##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 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 September 30, 2007
 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
  o þ 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
    
    
    36Item 4.
    
    Controls and Procedures
    
    
    37PART II  Other InformationItem 1.
    
    Legal Proceedings
    
    
    37Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    37Item 6.
    
    Exhibits
    
    
    38Signatures
    
    
    39Exhibits:
    
    
    10.1

    
    2004 Stock Incentive Plan (as amended and restated)10.2
    
    
    2007 Annual Incentive Compensation Plan for Management (as amended and restated)10.3
    
    
    Employment Agreement dated as of July 20, 2007, as amended by Amendment No. 1,
dated October 18, 2007, between
Asset Acceptance, LLC and Rion B. Needs10.4
    
    
    Employment Agreement dated as of October 1, 2007, between Asset Acceptance, LLC and Deborah L. Everly31.1
    
    
    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
  Quarterly Report on Form 10-Q
 www.assetacceptance.com
 2




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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
(Unaudited)
 September 30, 2007
    
    
    December 31, 2006ASSETSCash
    
    $
    10,935,287
    
    
    $
    11,307,451Purchased receivables, net
    
    
    311,467,403
    
    
    
    300,840,508Property and equipment, net
    
    
    11,576,945
    
    
    
    12,708,611Goodwill
    
    
    14,323,071
    
    
    
    14,323,071Income taxes receivable
    
    
    3,508,252
    
    
    
    3,235,426Other assets
    
    
    10,532,456
    
    
    
    8,167,755Total assets
    
    $
    362,343,414
    
    
    $
    350,582,822LIABILITIES AND STOCKHOLDERS EQUITYLiabilities:Accounts payable
    
    $
    4,557,997
    
    
    $
    3,666,042Accrued liabilities
    
    
    16,615,356
    
    
    
    13,026,622Notes payable
    
    
    162,625,000
    
    
    
    17,000,000Deferred tax liability, net
    
    
    58,788,535
    
    
    
    60,632,218Capital lease obligations
    
    
    30,219
    
    
    
    79,821Total liabilities
    
    
    242,617,107
    
    
    
    94,404,703Stockholders 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
and 37,225,275 at September 30, 2007 and
December 31, 2006, respectively
    
    
    331,196
    
    
    
    372,253Additional paid in capital
    
    
    145,355,691
    
    
    
    161,841,103Retained earnings
    
    
    15,516,644
    
    
    
    134,244,500Accumulated other comprehensive loss, net of tax
    
    
    (501,547
    )
    
    
    Common stock in treasury; at cost, 2,551,556
and 2,505,160 shares at September 30, 2007 and
December 31, 2006, respectively
    
    
    (40,975,677
    )
    
    
    (40,279,737
    )Total stockholders equity
    
    
    119,726,307
    
    
    
    256,178,119Total liabilities and stockholders equity
    
    $
    362,343,414
    
    
    $
    350,582,822
  3




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##### Table of Contents



ASSET ACCEPTANCE CAPITAL CORP.
 Consolidated Statements of Operations
(Unaudited)
 Three months ended September 30,
    
    
    Nine months ended September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006RevenuesPurchased receivable revenues, net
    
    $
    52,034,534
    
    
    $
    59,691,484
    
    
    $
    184,331,466
    
    
    $
    190,899,586Gain on sale of purchased receivables
    
    
    262,706
    
    
    
    400,323
    
    
    
    262,706
    
    
    
    2,726,658Other revenues, net
    
    
    290,257
    
    
    
    (921,662
    )
    
    
    1,165,226
    
    
    
    (293,922
    )Total revenues
    
    
    52,587,497
    
    
    
    59,170,145
    
    
    
    185,759,398
    
    
    
    193,332,322ExpensesSalaries and benefits
    
    
    20,046,294
    
    
    
    19,357,233
    
    
    
    63,447,328
    
    
    
    63,241,247Collections expense
    
    
    26,229,213
    
    
    
    19,381,522
    
    
    
    73,008,203
    
    
    
    58,572,652Occupancy
    
    
    2,380,040
    
    
    
    2,288,531
    
    
    
    7,027,068
    
    
    
    6,718,019Administrative
    
    
    2,355,442
    
    
    
    778,363
    
    
    
    7,849,901
    
    
    
    6,094,553Restructuring charges
    
    
    87,178
    
    
    
    
    
    
    
    564,214
    
    
    
    Depreciation and amortization
    
    
    1,073,957
    
    
    
    1,115,587
    
    
    
    3,242,223
    
    
    
    3,061,371Loss on disposal of equipment
    
    
    2,854
    
    
    
    1,131
    
    
    
    4,153
    
    
    
    6,653Total operating expenses
    
    
    52,174,978
    
    
    
    42,922,367
    
    
    
    155,143,090
    
    
    
    137,694,495Income from operations
    
    
    412,519
    
    
    
    16,247,778
    
    
    
    30,616,308
    
    
    
    55,637,827Other income (expense)Interest income
    
    
    193,832
    
    
    
    614,687
    
    
    
    415,956
    
    
    
    1,818,868Interest expense
    
    
    (3,357,264
    )
    
    
    (108,627
    )
    
    
    (4,759,644
    )
    
    
    (477,733
    )Other
    
    
    29,240
    
    
    
    168,162
    
    
    
    51,705
    
    
    
    (17,392
    )Income (loss) before income taxes
    
    
    (2,721,673
    )
    
    
    16,922,000
    
    
    
    26,324,325
    
    
    
    56,961,570Income taxes (benefits)
    
    
    (1,046,174
    )
    
    
    6,221,182
    
    
    
    9,869,406
    
    
    
    21,251,811Net income (loss)
    
    $
    (1,675,499
    )
    
    $
    10,700,818
    
    
    $
    16,454,919
    
    
    $
    35,709,759Weighted-average number of shares:Basic
    
    
    30,568,041
    
    
    
    36,858,417
    
    
    
    33,173,613
    
    
    
    37,094,454Diluted
    
    
    30,568,041
    
    
    
    36,891,693
    
    
    
    33,222,500
    
    
    
    37,125,710Earnings (loss) per common share
outstanding:Basic
    
    $
    (0.05
    )
    
    $
    0.29
    
    
    $
    0.50
    
    
    $
    0.96Diluted
    
    $
    (0.05
    )
    
    $
    0.29
    
    
    $
    0.50
    
    
    $
    0.96Dividends per common share
    
    $
    2.45
    
    
    $
    
    
    
    $
    2.45
    
    
    $
    
  4




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##### Table of Contents



ASSET ACCEPTANCE CAPITAL CORP.
 Consolidated Statements of Stockholders Equity
(Unaudited)
 AccumulatedAdditional
    
    
    
    
    
    
    Other
    
    
    Common
    
    
    TotalNumber of
    
    
    Common
    
    
    Paid in
    
    
    Retained
    
    
    Comprehensive
    
    
    Stock in
    
    
    StockholdersShares
    
    
    Stock
    
    
    Capital
    
    

Earnings(1)
    
    

Loss,
net of tax(1)
    
    
    Treasury
    
    
    EquityBalance at December 31, 2005
    
    
    37,225,275
    
    
    $
    372,253
    
    
    $
    160,361,599
    
    
    $
    88,726,502
    
    
    $
    
    
    
    $
    
    
    
    $
    249,460,354Repurchases of treasury shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (40,504,737
    )
    
    
    (40,504,737
    )Issuance of treasury shares
    
    
    
    
    
    
    
    
    
    
    58,350
    
    
    
    
    
    
    
    
    
    
    
    225,000
    
    
    
    283,350Compensation expense under
share-based compensation plan
    
    
    
    
    
    
    
    
    
    
    1,421,154
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,421,154Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    45,517,998
    
    
    
    
    
    
    
    
    
    
    
    45,517,998Balance at December 31, 2006
    
    
    37,225,275
    
    
    
    372,253
    
    
    
