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Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement is declared effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box: o

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. o


(1)	Includes 450,000 shares of common stock that the underwriters have an option to purchase solely to cover over-allotments, if any.

(2)	Estimated solely for purposes of calculating the registration fee pursuant to Rule 457 under the Securities Act of 1933, as amended, based on the average of the high and low sales prices of the common stock of Portfolio Recovery Associates, Inc. on May 2, 2003, as reported by Nasdaq National Market, which was $27.24.

The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

This is a public offering of 3,000,000 shares of common stock of Portfolio Recovery Associates, Inc. by the selling stockholders identified in this prospectus. We will not receive any of the proceeds from the sale by the selling stockholders.

Our common stock is quoted on the Nasdaq National Market under the symbol “PRAA.” The last reported sale price for our common stock on the Nasdaq National Market on May 2, 2003 was $27.10 per share.

Investing in our common stock involves risks. See “Risk Factors” beginning on page 9.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined that this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The selling stockholders have granted the underwriters the option to purchase up to an additional 450,000 shares at the public offering price, less the underwriting discount, within 30 days from the date of this prospectus to cover over-allotments.

You should read the following summary together with the more detailed information in this prospectus, including the section titled “Risk Factors” beginning on page 9 regarding our company and the common stock being sold in this offering.

We are a full-service provider of outsourced receivables management. We purchase, collect and manage portfolios of defaulted consumer receivables. Defaulted consumer receivables are the unpaid obligations of individuals to credit originators, including banks, credit unions, consumer and auto finance companies, retail merchants and other providers of goods and services. We believe that the strengths of our business are our sophisticated approach to portfolio pricing, our emphasis on collection personnel and procedures and our relationships with many of the largest consumer lenders in the United States. Our proven ability to collect defaulted consumer receivables allows us to offer credit originators a complete outsourced solution to address their defaulted consumer receivables. The defaulted consumer receivables we collect are in substantially all cases either purchased from the credit originator or are collected on behalf of clients on a commission fee basis. We intend to continue to build on our strengths and grow our business through the disciplined approach that has contributed to our success to date.

We specialize in receivables that have been charged-off by the credit originator. Since the credit originator has unsuccessfully attempted to collect these receivables, we are able to purchase them at a substantial discount to their face value. Through March 31, 2003, we have acquired 358 portfolios with a face value of $6.4 billion for $160.4 million, or 2.5% of face value, represented in more than 3.5 million customer accounts. Our success depends on our ability to purchase portfolios of defaulted consumer receivables at appropriate valuations and to collect on those receivables effectively and efficiently. To date, we have consistently been able to collect at a rate of 2.5 to 3.0 times our purchase price for defaulted consumer receivables portfolios, as measured over a five-year period, which has enabled us to generate increasing profits and cash flow.

We use the following terminology throughout this prospectus: “cash receipts” refers to all collections of cash, regardless of the source; “cash collections” refers to collections on our owned portfolios only, exclusive of commission income and sales of finance receivables; “commissions” refers to fee income generated from our wholly-owned contingent fee subsidiary; and “cash sales of finance receivables” refers to the sales of our owned portfolios.

We have achieved strong financial results since our formation, with cash collections and commissions growing from $5.0 million in 1997 to $81.2 million in 2002. Cash collections have increased every quarter since our formation. Over the life of our owned portfolios of defaulted consumer receivables, income recognized on finance receivables equals our cash collections on our owned portfolios of defaulted consumer receivables less the cash paid for these portfolios. Total revenue has grown from $2.8 million in 1997 to $55.8 million in 2002, a compound annual growth rate of 82%. Similarly, pro forma net income has grown from $130,000 in 1997 to $11.4 million in 2002, a compound annual growth rate of 145%. For the three month period ended March 31, 2003, cash collections and commissions were $27.1 million, revenue was $18.3 million and net income was $4.5 million, compared to cash collections and commissions of $18.4 million, revenue of $11.6 million and pro forma net income of $2.2 million for the three month period ended March 31, 2002. We were initially formed as a limited liability company and therefore had no corporate tax obligations so, for comparison purposes, we have presented pro forma financial information for periods prior to our conversion to a corporation in November 2002, which reflects income taxes assuming we had been a corporation and assuming tax rates equal to the rates that would have been in effect had we been required to report tax expenses in such years. See “Reorganization” and “Summary Consolidated Financial Data.”

We were initially formed as Portfolio Recovery Associates, L.L.C., a Delaware limited liability company, on March 20, 1996 by four members of senior management that continue to lead us. Prior to our formation, members of the management team played key roles in the development of a defaulted consumer receivables acquisition and divestiture operation for Household Recovery Services, a subsidiary of Household International. Since our formation we have acquired and serviced portfolios of defaulted consumer receivables, and in March 2001 we commenced our third-party contingent fee collections operations to provide defaulted receivables management on a commission fee basis, receiving a percentage of the amounts collected on behalf of the client.

On November 14, 2002, we completed our initial public offering in which we sold 3,470,000 shares of common stock and a selling stockholder sold 1,015,000 shares, at a price of $13.00 per share. In connection with our initial public offering, all of the membership units of Portfolio Recovery Associates, L.L.C. were exchanged for a single class of the common stock of Portfolio Recovery Associates, Inc., a Delaware corporation formed for purposes of our initial public offering. See “Reorganization.” A portion of the net proceeds from the offering were used for repayment of outstanding indebtedness and the payment of offering related expenses. We have also used a portion of the proceeds to purchase defaulted consumer receivables portfolios and intend to use the remaining amounts for working capital and general corporate purposes, including acquisitions of additional defaulted consumer receivables portfolios or potential possible acquisitions or development of complementary businesses, technologies or products.

The accounts receivable management industry is growing, driven by a number of industry trends, including the following:


	•	increasing levels of consumer debt obligations;

	•	increasing defaults of the underlying receivables; and

	•	increasing utilization of third-party providers to execute the recovery of defaulted receivables.

According to the U.S. Federal Reserve Board, as of February 2003, consumer credit, which consists of non-real estate related short- and intermediate-term credit extended to individuals, has grown 40% to $1.7 trillion from $1.2 trillion as of December 1997. According to the Consumer Bankers Association, the delinquency rate on non-mortgage consumer obligations reached its highest level in a decade at December 31, 2001, an approximately 33% increase from December 31, 2000. According to the Nilson Report, a credit card industry newsletter, credit originators outsourced an estimated $135 billion in defaulted consumer receivables for collection in 2000, nearly double the $73 billion outsourced for collection in 1990. According to Standard & Poor’s, the credit card charge-off rate for October, November and December 2002 was 6.9%, 7.1% and 7.5% of receivables, respectively. According to the American Bankers Association, the number of bank card accounts 30 or more days past due was a seasonally adjusted 4.07% during the fourth quarter of 2002 compared to 4.00% during the third quarter of 2002 and 3.88% during the fourth quarter of 2001. A total of 4.63% of bank card receivables were delinquent in the fourth quarter of 2002 compared with 4.45% during the third quarter of 2002 and 4.67% during the fourth quarter of 2001.

The accounts receivable management industry (owned portfolio and contingent fee) is highly fragmented and competitive, consisting of approximately 6,500 consumer and commercial agencies. In recent years, the accounts receivable management industry has increased its use of technology in order to operate more effectively. We expect the increasing importance of technology and the associated increased capital requirements to cause challenges for many smaller participants lacking the required capital and management resources to implement and effectively utilize such technology to compete effectively and to continue to maintain regulatory standards.

We believe we have a number of strengths which will allow us to continue to capitalize on these industry trends, including:


	Complete Outsourced Solution for Credit Originators. We can either purchase defaulted consumer receivables from credit originators or service those receivables on their behalf for a commission fee based on a percentage of our collections. Furthermore, we can purchase or service receivables throughout the entire delinquency cycle, ranging from receivables that have only been processed for collection internally by the credit originator, to receivables that have been subject to multiple external collection efforts.

	Disciplined and Proprietary Underwriting Process. We use our proprietary analytical processes coupled with the experience gained through our 358 portfolio purchases to price portfolio acquisitions at levels that through March 31, 2003 have enabled us to achieve profitable returns on our investment.

	Ability to Hire, Develop and Retain Productive Collectors. We place considerable focus on our ability to hire, develop and retain effective collectors who are key to our continued growth and profitability.

	Established Systems and Infrastructure. We have devoted significant effort to developing our systems, including statistical models, databases and reporting packages, to optimize our portfolio purchases and collection efforts.

	Strong Relationships with Major Credit Originators. We have done business with most of the top consumer lenders in the United States. We believe that we have earned a reputation as a reliable purchaser of defaulted consumer receivables portfolios and for collecting receivables in an effective, responsible manner, which helps to preserve the reputation of the credit originator.

	Experienced Management Team. We have an experienced management team with considerable expertise in the accounts receivable management industry.

We have achieved significant historical growth while maintaining a conservative capital structure and ensuring that the level of our portfolio purchases of defaulted consumer receivables is matched by our ability to collect them effectively and efficiently. Our primary objective is to continue our controlled growth. We aim to achieve this objective through the following growth strategies:


	Continue to Develop and Retain Collectors. We intend to maintain our historical controlled growth in the number of collectors we add. We expect the number and percentage of our collectors with more than 12 months of experience will increase, which we believe will drive our productivity and profitability.

	Maintain Conservative Capitalization for Portfolio Acquisitions. We intend to continue to capitalize our portfolio acquisitions conservatively by maintaining a low level of debt.

	Increase Share in Growing Market. We feel that our position as a well-capitalized firm offering a complete outsourced solution to credit originators across the defaulted consumer receivables spectrum will enable us to continue to grow faster than the industry overall.

	Leverage Expertise into Other Asset Types. We expect to continue seeking opportunities to leverage our portfolio purchasing and collections expertise in other asset types, such as student loans, retail oil and gas, long-distance telephone, utility receivables, Chapter 13 bankruptcy accounts and small business commercial receivables.


	Grow Our Contingent Fee Collections Operations. The capability to perform collections on a commission fee basis allows us to offer a complete outsourced solution to credit originators while leveraging our existing infrastructure, skill set, personnel and client relationships.

	Leverage Existing Infrastructure and Management Team. As a result of our substantial investments in technology, infrastructure and systems, our management team is capable of acquiring and servicing substantially larger volumes of defaulted consumer receivables without incurring proportional cost increases in fixed costs.

	Explore Selected Acquisitions. We will evaluate opportunities to make acquisitions of companies or group hires that would add new skill sets or bring us strong credit originator relationships, collection facilities and access to skilled collectors.

