##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2008
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number: 000-50552
 Asset Acceptance Capital Corp.
 Exact name of registrant as specified in its charter
 Delaware
    
    80-0076779(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S.Employer Identification No.)
 28405 Van Dyke Avenue
Warren, Michigan 48093  Address of principal executive offices
 Registrants telephone number, including area code:
(586) 939-9600
  þ o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer   o
(Do not check if a smaller reporting company)
    
    Smaller Reporting Company o
  o þ




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##### 



ASSET ACCEPTANCE CAPITAL CORP.
 Quarterly Report on Form 10-Q
 TABLE OF CONTENTS
 PagePART I  Financial InformationItem 1.
    
    Consolidated Financial Statements (unaudited)
    
    
    3Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    19Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    34Item 4.
    
    Controls and Procedures
    
    
    35PART II  Other InformationItem 1.
    
    Legal Proceedings
    
    
    35Item 6.
    
    Exhibits
    
    
    35Signatures
    
    
    36Exhibits:
    
    10.1 First Amendment to Credit Agreement dated as of June 5, 2007, between Asset Acceptance Capital Corp. and JPMorgan Chase
Bank, N.A. and other lenders10.2 2008 Annual Incentive Compensation Plan for Management (Portions of this document have been
omitted pursuant to a request for confidential treatment)31.1 Rule 13a-14(a) Certification of Chief Executive Officer31.2 Rule 13a-14(a) Certification of Chief Financial Officer32.1 Section 1350 Certification of Chief Executive Officer and Chief Financial Officer2008 Annual Incentive Compensation PlanCertification of Chief Executive OfficerCertification of Chief Financial OfficerSection 1350 Certification
  Quarterly Report on Form 10-Q
 www.assetacceptance.com
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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1 . Consolidated Financial Statements
 ASSET ACCEPTANCE CAPITAL CORP.
 Consolidated Statements of Financial Position
 March 31, 2008
    
    
    December 31, 2007(Unaudited)ASSETSCash
    
    $
    12,753,915
    
    
    $
    10,474,479Purchased receivables, net
    
    
    330,127,109
    
    
    
    346,198,900Income taxes receivable
    
    
    823,300
    
    
    
    3,424,788Property and equipment, net
    
    
    12,478,908
    
    
    
    11,006,658Goodwill and other intangible assets
    
    
    16,932,614
    
    
    
    17,464,688Other assets
    
    
    6,116,672
    
    
    
    6,083,211Total assets
    
    $
    379,232,518
    
    
    $
    394,652,724LIABILITIES AND STOCKHOLDERS EQUITYLiabilities:Accounts payable
    
    $
    3,678,460
    
    
    $
    3,377,068Accrued liabilities
    
    
    23,925,493
    
    
    
    17,423,378Notes payable
    
    
    163,875,000
    
    
    
    191,250,000Deferred tax liability, net
    
    
    60,474,878
    
    
    
    60,164,784Capital lease obligations
    
    
    9,186
    
    
    
    18,242Total liabilities
    
    
    251,963,017
    
    
    
    272,233,472Stockholders equity:Preferred stock, $0.01 par value, 10,000,000 shares authorized; no
shares issued and outstanding
    
    
    
    
    
    
    Common stock, $0.01 par value, 100,000,000 shares authorized;
issued shares  33,119,597 at March 31, 2008 and December 31,
2007, respectively
    
    
    331,196
    
    
    
    331,196Additional paid in capital
    
    
    145,857,175
    
    
    
    145,610,742Retained earnings
    
    
    26,242,942
    
    
    
    19,465,118Accumulated other comprehensive loss, net of tax
    
    
    (4,186,135
    )
    
    
    (2,012,127
    )Common stock in treasury; at cost, 2,551,556 shares at March 31,
2008 and December 31, 2007, respectively
    
    
    (40,975,677
    )
    
    
    (40,975,677
    )Total stockholders equity
    
    
    127,269,501
    
    
    
    122,419,252Total liabilities and stockholders equity
    
    $
    379,232,518
    
    
    $
    394,652,724
  3




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ASSET ACCEPTANCE CAPITAL CORP.
 Consolidated Statements of Income
(Unaudited)
 Three months ended March 31,2008
    
    
    2007RevenuesPurchased receivable revenues, net
    
    $
    63,722,688
    
    
    $
    66,782,034Gain on sale of purchased receivables
    
    
    159,105
    
    
    
    Other revenues, net
    
    
    472,937
    
    
    
    523,993Total revenues
    
    
    64,354,730
    
    
    
    67,306,027ExpensesSalaries and benefits
    
    
    21,930,965
    
    
    
    22,448,455Collections expense
    
    
    22,096,681
    
    
    
    23,069,940Occupancy
    
    
    1,927,488
    
    
    
    2,339,385Administrative
    
    
    2,668,152
    
    
    
    2,213,356Restructuring charges
    
    
    
    
    
    
    148,111Depreciation and amortization
    
    
    1,027,804
    
    
    
    1,088,892Impairment of intangible assets
    
    
    445,651
    
    
    
    Loss (gain) on disposal of equipment
    
    
    5,583
    
    
    
    (5,415
    )Total operating expenses
    
    
    50,102,324
    
    
    
    51,302,724Income from operations
    
    
    14,252,406
    
    
    
    16,003,303Other income (expense)Interest income
    
    
    23,251
    
    
    
    15,727Interest expense
    
    
    (3,344,597
    )
    
    
    (263,818
    )Other
    
    
    17,983
    
    
    
    12,209Income before income taxes
    
    
    10,949,043
    
    
    
    15,767,421Income taxes
    
    
    4,171,219
    
    
    
    5,916,168Net income
    
    $
    6,777,824
    
    
    $
    9,851,253Weighted average number of shares:Basic
    
    
    30,553,019
    
    
    
    34,718,820Diluted
    
    
    30,565,690
    
    
    
    34,725,992Earnings per common share outstanding:Basic
    
    $
    0.22
    
    
    $
    0.28Diluted
    
    $
    0.22
    
    
    $
    0.28
  4




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ASSET ACCEPTANCE CAPITAL CORP.
 Consolidated Statements of Cash Flows
(Unaudited)
 Three months ended March 31,2008
    
    
    2007Cash flows from operating activitiesNet income
    
    $
    6,777,824
    
    
    $
    9,851,253Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation and amortization
    
    
    1,027,804
    
    
    
    1,088,892Deferred income taxes
    
    
    1,510,293
    
    
    
    197,786Share-based compensation expense
    
    
    246,433
    
    
    
    94,144Net impairment of purchased receivables
    
    
    384,283
    
    
    
    4,473,100Non-cash revenue
    
    
    (147,769
    )
    
    
    (438,475
    )Loss (gain) on disposal of equipment
    
    
    5,583
    
    
    
    (5,415
    )Gain on sale of purchased receivables
    
    
    (159,105
    )
    
