivables, net: The Company estimates the fair value of these receivables using proprietary pricing models that
the Company utilizes to make portfolio acquisition decisions. Accordingly, the Company's fair value estimates use Level 3 inputs
as there is little observable market data available and management is required to use significant judgment in its estimates.
Interest-bearing deposits: The carrying amount approximates fair value due to the short-term nature of the deposits and
the observable quoted prices for similar instruments in active markets. Accordingly, the Company uses Level 2 inputs for its fair
value estimates.
Revolving lines of credit: The carrying amount approximates fair value due to the short-term nature of the interest rate
periods and the observable quoted prices for similar instruments in active markets. Accordingly, the Company uses Level 2 inputs
for its fair value estimates.
Term loans: The carrying amount approximates fair value due to the short-term nature of the interest rate periods and the
observable quoted prices for similar instruments in active markets. Accordingly, the Company uses Level 2 inputs for its fair value
estimates.
Convertible senior notes: The fair value estimates for the (cid:49)otes incorporate quoted market prices which were obtained
from secondary market broker quotes which were derived from a variety of inputs including client orders, information from their
pricing vendors, modeling software, and actual trading prices when they occur. Accordingly, the Company uses Level 2 inputs for
its fair value estimates. Furthermore, in the table above, carrying amount represents the portion of the (cid:49)otes classified as debt,
while estimated fair value pertains to the face amount of the (cid:49)otes.
66
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PRA Group, Inc.
(cid:49)otes to Consolidated Financial Statements
PRA Group, Inc.
(cid:49)otes to Consolidated Financial Statements
Financial Instruments Required To Be Carried At Fair Value
The carrying amounts in the following table are measured at fair value on a recurring basis in the accompanying consolidated
The following table summarizes the fair value of derivative instruments in the consolidated balance sheets (amounts in
balance sheets at December 31, 2019 and 2018 (amounts in thousands):
Assets:
Available-for-sale investments
Government bonds
Fair value through net income investments
Mutual funds
Derivative contracts (recorded in other assets)
Liabilities:
Derivative contracts (recorded in other liabilities)
Assets:
Available-for-sale investments
Government bonds
Fair value through net income investments
Mutual funds
Derivative contracts (recorded in other assets)
Available-for-sale investments
Fair Value Measurements as of December 31, 2019
Level 1
Level 2
Level 3
Total
$
5,052
$
— $
— $
5,052
33,677
—
—
—
875
23,663
—
—
—
33,677
875
23,663
Fair Value Measurements as of December 31, 2018
Level 1
Level 2
Level 3
Total
$
$
$
$
5,077
21,753
—
— $
— $
5,077
— $
3,334
— $
—
21,753
3,334
Government bonds: Fair value of the Company's investment in government bonds is estimated using quoted market prices.
Accordingly, the Company uses Level 1 inputs.
Fair value through net income investments
Mutual funds: Fair value of the Company's investment in mutual funds is estimated using quoted market prices. Accordingly,
the Company uses Level 1 inputs.
Derivative contracts: The estimated fair value of the derivative contracts is determined using industry standard valuation
models. These models project future cash flows and discount the future amounts to a present value using market-based observable
inputs, including interest rate curves and other factors. Accordingly, the Company uses Level 2 inputs for its fair value estimates.
Effective in the second quarter of 2018, the Company began to apply hedge accounting to certain of its derivative contracts. By
applying hedge accounting, changes in market value are reflected as adjustments in other comprehensive income. The hedges were
evaluated and remained highly effective at December 31, 2019 and have initial terms of two to seven years.
Investments measured using net asset value
Private equity funds: This class of investments consists of private equity funds that invest primarily in loans and securities
including single-family residential debt; corporate debt products; and financially-oriented, real estate-rich and other operating
companies in the Americas, Western Europe, and Japan. These investments are subject to certain restrictions regarding transfers
and withdrawals. The investments cannot be redeemed with the funds. Instead, the nature of the investments in this class is that
distributions are received through the liquidation of the underlying assets of the fund. The investments are expected to be returned
through distributions as a result of liquidations of the funds' underlying assets over one to six years. The fair value of these private
equity funds following the application of the (cid:49)AV practical expedient was $7.2 million and $8.0 million as of December 31, 2019
and December 31, 2018, respectively.
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9. Derivatives:
thousands):
Derivatives designated as hedging instruments:
Derivatives not designated as hedging instruments:
Interest rate contracts
Interest rate contracts
Foreign currency contracts
Foreign currency contracts
Interest rate contracts
Derivatives designated as hedging instruments:
December 31, 2019
December 31, 2018
Balance Sheet
Location
Fair Value
Balance Sheet
Location
Fair Value
Other assets
$
323 Other assets
$
Other liabilities
17,807 Other liabilities
Other assets
Other liabilities
Other assets
552 Other assets
5,856 Other liabilities
— Other assets
44
—
2,555
—
735
Changes in the fair value of derivative contracts designated as cash flow hedging instruments are recognized in other
comprehensive income ("OCI"). As of December 31, 2019 and December 31, 2018, the notional amount of interest rate contracts
designated as cash flow hedging instruments was $959.0 million and $260.8 million, respectively. Derivatives designated as cash
flow hedging instruments were evaluated and remained highly effective at December 31, 2019 and have initial terms of two to
seven years. The Company estimates that approximately $3.4 million of net derivative loss included in OCI will be reclassified
into earnings within the next 12 months.
The following table summarizes the effects of derivatives designated as cash flow hedging instruments on the consolidated
financial statements for the years ended December 31, 2019, 2018 and 2017 (amounts in thousands):
Derivatives designated as cash flow hedging instruments
2019
2018
2017
Interest rate contracts
$
(14,311) $
44
$
—
Gain or (loss) recognized in OCI, net of tax
Gain or (loss) reclassified from OCI into income
Location of gain or (loss) reclassified from OCI into income
2019
2018
2017
Interest expense, net
$
(1,457) $
— $
—
Derivatives not designated as hedging instruments:
Changes in fair value of derivative contracts not designated as hedging instruments are recognized in earnings. As of
December 31, 2019, the Company no longer had interest rate swap contracts not designated as hedging instruments. As
of December 31, 2018, the notional amount of interest rate contracts not designated as hedging instruments was $169.7 million.
The Company also enters into foreign currency contracts to economically hedge the foreign currency re-measurement exposure
related to certain balances that are denominated in currencies other than the functional currency of the entity. As of December 31,
2019 and December 31, 2018, the notional amount of foreign currency contracts that are not designated as hedging instruments
was $469.9 million and $144.7 million, respectively.
Fair Value Measurements as of December 31, 2019
Level 1
Level 2
Level 3
Total
$
5,052
$
— $
— $
5,052
33,677
—
—
—
875
23,663
—
—
—
33,677
875
23,663
Fair Value Measurements as of December 31, 2018
Level 1
Level 2
Level 3
Total
$
$
$
$
5,077
— $
— $
5,077
21,753
—
— $
3,334
— $
—
21,753
3,334
Assets:
Available-for-sale investments
Government bonds
Fair value through net income investments
Mutual funds
Liabilities:
Derivative contracts (recorded in other assets)
Derivative contracts (recorded in other liabilities)
Assets:
Available-for-sale investments
Government bonds
Fair value through net income investments
Mutual funds
Derivative contracts (recorded in other assets)
Available-for-sale investments
Accordingly, the Company uses Level 1 inputs.
Fair value through net income investments
Government bonds: Fair value of the Company's investment in government bonds is estimated using quoted market prices.
Mutual funds: Fair value of the Company's investment in mutual funds is estimated using quoted market prices. Accordingly,
the Company uses Level 1 inputs.
Derivative contracts: The estimated fair value of the derivative contracts is determined using industry standard valuation
models. These models project future cash flows and discount the future amounts to a present value using market-based observable
Effective in the second quarter of 2018, the Company began to apply hedge accounting to certain of its derivative contracts. By
applying hedge accounting, changes in market value are reflected as adjustments in other comprehensive income. The hedges were
evaluated and remained highly effective at December 31, 2019 and have initial terms of two to seven years.
Investments measured using net asset value
Private equity funds: This class of investments consists of private equity funds that invest primarily in loans and securities
including single-family residential debt; corporate debt products; and financially-oriented, real estate-rich and other operating
companies in the Americas, Western Europe, and Japan. These investments are subject to certain restrictions regarding transfers
and withdrawals. The investments cannot be redeemed with the funds. Instead, the nature of the investments in this class is that
distributions are received through the liquidation of the underlying assets of the fund. The investments are expected to be returned
through distributions as a result of liquidations of the funds' underlying assets over one to six years. The fair value of these private
equity funds following the application of the (cid:49)AV practical expedient was $7.2 million and $8.0 million as of December 31, 2019
and December 31, 2018, respectively.
PRA Group, Inc.
(cid:49)otes to Consolidated Financial Statements
PRA Group, Inc.
(cid:49)otes to Consolidated Financial Statements
Financial Instruments Required To Be Carried At Fair Value
9. Derivatives:
The carrying amounts in the following table are measured at fair value on a recurring basis in the accompanying consolidated
The following table summarizes the fair value of derivative instruments in the consolidated balance sheets (amounts in
balance sheets at December 31, 2019 and 2018 (amounts in thousands):
thousands):
December 31, 2019
December 31, 2018
Balance Sheet
Location
Fair Value
Balance Sheet
Location
Fair Value
Derivatives designated as hedging instruments:
Interest rate contracts
Interest rate contracts
Other assets
$
323 Other assets
$
Other liabilities
17,807 Other liabilities
Derivatives not designated as hedging instruments:
Foreign currency contracts
Foreign currency contracts
Interest rate contracts
Other assets
Other liabilities
Other assets
552 Other assets
5,856 Other liabilities
— Other assets
44
—
2,555
—
735
Derivatives designated as hedging instruments:
Changes in the fair value of derivative contracts designated as cash flow hedging instruments are recognized in other
comprehensive income ("OCI"). As of December 31, 2019 and December 31, 2018, the notional amount of interest rate contracts
designated as cash flow hedging instruments was $959.0 million and $260.8 million, respectively. Derivatives designated as cash
flow hedging instruments were evaluated and remained highly effective at December 31, 2019 and have initial terms of two to
seven years. The Company estimates that approximately $3.4 million of net derivative loss included in OCI will be reclassified
into earnings within the next 12 months.
The following table summarizes the effects of derivatives designated as cash flow hedging instruments on the consolidated
financial statements for the years ended December 31, 2019, 2018 and 2017 (amounts in thousands):
Gain or (loss) recognized in OCI, net of tax
Derivatives designated as cash flow hedging instruments
2019
2018
2017
Interest rate contracts
$
(14,311) $
44
$
—
Location of gain or (loss) reclassified from OCI into income
2019
2018
2017
Interest expense, net
$
(1,457) $
— $
—
Gain or (loss) reclassified from OCI into income
inputs, including interest rate curves and other factors. Accordingly, the Company uses Level 2 inputs for its fair value estimates.
Derivatives not designated as hedging instruments:
Changes in fair value of derivative contracts not designated as hedging instruments are recognized in earnings. As of
December 31, 2019, the Company no longer had interest rate swap contracts not designated as hedging instruments. As
of December 31, 2018, the notional amount of interest rate contracts not designated as hedging instruments was $169.7 million.
The Company also enters into foreign currency contracts to economically hedge the foreign currency re-measurement exposure
related to certain balances that are denominated in currencies other than the functional currency of the entity. As of December 31,
2019 and December 31, 2018, the notional amount of foreign currency contracts that are not designated as hedging instruments
was $469.9 million and $144.7 million, respectively.
68
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PRA Group, Inc.