    161,841,103
    
    
    
    134,244,500
    
    
    
    
    
    
    
    (40,279,737
    )
    
    
    256,178,119Repurchases of common
stock, retired
    
    
    (4,130,792
    )
    
    
    (41,308
    )
    
    
    (17,688,878
    )
    
    
    (60,291,075
    )
    
    
    
    
    
    
    
    
    
    
    (78,021,261
    )Repurchases of treasury shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (695,940
    )
    
    
    (695,940
    )Issuance of common stock
    
    
    25,114
    
    
    
    251
    
    
    
    (251
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Compensation expense under
share-based compensation plan
    
    
    
    
    
    
    
    
    
    
    1,203,717
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,203,717Cash dividends paid
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (74,891,700
    )
    
    
    
    
    
    
    
    
    
    
    (74,891,700
    )Unrealized loss on derivative
instruments, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (501,547
    )
    
    
    
    
    
    
    (501,547
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,454,919
    
    
    
    
    
    
    
    
    
    
    
    16,454,919Balance at September 30, 2007
    
    
    33,119,597
    
    
    $
    331,196
    
    
    $
    145,355,691
    
    
    $
    15,516,644
    
    
    $
    (501,547
    )
    
    $
    (40,975,677
    )
    
    $
    119,726,307
 
 (1)
    
    Total comprehensive loss recognized during the three months ended September 30, 2007
was $2,177,046 and total comprehensive income recognized during the
nine months ended September 30, 2007 was $15,953,372. Total comprehensive income recognized during the three
and nine months ended September 30, 2006 was $10,700,818 and
$35,709,759, respectively. Total comprehensive income (loss) is
comprised of Net Income and Accumulated Other Comprehensive
Loss, net of tax.  5




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##### Table of Contents



ASSET ACCEPTANCE CAPITAL CORP.
 Consolidated Statements of Cash Flows
(Unaudited)
 Nine months ended September 30,2007
    
    
    2006Cash flows from operating activitiesNet income
    
    $
    16,454,919
    
    
    $
    35,709,759Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation and amortization
    
    
    3,242,223
    
    
    
    3,061,371Deferred income taxes
    
    
    (1,544,037
    )
    
    
    (1,670,943
    )Share-based compensation expense
    
    
    1,203,717
    
    
    
    1,313,746Net impairment of purchased receivables
    
    
    23,457,200
    
    
    
    14,431,200Non-cash revenue
    
    
    (709,161
    )
    
    
    (1,042,846
    )Loss on disposal of equipment
    
    
    4,153
    
    
    
    6,653Gain on sale of purchased receivables
    
    
    (262,706
    )
    
    
    (2,726,658
    )Changes in assets and liabilities, net of effects from
purchase of PARC in 2006:Increase in accounts payable and other liabilities
    
    
    3,679,496
    
    
    
    2,310,283Decrease (increase) in other assets
    
    
    (2,701,457
    )
    
    
    3,411,654Increase in income taxes receivable
    
    
    (272,826
    )
    
    
    (869,382
    )Net cash provided by operating activities
    
    
    42,551,521
    
    
    
    53,934,837Cash flows from investing activitiesProceeds from the sale of purchased receivables
    
    
    262,706
    
    
    
    3,143,882Investment in purchased receivables, net of buy backs
    
    
    (108,329,242
    )
    
    
    (71,572,821
    )Principal collected on purchased receivables
    
    
    74,954,308
    
    
    
    55,626,691Purchase of property and equipment
    
    
    (2,052,351
    )
    
    
    (5,114,932
    )Proceeds from the sale of property and equipment
    
    
    274,397
    
    
    
    157,347Purchase of investment securities
    
    
    
    
    
    
    (14,935,010
    )Payment for purchase of PARC, net of cash acquired
    
    
    
    
    
    
    (14,675,912
    )Net cash used in investing activities
    
    
    (34,890,182
    )
    
    
    (47,370,755
    )Cash flows from financing activitiesRepurchase of common stock
    
    
    (78,717,201
    )
    
    
    (20,116,476
    )Proceeds received for treasury shares
    
    
    
    
    
    
    283,350Borrowings under notes payable
    
    
    216,000,000
    
    
    
    Repayment of notes payable
    
    
    (70,375,000
    )
    
    
    Cash dividends paid
    
    
    (74,891,700
    )
    
    
    Repayment of capital lease obligations
    
    
    (49,602
    )
    
    
    (105,367
    )Repayment of bank and other secured debt assumed from PARC
    
    
    
    
    
    
    (4,413,380
    )Net cash used in financing activities
    
    
    (8,033,503
    )
    
    
    (24,351,873
    )Net decrease in cash
    
    
    (372,164
    )
    
    
    (17,787,791
    )Cash at beginning of period
    
    
    11,307,451
    
    
    
    50,518,934Cash at end of period
    
    $
    10,935,287
    
    
    $
    32,731,143Supplemental disclosure of cash flow informationCash paid for interest
    
    $
    3,500,176
    
    
    $
    227,678Cash paid for income taxes
    
    $
    11,705,290
    
    
    $
    23,780,241Capital lease obligations incurred
    
    $
    
    
    
    $
    24,797Assumption of liabilities in conjunction with purchase of PARC:Fair value of assets acquired less cash acquired
    
    $
    
    
    
    $
    20,311,217Cash paid for capital stock less cash acquired
    
    
    
    
    
    
    (14,675,912
    )Net liabilities assumed
    
    $
    
    
    
    $
    5,635,305
  6




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##### Table of Contents



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
   7




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##### Table of Contents



Three months ended September 30,
    
    
    Nine months ended September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Beginning balance
    
    $
    315,364,014
    
    
    $
    253,600,100
    
    
    $
    300,840,508
    
    
    $
    248,990,772Investment in purchased
receivables, net of buybacks
    
    
    34,817,297
    
    
    
    27,041,314
    
    
    
    108,329,242
    
    
    
    71,572,821Investment in purchased
receivables acquired from
PARC on April 28, 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,293,763Cost of sale of purchased
receivables, net of returns
    
    
    
    
    
    
    6,980
    
    
    
    
    
    
    
    (417,224
    )Cash collections
    
    
    (90,748,442
    )
    
    
    (80,914,791
    )
    
    
    (282,033,813
    )
    
    
    (259,914,631
    )Purchased receivable revenues
    
    
    52,034,534
    
    
    
    59,691,484
    
    
    
    184,331,466
    
    
    
    190,899,586Ending balance
    
    $
    311,467,403
    
    
    $
    259,425,087
    
    
    $
    311,467,403
    
    
    $
    259,425,087
  8




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##### Table of Contents



Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2007
    
    
    2007Beginning balance
    
    $
    984,693,070
    
    
    $
    958,629,284Adjustment
from using a 120 month collection forecast to a forecast equal
to the expected lives of the portfolios, which were between
36 to 60 months
    
    
    (207,918,443
    )
    
    
    (202,451,872
    )Revised
beginning balance
    
    
    776,774,627
    
    
    
    756,177,412Revenue
recognized on purchased receivables
    
    
    (52,034,534
    )
    
    
    (184,331,466
    )Additions
due to purchases during the period
    
    
    47,749,614
    
    
    
    179,464,502Reclassifications
from nonaccretable yield (1)
    
    
    (237,067,945
    )
    
    
    (215,888,686
    )Ending balance (2)
    
    $
    535,421,762
    
    
    $
    535,421,762
 
 (1)
    
    Reclassifications from nonaccretable yield include reductions
from revised  collection forecasts of approximately
$381.7 million and increases attributable to extending certain
portfolio lives from 60 to 84 months of $115.1 million.(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 36 for further information regarding these
estimates.  Three
months endedSeptember 30,
    
    

Nine
months endedSeptember 30,Revenue from fully amortized pools:
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Amortizing
before the end of their expected life
    