    
    Impairment of intangible assets
    
    
    445,651
    
    
    
    Changes in assets and liabilities:Increase in accounts payable and accrued liabilities
    
    
    3,429,300
    
    
    
    744,837Decrease in other assets
    
    
    536,083
    
    
    
    73,747Increase in income taxes
    
    
    2,601,488
    
    
    
    4,681,382Net cash provided by operating activities
    
    
    16,657,868
    
    
    
    20,761,251Cash flows from investing activitiesInvestment in purchased receivables, net of buy backs
    
    
    (20,472,028
    )
    
    
    (36,214,485
    )Principal collected on purchased receivables
    
    
    36,305,079
    
    
    
    25,036,691Proceeds from the sale of purchased receivables
    
    
    161,331
    
    
    
    Purchase of property and equipment
    
    
    (2,415,950
    )
    
    
    (454,785
    )(Payments) proceeds from sale or disposal of property and equipment
    
    
    (3,264
    )
    
    
    11,493Net cash provided by (used in) investing activities
    
    
    13,575,168
    
    
    
    (11,621,086
    )Cash flows from financing activitiesBorrowings under notes payable
    
    
    
    
    
    
    17,000,000Repayment of notes payable
    
    
    (27,375,000
    )
    
    
    (27,000,000
    )Payment of credit facility charges
    
    
    (569,544
    )
    
    
    Repayment of capital lease obligations
    
    
    (9,056
    )
    
    
    (23,895
    )Purchase of treasury shares
    
    
    
    
    
    
    (699,060
    )Net cash used in financing activities
    
    
    (27,953,600
    )
    
    
    (10,722,955
    )Net increase (decrease) in cash
    
    
    2,279,436
    
    
    
    (1,582,790
    )Cash at beginning of period
    
    
    10,474,479
    
    
    
    11,307,451Cash at end of period
    
    $
    12,753,915
    
    
    $
    9,724,661Supplemental disclosure of cash flow informationCash paid for interest
    
    $
    3,434,253
    
    
    $
    208,083Cash paid for income taxes
    
    
    73,390
    
    
    
    1,037,000Non-cash investing and financing activities:Change in fair value of swap liability
    
    
    3,374,207
    
    
    
    Change in unrealized loss on cash flow hedge
    
    
    (2,174,008
    )
    
    
    
  5




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ASSET ACCEPTANCE CAPITAL CORP.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 1. Basis of Presentation and Summary of Significant Accounting Policies
 Nature of Operations
    Reporting Entity
  Purchased Receivables Portfolios and Revenue Recognition
   6




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Three months ended March 31,2008
    
    
    2007Beginning balance
    
    $
    346,198,900
    
    
    $
    300,840,508Investment in purchased receivables, net of buybacks
    
    
    20,472,028
    
    
    
    36,214,485Cost of sale of purchased receivables, net of returns
    
    
    (2,226
    )
    
    
    Cash collections
    
    
    (100,264,281
    )
    
    
    (95,853,350
    )Purchased receivable revenues
    
    
    63,722,688
    
    
    
    66,782,034Ending balance
    
    $
    330,127,109
    
    
    $
    307,983,677
  Three months ended March 31,2008
    
    
    2007Beginning balance (1)
    
    $
    559,605,071
    
    
    $
    417,690,314Revenue recognized on purchased receivables
    
    
    (63,722,688
    )
    
    
    (66,782,034
    )Additions due to purchases during the period
    
    
    19,883,169
    
    
    
    38,371,419Reclassifications (to) from nonaccretable yield
    
    
    (15,474,731
    )
    
    
    19,818,438Ending balance (2)
    
    $
    500,290,821
    
    
    $
    409,098,137
 
 (1)
    
    The balances are based on the estimated remaining collections, which refers to the sum of all
future projected cash collections on our owned portfolios. The January 1, 2008 beginning
balance reflects the extension of certain portfolios lives from 60 to 84 months during 2007.(2)
    
    Accretable yields are a function of estimated remaining cash flows and are based on
historical cash collections. Please refer to Forward-Looking
Statements on page 20 and
Critical Accounting Policies on page 33 for further information regarding these estimates.  Three months ended March 31,2008
    
    
    2007Revenues from fully amortized pools:Amortizing before the end of their expected life
    
    $
    8,470,055
    
    
    $
    5,273,827Amortizing after their expected life
    
    
    12,605,435
    
    
    
    11,698,801Accounted under the cost recovery method
    
    
    1,176,610
    
    
    
    1,489,854Total revenue from fully amortized pools
    
    $
    22,252,100
    
    
    $
    18,462,482
  Three months ended March 31,2008 (1)
    
    
    2007Portfolios under the cost recovery method:Beginning balance
    
    $
    26,991,102
    
    
    $
    7,246,315Addition of portfolios
    
    
    2,069,185
    
    
    
    1,973,328Buybacks, impairments and resales adjustments
    
    
    (718,072
    )
    
    
    (792,099
    )Cash collections on all portfolios under the cost recovery method until
fully amortized
    
    
    (7,262,064
    )
    
    
    (668,186
    )Ending balance
    
    $
    21,080,151
    
    
    $
    7,759,358
 8




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(1)
    
    The ending balance includes the first quarter of 2005 aggregate and healthcare portfolios
on the cost recovery method. The carrying values of the first quarter of 2005 aggregate and
all healthcare portfolios were $9.2 million and $7.2 million, respectively, of the total
carrying value of purchased receivables as of March 31, 2008. The carrying values of the
first quarter of 2005 aggregate and all healthcare portfolios were $12.0 million and $8.4
million, respectively, of the total carrying value of purchased receivables as of December
31, 2007.  Three months ended March 31,2008
    
    
    2007Beginning balance
    
    $
    62,091,755
    
    
    $
    39,714,055Impairments
    
    
    1,795,533
    
    
    
    4,714,000Reversal of impairments
    
    
    (1,411,250
    )
    
    
    (240,900
    )Deductions (1)
    
    
    (1,236,133
    )
    
    
    (362,000
    )Ending balance
    
    $
    61,239,905
    
    
    $
    43,825,155
 
 (1)
    
    Deductions represent impairments on fully amortized purchased receivable portfolios that were
written-off and cannot be reversed. Seasonality
  Collections from Third Parties
  9




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Accrued Liabilities
  March 31, 2008
    
    
    December 31, 2007Accrued payroll, benefits and bonuses
    
    $
    8,833,969
    
    
    $
    7,271,593Fair value of derivative instruments
    
    
    6,500,210
    
    
    
    3,126,003Deferred rent
    
    
    3,665,191
    
    
    
    3,754,365Accrued general and administrative expenses
    
    
    2,496,414
    
    
    
    2,003,463Deferred credits (cash advance)
    
    
    1,435,279
    
    
    
    Accrued interest expense
    
    
    747,438
    
    
    
    974,900Other accrued expenses
    
    
    246,992
    
    
    