(cid:49)otes to Consolidated Financial Statements
PRA Group, Inc.
(cid:49)otes to Consolidated Financial Statements
The following table summarizes the effects of derivatives not designated as hedging instruments on the Company’s
Total share-based compensation expense was $10.7 million, $8.5 million and $8.7 million for the years ended December 31,
consolidated income statements for the years ended December 31, 2019, 2018 and 2017 (amounts in thousands):
Derivatives not designated as hedging instruments
Location of gain or (loss) recognized in
income
2019
2018
2017
(cid:49)onvested Shares
Amount of gain or (loss) recognized in income
Foreign currency contracts
Foreign currency contracts
Interest rate contracts
Foreign exchange gain/(loss)
$
(7,008) $
4,011
$
Interest expense, net
Interest expense, net
(3,875)
(492)
(549)
2,082
—
—
—
10. Accumulated Other Comprehensive Loss:
The following table provides details about the reclassifications out of accumulated other comprehensive loss for the year
ended December 31, 2019 (amounts in thousands):
Gains and losses on cash flow hedges
2019
Affected line in the consolidated income statement
Interest rate swaps
Income tax effect of item above
Total losses on cash flow hedges
$
$
(1,457)
Interest expense, net
278
Income tax expense/(benefit)
(1,179) (cid:49)et of tax
The following table represents the changes in accumulated other comprehensive loss by component after tax, for the years
ended December 31, 2019, 2018 and 2017 (amounts in thousands):
2019, 2018 and 2017, respectively. The Company recognizes all excess tax benefits and tax deficiencies in the income statement
when the awards vest or are settled. The total tax benefit realized from share-based compensation was approximately $1.2 million,
$1.7 million and $3.2 million for the years ended December 31, 2019, 2018 and 2017, respectively.
As of December 31, 2019, total future compensation expense related to grants of nonvested share grants to employees and
directors (not including nonvested shares granted under the Long-Term Incentive ("LTI") program), is estimated to be $8.6 million
with a weighted average remaining life for all nonvested shares of 1.6 years. Grants made to key employees and directors of the
Company were assumed to have no forfeiture rates associated with them due to the historically low turnover among this group.
With the exception of the grants made pursuant to the LTI program and a few employee and director grants, the nonvested shares
vest ratably generally over one to three years and are expensed over their vesting period.
The following summarizes all nonvested share activity, excluding those related to the LTI program, from December 31, 2016
through December 31, 2019 (amounts in thousands, except per share amounts):
December 31, 2016
December 31, 2017
December 31, 2018
Granted
Vested
Canceled
Granted
Vested
Canceled
Granted
Vested
Canceled
December 31, 2019
(cid:49)onvested Shares
Outstanding
Weighted-Average
Price at Grant Date
$
303
195
(173)
(27)
298
254
(151)
(22)
379
329
(167)
(9)
532
$
38.19
33.70
37.49
43.05
35.25
36.39
35.13
35.02
34.85
28.47
34.81
31.01
30.97
The total grant date fair value of shares vested, excluding those granted under the LTI program, during the years ended
December 31, 2019, 2018 and 2017, was $5.8 million, $5.3 million and $6.5 million, respectively.
Long-Term Incentive Program
Pursuant to the Plan, the Compensation Committee may grant time-vested and performance-based nonvested shares. All
shares granted under the LTI program were granted to key employees of the Company.
Ending balance December 31, 2016
Other comprehensive loss before
reclassifications
Reclassifications, net
(cid:49)et current period other
comprehensive loss
73,337
—
73,337
(178,607) $
—
(63,463)
—
Debt Securities
Available-for-Sale
Cash Flow Hedges
Currency Translation
Adjustments
Accumulated Other
Comprehensive Loss (1)
(251,944)
$
— $
— $
—
—
—
— $
(251,944) $
Ending balance December 31, 2017
$
Reclassification of unrealized loss on
debt securities
Other comprehensive loss before
reclassifications
Reclassifications, net
(cid:49)et current period other
comprehensive loss
Ending balance December 31, 2018
Other comprehensive loss before
reclassifications
$
Reclassifications, net
(cid:49)et current period other
comprehensive loss
Ending balance December 31, 2019
$
—
—
—
— $
(22)
(61)
—
(83)
(83) $
39
—
—
44
—
44
44
(63,463)
(242,070) $
$
(14,311)
1,179
(5,816)
—
39
(44) $
(13,132)
(13,088) $
(5,816)
(247,886) $
73,337
—
73,337
(178,607)
(22)
(63,480)
—
(63,502)
(242,109)
(20,088)
1,179
(18,909)
(261,018)
(1) (cid:49)et of a $4.4 million deferred tax benefit for unrealized losses from cash flow hedges for the year ended December 31,
2019.
11. Share-Based Compensation:
The Company has an Omnibus Incentive Plan (the "Plan") that is intended to assist the Company in attracting and retaining
selected individuals to serve as employees and directors, who are expected to contribute to the Company's success and to achieve
long-term objectives that will benefit stockholders of the Company. The Plan enables the Company to award shares of the Company's
common stock to select employees and directors, not to exceed 5,400,000 shares as authorized by the Plan.
70
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PRA Group, Inc.
(cid:49)otes to Consolidated Financial Statements
PRA Group, Inc.
(cid:49)otes to Consolidated Financial Statements
The following table summarizes the effects of derivatives not designated as hedging instruments on the Company’s
consolidated income statements for the years ended December 31, 2019, 2018 and 2017 (amounts in thousands):
Amount of gain or (loss) recognized in income
Total share-based compensation expense was $10.7 million, $8.5 million and $8.7 million for the years ended December 31,
2019, 2018 and 2017, respectively. The Company recognizes all excess tax benefits and tax deficiencies in the income statement
when the awards vest or are settled. The total tax benefit realized from share-based compensation was approximately $1.2 million,
$1.7 million and $3.2 million for the years ended December 31, 2019, 2018 and 2017, respectively.
Derivatives not designated as hedging instruments
income
2019
2018
2017
Location of gain or (loss) recognized in
(cid:49)onvested Shares
Foreign currency contracts
Foreign currency contracts
Interest rate contracts
Foreign exchange gain/(loss)
$
(7,008) $
4,011
$
Interest expense, net
Interest expense, net
(3,875)
(492)
(549)
2,082
—
—
—
10. Accumulated Other Comprehensive Loss:
The following table provides details about the reclassifications out of accumulated other comprehensive loss for the year
ended December 31, 2019 (amounts in thousands):
Gains and losses on cash flow hedges
2019
Affected line in the consolidated income statement
Interest rate swaps
Income tax effect of item above
Total losses on cash flow hedges
$
$
(1,457)
Interest expense, net
278
Income tax expense/(benefit)
(1,179) (cid:49)et of tax
The following table represents the changes in accumulated other comprehensive loss by component after tax, for the years
ended December 31, 2019, 2018 and 2017 (amounts in thousands):
Ending balance December 31, 2016
$
— $
— $
(251,944) $
(251,944)
Debt Securities
Currency Translation
Accumulated Other
Available-for-Sale
Cash Flow Hedges
Adjustments
Comprehensive Loss (1)
Ending balance December 31, 2017
$
— $
— $
(178,607) $
—
—
—
(22)
(61)
—
(83)
39
—
39
—
—
—
—
44
—
44
44
(14,311)
1,179
(13,132)
(13,088) $
73,337
—
73,337
—
—
(63,463)
(63,463)
(5,816)
—
(5,816)
73,337
—
73,337
(178,607)
(22)
(63,480)
—
(63,502)
(242,109)
(20,088)
1,179
(18,909)
(261,018)
Other comprehensive loss before
reclassifications
Reclassifications, net
(cid:49)et current period other
comprehensive loss
Reclassification of unrealized loss on
debt securities
Other comprehensive loss before
reclassifications
Reclassifications, net
(cid:49)et current period other
comprehensive loss
Other comprehensive loss before
reclassifications
Reclassifications, net
(cid:49)et current period other
comprehensive loss
2019.
11. Share-Based Compensation:
Ending balance December 31, 2019
$
(44) $
(247,886) $
(1) (cid:49)et of a $4.4 million deferred tax benefit for unrealized losses from cash flow hedges for the year ended December 31,
The Company has an Omnibus Incentive Plan (the "Plan") that is intended to assist the Company in attracting and retaining
selected individuals to serve as employees and directors, who are expected to contribute to the Company's success and to achieve
long-term objectives that will benefit stockholders of the Company. The Plan enables the Company to award shares of the Company's
common stock to select employees and directors, not to exceed 5,400,000 shares as authorized by the Plan.
Ending balance December 31, 2018
$
(83) $
$
(242,070) $
As of December 31, 2019, total future compensation expense related to grants of nonvested share grants to employees and
directors (not including nonvested shares granted under the Long-Term Incentive ("LTI") program), is estimated to be $8.6 million
with a weighted average remaining life for all nonvested shares of 1.6 years. Grants made to key employees and directors of the
Company were assumed to have no forfeiture rates associated with them due to the historically low turnover among this group.
With the exception of the grants made pursuant to the LTI program and a few employee and director grants, the nonvested shares
vest ratably generally over one to three years and are expensed over their vesting period.
The following summarizes all nonvested share activity, excluding those related to the LTI program, from December 31, 2016
through December 31, 2019 (amounts in thousands, except per share amounts):
December 31, 2016
Granted
Vested
Canceled
December 31, 2017
Granted
Vested
Canceled
December 31, 2018
Granted
Vested
Canceled
December 31, 2019
(cid:49)onvested Shares
Outstanding
Weighted-Average
Price at Grant Date
$
303
195
(173)
(27)
298
254
(151)
(22)
379
329
(167)
(9)
532
$
38.19
33.70
37.49
43.05
35.25
36.39
35.13
35.02
34.85
28.47
34.81
31.01
30.97
The total grant date fair value of shares vested, excluding those granted under the LTI program, during the years ended
December 31, 2019, 2018 and 2017, was $5.8 million, $5.3 million and $6.5 million, respectively.
Long-Term Incentive Program
Pursuant to the Plan, the Compensation Committee may grant time-vested and performance-based nonvested shares. All
shares granted under the LTI program were granted to key employees of the Company.
70
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PRA Group, Inc.
(cid:49)otes to Consolidated Financial Statements
PRA Group, Inc.
(cid:49)otes to Consolidated Financial Statements
The following table summarizes all LTI share activity from December 31, 2016 through December 31, 2019 (amounts in
13. Income Taxes:
thousands, except per share amounts):
December 31, 2016
Granted at target level
Adjustments for actual performance
Vested
Canceled
December 31, 2017
Granted at target level
Adjustments for actual performance
Vested
Canceled
December 31, 2018
Granted at target level
Adjustments for actual performance
Vested
Canceled
December 31, 2019
(cid:49)onvested LTI Shares
Outstanding
Weighted-Average
Price at Grant Date
following (amounts in thousands):
The income tax expense/(benefit) recognized for the years ended December 31, 2019, 2018 and 2017 is comprised of the
$
425
192
5
(51)
(99)
472
121
(74)
(19)
(46)
454
168
(172)
—
(3)
447
$
39.57
33.50
60.00
40.80
20.91
41.06
39.40
52.47
52.47
32.31
33.27
28.28
28.98
—
35.87
33.03
The total grant date fair value of LTI shares vested during the years ended December 31, 2019, 2018 and 2017, was
$0.0 million, $1.0 million and $2.1 million, respectively.
At December 31, 2019, total future compensation expense, assuming the current estimated performance levels are achieved,
related to nonvested shares granted under the LTI program is estimated to be approximately $4.5 million. The Company assumed
a 15.0% forfeiture rate for these grants and the remaining shares have a weighted average remaining life of 1.2 years at December 31,
2019.