    $
    7,474,728
    
    
    $
    6,624,934
    
    
    $
    17,582,633
    
    
    $
    20,318,786Amortizing after their expected life
    
    
    12,539,478
    
    
    
    8,064,652
    
    
    
    40,118,384
    
    
    
    25,796,762Accounted
under the cost recovery method
    
    
    1,280,628
    
    
    
    1,139,683
    
    
    
    4,216,601
    
    
    
    3,616,616Total revenue from fully amortized pools
    
    $
    21,294,834
    
    
    $
    15,829,269
    
    
    $
    61,917,618
    
    
    $
    49,732,164
  Three
months endedSeptember 30,
    
    

Nine
months endedSeptember 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Beginning balance
    
    $
    48,415,655
    
    
    $
    30,407,355
    
    
    $
    39,714,055
    
    
    $
    22,285,355Impairments
    
    
    14,216,000
    
    
    
    6,867,300
    
    
    
    24,250,000
    
    
    
    17,062,300Reversal of impairments (1)
    
    
    (375,000
    )
    
    
    (587,600
    )
    
    
    (792,800
    )
    
    
    (2,631,100
    )Deductions (2)
    
    
    
    
    
    
    (46,100
    )
    
    
    (914,600
    )
    
    
    (75,600
    )Ending balance
    
    $
    62,256,655
    
    
    $
    36,640,955
    
    
    $
    62,256,655
    
    
    $
    36,640,955
 9




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##### Table of Contents



(1)
    
    The impairment reversals relate to impairment charges recognized during the fiscal years
ended December 31, 2006, 2005 and 2004.(2)
    
    Deductions represent impairments on fully amortized purchased receivable portfolios that were
written-off and cannot be reversed. Seasonality
  Collections from Third Parties
  Derivative Financial Instruments
      10




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##### Table of Contents



Accrued Liabilities
  September 30, 2007
    
    
    December 31, 2006Accrued payroll, benefits and bonuses
    
    $
    8,829,221
    
    
    $
    8,408,244Accrued general and administrative expenses
    
    
    1,798,371
    
    
    
    1,394,762Deferred rent
    
    
    3,906,897
    
    
    
    2,858,418Fair value of derivative instruments
    
    
    801,193
    
    
    
    Accrued restructuring charges
    
    
    15,500
    
    
    
    Other accrued expenses
    
    
    1,264,174
    
    
    
    365,198Total accrued liabilities
    
    $
    16,615,356
    
    
    $
    13,026,622
  Concentration of Risk
  Earnings Per Share
  Comprehensive
Income (Loss)
  Fair Value of Financial Instruments
  Reclassifications
  11




---



##### Table of Contents



Recently Issued Accounting Pronouncements
 Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in
Income Taxes  an interpretation of FASB Statement No. 109
  SFAS No. 157, Fair Value Measurements
  2. Recapitalization
       3. Derivative Financial Instruments and Risk Management
 Risk Management
  12




---



##### Table of Contents



Derivative Financial Instruments
   4. Notes Payable
  
    
    Leverage Ratio (as defined) cannot exceed 1.25 to 1.0 at any time on or before December
30, 2008, 1.125 to 1.0 at any time on or after December 31, 2008 and on or before December
30, 2010, or 1.0 to 1.0 at any time thereafter;
    
    Ratio of Total Liabilities to Tangible Net Worth cannot exceed 3.0 to 1.0 at any time on
or before December 30, 2007, 2.5 to 1.0 at any time on or after December 31, 2007 and on or
before December 30, 2008, 2.0 to 1.0 at any time on or after December 31, 2008 and on or
before December 30, 2009, 1.75 to 1.0 at any time on or after December 31, 2009 and on or
before December 30, 2010, or 1.5 to 1.0 at any time thereafter;
    
    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.
   Termination of Former Credit Agreement.
 13




---



##### Table of Contents



5. Property and Equipment
  September 30, 2007
    
    
    December 31, 2006Computers and software
    
    $
    13,073,472
    
    
    $
    12,343,711Furniture and fixtures
    
    
    10,015,413
    
    
    
    10,001,986Leasehold improvements
    
    
    2,282,460
    
    
    
    2,051,391Equipment under capital lease
    
    
    177,412
    
    
    
    321,783Automobiles
    
    
    51,709
    
    
    
    47,404Total property and equipment, cost
    
    
    25,600,466
    
    
    
    24,766,275Less accumulated depreciation
    
    
    (14,023,522
    )
    
    
    (12,057,664
    )Net property and equipment
    
    $
    11,576,944
    
    
    $
    12,708,611
 6. Restructuring Charges
    Three Months
    
    
    Nine MonthsEnded
    
    
    EndedSeptember 30, 2007
    
    
    September 30, 2007One-time termination benefits
    
    $
    104,510
    
    
    $
    358,951Long-lived assets charge (1,2)
    
    
    (55,158
    )
    
    
    151,126Other exit costs
    
    
    36,917
    
    
    
    53,228Total restructuring charges
    
    $
    86,269
    
    
    $
    563,305
 
 (1)
    
    The accelerated depreciation related to long-lived assets charge is included in
property and equipment, net in the consolidated statements of financial position.(2)
    
    Includes the proceeds of $0.3 million for the sale of the tangible assets located
in the White Marsh, Maryland office on August 31, 2007.  14




---



##### Table of Contents



One-TimeTermination
    
    
    OtherBenefits
    
    
    Exit Costs
    
    
    TotalRestructuring liability as of January 1, 2007
    
    $
    
    
    
    $
    
    
    
    $
    Costs incurred and charged to expense
    
    
    358,951
    
    
    
    53,228
    
    
    
    412,179Costs paid
    
    
    (343,451
    )
    
    
    (53,228
    )
    
    
    (396,679
    )Restructuring liability as of September 30,
2007
    
    $
    15,500
    
    
    $
    
    
    
    $
    15,500
   7. Share-Based Compensation
       Stock Options
  15




---



##### Table of Contents



Options issue year:
    
    2007
    
    2006Expected volatility
    
    
    45.30
    %
    
    
    46.00
    %Weighted-average volatility
    
    
    45.30
    %
    
    
    46.00
    %Expected dividends
    
    
    0.00
    %
    
    
    0.00
    %Expected term
    
    5Years
    
    5YearsRisk-free rate
    
    
    4.60%-4.98
    %
    
    
    4.55%-5.02
    %
  Weighted-Average
    
    
    AggregateOptions
    
    
    Weighted-Average
    
    
    Remaining
    
    
    IntrinsicOutstanding
    
    
    Exercise Price
    
    
    Contractual Term
    
    
    Value(in years)January 1, 2007 (1)
    
    
    380,451
    
    
    $
    16.32Granted (1)
    
    
    289,898
    
    
    
    11.20Exercised
    
    
    
    
    
    
    Forfeited or expired
    
    
    (2,500
    )
    
    
    9.28Outstanding at September 30, 2007
    
    
    667,849
    
    
    
    14.13
    
    
    
    8.59
    
    
    $
    477,340Exercisable at September 30, 2007
    
    
    428,434
    
    
    $
    16.34
    
    
    
    7.96
    
    
    $
    
 
 (1)
    
    The options outstanding and weighted-average exercise price were adjusted to reflect the
impact of the special one-time cash dividend paid on July 31, 2007.    16




---



##### Table of Contents



Deferred Stock Units
    Weighted-AverageGrant-DateRSUs
    
    
    Fair ValueJanuary 1, 2007
    
    
    
    
    
    $
    Granted (1)
    
    
    6,418
    
    
    
    14.40Balance at September 30, 2007
    
    
    6,418
    
    
    $
    14.40
 
 (1)
    
    The DSUs outstanding and weighted-average grant-date fair values were adjusted to reflect
the impact of the special one-time cash dividend paid on July 31, 2007.  Restricted Shares and Restricted Share Units
    Weighted-AverageGrant-DateNonvested RSUs
    
