##### Table of Contents





UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-Q





(Mark One)

|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended September 30, 2009



| ̈ | 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





Indicate by check
mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No   ̈

Indicate by check mark whether the Registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for shorter period that the
Registrant was required to submit and post such files).    Yes   ̈    No   ̈

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of large accelerated filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act.



|                        |  |                                                  |  |                           |  |  
|----------------------- |  | ------------------------------------------------ |  | ------------------------- |  | -
|Large accelerated filer |  |  ̈                                                |  | Accelerated filer         |  | x
|                        |  |                                                  | 
|Non-accelerated filer   |  |  ̈  (Do not check if a smaller reporting company) |  | Smaller reporting company |  |  ̈

Indicate by check mark whether the Registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).    Yes   ̈    No  x

Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date.

As of October 23, 2009 30,590,588 shares of the Registrants common stock were outstanding.









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ASSET ACCEPTANCE CAPITAL CORP.

Quarterly Report on Form 10-Q

TABLE OF CONTENTS



|                               |  |                                                                                       |  |                                                                                                              |  | 
|------------------------------ |  | ------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------ |  | 
|                               |  | Page                                                                                 
|PART I  Financial Information
|                               |  |                                                                                      
|Item 1.                        |  | Consolidated Financial Statements (unaudited)                                         |  | 3                                                                                                           
|Item 2.                        |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 21                                                                                                          
|Item 3.                        |  | Quantitative and Qualitative Disclosures about Market Risk                            |  | 40                                                                                                          
|Item 4.                        |  | Controls and Procedures                                                               |  | 40                                                                                                          
|                               |  |                                                                                       | 
|                               |  |                                                                                       |  | PART II  Other Information                                                                                  |  | 
|                               |  |                                                                                      
|Item 1.                        |  | Legal Proceedings                                                                     |  | 41                                                                                                          
|Item 2.                        |  | Unregistered Sales of Equity Securities and Use of Proceeds                           |  | 41                                                                                                          
|Item 6.                        |  | Exhibits                                                                              |  | 42                                                                                                          
|                               |  |                                                                                      
|Signatures                     |  |                                                                                       |  | 43                                                                                                          
|Exhibits:                      |  | 10.1                                                                                  |  | Lease agreement entered into on September 17, 2009, between Asset Acceptance, LLC and Gateway Montrose, Inc. |  | 
|                               |  | 10.2                                                                                  |  | Employment Agreement dated September 8, 2009, between Mark A. Redman and Asset Acceptance, LLC               |  | 
|                               |  | 10.3                                                                                  |  | Employment Agreement dated September 8, 2009, between Deborah L. Everly and Asset Acceptance, LLC            |  | 
|                               |  | 31.1                                                                                  |  | Rule 13a-14(a) Certification of Chief Executive Officer                                                      |  | 
|                               |  | 31.2                                                                                  |  | Rule 13a-14(a) Certification of Chief Financial Officer                                                      |  | 
|                               |  | 32.1                                                                                  |  | Section 1350 Certification of Chief Executive Officer and Chief Financial Officer                            |  | 

Quarterly Report on Form 10-Q

We file reports with the Securities and Exchange Commission (SEC), which we make available on our website,
www.assetacceptance.com, free of charge. These reports include Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to such reports, each of which is provided on our website as
soon as reasonably practicable after we electronically file such materials with or furnish them to the SEC. You can also read and copy any materials we file with the SEC at the SECs Public Reference Room at 100 F Street, N.E., Washington,
DC 20549. You can obtain additional information about the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains a website (www.sec.gov) that contains reports, proxy and information
statements, and other information regarding issuers that file electronically with the SEC, including us.



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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



|                                                                                                                                                                  |             |                    |             |   |                   |   |             |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------- | ------------------ | ----------- | - | ----------------- | - | ----------- | -
|                                                                                                                                                                  |             | September 30, 2009 |             |   | December 31, 2008 |  
|                                                                                                                                                                  | (Unaudited) |                    |             |   |                  
|ASSETS                                                                                                                                                            |            
|Cash                                                                                                                                                              |             | $                  | 5,801,837   |   |                   | $ | 6,042,859   |  
|Purchased receivables, net                                                                                                                                        |             |                    | 333,750,279 |   |                   |   | 361,808,502 |  
|Income taxes receivable                                                                                                                                           |             |                    | 3,885,852   |   |                   |   | 3,934,029   |  
|Property and equipment, net                                                                                                                                       |             |                    | 12,976,497  |   |                   |   | 12,526,817  |  
|Goodwill                                                                                                                                                          |             |                    | 14,323,071  |   |                   |   | 14,323,071  |  
|Intangible assets, net                                                                                                                                            |             |                    | 1,129,065   |   |                   |   | 2,453,117   |  
|Other assets                                                                                                                                                      |             |                    | 4,938,462   |   |                   |   | 7,082,721   |  
|                                                                                                                                                                  |             |                    |             |   |                   |   |             |  
|Total assets                                                                                                                                                      |             | $                  | 376,805,063 |   |                   | $ | 408,171,116 |  
|                                                                                                                                                                  |             |                    |             |   |                   |   |             |  
|                                                                                                                                                                 
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                              |            
|                                                                                                                                                                  |             |                   
|Liabilities:                                                                                                                                                      |             |                    |             |   |                   |   |             |  
|Accounts payable                                                                                                                                                  |             | $                  | 2,571,352   |   |                   | $ | 3,388,320   |  
|Accrued liabilities                                                                                                                                               |             |                    | 16,562,531  |   |                   |   | 21,476,207  |  
|Income taxes payable                                                                                                                                              |             |                    | 1,133,852   |   |                   |   | 658,329     |  
|Notes payable                                                                                                                                                     |             |                    | 146,197,514 |   |                   |   | 181,550,000 |  
|Deferred tax liability, net                                                                                                                                       |             |                    | 67,579,774  |   |                   |   | 64,470,002  |  
|                                                                                                                                                                  |             |                    |             |   |                   |   |             |  
|Total liabilities                                                                                                                                                 |             | $                  | 234,045,023 |   |                   | $ | 271,542,858 |  
|                                                                                                                                                                  |             |                    |             |   |                   |   |             |  
|                                                                                                                                                                  |             |                   
|Stockholders 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  33,198,336 and 33,169,552 at
September 30, 2009 and December 31, 2008, respectively |             |                    | 331,983     |   |                   |   | 331,696     |  
|Additional paid in capital                                                                                                                                        |             |                    | 147,989,597 |   |                   |   | 146,915,791 |  
|Retained earnings                                                                                                                                                 |             |                    | 38,991,077  |   |                   |   | 35,188,314  |  
|Accumulated other comprehensive loss, net of tax                                                                                                                  |             |                    | (3,325,246  | ) |                   |   | (4,664,862  | )
|Common stock in treasury; at cost, 2,607,748 and 2,596,521 shares at September 30, 2009 and December 31, 2008,
respectively                                       |             |                    | (41,227,371 | ) |                   |   | (41,142,681 | )
|                                                                                                                                                                  |             |                    |             |   |                   |   |             |  
|Total stockholders equity                                                                                                                                        |             |                    | 142,760,040 |   |                   |   | 136,628,258 |  
|                                                                                                                                                                  |             |                    |             |   |                   |   |             |  
|Total liabilities and stockholders equity                                                                                                                        |             | $                  | 376,805,063 |   |                   | $ | 408,171,116 |  
|                                                                                                                                                                  |             |                    |             |   |                   |   |             |  

See accompanying notes.



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ASSET ACCEPTANCE CAPITAL CORP.

Consolidated Statements of Operations

(Unaudited)



|                                               |      |                                 |            |      |                                |   |            |   |  |      |             |   |  |   |             |  
|---------------------------------------------- | ---- | ------------------------------- | ---------- | ---- | ------------------------------ | - | ---------- | - |  | ---- | ----------- | - |  | - | ----------- | -
|                                               |      | Three months endedSeptember 30, |            |      | Nine months endedSeptember 30, |  
|                                               | 2009 |                                 |            | 2008 |                                |   | 2009       |   |  | 2008 |            
|Revenues                                       |      |                                 |            |      |                                |   |            |   |  |      |             |   |  |   |             |  
|Purchased receivable revenues, net             |      | $                               | 47,490,253 |      |                                | $ | 58,115,432 |   |  | $    | 153,049,275 |   |  | $ | 178,046,799 |  
|Gain on sale of purchased receivables          |      |                                 | 3,240      |      |                                |   |           |   |  |      | 3,240       |   |  |   | 165,040     |  
|Other revenues, net                            |      |                                 | 180,328    |      |                                |   | 238,331    |   |  |      | 694,457     |   |  |   | 976,153     |  
|                                               |      |                                 |            |      |                                |   |            |   |  |      |             |   |  |   |             |  
|Total revenues                                 |      |                                 | 47,673,821 |      |                                |   | 58,353,763 |   |  |      | 153,746,972 |   |  |   | 179,187,992 |  
|                                               |      |                                 |            |      |                                |   |            |   |  |      |             |   |  |   |             |  
|Expenses                                       |      |                                 |            |      |                                |   |            |   |  |      |             |   |  |   |             |  
|Salaries and benefits                          |      |                                 | 19,102,293 |      |                                |   | 21,059,704 |   |  |      | 57,316,187  |   |  |   | 63,963,050  |  
|Collections expense                            |      |                                 | 22,752,371 |      |                                |   | 23,515,621 |   |  |      | 66,519,664  |   |  |   | 68,509,742  |  
|Occupancy                                      |      |                                 | 1,789,286  |      |                                |   | 1,976,845  |   |  |      | 5,459,528   |   |  |   | 5,833,162   |  
|Administrative                                 |      |                                 | 2,084,492  |      |                                |   | 2,529,639  |   |  |      | 6,643,556   |   |  |   | 8,148,610   |  
|Depreciation and amortization                  |      |                                 | 1,097,909  |      |                                |   | 1,000,728  |   |  |      | 2,943,223   |   |  |   | 2,950,502   |  
|Impairment of assets                           |      |                                 | 1,167,600  |      |                                |   |           |   |  |      | 1,167,600   |   |  |   | 445,651     |  
|Loss on disposal of equipment and other assets |      |                                 | 103,800    |      |                                |   | 2,280      |   |  |      | 110,341     |   |  |   | 11,763      |  
|                                               |      |                                 |            |      |                                |   |            |   |  |      |             |   |  |   |             |  
|Total operating expenses                       |      |                                 | 48,097,751 |      |                                |   | 50,084,817 |   |  |      | 140,160,099 |   |  |   | 149,862,480 |  
|                                               |      |                                 |            |      |                                |   |            |   |  |      |             |   |  |   |             |  
|(Loss) income from operations                  |      |                                 | (423,930   | )    |                                |   | 8,268,946  |   |  |      | 13,586,873  |   |  |   | 29,325,512  |  
|Other income (expense)                         |      |                                 |            |      |                                |   |            |   |  |      |             |   |  |   |             |  
|Interest income                                |      |                                 | 10,098     |      |                                |   | 1,766      |   |  |      | 14,790      |   |  |   | 31,795      |  
|Interest expense                               |      |                                 | (2,424,753 | )    |                                |   | (3,300,691 | ) |  |      | (7,538,717  | ) |  |   | (9,895,351  | )
|Other                                          |      |                                 | (1,430     | )    |                                |   | (1,711     | ) |  |      | 2,384       |   |  |   | 14,622      |  
|                                               |      |                                 |            |      |                                |   |            |   |  |      |             |   |  |   |             |  
|(Loss) income before income taxes              |      |                                 | (2,840,015 | )    |                                |   | 4,968,310  |   |  |      | 6,065,330   |   |  |   | 19,476,578  |  
|Income tax (benefit) expense                   |      |                                 | (1,198,347 | )    |                                |   | 1,928,331  |   |  |      | 2,262,567   |   |  |   | 7,534,617   |  
|                                               |      |                                 |            |      |                                |   |            |   |  |      |             |   |  |   |             |  
|Net (loss) income                              |      | $                               | (1,641,668 | )    |                                | $ | 3,039,979  |   |  | $    | 3,802,763   |   |  | $ | 11,941,961  |  
|                                               |      |                                 |            |      |                                |   |            |   |  |      |             |   |  |   |             |  
|                                               |      |                                 |            |     
|Weighted-average number of shares:             |      |                                 |            |      |                                |   |            |   |  |      |             |   |  |   |             |  
|Basic                                          |      |                                 | 30,642,866 |      |                                |   | 30,570,423 |   |  |      | 30,625,842  |   |  |   | 30,561,653  |  
|Diluted                                        |      |                                 | 30,642,866 |      |                                |   | 30,614,701 |   |  |      | 30,659,555  |   |  |   | 30,595,802  |  
|(Loss) earnings per common share outstanding:  |      |                                 |            |      |                                |   |            |   |  |      |             |   |  |   |             |  
|Basic                                          |      | $                               | (0.05      | )    |                                | $ | 0.10       |   |  | $    | 0.12        |   |  | $ | 0.39        |  
|Diluted                                        |      | $                               | (0.05      | )    |                                | $ | 0.10       |   |  | $    | 0.12        |   |  | $ | 0.39        |  

See accompanying notes.



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ASSET ACCEPTANCE CAPITAL CORP.

Consolidated Statements of Cash Flows

(Unaudited)



|                                                                                  |      |                                |             |      |  |   |              |  
|--------------------------------------------------------------------------------- | ---- | ------------------------------ | ----------- | ---- |  | - | ------------ | -
|                                                                                  |      | Nine months endedSeptember 30, |            
|                                                                                  | 2009 |                                |             | 2008 | 
|Cash flows from operating activities                                              |      |                                |             |      |  |   |              |  
|Net income                                                                        |      | $                              | 3,802,763   |      |  | $ | 11,941,961   |  
|Adjustments to reconcile net income to net cash provided by operating activities: |      |                                |             |      |  |   |              |  
|Depreciation and amortization                                                     |      |                                | 2,943,223   |      |  |   | 2,950,502    |  
|Amortization of deferred financing costs                                          |      |                                | 394,954     |      |  |   | 403,919      |  
|Deferred income taxes                                                             |      |                                | 2,541,292   |      |  |   | 428,242      |  
|Share-based and other non-cash compensation                                       |      |                                | 1,074,093   |      |  |   | 1,009,187    |  
|Net impairment of purchased receivables                                           |      |                                | 17,082,438  |      |  |   | 8,438,250    |  
|Non-cash revenue                                                                  |      |                                | (449,126    | )    |  |   | (447,645     | )
|Loss on disposal of equipment and other assets                                    |      |                                | 110,341     |      |  |   | 11,763       |  
|Gain on sale of purchased receivables                                             |      |                                | (3,240      | )    |  |   | (165,040     | )
|Impairment of assets                                                              |      |                                | 1,167,600   |      |  |   | 445,651      |  
|Changes in assets and liabilities:                                                |      |                                |             |      |  |   |              |  
|Decrease (increase) in other assets                                               |      |                                | 1,749,305   |      |  |   | (905,711     | )
|(Decrease) increase in accounts payable and other accrued liabilities             |      |                                | (3,822,548  | )    |  |   | 162,763      |  
|Increase in net income taxes                                                      |      |                                | 523,700     |      |  |   | 2,115,480    |  
|                                                                                  |      |                                |             |      |  |   |              |  
|Net cash provided by operating activities                                         |      |                                | 27,114,795  |      |  |   | 26,389,322   |  
|                                                                                  |      |                                |             |      |  |   |              |  
|                                                                                  |      |                               
|Cash flows from investing activities                                              |      |                                |             |      |  |   |              |  
|Investment in purchased receivables, net of buy backs                             |      |                                | (78,135,527 | )    |  |   | (120,546,458 | )
|Principal collected on purchased receivables                                      |      |                                | 89,560,284  |      |  |   | 100,195,148  |  
|Proceeds from the sale of purchased receivables                                   |      |                                | 3,394       |      |  |   | 167,405      |  
|Purchases of property and equipment                                               |      |                                | (3,350,989  | )    |  |   | (5,109,623   | )
|Proceeds from sale of property and equipment                                      |      |                                | 4,197       |      |  |   | 2,515        |  
|                                                                                  |      |                                |             |      |  |   |              |  
|Net cash provided by (used in) investing activities                               |      |                                | 8,081,359   |      |  |   | (25,291,013  | )
|                                                                                  |      |                                |             |      |  |   |              |  
|                                                                                  |      |                               
|Cash flows from financing activities                                              |      |                                |             |      |  |   |              |  
|Borrowings under notes payable                                                    |      |                                | 24,800,000  |      |  |   | 91,500,000   |  
|Repayments of notes payable                                                       |      |                                | (60,152,486 | )    |  |   | (93,625,000  | )
|Purchase of treasury shares                                                       |      |                                | (84,690     | )    |  |   |             |  
|Payment of deferred financing costs                                               |      |                                |            |      |  |   | (660,575     | )
|Repayments of capital lease obligations                                           |      |                                |            |      |  |   | (15,986      | )
|                                                                                  |      |                                |             |      |  |   |              |  
|Net cash used in financing activities                                             |      |                                | (35,437,176 | )    |  |   | (2,801,561   | )
|                                                                                  |      |                                |             |      |  |   |              |  
|Net decrease in cash                                                              |      |                                | (241,022    | )    |  |   | (1,703,252   | )
|Cash at beginning of period                                                       |      |                                | 6,042,859   |      |  |   | 10,474,479   |  
|                                                                                  |      |                                |             |      |  |   |              |  
|Cash at end of period                                                             |      | $                              | 5,801,837   |      |  | $ | 8,771,227    |  
|                                                                                  |      |                                |             |      |  |   |              |  
|                                                                                  |      |                               
|Supplemental disclosure of cash flow information                                  |      |                                |             |      |  |   |              |  
|Cash paid for interest, net of capitalized interest                               |      | $                              | 7,591,706   |      |  | $ | 9,873,833    |  
|Net cash (received) paid for income taxes                                         |      |                                | (742,067    | )    |  |   | 5,020,725    |  
|Non-cash investing and financing activities:                                      |      |                                |             |      |  |   |              |  
|Change in fair value of swap liability                                            |      |                                | (1,908,096  | )    |  |   | 191,095      |  
|Change in unrealized loss on cash flow hedge                                      |      |                                | 1,339,616   |      |  |   | (124,084     | )

See accompanying notes.