12. Earnings per Share:
Basic earnings per share ("EPS") are computed by dividing net income available to common stockholders of PRA Group,
Inc. by weighted average common shares outstanding. Diluted EPS are computed using the same components as basic EPS with
the denominator adjusted for the dilutive effect of the conversion spread of the (cid:49)otes and nonvested share awards, if dilutive.
There has been no dilutive effect of the (cid:49)otes since issuance through December 31, 2019. Share-based awards that are contingent
upon the attainment of performance goals are included in the computation of diluted EPS if the effect is dilutive. The dilutive
effect of nonvested shares is computed using the treasury stock method, which assumes any proceeds that could be obtained upon
the vesting of nonvested shares would be used to purchase common shares at the average market price for the period.
The following table provides a reconciliation between the computation of basic EPS and diluted EPS for the years ended
December 31, 2019, 2018 and 2017 (amounts in thousands, except per share amounts):
(cid:49)et Income
Attributable
to PRA
Group, Inc.
2019
Weighted
Average
Common
Shares
(cid:49)et Income
Attributable
to PRA
Group, Inc.
EPS
2018
Weighted
Average
Common
Shares
(cid:49)et Income
Attributable
to PRA
Group, Inc.
EPS
2017
Weighted
Average
Common
Shares
EPS
Basic EPS
$
86,158
45,387
$
1.90
$
65,563
45,280
$
1.45
$ 164,315
45,671
$
3.60
Dilutive effect of
nonvested share awards
—
190
(0.01)
—
133
(0.01)
—
152
(0.01)
Diluted EPS
$
86,158
45,577
$
1.89
$
65,563
45,413
$
1.44
$ 164,315
45,823
$
3.59
There were no antidilutive options outstanding as of December 31, 2019, 2018 and 2017.
72
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For the year ended December 31, 2019:
Current tax expense
Deferred tax (benefit)
Total income tax expense
For the year ended December 31, 2018:
Current tax expense
Deferred tax (benefit)
Total income tax expense/(benefit)
For the year ended December 31, 2017:
Current tax expense
Deferred tax (benefit)
Total income tax (benefit)/expense
Federal
State
International
Total
41,391
(27,311)
14,080
23,444
(19,527)
3,917
$
$
$
$
$
$
$
$
$
$
$
6,390
(6,030)
360
9,026
(15,268)
9,460
(4,220)
5,240
$
$
37,501
$
(21,413)
(6,242) $
16,088
$
57,241
(37,561)
19,680
69,971
(56,208)
13,763
$
$
$
$
$
77,656
(112,118)
(34,462) $
16,543
(2,051)
14,492
25,087
$
119,286
(15,969)
9,118
$
(130,138)
(10,852)
On December 22, 2017, the United States government enacted comprehensive tax legislation commonly referred to as the
“Tax Act.” The main impact of the Tax Act was a reduction of the U.S. federal corporate tax rate from 35% to 21% and the current
taxation of international entities. (cid:49)ew legislation and authoritative guidance on the Tax Act is still being released that may impact
tax amounts recorded in the financial statements. Under U.S. GAAP, the Company made an accounting policy election to treat
taxes due related to GILTI as a current-period expense when incurred.
A reconciliation of the Company's expected tax expense at the statutory federal tax rate to actual tax expense/(benefit) for
the years ended December 31, 2019, 2018 and 2017 is as follows (amounts in thousands):
Income tax expense at statutory federal rates
State tax expense/(benefit), net of federal tax benefit
Tax impact on international earnings
Federal rate change
Other
2019
2018
2017
$
24,645
$
18,794
$
161
(7,326)
—
2,200
(5,098)
206
(719)
580
56,095
9,072
(4,953)
(73,779)
2,713
Total income tax expense/(benefit)
$
19,680
$
13,763
$
(10,852)
PRA Group, Inc.
(cid:49)otes to Consolidated Financial Statements
PRA Group, Inc.
(cid:49)otes to Consolidated Financial Statements
The following table summarizes all LTI share activity from December 31, 2016 through December 31, 2019 (amounts in
13. Income Taxes:
(cid:49)onvested LTI Shares
Outstanding
Weighted-Average
Price at Grant Date
following (amounts in thousands):
The income tax expense/(benefit) recognized for the years ended December 31, 2019, 2018 and 2017 is comprised of the
$
425
192
5
(51)
(99)
472
121
(74)
(19)
(46)
454
168
(172)
—
(3)
447
$
39.57
33.50
60.00
40.80
20.91
41.06
39.40
52.47
52.47
32.31
33.27
28.28
28.98
—
35.87
33.03
For the year ended December 31, 2019:
Current tax expense
Deferred tax (benefit)
Total income tax expense
For the year ended December 31, 2018:
Current tax expense
Deferred tax (benefit)
Total income tax expense/(benefit)
For the year ended December 31, 2017:
Current tax expense
Deferred tax (benefit)
Total income tax (benefit)/expense
Federal
State
International
Total
$
$
$
$
$
$
41,391
(27,311)
14,080
23,444
(19,527)
3,917
77,656
(112,118)
$
$
$
$
$
(34,462) $
$
$
$
6,390
(6,030)
360
9,026
(15,268)
9,460
(4,220)
5,240
$
$
37,501
$
(21,413)
(6,242) $
16,088
$
57,241
(37,561)
19,680
69,971
(56,208)
13,763
16,543
(2,051)
14,492
$
$
25,087
$
119,286
(15,969)
9,118
$
(130,138)
(10,852)
On December 22, 2017, the United States government enacted comprehensive tax legislation commonly referred to as the
“Tax Act.” The main impact of the Tax Act was a reduction of the U.S. federal corporate tax rate from 35% to 21% and the current
taxation of international entities. (cid:49)ew legislation and authoritative guidance on the Tax Act is still being released that may impact
tax amounts recorded in the financial statements. Under U.S. GAAP, the Company made an accounting policy election to treat
taxes due related to GILTI as a current-period expense when incurred.
A reconciliation of the Company's expected tax expense at the statutory federal tax rate to actual tax expense/(benefit) for
the years ended December 31, 2019, 2018 and 2017 is as follows (amounts in thousands):
Income tax expense at statutory federal rates
State tax expense/(benefit), net of federal tax benefit
Tax impact on international earnings
Federal rate change
Other
$
24,645
$
161
(7,326)
—
2,200
$
18,794
(5,098)
206
(719)
580
Total income tax expense/(benefit)
$
19,680
$
13,763
$
56,095
9,072
(4,953)
(73,779)
2,713
(10,852)
2019
2018
2017
thousands, except per share amounts):
Adjustments for actual performance
Adjustments for actual performance
December 31, 2016
Granted at target level
Vested
Canceled
December 31, 2017
Granted at target level
Vested
Canceled
December 31, 2018
Granted at target level
Vested
Canceled
December 31, 2019
Adjustments for actual performance
The total grant date fair value of LTI shares vested during the years ended December 31, 2019, 2018 and 2017, was
$0.0 million, $1.0 million and $2.1 million, respectively.
At December 31, 2019, total future compensation expense, assuming the current estimated performance levels are achieved,
related to nonvested shares granted under the LTI program is estimated to be approximately $4.5 million. The Company assumed
a 15.0% forfeiture rate for these grants and the remaining shares have a weighted average remaining life of 1.2 years at December 31,
2019.
12. Earnings per Share:
Basic earnings per share ("EPS") are computed by dividing net income available to common stockholders of PRA Group,
Inc. by weighted average common shares outstanding. Diluted EPS are computed using the same components as basic EPS with
the denominator adjusted for the dilutive effect of the conversion spread of the (cid:49)otes and nonvested share awards, if dilutive.
There has been no dilutive effect of the (cid:49)otes since issuance through December 31, 2019. Share-based awards that are contingent
upon the attainment of performance goals are included in the computation of diluted EPS if the effect is dilutive. The dilutive
effect of nonvested shares is computed using the treasury stock method, which assumes any proceeds that could be obtained upon
the vesting of nonvested shares would be used to purchase common shares at the average market price for the period.
The following table provides a reconciliation between the computation of basic EPS and diluted EPS for the years ended
December 31, 2019, 2018 and 2017 (amounts in thousands, except per share amounts):
(cid:49)et Income
Attributable
to PRA
Group, Inc.
2019
Weighted
Average
Common
Shares
(cid:49)et Income
Attributable
to PRA
Group, Inc.
EPS
2018
Weighted
Average
Common
Shares
(cid:49)et Income
Attributable
to PRA
Group, Inc.
EPS
2017
Weighted
Average
Common
Shares
EPS
Basic EPS
$
86,158
45,387
$
1.90
$
65,563
45,280
$
1.45
$ 164,315
45,671
$
3.60
Dilutive effect of
nonvested share awards
Diluted EPS
$
86,158
45,577
$
1.89
$
65,563
45,413
$
1.44
$ 164,315
45,823
$
3.59
—
190
(0.01)
—
133
(0.01)
—
152
(0.01)
There were no antidilutive options outstanding as of December 31, 2019, 2018 and 2017.
72
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PRA Group, Inc.
(cid:49)otes to Consolidated Financial Statements
PRA Group, Inc.
(cid:49)otes to Consolidated Financial Statements
The Company recognized a net deferred tax liability of $22.2 million and $53.5 million as of December 31, 2019 and 2018,
The Company's international subsidiaries had $401.5 million and $116.8 million of net operating loss carryforwards as of
respectively. The components of the net deferred tax liability are as follows (amounts in thousands):
Deferred tax assets:
Employee compensation
(cid:49)et operating loss carryforward
Accrued liabilities
Interest
Finance receivable revenue recognition - international
Right of use asset
Other
Valuation allowance
Total deferred tax asset
Deferred tax liabilities:
Property and Equipment
Intangible assets and goodwill
Lease liability
Convertible debt
Finance receivable revenue recognition - IRS settlement
Finance receivable revenue recognition - domestic
Total deferred tax liability
(cid:49)et deferred tax liability
As of December 31,
2019
2018
$
6,085
93,068
—
10,477
21,343
16,045
12,009
(80,739)
78,288
(5,362)
(2,999)
(15,107)
(7,843)
(36,959)
(32,183)
(100,453)
(22,165) $
4,670
24,210
1,850
10,559
37,005
—
2,721
(14,512)
66,503
(5,556)
(5,435)
—
(10,998)
(74,296)
(23,744)
(120,029)
(53,526)
$
$
A valuation allowance for deferred tax assets is recognized and charged to earnings in the period such determination is made,
if it is determined that it is more likely than not that the deferred tax asset will not be realized. If the Company subsequently realized
deferred tax assets that were previously determined to be unrealizable, the respective valuation allowance would be reversed,
resulting in a positive adjustment to earnings in the period such determination is made. The determination for a valuation allowance
is made on a jurisdiction by jurisdiction basis. At December 31, 2019 and 2018, the valuation allowance, relating mainly to net
operating losses, capital losses and deferred interest expense in (cid:49)orway, Poland, and Luxembourg, was $80.7 million and $14.5
million respectively. The increase in the valuation allowance is primarily due to recording net operating losses in Luxembourg
that were interpreted to be restricted by law. The Company believes it is more likely than not that the results of future operations
will generate sufficient taxable income to realize the remaining net deferred tax assets.
On May 10, 2017, the Company reached a settlement with the Internal Revenue Service ("IRS") regarding the IRS assertion
that tax revenue recognition using the cost recovery method did not clearly reflect taxable income. In accordance with the settlement,
the Company changed its tax accounting method used to recognize finance receivables revenue effective with tax year 2017. Under
the new method, a portion of the annual collections amortizes principal and the remaining portion is taxable income. The deferred
tax liability related to the difference in timing between the new method and the cost recovery method will be incorporated evenly
into the Company’s tax filings over four years effective with tax year 2017. The Company was not required to pay any interest
or penalties in connection with the settlement.