    293,054Total accrued liabilities
    
    $
    23,925,493
    
    
    $
    17,423,378
 Concentration of Risk
  Interest Expense
  Earnings Per Share
  Goodwill and Other Intangible Assets
  Comprehensive Income
  10




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March 31, 2008
    
    
    March 31, 2007Opening balance
    
    $
    (2,012,127
    )
    
    $
    Change
    
    
    (2,174,008
    )
    
    
    Ending balance
    
    $
    (4,186,135
    )
    
    $
    
 Reclassifications
  Recently Issued Accounting Pronouncements
 SFAS No. 141 (R), Business Combinations and SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB No. 51
  2. Recapitalization
       11




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3. Notes Payable
  
    
    Leverage Ratio (as defined) cannot exceed (i) 1.25 to 1.0 at any time on or before June
29, 2009, (ii) 1.125 to 1.0 at any time on or after June 30, 2009 and on or before December
30, 2010 or (iii) 1.0 to 1.0 at any time thereafter;
    
    Ratio of Consolidated Total Liabilities to Consolidated Tangible Net Worth cannot
exceed (i) 3.0 to 1.0 at any time on or before September 29, 2008, (ii) 2.75 to 1.0 at any
time on or after September 30, 2008 and on or before December 30, 2008, (iii) 2.5 to 1.0 at
any time on or after December 31, 2008 and on or before December 30, 2009, (iv) 2.25 to 1.0
at any time on or after December 31, 2009 and on or before December 30, 2010, (v) 2.0 to
1.0 at any time on or after December 31, 2010 and on or before December 30, 2011 or (vi)
1.5 to 1.0 to any time thereafter; and
    
    Consolidated Tangible Net Worth must equal or exceed $80.0 million plus 50% of positive
consolidated net income for three consecutive fiscal quarters ending December 31, 2007 and
for each fiscal year ending thereafter, such amount to be added as of December 31, 2007 and
as of the end of each such fiscal year thereafter.
  
    
    50% of the Excess Cash Flow for such fiscal year if the Leverage Ratio was greater than
1.0 to 1.0 as of the end of such fiscal year;
    
    25% of the Excess Cash Flow for such fiscal year if the Leverage Ratio was less than or
equal to 1.0 to 1.0 but greater than 0.875 to 1.0 as of the end of such fiscal year; or
    
    0% if the Leverage Ratio is less than or equal to 0.875 to 1.0 as of the end of such
fiscal year.
 12




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4. Derivative Financial Instruments
      13




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5. Property and Equipment
  March 31, 2008
    
    
    December 31, 2007Computers and software
    
    $
    15,184,362
    
    
    $
    12,838,395Furniture and fixtures
    
    
    10,121,378
    
    
    
    10,074,927Leasehold improvements
    
    
    2,170,672
    
    
    
    2,156,864Equipment under capital lease
    
    
    133,063
    
    
    
    133,063Automobiles
    
    
    51,709
    
    
    
    51,709Total property and equipment, cost
    
    
    27,661,184
    
    
    
    25,254,958Less accumulated depreciation
    
    
    (15,182,276
    )
    
    
    (14,248,300
    )Net property and equipment
    
    $
    12,478,908
    
    
    $
    11,006,658
 6. Share-Based Compensation
      Stock Options
  14




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Options issue year:
    
    2008
    
    2007Expected volatility
    
    
    
    
    
    45.30% - 46.92%Expected dividends
    
    
    
    
    
    0.00%Expected term
    
    
    
    
    
    5 YearsRisk-free rate
    
    
    
    
    
    3.42% - 4.98%
  Weighted-Average
    
    
    AggregateOptions
    
    
    Weighted-Average
    
    
    Remaining
    
    
    IntrinsicOutstanding
    
    
    Exercise Price
    
    
    Contractual Term
    
    
    ValueJanuary 1, 2008
    
    
    691,599
    
    
    $
    14.03Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Forfeited or expired
    
    
    (7,304
    )
    
    
    20.62Outstanding at March 31, 2008
    
    
    684,295
    
    
    
    13.96
    
    
    
    8.14
    
    
    $
    71,488Exercisable at March 31, 2008
    
    
    428,434
    
    
    $
    16.34
    
    
    
    7.46
    
    
    $
    
   Deferred Stock Units
   15




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Weighted-AverageGrant-DateDSUs
    
    
    Fair ValueJanuary 1, 2008
    
    
    8,965
    
    
    $
    13.44Granted
    
    
    3,206
    
    
    
    9.75Balance at March 31, 2008
    
    
    12,171
    
    
    $
    12.47
  Restricted Shares
    Weighted-AverageGrant-DateNonvested RSUs
    
    RSUs
    
    Fair ValueNonvested at January 1, 2008
    
    
    290,760
    
    
    $
    11.12Forfeited
    
    
    (1,750
    )
    
    $
    9.28Nonvested at March 31, 2008
    
    
    289,010
    
    
    $
    11.13
  7. Contingencies and Commitments
 Litigation Contingencies
   Other Contingencies
  16




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8. Income Taxes
    9. Fair Value
    Interest Rate Swap Agreement
    Purchased Receivables
  17




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Credit Facilities
  18




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Company Overview
      19




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Forward-Looking Statements
   
    
    our ability to purchase charged-off receivable portfolios on acceptable terms and in
sufficient amounts;
    
    our ability to recover sufficient amounts on our charged-off receivable portfolios;
    
    our ability to hire and retain qualified personnel;
    
    a decrease in collections if bankruptcy filings increase or if bankruptcy laws or other
debt collection laws change;
    
    a decrease in collections as a result of negative attention or news regarding the debt
collection industry and debtors willingness to pay the debt we acquire;
 20




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
    
    our ability to make reasonable estimates of the timing and amount of future cash
receipts and values and assumptions underlying the calculation of the net impairment
charges for purposes of recording purchased receivable revenues in accordance with
Accounting Standards Executive Committee Statement of Position 03-3 as well as the
Accounting Standards Executive Committee Practice Bulletin 6;
    
    our ability to acquire and to collect on charged-off receivable portfolios in industries
in which we have little or no experience;
    
    our ability to maintain existing, and secure additional financing on acceptable terms;
    
    the loss of any of our executive officers or other key personnel;
    
    the costs, uncertainties and other effects of legal and administrative proceedings;
    
    our ability to effectively manage excess capacity, reduce workforce or close remote call
center locations;
    
    the temporary or permanent loss of our computer or telecommunications systems, as well
as our ability to respond to changes in technology and increased competition;
    
    changes in our overall performance based upon significant macroeconomic conditions;
    
    changes in interest rates could adversely affect earnings or cash flows;
    
    our ability to substantiate our application of tax rules against examinations and
challenges made by tax authorities; and
    
    other unanticipated events and conditions that may hinder our ability to compete.
 21




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Results of Operations
  Percent of Total Revenues
    