    RSUs
    
    
    Fair ValueNonvested at January 1, 2007
    
    
    25,114
    
    
    $
    20.89Granted (1)
    
    
    154,044
    
    
    
    9.28Nonvested at September 30, 2007
    
    
    179,158
    
    
    $
    10.91
 
 (1)
    
    The RSUs outstanding and weighted-average grant-date fair
values were not adjusted to reflect
the impact of the special one-time cash dividend paid on
July 31, 2007, because they were granted after the dividend was
paid.  17




---



##### Table of Contents



8. Litigation Contingencies
  9. Income Taxes
      18




---



##### Table of Contents



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




---



##### Table of Contents



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;
    
    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;
 20




---



##### Table of Contents




    
    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




---



##### Table of Contents



Results of Operations
  Percent of Total Revenues
    
    
    Percent of Cash CollectionsThree Months Ended
    
    Nine Months Ended
    
    
    Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,
    
    
    September 30,
    

September 30,2007
    
    2006
    
    2007
    
    2006
    
    
    2007
    
    2006
    
    2007
    
    2006RevenuesPurchased receivable revenues, net
    
    
    98.9
    %
    
    
    100.9
    %
    
    
    99.2
    %
    
    
    98.7
    %
    
    
    
    57.3
    %
    
    
    73.8
    %
    
    
    65.4
    %
    
    
    73.5
    %Gain on sale of purchased
receivables
    
    
    0.5
    
    
    
    0.7
    
    
    
    0.2
    
    
    
    1.4
    
    
    
    
    0.3
    
    
    
    0.5
    
    
    
    0.1
    
    
    
    1.0Other revenues, net
    
    
    0.6
    
    
    
    (1.6
    )
    
    
    0.6
    
    
    
    (0.1
    )
    
    
    
    0.3
    
    
    
    (1.2
    )
    
    
    0.4
    
    
    
    (0.1
    )Total revenues
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    
    57.9
    
    
    
    73.1
    
    
    
    65.9
    
    
    
    74.4ExpensesSalaries and benefits
    
    
    38.1
    
    
    
    32.7
    
    
    
    34.2
    
    
    
    32.7
    
    
    
    
    22.1
    
    
    
    23.9
    
    
    
    22.5
    
    
    
    24.3Collections expense
    
    
    49.9
    
    
    
    32.7
    
    
    
    39.3
    
    
    
    30.3
    
    
    
    
    28.9
    
    
    
    23.9
    
    
    
    25.9
    
    
    
    22.5Occupancy
    
    
    4.5
    
    
    
    3.9
    
    
    
    3.8
    
    
    
    3.5
    
    
    
    
    2.6
    
    
    
    2.8
    
    
    
    2.5
    
    
    
    2.6Administrative
    
    
    4.5
    
    
    
    1.3
    
    
    
    4.2
    
    
    
    3.1
    
    
    
    
    2.6
    
    
    
    1.0
    
    
    
    2.8
    
    
    
    2.4Restructuring charges
    
    
    0.2
    
    
    
    0.0
    
    
    
    0.3
    
    
    
    0.0
    
    
    
    
    0.1
    
    
    
    0.0
    
    
    
    0.2
    
    
    
    0.0Depreciation and amortization
    
    
    2.0
    
    
    
    1.9
    
    
    
    1.7
    
    
    
    1.6
    
    
    
    
    1.1
    
    
    
    1.4
    
    
    
    1.1
    
    
    
    1.2Loss on disposal of equipment
    
    
    0.0
    
    
    
    0.0
    
    
    
    0.0
    
    
    
    0.0
    
    
    
    
    0.0
    
    
    
    0.0
    
    
    
    0.0
    
    
    
    0.0Total operating expenses
    
    
    99.2
    
    
    
    72.5
    
    
    
    83.5
    
    
    
    71.2
    
    
    
    
    57.4
    
    
    
    53.0
    
    
    
    55.0
    
    
    
    53.0Income from operations
    
    
    0.8
    
    
    
    27.5
    
    
    
    16.5
    
    
    
    28.8
    
    
    
    
    0.5
    
    
    
    20.1
    
    
    
    10.9
    
    
    
    21.4Other income (expense)Interest income
    
    
    0.4
    
    
    
    1.0
    
    
    
    0.2
    
    
    
    0.9
    
    
    
    
    0.2
    
    
    
    0.7
    
    
    
    0.1
    
    
    
    0.7Interest expense
    
    
    (6.4
    )
    
    
    (0.2
    )
    
    
    (2.5
    )
    
    
    (0.2
    )
    
    
    
    (3.7
    )
    
    
    (0.1
    )
    
    
    (1.7
    )
    
    
    (0.2
    )Other
    
    
    0.0
    
    
    
    0.3
    
    
    
    0.0
    
    
    
    (0.0
    )
    
    
    
    0.0
    
    
    
    0.2
    
    
    
    0.0
    
    
    
    (0.0
    )Income (loss) before income taxes
    
    
    (5.2
    )
    
    
    28.6
    
    
    
    14.2
    
    
    
    29.5
    
    
    
    
    (3.0
    )
    
    
    20.9
    
    
    
    9.3
    
    
    
    21.9Income taxes (benefits)
    
    
    (2.0
    )
    
    
    10.5
    
    
    
    5.3
    
    
    
    11.0
    
    
    
    
    (1.2
    )
    
    
    7.7
    
    
    
    3.5
    
    
    
    8.2Net income (loss)
    
    
    (3.2
    )%
    
    
    18.1
    %
    
    
    8.9
    %
    
    
    18.5
    %
    
    
    
    (1.8
    )%
    
    
    13.2
    %
    
    
    5.8
    %
    
    
    13.7
    %
 Three Months Ended September 30, 2007 Compared To Three Months Ended September 30, 2006
 Revenue
   22




---



##### Table of Contents



Operating Expenses
  Salaries and Benefits.
 Collections Expense.
 Occupancy.
 Administrative.
 Restructuring Charges.
 Depreciation and Amortization.
 Interest Income.
 23




---



##### Table of Contents



Interest Expense.
 Income Taxes
 Nine Months Ended September 30, 2007 Compared To Nine Months Ended September 30, 2006
 Revenue
   24




---



##### Table of Contents



Operating Expenses
  Salaries and Benefits.
 Collections Expense.
 Occupancy.
 Administrative.
 Restructuring Charges.
 Depreciation and Amortization.
 Interest Income.
 25




---



##### Table of Contents



Interest Expense.
 Income Taxes
 26




---



##### Table of Contents



Supplemental Performance Data
 Portfolio Performance
  Total EstimatedCash Collections
    
    
    Estimated
    
    
    Total
    
    
    Collections as aNumber of
    
    
    Purchase
    
    
    Including Cash
    
    
    Remaining
    
    
    Estimated
    
    
    Percentage ofPurchase Period
    
    Portfolios
    
    
    Price (1)
    
    
    Sales (2)
    
    
    Collections(3)(4)
    
    
    Collections
    
    
    Purchase Price (2)(dollars in thousands)2002
    
    
    94
    
    
    $
    72,258
    
    
    $
    320,808
    
    
    $
    1,977
    
    
    $
    322,785
    
    
    
    447
    %2003
    
    
    76
    
    
    
    87,155
    
    
    
    351,886
    
    
    
    40,384
    
    
    
    392,270
    
    
    
    4502004
    
    
    106
    
    
    
    86,566
    
    
    
    194,055
    
    
    
    94,751
    
    
    
    288,806
    
    
    
    3342005
    
    
    104
    
    
    
    100,796
    
    
    
    124,192
    
    
    
    153,117
    
    
    
    277,309
    
    
    
    2752006 (5)
    
    
    154
    
    
    
    142,368
    
    
    
    110,640
    
    
    
    337,216
    
    
    
    447,856
    
    
    
    3152007 (6)
    
    
    112
    
    
    
    109,760
    
    
    
    18,394
    
    
    