An investment in our common stock involves a significant degree of risk. We urge you to carefully consider all of the information described in the section entitled “Risk Factors” beginning on page 9.


(1)	Excludes 2,000,000 shares reserved for issuance upon the exercise of options granted to our directors, officers and employees in accordance with our 2002 Stock Option Plan, of which 806,850 shares are subject to outstanding options at a weighted average exercise price of $13.06 per share. Also excludes 2,110,000 shares of our common stock reserved for issuance upon exercise of outstanding warrants at a weighted average exercise price of $4.18, all of which are fully exercisable at the time of this offering.

(2)	Includes 1,550,606 shares of our common stock, comprised of 1,835,000 shares of our common stock which we will issue in connection with this offering upon exercise of outstanding warrants by certain of the selling stockholders at an aggregate exercise price of $7.7 million, less 284,394 shares of our common stock (assuming an offering price of $27.10 per share) tendered as payment for the warrant exercise price by such selling stockholders. Excludes 2,000,000 shares reserved for issuance upon the exercise of options granted to our directors, officers and employees in accordance with our 2002 Stock Option Plan, of which 806,850 shares are subject to outstanding options at a weighted average exercise of $13.06 per share. Excludes 275,000 shares of our common stock reserved for issuance upon exercise of outstanding warrants at a weighted average exercise price of $4.03, which are vested but are not being exercised in connection with this offering.

The following summary describes the participation of certain members of management in this offering as selling stockholders.


	•	Five of our executive officers are exercising warrants to purchase 1,835,000 shares of our common stock, substantially all of which were issued in 1999, at an aggregate exercise price of $7.7 million. These warrants are not freely tradeable and have no value if not exercised prior to expiration.

	•	The five executive officers will tender an aggregate of 284,394 shares of common stock (assuming an offering price of $27.10 per share), all of which have been held by such executive officers since 1999, in order to pay the exercise price of the warrants.

	•	The exercise of the warrants by the five executive officers has the tax effect of generating ordinary taxable income to such executive officers equal to the difference between (i) the fair market value of the shares of common stock underlying such warrants on the date of exercise and (ii) their aggregate exercise price. Assuming an offering price of $27.10 per share, the exercise of the warrants will generate an aggregate of $42.0 million of ordinary taxable income to these executive officers. Assuming a rate of 45% for Federal and state taxes, these executive officers will incur an aggregate personal tax liability of $18.9 million as a result of the exercise of their warrants.

	•	We expect that approximately 80% of the proceeds from the sale by the five executive officers of their common stock in this offering will be utilized by such executive officers for the payment of the tax liability generated by the exercise of their warrants.

Unless otherwise indicated, all share and per share data in this document assume the underwriters do not exercise the option the selling stockholders granted to them to purchase up to an additional 450,000 shares of our common stock in this offering.

All dollar amounts less than $1.0 million have been rounded to the nearest thousand.

As used in this prospectus, all references to us mean Portfolio Recovery Associates, Inc. and, prior to the Reorganization, our predecessor Portfolio Recovery Associates, L.L.C. The address of our principal executive offices is 120 Corporate Boulevard, Suite 100, Norfolk, Virginia 23502, and our telephone number is (888) 772-7326. Our web site address is www.portfoliorecovery.com. You should not construe the information on our web site to be a part of this prospectus.

The following summary consolidated financial data for the years ended December 31, 2000, 2001, and 2002 have been derived from our consolidated financial statements, included elsewhere in this prospectus which have been audited by PricewaterhouseCoopers LLP. The following summary consolidated financial data for the years ended December 31, 1998 and 1999 have been derived from our audited consolidated financial statements, not included in this prospectus.

The following summary consolidated financial data for the three months ended March 31, 2002 and 2003 have been derived from our unaudited consolidated financial statements, included elsewhere in this prospectus. These financial statements include all adjustments, consisting only of normal recurring adjustments, which we consider necessary for a fair statement of our financial position and results of operations for these periods.

Operating results for the three months ended March 31, 2003 are not necessarily indicative of results that may be expected for the year ending December 31, 2003.


(1)	At the time of our initial public offering, which commenced on November 8, 2002, we changed our legal structure from a limited liability company to a corporation. See “Reorganization.” As a limited liability company we were not subject to Federal or state corporate income taxes. Therefore, net income does not give effect to taxes for all periods prior to our initial public offering.

(2)	For comparison purposes, we have presented pro forma net income, which reflects income taxes assuming we had been a corporation since the time of our formation until the time of our reorganization in November 2002 and assuming tax rates equal to the rates that would have been in effect had we been required to report tax expenses in such years. Since the time of our reorganization, pro forma net income reflects our actual net income.

(3)	Pro forma net income per share and pro forma weighted average shares assume for periods prior to November 2002 that we had reorganized as a corporation since the beginning of the period presented. For the three months ended March 31, 2003, pro forma net income per share and pro forma weighted average shares reflects our actual net income per share and weighted average shares. See “Reorganization.”

(4)	Adjusted to give effect to the increase in stockholders’ equity resulting from the exercise of warrants by certain of the selling stockholders and an offsetting decrease in stockholders’ equity resulting from the tender of shares of common stock by such selling stockholders in order to pay the exercise price for such warrants. The exercise of the warrants will generate a $42.0 million tax deductible expense (assuming an offering price of $27.10 per share), generating an approximate $16.3 million cash savings based on our existing tax rate. Accordingly, stockholders’ equity will increase by the amount of the tax benefit less estimated offering expenses of $500,000. Total assets will increase by the $16.3 million tax benefit less $3.0 million of income tax liabilities and estimated offering expenses.

(5)	Includes all collectors and all first-line collection supervisors.

You should carefully consider the risks described below in connection with reviewing this prospectus. If any of the events referred to below actually occur, our business, financial condition, liquidity and results of operation could suffer. In that case, the trading price of our common stock could decline and you may lose all or part of your investment. You should also refer to the other information in this prospectus, including our consolidated financial statements and the related notes.

We may not be able to collect sufficient amounts on our defaulted consumer receivables to fund our operations

Our business consists of acquiring and servicing receivables that consumers have failed to pay and that the credit originator has deemed uncollectible and has charged-off. The credit originators generally make numerous attempts to recover on their defaulted consumer receivables, often using a combination of in-house recovery efforts and third-party collection agencies. These defaulted consumer receivables are difficult to collect and we may not collect a sufficient amount to cover our investment associated with purchasing the defaulted consumer receivables and the costs of running our business.

We may not be able to purchase defaulted consumer receivables at appropriate prices, and a decrease in our ability to purchase portfolios of receivables could adversely affect our ability to generate revenue

If one or more credit originators stops selling defaulted receivables to us and we are otherwise unable to purchase defaulted receivables from credit originators at appropriate prices, we could lose a potential source of income and our business may be harmed.

The availability of receivables portfolios at prices which generate an appropriate return on our investment depends on a number of factors both within and outside of our control, including the following:


	•	the continuation of current growth trends in the levels of consumer obligations;

	•	sales of receivables portfolios by credit originators; and

	•	competitive factors affecting potential purchasers and credit originators of receivables.

Because of the length of time involved in collecting defaulted consumer receivables on acquired portfolios and the volatility 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.

We are currently party to a “forward flow contract.” A forward flow contract is an arrangement in which we agree to purchase defaulted consumer receivables based on specific parameters from a third-party supplier on a periodic basis at a set price over a specified time period. To the extent that we are unable to renew or replace the purchased volume represented by our forward flow contract if it is cancelled, or when it expires, we could lose a potential source of income and our business may be harmed.

We experience high employee turnover rates and we may not be able to hire and retain enough sufficiently trained employees to support our operations

The accounts receivables management industry is very labor intensive and, similar to other companies in our industry, we typically experience a high rate of employee turnover. Our annual turnover rate, excluding those employees that do not complete our six week training program, was 34% in 2002. We compete for qualified personnel with companies in our industry and in other industries. Our growth requires that we continually hire and train new collectors. A higher turnover rate among our collectors will increase our recruiting and training costs and limit the number of experienced collection personnel available to service our defaulted consumer receivables. If this were to occur, we would not be able to

service our defaulted consumer receivables effectively and this would reduce our ability to continue our growth and operate profitability.

We serve markets that are highly competitive, and we may be unable to continue to successfully compete with businesses that may have greater resources than we have

We face competition in both of the markets we serve — owned portfolio and contingent fee accounts receivable management — from new and existing providers of outsourced receivables management services, including other purchasers of defaulted consumer receivables portfolios, third-party contingent fee collection agencies and credit originators that manage their own defaulted consumer receivables rather than outsourcing them. The accounts receivable management industry is highly fragmented and competitive, consisting of approximately 6,500 consumer and commercial agencies, most of which compete in the contingent fee business.

We face bidding competition in our acquisition of defaulted consumer receivables and in our placement of contingent fee receivables, and we also compete on the basis of reputation, industry experience and performance. Some of our current competitors and possible new competitors may have substantially greater financial, personnel and other resources, greater adaptability to changing market needs, longer operating histories and more established relationships in our industry than we currently have. In the future, we may not have the resources or ability to compete successfully. As there are few significant barriers for entry to new providers of contingent fee receivables management services, there can be no assurance that additional competitors with greater resources than ours will not enter our market. Moreover, there can be no assurance that our existing or potential clients will continue to outsource their defaulted consumer receivables at recent levels or at all, or that we may continue to offer competitive bids for defaulted consumer receivables portfolios. If we are unable to develop and expand our business or adapt to changing market needs as well as our current or future competitors are able to do, we may experience reduced access to defaulted consumer receivables portfolios at appropriate prices and reduced profitability.

We may not be successful at acquiring receivables of new asset types or in implementing a new pricing structure

We may pursue the acquisition of receivables portfolios of asset types in which we have little current experience. We may not be successful in completing any acquisitions of receivables of these asset types and our limited experience in these asset types may impair our ability to collect on these receivables. This may cause us to pay too much for these receivables and consequently we may not generate a profit from these receivables portfolio acquisitions.

In addition, we may in the future provide a service to clients in which clients will place defaulted consumer receivables with us for a specific period of time for a flat fee. This fee may be based on the number of collectors assigned to the collection of these receivables, the amount of receivables placed or other bases. We may not be successful in determining and implementing the appropriate pricing structure for this service, which may cause us to be unable to generate a profit from this business.

Our collections may decrease if certain types of bankruptcy filings increase

During times of economic recession, the amount of defaulted consumer receivables generally increases, which contributes to an increase in the amount of personal bankruptcy filings. Under certain bankruptcy filings a debtor’s assets are liquidated to repay credit originators, but since the defaulted consumer receivables we service are generally unsecured we often would not be able to collect on those receivables. We cannot assure you that our collection experience would not decline with an increase in these types of bankruptcy filings. If our actual collection experience with respect to a defaulted consumer receivables portfolio is significantly lower than we projected when we purchased the portfolio, our financial condition and results of operations could deteriorate.