ASC 740 requires the recognition of interest if the tax law would require interest to be paid on the underpayment of taxes,
and recognition of penalties if a tax position does not meet the minimum statutory threshold to avoid payment of penalties. The
Company believes it has sufficient support for the technical merits of its positions and that it is more likely than not these positions
will be sustained. Accordingly, the Company has not accrued for interest or penalties on any of its tax positions.
At December 31, 2019, the tax years subject to examination by the major federal, state and international taxing jurisdictions
are 2014 and subsequent years.
As of December 31, 2019, the cumulative unremitted earnings of the Company's international subsidiaries were approximately
$52.3 million. The Company intends for predominantly all international earnings to be indefinitely reinvested in its international
operations and, therefore, the recording of deferred tax liabilities for such unremitted earnings is not required. It is impracticable
to determine the total amount of unrecognized deferred taxes with respect to these indefinitely reinvested earnings.
74
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December 31, 2019 and 2018, respectively. There are $283.7 million and $45.8 million of valuation allowances recorded to offset
those losses as of December 31, 2019 and 2018, respectively. The net operating losses do not expire under most local laws and
the remaining jurisdictions allow for a seven to twenty year carryforward period.
14. Commitments and Contingencies:
Employment Agreements:
The Company has entered into employment agreements, most which expire on December 31, 2020, with all of its U.S.
executive officers and with several members of its U.S. senior management group. Such agreements provide for base salary
payments as well as potential discretionary bonuses that take into consideration the Company's overall performance against its
short and long-term financial and strategic objectives. As of December 31, 2019, estimated future compensation under these
agreements was approximately $8.0 million. The agreements also contain confidentiality and non-compete provisions. Outside
the U.S., employment agreements are in place with employees pursuant to local country regulations. Generally, these agreements
do not have expiration dates and therefore it is impractical to estimate the amount of future compensation under these agreements.
Accordingly, the future compensation under these agreements is not included in the $8.0 million total above.
The Company is party to various operating leases with respect to its facilities and equipment. The future maturities of lease
liabilities at December 31, 2019 totaled approximately $95.4 million.
The Company is party to several forward flow agreements that allow for the purchase of nonperforming loans at pre-
established prices. The maximum remaining amount to be purchased under forward flow agreements at December 31, 2019 was
Leases:
Forward Flow Agreements:
approximately $506.9 million.
Finance Receivables:
Certain agreements for the purchase of finance receivables portfolios contain provisions that may, in limited circumstances,
require the Company to refund a portion or all of the collections subsequently received by the Company on particular accounts.
The potential refunds as of the balance sheet date are not considered to be significant.
Litigation and Regulatory Matters:
The Company and its 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 the Company's business. The Company initiates lawsuits
against customers and is 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 the Company in which they
allege that the Company has 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 the Company. Additionally, the Company receives subpoenas and other requests or demands
for information from regulators or governmental authorities who are investigating the Company's debt collection activities.
The Company accrues for potential liability arising from legal proceedings and regulatory matters when it is probable that
such liability has been incurred and the amount of the loss can be reasonably estimated. This determination is based upon currently
available information for those proceedings in which the Company is involved, taking into account the Company's best estimate
of such losses for those cases for which such estimates can be made. The Company's estimate involves significant judgment, given
the varying stages of the proceedings (including the fact that many of them are currently in preliminary stages), the number of
unresolved issues in many of the proceedings (including issues regarding class certification and the scope of many of the claims),
and the related uncertainty of the potential outcomes of these proceedings. In making determinations of the likely outcome of
pending litigation, the Company considers many factors, including, but not limited to, the nature of the claims, the Company's
experience with similar types of claims, the jurisdiction in which the matter is filed, input from outside legal counsel, the likelihood
of resolving the matter through alternative mechanisms, the matter's current status and the damages sought or demands made.
Accordingly, the Company's estimate will change from time to time, and actual losses could be more than the current estimate.
The Company believes that the estimate of the aggregate range of reasonably possible losses in excess of the amount accrued
for its legal proceedings outstanding at December 31, 2019, where the range of loss can be estimated, was not material.
PRA Group, Inc.
(cid:49)otes to Consolidated Financial Statements
PRA Group, Inc.
(cid:49)otes to Consolidated Financial Statements
The Company recognized a net deferred tax liability of $22.2 million and $53.5 million as of December 31, 2019 and 2018,
respectively. The components of the net deferred tax liability are as follows (amounts in thousands):
Finance receivable revenue recognition - international
Deferred tax assets:
Employee compensation
(cid:49)et operating loss carryforward
Accrued liabilities
Interest
Right of use asset
Other
Valuation allowance
Total deferred tax asset
Deferred tax liabilities:
Property and Equipment
Intangible assets and goodwill
Lease liability
Convertible debt
Finance receivable revenue recognition - IRS settlement
Finance receivable revenue recognition - domestic
Total deferred tax liability
(cid:49)et deferred tax liability
As of December 31,
2019
2018
$
6,085
$
93,068
—
10,477
21,343
16,045
12,009
(80,739)
78,288
(5,362)
(2,999)
(15,107)
(7,843)
(36,959)
(32,183)
(100,453)
$
(22,165) $
4,670
24,210
1,850
10,559
37,005
—
2,721
(14,512)
66,503
(5,556)
(5,435)
—
(10,998)
(74,296)
(23,744)
(120,029)
(53,526)
A valuation allowance for deferred tax assets is recognized and charged to earnings in the period such determination is made,
if it is determined that it is more likely than not that the deferred tax asset will not be realized. If the Company subsequently realized
deferred tax assets that were previously determined to be unrealizable, the respective valuation allowance would be reversed,
resulting in a positive adjustment to earnings in the period such determination is made. The determination for a valuation allowance
is made on a jurisdiction by jurisdiction basis. At December 31, 2019 and 2018, the valuation allowance, relating mainly to net
operating losses, capital losses and deferred interest expense in (cid:49)orway, Poland, and Luxembourg, was $80.7 million and $14.5
million respectively. The increase in the valuation allowance is primarily due to recording net operating losses in Luxembourg
that were interpreted to be restricted by law. The Company believes it is more likely than not that the results of future operations
will generate sufficient taxable income to realize the remaining net deferred tax assets.
On May 10, 2017, the Company reached a settlement with the Internal Revenue Service ("IRS") regarding the IRS assertion
that tax revenue recognition using the cost recovery method did not clearly reflect taxable income. In accordance with the settlement,
the Company changed its tax accounting method used to recognize finance receivables revenue effective with tax year 2017. Under
the new method, a portion of the annual collections amortizes principal and the remaining portion is taxable income. The deferred
tax liability related to the difference in timing between the new method and the cost recovery method will be incorporated evenly
into the Company’s tax filings over four years effective with tax year 2017. The Company was not required to pay any interest
or penalties in connection with the settlement.
ASC 740 requires the recognition of interest if the tax law would require interest to be paid on the underpayment of taxes,
and recognition of penalties if a tax position does not meet the minimum statutory threshold to avoid payment of penalties. The
Company believes it has sufficient support for the technical merits of its positions and that it is more likely than not these positions
will be sustained. Accordingly, the Company has not accrued for interest or penalties on any of its tax positions.
At December 31, 2019, the tax years subject to examination by the major federal, state and international taxing jurisdictions
are 2014 and subsequent years.
As of December 31, 2019, the cumulative unremitted earnings of the Company's international subsidiaries were approximately
$52.3 million. The Company intends for predominantly all international earnings to be indefinitely reinvested in its international
operations and, therefore, the recording of deferred tax liabilities for such unremitted earnings is not required. It is impracticable
to determine the total amount of unrecognized deferred taxes with respect to these indefinitely reinvested earnings.
The Company's international subsidiaries had $401.5 million and $116.8 million of net operating loss carryforwards as of
December 31, 2019 and 2018, respectively. There are $283.7 million and $45.8 million of valuation allowances recorded to offset
those losses as of December 31, 2019 and 2018, respectively. The net operating losses do not expire under most local laws and
the remaining jurisdictions allow for a seven to twenty year carryforward period.
14. Commitments and Contingencies:
Employment Agreements:
The Company has entered into employment agreements, most which expire on December 31, 2020, with all of its U.S.
executive officers and with several members of its U.S. senior management group. Such agreements provide for base salary
payments as well as potential discretionary bonuses that take into consideration the Company's overall performance against its
short and long-term financial and strategic objectives. As of December 31, 2019, estimated future compensation under these
agreements was approximately $8.0 million. The agreements also contain confidentiality and non-compete provisions. Outside
the U.S., employment agreements are in place with employees pursuant to local country regulations. Generally, these agreements
do not have expiration dates and therefore it is impractical to estimate the amount of future compensation under these agreements.
Accordingly, the future compensation under these agreements is not included in the $8.0 million total above.
Leases:
The Company is party to various operating leases with respect to its facilities and equipment. The future maturities of lease
liabilities at December 31, 2019 totaled approximately $95.4 million.
Forward Flow Agreements:
The Company is party to several forward flow agreements that allow for the purchase of nonperforming loans at pre-
established prices. The maximum remaining amount to be purchased under forward flow agreements at December 31, 2019 was
approximately $506.9 million.
Finance Receivables:
Certain agreements for the purchase of finance receivables portfolios contain provisions that may, in limited circumstances,
require the Company to refund a portion or all of the collections subsequently received by the Company on particular accounts.
The potential refunds as of the balance sheet date are not considered to be significant.
Litigation and Regulatory Matters:
The Company and its 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 the Company's business. The Company initiates lawsuits
against customers and is 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 the Company in which they
allege that the Company has 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 the Company. Additionally, the Company receives subpoenas and other requests or demands
for information from regulators or governmental authorities who are investigating the Company's debt collection activities.
The Company accrues for potential liability arising from legal proceedings and regulatory matters when it is probable that
such liability has been incurred and the amount of the loss can be reasonably estimated. This determination is based upon currently
available information for those proceedings in which the Company is involved, taking into account the Company's best estimate
of such losses for those cases for which such estimates can be made. The Company's estimate involves significant judgment, given
the varying stages of the proceedings (including the fact that many of them are currently in preliminary stages), the number of
unresolved issues in many of the proceedings (including issues regarding class certification and the scope of many of the claims),
and the related uncertainty of the potential outcomes of these proceedings. In making determinations of the likely outcome of
pending litigation, the Company considers many factors, including, but not limited to, the nature of the claims, the Company's
experience with similar types of claims, the jurisdiction in which the matter is filed, input from outside legal counsel, the likelihood
of resolving the matter through alternative mechanisms, the matter's current status and the damages sought or demands made.
Accordingly, the Company's estimate will change from time to time, and actual losses could be more than the current estimate.
The Company believes that the estimate of the aggregate range of reasonably possible losses in excess of the amount accrued
for its legal proceedings outstanding at December 31, 2019, where the range of loss can be estimated, was not material.
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17. Sales of Subsidiaries:
On December 20, 2018, the Company sold 79% of its interest in RCB, a servicing platform for nonperforming loans in Brazil
for $40.0 million. The Company recognized a pre-tax gain of $26.6 million, which includes a gain of $5.4 million on its 11.7%
retained interest. The Company received 25% of the proceeds in the fourth quarter of 2018 and the remaining 75% in the first
quarter of 2019. The fair value of the retained interest was estimated based on the transaction price. The Company accounts for
its remaining interest in RCB as an equity method investment.