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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

Asset Acceptance Capital Corp. (a Delaware corporation) and its subsidiaries (collectively referred to as the Company) are engaged in the purchase and collection of defaulted and charged-off
accounts receivable portfolios. These receivables are acquired from consumer credit originators, primarily credit card issuers including private label card issuers, consumer finance companies, healthcare providers, telecommunications and other
utility providers, resellers and other holders of consumer debt. The Company may periodically sell receivables from these portfolios to unaffiliated companies.

In addition, the Company finances the sales of consumer product retailers.

The
accompanying unaudited interim financial statements of the Company have been prepared in accordance with Rule 10-01 of Regulation S-X promulgated by the Securities and Exchange Commission (SEC) and, therefore, do not include all
information and footnotes necessary for a fair presentation of financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States of America (US GAAP). In the opinion
of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary for a fair presentation of the Companys financial position as of September 30, 2009 and its results of operations for the three
and nine months ended September 30, 2009 and 2008 and cash flows for the nine months ended September 30, 2009 and 2008, and all adjustments were of a normal recurring nature. The operations of the Company for the three and nine months
ended September 30, 2009 and 2008 may not be indicative of future results. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Companys
Annual Report on Form 10-K for the year ended December 31, 2008. The Company has evaluated all subsequent events through November 4, 2009, which is the date that the consolidated financial statements were issued.

Reporting Entity

The consolidated financial statements include the accounts of Asset Acceptance Capital Corp. (AACC) and all wholly owned subsidiaries. All significant intercompany balances and transactions
have been eliminated in consolidation. The Company currently has two operating segments, one for purchased receivables and one for finance contract receivables. The finance contract receivables operating segment is not material and therefore is not
disclosed separately from the purchased receivables segment.

During September 2009, the Company completed a reorganization
which merged three non-operating subsidiaries into AACC. The reorganization did not have a material impact on the Companys consolidated financial position, results of operations or cash flows.

Purchased Receivables Portfolios and Revenue Recognition

Purchased receivables are receivables that have been charged-off as uncollectible by the originating organization and typically have been
subject to previous collection efforts. The Company acquires the rights to the unrecovered balances owed by individual debtors through such purchases. The receivable portfolios are purchased at a substantial discount (generally more than 90%) from
their face values and are initially recorded at the Companys acquisition cost, which equals fair value at the acquisition date. Financing for the purchases is primarily provided by the Companys cash generated from operations and from
borrowings on the Companys revolving credit facility.

The Company accounts for its investment in purchased receivables
using the guidance provided in Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 310, Receivables, for loans and debt securities acquired with deteriorated credit quality.
These provisions were adopted by the Company effective January 2005 and apply to purchased receivables acquired after December 31, 2004. The provisions that relate to decreases in expected cash flows amend previously followed guidance for
consistent treatment and apply prospectively to purchased receivables acquired before January 1,



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ASSET ACCEPTANCE CAPITAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



2005. The Company purchases pools of homogenous accounts receivable. Pools purchased after 2004 may be aggregated into one or more static pools within each quarter, based on common risk
characteristics. Risk characteristics of purchased receivables are generally considered to be similar since purchased receivables are usually in the late stages of the post charged-off collection cycle. The Company therefore aggregates most pools
purchased within each quarter. Pools purchased before 2005 may not be aggregated. Each static pool, either aggregated or non-aggregated, retains its own identity and does not change over the remainder of its life. Each static pool is accounted for
as a single unit for recognition of revenue, principal payments and impairments.

Collections on each static pool are
allocated to revenue and principal reduction based on an estimated internal rate of return (IRR). The IRR is the rate of return that each static pool requires to amortize the cost or carrying value of the pool to zero over its estimated
life. Each pools IRR is determined by estimating future cash flows, which are based on historical collection data for pools with similar characteristics. The actual life of each pool may vary, but will generally range between 36 and 84 months
depending on the expected collection period. Monthly cash flows greater than revenue recognized will reduce the carrying value of each static pool. Monthly cash flows lower than revenue recognized will increase the carrying value each static pool.
Each static pool is reviewed at least quarterly and compared to historical trends to determine whether it is performing as expected. This comparison is used to determine future estimated cash flows. If the revised cash flow estimates are greater
than the original estimates, the IRR is adjusted prospectively to reflect the revised estimate of cash flows over the remaining life of the static pool. If the revised cash flow estimates are less than the original estimates, the IRR remains
unchanged and an impairment is recognized. If cash flow estimates increase in periods subsequent to recording an impairment, reversal of the previously recognized impairment is made prior to any increases to the IRR.

The cost recovery method is used when collections on a particular portfolio cannot be reasonably predicted. When appropriate, the cost
recovery method may be used for pools that previously had a yield assigned to them. Under the cost recovery method, no revenue is recognized until the Company has fully collected the cost of the portfolio. As of September 30, 2009, the Company
had 54 unamortized pools on the cost recovery method, including all healthcare pools, with an aggregate carrying value of $2,962,304 or about 0.9% of the total carrying value of all purchased receivables. As of December 31, 2008, the Company
had 62 unamortized pools on the cost recovery method with an aggregate carrying value of $9,804,318 or about 2.7% of the total carrying value of all purchased receivables.

Agreements to purchase receivables typically include general representations and warranties from the sellers covering account holder death,
bankruptcy, fraud and settled or paid accounts prior to sale. These representations and warranties permit the return of certain ineligible accounts from the Company back to the seller. The general time frame to return accounts is within 90 to 180
days from the date of the purchase agreement. Proceeds from returns, also referred to as buybacks, are applied against the carrying value of the static pool.

Although not its usual business practice, the Company may periodically sell, on a non-recourse basis, all or a portion of a pool to third parties. The Company does not have any significant continuing
involvement with the sold pools subsequent to sale. Proceeds of these sales are compared to the carrying value of the accounts and a gain or loss is recognized on the difference between proceeds received and carrying value. The agreements to sell
receivables typically include general representations and warranties. Any accounts returned to the Company under these representations and warranties, during the negotiated time frame, are netted against any Gain on sale of purchased
receivables or if they exceed the total reported gains for the period as a Loss on sale of purchased receivables.

Changes in purchased receivable portfolios for the three and nine months ended September 30, 2009 and 2008 were as follows:



|                                                     |      |                                 |             |      |                                |   |             |   |  |      |              |   |  |   |              |  
|---------------------------------------------------- | ---- | ------------------------------- | ----------- | ---- | ------------------------------ | - | ----------- | - |  | ---- | ------------ | - |  | - | ------------ | -
|                                                     |      | Three months endedSeptember 30, |             |      | Nine months endedSeptember 30, |  
|                                                     | 2009 |                                 |             | 2008 |                                |   | 2009        |   |  | 2008 |             
|Beginning balance                                    |      | $                               | 327,095,264 |      |                                | $ | 355,647,646 |   |  | $    | 361,808,502  |   |  | $ | 346,198,900  |  
|Investment in purchased receivables, net of buybacks |      |                                 | 36,997,273  |      |                                |   | 35,569,690  |   |  |      | 78,135,527   |   |  |   | 120,546,458  |  
|Cost of purchased receivables sold, net of returns   |      |                                 | (154        | )    |                                |   |            |   |  |      | (154         | ) |  |   | (2,365       | )
|Cash collections                                     |      |                                 | (77,832,357 | )    |                                |   | (90,775,528 | ) |  |      | (259,242,871 | ) |  |   | (286,232,552 | )
|Purchased receivable revenues, net                   |      |                                 | 47,490,253  |      |                                |   | 58,115,432  |   |  |      | 153,049,275  |   |  |   | 178,046,799  |  
|                                                     |      |                                 |             |      |                                |   |             |   |  |      |              |   |  |   |              |  
|Ending balance                                       |      | $                               | 333,750,279 |      |                                | $ | 358,557,240 |   |  | $    | 333,750,279  |   |  | $ | 358,557,240  |  
|                                                     |      |                                 |             |      |                                |   |             |   |  |      |              |   |  |   |              |  



7



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##### Table of Contents

ASSET ACCEPTANCE CAPITAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



Accretable yield represents the amount of revenue the Company expects over the remaining
life of existing portfolios. Nonaccretable yield represents the difference between the remaining expected cash flows and the total contractual obligation outstanding (face value) of purchased receivables. Changes in accretable yield for the three
and nine months ended September 30, 2009 and 2008 were as follows:



|                                                |      |                                 |             |      |                                |   |             |   |  |      |              |   |  |   |              |  
|----------------------------------------------- | ---- | ------------------------------- | ----------- | ---- | ------------------------------ | - | ----------- | - |  | ---- | ------------ | - |  | - | ------------ | -
|                                                |      | Three months endedSeptember 30, |             |      | Nine months endedSeptember 30, |  
|                                                | 2009 |                                 |             | 2008 |                                |   | 2009        |   |  | 2008 |             
|Beginning balance (1)                           |      | $                               | 515,672,979 |      |                                | $ | 562,821,458 |   |  | $    | 534,985,144  |   |  | $ | 559,605,071  |  
|Purchased receivable revenues, net              |      |                                 | (47,490,253 | )    |                                |   | (58,115,432 | ) |  |      | (153,049,275 | ) |  |   | (178,046,799 | )
|Additions due to purchases                      |      |                                 | 74,390,867  |      |                                |   | 35,934,408  |   |  |      | 160,087,501  |   |  |   | 150,835,775  |  
|Reclassifications (to) from nonaccretable yield |      |                                 | (9,279,420  | )    |                                |   | 3,816,760   |   |  |      | (8,729,197   | ) |  |   | 12,063,147   |  
|                                                |      |                                 |             |      |                                |   |             |   |  |      |              |   |  |   |              |  
|Ending balance (1)                              |      | $                               | 533,294,173 |      |                                | $ | 544,457,194 |   |  | $    | 533,294,173  |   |  | $ | 544,457,194  |  
|                                                |      |                                 |             |      |                                |   |             |   |  |      |              |   |  |   |              |  



|(1) | 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 23
and Critical Accounting Policies on page 38 for further information regarding these estimates.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Cash collections
for the three and nine months ended September 30, 2009 and 2008 include collections from fully amortized pools of which 100% of the collections were reported as revenue. Components of cash collections from fully amortized pools were as follows:



|                                                      |      |                                 |            |                                |      |            |      |   |            |  |   |           
|----------------------------------------------------- | ---- | ------------------------------- | ---------- | ------------------------------ | ---- | ---------- | ---- | - | ---------- |  | - | ----------
|                                                      |      | Three months endedSeptember 30, |            | Nine months endedSeptember 30,
|                                                      | 2009 |                                 | 2008       |                                | 2009 |            | 2008
|Fully amortized before the end of their expected life |      | $                               | 4,857,739  |                                | $    | 7,236,572  |      | $ | 18,324,017 |  | $ | 23,427,569
|Fully amortized after the end of their expected life  |      |                                 | 7,105,843  |                                |      | 9,735,140  |      |   | 22,724,988 |  |   | 33,510,040
|Accounted under the cost recovery method              |      |                                 | 2,907,246  |                                |      | 1,382,600  |      |   | 7,907,962  |  |   | 3,963,033 
|                                                      |      |                                 |            |                                |      |            |      |   |            |  |   |           
|Total cash collections from fully amortized pools     |      | $                               | 14,870,828 |                                | $    | 18,354,312 |      | $ | 48,956,967 |  | $ | 60,900,642
|                                                      |      |                                 |            |                                |      |            |      |   |            |  |   |           

Changes in purchased receivables portfolios under the cost recovery method for the
three months and nine months ended September 30, 2009 and 2008 were as follows:



|                                             |      |                                 |            |      |                                |   |            |   |  |      |            |   |  |   |             |  
|-------------------------------------------- | ---- | ------------------------------- | ---------- | ---- | ------------------------------ | - | ---------- | - |  | ---- | ---------- | - |  | - | ----------- | -
|                                             |      | Three months endedSeptember 30, |            |      | Nine months endedSeptember 30, |  
|                                             | 2009 |                                 |            | 2008 |                                |   | 2009       |   |  | 2008 |           
|Beginning balance                            |      | $                               | 3,982,552  |      |                                | $ | 17,845,691 |   |  | $    | 9,804,318  |   |  | $ | 26,991,102  |  
|Addition of portfolios                       |      |                                 | 578,679    |      |                                |   | 98,229     |   |  |      | 711,059    |   |  |   | 5,199,208   |  
|Buybacks, impairments and resale adjustments |      |                                 | (266,446   | )    |                                |   | (588,385   | ) |  |      | (981,328   | ) |  |   | (1,647,942  | )
|Cash collections until fully amortized       |      |                                 | (1,332,481 | )    |                                |   | (4,342,102 | ) |  |      | (6,571,745 | ) |  |   | (17,528,935 | )
|                                             |      |                                 |            |      |                                |   |            |   |  |      |            |   |  |   |             |  
|Ending balance                               |      | $                               | 2,962,304  |      |                                | $ | 13,013,433 |   |  | $    | 2,962,304  |   |  | $ | 13,013,433  |  
|                                             |      |                                 |            |      |                                |   |            |   |  |      |            |   |  |   |             |  

During the three and nine months ended September 30, 2009, the Company recorded
net impairments of $6,787,138 and $17,082,438, respectively, related to its purchased receivables. The Company recorded net impairments of $3,084,800 and $8,438,250 during the three and nine months ended September 30, 2008, respectively. The
net impairment charges reduced revenue and the carrying value of purchased receivables.

Changes in the purchased receivables
valuation allowance for the three and nine months ended September 30, 2009 and 2008 were as follows:



|                         |      |                                 |             |      |                                |   |            |   |  |      |             |   |  |   |            |  
|------------------------ | ---- | ------------------------------- | ----------- | ---- | ------------------------------ | - | ---------- | - |  | ---- | ----------- | - |  | - | ---------- | -
|                         |      | Three months endedSeptember 30, |             |      | Nine months endedSeptember 30, |  
|                         | 2009 |                                 |             | 2008 |                                |   | 2009       |   |  | 2008 |            
|Beginning balance        |      | $                               | 80,216,255  |      |                                | $ | 66,185,655 |   |  | $    | 71,949,326  |   |  | $ | 62,091,755 |  
|Impairments              |      |                                 | 6,916,938   |      |                                |   | 3,544,000  |   |  |      | 17,851,938  |   |  |   | 11,149,950 |  
|Reversals of impairments |      |                                 | (129,800    | )    |                                |   | (459,200   | ) |  |      | (769,500    | ) |  |   | (2,711,700 | )
|Deductions (1)           |      |                                 | (14,417,938 | )    |                                |   | (378,000   | ) |  |      | (16,446,309 | ) |  |   | (1,637,550 | )
|                         |      |                                 |             |      |                                |   |            |   |  |      |             |   |  |   |            |  
|Ending balance           |      | $                               | 72,585,455  |      |                                | $ | 68,892,455 |   |  | $    | 72,585,455  |   |  | $ | 68,892,455 |  
|                         |      |                                 |             |      |                                |   |            |   |  |      |             |   |  |   |            |  



|(1) | Deductions represent impairments on purchased receivable portfolios that became fully amortized during the period and, therefore, the balance is removed from the
valuation allowance since it can no longer be reversed.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



8



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##### Table of Contents

ASSET ACCEPTANCE CAPITAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



Seasonality

Collections tend to be seasonally higher in the first and second quarters of the year due to consumers receipt of tax refunds and other
factors. Conversely, collections tend to be lower in the third and fourth quarters of the year due to consumers spending in connection with summer vacations, the holiday season and other factors. However, revenues remain relatively level,
excluding the impact of impairments, due to the application of the revenue recognition provisions prescribed by FASB ASC Topic 310. In addition, the Companys operating results may be affected to a lesser extent by the timing of purchases of
charged-off consumer receivables due to the initial costs associated with purchasing and loading these receivables into the Companys systems. Consequently, income and margins may fluctuate from quarter to quarter.

Collections from Third Parties

The Company regularly utilizes unaffiliated third parties, primarily attorneys and other contingent collection agencies, to collect certain account balances on behalf of the Company in exchange for a
percentage of the balance collected. The Company records gross proceeds received by the unaffiliated third parties as cash collections. The Company records the percentage of the gross cash collections paid to the third parties and the reimbursement
of certain legal and other costs, as a component of collections expense. The percent of gross cash collections from such third party relationships was 34.5% and 32.7% for the three months ended September 30, 2009 and 2008, respectively, and
32.5% and 30.1% for the nine months ended September 30, 2009 and 2008, respectively.