Our contingent fee collections operations commenced in March 2001. These operations are in the early stages of development. Accordingly, these operations have a relatively limited operating history and their prospects must be considered in light of the risks and uncertainties facing early-stage companies. As of March 31, 2003, we have contingent fee collection arrangements with 8 credit originators or debt buyers. Our contingent fee collections operations incurred a loss in 2001 and were only slightly profitable in 2002. Although we are currently generating positive operating income for our contingent fee collections operations, our limited operating history makes prediction of future results difficult.

We may make acquisitions that prove unsuccessful or strain or divert our resources

We intend to consider acquisitions of other companies in our industry that could complement our business, including the acquisition of entities offering greater access and expertise in other asset types and markets that we do not currently serve. We have little experience in completing acquisitions of other businesses, and we may not be able to successfully complete an acquisition. If we do acquire other businesses, we may not be able to successfully integrate these businesses with our own and we may be unable to maintain our standards, controls and policies. Further, acquisitions may place additional constraints on our resources by diverting the attention of our management from other business concerns. Through acquisitions, we may enter markets in which we have no or limited experience. Moreover, any acquisition may result in a potentially dilutive issuance of equity securities, the incurrence of additional debt and amortization of expenses related intangible assets, all of which could reduce our profitability and harm our business.

We may not be able to continually replace our defaulted consumer receivables with additional receivables portfolios sufficient to operate efficiently and profitably

To operate profitably, we must continually acquire and service a sufficient amount of defaulted consumer receivables to generate revenue that exceeds our expenses. Fixed costs such as salaries and lease or other facility costs constitute a significant portion of our overhead and, if we do not continually replace the defaulted consumer receivables portfolios we service with additional portfolios, we may have to reduce the number of our collection personnel. We would then have to rehire collection staff as we obtain additional defaulted consumer receivables portfolios. These practices could lead to:


	•	low employee morale;

	•	fewer experienced employees;

	•	higher training costs;

	•	disruptions in our operations;

	•	loss of efficiency; and

	•	excess costs associated with unused space in our facilities.

Furthermore, heightened regulation of the credit card and consumer lending industry may result in decreased availability of credit to consumers, potentially leading to a future reduction in defaulted consumer receivables available for purchase from credit originators. We cannot predict how our ability to identify and purchase receivables and the quality of those receivables would be affected if there is a shift in consumer lending practices, whether caused by changes in the regulations or accounting practices applicable to credit originators, a sustained economic downturn or otherwise.

We have expanded significantly since our formation and intend to maintain our growth focus. However, our growth will place additional demands on our resources and we cannot be sure that we will be able to manage our growth effectively. In order to successfully manage our growth, we may need to:


	•	expand and enhance our administrative infrastructure;

	•	continue to improve our management, financial and information systems and controls; and

	•	recruit, train, manage and retain our employees effectively.

Continued growth could place a strain on our management, operations and financial resources. We cannot assure you that our infrastructure, facilities and personnel will be adequate to support our future operations or to effectively adapt to future growth. If we cannot manage our growth effectively, our results of operations may be adversely affected.

Our operations could suffer from telecommunications or technology downtime or increased costs

Our success depends in large part on sophisticated telecommunications and computer systems. The temporary or permanent loss of our computer and telecommunications equipment and software systems, through casualty or operating malfunction, could disrupt our operations. In the normal course of our business, we must record and process significant amounts of data quickly and accurately to access, maintain and expand the databases we use for our collection activities. Any failure of our information systems or software and their backup systems would interrupt our business operations and harm our business. Our headquarters is located in a region that is susceptible to hurricane damage, which may increase the risk of disruption of information systems and telephone service for sustained periods.

Further, our business depends heavily on services provided by various local and long distance telephone companies. A significant increase in telephone service costs or any significant interruption in telephone services could reduce our profitability or disrupt our operations and harm our business.

We may not be able to successfully anticipate, manage or adopt technological advances within our industry

Our business relies on computer and telecommunications technologies and our ability to integrate these technologies into our business is essential to our competitive position and our success. Computer and telecommunications technologies are evolving rapidly and are characterized by short product life cycles. We may not be successful in anticipating, managing or adopting technological changes on a timely basis.

While we believe that our existing information systems are sufficient to meet our current demands and continued expansion, our future growth may require additional investment in these systems. We depend on having the capital resources necessary to invest in new technologies to acquire and service defaulted consumer receivables. We cannot assure you that adequate capital resources will be available to us at the appropriate time.

Our senior management team is important to our continued success and the loss of one or more members of senior management could negatively affect our operations

The loss of the services of one or more of our executive officers or key employees could disrupt our operations. We have employment agreements with Steve Fredrickson, our president, chief executive officer and chairman of our board of directors, Kevin Stevenson, our senior vice president and chief financial officer, and most of our other senior executives. The agreements contain non-compete provisions that survive termination of employment. However, these agreements do not and will not assure the continued services of these officers and we cannot assure you that the non-compete provisions will be enforceable. Our success depends on the continued service and performance of our executive officers, and we cannot guarantee that we will be able to retain those individuals. The loss of the services of Mr. Fredrickson, Mr. Stevenson or one or more of our other executive officers could seriously impair our ability to continue

to acquire or collect on defaulted consumer receivables and to manage and expand our business. We maintain key man life insurance on Mr. Fredrickson.

Our ability to recover and enforce our defaulted consumer receivables may be limited under federal and state laws

Federal and state laws may limit our ability to recover and enforce our defaulted consumer receivables regardless of any act or omission on our part. Some laws and regulations applicable to credit card issuers may preclude us from collecting on defaulted consumer receivables we purchase if the credit card issuer previously failed to comply with applicable law in generating or servicing those receivables. Collection laws and regulations also directly apply to our business. Additional consumer protection and privacy protection laws may be enacted that would impose additional requirements on the enforcement of and collection on consumer credit card receivables. Any new laws, rules or regulations that may be adopted, as well as existing consumer protection and privacy protection laws, may adversely affect our ability to collect on our defaulted consumer receivables and may harm our business. In addition, federal and state governmental bodies are considering, and may consider in the future, other legislative proposals that would regulate the collection of our defaulted consumer receivables. Although we cannot predict if or how any future legislation would impact our business, our failure to comply with any current or future laws or regulations applicable to us could limit our ability to collect on our defaulted consumer receivables, which could reduce our profitability and harm our business.

We utilize the interest method of revenue recognition for determining our income recognized on finance receivables, which is based on an analysis of projected cash flows that may prove to be less than anticipated and could lead to reductions in future revenues or impairment charges

We utilize the interest method to determine income recognized on finance receivables. Under this method, each static pool of receivables we acquire is modeled upon its projected cash flows. A yield is then established which, when applied to the outstanding balance of the receivables, results in the recognition of income at a constant yield relative to the remaining balance in the pool of defaulted consumer receivables. Each static pool is analyzed monthly to assess the actual performance compared to that expected by the model. If differences are noted, the yield is adjusted prospectively to reflect the revised estimate of cash flows. If the accuracy of the modeling process deteriorates or there is a decline in anticipated cash flows, we would suffer reductions in future revenues or a decline in the carrying value of our receivables portfolios, which in either case would result in lower earnings in future periods and could negatively impact our stock price.

Our management team has historically operated our business as a privately held limited liability company. Until the commencement of our initial public offering on November 8, 2002, our management team had never previously had responsibility for managing a publicly traded company.

We may incur increased costs as a result of recently enacted and proposed changes in laws and regulations

Recently enacted and proposed changes in the laws and regulations affecting public companies, including the provisions of the Sarbanes-Oxley Act of 2002 and rules proposed by the SEC and by the Nasdaq Stock Market, could result in increased costs to us as we evaluate the implications of any new rules and respond to their requirements. The new rules could make it more difficult or more costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these events could also make it more difficult for us to attract and retain

qualified persons to serve on our board of directors, our board committees or as executive officers. We are presently evaluating and monitoring developments with respect to new and proposed rules and cannot predict or estimate the amount of the additional costs we may incur or the timing of such costs.

Our controlling stockholder will continue to have the ability to influence the outcome of matters voted on by stockholders which will limit your rights

Angelo, Gordon & Co., L.P. (“Angelo Gordon”), together with its affiliates, currently controls 58% of our common stock, and after this offering will control 38% of our common stock. While after this offering Angelo Gordon will no longer control a majority of our common stock, it will continue to have the ability to significantly influence the election of our directors and the outcome of votes by our stockholders on corporate matters, including mergers, sales of all or substantially all of our assets, charter amendments and other matters requiring stockholder approval. In addition, in accordance with our certificate of incorporation, so long as Angelo Gordon beneficially owns 30% or more of the outstanding common stock it will have the right to call a special meeting of the stockholders. This significant interest may have a negative impact on the market price of our common stock by discouraging third-party investors.

We cannot assure you that an active trading market will develop for our common stock or what the market price for our common stock will be in the future and, in the event that an active trading market does not develop, you may be unable to resell your shares

Our common stock has only been traded on the Nasdaq National Market since November 8, 2002, and during this time our trading volume has been relatively light. There can be no assurance that an active trading market will develop or continue after this offering or that the market price of our common stock will not decline below the public offering price. The public offering price of our common stock may not be indicative of the market price for shares of our common stock after this offering. Prices for the shares of our common stock after this offering will be determined in the market and may be influenced by many factors, including the depth and liquidity of the market for our common stock, investor perception of us and our business, the consumer credit industry as a whole and general economic and market conditions. In the event a more active trading market does not develop for our common stock, the price at which you may resell your shares may be affected.

The market price of our shares of common stock could fluctuate significantly

Wide fluctuations in the trading price or volume of our shares of common stock could be caused by many factors, including factors relating to our company or to investor perception of our company (including changes in financial estimates and recommendations by research analysts), but also factors relating to (or relating to investor perception of) the accounts receivable management industry or the economy in general.