As part of the Company’s strategy to focus on its primary business, the purchase, collection and management of portfolios
of nonperforming loans, the Company sold its government services businesses: PRA Government Services, LLC; MuniServices,
LLC; and PRA Professional Services, LLC in the first quarter of 2017, for $91.5 million in cash plus additional consideration for
certain balance sheet items. The pre-tax gain on sale was approximately $46.8 million.
During the second quarter of 2017, the Company sold its vehicle location, skip tracing and collateral recovery business, PRA
Location Services, LLC, for $4.5 million which resulted in a pre-tax gain on sale of approximately $1.6 million.
PRA Group, Inc.
(cid:49)otes to Consolidated Financial Statements
PRA Group, Inc.
(cid:49)otes to Consolidated Financial Statements
In certain legal proceedings, the Company may have recourse to insurance or third-party contractual indemnities to cover
all or portions of its litigation expenses, judgments, or settlements. Loss estimates and accruals for potential liability related to
legal proceedings are typically exclusive of potential recoveries, if any, under the Company's insurance policies or third-party
indemnities. During the year ended December 31, 2019, the Company recorded $1.0 million in potential recoveries under the
Company's insurance policies or third-party indemnities which is included in other receivables, net at December 31, 2019.
The matters described below fall outside of the normal parameters of the Company's routine legal proceedings.
Multi-State Investigation
On (cid:49)ovember 17, 2015, the Company received civil investigative demands from multiple state Attorney General offices
("AGOs") broadly relating to its U.S. debt collection practices. The Company believes that it has fully cooperated with the
investigations and discussed potential resolution of the investigations with the AGOs. In these discussions, the AGOs have taken
positions with which the Company disagrees, including positions related to penalties, restitution and/or the adoption of new practices
and controls in the conduct of the Company's business. If the Company is unable to resolve its differences with the AGOs, it is
possible that one or more individual state AGOs may file claims against the Company.
As previously reported in the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, the
Company settled certain claims with the Massachusetts Office of the Attorney General on (cid:49)ovember 6, 2019. The range of loss
with respect to the remaining investigations, if any, cannot be estimated at this time.
Iris Pounds v. Portfolio Recovery Associates, LLC
On (cid:49)ovember 21, 2016, Iris Pounds filed suit against the Company in Durham County, (cid:49)orth Carolina alleging violations
of the (cid:49)orth Carolina Prohibited Practices by Collection Agencies Act. The purported class consists of all individuals against
whom the Company had obtained a judgment by default in (cid:49)orth Carolina on or after October 1, 2009. On December 9, 2016, the
Company removed the matter to the United States District Court for the Middle District of (cid:49)orth Carolina (the "District Court").
On March 28, 2018, the District Court entered an order remanding the matter to the (cid:49)orth Carolina state court, which the Fourth
Circuit Court of Appeals affirmed on May 17, 2018. On January 11, 2019, the Company filed motions to compel arbitration with
the (cid:49)orth Carolina state court, which was denied. The Company is seeking review of the (cid:49)orth Carolinas state court's decision to
deny the Company's motion to compel arbitration. The range of loss, if any, cannot be estimated at this time due to the uncertainty
surrounding liability, class certification and the interpretation of statutory damages.
Telephone Consumer Protection Act Litigation
On January 25, 2017, the Company resolved the matter of In Re Portfolio Recovery Associates, LLC Telephone Consumer
Protection Act Litigation, which consisted of a number of class actions and single plaintiff claims consolidated by order of the
Panel for Multi-District Litigation ("MDL"). While the settlement disposed of a large number of claims, several hundred class
members opted out ("Opt-Out Plaintiffs") of that settlement. Many of these Opt-Out Plaintiffs have been consolidated before the
MDL appointed court, the United States District Court for the Southern District of California, and are pending a determination on
cross-motions for summary judgment. The range of loss, if any, cannot be estimated at this time due to the uncertainty surrounding
liability.
15. Retirement Plans:
The Company sponsors defined contribution plans primarily in the U.S. and Europe. The U.S. plan is organized as a 401(k)
plan under which all employees over eighteen years of age are eligible to make voluntary contributions to the plan up to 100% of
their compensation, subject to IRS limitations, after completing six months of service, as defined in the plan. The Company makes
matching contributions of up to 4% of an employee's salary. For the defined contribution plans in Europe, the Company pays
contributions to publicly or privately administered pension insurance plans on a mandatory, contractual or voluntary basis. Total
compensation expense related to the Company's contributions was $5.9 million, $6.3 million and $5.2 million for the years ended
December 31, 2019, 2018 and 2017, respectively.
16. Redeemable (cid:49)oncontrolling Interest:
With the acquisition of DTP S.A. in 2016, the Company acquired a 20% owned Polish securitization fund (the "Fund").
Under ASC 810-10, the Company had determined it had control over this Fund and as such consolidated the operations of the
Fund. As of December 31, 2019, 100% of the ownership interests were redeemed.
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PRA Group, Inc.
(cid:49)otes to Consolidated Financial Statements
PRA Group, Inc.
(cid:49)otes to Consolidated Financial Statements
17. Sales of Subsidiaries:
On December 20, 2018, the Company sold 79% of its interest in RCB, a servicing platform for nonperforming loans in Brazil
for $40.0 million. The Company recognized a pre-tax gain of $26.6 million, which includes a gain of $5.4 million on its 11.7%
retained interest. The Company received 25% of the proceeds in the fourth quarter of 2018 and the remaining 75% in the first
quarter of 2019. The fair value of the retained interest was estimated based on the transaction price. The Company accounts for
its remaining interest in RCB as an equity method investment.
As part of the Company’s strategy to focus on its primary business, the purchase, collection and management of portfolios
of nonperforming loans, the Company sold its government services businesses: PRA Government Services, LLC; MuniServices,
LLC; and PRA Professional Services, LLC in the first quarter of 2017, for $91.5 million in cash plus additional consideration for
certain balance sheet items. The pre-tax gain on sale was approximately $46.8 million.
During the second quarter of 2017, the Company sold its vehicle location, skip tracing and collateral recovery business, PRA
Location Services, LLC, for $4.5 million which resulted in a pre-tax gain on sale of approximately $1.6 million.
In certain legal proceedings, the Company may have recourse to insurance or third-party contractual indemnities to cover
all or portions of its litigation expenses, judgments, or settlements. Loss estimates and accruals for potential liability related to
legal proceedings are typically exclusive of potential recoveries, if any, under the Company's insurance policies or third-party
indemnities. During the year ended December 31, 2019, the Company recorded $1.0 million in potential recoveries under the
Company's insurance policies or third-party indemnities which is included in other receivables, net at December 31, 2019.
The matters described below fall outside of the normal parameters of the Company's routine legal proceedings.
Multi-State Investigation
On (cid:49)ovember 17, 2015, the Company received civil investigative demands from multiple state Attorney General offices
("AGOs") broadly relating to its U.S. debt collection practices. The Company believes that it has fully cooperated with the
investigations and discussed potential resolution of the investigations with the AGOs. In these discussions, the AGOs have taken
positions with which the Company disagrees, including positions related to penalties, restitution and/or the adoption of new practices
and controls in the conduct of the Company's business. If the Company is unable to resolve its differences with the AGOs, it is
possible that one or more individual state AGOs may file claims against the Company.
As previously reported in the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, the
Company settled certain claims with the Massachusetts Office of the Attorney General on (cid:49)ovember 6, 2019. The range of loss
with respect to the remaining investigations, if any, cannot be estimated at this time.
Iris Pounds v. Portfolio Recovery Associates, LLC
On (cid:49)ovember 21, 2016, Iris Pounds filed suit against the Company in Durham County, (cid:49)orth Carolina alleging violations
of the (cid:49)orth Carolina Prohibited Practices by Collection Agencies Act. The purported class consists of all individuals against
whom the Company had obtained a judgment by default in (cid:49)orth Carolina on or after October 1, 2009. On December 9, 2016, the
Company removed the matter to the United States District Court for the Middle District of (cid:49)orth Carolina (the "District Court").
On March 28, 2018, the District Court entered an order remanding the matter to the (cid:49)orth Carolina state court, which the Fourth
Circuit Court of Appeals affirmed on May 17, 2018. On January 11, 2019, the Company filed motions to compel arbitration with
the (cid:49)orth Carolina state court, which was denied. The Company is seeking review of the (cid:49)orth Carolinas state court's decision to
deny the Company's motion to compel arbitration. The range of loss, if any, cannot be estimated at this time due to the uncertainty
surrounding liability, class certification and the interpretation of statutory damages.
Telephone Consumer Protection Act Litigation
On January 25, 2017, the Company resolved the matter of In Re Portfolio Recovery Associates, LLC Telephone Consumer
Protection Act Litigation, which consisted of a number of class actions and single plaintiff claims consolidated by order of the
Panel for Multi-District Litigation ("MDL"). While the settlement disposed of a large number of claims, several hundred class
members opted out ("Opt-Out Plaintiffs") of that settlement. Many of these Opt-Out Plaintiffs have been consolidated before the
MDL appointed court, the United States District Court for the Southern District of California, and are pending a determination on
cross-motions for summary judgment. The range of loss, if any, cannot be estimated at this time due to the uncertainty surrounding
liability.
15. Retirement Plans:
The Company sponsors defined contribution plans primarily in the U.S. and Europe. The U.S. plan is organized as a 401(k)
plan under which all employees over eighteen years of age are eligible to make voluntary contributions to the plan up to 100% of
their compensation, subject to IRS limitations, after completing six months of service, as defined in the plan. The Company makes
matching contributions of up to 4% of an employee's salary. For the defined contribution plans in Europe, the Company pays
contributions to publicly or privately administered pension insurance plans on a mandatory, contractual or voluntary basis. Total
compensation expense related to the Company's contributions was $5.9 million, $6.3 million and $5.2 million for the years ended
December 31, 2019, 2018 and 2017, respectively.
16. Redeemable (cid:49)oncontrolling Interest:
With the acquisition of DTP S.A. in 2016, the Company acquired a 20% owned Polish securitization fund (the "Fund").
Under ASC 810-10, the Company had determined it had control over this Fund and as such consolidated the operations of the
Fund. As of December 31, 2019, 100% of the ownership interests were redeemed.
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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
(cid:49)one.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures. We maintain disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) that are designed to ensure that information required to be disclosed in our Exchange Act
reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that
such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial
Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls
and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide
only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its
judgment in evaluating the cost-benefit relationship of possible controls and procedures. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or
that the degree of compliance with the policies or procedures may deteriorate. We conducted an evaluation, under the supervision
and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls
and procedures as of the end of the period covered by this Form 10-K. Based on this evaluation, the principal executive officer
and principal financial officer have concluded that, as of December 31, 2019, our disclosure controls and procedures were effective.
Management’s Report on Internal Control Over Financial Reporting. Our management is responsible for establishing and
maintaining effective internal control over financial reporting. Internal control over financial reporting is defined in Exchange Act
Rules 13a-15(f) and 15d-15(f) as a process designed by, or under the supervision of, the company’s principal executive and principal
financial officers and effected by the company’s board of directors, management and other personnel, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Under the supervision and with the participation of our management, including
our Chief Executive Officer and Chief Financial Officer, we carried out an evaluation of the effectiveness of our internal control
over financial reporting based on the Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations (COSO) of the Treadway Commission. Based on its assessment under this framework, management has determined
that our internal control over financial reporting was effective as of December 31, 2019. Our independent registered public
accounting firm, KPMG LLP, has issued an audit report on the effectiveness of our internal control over financial reporting as of
December 31, 2019, which is included herein.