Accrued Liabilities

The details of accrued liabilities as of September 30, 2009 and December 31, 2008 were as follows:



|                                            |  |                    |            |                   |   |           
|------------------------------------------- |  | ------------------ | ---------- | ----------------- | - | ----------
|                                            |  | September 30, 2009 |            | December 31, 2008
|Fair value of derivative instruments        |  | $                  | 5,335,478  |                   | $ | 7,243,574 
|Accrued payroll, benefits and bonuses       |  |                    | 4,958,147  |                   |   | 7,676,269 
|Deferred rent                               |  |                    | 3,231,352  |                   |   | 3,397,942 
|Accrued general and administrative expenses |  |                    | 2,478,389  |                   |   | 2,128,355 
|Accrued interest expense                    |  |                    | 337,800    |                   |   | 870,829   
|Other accrued expenses                      |  |                    | 221,365    |                   |   | 159,238   
|                                            |  |                    |            |                   |   |           
|Total accrued liabilities                   |  | $                  | 16,562,531 |                   | $ | 21,476,207
|                                            |  |                    |            |                   |   |           

Concentration of Risk

For the three and nine months ended September 30, 2009, the Company invested 75.6% and 66.8% (net of buybacks), respectively, in
purchased receivables from its top three sellers. For the three and nine months ended September 30, 2008, the Company invested 78.8% and 52.2% (net of buybacks through September 30, 2009), respectively, in purchased receivables from its
top three sellers. Two sellers are included in the top three in both the three-month and nine-month periods for both years.

Interest Expense

Interest expense includes interest on the Companys credit facilities, unused
facility fees, the ineffective portion of the change in fair value of the Companys derivative financial instrument (refer to Note 3, Derivative Financial Instruments and Risk Management), interest payments made on the interest rate
swap and amortization of deferred financing costs. During the three and nine months ended September 30, 2009, the Company recorded interest expense of $2,424,753 and $7,538,717, respectively, including amortization of $131,651 and $394,954 of
deferred financing costs. During the three and nine months ended September 30, 2008, the Company recorded interest expense of $3,300,691 and $9,895,351, respectively, including amortization of $131,313 and $403,919 of deferred financing costs.

In addition, interest expense of $813 and $45,072 related to software developed for internal use was capitalized in the three
and nine months ended September 30, 2009, respectively. Interest expense of $27,202 and $67,472 related to software developed for internal use was capitalized in the three and nine months ended September 30, 2008, respectively.



9



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##### Table of Contents

ASSET ACCEPTANCE CAPITAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



Earnings (Loss) Per Share

Earnings (loss) per share reflect net loss divided by the weighted-average number of shares outstanding for the three months ended
September 30, 2009. Diluted weighted-average shares outstanding equals basic weighted-average shares outstanding as a result of the net loss for the quarter. Diluted weighted-average shares outstanding for the three months ended
September 30, 2008 included 44,278 dilutive shares related to outstanding stock options, deferred stock units, restricted shares and restricted share units (collectively the Share-Based Awards).

Diluted weighted-average shares outstanding for the nine months ended September 30, 2009 and 2008 included 33,713 and 34,149 dilutive
shares, respectively, related to outstanding Share-Based Awards. There were 792,880 and 715,491 outstanding Share-Based Awards that were not included within the diluted weighted-average shares as their fair value or exercise price exceeded the
market price of the Companys stock at September 30, 2009 and 2008, respectively.

Goodwill and Other
Intangible Assets

Intangible assets with finite lives are amortized over their estimated useful life, ranging from
five to seven years, using the straight-line method. Goodwill, trademark and trade names with indefinite lives are not amortized, instead, these assets are reviewed annually to assess recoverability or more frequently if impairment indicators are
present. Impairment charges are recorded for intangible assets when the estimated fair value is less than the book value. Refer to Note 7, Fair Value for additional information about the fair value of goodwill and other intangible
assets.

During the three months ended September 30, 2009, the Company completed its periodic valuation of trademark and
trade names and determined that the book value exceeded the fair value as a result of a decline in business activity associated with this intangible asset. As a result, the Company recognized an impairment charge for the difference between the fair
value and the book value of $1,167,600. Refer to Note 7, Fair Value for more information about the fair value calculation. This impairment is included in Impairment of assets in the accompanying consolidated statements of
operations. During the three months ended March 31, 2008, the Company decided to no longer service medical receivables on a contingent fee basis. As a result, the Company recognized an impairment charge for the net book value of intangible
assets for customer contracts and relationships associated with the contingent collection business of $445,651. This impairment is included in Impairment of assets in the accompanying consolidated statements of operations.

Comprehensive Income (Loss)

Components of comprehensive income (loss) are changes in equity other than those resulting from investments by owners and distributions to owners. Net income (loss) is the primary component of
comprehensive income (loss). Currently, the Companys only component of comprehensive income (loss) other than net income (loss) is the change in unrealized gain or loss on derivatives qualifying as cash flow hedges, net of tax. The
aggregate amount of such changes to equity that have not yet been recognized in net income (loss) are reported in stockholders equity in the accompanying consolidated statements of financial position as Accumulated other comprehensive
loss, net of tax.

A summary of accumulated other comprehensive loss, net of tax for the three and nine months ended
September 30, 2009 and 2008 is as follows:



|                  |      |                                 |            |      |                                |   |            |   |  |      |            |   |  |   |            |  
|----------------- | ---- | ------------------------------- | ---------- | ---- | ------------------------------ | - | ---------- | - |  | ---- | ---------- | - |  | - | ---------- | -
|                  |      | Three months endedSeptember 30, |            |      | Nine months endedSeptember 30, |  
|                  | 2009 |                                 |            | 2008 |                                |   | 2009       |   |  | 2008 |           
|Beginning balance |      | $                               | (3,492,941 | )    |                                | $ | (2,069,444 | ) |  | $    | (4,664,862 | ) |  | $ | (2,012,127 | )
|Change            |      |                                 | 167,695    |      |                                |   | (66,767    | ) |  |      | 1,339,616  |   |  |   | (124,084   | )
|                  |      |                                 |            |      |                                |   |            |   |  |      |            |   |  |   |            |  
|Ending balance    |      | $                               | (3,325,246 | )    |                                | $ | (2,136,211 | ) |  | $    | (3,325,246 | ) |  | $ | (2,136,211 | )
|                  |      |                                 |            |      |                                |   |            |   |  |      |            |   |  |   |            |  

Reclassifications

Certain prior period amounts have been reclassified to conform to the current period presentation.



10



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##### Table of Contents

ASSET ACCEPTANCE CAPITAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



Recently Issued Accounting Pronouncements

The following accounting pronouncements have been issued and will be effective for the Company in or after fiscal year 2009:

In June 2009, the FASB established the FASB ASC, or Codification, as the source of authoritative U.S. accounting and reporting
standards for nongovernmental entities, in addition to the guidance issued by the SEC. The Codification significantly changed the way financial statement preparers, auditors, and academics perform accounting research. The Codification was effective
for interim and annual reporting periods ending after September 15, 2009. The Codification did not change existing US GAAP, and therefore, the adoption as of September 30, 2009 did not have a material impact on the Companys
financial position, results of operations or cash flows.

In May 2009, the FASB issued guidance which requires an entity to
disclose the date through which it has evaluated subsequent events and the basis for that date, whether it represents the date the financial statements were issued or were available to be issued. This guidance was effective for interim and annual
reporting periods ending after June 15, 2009. The adoption of this guidance, as of June 30, 2009, did not have a material impact on the Companys financial position, results of operations or cash flows.

In April 2009, the FASB issued guidance for estimating fair value when the volume and level of activity for an asset or liability has
significantly decreased and identifying circumstances that indicate a transaction is not orderly. This guidance was effective for interim and annual reporting periods ending after June 15, 2009, and was to be applied prospectively. The adoption
of this guidance, as of June 30, 2009, did not have a material impact on the Companys financial position, results of operations or cash flows.

In April 2009, the FASB issued guidance which requires disclosures about the fair value of financial instruments for interim reporting periods of publicly traded companies, as well as in annual financial
statements. The guidance requires a company to disclose the fair value of all financial instruments for which it is practicable to estimate that value, whether recognized or not recognized in the statement of financial position. This guidance was
effective for interim and annual reporting periods ending after June 15, 2009, early adoption was permitted. The adoption of this guidance, as of March 31, 2009, did not have a material impact on the Companys financial position,
results of operations or cash flows.

In April 2008, the FASB issued guidance amending the factors that should be
considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset. This guidance was effective for fiscal years beginning after December 15, 2008. The adoption of this guidance, as of
January 1, 2009, did not have a material impact on the Companys financial position, results of operations or cash flows.

In March 2008, the FASB issued guidance which requires expanded disclosures regarding the location and amounts of derivative instruments in an entitys financial statements, how derivative instruments and related hedged items are
accounted for and how derivative instruments and related hedged items affect an entitys financial position, results of operations and cash flows. This guidance was effective for periods beginning on or after November 15, 2008. The
adoption of this guidance, as of January 1, 2009, did not have a material impact on the Companys financial position, results of operations or cash flows.

In September 2006, the FASB issued guidance defining fair value, establishing a framework for measuring fair value, and expanding disclosures about fair value measurements. This guidance was effective for
non-financial assets and liabilities that are not recognized or disclosed at fair value in the financial statements on a recurring basis for fiscal years, and interim periods, beginning after November 15, 2008. The adoption of this guidance, as
of January 1, 2009, did not have a material impact on the Companys financial position, results of operations or cash flows.

2.
Notes Payable

The Companys credit agreement with JPMorgan Chase Bank, N.A., as administrative agent, and a syndicate
of lenders named therein, originated on June 5, 2007 and was amended on March 10, 2008 (the Credit Agreement). Under the terms of the Credit Agreement, the Company has a five-year $100,000,000 revolving credit facility (the
Revolving Credit Facility) and a six-year $150,000,000 term loan facility (the Term Loan Facility and, together with the Revolving Credit Facility, the Credit Facilities). The Credit Facilities bear interest at
prime or up to 125 basis points over prime depending upon the Companys liquidity, as defined in the Credit Agreement. Alternately, at the Companys discretion, the Company may borrow by entering into one, two, three, six or



11



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##### Table of Contents

ASSET ACCEPTANCE CAPITAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



twelve-month contracts based on the London Inter Bank Offer Rate (LIBOR) at rates between 150 to 250 basis points over the respective LIBOR, depending on the Companys liquidity.
The Companys Revolving Credit Facility includes an accordion loan feature that allows it to request a $25,000,000 increase as well as sublimits for $10,000,000 of letters of credit and for $10,000,000 of swingline loans. The Credit Agreement
is secured by a first priority lien on all of the Companys assets. The Credit Agreement also contains certain covenants and restrictions that the Company must comply with, which, as of September 30, 2009 were:



| |  |  | Leverage Ratio (as defined) cannot exceed (i) 1.125 to 1.0 at any time on or after June 30, 2009 and on or before December 30, 2010 or
(ii) 1.0 to 1.0 at any time thereafter;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Ratio of Consolidated Total Liabilities to Consolidated Tangible Net Worth (as defined) cannot exceed (i) 2.5 to 1.0 at any time on or before
December 30, 2009, (ii) 2.25 to 1.0 at any time on or after December 31, 2009 and on or before December 30, 2010, (iii) 2.0 to 1.0 at any time on or after December 31, 2010 and on or before December 30, 2011 or
(iv) 1.5 to 1.0 to any time thereafter; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Consolidated Tangible Net Worth (as defined) must equal or exceed $80,000,000 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.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The Credit Agreement contains a provision that requires the Company to repay Excess Cash Flow (as defined) to reduce the indebtedness
outstanding under its Credit Agreement. The annual repayment of the Companys Excess Cash Flow was effective with the issuance of its audited consolidated financial statements for fiscal year 2008, and the Company made the required payment of
$2,427,486 during the three months ended March 31, 2009. The Excess Cash Flow repayment provisions are:



| |  |  | 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.
| | - |  | -------------------------------------------------------------------------------------------------

Commitment fees on the unused portion of the Revolving Credit Facility are paid quarterly, in arrears, and are calculated as an amount equal
to a margin of 0.25% to 0.50%, depending on the Companys liquidity, on the average amount available on the Revolving Credit Facility.

The Credit Agreement requires the Company to effectively cap, collar or exchange interest rates on a notional amount of at least 25% of the outstanding principal amount of the Term Loan Facility. Refer to
Note 3, Derivative Financial Instruments and Risk Management for additional information.

The Company had
$146,197,514 and $181,550,000 of borrowings outstanding on its Credit Facilities as of September 30, 2009 and December 31, 2008, respectively, of which $144,197,514 and $147,750,000 was outstanding on the Term Loan Facility. As of
September 30, 2009, the Company had $2,000,000 outstanding on the Revolving Credit Facility. As of December 31, 2008, the Company had $33,800,000 outstanding on the Revolving Credit Facility. The Term Loan Facility requires quarterly
repayments of $375,000 until March 2013 with the remaining balance due in June 2013.

The Company believes it is in compliance
with all terms of the Credit Agreement as of September 30, 2009. On October 27, 2009, the Company entered into a Second Amendment to the Credit Agreement. Refer to Note 9, Subsequent Event for additional information.



12



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##### Table of Contents

ASSET ACCEPTANCE CAPITAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



3. Derivative Financial Instruments and Risk Management

Risk Management

The Company may periodically enter into derivative financial instruments, typically interest rate swap agreements, to reduce its exposure to fluctuations in interest rates on variable-rate debt and their
impact on earnings and cash flows. The Company does not utilize derivative financial instruments with a level of complexity or with a risk greater than the exposure to be managed nor does it enter into or hold derivatives for trading or speculative
purposes. The Company periodically reviews the creditworthiness of the swap counterparty to assess the counterpartys ability to honor its obligation.

The Company records derivative financial instruments at fair value. Refer to Note 7, Fair Value for additional information. Counterparty default would expose the Company to fluctuations in
variable interest rates.

Derivative Financial Instruments

In September 2007, the Company entered into an amortizing interest rate swap agreement whereby, on a quarterly basis, it swaps variable rates
under its Term Loan Facility for fixed rates. At inception and for the first year, the notional amount of the swap was $125,000,000. Every year thereafter, on the anniversary of the swap agreement the notional amount will decrease by $25,000,000. As
of September 30, 2009, the notional amount was $75,000,000. This swap agreement expires on September 13, 2012.

The
Companys financial derivative instrument is designated and qualifies as a cash flow hedge, and the effective portion of the gain or loss on such hedge is reported as a component of other comprehensive income (OCI) in the
accompanying consolidated financial statements. To the extent that the hedging relationship is not effective, the ineffective portion of the change in fair value of the derivative is recorded in interest expense. Hedges that receive designated hedge
accounting treatment are evaluated for effectiveness at the time that they are designated as well as throughout the hedging period. As of September 30, 2009, the Company did not have any fair value hedges.

Changes in fair value are recorded as an adjustment to OCI, net of tax. Amounts in OCI will be reclassified into earnings under certain
situations; for example, if the occurrence of the transaction is no longer probable or no longer qualifies for hedge accounting. In these situations, all or a portion of the transaction would be ineffective. The Company does not expect to reclassify
any material amount currently included in OCI into earnings due to ineffectiveness within the next 12 months.