The sale of a substantial number of our shares of common stock in the public market could adversely affect the market price of our shares, which in turn could negatively impact your investment in us

Future sales of substantial amounts of our shares of common stock in the public market (or the perception that such sales may occur) could adversely affect market prices of our common stock prevailing from time to time and could impair our ability to raise capital through future sales of our common stock. Upon completion of this offering, we will have 15,100,606 shares (assuming an offering price of $27.10 per share) of common stock issued and outstanding. All of the shares being sold in this offering, including any shares sold upon the exercise of the underwriters’ over-allotment option, will be freely tradeable without restriction under the Securities Act of 1933, unless purchased by our affiliates. 4,485,000 shares of our common stock were registered in connection with our initial public offering and are freely tradeable. Upon completion of this offering, 7,615,606 (assuming an offering price of $27.10 per share) of our shares of common stock will be restricted or control securities within the meaning of Rule 144 under the Securities Act of 1933 (7,165,606 shares of common stock if the underwriters’ over-allotment option is exercised in

full). The rules affecting the sale of these securities are summarized under “Shares Eligible for Future Sale.”

Subject to certain exceptions described under the caption “Underwriting,” we and the selling stockholders have agreed not to offer, sell or agree to sell, directly or indirectly, any shares of common stock without the permission of William Blair & Company, L.L.C. for a period of 180 days from the date of this prospectus. When this period expires we and our locked-up stockholders will be able to sell our shares in the public market, subject to the terms and provisions of Rule 144. Sales of a substantial number of such shares upon expiration, or early release, of the lock-up (or the perception that such sales may occur) could cause our share price to fall.

Our certificate of incorporation, by-laws and Delaware law contain provisions that may prevent or delay a change of control or that may otherwise be in the best interest of our stockholders

Our certificate of incorporation and by-laws contain provisions that may make it more difficult, expensive or otherwise discourage a tender offer or a change in control or takeover attempt by a third-party, even if such a transaction would be beneficial to our stockholders. The existence of these provisions may have a negative impact on the price of our common stock by discouraging third-party investors from purchasing our common stock. In particular, our certificate of incorporation and by-laws include provisions that:


	•	classify our board of directors into three groups, each of which, after an initial transition period, will serve for staggered three-year terms;

	•	permit a majority of the stockholders to remove our directors only for cause;

	•	permit our directors, and not our stockholders, to fill vacancies on our board of directors;

	•	require stockholders to give us advance notice to nominate candidates for election to our board of directors or to make stockholder proposals at a stockholders’ meeting;

	•	permit a special meeting of our stockholders be called only by approval of a majority of the directors, the chairman of the board of directors, the chief executive officer, the president or the written request of holders owning at least 30% of our common stock;

	•	permit our board of directors to issue, without approval of our stockholders, preferred stock with such terms as our board of directors may determine;

	•	permit the authorized number of directors to be changed only by a resolution of the board of directors; and

	•	require the vote of the holders of a majority of our voting shares for stockholder amendments to our by-laws.

In addition, we are subject to Section 203 of the Delaware General Corporation Law which provides certain restrictions on business combinations between us and any party acquiring a 15% or greater interest in our voting stock other than in a transaction approved by our board of directors and, in certain cases, by our stockholders. These provisions of our certificate of incorporation and by-laws and Delaware law could delay or prevent a change in control, even if our stockholders support such proposals. Moreover, these provisions could diminish the opportunities for stockholders to participate in certain tender offers, including tender offers at prices above the then-current market value of our common stock, and may also inhibit increases in the trading price of our common stock that could result from takeover attempts or speculation.

This prospectus contains certain forward-looking statements. When used in this prospectus, statements which are not historical in nature, including the words “anticipate,” “estimate,” “should,” “expect,” “believe,” “intend” and similar expressions are intended to identify forward-looking statements. Forward-looking statements also include statements containing a projection of cash collections, revenues, earnings or losses, capital expenditures, dividends, capital structure or other financial terms.

The forward-looking statements in this prospectus are based upon our management’s beliefs, assumptions and expectations of our future operations and economic performance, taking into account currently available information. These statements are not statements of historical fact. Forward-looking statements involve risks and uncertainties, some of which are not currently known to us, that may cause our actual results, performance or financial condition to be materially different from the expectations of future results, performance or financial condition we express or imply in any forward-looking statements. Some of the important factors that could cause our actual results, performance or financial condition to differ materially from expectations are:


	•	an inaccurate analysis of projected cash flows, referred to as estimated remaining collections, which could lead to a reduction in future revenue or impairment charges;

	•	changes in the business practices of credit originators in terms of selling defaulted consumer receivables or outsourcing defaulted consumer receivables to third-party contingent fee collection agencies;

	•	changes in government regulations that affect our ability to collect sufficient amounts on our acquired or serviced receivables;

	•	our ability to employ and retain qualified employees, especially collection personnel;

	•	changes in the credit or capital markets, which affect our ability to borrow money or raise capital to purchase or service defaulted consumer receivables;

	•	the degree and nature of our competition; and

	•	the other factors referenced in this prospectus, without limitation, under the sections entitled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.”

All shares of our common stock offered by this prospectus are being offered for sale by the selling stockholders. We will not receive any portion of the net proceeds of this offering.

Our common stock is quoted on the Nasdaq National Market under the symbol “PRAA.” Public trading of our common stock commenced on November 8, 2002. Prior to that time there was no public trading market for our common stock. The following table sets forth the high and low sales prices for our common stock, as reported by the Nasdaq National Market, for the periods indicated.

On May 2, 2003, the last reported sale price of our common stock on the Nasdaq National Market was $27.10 per share. As of May 2, 2003 there were 18 holders of record of our common stock. Based on information provided by our transfer agent and registrar, we believe that there are approximately 2,370 beneficial owners of our common stock.

Our board of directors sets our dividend policy. We currently intend to retain all available funds and any future earnings for use in the operation and expansion of our business, but we may determine in the future to declare or pay cash dividends on our common stock. 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 financial condition, results of operations, contractual restrictions, capital requirements, business prospects and other factors that our board of directors considers relevant.

We were initially formed as Portfolio Recovery Associates, L.L.C., a Delaware limited liability company, on March 20, 1996. As a limited liability company, Portfolio Recovery Associates, L.L.C. was treated for income tax purposes as a partnership with taxes on income generated paid by its members. In connection with our initial public offering in November 2002, all of the membership units of Portfolio Recovery Associates, L.L.C. were exchanged for a single class of the common stock of Portfolio Recovery Associates, Inc., a new Delaware corporation. Accordingly, the members of Portfolio Recovery Associates, L.L.C. became the common stockholders of Portfolio Recovery Associates, Inc., which became the parent company of Portfolio Recovery Associates, L.L.C. and its subsidiaries. In connection with this reorganization, (i) each issued and outstanding membership unit of Portfolio Recovery Associates, L.L.C. was exchanged for one share of common stock of Portfolio Recovery Associates, Inc. and (ii) warrants to purchase 2,235,000 membership units of Portfolio Recovery Associates, L.L.C. at a weighted average exercise price of $4.30 per unit were exchanged for warrants to purchase 2,235,000 shares of common stock of Portfolio Recovery Associates, Inc. at a weighted average exercise price of $4.30 per share. Since our initial public offering, warrants to purchase an aggregate of 80,000 shares of common stock have been exercised and warrants to purchase an aggregate of 45,000 shares of common stock have been cancelled. In connection with this offering, 1,835,000 of the remaining 2,110,000 warrants will be exercised by certain of the selling stockholders.

The following table sets forth our capitalization as of March 31, 2003 on (i) an actual basis, without giving effect to the exercise of warrants in connection with this offering, and (ii) an as adjusted basis to include 1,835,000 shares of common stock which will be issued upon exercise of outstanding warrants in connection with this offering less 284,394 shares of common stock which will be tendered to pay the exercise price of such warrants (assuming an offering price of $27.10 per share). You should read the following capitalization data in conjunction with “Selected Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the consolidated financial statements and accompanying notes and the other financial data included elsewhere in this prospectus.


(1)	Excludes 2,000,000 shares reserved for issuance upon the exercise of options granted to our directors, officers and employees in accordance with our 2002 Stock Option Plan, of which 806,850 shares are subject to outstanding options at a weighted average exercise price of $13.06 per share. Also excludes 2,110,000 shares of our common stock reserved for issuance upon exercise of outstanding warrants at a weighted average exercise price of $4.18, all of which are fully exercisable at the time of this offering.

(2)	Adjusted to give effect to the increase in stockholders’ equity in connection with the exercise of warrants by certain of the selling stockholders and an offsetting decrease in stockholders’ equity in connection with the tender of shares of common stock by such selling stockholders in order to pay the exercise price for such warrants. The exercise of the warrants will generate a $42.0 million tax deductible expense (assuming an offering price of $27.10 per share), generating an approximate $16.3 million cash savings based on our existing tax rate. Accordingly, stockholders’ equity will increase by the amount of the tax benefit less estimated offering expenses of $500,000. Total assets will increase by the $16.3 million tax benefit less $3.0 million of income tax liabilities and estimated offering expenses. Accordingly, stockholders’ equity will increase by the amount of the tax benefit less estimated offering expenses of $500,000.

The following selected consolidated financial data for the years ended December 31, 2000, 2001 and 2002 and as of December 31, 2001 and 2002 have been derived from our consolidated financial statements, included elsewhere in this prospectus which have been audited by PricewaterhouseCoopers LLP. The following selected financial data for the years ended December 31, 1998 and 1999 and for the years then ended have been derived from our audited consolidated financial statements, not included in this prospectus.

The following selected consolidated financial data for the three months ended March 31, 2002 and 2003 have been derived from our unaudited consolidated financial statements, included elsewhere in this prospectus. These financial statements include all adjustments, consisting only of normal recurring adjustments, which we consider necessary for a fair statement of our financial position and results of operations for these periods.

Operating results for the three months ended March 31, 2003 are not necessarily indicative of results that may be expected for the year ending December 31, 2003.


(1)	At the time of our initial public offering, which commenced on November 8, 2002, we changed our legal structure from a limited liability company to a corporation. See “Reorganization.” As a limited liability company we were not subject to Federal or state corporate income taxes. Therefore, net income does not give effect to taxes for all periods prior to our initial public offering.

(2)	For comparison purposes, we have presented pro forma net income, which reflects income taxes assuming we had been a corporation since the time of our formation until the time of our reorganization in November 2002 and assuming tax rates equal to the rates that would have been in effect had we been required to report tax expenses in such years. Since the time of our reorganization, pro forma net income reflects our actual net income.

(3)	Pro forma net income per share and pro forma weighted average shares assumes for periods prior to November 2002 that we had reorganized as a corporation since the beginning of the period presented. For the three months ended March 31, 2003, pro forma net income per share and pro forma weighted average shares reflects our actual net income per share and weighted average shares. See “Reorganization.”