    219,444
    
    
    
    237,838
    
    
    
    217Total
    
    
    646
    
    
    $
    598,903
    
    
    $
    1,119,975
    
    
    $
    846,889
    
    
    $
    1,966,864
    
    
    
    328
    %
 
 (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 defined as
buybacks) less the purchase price for accounts that were sold at the time of purchase to
another debt purchaser.(2)
    
    For purposes of this table, cash collections include selected cash sales, which
were entered
into subsequent to purchase. Cash sales, however, exclude the sales of portfolios that
occurred at the time of purchase.(3)
    
    Estimated remaining collections are based on historical cash collections. Please refer to
Forward-Looking Statements on page 20 and Critical Accounting
policies on page 36 for further
information regarding these estimates.(4)
    
    The estimated remaining collections were reduced from
120 month collection forecasts from the date of purchase to be
equal to the expected lives of the portfolios, which were between
36 to 60 months. Reduction from the 120 month to
60 month forecasts had approximately $207.9 million and
$202.5  million impact on remaining cash collections as of
June 30, 2007 and December 31, 2006, respectively.(5)
    
    Includes 62 portfolios from the acquisition of PARC on April 28, 2006 that were
allocated a
purchase price value of $8.3 million.(6)
    
    Includes only nine months of activity through September 30, 2007.  Unamortized
    
    
    UnamortizedUnamortized
    
    
    
    
    
    
    Balance as a
    
    
    Balance as aBalance as of
    
    
    Purchase
    
    
    Percentage of
    
    
    Percentage ofPurchase Period
    
    September 30, 2007
    
    
    Price (1)
    
    
    Purchase Price
    
    
    Total(dollars in thousands)2002
    
    $
    3,019
    
    
    $
    72,258
    
    
    
    4.2
    %
    
    
    1.0
    %2003
    
    
    14,199
    
    
    
    87,155
    
    
    
    16.3
    
    
    
    4.62004
    
    
    34,952
    
    
    
    86,566
    
    
    
    40.4
    
    
    
    11.22005
    
    
    54,846
    
    
    
    100,796
    
    
    
    54.4
    
    
    
    17.62006 (2)
    
    
    103,174
    
    
    
    142,368
    
    
    
    72.5
    
    
    
    33.12007
    
    
    101,277
    
    
    
    109,760
    
    
    
    92.3
    
    
    
    32.5Total
    
    $
    311,467
    
    
    $
    598,903
    
    
    
    52.0
    %
    
    
    100.0
    %
 
 (1)
    
    Purchase price refers to the cash paid to a seller to acquire a portfolio less buybacks and
the purchase price for accounts that were sold at the time of purchase to another debt
purchaser.(2)
    
    Includes 62 portfolios from the acquisition of PARC on April 28, 2006 that were allocated a
purchase price value of $8.3 million. 
 27




---



##### Table of Contents



Three months ended September 30, 2007Year of
    
    
    
    
    
    
    
    
    
    Amortization
    
    
    Monthly
    
    
    Net
    
    
    Zero BasisPurchase
    
    Collections
    
    
    Revenue
    
    
    Rate
    
    
    Yield(1)
    
    
    Impairments
    
    
    Collections2001 and prior
    
    $
    8,393,785
    
    
    $
    8,394,658
    
    
    
    N/M
    %
    
    
    N/M
    %
    
    $
    
    
    
    $
    8,394,5662002
    
    
    9,216,465
    
    
    
    7,312,716
    
    
    
    20.7
    
    
    
    56.35
    
    
    
    (46,600
    )
    
    
    5,979,6432003
    
    
    13,745,208
    
    
    
    9,309,806
    
    
    
    32.3
    
    
    
    18.08
    
    
    
    159,300
    
    
    
    3,703,2112004
    
    
    11,542,711
    
    
    
    6,251,686
    
    
    
    45.8
    
    
    
    5.48
    
    
    
    2,599,000
    
    
    
    667,3562005
    
    
    11,977,322
    
    
    
    (1,942,723
    )
    
    
    116.2
    
    
    
    (1.07
    )
    
    
    11,124,000
    
    
    
    25,7762006
    
    
    25,166,089
    
    
    
    17,032,583
    
    
    
    32.3
    
    
    
    5.22
    
    
    
    5,300
    
    
    
    2,490,1302007
    
    
    10,706,862
    
    
    
    5,675,808
    
    
    
    47.0
    
    
    
    2.72
    
    
    
    
    
    
    
    34,152Totals
    
    $
    90,748,442
    
    
    $
    52,034,534
    
    
    
    42.7
    
    
    
    5.81
    
    
    $
    13,841,000
    
    
    $
    21,294,834
 Three months ended September 30, 2006Year of
    
    
    
    
    
    
    
    
    
    Amortization
    
    
    Monthly
    
    
    Net
    
    
    Zero BasisPurchase
    
    Collections
    
    
    Revenue
    
    
    Rate
    
    
    Yield(1)
    
    
    Impairments
    
    
    Collections2001 and prior
    
    $
    11,494,310
    
    
    $
    10,536,246
    
    
    
    8.3
    %
    
    
    N/M
    %
    
    $
    39,600
    
    
    $
    10,089,2942002
    
    
    12,478,220
    
    
    
    8,378,376
    
    
    
    32.9
    
    
    
    15.79
    
    
    
    1,073,000
    
    
    
    2,869,6832003
    
    
    17,930,191
    
    
    
    10,631,554
    
    
    
    40.7
    
    
    
    9.77
    
    
    
    3,779,300
    
    
    
    2,205,2082004
    
    
    14,082,668
    
    
    
    10,504,764
    
    
    
    25.4
    
    
    
    6.29
    
    
    
    1,406,100
    
    
    
    610,7562005
    
    
    14,210,640
    
    
    
    12,316,639
    
    
    
    13.3
    
    
    
    4.95
    
    
    
    (18,300
    )
    
    
    54,3282006
    
    
    10,718,762
    
    
    
    7,323,905
    
    
    
    31.7
    
    
    
    4.88
    
    
    
    
    
    
    
    Totals
    
    $
    80,914,791
    
    
    $
    59,691,484
    
    
    
    26.2
    
    
    
    8.15
    
    
    $
    6,279,700
    
    
    $
    15,829,269
 Nine months ended September 30, 2007Year of
    
    
    
    
    
    
    
    
    
    Amortization
    
    
    Monthly
    
    
    Net
    
    
    Zero BasisPurchase
    
    Collections
    
    
    Revenue
    
    
    Rate
    
    
    Yield(1)
    
    
    Impairments
    
    
    Collections2001 and prior
    
    $
    29,075,495
    
    
    $
    29,086,944
    
    
    
    N/M
    %
    
    
    N/M
    %
    
    $
    
    
    
    $
    29,007,6142002
    
    
    31,648,465
    
    
    
    22,873,676
    
    
    
    27.7
    
    
    
    35.58
    
    
    
    162,500
    
    
    
    15,837,6212003
    
    
    46,176,202
    
    
    
    31,082,260
    
    
    
    32.7
    
    
    
    15.54
    
    
    
    1,783,600
    
    
    
    9,739,9612004
    
    
    38,397,854
    
    
    
    22,901,860
    
    
    
    40.4
    
    
    
    5.89
    
    
    
    7,074,800
    
    
    
    2,267,6382005
    
    
    40,451,981
    
    
    
    17,478,570
    
    
    
    56.8
    
    
    
    2.79
    
    
    
    13,803,000
    
    
    
    56,0042006
    
    
    77,889,306
    
    
    
    51,002,054
    
    
    
    34.5
    
    
    
    4.79
    
    
    
    633,300
    
    
    
    4,954,5772007
    
    
    18,394,510
    
    
    
    9,906,102
    
    
    
    46.1
    
    
    
    1.76
    
    
    
    
    
    
    
    54,203Totals
    
    $
    282,033,813
    
    
    $
    184,331,466
    
    
    