The following
table summarizes the fair value of derivative instruments as of September 30, 2009 and December 31, 2008:



|                                                    |  |                            |  |                   |           |                            |                     |            |   |          
|--------------------------------------------------- |  | -------------------------- |  | ----------------- | --------- | -------------------------- | ------------------- | ---------- | - | ---------
|                                                    |  | Liability Derivatives     
|                                                    |  | September 30, 2009         |  | December 31, 2008
|                                                    |  | FinancialPosition Location |  | Fair Value        |           | FinancialPosition Location |                     | Fair Value
|Derivatives designated as hedging instruments       |  |                            |  |                   |           |                            |                     |            |   |          
|Interest rate swap                                  |  | Accrued liabilities        |  | $                 | 5,335,478 |                            | Accrued liabilities |            | $ | 7,243,574
|                                                    |  |                            |  |                   |           |                            |                     |            |   |          
|Total derivatives designated as hedging instruments |  |                            |  | $                 | 5,335,478 |                            |                     |            | $ | 7,243,574
|                                                    |  |                            |  |                   |           |                            |                     |            |   |          



13



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##### Table of Contents

ASSET ACCEPTANCE CAPITAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



The following tables summarize the impact of derivative instruments for the three and
nine months ended September 30, 2009 and 2008:



|                               |                                 |                                                             |          |   |                                                                                          |   |                                                                                        |   |                                 |                                                                                                                              |  |                                                                                                               |            |   |  |      |          |      |  |                  |  |   |    |  |   |    
|------------------------------ | ------------------------------- | ----------------------------------------------------------- | -------- | - | ---------------------------------------------------------------------------------------- | - | -------------------------------------------------------------------------------------- | - | ------------------------------- | ---------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------- | ---------- | - |  | ---- | -------- | ---- |  | ---------------- |  | - | -- |  | - | ---
|                               |                                 | Amount of Gain or(Loss) Recognized inOCI (EffectivePortion) |          |   | Location of Gain or(Loss) Reclassifiedfrom AccumulatedOCI into Income(Effective Portion) |   | Amount of Gain or(Loss) Reclassifiedfrom AccumulatedOCI into Income(Effective Portion) |   |                                 | Location of Gain or(Loss) Recognized inIncome on Derivative(Ineffective Portionand AmountExcluded fromEffectiveness Testing) |  | Amount of Gain or(Loss) Recognized
inIncome (IneffectivePortion and AmountExcluded fromEffectiveness Testing)
|                               | Three Months EndedSeptember 30, |                                                             |          |   | Three Months EndedSeptember 30,                                                          |   |                                                                                        |   | Three Months EndedSeptember 30,
|Derivatives - cash flowhedging |                                 | 2009                                                        |          |   | 2008                                                                                     |   |                                                                                        |   | 2009                            |                                                                                                                              |  | 2008                                                                                                          |            |   |  | 2009 |          | 2008
|Interest rate swap             |                                 | $                                                           | (799,219 | ) |                                                                                          | $ | (810,918                                                                               | ) |                                 | Interest expense                                                                                                             |  | $                                                                                                             | (1,068,364 | ) |  | $    | (707,242 | )    |  | Interest Expense |  | $ | 59 |  | $ | 316
|                               |                                 |                                                             |          |   |                                                                                          |   |                                                                                        |   |                                 |                                                                                                                              |  |                                                                                                               |            |   |  |      |          |      |  |                  |  |   |    |  |   |    
|Total                          |                                 | $                                                           | (799,219 | ) |                                                                                          | $ | (810,918                                                                               | ) |                                 | Total                                                                                                                        |  | $                                                                                                             | (1,068,364 | ) |  | $    | (707,242 | )    |  | Total            |  | $ | 59 |  | $ | 316
|                               |                                 |                                                             |          |   |                                                                                          |   |                                                                                        |   |                                 |                                                                                                                              |  |                                                                                                               |            |   |  |      |          |      |  |                  |  |   |    |  |   |    



|                               |                                |                                                              |          |   |                                                                                          |   |                                                                                        |   |                                |                                                                                                                              |  |                                                                                                               |            |   |  |      |            |      |  |                  |  |   |       |  |   |      
|------------------------------ | ------------------------------ | ------------------------------------------------------------ | -------- | - | ---------------------------------------------------------------------------------------- | - | -------------------------------------------------------------------------------------- | - | ------------------------------ | ---------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------- | ---------- | - |  | ---- | ---------- | ---- |  | ---------------- |  | - | ----- |  | - | -----
|                               |                                | Amount of Gain or(Loss) Recognized inOCI (Effective Portion) |          |   | Location of Gain or(Loss) Reclassifiedfrom AccumulatedOCI into Income(Effective Portion) |   | Amount of Gain or(Loss) Reclassifiedfrom AccumulatedOCI into Income(Effective Portion) |   |                                | Location of Gain
or(Loss) Recognized inIncome on Derivative(Ineffective Portionand AmountExcluded fromEffectiveness Testing) |  | Amount of Gain or(Loss) Recognized inIncome (IneffectivePortion and AmountExcluded fromEffectiveness Testing)
|                               | Nine Months EndedSeptember 30, |                                                              |          |   | Nine Months EndedSeptember 30,                                                           |   |                                                                                        |   | Nine Months EndedSeptember 30,
|Derivatives - cash flowhedging |                                | 2009                                                         |          |   | 2008                                                                                     |   |                                                                                        |   | 2009                           |                                                                                                                              |  | 2008                                                                                                          |            |   |  | 2009 |            | 2008
|Interest rate swap             |                                | $                                                            | (879,840 | ) |                                                                                          | $ | (1,515,807                                                                             | ) |                                | Interest expense                                                                                                             |  | $                                                                                                             | (2,787,936 | ) |  | $    | (1,324,712 | )    |  | Interest Expense |  | $ | 1,276 |  | $ | 1,725
|                               |                                |                                                              |          |   |                                                                                          |   |                                                                                        |   |                                |                                                                                                                              |  |                                                                                                               |            |   |  |      |            |      |  |                  |  |   |       |  |   |      
|Total                          |                                | $                                                            | (879,840 | ) |                                                                                          | $ | (1,515,807                                                                             | ) |                                | Total                                                                                                                        |  | $                                                                                                             | (2,787,936 | ) |  | $    | (1,324,712 | )    |  | Total            |  | $ | 1,276 |  | $ | 1,725
|                               |                                |                                                              |          |   |                                                                                          |   |                                                                                        |   |                                |                                                                                                                              |  |                                                                                                               |            |   |  |      |            |      |  |                  |  |   |       |  |   |      

4. Property and Equipment

Property and equipment have estimated useful lives ranging from three to ten years. As of September 30, 2009 and December 31, 2008,
property and equipment consisted of the following:



|                                               |  |                    |             |   |                   |   |             |  
|---------------------------------------------- |  | ------------------ | ----------- | - | ----------------- | - | ----------- | -
|                                               |  | September 30, 2009 |             |   | December 31, 2008 |  
|Computers and software                         |  | $                  | 17,816,535  |   |                   | $ | 15,341,320  |  
|Furniture and fixtures                         |  |                    | 6,429,532   |   |                   |   | 6,655,322   |  
|Leasehold improvements                         |  |                    | 2,462,813   |   |                   |   | 2,264,658   |  
|Office equipment                               |  |                    | 3,854,642   |   |                   |   | 3,746,577   |  
|                                               |  |                    |             |   |                   |   |             |  
|Total property and equipment, at cost          |  |                    | 30,563,522  |   |                   |   | 28,007,877  |  
|Less accumulated depreciation and amortization |  |                    | (17,587,025 | ) |                   |   | (15,481,060 | )
|                                               |  |                    |             |   |                   |   |             |  
|Net property and equipment                     |  | $                  | 12,976,497  |   |                   | $ | 12,526,817  |  
|                                               |  |                    |             |   |                   |   |             |  

5. Share-Based Compensation

The Company adopted a stock incentive plan (the Stock Incentive Plan) during February 2004 that authorizes the use of stock
options, stock appreciation rights, restricted stock grants and units, performance share awards and annual incentive awards to eligible key associates, non-associate directors and consultants. The Company has reserved 3,700,000 shares of common
stock for issuance in conjunction with share-based awards to be granted under the plan and 2,349,390 shares remain available to be granted as of September 30, 2009. The purpose of the plan is (1) to promote the best interests of the
Company and its stockholders by encouraging associates and other participants to acquire an ownership interest in the Company, thus aligning their interests with those of stockholders and (2) to enhance the ability of the Company to attract and
retain qualified associates, non-associate directors and consultants. No participant may be granted options during any one fiscal year to purchase more than 500,000 shares of common stock.

The Company recognizes share-based compensation using the modified prospective approach. All stock-based compensation awards granted to
associates are recognized in the consolidated financial statements at fair value. Based on historical experience, the Company uses an annual forfeiture rate of 15% for associate grants. Grants made to non-associate directors have no forfeiture rates
associated with them due to immediate vesting of grants to this group.

The Companys share-based compensation
arrangements are described below.



14



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##### Table of Contents

ASSET ACCEPTANCE CAPITAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



Stock Options

The Company utilizes the Whaley Quadratic approximation model, an intrinsic value method, to calculate the fair value of the stock awards on
the date of grant using the assumptions noted in the following table. Changes to the subjective input assumptions can result in different fair market value estimates. With regard to the Companys assumptions stated below, the expected
volatility is based on the historical volatility of the Companys stock and managements estimate of the volatility over the contractual term of the options. The expected term of the options are based on managements estimate of the
period of time for which the options are expected to be outstanding. The risk-free rate is derived from the five-year U.S. Treasury yield curve on the date of grant.



|                    |  |            |  |        
|------------------- |  | ---------- |  | -------
|Options issue year: |  | 2009       |  | 2008   
|Expected volatility |  | 51.4-54.5% |  | 46.50% 
|Expected dividends  |  | 0.00%      |  | 0.00%  
|Expected term       |  | 5 Years    |  | 5 Years
|Risk-free rate      |  | 2.05%      |  | 3.09%  

As of September 30, 2009, the Company had options outstanding for 931,667 shares
of its common stock under the Stock Incentive Plan. These options have been granted to key associates and non-associate directors of the Company. Option awards are generally granted with an exercise price equal to the market price of the
Companys stock at the date of grant and have contractual terms ranging from seven to ten years. The options granted to key associates generally vest between one and five years from the grant date, whereas the options granted to non-associate
directors generally vest immediately. The fair value of stock options is expensed on a straight-line basis over the vesting period. The total tax benefit recognized in the consolidated statements of operations was $160,976 and $163,823 for the nine
months ended September 30, 2009 and 2008, respectively.

The related expense for the three and nine months ended
September 30, 2009 and 2008 was as follows:



|                            |      |                                 |         |                                |      |        |      |   |         |  |   |        
|--------------------------- | ---- | ------------------------------- | ------- | ------------------------------ | ---- | ------ | ---- | - | ------- |  | - | -------
|                            |      | Three months endedSeptember 30, |         | Nine months endedSeptember 30,
|                            | 2009 |                                 | 2008    |                                | 2009 |        | 2008
|Administrative expenses (1) |      | $                               |        |                                | $    |       |      | $ | 166,937 |  | $ | 205,044
|Salaries and benefits (2)   |      |                                 | 104,558 |                                |      | 93,526 |      |   | 264,633 |  |   | 218,272
|                            |      |                                 |         |                                |      |        |      |   |         |  |   |        
|Total                       |      | $                               | 104,558 |                                | $    | 93,526 |      | $ | 431,570 |  | $ | 423,316
|                            |      |                                 |         |                                |      |        |      |   |         |  |   |        



|(1) | Administrative expenses include amounts for non-associate directors.
|--- | --------------------------------------------------------------------

|(2) | Salaries and benefits include amounts for associates.
|--- | -----------------------------------------------------

The following table summarizes all stock option related transactions for the nine months ended September 30, 2009:



|                                  |  |                    |   |  |                                |       |                                           |      |                         |   |        
|--------------------------------- |  | ------------------ | - |  | ------------------------------ | ----- | ----------------------------------------- | ---- | ----------------------- | - | -------
|                                  |  | OptionsOutstanding |   |  | Weighted-AverageExercise Price |       | Weighted-AverageRemainingContractual Term |      | AggregateIntrinsicValue
|Beginning balance                 |  | 712,991            |   |  | $                              | 13.89 |                                           |      |                         |   |        
|Granted                           |  | 243,229            |   |  |                                | 4.40  |                                           |      |                         |   |        
|Forfeited                         |  | (24,553            | ) |  |                                | 9.41  |                                           |      |                         |   |        
|                                  |  |                    |   |  |                                |       |                                           |      |                         |   |        
|Outstanding at September 30, 2009 |  | 931,667            |   |  |                                | 11.53 |                                           | 6.79 |                         | $ | 724,883
|                                  |  |                    |   |  |                                |       |                                           |      |                         |   |        
|Exercisable at September 30, 2009 |  | 608,391            |   |  | $                              | 14.40 |                                           | 6.69 |                         | $ |       
|                                  |  |                    |   |  |                                |       |                                           |      |                         |   |        

The weighted-average grant date fair value of the options granted during the nine
months ended September 30, 2009 and 2008 was $2.06 and $5.86, respectively. No options were exercised during the nine months ended September 30, 2009 and 2008.

As of September 30, 2009, there was $851,197 of total unrecognized compensation expense related to nonvested stock options granted under the stock incentive plan, which is comprised of $759,025 for
options expected to vest and $92,172 for options not expected to vest. Unrecognized compensation expense for options expected to vest is expected to be recognized over a weighted-average period of 2.40 years.



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##### Table of Contents

ASSET ACCEPTANCE CAPITAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



Deferred Stock Units

As of September 30, 2009, the Company had granted 35,577 deferred stock units (DSUs) of its common stock to non-associate
directors under the Companys Stock Incentive Plan. DSUs represent the Companys obligation to deliver one share of common stock for each unit at a later date elected by the non-associate director, such as when his or her board service
ends. DSUs vest immediately upon grant and are not subject to forfeiture. DSUs do not have voting rights but would receive common stock dividend equivalents in the form of additional DSUs. The value of each DSU is equal to the market price of the
Companys stock at the date of grant.

The fair value of the DSUs granted during the nine months ended September 30,
2009 and 2008 were expensed immediately to correspond with the vesting schedule. The related expense for the three months ended September 30, 2009 and 2008 includes $21,874 and $31,255 in administrative expenses, respectively. The related
expense for the nine months ended September 30, 2009 and 2008 includes $65,632 and $93,768 in administrative expenses, respectively.

The following table summarizes all DSU related transactions for the nine months ended September 30, 2009:



|                  |  |        |  |                                      |      
|----------------- |  | ------ |  | ------------------------------------ | -----
|                  |  | DSUs   |  | Weighted-AverageGrant-DateFair Value
|Beginning balance |  | 23,681 |  | $                                    | 10.37
|Granted           |  | 11,896 |  |                                      | 5.52 
|                  |  |        |  |                                      |      
|Ending balance    |  | 35,577 |  | $                                    | 8.75 
|                  |  |        |  |                                      |      

There was no unrecognized compensation expense related to nonvested DSUs as of
September 30, 2009.

Restricted Shares and Restricted Share Units

The Company grants restricted shares and restricted share units (restricted shares and restricted share units are referred to as
RSUs) to key associates and non-associate directors under the Stock Incentive Plan. Each RSU is equal to one share of the Companys common stock. The value of the RSUs is equal to the market price of the Companys stock at the
date of grant. The RSUs granted to associates generally vest over two to four years, based upon service or performance conditions. RSUs granted to non-associate directors generally vest when the non-associate director terminates his or her board
service.

The fair value of the RSUs is expensed on a straight-line basis over the vesting period based on the number of RSUs
expected to vest. For RSUs with performance conditions, if goals are not expected to be met, the compensation expense previously recognized is reversed. The related expense for the three and nine months ended September 30, 2009 and 2008 was as
follows:



|                            |      |                                 |         |                                |      |         |      |   |         |  |   |        
|--------------------------- | ---- | ------------------------------- | ------- | ------------------------------ | ---- | ------- | ---- | - | ------- |  | - | -------
|                            |      | Three months endedSeptember 30, |         | Nine months endedSeptember 30,
|                            | 2009 |                                 | 2008    |                                | 2009 |         | 2008
|Administrative expenses (1) |      | $                               |        |                                | $    |        |      | $ | 114,823 |  | $ | 154,147
|Salaries and benefits (2)   |      |                                 | 186,432 |                                |      | 146,508 |      |   | 462,068 |  |   | 337,956
|                            |      |                                 |         |                                |      |         |      |   |         |  |   |        
|Total                       |      | $                               | 186,432 |                                | $    | 146,508 |      | $ | 576,891 |  | $ | 492,103
|                            |      |                                 |         |                                |      |         |      |   |         |  |   |        



|(1) | Administrative expenses include amounts for non-associate directors.
|--- | --------------------------------------------------------------------

|(2) | Salaries and benefits include amounts for associates. Nine months ended September 30, 2008 includes a reversal of $99,240 for RSUs not expected to vest.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

ASSET ACCEPTANCE CAPITAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



The Company issues shares of common stock for RSUs as they vest. The following table
summarizes all RSU related transactions for the nine months ended September 30, 2009:



|                  |  |         |   |  |                                      |      
|----------------- |  | ------- | - |  | ------------------------------------ | -----
|Nonvested RSUs    |  | RSUs    |   |  | Weighted-AverageGrant-DateFair Value
|Beginning balance |  | 224,610 |   |  | $                                    | 10.27
|Granted           |  | 127,163 |   |  |                                      | 4.10 
|Vested and issued |  | (28,784 | ) |  |                                      | 10.43
|Forfeited         |  | (33,362 | ) |  |                                      | 7.85 
|                  |  |         |   |  |                                      |      
|Ending balance    |  | 289,627 |   |  | $                                    | 7.82 
|                  |  |         |   |  |                                      |      

As of September 30, 2009, there was $1,674,310 of total unrecognized
compensation expense related to nonvested RSUs, which is comprised of $776,125 for RSUs expected to vest and $898,185 for RSUs not expected to vest. Unrecognized compensation expense for RSUs expected to vest is expected to be recognized over a
weighted-average period of 2.17 years.

6. Contingencies and Commitments

Litigation Contingencies

The Company is involved in certain legal matters that management considers incidental to its business. The Company recognizes liabilities for contingencies and commitments when a loss is probable and
estimable. The Company recognizes expense for defense costs when incurred. Management has evaluated pending and threatened litigation against the Company as of September 30, 2009 and does not believe the exposure to be material.

Registration Rights Agreement

The Company has a registration rights agreement with certain stockholders. Pursuant to the agreement, the Company will pay all costs related to any secondary securities offering requested by these
stockholders and the stockholders may sell any outstanding shares owned by them. The Company filed a registration statement on behalf of one of the selling stockholders in 2008 to register 10,932,051 shares of common stock held by the stockholder
and paid $45,246 in costs related to the registration statement. The selling stockholders collectively retain the right to request two additional registrations of specified shares under the registration rights agreement, in which case, the Company
will be required to bear applicable offering expenses in the period in which any future offering occurs.

7. Fair Value

The Company adopted FASB ASC Topic 820, Fair Value Measurements and Disclosures, as of January 1, 2008 as it applies to
financial assets and liabilities, and as of January 1, 2009 as it relates to non-financial assets and liabilities, including goodwill and other indefinite-lived assets.

The Company groups assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded
and the reliability of the assumptions used to determine fair value. These levels are:



|        |  |   |  |                                                                                                                                                                                                                                                                             
|------- |  | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Level 1 |  |  |  | Valuation is based upon quoted prices for identical instruments traded in active markets.                                                                                                                                                                                   
|        |  |  
|Level 2 |  |  |  | Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based
valuation techniques for which all significant assumptions are observable in the market.
|        |  |  
|Level 3 |  |  |  | Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of
assumptions that market participants would use in pricing the asset or liability.         