Changes in Internal Control over Financial Reporting. There was no change in our internal control over financial reporting
that occurred during the quarter ended December 31, 2019 that has materially affected, or is reasonably likely to materially affect,
our internal control over financial reporting.
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
PRA Group, Inc.:
Opinion on Internal Control Over Financial Reporting
We have audited PRA Group, Inc. and subsidiaries’ (the Company) internal control over financial reporting as of December 31,
2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of the Company as of December 31, 2019 and 2018, the related consolidated income
statements, statements of comprehensive income, changes in equity, and cash flows for each of the years in the three-year
period ended December 31, 2019, and the related notes (collectively, the consolidated financial statements), and our report
dated March 2, 2020 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report
on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control
over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ KPMG
(cid:49)orfolk, Virginia
March 2, 2020
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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
(cid:49)one.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures. We maintain disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) that are designed to ensure that information required to be disclosed in our Exchange Act
reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that
such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial
Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls
and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide
only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its
judgment in evaluating the cost-benefit relationship of possible controls and procedures. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or
that the degree of compliance with the policies or procedures may deteriorate. We conducted an evaluation, under the supervision
and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls
and procedures as of the end of the period covered by this Form 10-K. Based on this evaluation, the principal executive officer
and principal financial officer have concluded that, as of December 31, 2019, our disclosure controls and procedures were effective.
Management’s Report on Internal Control Over Financial Reporting. Our management is responsible for establishing and
maintaining effective internal control over financial reporting. Internal control over financial reporting is defined in Exchange Act
Rules 13a-15(f) and 15d-15(f) as a process designed by, or under the supervision of, the company’s principal executive and principal
financial officers and effected by the company’s board of directors, management and other personnel, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Under the supervision and with the participation of our management, including
our Chief Executive Officer and Chief Financial Officer, we carried out an evaluation of the effectiveness of our internal control
over financial reporting based on the Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations (COSO) of the Treadway Commission. Based on its assessment under this framework, management has determined
that our internal control over financial reporting was effective as of December 31, 2019. Our independent registered public
accounting firm, KPMG LLP, has issued an audit report on the effectiveness of our internal control over financial reporting as of
December 31, 2019, which is included herein.
Changes in Internal Control over Financial Reporting. There was no change in our internal control over financial reporting
that occurred during the quarter ended December 31, 2019 that has materially affected, or is reasonably likely to materially affect,
our internal control over financial reporting.
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
PRA Group, Inc.:
Opinion on Internal Control Over Financial Reporting
We have audited PRA Group, Inc. and subsidiaries’ (the Company) internal control over financial reporting as of December 31,
2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of the Company as of December 31, 2019 and 2018, the related consolidated income
statements, statements of comprehensive income, changes in equity, and cash flows for each of the years in the three-year
period ended December 31, 2019, and the related notes (collectively, the consolidated financial statements), and our report
dated March 2, 2020 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report
on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control
over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ KPMG
(cid:49)orfolk, Virginia
March 2, 2020
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Item 9B. Other Information.
(cid:49)one.
Item 10. Directors, Executive Officers and Corporate Governance.
PART III
The information required by Item 10 is incorporated herein by reference to the sections labeled "Executive Officers," "Security
Ownership of Certain Beneficial Owners and Management," "Our Board and Its Committees," "Election of Directors," "Corporate
Governance-Code of Conduct," and "Report of the Audit Committee" in our definitive Proxy Statement for use in connection with
the Company's 2020 Annual Meeting of Stockholders (the "Proxy Statement").
Item 11. Executive Compensation.
The information required by Item 11 is incorporated herein by reference to the sections labeled "Compensation Discussion
and Analysis" and "Compensation Committee Report" in the Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management And Related Stockholder Matters.
The information required by Item 12 is incorporated herein by reference to the section labeled "Security Ownership of Certain
Beneficial Owners and Management" in the Proxy Statement.
Form of Employment Agreement between PRA Group, Inc. and Certain Executives effective January 1, 2018
(Incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K (File (cid:49)o. 000-50058) filed on
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by Item 13 is incorporated herein by reference to the sections labeled "Policy for Approval of
Related Party Transactions" and "Director Independence" in the Proxy Statement.
Item 14. Principal Accountant Fees and Services.
Employment Agreement, dated December 19, 2014, by and between Christopher Graves and PRA Group, Inc.
(Incorporated by reference to Exhibit 10.5 of the Current Report on Form 8-K (File (cid:49)o. 000-50058) filed on
Employment Agreement, dated June 21, 2016, by and between Peter M. Graham and PRA Group, Inc.
(Incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K (File (cid:49)o. 000-50058) filed on
The information required by Item 14 is incorporated herein by reference to the section labeled "Fees Paid to KPMG" in the
10.7*
Form of Performance Stock Unit Agreement (Incorporated by reference to Exhibit 10.1 of the Quarterly Report
Proxy Statement.
PART IV
Item 15. Exhibits and Financial Statement Schedules.
(a) Financial Statements.
The following financial statements are included in Item 8 of this Form 10-K:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Income Statements
Consolidated Statements of Comprehensive Income
Consolidated Statements of Changes in Equity
Consolidated Statements of Cash Flows
(cid:49)otes to Consolidated Financial Statements
43
45
46
47
48
49
50
(b) Exhibits.
2.1
3.1
3.2
4.1
Equity Exchange Agreement between Portfolio Recovery Associates, L.L.C. and Portfolio Recovery Associates,
Inc. (Incorporated by reference to Exhibit 2.1 of Amendment (cid:49)o. 2 to the Registration Statement on Form S-1
(Registration (cid:49)o. 333-99225) filed on October 30, 2002).
Fourth Amended and Restated Certificate of Incorporation of PRA Group, Inc. (Incorporated by reference to Exhibit
3.1 of the Current Report on Form 8-K (File (cid:49)o. 000-50058) filed on October 29, 2014).
Amended and Restated By-Laws of PRA Group, Inc. (Incorporated by reference to Exhibit 3.1 of the Current Report
on Form 8-K (File (cid:49)o. 000-50058) filed on May 22, 2015).
Form of Common Stock Certificate (Incorporated by reference to Exhibit 4.1 of Amendment (cid:49)o. 1 to the
Registration Statement on Form S-1 (Registration (cid:49)o. 333-99225) filed on October 15, 2002).
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Form of Warrant (Incorporated by reference to Exhibit 4.2 of Amendment (cid:49)o. 2 to the Registration Statement on
Form S-1 (Registration (cid:49)o. 333-99225) filed on October 30, 2002).
Indenture dated August 13, 2013 between Portfolio Recovery Associates, Inc. and Wells Fargo Bank, (cid:49)ational
Association, as trustee (Incorporated by reference to Exhibit 4.1 of the Current Report on Form 8-K (File (cid:49)o.
000-50058) filed on August 14, 2013).
Indenture dated May 26, 2017 between PRA Group, Inc. and Regions Bank, as trustee (Incorporated by
reference to Exhibit 4.1 of the Current Report on Form 8-K (File (cid:49)o. 000-50058) filed on May 26, 2017).
Description of the Registrant's Securities Registered pursuant to Section 12 of the Securities Exchange Act of 1934
(filed herewith).
Executive Chairman Agreement, dated February 23, 2017, by and between Steven D. Fredrickson and PRA
Group, Inc. (Incorporated by reference to Exhibit 10.4 of the Quarterly Report on Form 10-Q (File (cid:49)o.
000-50058) filed on May 10, 2017).
First Amended Executive Chairman Agreement dated as of May 18, 2018, by and between PRA Group, Inc., and
Steven D. Fredrickson (Incorporated by reference to Exhibit 10.1 of the Quarterly Report on Form 10-Q (File
(cid:49)o. 000-50058) filed on August 8, 2018).
Employment Agreement, dated February 23, 2017, by and between Kevin P. Stevenson and PRA Group, Inc.
(Incorporated by reference to Exhibit 10.3 of the Quarterly Report on Form 10-Q (File (cid:49)o. 000-50058) filed on
4.2
4.3
4.4
4.5
10.1*
10.2*
10.3*
10.4*
10.5*
10.6*
May 10, 2017).
January 2, 2018).
January 5, 2015).
June 22, 2016).
on Form 10-Q (File (cid:49)o. 000-50058) filed on May 10, 2017).
10.8*
Form of Restricted Stock Unit Agreement (Incorporated by reference to Exhibit 10.2 of the Quarterly Report on
Form 10-Q (File (cid:49)o. 000-50058) filed on May 10, 2017).
10.9*
Form of Performance Stock Unit Agreement (Incorporated by reference to Exhibit 10.2 of the Quarterly Report
on Form 10-Q (File (cid:49)o. 000-50058) filed on May 10, 2018).
10.10*
10.11*
Settlement Agreement dated June 4, 2018 among PRA Group (UK) Limited and Tikendra Patel (Incorporated by
reference to Exhibit 10.2 of the Quarterly Report on Form 10-Q (File (cid:49)o. 000-50058) filed on August 8, 2018).
Service Agreement dated February 19, 2014 between Aktiv Kapital UK LTD and Tikendra Patel (Incorporated
by reference to Exhibit 10.3 of the Quarterly Report on Form 10-Q (File (cid:49)o. 000-50058) filed on August 8,
2018).
10.12
Amended and Restated Credit Agreement dated as of May 5, 2017 among PRA Group, Inc. as a borrower and a
guarantor, PRA Group Canada, Inc., as a borrower, the domestic subsidiaries of PRA Group, Inc., as the
guarantors, the Canadian subsidiaries of PRA Group Canada, Inc. party thereto from time to time, as Canadian
guarantors, the lenders party thereto, Bank of America, (cid:49).A., as administrative Agent, swing line lender and an l/
c issuer, Bank of America, (cid:49).A., acting through its Canada branch, as Canadian administrative agent, Capital
One, (cid:49).A., Fifth Third Bank and Suntrust Bank, as co-syndication agents, D(cid:49)B Capital LLC, I(cid:49)G Capital, the
Bank of Tokyo Mitsubishi Ufj, Ltd. and Regions Bank, as co-senior managing agents, and Merrill Lynch, Pierce,
Fenner & Smith Incorporated, Capital One, (cid:49).A., Fifth Third Bank and Suntrust Robinson Humphrey, Inc., as
joint lead arrangers and joint bookrunners (Incorporated by reference to Exhibit 10.1 of the Quarterly Report on
Form 10-Q (File (cid:49)o. 000-50058) filed on August 9, 2017).
10.13
First Amendment to Credit Agreement, dated as of October 4, 2018, among PRA Group, Inc., PRA Group
Canada Inc., the Guarantors, the Lenders party thereto, Bank of America, (cid:49).A., as Administrative Agent, and
Bank of America, (cid:49).A., acting through its Canada branch, as Canadian Administrative Agent (Incorporated by
reference to Exhibit 10.1 of the Current Report on Form 8-K (File (cid:49)o. 000-50058) filed on October 9, 2018).
10.14
Multicurrency Revolving Credit Agreement dated as of October 23, 2014. (Incorporated by reference to Exhibit
10.1 of the Current Report on Form 8-K (File (cid:49)o. 000-50058) filed on October 29, 2014).
10.15
First Amendment and Restatement Agreement to the Multicurrency Revolving Credit Agreement dated as of
October 23, 2014. (Incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K (File (cid:49)o.
000-50058) filed on June 16, 2015).
Item 9B. Other Information.
(cid:49)one.
Item 10. Directors, Executive Officers and Corporate Governance.
PART III
The information required by Item 10 is incorporated herein by reference to the sections labeled "Executive Officers," "Security
Ownership of Certain Beneficial Owners and Management," "Our Board and Its Committees," "Election of Directors," "Corporate
Governance-Code of Conduct," and "Report of the Audit Committee" in our definitive Proxy Statement for use in connection with
the Company's 2020 Annual Meeting of Stockholders (the "Proxy Statement").