    34.6
    
    
    
    6.34
    
    
    $
    23,457,200
    
    
    $
    61,917,618
 Nine months ended September 30, 2006Year of
    
    
    
    
    
    
    
    
    
    Amortization
    
    
    Monthly
    
    
    Net
    
    
    Zero BasisPurchase
    
    Collections
    
    
    Revenue
    
    
    Rate
    
    
    Yield(1)
    
    
    Impairments
    
    
    Collections2001 and prior
    
    $
    39,594,642
    
    
    $
    35,161,140
    
    
    
    11.2
    %
    
    
    N/M
    %
    
    $
    372,600
    
    
    $
    31,845,0682002
    
    
    43,238,170
    
    
    
    30,704,954
    
    
    
    29.0
    
    
    
    15.30
    
    
    
    1,488,500
    
    
    
    8,182,0872003
    
    
    62,673,171
    
    
    
    43,009,354
    
    
    
    31.4
    
    
    
    11.01
    
    
    
    6,519,300
    
    
    
    7,833,0342004
    
    
    49,091,169
    
    
    
    35,830,773
    
    
    
    27.0
    
    
    
    6.57
    
    
    
    1,392,100
    
    
    
    1,805,7772005
    
    
    46,549,236
    
    
    
    33,656,605
    
    
    
    27.7
    
    
    
    4.23
    
    
    
    4,658,700
    
    
    
    66,1982006
    
    
    18,768,243
    
    
    
    12,536,760
    
    
    
    33.2
    
    
    
    3.08
    
    
    
    
    
    
    
    Totals
    
    $
    259,914,631
    
    
    $
    190,899,586
    
    
    
    26.6
    
    
    
    8.07
    
    
    $
    14,431,200
    
    
    $
    49,732,164
 
 (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. 28




---



##### Table of Contents



Account Representative Productivity and Turnover
  Account Representatives by Experience
 Three months ended
    
    
    Nine months ended
    
    
    Year endedSeptember 30,
    
    
    September 30,
    
    
    December 31,2007
    
    
    2006(3)
    
    
    2007
    
    
    2006(3)
    
    
    2006(3)
    
    
    2005(3)Number of account representatives:One year or more (1)
    
    
    547
    
    
    
    570
    
    
    
    575
    
    
    
    568
    
    
    
    573
    
    
    
    510Less than one year (2)
    
    
    369
    
    
    
    366
    
    
    
    337
    
    
    
    437
    
    
    
    399
    
    
    
    540Total account representatives
    
    
    916
    
    
    
    936
    
    
    
    912
    
    
    
    1,005
    
    
    
    972
    
    
    
    1,050
 
 (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 employees in training.(3)
    
    Excludes PARCs FTE account representatives for periods prior to January 1, 2007. Collection Averages by Experience
 Three months ended
    
    Nine months ended
    
    Year endedSeptember 30,
    
    September 30,
    
    December 31,2007
    
    2006(3)
    
    2007
    
    2006(3)
    
    2006(3)
    
    2005(3)Collection averages:One year or more (1)
    
    $
    49,114
    
    
    $
    44,576
    
    
    $
    164,918
    
    
    $
    146,452
    
    
    $
    193,951
    
    
    $
    199,734Less than one year (2)
    
    
    40,273
    
    
    
    27,988
    
    
    
    121,632
    
    
    
    92,202
    
    
    
    123,253
    
    
    
    117,859Overall average
    
    
    45,549
    
    
    
    38,082
    
    
    
    148,905
    
    
    
    122,854
    
    
    
    164,932
    
    
    
    157,661
 
 (1)
    
    Based on number of average traditional call center 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 employees in training.(3)
    
    Excludes PARCs FTE account representatives for periods prior to January 1, 2007.  Turnover by Experience
 Three months ended
    
    Nine months ended
    
    Year endedSeptember 30,
    
    September 30,
    
    December 31,2007(3)
    
    2006(4)
    
    2007(3)
    
    2006(4)
    
    2006
    
    2005(4)Collection department turnover:One year or more (1)
    
    
    84.8
    %
    
    
    50.6
    %
    
    
    60.3
    %
    
    
    44.8
    %
    
    
    44.9
    %
    
    
    39.3
    %Less than one year (2)
    
    
    162.0
    
    
    
    112.5
    
    
    
    129.7
    
    
    
    105.0
    
    
    
    107.4
    
    
    
    117.8Overall turnover
    
    
    114.0
    
    
    
    73.8
    
    
    
    84.3
    
    
    
    70.0
    
    
    
    69.5
    
    
    
    78.8
 
 (1)
    
    Based on number of traditional call center employees within the collection department
with one or more years of service.(2)
    
    Based on number of traditional call center employees within the collection department
with less than one year of service, including new employees in training.(3)
    
    Excluding the turnover in our White Marsh, Maryland office
for 45 employees that remained as of August 31, 2007, when
the office was sold, the turnover for one year
or more, less than one year and overall turnover would be 60.3%, 153.3% and 95.5%,
respectively, for the three months ended September 30, 2007 and would be 52.5%, 126.5% and
78.2%, respectively, for the nine months ended September 30, 2007.(4)
    
    Excludes traditional call center employees within PARCs collection department for periods
prior to January 1, 2007. 29




---



##### Table of Contents



Cash Collections
  Historical Collections (1)
 Nine MonthsEndedPurchase
    
    Purchase
    
    
    Year Ended December 31,
    
    
    September 30,Period
    
    Price(3)
    
    
    1997
    
    
    1998
    
    
    1999
    
    
    2000
    
    
    2001
    
    
    2002
    
    
    2003
    
    
    2004
    
    
    2005
    
    
    2006
    
    
    2007(dollars in thousands)Pre-1997
    
    
    
    
    
    $
    7,713
    
    
    $
    5,684
    
    
    $
    4,493
    
    
    $
    3,718
    
    
    $
    2,607
    
    
    $
    1,862
    
    
    $
    1,605
    
    
    $
    1,283
    
    
    $
    1,270
    
    
    $
    918
    
    
    $
    6121997
    
    $
    4,345
    
    
    
    1,682
    
    
    
    4,919
    
    
    
    5,573
    
    
    
    5,017
    
    
    
    3,563
    
    
    
    2,681
    
    
    
    1,785
    
    
    
    1,526
    
    
    
    1,342
    
    
    
    1,090
    
    
    
    6561998
    
    
    16,411
    
    
    
    
    
    
    
    4,835
    
    
    
    15,220
    
    
    
    15,045
    
    
    
    12,962
    
    
    
    11,021
    
    
    
    7,987
    
    
    
    5,582
    
    
    
    4,653
    
    
    
    3,352
    
    
    
    2,1041999
    
    
    12,924
    
    
    
    
    
    
    
    
    
    
    
    3,761
    
    
    
    11,331
    
    
    
    10,862
    
    
    
    9,750
    
    
    
    8,278
    
    
    
    6,675
    
    
    
    5,022
    
    
    
    3,935
    
    
    
    2,3322000
    
    
    20,592
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,895
    
    
    
    23,444
    
    
    
    22,559
    
    
    
    20,318
    
    
    
    17,196
    
    
    
    14,062
    
    
    
    10,603
    
    
    
    5,8722001
    
    
    43,030
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,630
    
    
    
    50,327
    
    
    
    50,967
    
    
    
    45,713
    
    
    
    39,865
    
    
    
    30,472
    
    
    
    17,5002002
    
    
    72,258
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,340
    
    
    
    70,813
    
    
    
    72,024
    
    
    
    67,649
    
    
    
    55,373
    
    
    
    31,6482003
    
    
    87,155
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36,067
    
    
    
    94,564
    
    
    
    94,234
    
    
    
    79,423
    
    
    
    46,1762004
    
    
    86,566
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,365
    
    
    
    68,354
    
    
    
    62,673
    
    
    