    Percent of Cash CollectionsThree Months Ended March 31,
    
    Three Months Ended March 31,2008
    
    2007
    
    2008
    
    2007RevenuesPurchased receivable revenues, net
    
    
    99.0
    %
    
    
    99.2
    %
    
    
    63.6
    %
    
    
    69.7
    %Gain on sale of purchased receivables
    
    
    0.3
    
    
    
    
    
    
    
    0.1
    
    
    
    Other revenue, net
    
    
    0.7
    
    
    
    0.8
    
    
    
    0.5
    
    
    
    0.5Total revenues
    
    
    100.0
    
    
    
    100.0
    
    
    
    64.2
    
    
    
    70.2ExpensesSalaries and benefits
    
    
    34.1
    
    
    
    33.3
    
    
    
    21.9
    
    
    
    23.4Collections expense
    
    
    34.3
    
    
    
    34.3
    
    
    
    22.0
    
    
    
    24.1Occupancy
    
    
    3.0
    
    
    
    3.5
    
    
    
    1.9
    
    
    
    2.4Administrative
    
    
    4.1
    
    
    
    3.3
    
    
    
    2.7
    
    
    
    2.3Restructuring charges
    
    
    
    
    
    
    0.2
    
    
    
    
    
    
    
    0.1Depreciation and amortization
    
    
    1.6
    
    
    
    1.6
    
    
    
    1.0
    
    
    
    1.1Impairment of intangible assets
    
    
    0.7
    
    
    
    
    
    
    
    0.5
    
    
    
    (Gain) loss on disposal of equipment
    
    
    (0.0
    )
    
    
    (0.0
    )
    
    
    (0.0
    )
    
    
    (0.0
    )Total operating expenses
    
    
    77.8
    
    
    
    76.2
    
    
    
    50.0
    
    
    
    53.4Income from operations
    
    
    22.2
    
    
    
    23.8
    
    
    
    14.2
    
    
    
    16.8Other income (expense)Interest income
    
    
    0.0
    
    
    
    0.0
    
    
    
    0.0
    
    
    
    0.0Interest expense
    
    
    (5.2
    )
    
    
    (0.4
    )
    
    
    (3.3
    )
    
    
    (0.3
    )Other
    
    
    0.0
    
    
    
    0.0
    
    
    
    0.0
    
    
    
    0.0Income before income taxes
    
    
    17.0
    
    
    
    23.4
    
    
    
    10.9
    
    
    
    16.5Income taxes
    
    
    6.5
    
    
    
    8.8
    
    
    
    4.1
    
    
    
    6.2Net income
    
    
    10.5
    %
    
    
    14.6
    %
    
    
    6.8
    %
    
    
    10.3
    %
 Three Months Ended March 31, 2008 Compared To Three Months Ended March 31, 2007
 Revenue
   22




---



##### Table of Contents



Operating Expenses
  Salaries
and Benefits.
  Collections Expense.
 Occupancy.
 23




---



##### Table of Contents



Administrative.
 Restructuring Charges.
 Depreciation and Amortization.
 Impairment Intangible Assets.
 Interest Income.
 Interest Expense.
 Income Taxes.
 24




---



##### Table of Contents



Supplemental Performance Data
 Portfolio Performance
  Total EstimatedEstimated
    
    
    Total
    
    
    Collections as aNumber of
    
    
    Purchase
    
    
    
    
    
    
    Remaining
    
    
    Estimated
    
    
    Percentage ofPurchase Period
    
    Portfolios
    
    
    Price (1)
    
    
    Cash Collections
    
    
    Collections (2,3,4)
    
    
    Collections
    
    
    Purchase Price(dollars in thousands)2002
    
    
    94
    
    
    $
    72,256
    
    
    $
    335,378
    
    
    $
    7,598
    
    
    $
    342,976
    
    
    
    475
    %2003
    
    
    76
    
    
    
    87,152
    
    
    
    374,545
    
    
    
    65,787
    
    
    
    440,332
    
    
    
    5052004
    
    
    106
    
    
    
    86,552
    
    
    
    212,079
    
    
    
    81,418
    
    
    
    293,497
    
    
    
    3392005
    
    
    104
    
    
    
    100,769
    
    
    
    145,162
    
    
    
    75,919
    
    
    
    221,081
    
    
    
    2192006 (4)
    
    
    154
    
    
    
    142,269
    
    
    
    159,168
    
    
    
    251,726
    
    
    
    410,894
    
    
    
    2892007
    
    
    158
    
    
    
    170,578
    
    
    
    63,610
    
    
    
    306,921
    
    
    
    370,531
    
    
    
    2172008 (5)
    
    
    47
    
    
    
    22,325
    
    
    
    1,350
    
    
    
    41,049
    
    
    
    42,399
    
    
    
    190Total
    
    
    739
    
    
    $
    681,901
    
    
    $
    1,291,292
    
    
    $
    830,418
    
    
    $
    2,121,710
    
    
    
    311
    %
 
 (1)
    
    Purchase price refers to the cash paid to a seller to acquire a portfolio less the purchase
price refunded by a seller due to the return of non-compliant accounts (also referred to as
buybacks) less the purchase price for accounts that were sold at the time of purchase to
another debt purchaser.(2)
    
    Estimated remaining collections are based on historical cash collections. Please refer to
Forward-Looking Statements on page 20 and Critical Accounting
Policies on page 33 for further
information regarding these estimates.(3)
    
    Estimated remaining collections refers to the sum of all future projected cash collections on
our owned portfolios using up to an 84 month collection forecast from the date of purchase.(4)
    
    Includes 62 portfolios from the acquisition of PARC on April 28, 2006 that were allocated a
purchase price value of $8.3 million.(5)
    
    Includes only three months of activity through March 31, 2008.  Unamortized
    
    
    UnamortizedUnamortized
    
    
    
    
    
    
    Balance as a
    
    
    Balance as aBalance as of
    
    
    Purchase
    
    
    Percentage of
    
    
    Percentage ofPurchase Period
    
    March 31, 2008
    
    
    Price (1)
    
    
    Purchase Price
    
    
    Total(dollars in thousands)2002
    
    $
    1,307
    
    
    $
    72,256
    
    
    
    1.8
    %
    
    
    0.4
    %2003
    
    
    9,217
    
    
    
    87,152
    
    
    
    10.6
    
    
    
    2.82004
    
    
    29,075
    
    
    
    86,552
    
    
    
    33.6
    
    
    
    8.82005
    
    
    45,660
    
    
    
    100,769
    
    
    
    45.3
    
    
    
    13.82006 (2)
    
    
    86,547
    
    
    
    142,269
    
    
    
    60.8
    
    
    
    26.22007
    
    
    137,031
    
    
    
    170,578
    
    
    
    80.3
    
    
    
    41.52008 (3)
    
    
    21,290
    
    
    
    22,325
    
    
    