Item 11. Executive Compensation.
The information required by Item 11 is incorporated herein by reference to the sections labeled "Compensation Discussion
and Analysis" and "Compensation Committee Report" in the Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management And Related Stockholder Matters.
The information required by Item 12 is incorporated herein by reference to the section labeled "Security Ownership of Certain
Beneficial Owners and Management" in the Proxy Statement.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by Item 13 is incorporated herein by reference to the sections labeled "Policy for Approval of
Related Party Transactions" and "Director Independence" in the Proxy Statement.
Item 14. Principal Accountant Fees and Services.
The information required by Item 14 is incorporated herein by reference to the section labeled "Fees Paid to KPMG" in the
Proxy Statement.
PART IV
Item 15. Exhibits and Financial Statement Schedules.
(a) Financial Statements.
The following financial statements are included in Item 8 of this Form 10-K:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Income Statements
Consolidated Statements of Comprehensive Income
Consolidated Statements of Changes in Equity
Consolidated Statements of Cash Flows
(cid:49)otes to Consolidated Financial Statements
43
45
46
47
48
49
50
(b) Exhibits.
2.1
3.1
3.2
4.1
Equity Exchange Agreement between Portfolio Recovery Associates, L.L.C. and Portfolio Recovery Associates,
Inc. (Incorporated by reference to Exhibit 2.1 of Amendment (cid:49)o. 2 to the Registration Statement on Form S-1
(Registration (cid:49)o. 333-99225) filed on October 30, 2002).
Fourth Amended and Restated Certificate of Incorporation of PRA Group, Inc. (Incorporated by reference to Exhibit
3.1 of the Current Report on Form 8-K (File (cid:49)o. 000-50058) filed on October 29, 2014).
Amended and Restated By-Laws of PRA Group, Inc. (Incorporated by reference to Exhibit 3.1 of the Current Report
on Form 8-K (File (cid:49)o. 000-50058) filed on May 22, 2015).
Form of Common Stock Certificate (Incorporated by reference to Exhibit 4.1 of Amendment (cid:49)o. 1 to the
Registration Statement on Form S-1 (Registration (cid:49)o. 333-99225) filed on October 15, 2002).
4.2
4.3
4.4
4.5
10.1*
10.2*
10.3*
10.4*
10.5*
10.6*
10.7*
10.8*
10.9*
10.10*
10.11*
10.12
10.13
10.14
10.15
Form of Warrant (Incorporated by reference to Exhibit 4.2 of Amendment (cid:49)o. 2 to the Registration Statement on
Form S-1 (Registration (cid:49)o. 333-99225) filed on October 30, 2002).
Indenture dated August 13, 2013 between Portfolio Recovery Associates, Inc. and Wells Fargo Bank, (cid:49)ational
Association, as trustee (Incorporated by reference to Exhibit 4.1 of the Current Report on Form 8-K (File (cid:49)o.
000-50058) filed on August 14, 2013).
Indenture dated May 26, 2017 between PRA Group, Inc. and Regions Bank, as trustee (Incorporated by
reference to Exhibit 4.1 of the Current Report on Form 8-K (File (cid:49)o. 000-50058) filed on May 26, 2017).
Description of the Registrant's Securities Registered pursuant to Section 12 of the Securities Exchange Act of 1934
(filed herewith).
Executive Chairman Agreement, dated February 23, 2017, by and between Steven D. Fredrickson and PRA
Group, Inc. (Incorporated by reference to Exhibit 10.4 of the Quarterly Report on Form 10-Q (File (cid:49)o.
000-50058) filed on May 10, 2017).
First Amended Executive Chairman Agreement dated as of May 18, 2018, by and between PRA Group, Inc., and
Steven D. Fredrickson (Incorporated by reference to Exhibit 10.1 of the Quarterly Report on Form 10-Q (File
(cid:49)o. 000-50058) filed on August 8, 2018).
Employment Agreement, dated February 23, 2017, by and between Kevin P. Stevenson and PRA Group, Inc.
(Incorporated by reference to Exhibit 10.3 of the Quarterly Report on Form 10-Q (File (cid:49)o. 000-50058) filed on
May 10, 2017).
Form of Employment Agreement between PRA Group, Inc. and Certain Executives effective January 1, 2018
(Incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K (File (cid:49)o. 000-50058) filed on
January 2, 2018).
Employment Agreement, dated December 19, 2014, by and between Christopher Graves and PRA Group, Inc.
(Incorporated by reference to Exhibit 10.5 of the Current Report on Form 8-K (File (cid:49)o. 000-50058) filed on
January 5, 2015).
Employment Agreement, dated June 21, 2016, by and between Peter M. Graham and PRA Group, Inc.
(Incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K (File (cid:49)o. 000-50058) filed on
June 22, 2016).
Form of Performance Stock Unit Agreement (Incorporated by reference to Exhibit 10.1 of the Quarterly Report
on Form 10-Q (File (cid:49)o. 000-50058) filed on May 10, 2017).
Form of Restricted Stock Unit Agreement (Incorporated by reference to Exhibit 10.2 of the Quarterly Report on
Form 10-Q (File (cid:49)o. 000-50058) filed on May 10, 2017).
Form of Performance Stock Unit Agreement (Incorporated by reference to Exhibit 10.2 of the Quarterly Report
on Form 10-Q (File (cid:49)o. 000-50058) filed on May 10, 2018).
Settlement Agreement dated June 4, 2018 among PRA Group (UK) Limited and Tikendra Patel (Incorporated by
reference to Exhibit 10.2 of the Quarterly Report on Form 10-Q (File (cid:49)o. 000-50058) filed on August 8, 2018).
Service Agreement dated February 19, 2014 between Aktiv Kapital UK LTD and Tikendra Patel (Incorporated
by reference to Exhibit 10.3 of the Quarterly Report on Form 10-Q (File (cid:49)o. 000-50058) filed on August 8,
2018).
Amended and Restated Credit Agreement dated as of May 5, 2017 among PRA Group, Inc. as a borrower and a
guarantor, PRA Group Canada, Inc., as a borrower, the domestic subsidiaries of PRA Group, Inc., as the
guarantors, the Canadian subsidiaries of PRA Group Canada, Inc. party thereto from time to time, as Canadian
guarantors, the lenders party thereto, Bank of America, (cid:49).A., as administrative Agent, swing line lender and an l/
c issuer, Bank of America, (cid:49).A., acting through its Canada branch, as Canadian administrative agent, Capital
One, (cid:49).A., Fifth Third Bank and Suntrust Bank, as co-syndication agents, D(cid:49)B Capital LLC, I(cid:49)G Capital, the
Bank of Tokyo Mitsubishi Ufj, Ltd. and Regions Bank, as co-senior managing agents, and Merrill Lynch, Pierce,
Fenner & Smith Incorporated, Capital One, (cid:49).A., Fifth Third Bank and Suntrust Robinson Humphrey, Inc., as
joint lead arrangers and joint bookrunners (Incorporated by reference to Exhibit 10.1 of the Quarterly Report on
Form 10-Q (File (cid:49)o. 000-50058) filed on August 9, 2017).
First Amendment to Credit Agreement, dated as of October 4, 2018, among PRA Group, Inc., PRA Group
Canada Inc., the Guarantors, the Lenders party thereto, Bank of America, (cid:49).A., as Administrative Agent, and
Bank of America, (cid:49).A., acting through its Canada branch, as Canadian Administrative Agent (Incorporated by
reference to Exhibit 10.1 of the Current Report on Form 8-K (File (cid:49)o. 000-50058) filed on October 9, 2018).
Multicurrency Revolving Credit Agreement dated as of October 23, 2014. (Incorporated by reference to Exhibit
10.1 of the Current Report on Form 8-K (File (cid:49)o. 000-50058) filed on October 29, 2014).
First Amendment and Restatement Agreement to the Multicurrency Revolving Credit Agreement dated as of
October 23, 2014. (Incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K (File (cid:49)o.
000-50058) filed on June 16, 2015).
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10.16
10.17
10.18
10.19
10.20*
10.21*
10.22
10.23
21.1
23.1
24.1
31.1
31.2
32.1
Second Amendment and Restatement Agreement to the Multicurrency Revolving Credit Agreement dated as of
October 23, 2014. (Incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K (File (cid:49)o.
000-50058) filed on February 25, 2016).
Third Amendment and Restatement Agreement to the Multicurrency Revolving Credit Agreement, dated as of
September 2, 2016, by and among PRA Group Europe Holding S.à r.l. and D(cid:49)B Bank ASA. (Incorporated by
reference to Exhibit 10.1 of the Quarterly Report on Form 10-Q (File (cid:49)o. 000-50058) filed on (cid:49)ovember 8,
2016).
Fourth Amendment and Restatement Agreement to the Term and Multicurrency Revolving Credit Facility
Agreement, dated as of January 23, 2018, by and among PRA Group Europe Holding S.à r.l., PRA Group Europe
Holding S.à r.l., Luxembourg, Zug Branch and D(cid:49)B Bank ASA (Incorpored by reference to Exhibit 10.1 of the
Quarterly Report on Form 10-Q (File (cid:49)o. 000-50058) filed on May 10, 2018).
Fifth Amendment and Restatement Agreement to the Multicurrency Revolving Credit Facility Agreement, dated
as of March 25, 2019, by and among PRA Group Europe Holding S.à r.l., PRA Group Europe Holding S.à r.l.,
Luxembourg, Zug Branch and D(cid:49)B Bank ASA (Incorporated by reference to Exhibit 10.1 of the Quarterly
Report on Form 10-Q (File (cid:49)o. 000-50058) filed on May 10, 2019).
2013 Annual Bonus Plan (Incorporated by reference to the Proxy Statement on Schedule 14A (File (cid:49)o.
000-50058) filed on April 19, 2013).
2013 Omnibus Incentive Plan (Incorporated by reference to the Proxy Statement on Schedule 14A (File (cid:49)o.
000-50058) filed on April 19, 2013).
Deed of (cid:49)ovation, Amendment and Restatement, dated May 5, 2014, by and between Geveran Trading Co. Ltd
and Portfolio Recovery Associates, Inc., PRA Holding IV, LLC and Tekagel Invest 742 AS (Incorporated by
reference to Exhibit 10.1 of the Quarterly Report on Form 10-Q (File (cid:49)o. 000-50058) filed on May 8, 2014).
(cid:49)ovated, Amended and Restated Sale and Purchase Agreement, dated May 5, 2014, for the Sale and Purchase of
Aktiv Kapital AS (Incorporated by reference to Exhibit 10.1 of the Quarterly Report on Form 10-Q (File (cid:49)o.
000-50058) filed on May 8, 2014).
Subsidiaries of PRA Group, Inc. (filed herewith).
Consent of KPMG LLP (filed herewith).
Powers of Attorney (included on signature page) (filed herewith).
Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002 (filed
herewith).
Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002 (filed
herewith).
Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes
Oxley Act of 2002 (filed herewith).
101.I(cid:49)S
Inline XBRL Instance Document
101.SCH
Inline XBRL Taxonomy Extension Schema Document
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
* Denotes management contract or compensatory plan or arrangement in which directors or executive officers are eligible to
participate.
Item 16. Form 10-K Summary.
(cid:49)one.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIG(cid:49)ATURES
PRA Group, Inc.