    38,3982005
    
    
    100,796
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,459
    
    
    
    60,280
    
    
    
    40,4522006 (2)
    
    
    142,368
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32,751
    
    
    
    77,8892007
    
    
    109,760
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,395Total
    
    
    
    
    
    $
    9,395
    
    
    $
    15,438
    
    
    $
    29,047
    
    
    $
    44,006
    
    
    $
    71,068
    
    
    $
    120,540
    
    
    $
    197,820
    
    
    $
    267,928
    
    
    $
    319,910
    
    
    $
    340,870
    
    
    $
    282,034
 Cumulative Collections (1)
 TotalThroughPurchase
    
    Purchase
    
    Total Through December 31,
    
    September 30,Period
    
    Price(3)
    
    1997
    
    1998
    
    1999
    
    2000
    
    2001
    
    2002
    
    2003
    
    2004
    
    2005
    
    2006
    
    2007(dollars in thousands)1997
    
    $
    4,345
    
    
    $
    1,682
    
    
    $
    6,601
    
    
    $
    12,174
    
    
    $
    17,191
    
    
    $
    20,754
    
    
    $
    23,435
    
    
    $
    25,220
    
    
    $
    26,746
    
    
    $
    28,088
    
    
    $
    29,178
    
    
    $
    29,8341998
    
    
    16,411
    
    
    
    
    
    
    
    4,835
    
    
    
    20,055
    
    
    
    35,100
    
    
    
    48,062
    
    
    
    59,083
    
    
    
    67,070
    
    
    
    72,652
    
    
    
    77,305
    
    
    
    80,657
    
    
    
    82,7611999
    
    
    12,924
    
    
    
    
    
    
    
    
    
    
    
    3,761
    
    
    
    15,092
    
    
    
    25,954
    
    
    
    35,704
    
    
    
    43,982
    
    
    
    50,657
    
    
    
    55,679
    
    
    
    59,614
    
    
    
    61,9462000
    
    
    20,592
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,895
    
    
    
    32,339
    
    
    
    54,898
    
    
    
    75,216
    
    
    
    92,412
    
    
    
    106,474
    
    
    
    117,077
    
    
    
    122,9492001
    
    
    43,030
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,630
    
    
    
    67,957
    
    
    
    118,924
    
    
    
    164,637
    
    
    
    204,502
    
    
    
    234,974
    
    
    
    252,4742002
    
    
    72,258
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,340
    
    
    
    93,153
    
    
    
    165,177
    
    
    
    232,826
    
    
    
    288,199
    
    
    
    319,8472003
    
    
    87,155
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36,067
    
    
    
    130,631
    
    
    
    224,865
    
    
    
    304,288
    
    
    
    350,4642004
    
    
    86,566
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,365
    
    
    
    91,719
    
    
    
    154,392
    
    
    
    192,7902005
    
    
    100,796
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,459
    
    
    
    83,739
    
    
    
    124,1912006 (2)
    
    
    142,368
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32,751
    
    
    
    110,6402007
    
    
    109,760
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,395
 Cumulative Collections as Percentage of Purchase Price (1)
 TotalThroughPurchase
    
    Purchase
    
    Total Through December 31,
    
    September 30,Period
    
    Price(3)
    
    1997
    
    1998
    
    1999
    
    2000
    
    2001
    
    2002
    
    2003
    
    2004
    
    2005
    
    2006
    
    20071997
    
    $
    4,345
    
    
    
    39
    %
    
    
    152
    %
    
    
    280
    %
    
    
    396
    %
    
    
    478
    %
    
    
    539
    %
    
    
    580
    %
    
    
    616
    %
    
    
    646
    %
    
    
    672
    %
    
    
    687
    %1998
    
    
    16,411
    
    
    
    
    
    
    
    29
    
    
    
    122
    
    
    
    214
    
    
    
    293
    
    
    
    360
    
    
    
    409
    
    
    
    443
    
    
    
    471
    
    
    
    491
    
    
    
    5041999
    
    
    12,924
    
    
    
    
    
    
    
    
    
    
    
    29
    
    
    
    117
    
    
    
    201
    
    
    
    276
    
    
    
    340
    
    
    
    392
    
    
    
    431
    
    
    
    461
    
    
    
    4792000
    
    
    20,592
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    43
    
    
    
    157
    
    
    
    267
    
    
    
    365
    
    
    
    449
    
    
    
    517
    
    
    
    569
    
    
    
    5972001
    
    
    43,030
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41
    
    
    
    158
    
    
    
    276
    
    
    
    383
    
    
    
    475
    
    
    
    546
    
    
    
    5872002
    
    
    72,258
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31
    
    
    
    129
    
    
    
    229
    
    
    
    322
    
    
    
    399
    
    
    
    4432003
    
    
    87,155
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41
    
    
    
    150
    
    
    
    258
    
    
    
    349
    
    
    
    4022004
    
    
    86,566
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27
    
    
    
    106
    
    
    
    178
    
    
    
    2232005
    
    
    100,796
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23
    
    
    
    83
    
    
    
    1232006 (2)
    
    
    142,368
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23
    
    
    
    782007
    
    
    109,760
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17
 
 (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 buybacks and
the purchase price for accounts that were sold at the time of purchase to another debt
purchaser. 30




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##### Table of Contents



Seasonality
   
 Cash Collections
 Quarter
    
    2003
    
    
    2004
    
    
    2005
    
    
    2006
    
    
    2007First
    
    $
    44,017,730
    
    
    $
    65,196,055
    
    
    $
    80,397,640
    
    
    $
    89,389,858
    
    
    $
    95,853,350Second
    
    
    51,190,533
    
    
    
    67,566,031
    
    
    
    84,862,856
    
    
    
    89,609,982
    
    
    
    95,432,021Third
    
    
    48,622,829
    
    
    
    66,825,822
    
    
    
    78,159,364
    
    
    
    80,914,791
    
    
    
    90,748,442Fourth
    
    
    53,988,333
    
    
    
    68,339,797
    
    
    
    76,490,350
    
    
    
    80,955,115
    
    
    
    Total cash collections
    
    $
    197,819,425
    
    
    $
    267,927,705
    
    
    $
    319,910,210
    
    
    $
    340,869,746
    
    
    $
    282,033,813
  Three months ended September 30,
    
    
    Nine months ended September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Traditional collections
    
    
    45.2
    %
    
    
    46.0
    %
    
    
    47.2
    %
    
    
    48.4
    %Legal collections
    
    
    40.4
    
    
    
    41.6
    
    
    
    39.1
    
    
    
    39.2Other collections
    
    
    14.4
    
    
    
    12.4
    
    
    
    13.7
    
    
    
    12.4Total cash collections
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
 31




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##### Table of Contents



Face Value ofCharged-off
    
    
    
    
    
    
    No. ofAsset Type
    
    Receivables (2)
    
    
    %
    
    
    Accounts
    
    
    %(in thousands)Visa®/MasterCard®/Discover®
    
    $
    14,858,239
    
    
    
    48.5
    %
    
    
    7,247
    
    
    
    25.8
    %Private Label Credit Cards
    
    
    4,018,680
    
    
    
    13.1
    
    
    
    5,651
    
    
    
    20.1Telecommunications/Utility/Gas
    
    
    2,841,212
    
    
    
    9.3
    
    
    
    7,345
    
    
    
    26.1Health Club
    
    
    1,603,406
    
    
    
    5.2
    
    
    
    1,574
    
    
    
    5.6Auto Deficiency
    
    
    1,391,886
    
    
    
    4.5
    
    
    
    248
    
    
    
    0.9Installment Loans
    
    
    960,395
    
    
    
    3.1
    
    
    
    311
    
    
    
    1.1Wireless Telecommunications
    
    
    719,255
    
    
    
    2.3
    
    
    
    1,727
    
    
    
    6.1Other (1)
    
    
    4,285,902
    
    
    
    14.0
    
    
    
    4,007
    
    
    
    14.3Total
    
    $
    30,678,975
    
    
    
    100.0
    %
    
    
    28,110
    
    
    
    100.0
    %
 
 (1)
    
    Other includes charged-off receivables of several debt types, including medical, 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.  
    