    95.4
    
    
    
    6.5Total
    
    $
    330,127
    
    
    $
    681,901
    
    
    
    48.4
    %
    
    
    100.0
    %
 
 (1)
    
    Purchase price refers to the cash paid to a seller to acquire a portfolio less the purchase
price for accounts that were sold at the time of purchase to another debt purchaser.(2)
    
    Includes $8.3 million of portfolios acquired from the acquisition of PARC on April 28, 2006.(3)
    
    Includes only three months of activity through March 31, 2008. 25




---



##### Table of Contents



Three months ended March 31, 2008Year of
    
    
    
    
    
    
    
    
    
    Amortization
    
    
    Monthly
    
    
    Net
    
    
    Zero BasisPurchase
    
    Collections
    
    
    Revenue
    
    
    Rate
    
    
    Yield (1)
    
    
    Impairments
    
    
    Collections2002 and prior
    
    $
    14,575,197
    
    
    $
    14,187,683
    
    
    
    2.7
    %
    
    
    N/M
    %
    
    $
    (550,000
    )
    
    $
    13,078,3502003
    
    
    11,897,021
    
    
    
    10,145,297
    
    
    
    14.7
    
    
    
    31.89
    
    
    
    (481,050
    )
    
    
    6,196,9482004
    
    
    9,594,231
    
    
    
    6,579,328
    
    
    
    31.4
    
    
    
    7.11
    
    
    
    1,050,347
    
    
    
    931,3392005
    
    
    10,611,978
    
    
    
    5,759,834
    
    
    
    45.7
    
    
    
    3.91
    
    
    
    92,986
    
    
    
    36,3982006
    
    
    24,887,906
    
    
    
    15,533,913
    
    
    
    37.6
    
    
    
    5.56
    
    
    
    92,000
    
    
    
    1,964,2552007
    
    
    27,347,947
    
    
    
    11,201,973
    
    
    
    59.0
    
    
    
    2.50
    
    
    
    180,000
    
    
    
    44,8102008
    
    
    1,350,001
    
    
    
    314,660
    
    
    
    76.7
    
    
    
    1.38
    
    
    
    
    
    
    
    Totals
    
    $
    100,264,281
    
    
    $
    63,722,688
    
    
    
    36.4
    
    
    
    6.20
    
    
    $
    384,283
    
    
    $
    22,252,100
 Three months ended March 31, 2007Year of
    
    
    
    
    
    
    
    
    
    Amortization
    
    
    Monthly
    
    
    Net
    
    
    Zero BasisPurchase
    
    Collections
    
    
    Revenue
    
    
    Rate
    
    
    Yield (1)
    
    
    Impairments
    
    
    Collections2001 and prior
    
    $
    10,330,950
    
    
    $
    10,244,254
    
    
    
    0.8
    %
    
    
    N/M
    %
    
    $
    
    
    
    $
    10,166,7622002
    
    
    12,016,760
    
    
    
    7,943,214
    
    
    
    33.9
    
    
    
    25.36
    
    
    
    216,800
    
    
    
    4,554,5222003
    
    
    16,780,060
    
    
    
    11,649,217
    
    
    
    30.6
    
    
    
    14.11
    
    
    
    763,300
    
    
    
    2,676,5042004
    
    
    14,034,358
    
    
    
    9,179,365
    
    
    
    34.6
    
    
    
    6.31
    
    
    
    1,931,000
    
    
    
    768,6172005
    
    
    14,740,661
    
    
    
    10,436,030
    
    
    
    29.2
    
    
    
    4.57
    
    
    
    934,000
    
    
    
    10,5362006
    
    
    26,513,053
    
    
    
    16,380,649
    
    
    
    38.2
    
    
    
    4.24
    
    
    
    628,000
    
    
    
    285,5412007
    
    
    1,437,508
    
    
    
    949,305
    
    
    
    34.0
    
    
    
    1.55
    
    
    
    
    
    
    
    Totals
    
    $
    95,853,350
    
    
    $
    66,782,034
    
    
    
    30.3
    
    
    
    7.14
    
    
    $
    4,473,100
    
    
    $
    18,462,482
 
 (1)
    
    The monthly yield is the weighted-average yield determined by dividing purchased receivable
revenues recognized in the period by the average of the beginning monthly carrying values of the
purchased receivables for the period presented. 26




---



##### Table of Contents



Account Representative Productivity
  Account Representatives by Experience
 Three months ended
    
    Year endedMarch 31,
    
    December 31,2008
    
    2007 (3)
    
    2007 (3)
    
    2006 (4)Number of account representatives:One year or more (1)
    
    
    495
    
    
    
    623
    
    
    
    558
    
    
    
    573Less than one year (2)
    
    
    406
    
    
    
    298
    
    
    
    356
    
    
    
    399Total account representatives
    
    
    901
    
    
    
    921
    
    
    
    914
    
    
    
    972
 
 (1)
    
    Based on number of average traditional call center Full Time Equivalent (FTE) account
representatives and supervisors with one or more years of service.(2)
    
    Based on number of average traditional call center FTE account representatives and
supervisors with less than one year of service, including new associates in training.(3)
    
    The number of account representatives have been reclassified
to make the 2007 disclosures comparable to the 2008 disclosures.(4)
    
    Excludes PARCs FTE account representatives for periods prior to January 1, 2007. Collection Averages by Experience (1)
 Three months ended
    
    Year endedMarch 31,
    
    December 31,2008
    
    2007 (2)
    
    2007 (2)
    
    2006 (3)Collection averages:Overall average
    
    
    53,908
    
    
    
    53,629
    
    
    
    193,000
    
    
    
    164,932
 
 (1)
    
    Overall collection averages are not available by account representatives.(2)
    
    The overall collection average has been reclassified to make
the 2007 disclosure comparable to the 2008 disclosure.(3)
    
    Excludes PARCs FTE account representatives for periods prior to January 1, 2007. 27




---



##### Table of Contents



Cash Collections
  Historical Collections (1)
 ThreeMonthsEndedPurchase
    
    Purchase
    
    
    Year Ended December 31,
    
    
    March 31,Period
    
    Price (3)
    
    
    1998
    
    
    1999
    
    
    2000
    
    
    2001
    
    
    2002
    
    
    2003
    
    
    2004
    
    
    2005
    
    
    2006
    
    
    2007
    
    
    2008(dollars in thousands)Pre-1998
    
    
    
    
    
    $
    10,603
    
    
    $
    10,066
    
    
    $
    8,734
    
    
    $
    6,170
    
    
    $
    4,544
    
    
    $
    3,390
    
    
    $
    2,808
    
    
    $
    2,612
    
    
    $
    2,008
    
    
    $
    1,586
    
    
    $
    3211998
    
    $
    16,411
    
    
    
    4,835
    
    
    
    15,220
    
    
    
    15,045
    
    
    
    12,962
    
    
    