(Registrant)
By:
/s/ Kevin P. Stevenson
Kevin P. Stevenson
President and Chief Executive Officer
(Principal Executive Officer)
K(cid:49)OW ALL ME(cid:49) BY THESE PRESE(cid:49)TS, that each of the undersigned whose signature appears below constitutes and
appoints Kevin P. Stevenson and Peter M. Graham, his true and lawful attorneys-in-fact, with full power of substitution and
resubstitution for him and on his behalf, and in his name, place and stead, in any and all capacities to execute and sign any and all
amendments or post-effective amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all
that said attorneys-in-fact or any of them or their or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof and the registrant hereby confers like authority on its behalf.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
March 2, 2020
March 2, 2020
March 2, 2020
By:
/s/ Kevin P. Stevenson
Kevin P. Stevenson
President, Chief Executive Officer and Director
(Principal Executive Officer)
By:
/s/ Peter M. Graham
Peter M. Graham
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
82
83
fp0052934_PRA_10k_2020_combined4.indd 84
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10.16
10.17
10.18
10.19
10.22
10.23
21.1
23.1
24.1
31.1
31.2
32.1
Second Amendment and Restatement Agreement to the Multicurrency Revolving Credit Agreement dated as of
October 23, 2014. (Incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K (File (cid:49)o.
000-50058) filed on February 25, 2016).
Third Amendment and Restatement Agreement to the Multicurrency Revolving Credit Agreement, dated as of
September 2, 2016, by and among PRA Group Europe Holding S.à r.l. and D(cid:49)B Bank ASA. (Incorporated by
reference to Exhibit 10.1 of the Quarterly Report on Form 10-Q (File (cid:49)o. 000-50058) filed on (cid:49)ovember 8,
2016).
Fourth Amendment and Restatement Agreement to the Term and Multicurrency Revolving Credit Facility
Agreement, dated as of January 23, 2018, by and among PRA Group Europe Holding S.à r.l., PRA Group Europe
Holding S.à r.l., Luxembourg, Zug Branch and D(cid:49)B Bank ASA (Incorpored by reference to Exhibit 10.1 of the
Quarterly Report on Form 10-Q (File (cid:49)o. 000-50058) filed on May 10, 2018).
Fifth Amendment and Restatement Agreement to the Multicurrency Revolving Credit Facility Agreement, dated
as of March 25, 2019, by and among PRA Group Europe Holding S.à r.l., PRA Group Europe Holding S.à r.l.,
Luxembourg, Zug Branch and D(cid:49)B Bank ASA (Incorporated by reference to Exhibit 10.1 of the Quarterly
Report on Form 10-Q (File (cid:49)o. 000-50058) filed on May 10, 2019).
10.20*
2013 Annual Bonus Plan (Incorporated by reference to the Proxy Statement on Schedule 14A (File (cid:49)o.
10.21*
2013 Omnibus Incentive Plan (Incorporated by reference to the Proxy Statement on Schedule 14A (File (cid:49)o.
000-50058) filed on April 19, 2013).
000-50058) filed on April 19, 2013).
Deed of (cid:49)ovation, Amendment and Restatement, dated May 5, 2014, by and between Geveran Trading Co. Ltd
and Portfolio Recovery Associates, Inc., PRA Holding IV, LLC and Tekagel Invest 742 AS (Incorporated by
reference to Exhibit 10.1 of the Quarterly Report on Form 10-Q (File (cid:49)o. 000-50058) filed on May 8, 2014).
(cid:49)ovated, Amended and Restated Sale and Purchase Agreement, dated May 5, 2014, for the Sale and Purchase of
Aktiv Kapital AS (Incorporated by reference to Exhibit 10.1 of the Quarterly Report on Form 10-Q (File (cid:49)o.
000-50058) filed on May 8, 2014).
Subsidiaries of PRA Group, Inc. (filed herewith).
Consent of KPMG LLP (filed herewith).
Powers of Attorney (included on signature page) (filed herewith).
Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002 (filed
Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002 (filed
herewith).
herewith).
Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes
Oxley Act of 2002 (filed herewith).
101.I(cid:49)S
Inline XBRL Instance Document
101.SCH
Inline XBRL Taxonomy Extension Schema Document
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
* Denotes management contract or compensatory plan or arrangement in which directors or executive officers are eligible to
participate.
(cid:49)one.
Item 16. Form 10-K Summary.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIG(cid:49)ATURES
March 2, 2020
PRA Group, Inc.
(Registrant)
By:
/s/ Kevin P. Stevenson
Kevin P. Stevenson
President and Chief Executive Officer
(Principal Executive Officer)
K(cid:49)OW ALL ME(cid:49) BY THESE PRESE(cid:49)TS, that each of the undersigned whose signature appears below constitutes and
appoints Kevin P. Stevenson and Peter M. Graham, his true and lawful attorneys-in-fact, with full power of substitution and
resubstitution for him and on his behalf, and in his name, place and stead, in any and all capacities to execute and sign any and all
amendments or post-effective amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all
that said attorneys-in-fact or any of them or their or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof and the registrant hereby confers like authority on its behalf.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
March 2, 2020
March 2, 2020
By:
/s/ Kevin P. Stevenson
Kevin P. Stevenson
President, Chief Executive Officer and Director
(Principal Executive Officer)
By:
/s/ Peter M. Graham
Peter M. Graham
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
82
83
fp0052934_PRA_10k_2020_combined4.indd 85
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March 2, 2020
March 2, 2020
March 2, 2020
March 2, 2020
March 2, 2020
March 2, 2020
March 2, 2020
March 2, 2020
March 2, 2020
March 2, 2020
By:
/s/ Steven D. Fredrickson
Steven D. Fredrickson
Director
By:
/s/ Vikram A. Atal
Vikram A. Atal
Director
By:
/s/ Danielle M. Brown
Danielle M. Brown
Director
By:
/s/ Marjorie M. Connelly
Marjorie M. Connelly
Director
By:
/s/ John H. Fain
John H. Fain
Director
By:
/s/ Penelope W. Kyle
Penelope W. Kyle
Director
By:
/s/ James A. (cid:49)ussle
James A. (cid:49)ussle
Director
By:
/s/ Geir Olsen
Geir Olsen
Director
By:
/s/ Scott M. Tabakin
Scott M. Tabakin
Director
By:
/s/ Lance L. Weaver
Lance L. Weaver
Director
84
fp0052934_PRA_10k_2020_combined4.indd 86
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Exhibit 31.1
I, Kevin P. Stevenson, certify that:
1.
2.
I have reviewed this annual report on Form 10-K of PRA Group, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
principles;
(b) Designed such internal controls over financial reporting, or caused such internal controls over financial reporting to be
designed under our supervision to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of the financial statements for external purposes in accordance with generally accepted accounting
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
March 2, 2020
By:
/s/ Kevin P. Stevenson
Kevin P. Stevenson
President and Chief Executive Officer
(Principal Executive Officer)
March 2, 2020
March 2, 2020
March 2, 2020
March 2, 2020
March 2, 2020
March 2, 2020
March 2, 2020
March 2, 2020
March 2, 2020
March 2, 2020
By:
/s/ Steven D. Fredrickson
Steven D. Fredrickson
Director
By:
/s/ Vikram A. Atal
Vikram A. Atal
Director
By:
/s/ Danielle M. Brown
Danielle M. Brown
Director
By:
/s/ Marjorie M. Connelly
Marjorie M. Connelly
Director
By:
/s/ John H. Fain
John H. Fain
Director
By:
/s/ Penelope W. Kyle
Penelope W. Kyle
Director
By:
/s/ James A. (cid:49)ussle
James A. (cid:49)ussle
Director
By:
/s/ Geir Olsen
Geir Olsen
Director
By:
/s/ Scott M. Tabakin
Scott M. Tabakin
Director
By:
/s/ Lance L. Weaver
Lance L. Weaver
Director
84
Exhibit 31.1
I, Kevin P. Stevenson, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of PRA Group, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
(b) Designed such internal controls over financial reporting, or caused such internal controls over financial reporting to be
designed under our supervision to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of the financial statements for external purposes in accordance with generally accepted accounting
principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
March 2, 2020
By:
/s/ Kevin P. Stevenson
Kevin P. Stevenson
President and Chief Executive Officer
(Principal Executive Officer)
fp0052934_PRA_10k_2020_combined4.indd 87
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Exhibit 31.2
I, Peter M. Graham, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of PRA Group, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
(b) Designed such internal controls over financial reporting, or caused such internal controls over financial reporting to be
designed under our supervision to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of the financial statements for external purposes in accordance with generally accepted accounting
principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
March 2, 2020
By:
/s/ Peter M. Graham
Peter M. Graham
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
CERTIFICATIO(cid:49) PURSUA(cid:49)T TO
18 U.S.C. SECTIO(cid:49) 1350,
AS ADOPTED PURSUA(cid:49)T TO
SECTIO(cid:49) 906 OF THE SARBA(cid:49)ES-OXLEY ACT OF 2002
In connection with the Annual Report of PRA Group, Inc. (the “Company”) on Form 10-K for the fiscal year ended December 31,
2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Kevin P. Stevenson, President
and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations
By:
/s/ Kevin P. Stevenson
Kevin P. Stevenson
President and Chief Executive Officer
(Principal Executive Officer)
CERTIFICATIO(cid:49) PURSUA(cid:49)T TO
18 U.S.C. SECTIO(cid:49) 1350,
AS ADOPTED PURSUA(cid:49)T TO
SECTIO(cid:49) 906 OF THE SARBA(cid:49)ES-OXLEY ACT OF 2002
In connection with the Annual Report of PRA Group, Inc. (the “Company”) on Form 10-K for the fiscal year ended December 31,
2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Peter M. Graham, Executive
Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations
Exhibit 32.1
of the Company.
March 2, 2020
of the Company.
March 2, 2020
By:
/s/ Peter M. Graham
Peter M. Graham
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
fp0052934_PRA_10k_2020_combined4.indd 88
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Exhibit 31.2
I, Peter M. Graham, certify that:
I have reviewed this annual report on Form 10-K of PRA Group, Inc.;
1.
2.
3.
4.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
Exhibit 32.1
CERTIFICATIO(cid:49) PURSUA(cid:49)T TO
18 U.S.C. SECTIO(cid:49) 1350,
AS ADOPTED PURSUA(cid:49)T TO
SECTIO(cid:49) 906 OF THE SARBA(cid:49)ES-OXLEY ACT OF 2002
In connection with the Annual Report of PRA Group, Inc. (the “Company”) on Form 10-K for the fiscal year ended December 31,
2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Kevin P. Stevenson, President
and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations
of the Company.
being prepared;
principles;
(b) Designed such internal controls over financial reporting, or caused such internal controls over financial reporting to be
designed under our supervision to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of the financial statements for external purposes in accordance with generally accepted accounting
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
March 2, 2020
By:
/s/ Kevin P. Stevenson
Kevin P. Stevenson
President and Chief Executive Officer
(Principal Executive Officer)
CERTIFICATIO(cid:49) PURSUA(cid:49)T TO
18 U.S.C. SECTIO(cid:49) 1350,
AS ADOPTED PURSUA(cid:49)T TO
SECTIO(cid:49) 906 OF THE SARBA(cid:49)ES-OXLEY ACT OF 2002
In connection with the Annual Report of PRA Group, Inc. (the “Company”) on Form 10-K for the fiscal year ended December 31,
2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Peter M. Graham, Executive
Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations
of the Company.
(a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
March 2, 2020
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
March 2, 2020
By:
/s/ Peter M. Graham
Peter M. Graham
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
By:
/s/ Peter M. Graham
Peter M. Graham
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
fp0052934_PRA_10k_2020_combined4.indd 89
4/20/2020 12:52:41 PM
fp0052934_PRA_10k_2020_combined4.indd 90
4/20/2020 12:52:41 PM