    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
    
    $
    1,596,525
    
    
    
    5.2
    %
    
    
    848
    
    
    
    3.0
    %Primary
    
    
    4,488,349
    
    
    
    14.6
    
    
    
    4,127
    
    
    
    14.7Secondary
    
    
    5,627,106
    
    
    
    18.4
    
    
    
    5,943
    
    
    
    21.1Tertiary (1)
    
    
    14,584,507
    
    
    
    47.5
    
    
    
    14,054
    
    
    
    50.0Other
    
    
    4,382,488
    
    
    
    14.3
    
    
    
    3,138
    
    
    
    11.2Total
    
    $
    30,678,975
    
    
    
    100.0
    %
    
    
    28,110
    
    
    
    100.0
    %
 32




---



##### Table of Contents



(1)
    
    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.  Face Value ofCharged-off
    
    
    
    
    
    
    No. ofGeographic Location
    
    Receivables (3)(4)
    
    
    %
    
    
    Accounts
    
    
    %(in thousands)Texas (1)
    
    $
    4,578,377
    
    
    
    14.9
    %
    
    
    4,509
    
    
    
    16.1
    %California
    
    
    3,473,990
    
    
    
    11.3
    
    
    
    3,383
    
    
    
    12.0Florida (1)
    
    
    3,067,664
    
    
    
    10.0
    
    
    
    1,991
    
    
    
    7.1Michigan (1)
    
    
    1,844,119
    
    
    
    6.0
    
    
    
    2,262
    
    
    
    8.0New York
    
    
    1,754,332
    
    
    
    5.7
    
    
    
    1,206
    
    
    
    4.3Ohio (1)
    
    
    1,621,635
    
    
    
    5.3
    
    
    
    2,072
    
    
    
    7.4Illinois (1)
    
    
    1,254,378
    
    
    
    4.1
    
    
    
    1,517
    
    
    
    5.4Pennsylvania
    
    
    1,091,552
    
    
    
    3.5
    
    
    
    895
    
    
    
    3.2New Jersey
    
    
    947,669
    
    
    
    3.1
    
    
    
    775
    
    
    
    2.8North Carolina
    
    
    919,713
    
    
    
    3.0
    
    
    
    654
    
    
    
    2.3Georgia
    
    
    822,768
    
    
    
    2.7
    
    
    
    716
    
    
    
    2.5Arizona (1)
    
    
    634,496
    
    
    
    2.1
    
    
    
    547
    
    
    
    1.9Other (2)
    
    
    8,668,282
    
    
    
    28.3
    
    
    
    7,583
    
    
    
    27.0Total
    
    $
    30,678,975
    
    
    
    100.0
    %
    
    
    28,110
    
    
    
    100.0
    %
 
 (1)
    
    Collection site 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)
    
    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. Liquidity and Capital Resources
  Special Cash Dividend and Share Repurchase
  33




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##### Table of Contents



Borrowings
  
    
    Leverage Ratio (as defined) cannot exceed 1.25 to 1.0 at any time on or before December
30, 2008, 1.125 to 1.0 at any time on or after December 31, 2008 and on or before December
30, 2010, or 1.0 to 1.0 at any time thereafter;
    
    Ratio of Total Liabilities to Tangible Net Worth cannot exceed 3.0 to 1.0 at any time
on or before December 30, 2007, 2.5 to 1.0 at any time on or after December 31, 2007 and on
or before December 30, 2008, 2.0 to 1.0 at any time on or after December 31, 2008 and on or
before December 30, 2009, 1.75 to 1.0 at any time on or after December 31, 2009 and on or
before December 30, 2010, or 1.5 to 1.0 at any time thereafter;
    
    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.
   Termination of Former Credit Agreement.
  Cash Flows
  34




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##### Table of Contents



Future Contractual Cash Obligations
  Year Ending December 31,2007
    
    
    2008(3)
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    ThereafterCapital lease obligations (1)
    
    $
    11,977
    
    
    $
    18,242
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Operating lease obligations (1)
    
    
    1,624,387
    
    
    
    5,792,426
    
    
    
    4,920,354
    
    
    
    3,961,744
    
    
    
    3,739,779
    
    
    
    14,364,097Purchased receivables (2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Revolving credit (3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,000,000Term loan (4)
    
    
    375,000
    
    
    
    1,500,000
    
    
    
    1,500,000
    
    
    
    1,500,000
    
    
    
    1,500,000
    
    
    
    143,625,000Employment agreements
    
    
    410,000
    
    
    
    802,500
    
    
    
    105,000
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    2,421,364
    
    
    $
    8,113,168
    
    
    $
    6,525,354
    
    
    $
    5,461,744
    
    
    $
    5,239,779
    
    
    $
    170,989,097
 
 (1)
    
    Future minimum lease payments under capital lease obligations and operating lease obligations
have not been reduced by the amount of our restructuring activities that relates to the leased
equipment or facilities.(2)
    
    During 2007, we renewed three forward flow contracts, entered into four new 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. Seven forward flow
contracts have terms beyond September 30, 2007 with the last contract expiring in December
2008. Seven forward flow contracts have estimated monthly purchases of approximately $2.7
million, depending upon circumstances, and the other two on-going forward flow contracts have
estimated monthly purchases of approximately $12,500 over the next twelve months.(3)
    
    To the extent that a balance is outstanding on our revolving credit, it would be due in June
2012 or earlier as defined in the New Credit Agreement.(4)
    
    To the extent that a balance is outstanding on our term loan, it would be due in June 2013. 35




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##### Table of Contents



Off-Balance Sheet Arrangements
  Critical Accounting Policies
     
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
  36




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##### Table of Contents



Item 4. Controls and Procedures
   
 PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 Companys Repurchases of Its Common Stock
  Average
    
    
    Total Number of
    
    
    Maximum Number ofTotal Number
    
    
    Price
    
    
    Shares Purchased as Part
    
    
    Shares that May Yetof Shares
    
    
    Paid per
    
    
    of Publicly Announced
    
    
    Be Purchased UnderPeriod
    
    Purchased (1)
    
    
    Share
    
    
    Plans or Programs
    
    
    the Plans or ProgramsJuly 1,
2007 
July 31, 2007
    
    
    130,792
    
    
    $
    15.00
    
    
    
    
    
    
    
    August 1, 2007 
August 31, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    September 1, 2007
 September 30,
2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    130,792
    
    
    $
    15.00
    
    
    
    
    
    
    
    
 
 (1)
    
    The Company exercised its right to repurchase its shares from former employees at $15.00 per
share. 37




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##### Table of Contents



Item 6. Exhibits
 ExhibitNumber
    
    Description10.1*
    
    2004 Stock Incentive Plan (as amended and restated)10.2*
    
    2007 Annual Incentive Compensation Plan for Management (as amended and restated)10.3*
    
    Employment Agreement dated as of July 20, 2007, as amended by Amendment No. 1,
dated October 18, 2007, between Asset Acceptance, LLC and Rion B. Needs10.4*
    
    Employment Agreement dated as of October 1, 2007, between Asset Acceptance, LLC and Deborah L. Everly31.1*
    
    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 38




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##### Table of Contents



SIGNATURES
  ASSET ACCEPTANCE CAPITAL CORP.Date: November 9, 2007
    By:
    /s/ Nathaniel F. Bradley IVNathaniel F. Bradley IVChairman of the Board, President and
Chief Executive Officer
(Principal Executive Officer)Date: November 9, 2007
    By:
    /s/ Mark A. RedmanMark A. RedmanSenior Vice President  Finance and
Chief Financial Officer
(Principal Financial and Accounting Officer) 39