Disclosure of the estimated fair value of financial instruments often requires the
use of estimates. The Company uses the following methods and assumptions to estimate the fair value of financial instruments.



17



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##### Table of Contents

ASSET ACCEPTANCE CAPITAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



Interest Rate Swap Agreement



|                             |  |                                                            |           |                                                 |   |                                        |   |           |  |  
|---------------------------- |  | ---------------------------------------------------------- | --------- | ----------------------------------------------- | - | -------------------------------------- | - | --------- |  | -
|                             |  | Total Recorded FairValue atSeptember 30, 2009              |           | Fair Value Measurements at Reporting Date Using
|                             |  | Quoted Pricesin ActiveMarkets forIdentical Assets(Level 1) |           | SignificantOtherObservableInputs(Level 2)       |   | SignificantUnobservableInputs(Level
3)
|Interest rate swap liability |  | $                                                          | 5,335,478 |                                                 |  |                                        | $ | 5,335,478 |  | 

The fair value of the interest rate swap represents the amount the Company would pay
to terminate or otherwise settle the contract at the financial position date, taking into consideration current unearned gains and losses. The fair value was determined using a market approach, and is based on the three-month LIBOR curve for the
remaining term of the swap agreement. Refer to Note 3, Derivative Financial Instruments and Risk Management for additional information about the fair value of the interest rate swap.

Goodwill and Other Intangible Assets

Goodwill and certain intangible assets not subject to amortization are assessed annually for impairment using fair value measurement techniques. Specifically, goodwill impairment is determined using a
two-step test. The first step of the goodwill impairment test is used to identify potential impairment by comparing the fair value of a reporting unit with its book value, including goodwill. If the fair value of the reporting unit exceeds its book
value, goodwill is considered not impaired and the second step of the impairment test is unnecessary. If the book value of the reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed to measure the amount
of impairment loss, if any. The second step of the goodwill impairment test compares the implied fair value of the reporting units goodwill with the book value of that goodwill. If the book value of the reporting units goodwill exceeds
the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. That is,
the fair value of the reporting unit is allocated to all of the assets and liabilities of that unit as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the purchase price paid to acquire
the reporting unit.

The estimate of fair value of the Companys goodwill is determined using various valuation
techniques including market capitalization, which is a Level 1 input, and an analysis of discounted cash flows, which includes Level 3 inputs. At the time of the annual goodwill impairment test in the fourth quarter of 2008, market capitalization
was substantially higher than book value and goodwill was considered not to be impaired. Given declines in the Companys stock price, a discounted cash flow analysis was also performed. A discounted cash flow analysis requires various
judgmental assumptions including assumptions about future cash flows, growth rates, and discount rates. The Company based assumptions about future cash flows and growth rates on its budget and long-term plans. Discount rate assumptions are based on
an assessment of the risk inherent in the reporting unit. The fair value of goodwill using a market capitalization approach and a discounted cash flow analysis exceeded the book value as of December 31, 2008.

The annual impairment test for other intangible assets not subject to amortization, for example, trademark and trade names, consists of a
comparison of the fair value of the intangible asset with its carrying value. If the carrying value of the intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. The estimates of fair value of
intangible assets not subject to amortization are determined using various discounted cash flow valuation methodologies, which include Level 3 inputs. Significant assumptions are inherent in this process, including estimates of discount rates and
future cash flows. Discount rate assumptions are based on an assessment of the risk inherent in the respective intangible assets, and include estimates of the cost of debt and equity for market participants in the Companys industry. The
Company performed a discounted cash flow analysis of its trademark and trade names as of September 30, 2009 and determined that the carrying value exceeded the fair value. The Company recorded an impairment of $1,167,600 in Impairment of
assets in the accompanying consolidated statements of operations.

The following disclosures are made pursuant to FASB
ASC Topic 820. These assets and liabilities are not measured at fair value.



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##### Table of Contents

ASSET ACCEPTANCE CAPITAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



Purchased Receivables

The Company initially records purchased receivables at cost, which is discounted from the contractual receivable balance. The ending balance
of the purchased receivables is reduced as cash is received. The carrying value of receivables was $333,750,279 and $361,808,502 at September 30, 2009 and December 31, 2008, respectively. The Company computes the fair value of these
receivables by discounting the estimated future cash flows generated by its forecasting model using an adjusted weighted-average cost of capital. The fair value of the purchased receivables approximated carrying value at both September 30, 2009
and December 31, 2008.

Credit Facilities

The Companys Credit Facilities had carrying amounts of $146,197,514 and $181,550,000 as of September 30, 2009 and
December 31, 2008, respectively. The Company computed the approximate fair value of the Credit Facilities to be $138,900,000 and $117,200,000 as of September 30, 2009 and December 31, 2008, respectively. The fair value of the
Companys Credit Facilities is estimated based on quoted market prices, current market rates for similar debt with approximately the same remaining maturities or discounted cash flow models utilizing current market rates.

8. Income Taxes

The
Company recorded an income tax benefit of $1,198,347 for the three months ended September 30, 2009 and income tax expense of $1,928,331 for the three months ended September 30, 2008. The Company recorded income tax expense of $2,262,567
and $7,534,617 for the nine months ended September 30, 2009 and 2008, respectively. The provision for income tax reflects an effective income tax rate of 42.2% and 38.8% for the three months ended September 30, 2009 and 2008, respectively
and 37.3% and 38.7% for the nine months ended September 30, 2009 and 2008, respectively.

As of September 30, 2009,
the Company had a gross unrecognized tax benefit of $1.0 million that, if recognized, would result in a net tax benefit of approximately $0.6 million which would have a positive effect on the Companys effective tax rate. During the three and
nine months ended September 30, 2009, there were no material changes to the unrecognized tax benefit. Penalties and interest may be classified as either interest expense or income tax expense. Management has elected to classify accrued
penalties and interest as income tax expense. Since January 1, 2007, the Company has accrued interest and penalties of approximately $125,000. Interest and penalties related to the Companys uncertain tax position at September 30,
2009 were not significant.

The federal income tax returns of the Company for 2006, 2007, and 2008 are subject to examination
by the IRS, generally for three years after the latter of their extended due date or when they are filed. The state income tax returns of the Company are subject to examination by the state taxing authorities, for various periods generally up to
four years.

9. Subsequent Event

On October 27, 2009, the Company, JPMorgan Chase Bank, N.A. and other lenders entered into a Second Amendment to Credit Agreement (Second Amendment).

The Second Amendment resets the financial covenants and increases the rates of interest the Company pays on borrowings. Depending on the
Companys liquidity, interest rates on the Credit Facilities under the Second Amendment will bear interest at 150 to 250 basis points over prime or 250 to 350 basis points over the respective alternative LIBOR. Commitment fees on the unused
portion of the Revolving Credit Facility under the Second Amendment increased to 50 basis points. The Excess Cash Flow provision and the requirement to effectively cap, collar or exchange interest rates remain the same.

The financial covenants under the terms of the Second Amendment are as follows:



| |  |  | Leverage Ratio (as defined) cannot exceed (i) 1.50 to 1.0 at any time on or before December 30, 2011 or (ii) 1.25 to 1.0 at any time
thereafter;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------



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ASSET ACCEPTANCE CAPITAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



| |  |  | Ratio of Consolidated Total Liabilities to Consolidated Tangible Net Worth (as defined) cannot exceed (i) 2.5 to 1.0 at any time on or before
December 30, 2011, (ii) 2.25 to 1.0 at any time on or after December 31, 2011 and on or before March 30, 2012, or (iii) 2.0 to 1.0 at any thereafter; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Consolidated Tangible Net Worth (as defined) must equal or exceed $85,000,000 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.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In exchange for amending the financial covenants and certain other terms, the Company incurred deferred financing costs of approximately
$1,900,000.



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##### Table of Contents

|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

Company Overview

We have been purchasing and collecting defaulted or charged-off accounts receivable portfolios from consumer credit originators since the formation of our predecessor company in 1962. Charged-off
receivables are the unpaid obligations of individuals to credit originators, such as credit card issuers including private label card issuers, consumer finance companies, healthcare providers, telecommunications and utility providers. Since these
receivables are delinquent or past due, we are able to purchase them at a substantial discount. We purchase and collect charged-off consumer receivable portfolios for our own account as we believe this affords us the best opportunity to use
long-term strategies to maximize our profits.

The current macro-economic environment has both negative and positive impacts
for us. The negative macro-economic factors include reduced availability of credit, falling real estate values, higher energy prices, increased unemployment and other factors (macro-economic factors). These macro-economic factors are
making it more difficult to collect on the charged-off accounts receivable portfolios (paper) we have acquired. The positive impact of macro-economic factors is that the supply of available paper is increasing and the prices have
declined. A further discussion of the trends in market prices, our investment in paper, our cash collections and operating expenses follows.

Market prices for paper began to decline in the second half of 2007, and have continued declining into 2009. Lower expected liquidation of the paper by collection companies is the primary reason for the
recent decline in market pricing. In addition, we believe that some competitors ability to fund portfolio purchases has been reduced during the recent financial crisis. Finally, we believe that increases in charge-off rates being experienced
by major credit grantors will lead to an increase in supply of receivables available for sale. Reduced competition and increased supply may have also contributed to improved pricing.

During the nine months ended September 30, 2009, we invested $79.1 million (net of buybacks) in charged-off consumer receivable
portfolios, with an aggregate face value of $3.1 billion, or 2.57% of face value. In the nine months ended September 30, 2008, we invested $122.3 million (net of buybacks through September 30, 2009) in paper, with an aggregate face amount
of $3.2 billion, or 3.85% of face value. We reduced our level of investment in paper during the first half of 2009 to save capacity to invest in paper in the second half of the year and into 2010, in anticipation of additional declines in pricing.
Purchasing in the third quarter of 2009 was over 80% higher than the second quarter of 2009.

The change in average purchase
price in 2009 when compared to 2008 may not be representative of the change in overall market pricing because the underlying mix of paper purchased in the two periods may not be comparable. Our debt purchasing metrics (dollars invested, face amount,
average purchase price, types of paper and sources of paper) may vary significantly from quarter to quarter. During 2009, an increasing portion of our investment in purchased receivables was from forward flow contracts. Forward flow contracts commit
a debt seller to sell a steady flow of paper to us, and commit us to purchase paper for a fixed percentage of the face value. Due to the macro-economic factors, debt sellers and debt buyers alike believe that there will be continued pressure on the
prices that are paid for paper. We believe debt sellers are attempting to lock in pricing when possible through forward flow contracts. For the nine months ended September 30, 2009, we acquired $44.0 million (net of buybacks) under forward flow
contracts, or 55.6% of the total investment compared to $58.2 million (net of buybacks through September 30, 2009), or 47.6% of the total investment during the nine months ended September 30, 2008. Forward flow contracts may be attractive
to us because they provide operational advantages from the consistent amount and type of accounts acquired.

Cash collections
declined for the nine months ended September 30, 2009 when compared to the same period in 2008, reflecting a more difficult collections environment due to the macro-economic factors, particularly on our older vintages of paper. Cash collections
decreased by $27.0 million or 9.4% to $259.2 million for the nine months ended September 30, 2009 compared to $286.2 million for the nine months ended September 30, 2008. Traditional call center collections declined by $18.4 million or
14.3% as account representative productivity fell by 18.9% for the nine months ended September 30, 2009 when compared to the nine months ended September 30, 2008. We continue to balance our volume of paper outsourced to our agency network
with our capacity-constrained in-house collection staff. We believe that our agency network is experiencing productivity declines similar to, or greater than, our in-house traditional call center collections associates. In June of 2009 we began to
aggressively increase the number of in-house account representatives. By the end of 2009, we expect to have increased our in-house traditional call center staffing levels by approximately 20% from mid-second quarter levels. This initiative may
include recalling some of our accounts that are currently placed with our agency forwarding channel.



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Net income for the nine months ended September 30, 2009 was $3.8 million, a decline of
68.2% from $11.9 million for the nine months ended September 30, 2008. Purchased receivable revenues declined by $25.0 million primarily because of an increase in amortization as a percentage of collections, which increased to 41.0% for the
nine months ended September 30, 2009 from 37.8% for the nine months ended September 30, 2008. Included in the amortization are net impairments on purchased receivables that increased to $17.1 million for the nine months ended
September 30, 2009 compared to $8.4 million for the nine months ended September 30, 2008. Impairments are generated when currently assigned yields are too high in relation to the timing and/or amount of current or future collections, which
have changed because of macro-economic factors affecting the consumers ability to repay their obligations or for other reasons. The amount of revenue recognized is a function of the yields assigned, and when collections decline a larger
portion of collections are allocated to revenue and less towards amortization of portfolio balances. Portfolio balances that amortize too slowly in relation to expected collections also contribute to an increase in impairments.

We reduced our operating expenses in absolute dollars for the nine months ended September 30, 2009 compared to the same period in 2008.
Total operating expenses were $140.2 million for the nine months ended September 30, 2009 a decrease of $9.7 million from $149.9 million for the nine months ended September 30, 2008. As a percentage of cash collections, operating expenses
were 54.1% for the nine months ended September 30, 2009 compared with 52.4% for the nine months ended September 30, 2008. Salaries and benefits declined in the nine months ended September 30, 2009 by $6.7 million, compared to the nine
months ended September 30, 2008. In the first nine months of 2009, collections expense decreased by $2.0 million versus the first nine months of 2008. Administrative expenses decreased by $1.5 million in the nine months ended September 30,
2009 compared to the nine months ended September 30, 2008. The reduced salaries and benefits costs reflect our managing staffing levels for non-revenue generating positions and incentive compensation programs to the current level of
collections. Our collections from third party relationships (attorneys and collection agencies) have increased to 32.5% of total cash collections for the nine months ended September 30, 2009 from 30.1% for the nine months ended
September 30, 2008. Total forwarding fees on cash collections from these third party relationships have increased to $28.9 million for the nine months ended September 30, 2009 from $25.8 million for the nine months ended September 30,
2008. The remaining expenses included in collections expense declined by $5.1 million during the same period as a result of volume driven charges for data provider, lettering campaigns, telephone, process server and court costs.

We recorded a net loss for the three months ended September 30, 2009 of $1.6 million, or $0.05 per share, compared to net income of
$3.0 million or $0.10 per share for the three months ended September 30, 2008. Purchased receivable revenues declined by $10.6 million primarily because of an increase in amortization as a percentage of cash collections, which increased to
39.0% for the three months ended September 30, 2009 compared to 36.0% for the three months ended September 30, 2008. Net impairments on purchased receivables increased to $6.8 million for the three months ended September 30, 2009
compared to $3.1 million for the three months ended September 30, 2008.

Total operating expenses were $48.1 million for
the three months ended September 30, 2009, a decrease of $2.0 million, or 4.0%, compared to total operating expenses of $50.1 million for the three months ended September 30, 2008. Total operating expenses were 61.8% of cash collections
for the three months ended September 30, 2009, compared with 55.2% for the same period in 2008. While the dollar amount of operating expenses declined, operating expenses increased as a percentage of collections because the decline in cash
collections was greater than the decline in operating expenses.

Further contributing to the net loss for the quarter ended
September 30, 2009 is an impairment of trademark and trade names of $1.2 million. We performed a discounted cash flow analysis of our trademark and trade names as of September 30, 2009 and determined that the carrying value exceeded the
fair value. The estimates of fair value for trademark and trade names are determined using various discounted cash flow valuation methodologies, which include significant assumptions not observable in the market. Significant assumptions include
estimates of discount rates and future cash flows. Discount rate assumptions are based on an assessment of the risk inherent in the intangible assets, and include estimates of the cost of debt and equity for market participants in our industry.