    11,021
    
    
    
    7,987
    
    
    
    5,583
    
    
    
    4,653
    
    
    
    3,352
    
    
    
    2,619
    
    
    
    5801999
    
    
    12,924
    
    
    
    
    
    
    
    3,761
    
    
    
    11,331
    
    
    
    10,862
    
    
    
    9,750
    
    
    
    8,278
    
    
    
    6,675
    
    
    
    5,022
    
    
    
    3,935
    
    
    
    2,949
    
    
    
    6072000
    
    
    20,592
    
    
    
    
    
    
    
    
    
    
    
    8,896
    
    
    
    23,444
    
    
    
    22,559
    
    
    
    20,318
    
    
    
    17,196
    
    
    
    14,062
    
    
    
    10,603
    
    
    
    7,410
    
    
    
    1,6082001
    
    
    43,030
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,630
    
    
    
    50,327
    
    
    
    50,967
    
    
    
    45,713
    
    
    
    39,865
    
    
    
    30,472
    
    
    
    21,714
    
    
    
    4,1192002
    
    
    72,256
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,339
    
    
    
    70,813
    
    
    
    72,024
    
    
    
    67,649
    
    
    
    55,373
    
    
    
    39,839
    
    
    
    7,3402003
    
    
    87,152
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36,067
    
    
    
    94,564
    
    
    
    94,234
    
    
    
    79,423
    
    
    
    58,359
    
    
    
    11,8972004
    
    
    86,552
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,365
    
    
    
    68,354
    
    
    
    62,673
    
    
    
    48,093
    
    
    
    9,5942005
    
    
    100,769
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,459
    
    
    
    60,280
    
    
    
    50,811
    
    
    
    10,6122006 (2)
    
    
    142,269
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32,751
    
    
    
    101,529
    
    
    
    24,8882007
    
    
    170,578
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36,269
    
    
    
    27,3482008
    
    
    22,325
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,350Total
    
    
    
    
    
    $
    15,438
    
    
    $
    29,047
    
    
    $
    44,006
    
    
    $
    71,068
    
    
    $
    120,540
    
    
    $
    197,820
    
    
    $
    267,928
    
    
    $
    319,910
    
    
    $
    340,870
    
    
    $
    371,178
    
    
    $
    100,264
 Cumulative Collections (1)
 TotalThroughPurchase
    
    Purchase
    
    Total Through December 31,
    
    March 31,Period
    
    Price (3)
    
    1998
    
    1999
    
    2000
    
    2001
    
    2002
    
    2003
    
    2004
    
    2005
    
    2006
    
    2007
    
    2008(dollars in thousands)1998
    
    $
    16,411
    
    
    $
    4,835
    
    
    $
    20,055
    
    
    $
    35,100
    
    
    $
    48,062
    
    
    $
    59,083
    
    
    $
    67,070
    
    
    $
    72,653
    
    
    $
    77,306
    
    
    $
    80,658
    
    
    $
    83,277
    
    
    $
    83,8571999
    
    
    12,924
    
    
    
    
    
    
    
    3,761
    
    
    
    15,092
    
    
    
    25,954
    
    
    
    35,704
    
    
    
    43,982
    
    
    
    50,657
    
    
    
    55,679
    
    
    
    59,614
    
    
    
    62,563
    
    
    
    63,1702000
    
    
    20,592
    
    
    
    
    
    
    
    
    
    
    
    8,896
    
    
    
    32,340
    
    
    
    54,899
    
    
    
    75,217
    
    
    
    92,413
    
    
    
    106,475
    
    
    
    117,078
    
    
    
    124,488
    
    
    
    126,0962001
    
    
    43,030
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,630
    
    
    
    67,957
    
    
    
    118,924
    
    
    
    164,637
    
    
    
    204,502
    
    
    
    234,974
    
    
    
    256,688
    
    
    
    260,8072002
    
    
    72,256
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,339
    
    
    
    93,152
    
    
    
    165,176
    
    
    
    232,825
    
    
    
    288,198
    
    
    
    328,037
    
    
    
    335,3772003
    
    
    87,152
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36,067
    
    
    
    130,631
    
    
    
    224,865
    
    
    
    304,288
    
    
    
    362,647
    
    
    
    374,5442004
    
    
    86,552
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,365
    
    
    
    91,719
    
    
    
    154,392
    
    
    
    202,485
    
    
    
    212,0792005
    
    
    100,769
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,459
    
    
    
    83,739
    
    
    
    134,550
    
    
    
    145,1622006 (2)
    
    
    142,269
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32,751
    
    
    
    134,280
    
    
    
    159,1682007
    
    
    170,578
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36,269
    
    
    
    63,6172008
    
    
    22,325
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,350
 Cumulative Collections as Percentage of Purchase Price (1)
 TotalThroughPurchase
    
    Purchase
    
    Total Through December 31,
    
    March 31,Period
    
    Price (3)
    
    1998
    
    1999
    
    2000
    
    2001
    
    2002
    
    2003
    
    2004
    
    2005
    
    2006
    
    2007
    
    20081998
    
    $
    16,411
    
    
    
    29
    %
    
    
    122
    %
    
    
    214
    %
    
    
    293
    %
    
    
    360
    %
    
    
    409
    %
    
    
    443
    %
    
    
    471
    %
    
    
    491
    %
    
    
    507
    %
    
    
    511
    %1999
    
    
    12,924
    
    
    
    
    
    
    
    29
    
    
    
    117
    
    
    
    201
    
    
    
    276
    
    
    
    340
    
    
    
    392
    
    
    
    431
    
    
    
    461
    
    
    
    484
    
    
    
    4892000
    
    
    20,592
    
    
    
    
    
    
    
    
    
    
    
    43
    
    
    
    157
    
    
    
    267
    
    
    
    365
    
    
    
    449
    
    
    
    517
    
    
    
    569
    
    
    
    605
    
    
    
    6122001
    
    
    43,030
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41
    
    
    
    158
    
    
    
    276
    
    
    
    383
    
    
    
    475
    
    
    
    546
    
    
    
    597
    
    
    
    6062002
    
    
    72,256
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31
    
    
    
    129
    
    
    
    229
    
    
    
    322
    
    
    
    399
    
    
    
    454
    
    
    
    4642003
    
    
    87,152
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41
    
    
    
    150
    
    
    
    258
    
    
    
    349
    
    
    
    416
    
    
    
    4302004
    
    
    86,552
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27
    
    
    
    106
    
    
    
    178
    
    
    
    234
    
    
    
    2452005
    
    
    100,769
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23
    
    
    
    83
    
    
    
    134
    
    
    
    1442006 (2)
    
    
    142,269
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23
    
    
    
    94
    
    
    
    1122007
    
    
    170,578
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21
    
    
    
    372008
    
    
    22,325
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6
 
 (1)
    
    Does not include proceeds from sales of any receivables.(2)
    