(4)	Adjusted to give effect to the increase in stockholders’ equity resulting from the exercise of warrants by certain of the selling stockholders and an offsetting decrease in stockholders’ equity resulting from the tender of shares of common stock by such selling stockholders in order to pay the exercise price for such warrants. The exercise of the warrants will generate a $42.0 million tax deductible expense (assuming an offering price of $27.10 per share), generating an approximate $16.3 million cash savings based on our existing tax rate. Accordingly, shareholders’ equity will increase by the amount of the tax benefit less estimated offering expenses of $500,000. Total assets will increase by the $16.3 million tax benefit less $3.0 million of income tax liabilities and estimated offering expenses.

(5)	Includes all collectors and all first-line collection supervisors.

The following discussion should be read in conjunction with the consolidated financial statements and accompanying notes, which appear elsewhere in this prospectus. It contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed below and elsewhere in this prospectus, particularly under the heading “Risk Factors.”

We are a full-service provider of outsourced receivables management. We purchase, collect and manage portfolios of defaulted consumer receivables. Defaulted consumer receivables are the unpaid obligations of individuals to credit originators, including banks, credit unions, consumer and auto finance companies, retail merchants and other service providers. We believe that the strengths of our business are based on our sophisticated approach to portfolio pricing, our emphasis on collection personnel and procedures, and our relationships with many of the largest consumer lenders in the United States. The defaulted consumer receivables we collect are in substantially all cases either purchased from the credit originator or are collected on behalf of clients on a commission fee basis.

A key driver to our performance and one of the primary metrics monitored by management is the collection of cash on our owned portfolios of defaulted consumer receivables. We collect cash daily from among the 358 portfolios we have purchased through March 31, 2003. This measurement and focus on cash is important because it is the collection of cash that drives our business operations. When we analyze a portfolio for purchase, we model cash collections and cash expenses in order to understand our return on the portfolio investment. Likewise, when we analyze an existing portfolio’s investment performance, we compare cash collections to our original cash expectations. Additionally, the level of cash collections is input back into our proprietary models used to help determine pricing in acquiring future portfolios of defaulted consumer receivables. Excluding the impact of proceeds from occasional portfolio sales, we have increased cash collections on our owned portfolios of defaulted consumer receivables every quarter since our formation. In addition, cash collections have exceeded revenue every quarter since our formation. In certain circumstances, it is possible for revenue to exceed cash collections. The specific accounting methodology is described later under the caption “Accounting for Income Recognized on Finance Receivables.”

Our primary source of revenue is derived from cash collections on our owned defaulted consumer receivables. Because we purchase portfolios of defaulted consumer receivables that have been charged-off by credit originators, we are able to acquire the portfolios at a substantial discount to face value. Through March 31, 2003, we acquired 358 portfolios with a face value of $6.4 billion for $160.4 million, or 2.5% of face value. We have consistently been able to collect 2.5 to 3.0 times the amount paid for a portfolio, as measured over a five-year period. The specific accounting methodology utilized for income recognition is described under the caption “Accounting for Income Recognized on Finance Receivables.”

We receive commission revenue for collections we make on behalf of clients, which may be credit originators or other owners of defaulted consumer receivables. These portfolios are still owned by the clients; however, the collection effort is outsourced to us under a commission fee arrangement based on the amount we collect. Most clients will place receivables with us for a specified time frame, generally four to six months, or as long as nine months or more if there have been previous collection efforts on the

receivables. The commission fee varies; however, we typically earn fees of 25% to 50% of collections received, based primarily on the extent of prior collection efforts and age of the defaulted consumer receivables. Revenue is recognized at the time funds are received from clients. A loss reserve or allowance account will be created if there is doubt that fees billed to the client for services rendered will be paid.

We also from time to time sell previously acquired defaulted consumer receivables to third parties, retaining no claims to any of the subsequent collections. When we sell receivables prior to attempting any collection efforts, we record a gain or loss on sale by comparing the price paid for the receivables to the price received from the purchaser. If we sell certain receivables out of a portfolio that we have attempted to collect upon and have received collections, then we must determine the basis of the sold receivables. This is accomplished by using our statistical models or using the pro rata share of the face amount sold to the current carrying value of the portfolio, whichever is deemed to be more accurate.

Income recognized on finance receivables equals the excess of the cash collected from portfolios over the cash paid for the portfolios over their life span. For example, if a portfolio is projected to have collections over its life span equal to 3.0 times its cost or purchase price, and if the projections prove to be precisely accurate, then over the life span of the portfolio, revenue will be recognized equal to two-thirds of collections. Thus, if collections are $3.0 million and cost is $1.0 million, $2.0 million of revenues will be recognized over the portfolio’s life span. As described below, if collections for a portfolio deviate either below or above the projections, then adjustments to revenue are made to reflect the deviation. These adjustments are made to ensure that revenues accurately reflect ongoing collection results and to ensure that over the life span of a portfolio revenues plus cost or purchase price will be equal to collections.

We account for our investments in our finance receivables using the interest method under the guidance of AICPA Practice Bulletin 6, “Amortization of Discounts on Certain Acquired Loans.” Static pools of relatively homogenous defaulted consumer receivables are established as portfolios of receivables are acquired. A separate pool is established for each purchased pool of defaulted consumer receivables. Once a static pool is established, the defaulted consumer receivables in the static pool are not changed. Each static pool is initially recorded at cost, and is accounted for as a single unit for the recognition of income, principal payments and impairment. Income on finance receivables is accrued monthly based on each static pool’s effective yield. The yield is estimated based on the timing and the amount of anticipated future cash flows using our proprietary models. Monthly cash flows greater than the monthly interest accrual will reduce the carrying value of the static pool, resulting in cash collections exceeding revenue. Likewise, monthly cash flows that are less than the monthly interest accrual will accrete the carrying balance of the static pool, resulting in revenue exceeding cash collections.

Each static pool is reviewed on a monthly basis and compared to our proprietary models to ensure complete amortization of the carrying value at the end of each static pool’s life to the extent practicable. This is accomplished by evaluating the future cash flow and effective yield of each static pool. To the extent that cash collections have been lower than expected and or future cash collections are projected to be lower than expected, the effective yield will be prospectively reduced to accommodate the lower expectations and ensure complete amortization of the carrying value. Conversely, if past and or future cash collections exceed expectations, and are both probable and estimable, the effective yield will be prospectively increased. Integral to this process is the measurement of impairment. On a monthly basis, we compare the carrying value of each static pool to its fair value. Fair value is the net present value of expected future cash flows discounted at the current effective yield of the static pool. If the carrying value exceeds the fair value, a valuation allowance would be recognized for the amount of the impairment.

Compensation and employee services are our primary expenses and includes costs related to our collection work force, management and administration. Specifically, compensation includes salary expense, wages, incentive compensation and bonuses and any expenditures on employee-related health and retirement programs.

In our ordinary course of business we use a significant amount of outside professional services primarily related to our collection efforts. For accounts that we seek to collect by initiating legal action, we use independent law firms to pursue our legal rights to attempt repayment. Legal fees primarily include contingent legal fees paid to independent attorneys and legal collections costs. While some portion of legal collection costs may be collected from consumers by initiating legal action, we have chosen to expense all costs associated with legal collections and only will recognize these future cash receipts when they are actually collected. Other fees include contingent agency expenses, credit bureau expenses and any external account scoring or analysis. In addition, we incur accounting related expenses related primarily to our annual audits.

Communications expense primarily includes telephone-related costs and postage expense. We operate three call centers that use sophisticated telephone equipment and advanced predictive dialing technology. We make a substantial number of calls on a monthly basis, primarily long-distance, to perform our collection efforts. We averaged more than two million calls per month during the first quarter of 2003. Additionally, all three sites are interconnected with high speed data lines. As such, we incur significant telephone related expenses each month. We also attempt to reach consumers through several mailings, for which we incur postage and supplies expenses. We outsource the vast majority of our mailing activities and accordingly incur costs for that service.

Rent and occupancy expenses primarily include rent, utilities and property taxes. We own our Hutchinson, Kansas facility and incur expenses related to utilities, property taxes and maintenance. We lease our headquarters in Norfolk, Virginia and own an adjacent parking lot and pay rent, utilities, property taxes and other miscellaneous expenses. We also lease space in two additional facilities for storage and office space in Virginia Beach, Virginia and additional office space in Hampton, Virginia.

Other operating expenses include costs such as travel and entertainment, advertising and marketing, dues and subscriptions, insurance, various taxes and licenses, general insurance, education and training and hiring expenses.

We incur depreciation expenses for costs related to our owned properties in Kansas and Virginia, our computers and information systems and our software.

At the time of our initial public offering, we changed our parent company legal structure from a limited liability company to a corporation. As a limited liability company, we were not subject to Federal or state corporate income taxes and as such did not incur any taxes prior to our reorganization in November 2002. For comparison purposes, we have presented pro forma net income, which reflects income

taxes assuming we have been a corporation since the time of our formation until the time of our reorganization in November 2002 and assuming tax rates equal to the rates that would have been in effect had we been required to report tax expenses in such years. Since the time of our reorganization, pro forma net income reflects our actual net income. See “Reorganization.”

The following table sets forth certain operating data as a percentage of total revenue for the periods indicated:

(1)

During fiscal years 2000 and 2001 and until November 8, 2002 our legal structure was a limited liability company. See “Reorganization.” As a limited liability company we were not subject to Federal or state corporate income taxes. For comparison purposes, pro forma net income is presented, which reflects income taxes assuming we have been a corporation since the time of our formation until the time of our reorganization in November 2002 and assuming tax rates equal to the rates that would have been in effect had we been required to report tax expenses in such years. Since the time of our reorganization, pro forma net income reflects our actual net income.

Three Months Ended March 31, 2003 Compared To Three Months Ended March 31, 2002

Total revenue was $18.3 million for the three months ended March 31, 2003, an increase of $6.7 million or 57.8% compared to total revenue of $11.6 million for the three months ended March 31, 2002.

Income recognized on finance receivables was $17.6 million for the three months ended March 31, 2003, an increase of $6.4 million or 57.1% compared to income recognized on finance receivables of $11.2 million for the three months ended March 31, 2002. The majority of the increase was due to an increase in the cash collections on our owned defaulted consumer receivables to $26.4 million from $18.0 million, an increase of 46.7%. Over the previous 21 months, we have experienced an acceleration of the increase in our collector productivity resulting in an acceleration of its performance in cash collections compared to projections. This performance has led to lower amortization rates as our projected multiple of cash collections to purchase price has increased. Our amortization rate on owned portfolios for the three months ended March 31, 2003 was 33.2% while for the three months ended March 31, 2002 it was 37.7%. During the three months ended March 31, 2003, we acquired defaulted consumer receivables portfolios with an aggregate face value amount of $831.4 million at a cost of $17.7 million. During the three months ended March 31, 2002, we acquired defaulted consumer receivable portfolios with an aggregate face value of $203.6 million at a cost of $5.5 million. Our relative cost of acquiring defaulted consumer receivable portfolios decreased from 2.70% of face value for the three months ended March 31, 2002 to 2.13% of face value for the three months ended March 31, 2003.