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Forward-Looking Statements

This report contains forward-looking statements that involve risks and uncertainties and that are made in good faith pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements include, without limitation, statements about future events or our future financial performance. In some cases, forward-looking statements
can be identified by terminology such as may, will, should, expect, anticipate, intend, plan, believe, estimate, potential or
continue, the negative of these terms or other comparable terminology. These statements involve a number of risks and uncertainties. Actual events or results may differ materially from any forward-looking statement as a result of various
factors, including those we discuss in our annual report on Form 10-K for the year ended December 31, 2008 in the section titled Risk Factors and elsewhere in this report.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements. Except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this report to conform these statements to actual results or to
changes in our expectations. Factors that could affect our results and cause them to materially differ from those contained in the forward-looking statements include the following:



| |  |  | a prolonged economic recession limiting our ability to acquire and to collect on charged-off receivable portfolios;
| | - |  | -------------------------------------------------------------------------------------------------------------------



| |  |  | 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 if changes in debt collection laws impair our ability to collect through our traditional call center or legal channels;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 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;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 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;
| | - |  | -----------------------------------------------------------------------------------



| |  |  | failure to comply with government regulation;
| | - |  | ---------------------------------------------



| |  |  | 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 macro-economic conditions;
| | - |  | ------------------------------------------------------------------------------------



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| |  |  | our ability to substantiate our application of tax rules against examinations and challenges made by tax authorities;
| | - |  | ---------------------------------------------------------------------------------------------------------------------



| |  |  | a decline in market capitalization that triggers a goodwill impairment or other impairment of intangible asset; and
| | - |  | -------------------------------------------------------------------------------------------------------------------



| |  |  | other unanticipated events and conditions that may hinder our ability to compete.
| | - |  | ---------------------------------------------------------------------------------



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##### Table of Contents

Results of Operations

The following table sets forth selected consolidated statements of operations data expressed as a percentage of total revenues and as a
percentage of cash collections for the periods indicated:



|                                               |  |                                 |    |  |                                |   |                             |       |   |                                 |       |   |                                |  |  |      |    |  |      |   |  |      |   |  |      |  
|---------------------------------------------- |  | ------------------------------- | -- |  | ------------------------------ | - | --------------------------- | ----- | - | ------------------------------- | ----- | - | ------------------------------ |  |  | ---- | -- |  | ---- | - |  | ---- | - |  | ---- | -
|                                               |  | Percent of Total Revenues       |    |  |                                |   | Percent of Cash Collections |      
|                                               |  | Three Months EndedSeptember 30, |    |  | Nine Months EndedSeptember 30, |   |                             |       |   | Three Months EndedSeptember 30, |       |   | Nine Months EndedSeptember 30, | 
|                                               |  | 2009                            |    |  | 2008                           |   |                             | 2009  |   |                                 | 2008  |   |                                |  |  | 2009 |    |  | 2008 |   |  | 2009 |   |  | 2008 |  
|Revenues                                       |  |                                 |    |  |                                |   |                             |       |   |                                 |       |   |                                |  |  |      |    |  |      |   |  |      |   |  |      |  
|Purchased receivable revenues, net             |  | 99.6                            | %  |  | 99.6                           | % |                             | 99.5  | % |                                 | 99.4  | % |                                |  |  | 61.0 | %  |  | 64.0 | % |  | 59.0 | % |  | 62.2 | %
|Gain on sale of purchased receivables          |  | 0.0                             |    |  | 0.0                            |   |                             | 0.0   |   |                                 | 0.1   |   |                                |  |  | 0.0  |    |  | 0.0  |   |  | 0.0  |   |  | 0.1  |  
|Other revenues, net                            |  | 0.4                             |    |  | 0.4                            |   |                             | 0.5   |   |                                 | 0.5   |   |                                |  |  | 0.3  |    |  | 0.3  |   |  | 0.3  |   |  | 0.3  |  
|                                               |  |                                 |    |  |                                |   |                             |       |   |                                 |       |   |                                |  |  |      |    |  |      |   |  |      |   |  |      |  
|Total revenues                                 |  | 100.0                           |    |  | 100.0                          |   |                             | 100.0 |   |                                 | 100.0 |   |                                |  |  | 61.3 |    |  | 64.3 |   |  | 59.3 |   |  | 62.6 |  
|                                               |  |                                 |    |  |                                |   |                             |       |   |                                 |       |   |                                |  |  |      |    |  |      |   |  |      |   |  |      |  
|Expenses                                       |  |                                 |    |  |                                |   |                             |       |   |                                 |       |   |                                |  |  |      |    |  |      |   |  |      |   |  |      |  
|Salaries and benefits                          |  | 40.1                            |    |  | 36.1                           |   |                             | 37.3  |   |                                 | 35.7  |   |                                |  |  | 24.6 |    |  | 23.2 |   |  | 22.1 |   |  | 22.3 |  
|Collections expense                            |  | 47.7                            |    |  | 40.3                           |   |                             | 43.3  |   |                                 | 38.3  |   |                                |  |  | 29.2 |    |  | 25.9 |   |  | 25.7 |   |  | 24.0 |  
|Occupancy                                      |  | 3.8                             |    |  | 3.4                            |   |                             | 3.5   |   |                                 | 3.3   |   |                                |  |  | 2.3  |    |  | 2.2  |   |  | 2.1  |   |  | 2.0  |  
|Administrative                                 |  | 4.4                             |    |  | 4.3                            |   |                             | 4.3   |   |                                 | 4.5   |   |                                |  |  | 2.7  |    |  | 2.8  |   |  | 2.6  |   |  | 2.9  |  
|Depreciation and amortization                  |  | 2.3                             |    |  | 1.7                            |   |                             | 1.9   |   |                                 | 1.6   |   |                                |  |  | 1.4  |    |  | 1.1  |   |  | 1.1  |   |  | 1.0  |  
|Impairment of assets                           |  | 2.4                             |    |  | 0.0                            |   |                             | 0.8   |   |                                 | 0.2   |   |                                |  |  | 1.5  |    |  | 0.0  |   |  | 0.5  |   |  | 0.2  |  
|Loss on disposal of equipment and other assets |  | 0.2                             |    |  | 0.0                            |   |                             | 0.1   |   |                                 | 0.0   |   |                                |  |  | 0.1  |    |  | 0.0  |   |  | 0.0  |   |  | 0.0  |  
|                                               |  |                                 |    |  |                                |   |                             |       |   |                                 |       |   |                                |  |  |      |    |  |      |   |  |      |   |  |      |  
|Total operating expenses                       |  | 100.9                           |    |  | 85.8                           |   |                             | 91.2  |   |                                 | 83.6  |   |                                |  |  | 61.8 |    |  | 55.2 |   |  | 54.1 |   |  | 52.4 |  
|                                               |  |                                 |    |  |                                |   |                             |       |   |                                 |       |   |                                |  |  |      |    |  |      |   |  |      |   |  |      |  
|(Loss) income from operations                  |  | (0.9                            | )  |  | 14.2                           |   |                             | 8.8   |   |                                 | 16.4  |   |                                |  |  | (0.5 | )  |  | 9.1  |   |  | 5.2  |   |  | 10.2 |  
|Other income (expense)                         |  |                                 |    |  |                                |   |                             |       |   |                                 |       |   |                                |  |  |      |    |  |      |   |  |      |   |  |      |  
|Interest income                                |  | 0.0                             |    |  | 0.0                            |   |                             | 0.0   |   |                                 | 0.0   |   |                                |  |  | 0.0  |    |  | 0.0  |   |  | 0.0  |   |  | 0.0  |  
|Interest expense                               |  | (5.1                            | )  |  | (5.7                           | ) |                             | (4.9  | ) |                                 | (5.5  | ) |                                |  |  | (3.1 | )  |  | (3.6 | ) |  | (2.9 | ) |  | (3.4 | )
|Other                                          |  | (0.0                            | )  |  | 0.0                            |   |                             | 0.0   |   |                                 | 0.0   |   |                                |  |  | 0.0  |    |  | 0.0  |   |  | 0.0  |   |  | 0.0  |  
|                                               |  |                                 |    |  |                                |   |                             |       |   |                                 |       |   |                                |  |  |      |    |  |      |   |  |      |   |  |      |  
|(Loss) income before income taxes              |  | (6.0                            | )  |  | 8.5                            |   |                             | 3.9   |   |                                 | 10.9  |   |                                |  |  | (3.6 | )  |  | 5.5  |   |  | 2.3  |   |  | 6.8  |  
|Income tax (benefit) expense                   |  | (2.6                            | )  |  | 3.3                            |   |                             | 1.4   |   |                                 | 4.2   |   |                                |  |  | (1.5 | )  |  | 2.2  |   |  | 0.8  |   |  | 2.6  |  
|                                               |  |                                 |    |  |                                |   |                             |       |   |                                 |       |   |                                |  |  |      |    |  |      |   |  |      |   |  |      |  
|Net (loss) income                              |  | (3.4                            | )% |  | 5.2                            | % |                             | 2.5   | % |                                 | 6.7   | % |                                |  |  | (2.1 | )% |  | 3.3  | % |  | 1.5  | % |  | 4.2  | %
|                                               |  |                                 |    |  |                                |   |                             |       |   |                                 |       |   |                                |  |  |      |    |  |      |   |  |      |   |  |      |  

Three Months Ended September 30, 2009 Compared To Three Months Ended
September 30, 2008

Revenues

Total revenues were $47.7 million for the three months ended September 30, 2009, a decrease of $10.7 million, or 18.3%, from total revenues of $58.4 million for the three months ended
September 30, 2008. Purchased receivable revenues were $47.5 million for the three months ended September 30, 2009, a decrease of $10.6 million, or 18.3%, from the three months ended September 30, 2008 amount of $58.1 million.
Purchased receivable revenues include amortization, or the difference between cash collections and revenue, of $30.3 million and $32.7 million for the three months ended September 30, 2009 and 2008, respectively. While the amount of
amortization has decreased, the amortization rate of 39.0% for the three months ended September 30, 2009 increased 3.0 percentage points from the amortization rate of 36.0% for the three months ended September 30, 2008. Purchased
receivable revenues reflect net impairments recognized during the three months ended September 30, 2009 and 2008 of $6.8 million and $3.1 million, respectively. Impairments are generated when currently assigned yields are too high in relation
to the timing and/or amount of current or future collections. The amount of revenue recognized is a function of the yields assigned, and when collections decline a larger portion of collections is allocated to revenue and less is allocated towards
amortization of portfolio balances. Portfolio balances that amortize too slowly in relation to expected collections also contribute to an increase in impairments. Cash collections on charged-off consumer receivables decreased 14.3% to $77.8 million
for the three months ended September 30, 2009 from $90.8 million for the same period in 2008. The cash collections decrease is primarily a result of macro-economic factors affecting the consumers ability to repay their obligations. Cash
collections for the three months ended September 30, 2009 and 2008 include collections from fully amortized portfolios of $14.9 million and $18.4 million, respectively, of which 100% were reported as revenue.

During the three months ended September 30, 2009, we acquired charged-off consumer receivable portfolios with an aggregate face value
of $1.6 billion at a cost of $37.2 million, or 2.32% of face value, net of buybacks. Included in these purchase totals were 17



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##### Table of Contents

portfolios with an aggregate face value of $526.3 million at a cost of $14.1 million, or 2.67% of face value, which were acquired through five forward flow contracts. Forward flow contracts
commit a debt seller to sell a steady flow of charged-off receivables to us, and commit us to purchase receivables for a fixed percentage of the face value. Revenues on portfolios purchased from our top three sellers during vintage years 1993
through 2009 were $14.5 million and $16.6 million during the three months ended September 30, 2009 and 2008, respectively, with one of the three sellers included in the top three in both three-month periods. During the three months ended
September 30, 2008, we acquired charged-off consumer receivable portfolios with an aggregate face value of $718.8 million at a cost of $35.6 million, or 4.95% of face value (adjusted for buybacks through September 30, 2009). Included in
these purchase totals were 35 portfolios with an aggregated face value of $516.9 million at a cost of $27.8 million, or 5.38% of face value (adjusted for buybacks through September 30, 2009), which were acquired through 11 forward flow
contracts. From period to period, we may buy charged-off receivables of varying age, types and demographics. As a result, the cost of our purchases, as a percent of face value, may fluctuate from one period to the next.

Operating Expenses

Total operating expenses were $48.1 million for the three months ended September 30, 2009, a decrease of $2.0 million, or 4.0%, compared to total operating expenses of $50.1 million for the three months ended September 30, 2008.
Total operating expenses were 61.8% of cash collections for the three months ended September 30, 2009, compared with 55.2% for the same period in 2008. The majority of the decrease in operating expenses is a result of reductions in salaries and
benefits, collections and administrative expenses of $2.0 million, $0.7 million and $0.4 million for the three months ended September 30, 2009, respectively, as compared to the same period in 2008. However, while the dollar amount of operating
expenses declined, operating expenses increased as a percentage of collections because the decline in cash collections was greater than the decline in operating expenses.

Operating expenses are traditionally measured in relation to revenues. However, we measure operating expenses in relation to cash collections. We believe this is appropriate because of varying
amortization rates, which is the difference between cash collections and revenues recognized, from period to period. Amortization rates vary due to seasonality of collections and other factors that can distort the analysis of operating expenses when
measured against revenues. Additionally, we believe that the majority of our operating expenses are variable in relation to cash collections.

Salaries and Benefits.Salaries and benefits expense were $19.1 million for the three months ended September 30, 2009, a decrease of $2.0 million, or 9.3%, compared to salaries and benefits
expense of $21.1 million for the three months ended September 30, 2008. Salaries and benefits expense were 24.6% of cash collections for the three months ended September 30, 2009, compared with 23.2% for the same period in 2008. Salaries
expense decreased because of lower cash collections, which resulted in lower variable compensation expense for revenue generating associates, and is partially offset by higher average headcount due to our recent hiring initiative. The overall
decrease in our profitability also resulted in lower incentive compensation for management during the three months ended September 30, 2009 compared to the same period in 2008. Benefits expense decreased as a result of a decline in the number
of participants eligible for Company sponsored benefit plans.

We recognized $0.3 million and $0.2 million of share-based
compensation expense in salaries and benefits expense for the three months ended September 30, 2009 and 2008, respectively. As of September 30, 2009, there was $2.5 million of total unrecognized compensation expense related to nonvested
awards of which $1.5 million is expected to vest over a weighted-average period of 2.28 years. As of September 30, 2008, there was $3.1 million of total unrecognized compensation expense related to nonvested awards of which $1.9 million was
expected to vest over a weighted-average period of 2.67 years.

Collections Expense.Collections expense was $22.8
million for the three months ended September 30, 2009, a decrease of $0.7 million, or 3.2%, compared to collections expense of $23.5 million for the three months ended September 30, 2008. Collections expense was 29.2% of cash collections
during the three months ended September 30, 2009 compared with 25.9% for the same period in 2008. Collections expense decreased primarily as a result of volume driven charges for data provider, lettering campaigns, telephone, process server and
court costs. These savings were realized from a combination of reduced purchasing volume earlier in the year, and better expense management.

Occupancy.Occupancy expense was $1.8 million for the three months ended September 30, 2009, a decrease of $0.2 million, or 9.5%, compared to occupancy expense of $2.0 million for the three
months ended September 30 2008. Occupancy expense was 2.3%



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of cash collections for the three months ended September 30, 2009 compared with 2.2% for the same period in 2008. We entered into a sublease agreement for one of our offices during 2009, and
will continue to review our office capacity as part of our ongoing expense management efforts.

Administrative.Administrative expenses decreased to $2.1 million for the three months ended September 30, 2009, from $2.5 million for the three months ended September 30, 2008, reflecting a $0.4 million, or 17.6%, decrease. Administrative expenses
were 2.7% of cash collections during the three months ended September 30, 2009 compared with 2.8% for the same period in 2008. Administrative expenses decreased due to improved expense management in many areas, including accounting and legal
services, office supplies and travel, offset in part by higher spending for outside consultants.

Impairment of Assets.Impairment of intangible assets was $1.2 million for the three months ended September 30, 2009, as we completed our periodic valuation of our trademark and tradenames. A decline in business activity associated with this intangible asset led
to a fair value that was below the carrying value. We recorded the impairment charge for the difference.

Interest Expense.Interest expense was $2.4 million for the three months ended September 30, 2009, a decrease of $0.9 million compared to interest expense of $3.3 million for the three months ended September 30, 2008. Interest expense was 3.1% of cash
collections during the three months ended September 30, 2009 compared with 3.6% for the same period in 2008. The decrease in interest expense was due to lower interest rates and decreased average borrowings during the three months ended
September 30, 2009 compared to the same period in 2008. Average borrowings were $145.9 million for the three months ended September 30, 2009, compared to $183.7 million for the three months ended September 30, 2008. On
October 27, 2009, we entered into an amendment to our credit agreement. As a result, interest expense will be higher in future periods than it would have been under the terms of the agreement prior to amendment. Refer to Note 9, of the
consolidated financial statements, Subsequent Event for additional information.

Income Taxes.Income tax
benefit was $1.2 million for the three months ended September 30, 2009 compared to income tax expense of $1.9 million for the same period of 2008. The current year tax benefit reflects a federal tax rate of 39.2% and a state tax rate of 3.0%
(net of federal tax effect). For the three months ended September 30, 2008, the federal tax rate was 35.0% and state tax rate was 3.8% (net of federal tax effect). The 4.2% change in the federal tax rate was the effect of permanent book verses
tax differences and the net effect of state taxes. The 0.8% decrease in the state rate was primarily due to changes in apportionment percentages among the various states. The overall decrease in tax expense was also a result of the pre-tax loss of
$2.8 million for the three months ended September 30, 2009, compared to pre-tax income of $5.0 million for the same period in 2008.

Nine Months Ended September 30, 2009 Compared To Nine Months Ended September 30, 2008

Revenues

Total revenues were $153.7 million for the nine months ended
September 30, 2009, a decrease of $25.5 million, or 14.2%, from total revenues of $179.2 million for the nine months ended September 30, 2008. Purchased receivable revenues were $153.0 million for the nine months ended September 30,
2009, a decrease of $25.0 million, or 14.0%, from the nine months ended September 30, 2008 amount of $178.0 million. Purchased receivable revenues include amortization, or the difference between cash collections and revenue, of $106.2 million
and $108.2 million for the three months ended September 30, 2009 and 2008, respectively. While the amount of amortization has decreased, the amortization rate of 41.0% for the nine months ended September 30, 2009 increased 3.2 percentage
points from the amortization rate of 37.8% for the nine months ended September 30, 2008. Purchased receivable revenues reflect net impairments recognized during the nine months ended September 30, 2009 and 2008 of $17.1 million and $8.4
million, respectively. Impairments are generated when currently assigned yields are too high in relation to the timing and/or amount of current or future collections. The amount of revenue recognized is a function of the yields assigned, and when
collections decline a larger portion of collections is allocated to revenue and less is allocated towards amortization of portfolio balances. Portfolio balances that amortize too slowly in relation to expected collections also contribute to an
increase in impairments. Cash collections on charged-off consumer receivables decreased 9.4% to $259.2 million for the nine months ended September 30, 2009 from $286.2 million for the same period in 2008. The cash collections decrease is
primarily a result of macro-economic factors affecting the consumers ability to repay their obligations or for other reasons. Cash collections for the nine months ended September 30, 2009 and 2008 include collections from fully amortized
portfolios of $49.0 million and $60.9 million, respectively, of which 100% were reported as revenue.