    Includes $8.3 million of portfolios acquired from the acquisition of PARC on April 28, 2006.(3)
    
    Purchase price refers to the cash paid to a seller to acquire a portfolio less the purchase
price for accounts that were sold at the time of purchase to another debt purchaser. 28




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##### Table of Contents



Seasonality
   Cash Collections
 Quarter
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004First
    
    $
    100,264,281
    
    
    $
    95,853,350
    
    
    $
    89,389,858
    
    
    $
    80,397,640
    
    
    $
    65,196,055Second
    
    
    
    
    
    
    95,432,021
    
    
    
    89,609,982
    
    
    
    84,862,856
    
    
    
    67,566,031Third
    
    
    
    
    
    
    90,748,442
    
    
    
    80,914,791
    
    
    
    78,159,364
    
    
    
    66,825,822Fourth
    
    
    
    
    
    
    89,144,650
    
    
    
    80,955,115
    
    
    
    76,490,350
    
    
    
    68,339,797Total cash collections
    
    $
    100,264,281
    
    
    $
    371,178,463
    
    
    $
    340,869,746
    
    
    $
    319,910,210
    
    
    $
    267,927,705
  For the three months endedMarch 31,2008
    
    
    2007 (1)$
    
    
    %
    
    
    $
    
    
    %Traditional collections
    
    $
    47,528,939
    
    
    
    47.4
    %
    
    $
    48,324,060
    
    
    
    50.4
    %Legal collections
    
    
    38,177,527
    
    
    
    38.1
    
    
    
    35,875,548
    
    
    
    37.4Other collections
    
    
    14,557,815
    
    
    
    14.5
    
    
    
    11,653,742
    
    
    
    12.2Total cash collections
    
    $
    100,264,281
    
    
    
    100.0
    %
    
    $
    95,853,350
    
    
    
    100.0
    %
 
 (1)
    
    The cash collections have been reclassified to make the 2007
disclosures comparable to the 2008 disclosures.  Face Value ofCharged-off
    
    
    
    
    
    
    No. ofAsset Type
    
    Receivables (2)
    
    
    %
    
    
    Accounts
    
    
    %(in thousands)Visa®/MasterCard®/Discover®
    
    $
    15,714,433
    
    
    
    48.3
    %
    
    
    7,452
    
    
    
    25.1
    %Private Label Credit Cards
    
    
    4,308,718
    
    
    
    13.2
    
    
    
    5,976
    
    
    
    20.1Telecommunications/Utility/Gas
    
    
    2,946,363
    
    
    
    9.0
    
    
    
    7,699
    
    
    
    26.0Health Club
    
    
    1,737,654
    
    
    
    5.3
    
    
    
    1,662
    
    
    
    5.6Auto Deficiency
    
    
    1,355,983
    
    
    
    4.2
    
    
    
    241
    
    
    
    0.8Installment Loans
    
    
    1,198,449
    
    
    
    3.7
    
    
    
    349
    
    
    
    1.2Wireless Telecommunications
    
    
    719,229
    
    
    
    2.2
    
    
    
    1,727
    
    
    
    5.8Other (1)
    
    
    4,577,802
    
    
    
    14.1
    
    
    
    4,566
    
    
    
    15.4Total
    
    $
    32,558,631
    
    
    
    100.0
    %
    
    
    29,672
    
    
    
    100.0
    %
 
 (1)
    
    Other includes charged-off receivables of several debt types, including student loan,
mobile home deficiency and retail mail order. This excludes the purchase of a single portfolio
in June 2002 with a face value of $1.2 billion at a cost of $1.2 million (or 0.1% of face
value) and consisting of approximately 3.8 million accounts.(2)
    
    Face value of charged-off receivables represents the cumulative amount of purchases net of
buybacks. The amount is not adjusted for payments received, settlements or additional accrued
interest on any accounts in such portfolios after the date we purchased the applicable
portfolio. 29




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##### Table of Contents




    
    Fresh accounts are typically 120 to 270 days past due, have been charged-off by the
credit originator and are either being sold prior to any post charged-off collection
activity or are placed with a third party collector for the first time. These accounts
typically sell for the highest purchase price.
    
    Primary accounts are typically 270 to 360 days past due, have been previously placed
with one third party collector and typically receive a lower purchase price.
    
    Secondary and tertiary accounts are typically more than 360 days past due, have been
placed with two or three third party collectors and receive even lower purchase prices.
   Face Value ofCharged-off
    
    
    
    
    
    
    No. ofAccount Type
    
    Receivables (2)
    
    
    %
    
    
    Accounts
    
    
    %(in thousands)Fresh
    
    $
    2,038,752
    
    
    
    6.3
    %
    
    
    1,032
    
    
    
    3.5
    %Primary
    
    
    4,653,946
    
    
    
    14.3
    
    
    
    4,512
    
    
    
    15.2Secondary
    
    
    6,509,166
    
    
    
    20.0
    
    
    
    6,548
    
    
    
    22.1Tertiary (1)
    
    
    14,953,035
    
    
    
    45.9
    
    
    
    14,449
    
    
    
    48.7Other
    
    
    4,403,732
    
    
    
    13.5
    
    
    
    3,131
    
    
    
    10.5Total
    
    $
    32,558,631
    
    
    
    100.0
    %
    
    
    29,672
    
    
    
    100.0
    %
 
 (1)
    
    Excluding the purchase of a single portfolio in June 2002 with a face value of $1.2 billion
at a cost of $1.2 million (or 0.1% of face value), and consisting of approximately 3.8 million
accounts.(2)
    
    Face value of charged-off receivables represents the cumulative amount of purchases net of
buybacks. The amount is not adjusted for payments received, settlements or additional accrued
interest on any accounts in such portfolios after the date we purchased the applicable
portfolio.  30




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##### Table of Contents



Face Value ofCharged-off
    
    
    
    
    
    
    No. ofGeographic Location
    
    Receivables (3)(4)
    
    
    %
    
    
    Accounts
    
    
    %(in thousands)Texas (1)
    
    $
    4,812,844
    
    
    
    14.8
    %
    
    
    4,687
    
    
    
    15.8
    %California
    
    
    3,693,681
    
    
    
    11.3
    
    
    
    3,488
    
    
    
    11.8Florida (1)
    
    
    3,314,961
    
    
    
    10.2
    
    
    
    2,180
    
    
    
    7.3New York
    
    
    1,883,753
    
    
    
    5.8
    
    
    
    1,262
    
    
    
    4.2Michigan (1)
    
    
    1,839,621
    
    
    
    5.6
    
    
    
    2,345
    
    
    
    7.9Ohio (1)
    
    
    1,784,065
    
    
    
    5.5
    
    
    
    2,341
    
    
    
    7.9Illinois (1)
    
    
    1,381,923
    
    
    
    4.2
    
    
    
    1,678
    
    
    
    5.7Pennsylvania
    
    
    1,162,211
    
    
    