Commissions were $698,000 for the three months ended March 31, 2003, an increase of $322,000 or 85.6% compared to commissions of $376,000 for the three months ended March 31, 2002. Commissions increased as business volume increased substantially in our contingent fee collection business.

Total operating expenses were $10.9 million for the three months ended March 31, 2003, an increase of $3.4 million or 45.3% compared to total operating expenses of $7.5 million for the three months ended March 31, 2002. Total operating expenses, including compensation and employee services expenses, were 40.1% of cash receipts excluding sales for the three months ended March 31, 2003 compared with 40.9% for the same period in 2002.

Compensation and employee services expenses were $6.4 million for the three months ended March 31, 2003, an increase of $1.3 million or 25.5% compared to compensation and employee services expenses of $5.1 million for the three months ended March 31, 2002. Compensation and employee services expenses increased as total employees grew to 688 at March 31, 2003 from 509 at March 31, 2002. Compensation and employee services expenses as a percentage of cash receipts excluding sales decreased to 23.6% for the three months ended March 31, 2003 from 27.6% of cash receipts excluding sales for the same period in 2002.

Outside legal and other fees and services expenses were $2.8 million for the three months ended March 31, 2003, an increase of $1.5 million or 115.4% compared to outside legal and other fees and services expenses of $1.3 million for the three months ended March 31, 2002. The increase was attributable to the increased cash collections resulting from the increased number of accounts referred to

independent contingent fee attorneys. This increase is consistent with the growth we experienced in our portfolios of defaulted consumer receivables, and a portfolio management strategy shift implemented in mid-2002. This strategy resulted in our referring to the legal suit process previously unsuccessfully liquidated accounts that have an identified means of repayment but that are nearing their legal statute of limitations.

Communications expenses were $634,000 for the three months ended March 31, 2003, an increase of $184,000 or 40.9% compared to communications expenses of $450,000 for the three months ended March 31, 2002. The increase was attributable to growth in mailings and higher telephone expenses incurred to collect on a greater number of defaulted consumer receivables owned and serviced. Mailings were responsible for 47.6% of this increase, while the remaining 52.4% is attributable to higher telephone expenses.

Rent and occupancy expenses were $245,000 for the three months ended March 31, 2003, an increase of $72,000 or 41.6% compared to rent and occupancy expenses of $173,000 for the three months ended March 31, 2002. The increase was attributable to increased leased space due to the opening of the Hampton call center, a storage facility, an off-site administrative and mail handling site and contractual increases in annual rental rates. The Hampton call center accounted for $30,000 of the increase, the new storage facility accounted for $6,000 of the increase and the administrative/mail site accounted for $8,000 of the increase. The remaining increase was attributable to contractual increases in annual rental rates.

Other operating expenses were $473,000 for the three months ended March 31, 2003, an increase of $167,000 or 54.6% compared to other operating expenses of $306,000 for the three months ended March 31, 2002. The increase was due to changes in taxes, fees and licenses, travel and meals and miscellaneous expenses. Taxes, fees and licenses were increased by $42,000, travel and meals increased by $58,000 and miscellaneous expenses increased by $67,000.

Depreciation expenses were $300,000 for the three months ended March 31, 2003, an increase of $89,000 or 42.2% compared to depreciation expenses of $211,000 for the three months ended March 31, 2002. The increase was attributable to continued capital expenditures on equipment, software and computers related to our continued growth, especially with the March 2003 opening of our new Hampton office and the associated $1.2 million in equipment purchases.

Interest income was $20,000 for the three months ended March 31, 2003, an increase of $18,000 compared to interest income of $2,000 for the three months ended March 31, 2002. This increase is the result of investing in short term federally tax-exempt Auction Rate Certificates in late 2002 and into 2003, as compared to keeping cash in our depository bank and earning fee credit offsets in 2002.

Interest expense was $76,000 for the three months ended March 31, 2003, a decrease of $452,000 or 85.6% compared to interest expense of $528,000 for the three months ended March 31, 2002. This decrease is primarily the result of having no outstanding debt on the revolving line of credit at March 31, 2003 versus $25 million outstanding during the three months ended March 31, 2002.

Total revenue was $55.8 million for the year ended December 31, 2002, an increase of $23.5 million or 72.8% compared to total revenue of $32.3 million for the year ended December 31, 2001.

Income recognized on finance receivables was $53.8 million for the year ended December 31, 2002, an increase of $22.6 million or 72.4% compared to income recognized on finance receivables of $31.2 million for the year ended December 31, 2002. The majority of the increase was due to an increase in our cash collections on our owned defaulted consumer receivables to $79.3 million from $53.1 million, an increase of 49.3%. In the second half of 2001 and continuing throughout 2002, we have experienced an acceleration of the increase in our collector productivity resulting in an acceleration of our performance in cash collections compared to projections. This performance has led to lower amortization rates as our projected multiple of cash collections to purchase price has increased. Our amortization rate on owned portfolios for the year ended December 31, 2001 was 41.2% while for the year ended December 31, 2002 it was 32.1%. During the year ended December 31, 2002, we acquired defaulted consumer receivables portfolios with an aggregate face value amount of $2.0 billion at a cost of $42.4 million. During the year ended December 31, 2001, we acquired defaulted consumer receivable portfolios with an aggregate face value of $1.6 billion at a cost of $33 million (inclusive of purchases subsequently sold). Our relative cost of acquiring defaulted consumer receivable portfolios increased from 2.1% of face value for the year ended December 31, 2001 to 2.2% of face value for the year ended December 31, 2002.

Commissions were $1.9 million for the year ended December 31, 2002, an increase of $1.7 million or 790.7% compared to commissions of $215,000 for the year ended December 31, 2001. Commissions increased as business volume increased substantially in our contingent fee collection business as a result of increased account placements.

Net gain on cash sales of defaulted consumer receivables were $100,000 for the year ended December 31, 2002, a decrease of $801,000 or 88.9% compared to net gain on cash sales of defaulted consumer receivables of $901,000 for the year ended December 31, 2001. During September 2001, we purchased $4.4 million of defaulted consumer receivables that were immediately sold to a buying entity. A net gain of $369,000 was recognized on this back to back purchase-sale transaction. The remaining change is the result of twelve small sales in 2001 versus one sale in 2002.

Total operating expenses were $34.9 million for the year ended December 31, 2002, an increase of $11.3 million or 47.9% compared to total operating expenses of $23.6 million for the year ended December 31, 2001. Total operating expenses, including compensation and employee services expenses, were 44.0% of cash collections for the year ended December 31, 2002 compared with 44.4% for the same period in 2001.

Compensation and employee services expenses were $21.7 million for the year ended December 31, 2002, an increase of $6.1 million or 39.1% compared to compensation and employee services expenses of $15.6 million for the year ended December 31, 2001. Compensation and employee services expenses increased as total employees grew from 501 at December 31, 2001 to 581 at December 31, 2002. Additionally, existing employees received normal salary increases and increased bonuses. Compensation

and employee services expenses as a percentage of cash collections decreased to 27.4% for the year ended December 31, 2002 from 29.3% of cash collections for the same period in 2001, as a result of increasing employee productivity.

Outside legal and other fees and services expenses were $8.1 million for the year ended December 31, 2002, an increase of $4.5 million or 125.0% compared to outside legal and other fees and services expenses of $3.6 million for the year ended December 31, 2001. The increase was attributable to the increased cash collections resulting from the increased number of accounts referred to independent contingent fee attorneys. This increase is consistent with the growth we experienced in our portfolio of defaulted consumer receivables, and a portfolio management strategy shift implemented in mid 2002. This strategy resulted in us referring to the legal suit process previously unsuccessfully liquidated accounts that have an identified means of repayment but that are nearing their legal statute of limitations.

Communications expenses were $1.9 million for the year ended December 31, 2002, an increase of $270,000 or 18.8% compared to communications expenses of $1.6 million for the year ended December 31, 2001. The increase was attributable to growth in mailings and higher telephone expenses incurred to collect on a greater number of defaulted consumer receivables owned and serviced. Mailings were responsible for 69.4% of this increase, while the remaining 30.6% was attributable to a higher number of phone calls.

Rent and occupancy expenses were $799,000 for the year ended December 31, 2002, an increase of $87,000 or 12.2% compared to rent and occupancy expenses of $712,000 for the year ended December 31, 2001. The increase was attributable to increased leased space related to a storage facility, an off-site administrative and mail handling site and contractual increases in annual rental rates. The new storage facility accounted for $7,300 of the increase and the administrative/mail site accounted for $19,000 of the increase. The remaining increase was attributable to contractual increases in annual rental rates.

Other operating expenses were $1.4 million for the year ended December 31, 2002, an increase of $171,000 or 13.2% compared to other operating expenses of $1.3 million for the year ended December 31, 2001. The increase was due to increases in taxes, fees and licenses, travel and meals and miscellaneous expenses. Taxes, fees and licenses increased by $81,000, travel and meals increased $94,000 and miscellaneous expenses decreased by $4,000.

Depreciation expenses were $940,000 for the year ended December 31, 2002, an increase of $263,000 or 38.8% compared to depreciation expenses of $677,000 for the year ended December 31, 2001. The increase was attributable to continued capital expenditures on equipment, software, and computers related to our continued growth.

Interest income was $22,000 for the year ended December 31, 2002, a decrease of $42,000 or 65.6% compared to interest income of $64,000 for the year ended December 31, 2001. This decrease occurred due to a drop in our yields during the fourth quarter of 2001. As a result of the yield decrease, we terminated the treasury repurchase agreement in favor of earning fee offset credit with our bank.

Interest expense was $2.4 million for the year ended December 31, 2002, a decrease of $335,000 or 12.0% compared to interest expense of $2.8 million for the year ended December 31, 2001. This decrease was primarily a result of the payoff of all outstanding revolving debt with the proceeds from our initial public offering.

Total revenue was $32.3 million for the year ended December 31, 2001, an increase of $13.0 million or 67.4% compared to total revenue of $19.3 million for the year ended December 31, 2000.