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During the nine months ended September 30, 2009, we acquired charged-off consumer
receivable portfolios with an aggregate face value of $3.1 billion at a cost of $79.1 million, or 2.57% of face value, net of buybacks. Included in these purchase totals were 59 portfolios with an aggregate face value of $1.4 billion at a cost of
$44.0 million, or 3.06% of face value, which were acquired through nine forward flow contracts. Revenues on portfolios purchased from our top three sellers during vintage years 1993 through 2009 were $43.9 million and $49.3 million during the nine
months ended September 30, 2009 and 2008, respectively, with one of the three sellers included in the top three in both nine-month periods. During the nine months ended September 30, 2008, we acquired charged-off consumer receivable
portfolios with an aggregate face value of $3.2 billion at a cost of $122.3 million, or 3.85% of face value (adjusted for buybacks through September 30, 2009). Included in these purchase totals were 101 portfolios with an aggregated face value
of $1.0 billion at a cost of $58.2 million, or 5.68% of face value (adjusted for buybacks through September 30, 2009), which were acquired through 13 forward flow contracts. From period to period we may buy charged-off receivables of varying
age, types and cost. As a result, the cost of our purchases, as a percent of face value, may fluctuate from one period to the next.

Operating Expenses

Total operating expenses were $140.2 million for the nine months ended September 30,
2009, a decrease of $9.7 million, or 6.5%, compared to total operating expenses of $149.9 million for the nine months ended September 30, 2008. Total operating expenses were 54.1% of cash collections for the nine months ended September 30,
2009, compared with 52.4% for the same period in 2008. The majority of the decrease in operating expense is a result of reductions in salaries and benefits, collections and administrative expenses of $6.7 million, $2.0 million and $1.5 million,
respectively, for the nine months ended September 30, 2009, as compared to the same period in 2008. However, while the dollar amount of operating expenses declined, some categories of operating expenses increased as a percentage of collections
because the decline in cash collections was greater than the decline in operating expenses.

Operating expenses are
traditionally measured in relation to revenues. However, we measure operating expenses in relation to cash collections. We believe this is appropriate because of varying amortization rates, which is the difference between cash collections and
revenues recognized, from period to period. Amortization rates vary due to seasonality of collections and other factors that can distort the analysis of operating expenses when measured against revenues. Additionally, we believe that the majority of
our operating expenses are variable in relation to cash collections.

Salaries and Benefits.Salaries and benefits
expense were $57.3 million for the nine months ended September 30, 2009, a decrease of $6.7 million, or 10.4%, compared to salaries and benefits expense of $64.0 million for the nine months ended September 30, 2008. Salaries and benefits
expense were 22.1% of cash collections for the nine months ended September 30, 2009, compared with 22.3% for the same period in 2008. Salaries and benefits expense decreased because of a decrease in total average headcount for the nine months
ended September 30, 2009 compared to the same period in 2008. Salaries and benefits also decreased because of lower cash collections for the nine months ended September 30, 2009 compared to the same period in 2008, which resulted in lower
variable compensation expense for collectors. In addition, we have reduced incentive compensation accruals for management because of declining performance metrics.

We recognized $0.7 million and $0.6 million of share-based compensation expense in salaries and benefits expense for the nine months ended September 30, 2009 and 2008, respectively. As of
September 30, 2009, there was $2.5 million of total unrecognized compensation expense related to nonvested awards of which $1.5 million is expected to vest over a weighted-average period of 2.28 years. As of September 30, 2008, there was
$3.1 million total unrecognized compensation expense related to nonvested awards of which $1.9 million was expected to vest over a weighted-average period of 2.67 years.

Collections Expense.Collections expense was $66.5 million for the nine months ended September 30, 2009, a decrease of $2.0 million, or 2.9%, compared to collections expense of $68.5 million
for the nine months ended September 30, 2008. Collections expense was 25.7% of cash collections during the nine months ended September 30, 2009 compared with 24.0% for the same period in 2008. Collections expense decreased primarily as a
result of volume driven charges for data provider, lettering campaigns, telephone, process server and court costs. These savings were realized from a combination of reduced purchasing volume earlier in the year and better expense management.

Occupancy.Occupancy expense was $5.5 million for the nine months ended September 30, 2009, a decrease of $0.3
million, or 6.4%, compared to occupancy expense of $5.8 million for the nine months ended September 30, 2008. Occupancy expense was 2.1% and 2.0% of cash collections for the nine months ended September 30, 2009 and 2008, respectively. The
$0.3 million decrease is primarily due to sublease income originating in 2009 as a result of ongoing expense management efforts.



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Administrative.Administrative expenses decreased to $6.6 million for the nine months
ended September 30, 2009, from $8.1 million for the nine months ended September 30, 2008, reflecting a $1.5 million, or 18.5%, decrease. Administrative expenses were 2.6% and 2.9% of cash collections during the nine months ended
September 30, 2009 and 2008, respectively. Administrative expenses decreased due to improved expense management in many areas, including accounting and legal services, office supplies and travel, offset in part by higher spending for outside
consultants.

Impairment of Assets.Impairment of intangible assets was $1.2 million for the nine months ended
September 30, 2009, as we completed our periodic valuation of our trademark and trade names. A decline in business activity associated with this intangible asset led to a fair value that was below the carrying value. We recorded the impairment
charge for the difference. Impairment of intangible assets was $0.4 million for the nine months ended September 30, 2008 as we decided to no longer service medical receivables on a contingent fee basis. As a result, we recognized an impairment
charge of the net carrying balance of intangible assets for customer contracts and relationships associated with the contingent medical collection business.

Interest Expense.Interest expense was $7.5 million for the nine months ended September 30, 2009, a decrease of $2.4 million compared to interest expense of $9.9 million for the nine months
ended September 30, 2008. Interest expense was 2.9% of cash collections during the nine months ended September 30, 2009 compared with 3.4% for the same period in 2008. The decrease in interest expense was due to lower interest rates and
decreased average borrowings during the nine months ended September 30, 2009 compared to the same period in 2008. Average borrowings were $153.5 million for the nine months ended September 30, 2009, compared to $175.6 million for the nine
months ended September 30, 2008. On October 27, 2009, we entered into an amendment to our credit agreement. As a result, interest expense will be higher in future periods than it would have been under the terms of the agreement prior to
amendment. Refer to Note 9, of the consolidated financial statements, Subsequent Event for additional information.

Income Taxes.Income tax expense of $2.3 million reflects a federal tax rate of 33.2% and a state tax rate of 4.1% (net of federal tax effect) for the nine months ended September 30, 2009. For the nine months ended
September 30, 2008, income tax expense was $7.5 million and reflected a federal tax rate of 35.2% and state tax rate of 3.5% (net of federal tax effect). The 2% decrease in the federal tax rate was due to the net effect of state taxes. The 0.6%
increase in the state rate was due primarily to changes in apportionment percentages among the various states. The decrease in overall tax expense was also due to a decrease in pre-tax income, which was $6.1 million for the nine months ended
September 30, 2009, compared to $19.5 million for the same period of 2008.



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Supplemental Performance Data

Portfolio Performance

The following table summarizes our historical portfolio purchase price and cash collections on an annual vintage basis by year of purchase as of September 30, 2009:



|                 |  |                        |  |                   |         |                  |   |                                     |  |                           |         |                                                            |   |           |  |     |  
|---------------- |  | ---------------------- |  | ----------------- | ------- | ---------------- | - | ----------------------------------- |  | ------------------------- | ------- | ---------------------------------------------------------- | - | --------- |  | --- | -
|Year of Purchase |  | Number ofPortfolios    |  | PurchasePrice (1) |         | Cash Collections |   | EstimatedRemainingCollections (2,3) |  | TotalEstimatedCollections |         | Total EstimatedCollections as
aPercentage ofPurchase Price |  
|                 |  | (dollars in thousands) | 
|2003             |  | 76                     |  | $                 | 87,148  |                  | $ | 420,321                             |  | $                         | 15,017  |                                                            | $ | 435,338   |  | 500 | %
|2004             |  | 106                    |  |                   | 86,539  |                  |   | 251,725                             |  |                           | 30,642  |                                                            |   | 282,367   |  | 326 |  
|2005             |  | 104                    |  |                   | 100,750 |                  |   | 188,583                             |  |                           | 36,421  |                                                            |   | 225,004   |  | 223 |  
|2006(4)          |  | 154                    |  |                   | 142,250 |                  |   | 256,976                             |  |                           | 123,974 |                                                            |   | 380,950   |  | 268 |  
|2007             |  | 158                    |  |                   | 169,470 |                  |   | 185,071                             |  |                           | 174,686 |                                                            |   | 359,757   |  | 212 |  
|2008             |  | 164                    |  |                   | 154,306 |                  |   | 108,323                             |  |                           | 257,047 |                                                            |   | 365,370   |  | 237 |  
|2009(5)          |  | 86                     |  |                   | 79,124  |                  |   | 14,544                              |  |                           | 229,257 |                                                            |   | 243,801   |  | 308 |  
|                 |  |                        |  |                   |         |                  |   |                                     |  |                           |         |                                                            |   |           |  |     |  
|Total            |  | 848                    |  | $                 | 819,587 |                  | $ | 1,425,543                           |  | $                         | 867,044 |                                                            | $ | 2,292,587 |  | 280 | %
|                 |  |                        |  |                   |         |                  |   |                                     |  |                           |         |                                                            |   |           |  |     |  



|(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 23 and Critical Accounting Policies on page
38 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. Estimated remaining collections for pools on a cost recovery method for revenue recognition purposes are equal to the carrying value. There are no estimated remaining collections for pools on a cost recovery method that are fully
amortized.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(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 nine months of activity.
|--- | ---------------------------------

The following table summarizes the remaining unamortized balances of our purchased receivables portfolios by year of purchase as of September 30, 2009:



|                 |  |                        |         |                   |   |                                                    |  |      |                                           |  |       |  
|---------------- |  | ---------------------- | ------- | ----------------- | - | -------------------------------------------------- |  | ---- | ----------------------------------------- |  | ----- | -
|Year of Purchase |  | UnamortizedBalance     |         | PurchasePrice (1) |   | UnamortizedBalance as aPercentage ofPurchase Price |  |      | UnamortizedBalance as aPercentage ofTotal | 
|                 |  | (dollars in thousands) |        
|2003             |  | $                      | 3,403   |                   | $ | 87,148                                             |  | 3.9  | %                                         |  | 1.0   | %
|2004             |  |                        | 13,421  |                   |   | 86,539                                             |  | 15.5 |                                           |  | 4.0   |  
|2005             |  |                        | 19,958  |                   |   | 100,750                                            |  | 19.8 |                                           |  | 6.0   |  
|2006(2)          |  |                        | 50,260  |                   |   | 142,250                                            |  | 35.3 |                                           |  | 15.1  |  
|2007             |  |                        | 75,925  |                   |   | 169,470                                            |  | 44.8 |                                           |  | 22.7  |  
|2008             |  |                        | 96,110  |                   |   | 154,306                                            |  | 62.3 |                                           |  | 28.8  |  
|2009(3)          |  |                        | 74,673  |                   |   | 79,124                                             |  | 94.4 |                                           |  | 22.4  |  
|                 |  |                        |         |                   |   |                                                    |  |      |                                           |  |       |  
|Total            |  | $                      | 333,750 |                   | $ | 819,587                                            |  | 40.7 | %                                         |  | 100.0 | %
|                 |  |                        |         |                   |   |                                                    |  |      |                                           |  |       |  



|(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) | Includes 62 portfolios acquired from the acquisition of PARC on April 28, 2006 that were allocated a purchase price value of $8.3 million.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Includes nine months of activity.
|--- | ---------------------------------



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The following tables summarize the purchased receivable revenues and amortization rates by
year of purchase for the three and nine months ended September 30, 2009 and 2008:



|                 |             |                                       |             |  |                      |             |  |                  |   |  |                |   |  |                       |            |   |  |   |           
|---------------- | ----------- | ------------------------------------- | ----------- |  | -------------------- | ----------- |  | ---------------- | - |  | -------------- | - |  | --------------------- | ---------- | - |  | - | ----------
|Year of Purchase |             | Three months ended September 30, 2009
|                 | Collections |                                       | Revenue     |  | AmortizationRate (1) |             |  | MonthlyYield (2) |   |  | NetImpairments |   |  | Zero BasisCollections
|2003 and prior   |             | $                                     | 12,496,014  |  | $                    | 11,988,598  |  | N/M              |   |  | N/M            |   |  | $                     | 89,600     |   |  | $ | 10,936,289
|2004             |             |                                       | 4,454,762   |  |                      | 2,599,509   |  | 41.6             | % |  | 6.11           | % |  |                       | 1,217,600  |   |  |   | 808,955   
|2005             |             |                                       | 4,853,793   |  |                      | 3,983,559   |  | 17.9             |   |  | 6.50           |   |  |                       |           |   |  |   | 822,205   
|2006             |             |                                       | 11,958,118  |  |                      | 5,851,551   |  | 51.1             |   |  | 3.68           |   |  |                       | 3,771,000  |   |  |   | 1,535,195 
|2007             |             |                                       | 16,308,467  |  |                      | 7,463,259   |  | 54.2             |   |  | 3.06           |   |  |                       | 1,448,000  |   |  |   | 659,696   
|2008             |             |                                       | 19,246,798  |  |                      | 9,313,547   |  | 51.6             |   |  | 3.03           |   |  |                       | 260,938    |   |  |   | 76,087    
|2009             |             |                                       | 8,514,405   |  |                      | 6,290,230   |  | 26.1             |   |  | 4.05           |   |  |                       |           |   |  |   | 32,401    
|                 |             |                                       |             |  |                      |             |  |                  |   |  |                |   |  |                       |            |   |  |   |           
|Totals           |             | $                                     | 77,832,357  |  | $                    | 47,490,253  |  | 39.0             |   |  | 4.84           |   |  | $                     | 6,787,138  |   |  | $ | 14,870,828
|                 |             |                                       |             |  |                      |             |  |                  |   |  |                |   |  |                       |            |   |  |   |           
|                 |            
|Year of Purchase |             | Three months ended September 30, 2008
|                 | Collections |                                       | Revenue     |  | AmortizationRate (1) |             |  | MonthlyYield (2) |   |  | NetImpairments |   |  | Zero BasisCollections
|2002 and prior   |             | $                                     | 11,088,771  |  | $                    | 10,470,757  |  | N/M              |   |  | N/M            |   |  | $                     |           |   |  | $ | 10,139,534
|2003             |             |                                       | 8,756,051   |  |                      | 8,133,560   |  | 7.1              | % |  | 34.78          | % |  |                       | (293,200   | ) |  |   | 5,392,539 
|2004             |             |                                       | 7,477,697   |  |                      | 5,214,842   |  | 30.3             |   |  | 6.90           |   |  |                       | 1,121,000  |   |  |   | 857,394   
|2005             |             |                                       | 8,067,921   |  |                      | 2,718,048   |  | 66.3             |   |  | 2.54           |   |  |                       | 1,757,000  |   |  |   | 12,306    
|2006             |             |                                       | 17,983,016  |  |                      | 13,561,339  |  | 24.6             |   |  | 6.01           |   |  |                       | 12,000     |   |  |   | 1,909,125 
|2007             |             |                                       | 21,783,298  |  |                      | 10,476,335  |  | 51.9             |   |  | 2.93           |   |  |                       | 488,000    |   |  |   | 43,414    
|2008             |             |                                       | 15,618,774  |  |                      | 7,540,551   |  | 51.7             |   |  | 2.74           |   |  |                       |           |   |  |   |          
|                 |             |                                       |             |  |                      |             |  |                  |   |  |                |   |  |                       |            |   |  |   |           
|Totals           |             | $                                     | 90,775,528  |  | $                    | 58,115,432  |  | 36.0             |   |  | 5.45           |   |  | $                     | 3,084,800  |   |  | $ | 18,354,312
|                 |             |                                       |             |  |                      |             |  |                  |   |  |                |   |  |                       |            |   |  |   |           
|                 |            
|Year of Purchase |             | Nine months ended September 30, 2009 
|                 | Collections |                                       | Revenue     |  | AmortizationRate (1) |             |  | MonthlyYield (2) |   |  | NetImpairments |   |  | Zero BasisCollections
|2003 and prior   |             | $                                     | 44,611,966  |  | $                    | 41,584,236  |  | N/M              |   |  | N/M            |   |  | $                     | 502,300    |   |  | $ | 37,553,786
|2004             |             |                                       | 16,964,303  |  |                      | 8,398,595   |  | 50.5             | % |  | 5.48           | % |  |                       | 5,176,200  |   |  |   | 2,743,240 
|2005             |             |                                       | 18,395,436  |  |                      | 8,625,423   |  | 53.1             |   |  | 3.96           |   |  |                       | 2,745,000  |   |  |   | 899,247   
|2006             |             |                                       | 42,742,909  |  |                      | 26,178,624  |  | 38.8             |   |  | 4.91           |   |  |                       | 6,268,000  |   |  |   | 5,143,335 
|2007             |             |                                       | 55,618,547  |  |                      | 28,594,655  |  | 48.6             |   |  | 3.51           |   |  |                       | 1,448,000  |   |  |   | 2,324,444 
|2008             |             |                                       | 66,365,765  |  |                      | 29,574,388  |  | 55.4             |   |  | 2.84           |   |  |                       | 942,938    |   |  |   | 254,264   
|2009             |             |                                       | 14,543,945  |  |                      | 10,093,354  |  | 30.6             |   |  | 3.96           |   |  |                       |           |   |  |   | 38,651    
|                 |             |                                       |             |  |                      |             |  |                  |   |  |                |   |  |                       |            |   |  |   |           
|Totals           |             | $                                     | 259,242,871 |  | $                    | 153,049,275 |  | 41.0             |   |  | 5.00           |   |  | $                     | 17,082,438 |   |  | $ | 48,956,967
|                 |             |                                       |             |  |                      |             |  |                  |   |  |                |   |  |                       |            |   |  |   |           
|                 |            
|Year of Purchase |             | Nine months ended September 30, 2008 
|                 | Collections |                                       | Revenue     |  | AmortizationRate (1) |             |  | MonthlyYield (2) |   |  | NetImpairments |   |  | Zero BasisCollections
|2002 and prior   |             | $                                     | 38,448,367  |  | $                    | 36,759,752  |  | N/M              |   |  | N/M            |   |  | $                     | (550,000   | ) |  | $ | 34,828,065
|2003             |             |                                       | 31,199,446  |  |                      | 27,553,337  |  | 11.7             | % |  | 33.70          | % |  |                       | (1,311,400 | ) |  |   | 17,491,792
|2004             |             |                                       | 25,992,434  |  |                      | 18,034,090  |  | 30.6             |   |  | 7.16           |   |  |                       | 2,808,664  |   |  |   | 2,651,637 
|2005             |             |                                       | 28,762,384  |  |                      | 11,025,465  |  | 61.7             |   |  | 2.90           |   |  |                       | 4,362,986  |   |  |   | 56,605    
|2006             |             |                                       | 64,213,311  |  |                      | 40,767,563  |  | 36.5             |   |  | 5.42           |   |  |                       | 2,460,000  |   |  |   | 5,766,090 
|2007             |             |                                       | 73,446,469  |  |                      | 32,799,249  |  | 55.3             |   |  | 2.73           |   |  |                       | 668,000    |   |  |   | 78,674    
|2008             |             |                                       | 24,170,141  |  |                      | 11,107,343  |  | 54.0             |   |  | 2.69           |   |  |                       |           |   |  |   | 27,779    
|                 |             |                                       |             |  |                      |             |  |                  |   |  |                |   |  |                       |            |   |  |   |           
|Totals           |             | $                                     | 286,232,552 |  | $                    | 178,046,799 |  | 37.8             |   |  | 5.76           |   |  | $                     | 8,438,250  |   |  | $ | 60,900,642
|                 |             |                                       |             |  |                      |             |  |                  |   |  |                |   |  |                       |            |   |  |   |           