    3.6
    
    
    
    928
    
    
    
    3.1New Jersey (1)
    
    
    1,031,919
    
    
    
    3.2
    
    
    
    856
    
    
    
    2.9North Carolina
    
    
    962,326
    
    
    
    3.0
    
    
    
    677
    
    
    
    2.3Georgia
    
    
    885,893
    
    
    
    2.7
    
    
    
    763
    
    
    
    2.6Arizona (1)
    
    
    662,069
    
    
    
    2.0
    
    
    
    564
    
    
    
    1.9Other (2)
    
    
    9,143,365
    
    
    
    28.1
    
    
    
    7,903
    
    
    
    26.6Total
    
    $
    32,558,631
    
    
    
    100.0
    %
    
    
    29,672
    
    
    
    100.0
    %
 
 (1)
    
    Collection site(s) located in this state.(2)
    
    Each state included in Other represents under 2.0% individually of the face value of total
charged-off consumer receivables.(3)
    
    Face value of charged-off receivables represents the cumulative amount of purchases net of
buybacks. The amount is not adjusted for payments received, settlements or additional accrued
interest on any accounts in such portfolios after the date we purchased the applicable
portfolio.(4)
    
    Excluding the purchase of a single portfolio in June 2002 with a face value of $1.2 billion
at a cost of $1.2 million (or 0.1% of face value) and consisting of approximately 3.8 million
accounts. Liquidity and Capital Resources
  Borrowings
  31




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##### Table of Contents




    
    Leverage Ratio (as defined) cannot exceed (i) 1.25 to 1.0 at any time on or before June
29, 2009, (ii) 1.125 to 1.0 at any time on or after June 30, 2009 and on or before December
30, 2010 or (iii) 1.0 to 1.0 at any time thereafter;
    
    Ratio of Consolidated Total Liabilities to Consolidated Tangible Net Worth cannot
exceed (i) 3.0 to 1.0 at any time on or before September 29, 2008, (ii) 2.75 to 1.0 at any
time on or after September 30, 2008 and on or before December 30, 2008, (iii) 2.5 to 1.0 at
any time on or after December 31, 2008 and on or before December 30, 2009, (iv) 2.25 to 1.0
at any time on or after December 31, 2009 and on or before December 30, 2010, (v) 2.0 to
1.0 at any time on or after December 31, 2010 and on or before December 30, 2011 or (vi)
1.5 to 1.0 to any time thereafter; and
    
    Consolidated Tangible Net Worth must equal or exceed $80.0 million plus 50% of positive
consolidated net income for three consecutive fiscal quarters ending December 31, 2007 and
for each fiscal year ending thereafter, such amount to be added as of December 31, 2007 and
as of the end of each such fiscal year thereafter.
  
    
    50% of the Excess Cash Flow for such fiscal year if the Leverage Ratio was greater than
1.0 to 1.0 as of the end of such fiscal year;
    
    25% of the Excess Cash Flow for such fiscal year if the Leverage Ratio was less than or
equal to 1.0 to 1.0 but greater than 0.875 to 1.0 as of the end of such fiscal year; or
    
    0% if the Leverage Ratio is less than or equal to 0.875 to 1.0 as of the end of such
fiscal year.
    Cash Flows
    32




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##### Table of Contents



Future Contractual Cash Obligations
  Year Ending December 31,2008(3)
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    2012
    
    
    ThereafterCapital lease obligations
    
    $
    9,186
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Operating lease obligations
    
    
    4,130,351
    
    
    
    5,041,677
    
    
    
    4,081,043
    
    
    
    3,824,311
    
    
    
    3,511,471
    
    
    
    10,852,626Purchase agreement (1)
    
    
    1,655,783
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Purchased receivables (2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Revolving credit (3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,000,000
    
    
    
    Term loan (4)
    
    
    1,125,000
    
    
    
    1,500,000
    
    
    
    1,500,000
    
    
    
    1,500,000
    
    
    
    1,500,000
    
    
    
    141,750,000Total
    
    $
    6,920,320
    
    
    $
    6,541,677
    
    
    $
    5,581,043
    
    
    $
    5,324,311
    
    
    $
    20,011,471
    
    
    $
    152,602,626
 
 (1)
    
    In 2007, we signed a new software agreement with BSI eSolutions, LLC and initiated a project
to install Cogent, a new collection platform. We have a contractual commitment to purchase
$1.7 million in additional software during 2008. In addition, we expect to spend approximately
$3.3 million over the next two years to fully implement this software. Costs will be
capitalized in accordance with the guidance in SOP 98-1 Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use. This project is funded with cash from
operations and borrowings on our Revolving Credit Facility.(2)
    
    During 2008, we renewed eight forward flow contracts as well as maintained two on-going
forward flow contracts that commit us to purchase receivables for a fixed percentage of the
face amount of the receivables. Eight forward flow contracts have terms beyond March 31, 2008
with the last contract expiring in December 2008. Eight forward flow contracts have estimated
monthly purchases of approximately $3.9 million, depending upon circumstances, and the other
two on-going forward flow contracts have estimated monthly purchases of approximately $12,300
over the next twelve months.(3)
    
    To the extent that a balance is outstanding on our Revolving Credit Facility, it would be due
in June 2012 or earlier as defined in the Amended New Credit Agreement.(4)
    
    To the extent that a balance is outstanding on our Term Loan Facility, it would be due in
June 2013. Off-Balance Sheet Arrangements
  Critical Accounting Policies
  33




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures about Market Risk
   34




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##### Table of Contents



Item 4. Controls and Procedures
   
 PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
   
 Item 6. Exhibits
 ExhibitNumber
    
    Description10.1
    
    First Amendment to Credit Agreement dated as of June 5, 2007, between Asset
Acceptance Capital Corp. and JPMorgan Chase Bank, N.A. and other lenders
(Incorporated by reference to Exhibit 10.1 included in Current Report on Form
8-K filed on March 11, 2008)10.2*
    
    2008 Annual Incentive Compensation Plan for Management (Portions of this document have been omitted pursuant to a request for
confidential treatment)31.1*
    
    Rule 13a-14(a) Certification of Chief Executive Officer31.2*
    
    Rule 13a-14(a) Certification of Chief Financial Officer32.1*
    
    Section 1350 Certification of Chief Executive Officer and Chief Financial Officer
 
 *
    
    Filed herewith 35




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##### Table of Contents



SIGNATURES
  ASSET ACCEPTANCE CAPITAL CORP.Date: May 1, 2008
    
    By:
    
    /s/ Nathaniel F. Bradley IVNathaniel F. Bradley IVChairman of the Board, President andChief Executive Officer(Principal Executive Officer)Date: May 1, 2008
    
    By:
    
    /s/ Mark A. RedmanMark A. RedmanSenior Vice President-Finance andChief Financial Officer(Principal Financial and Accounting Officer)
 36