Income recognized on finance receivables was $31.2 million for the year ended December 31, 2001, an increase of $12.2 million or 64.2% compared to income recognized on finance receivables of $19.0 million for the year ended December 31, 2000. The increase was due to an increase in our cash collections on our owned defaulted consumer receivables portfolios to $53.4 million from $30.7 million, an increase of 74.0%. During the year ended December 31, 2001, we acquired defaulted consumer receivables portfolios with an aggregate face value amount of $1.6 billion at a cost of $33 million. During the year ended December 31, 2000, we acquired defaulted consumer receivable portfolios with an aggregate face value of $1.0 billion at a cost of $24.7 million.

Commissions were $214,000 for the year ended December 31, 2001, an increase of $214,000 compared to zero for the year ended December 31, 2000. The increase is a result of the commencement of our contingent fee collections operations in March 2001.

Net gain on cash sales of defaulted consumer receivables was $901,000 for the year ended December 31, 2001, an increase of $558,000 or 162.7% compared to net gain on cash sales of defaulted consumer receivables of $343,000 for the year ended December 31, 2000. This increase is the result of increased sale activity. In 2000 we sold $13.6 million in face value at an average price of 4.3% whereas in 2001 we sold $151.5 million in face value at an average price of 3.8%. The percentage increase in face value sold from 2000 to 2001 was significantly more than the percentage increase in recognized net gain on cash sales of defaulted consumer receivables. This is simply because we had a much higher basis in the receivables sold in 2001 compared with those sold in 2000.

Total operating expenses were $23.6 million for the year ended December 31, 2001, an increase of $8.6 million or 57.3% compared to total operating expenses of $15.0 million for the year ended December 31, 2000. Total operating expenses, including compensation and employee services expenses, were 44.2% of cash collections in 2001 compared to 48.9% in 2000.

Compensation and employee services expenses were $15.6 million for the year ended December 31, 2001, an increase of $5.7 million or 57.6% compared to compensation and employee services expenses of $9.9 million for the year ended December 31, 2000. Compensation and employee services expenses increased as total employees grew from 370 at December 31, 2000 to 501 at December 31, 2001. This increase reflects the continued staffing of both our Virginia and Kansas facilities and the commencement of our contingent fee collections operations in March 2001. The additional employees were required to

collect on our growing portfolio of acquired pools of defaulted consumer receivables. Compensation and employee services expenses decreased to 29.3% of cash collections in 2001 from 32.2% of cash collections in 2000. Staffing at our Virginia facility was responsible for 51.2% of this increase, staffing at our Kansas facility was responsible for 19.8% of this increase and staffing for our contingent collections operations was responsible for the remaining 29% of this increase.

Outside legal and other fees and services expenses were $3.6 million for the year ended December 31, 2001, an increase of $1.0 million or 38.5% compared to outside legal and other fees and services expenses of $2.6 million for the year ended December 31, 2000. The increase was primarily attributable to the increased number of accounts referred to independent attorneys for collection.

Communications expenses were $1.6 million for the year ended December 31, 2001, an increase of $774,000 or 88.9% compared to communications expenses of $871,000 for the year ended December 31, 2000. The increase was primarily a result of higher postage due to mailings required under the Gramm-Leach-Bliley Act, and a higher number of phone calls made to collect on a greater number of receivables owned and serviced. Mailings were responsible for 62.9% of this increase while the remaining 37.1% is attributable to a higher number of phone calls.

Rent and occupancy expenses were $712,000 for the year ended December 31, 2001, an increase of $109,000 or 18.1% compared to rent and occupancy expenses of $603,000 for the year ended December 31, 2000. The increase was primarily a result of the first full year of occupancy of our Kansas facility, which opened in July 2000.

Other operating expenses were $1.3 million for the year ended December 31, 2001, an increase of $613,000 or 94.0% compared to other operating expenses of $652,000 for the year ended December 31, 2000. Significant components of the other operating expenses include taxes, fees and licenses, hiring expenses, travel and meals and miscellaneous expenses, all of which are related to our contingent fee collections operations and the continued expansion of our workforce throughout 2001. Taxes, fees and licenses were responsible for 26.9% of this increase, travel and meals were responsible for 16.9% of this increase, hiring expenses were responsible for 19.6% of this increase and miscellaneous expenses were responsible for the remaining 36.6% of this increase.

Depreciation expenses were $677,000 for the year ended December 31, 2001, an increase of $240,000 or 54.9% compared to depreciation expenses of $437,000 for the year ended December 31, 2000. The increase was attributable to increased capital expenditures during late 2000 and 2001, especially in connection with the acquisition of technology for our contingent fee collection operations.

Interest income was $65,000 for the year ended December 31, 2001, a decrease of $29,000 or 30.9% compared to interest income of $94,000 for the year ended December 31, 2000. This decrease occurred due to the significant drop in our yields during the fourth quarter of 2001. Our average cash balance changed from $2.7 million in 2000 to $4.3 million in 2001.

Interest expense was $2.8 million for the year ended December 31, 2001, an increase of $922,000 or 49.6% compared to interest expense of $1.9 million for the year ended December 31, 2000. This increase was a result of increased borrowings to finance the growth in acquisitions of defaulted consumer receivable portfolios during 2001. During 2001, we made additional investments in defaulted consumer receivable portfolios of $33.4 million. To finance these acquisitions of defaulted consumer receivable portfolios, our borrowings increased during 2001. We had average monthly borrowings of $25.6 million during 2001, compared to average monthly borrowings of $15.5 million during 2000.

Loss on extinguishment of debt was $424,000 for the year ended December 31, 2001, an increase of $424,000 compared to none for the year ended December 31, 2000. The increase was due to the early extinguishment of debt under two of our previous line of credit agreements in 2001, for which we expensed $232,000 of remaining unamortized debt acquisition costs and $192,000 for the extinguishment of a contingent interest provision.

The following table presents certain unaudited quarterly consolidated statements of operations data for the nine-quarter period ended March 31, 2003. The information has been derived from our unaudited consolidated financial statements. Our unaudited consolidated financial statements have been prepared on substantially the same basis as the audited consolidated financial statements contained in this prospectus and include all adjustments, consisting only of normal recurring adjustments, which we consider to be necessary to present fairly this information when read in conjunction with the consolidated financial statements and notes appearing elsewhere within this prospectus. The results of operations for any quarter are not necessarily indicative of the results to be expected for any future period.


(1)	At the time of our initial public offering we changed our parent company legal structure from a limited liability company to a corporation. See “Reorganization.” As a limited liability company we


	were not subject to Federal or state corporate income taxes. Therefore net income does not give effect to taxes

(2)	For comparison purposes, pro forma net income is presented, which reflects income taxes assuming we have been a corporation since the time of our formation until the time of our reorganization in November 2002 and assuming tax rates equal to the rates that would have been in effect had we been required to report tax expenses in such years. Since the time of our reorganization, pro forma net income reflects our actual net income.

(3)	Pro forma net income per share and pro forma weighted average shares assume we had reorganized as a corporation since the beginning of the period presented.

The following table shows our portfolio buying activity by year, setting forth, among other things, the purchase price, actual cash collections and estimated remaining cash collections as of March 31, 2003:


(1)	Purchase price refers to the cash paid to a seller to acquire defaulted consumer receivables, plus certain capitalized expenses, less the purchase price refunded by a seller due to the return of non-compliant accounts (also defined as buybacks).

(2)	Estimated remaining collections refers to the sum of all future projected cash collections on our owned portfolios. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Accounting for Income Recognized on Finance Receivables.”

(3)	Total estimated collections refer to the actual cash collections, including cash sales, plus estimated remaining collections.

(4)	Total estimated collections to purchase price refers to the total remaining collections divided by the purchase price.

When we acquire a portfolio of defaulted accounts, we generally do so with a forecast of future total estimated collections to purchase price paid of no more than 2.4 to 2.6 times. Only after the portfolio has established probable and estimable performance in excess of that projection will estimated remaining collections be increased. If actual cash collections are less than the original forecast, we move aggressively to lower estimated remaining collections to appropriate levels. We utilize a long-term approach to collecting our owned pools of receivables. This approach has historically caused us to realize significant cash collections and revenues from purchased pools of finance receivables years after they are originally acquired. As a result, we have in the past been able to reduce our level of current period acquisitions without a corresponding negative current period impact on cash collections and revenue.

The following table, which excludes any proceeds from cash sales of finance receivables, demonstrates our experience of realizing significant multi-year cash collection streams on our owned pools as of March 31, 2003.

When we acquire a new pool of finance receivables, a 60 to 72 month projection of cash collections is created. The following chart shows our historical cash collections (including cash sales of finance receivables) in relation to the aggregate of the total estimated collection projections made at the time of each respective pool purchase.

Our business depends on the ability to collect on our owned and serviced defaulted consumer receivables. Collections tend to be higher in the first and second quarters of the year, due to consumers’ receipt of tax refunds and other factors. Conversely, collections tend to be lower in the third and fourth quarters of the year, due to consumers’ spending in connection with summer and holiday vacations. Due to our historical quarterly increases in cash collections, our growth has masked the impact of this seasonality.

Cash collections have substantially exceeded revenue in each quarter since our formation. The following chart illustrates the consistent excess of our cash collections on our owned portfolios over the income recognized on finance receivables on a quarterly basis.

The following table shows the changes in finance receivables, including the amounts paid to acquire new portfolios.


Delaware	7322	75-3078675
(State or other jurisdiction of incorporation or organization)	(Primary standard industrial classification code number)	(I.R.S. employer identification number)






		Proposed Maximum	Proposed Maximum
Title of Each Class of	Amount to be	Aggregate Offering	Aggregate	Amount of
Securities to be Registered	Registered(1)	Price Per Unit(2)	Offering Price	Registration Fee


Common Stock, $0.01 par value	3,450,000	$27.24	$93,978,000	$7,602.80


	Per share	Total

Public offering price	$	$
Underwriting discount	$	$
Proceeds to the selling stockholders	$	$


Common stock offered by the selling stockholders		3,000,000 shares
Common stock offered by us		None
Common stock outstanding prior to this offering		13,550,000 shares⁽¹⁾
Common stock outstanding after this offering		15,100,606 shares⁽²⁾
Use of proceeds		We will not receive any proceeds from the sale of common stock by the selling stockholders.
Nasdaq National Market symbol		PRAA



													Three Months Ended
		Year Ended December 31,											March 31,

		1998		1999		2000		2001			2002		2002		2003


(Amounts in thousands, except per share data)
STATEMENT OF OPERATIONS DATA:
Revenue:
	Income recognized on finance receivables	$	6,815	$	11,746	$	18,991	$	31,221		$	53,803	$	11,181	$	17,618
	Commissions		—		—		—		214			1,944		376		698
	Net gain on cash sales of defaulted consumer receivables		—		322		343		901			100		—		—

Total revenue			6,815		12,068		19,334		32,336			55,847		11,557		18,316

Operating expenses:
	Compensation and employee services		3,821		6,119		9,883		15,644			21,701		5,068		6,393
	Outside legal and other fees and services		839		1,493		2,583		3,627			8,093		1,291		2,818
	Communications		318		553		871		1,645			1,915		449		634
	Rent and occupancy		99		335		603		712			799		173		245
	Other operating expenses		266		498		652		1,265			1,436		306		473
	Depreciation		238		369		437		677			940		211		300

Total operating expenses			5,581		9,367		15,029		23,570			34,884		7,498		10,863

Income from operations			1,234		2,701		4,305		8,766			20,963		4,059		7,453
Loss on extinguishment of debt			—		—		—		(424	)		—		—		—
Net interest expense			744		876		1,765		2,716			2,425		526		56

Income before income taxes			490		1,825		2,540		5,626			18,538		3,533		7,397
Provision for income taxes			—		—		—		—			1,473		—		2,899

Net income⁽¹⁾		$	490	$	1,825	$	2,540	$	5,626		$	17,065	$	3,533	$	4,498

Pro forma income taxes⁽²⁾		$	88	$	697	$	901	$	2,100		$	5,694	$	1,366

Pro forma net income⁽²⁾		$	402	$	1,128	$	1,639	$	3,526		$	11,371	$	2,167

Pro forma net income per share⁽³⁾
	Basic	$	0.04	$	0.11	$	0.16	$	0.35		$	1.08	$	0.22	$	0.33
	Diluted	$	0.04	$	0.11	$	0.14	$	0.31		$	0.94	$	0.19	$	0.29
Pro forma weighted average shares⁽³⁾
	Basic		10,000		10,000		10,000		10,000			10,529		10,000		13,545
	Diluted		10,000		10,000		11,366		11,458			12,066		11,485		15,591


Charles I. Weissman, Esq. Swidler Berlin Shereff Friedman, LLP 405 Lexington Avenue, 12th Floor New York, New York 10174 (212) 973-0111		Jon A. Ballis, Esq. Sidley Austin Brown & Wood Bank One Plaza, 10 South Dearborn Street Chicago, Illinois 60603 (312) 853-7000


	Page

Prospectus Summary		1
Risk Factors		9
Special Note Regarding Forward-Looking Statements		16
Use Of Proceeds		17
Price Range Of Common Stock		17
Dividend Policy		17
Reorganization		17
Capitalization		18
Selected Consolidated Financial Data		19
Management’s Discussion And Analysis Of Financial Condition And Results Of Operations		21
Business		40
Management		57
Certain Relationships And Related Transactions		63
Principal And Selling Stockholders		64
Description Of Capital Stock		67
Shares Eligible For Future Sale		70
Underwriting		71
Legal Matters		73
Experts		73
Where You Can Find More Information		73
Index To Financial Statements		F-1



	As of March 31, 2003

			As
	Actual		Adjusted⁽⁴⁾
(Dollars in thousands)
FINANCIAL POSITION DATA:
Cash and cash equivalents	$	12,072	$	11,572
Finance receivables		74,418		74,418
Total assets		92,697		105,573
Long-term debt		925		925
Total debt, including capital lease obligations		1,543		1,543
Total stockholders’ equity		85,494		101,340


		High		Low

2002
	Quarter ended December 31, 2002	$	20.50	$	14.75
2003
	Quarter ended March 31, 2003	$	25.00	$	17.76
	Quarter ending June 30, 2003 (through May 2, 2003)	$	28.10	$	20.40



		As of March 31, 2003

		Actual⁽¹⁾		As Adjusted⁽²⁾
(Dollars in thousands)
Cash and cash equivalents		$	12,072	$	11,572


Total debt, including capital lease obligations			1,543		1,543

Stockholders’ Equity:
	Preferred stock, $0.01 par value, 2,000,000 shares authorized; no shares issued and outstanding		—		—
	Common stock, $0.01 par value, 30,000,000 shares authorized; 13,550,000 shares issued and outstanding actual; 15,100,606 shares issued and outstanding as adjusted		136		151
	Additional paid-in capital		78,696		94,527
	Retained earnings		6,662		6,662

Total stockholders’ equity			85,494		101,340

Total capitalization		$	87,037	$	102,883



											Three Months
		Year Ended									Ended
		December 31,									March 31,

		2000			2001			2002			2002			2003

Revenue:
	Income recognized on finance receivables		98.2	%		96.6	%		96.3	%		96.7	%		96.2	%
	Commissions		0.0			0.7			3.5			3.3			3.8
	Net gain on cash sales of defaulted consumer receivables		1.8			2.7			0.2			0.0			0.0

Total revenue			100.0			100.0			100.0			100.0			100.0
Operating Expenses:
	Compensation and employee services		51.1			48.4			38.9			43.8			34.9
	Outside legal and other fees and services		13.4			11.2			14.5			11.2			15.4
	Communications		4.5			5.1			3.4			3.9			3.5
	Rent and occupancy		3.1			2.2			1.4			1.5			1.3
	Other operating expenses		3.4			3.9			2.6			2.7			2.6
	Depreciation		2.3			2.1			1.7			1.8			1.6

Total operating expenses			77.7			72.9			62.5			64.9			59.3

Income from operations			22.3			27.1			37.5			35.1			40.7
Interest income			0.5			0.2			0.0			0.0			0.1
Loss on extinguishment of debt			0.0			(1.3	)		0.0			0.0			0.0
Interest expense			(9.6	)		(8.6	)		(4.4	)		(4.6	)		(0.4	)

Income before income taxes			13.1			17.4			33.2			30.6			40.4
Provision for income taxes			0.0			0.0			2.6			0.0			15.8

Net income			13.1	%		17.4	%		30.6	%		30.6	%		24.6	%

Pro forma income taxes			4.7			6.5			10.2			11.8

Pro forma net income⁽¹⁾			8.5	%		10.9	%		20.4	%		18.7	%



		Quarter Ended

		Mar. 31,		June 30,		Sept. 30,		Dec. 31,		Mar. 31,		June 30,		Sept. 30,		Dec. 31,		Mar. 31,
		2001		2001		2001		2001		2002		2002		2002		2002		2003

(Amounts in thousands, except per share data)
Revenue:
	Income recognized on finance receivables	$	6,723	$	7,685	$	7,739	$	9,074	$	11,181	$	12,837	$	14,704	$	15,081	$	17,618
	Commissions		—		—		55		159		376		440		521		607		698
	Net gain on cash sales of defaulted consumer receivables		137		159		459		146		—		100		—		—		—

Total revenue			6,860		7,844		8,253		9,379		11,557		13,377		15,225		15,688		18,316

Operating Expenses:
	Compensation and employee services		3,287		3,425		4,108		4,824		5,068		5,144		5,508		5,981		6,393
	Outside legal and other fees and services		746		815		940		1,126		1,290		1,951		2,197		2,655		2,818
	Communications		314		352		486		493		451		479		540		445		634
	Rent and occupancy		157		157		191		207		173		189		209		228		245
	Other operating expenses		241		274		332		418		306		370		324		436		473
	Depreciation		142		168		175		192		211		223		242		264		300

Total operating expenses			4,887		5,191		6,232		7,260		7,499		8,356		9,020		10,009		10,863

Income from operations			1,973		2,653		2,021		2,119		4,058		5,021		6,205		5,679		7,453
Loss on extinguishment of debt			—		—		232		192		—		—		—		—		—
Net interest expenses			689		721		664		642		526		589		1,066		244		56

Income before income taxes			1,284		1,932		1,125		1,285		3,532		4,432		5,139		5,435		7,397
Provisions for income taxes			—		—		—		—		—		—		—		1,473		2,899

Net income		$	1,284	$	1,932	$	1,125	$	1,285	$	3,532	$	4,432	$	5,139	$	3,962	$	4,498

Pro forma income taxes⁽¹⁾			479		721		420		480		1,365		1,714		1,986		2,101

Pro forma net income⁽²⁾		$	805	$	1,211	$	705	$	805	$	2,167	$	2,718	$	3,153	$	3,334

Pro forma net income per share⁽³⁾
	Basic	$	0.08	$	0.12	$	0.07	$	0.08	$	0.22	$	0.27	$	0.32	$	0.28	$	0.33
	Diluted	$	0.07	$	0.11	$	0.06	$	0.07	$	0.19	$	0.24	$	0.27	$	0.24	$	0.29
Pro forma weighted average shares⁽³⁾
	Basic		10,000		10,000		10,000		10,000		10,000		10,000		10,000		12,063		13,545
	Diluted		11,388		11,473		11,485		11,485		11,485		11,487		11,496		13,796		15,591




				Actual Cash		Estimated		Total		Total Estimated
		Purchase		Collections, Including		Remaining		Estimated		Collections to
Purchase Period		Price⁽¹⁾		Cash Sales		Collections⁽²⁾		Collections⁽³⁾		Purchase Price⁽⁴⁾


	1996	$	3,080	$	8,663	$	427	$	9,090		295	%
	1997		7,685		20,126		1,335		21,461		279	%
	1998		11,122		27,248		3,069		30,317		273	%
	1999		18,910		42,622		11,091		53,713		284	%
	2000		25,055		50,918		25,277		76,195		304	%
	2001		33,531		54,669		52,886		107,555		321	%
	2002		42,812		25,094		99,609		124,703		291	%
	2003		17,794		1,190		43,863		45,053		253	%



($ in thousands)



Purchase Cash Collection Period
Period		1996		1997		1998		1999		2000		2001		2002		2003		Total


	1996	$	548	$	2,484	$	1,890	$	1,347	$	1,025	$	730	$	496	$	81	$	8,602
	1997		—		2,507		5,215		4,069		3,347		2,630		1,829		340		19,937
	1998		—		—		3,776		6,807		6,398		5,152		3,948		822		26,903
	1999		—		—		—		5,139		13,069		12,090		9,598		2,035		41,931
	2000		—		—		—		—		6,894		19,498		19,478		4,587		50,457
	2001		—		—		—		—		—		13,047		28,833		7,300		49,181
	2002		—		—		—		—		—		—		15,072		10,021		25,094
	2003		—		—		—		—		—		—		—		1,190		1,190

Total		$	548	$	4,991	$	10,881	$	17,362	$	30,733	$	53,148	$	79,254	$	26,375	$	223,294


(1)	Includes cash collections on finance receivables only. Excludes commission fees and cash proceeds from sales of defaulted consumer receivables.


William Blair & Company	U.S. Bancorp Piper Jaffray