|(1) | N/M indicates that the calculated percentage for aggregated vintage years is not meaningful.
|--- | ----------------------------------------------------------------------------------------------

|(2) | 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.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



31



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##### Table of Contents

Account Representative Tenure and Productivity

We measure traditional call center account representative tenure by two major categories, those with less than one year of experience and
those with one or more years of experience. The following table displays our results for the three and nine months ended September 30, 2009 and 2008, and for the years ended December 31, 2008 and 2007:

Account Representatives by Experience



|                                   |      |                                 |      |                                |      |                        |      |     |      |     |         |    
|---------------------------------- | ---- | ------------------------------- | ---- | ------------------------------ | ---- | ---------------------- | ---- | --- | ---- | --- | ------- | ---
|Number of account representatives: |      | Three months endedSeptember 30, |      | Nine months endedSeptember 30, |      | Year endedDecember 31,
|                                   | 2009 |                                 | 2008 |                                | 2009 |                        | 2008 |     | 2008 |     | 2007(3)
|One year or more (1)               |      | 585                             |      | 521                            |      | 582                    |      | 504 |      | 515 |         | 558
|Less than one year (2)             |      | 455                             |      | 445                            |      | 393                    |      | 431 |      | 437 |         | 356
|                                   |      |                                 |      |                                |      |                        |      |     |      |     |         |    
|Total account representatives      |      | 1,040                           |      | 966                            |      | 975                    |      | 935 |      | 952 |         | 914
|                                   |      |                                 |      |                                |      |                        |      |     |      |     |         |    



|(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) | Certain associates have been reclassified to make the 2007 disclosures comparable to current periods.
|--- | -----------------------------------------------------------------------------------------------------

The following table displays our account representative productivity for the three and nine months ended September 30, 2009 and 2008,
and for the years ended December 31, 2008 and 2007:

Overall Account Representative Collection Averages



|                |      |                                 |        |                                |      |                        |      |   |         |  |         |         |  |   |         |  |   |        
|--------------- | ---- | ------------------------------- | ------ | ------------------------------ | ---- | ---------------------- | ---- | - | ------- |  | ------- | ------- |  | - | ------- |  | - | -------
|                |      | Three months endedSeptember 30, |        | Nine months endedSeptember 30, |      | Year endedDecember 31,
|                | 2009 |                                 | 2008   |                                | 2009 |                        | 2008 |   | 2008    |  | 2007(1)
|Overall average |      | $                               | 31,413 |                                | $    | 39,866                 |      | $ | 112,631 |  | $       | 138,816 |  | $ | 173,209 |  | $ | 193,000



|(1) | The overall collection average has been reclassified to make the 2007 disclosure comparable to current periods.
|--- | ---------------------------------------------------------------------------------------------------------------



32



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##### Table of Contents

Cash Collections

The following tables provide further detailed vintage collection analysis on an annual and a cumulative basis:

Historical Collections (1)



|                 |  |                        |         |                         |   |                                  |  |      |        |      |   |        |  |      |         |      |   |         |  |      |         |  |   |         |  |   |         |  |   |         |  |   |         |  |   |        
|---------------- |  | ---------------------- | ------- | ----------------------- | - | -------------------------------- |  | ---- | ------ | ---- | - | ------ |  | ---- | ------- | ---- | - | ------- |  | ---- | ------- |  | - | ------- |  | - | ------- |  | - | ------- |  | - | ------- |  | - | -------
|Year of Purchase |  | PurchasePrice
(3)      |         | Year Ended December 31, |   | NineMonthsEndedSeptember 30,2009
|                 |  | 1999                   |         | 2000                    |   | 2001                             |  | 2002 |        | 2003 |   | 2004   |  | 2005 |         | 2006 |   | 2007    |  | 2008 |        
|                 |  | (dollars in thousands)
|Pre-1999         |  | $                      | 30,184  |                         | $ | 25,286                           |  | $    | 23,779 |      | $ | 19,132 |  | $    | 15,565  |      | $ | 11,377  |  | $    | 8,391   |  | $ | 7,265   |  | $ | 5,360   |  | $ | 4,205   |  | $ | 3,043   |  | $ | 1,642  
|1999             |  |                        | 12,924  |                         |   | 3,761                            |  |      | 11,331 |      |   | 10,862 |  |      | 9,750   |      |   | 8,278   |  |      | 6,675   |  |   | 5,022   |  |   | 3,935   |  |   | 2,949   |  |   | 1,982   |  |   | 1,179  
|2000             |  |                        | 20,592  |                         |   |                                 |  |      | 8,896  |      |   | 23,444 |  |      | 22,559  |      |   | 20,318  |  |      | 17,196  |  |   | 14,062  |  |   | 10,603  |  |   | 7,410   |  |   | 5,258   |  |   | 2,912  
|2001             |  |                        | 43,029  |                         |   |                                 |  |      |       |      |   | 17,630 |  |      | 50,327  |      |   | 50,967  |  |      | 45,713  |  |   | 39,865  |  |   | 30,472  |  |   | 21,714  |  |   | 13,351  |  |   | 6,926  
|2002             |  |                        | 72,255  |                         |   |                                 |  |      |       |      |   |       |  |      | 22,339  |      |   | 70,813  |  |      | 72,024  |  |   | 67,649  |  |   | 55,373  |  |   | 39,839  |  |   | 24,529  |  |   | 12,687 
|2003             |  |                        | 87,148  |                         |   |                                 |  |      |       |      |   |       |  |      |        |      |   | 36,067  |  |      | 94,564  |  |   | 94,234  |  |   | 79,423  |  |   | 58,359  |  |   | 38,408  |  |   | 19,266 
|2004             |  |                        | 86,539  |                         |   |                                 |  |      |       |      |   |       |  |      |        |      |   |        |  |      | 23,365  |  |   | 68,354  |  |   | 62,673  |  |   | 48,093  |  |   | 32,276  |  |   | 16,964 
|2005             |  |                        | 100,750 |                         |   |                                 |  |      |       |      |   |       |  |      |        |      |   |        |  |      |        |  |   | 23,459  |  |   | 60,280  |  |   | 50,811  |  |   | 35,638  |  |   | 18,395 
|2006(2)          |  |                        | 142,250 |                         |   |                                 |  |      |       |      |   |       |  |      |        |      |   |        |  |      |        |  |   |        |  |   | 32,751  |  |   | 101,529 |  |   | 79,953  |  |   | 42,743 
|2007             |  |                        | 169,470 |                         |   |                                 |  |      |       |      |   |       |  |      |        |      |   |        |  |      |        |  |   |        |  |   |        |  |   | 36,269  |  |   | 93,183  |  |   | 55,619 
|2008             |  |                        | 154,306 |                         |   |                                 |  |      |       |      |   |       |  |      |        |      |   |        |  |      |        |  |   |        |  |   |        |  |   |        |  |   | 41,957  |  |   | 66,366 
|2009             |  |                        | 79,124  |                         |   |                                 |  |      |       |      |   |       |  |      |        |      |   |        |  |      |        |  |   |        |  |   |        |  |   |        |  |   |        |  |   | 14,544 
|                 |  |                        |         |                         |   |                                  |  |      |        |      |   |        |  |      |         |      |   |         |  |      |         |  |   |         |  |   |         |  |   |         |  |   |         |  |   |        
|Total            |  |                        |         |                         | $ | 29,047                           |  | $    | 44,006 |      | $ | 71,068 |  | $    | 120,540 |      | $ | 197,820 |  | $    | 267,928 |  | $ | 319,910 |  | $ | 340,870 |  | $ | 371,178 |  | $ | 369,578 |  | $ | 259,243
|                 |  |                        |         |                         |   |                                  |  |      |        |      |   |        |  |      |         |      |   |         |  |      |         |  |   |         |  |   |         |  |   |         |  |   |         |  |   |        

Cumulative Collections (1)



|                 |  |                        |         |                            |   |                               |  |      |        |      |   |        |  |      |        |      |   |         |  |      |         |  |   |         |  |   |         |  |   |         |  |   |         |  |   |        
|---------------- |  | ---------------------- | ------- | -------------------------- | - | ----------------------------- |  | ---- | ------ | ---- | - | ------ |  | ---- | ------ | ---- | - | ------- |  | ---- | ------- |  | - | ------- |  | - | ------- |  | - | ------- |  | - | ------- |  | - | -------
|Year of Purchase |  | PurchasePrice
(3)      |         | Total Through December 31, |   | TotalThroughSeptember 30,2009
|                 |  | 1999                   |         | 2000                       |   | 2001                          |  | 2002 |        | 2003 |   | 2004   |  | 2005 |        | 2006 |   | 2007    |  | 2008 |        
|                 |  | (dollars in thousands)
|1999             |  | $                      | 12,924  |                            | $ | 3,761                         |  | $    | 15,092 |      | $ | 25,954 |  | $    | 35,704 |      | $ | 43,982  |  | $    | 50,657  |  | $ | 55,679  |  | $ | 59,614  |  | $ | 62,563  |  | $ | 64,545  |  | $ | 65,724 
|2000             |  |                        | 20,592  |                            |   |                              |  |      | 8,896  |      |   | 32,340 |  |      | 54,899 |      |   | 75,217  |  |      | 92,413  |  |   | 106,475 |  |   | 117,078 |  |   | 124,488 |  |   | 129,746 |  |   | 132,658
|2001             |  |                        | 43,029  |                            |   |                              |  |      |       |      |   | 17,630 |  |      | 67,957 |      |   | 118,924 |  |      | 164,637 |  |   | 204,502 |  |   | 234,974 |  |   | 256,688 |  |   | 270,039 |  |   | 276,965
|2002             |  |                        | 72,255  |                            |   |                              |  |      |       |      |   |       |  |      | 22,339 |      |   | 93,152  |  |      | 165,176 |  |   | 232,825 |  |   | 288,198 |  |   | 328,037 |  |   | 352,566 |  |   | 365,253
|2003             |  |                        | 87,148  |                            |   |                              |  |      |       |      |   |       |  |      |       |      |   | 36,067  |  |      | 130,631 |  |   | 224,865 |  |   | 304,288 |  |   | 362,647 |  |   | 401,055 |  |   | 420,321
|2004             |  |                        | 86,539  |                            |   |                              |  |      |       |      |   |       |  |      |       |      |   |        |  |      | 23,365  |  |   | 91,719  |  |   | 154,392 |  |   | 202,485 |  |   | 234,761 |  |   | 251,725
|2005             |  |                        | 100,750 |                            |   |                              |  |      |       |      |   |       |  |      |       |      |   |        |  |      |        |  |   | 23,459  |  |   | 83,739  |  |   | 134,550 |  |   | 170,188 |  |   | 188,583
|2006(2)          |  |                        | 142,250 |                            |   |                              |  |      |       |      |   |       |  |      |       |      |   |        |  |      |        |  |   |        |  |   | 32,751  |  |   | 134,280 |  |   | 214,233 |  |   | 256,976
|2007             |  |                        | 169,470 |                            |   |                              |  |      |       |      |   |       |  |      |       |      |   |        |  |      |        |  |   |        |  |   |        |  |   | 36,269  |  |   | 129,452 |  |   | 185,071
|2008             |  |                        | 154,306 |                            |   |                              |  |      |       |      |   |       |  |      |       |      |   |        |  |      |        |  |   |        |  |   |        |  |   |        |  |   | 41,957  |  |   | 108,323
|2009             |  |                        | 79,124  |                            |   |                              |  |      |       |      |   |       |  |      |       |      |   |        |  |      |        |  |   |        |  |   |        |  |   |        |  |   |        |  |   | 14,544 

Cumulative Collections as Percentage of Purchase Price (1)



|                 |  |                   |         |                            |      |   |                               |      |   |  |      |   |  |      |   |  |      |   |  |      |   |  |      |   |  |      |   |  |      |   |  |     |   |  |     |  
|---------------- |  | ----------------- | ------- | -------------------------- | ---- | - | ----------------------------- | ---- | - |  | ---- | - |  | ---- | - |  | ---- | - |  | ---- | - |  | ---- | - |  | ---- | - |  | ---- | - |  | --- | - |  | --- | -
|Year of Purchase |  | PurchasePrice (3) |         | Total Through December 31, |      |   | TotalThroughSeptember 30,2009 |     
|                 |  | 1999              |         |                            | 2000 |   |                               | 2001 |   |  | 2002 |   |  | 2003 |   |  | 2004 |   |  | 2005 |   |  | 2006 |   |  | 2007 |   |  | 2008 |   | 
|1999             |  | $                 | 12,924  |                            | 29   | % |                               | 117  | % |  | 201  | % |  | 276  | % |  | 340  | % |  | 392  | % |  | 431  | % |  | 461  | % |  | 484  | % |  | 499 | % |  | 509 | %
|2000             |  |                   | 20,592  |                            |     |   |                               | 43   |   |  | 157  |   |  | 267  |   |  | 365  |   |  | 449  |   |  | 517  |   |  | 569  |   |  | 605  |   |  | 630 |   |  | 644 |  
|2001             |  |                   | 43,029  |                            |     |   |                               |     |   |  | 41   |   |  | 158  |   |  | 276  |   |  | 383  |   |  | 475  |   |  | 546  |   |  | 597  |   |  | 628 |   |  | 644 |  
|2002             |  |                   | 72,255  |                            |     |   |                               |     |   |  |     |   |  | 31   |   |  | 129  |   |  | 229  |   |  | 322  |   |  | 399  |   |  | 454  |   |  | 488 |   |  | 506 |  
|2003             |  |                   | 87,148  |                            |     |   |                               |     |   |  |     |   |  |     |   |  | 41   |   |  | 150  |   |  | 258  |   |  | 349  |   |  | 416  |   |  | 460 |   |  | 482 |  
|2004             |  |                   | 86,539  |                            |     |   |                               |     |   |  |     |   |  |     |   |  |     |   |  | 27   |   |  | 106  |   |  | 178  |   |  | 234  |   |  | 271 |   |  | 291 |  
|2005             |  |                   | 100,750 |                            |     |   |                               |     |   |  |     |   |  |     |   |  |     |   |  |     |   |  | 23   |   |  | 83   |   |  | 134  |   |  | 169 |   |  | 187 |  
|2006(2)          |  |                   | 142,250 |                            |     |   |                               |     |   |  |     |   |  |     |   |  |     |   |  |     |   |  |     |   |  | 23   |   |  | 94   |   |  | 151 |   |  | 181 |  
|2007             |  |                   | 169,470 |                            |     |   |                               |     |   |  |     |   |  |     |   |  |     |   |  |     |   |  |     |   |  |     |   |  | 21   |   |  | 76  |   |  | 109 |  
|2008             |  |                   | 154,306 |                            |     |   |                               |     |   |  |     |   |  |     |   |  |     |   |  |     |   |  |     |   |  |     |   |  |     |   |  | 27  |   |  | 70  |  
|2009             |  |                   | 79,124  |                            |     |   |                               |     |   |  |     |   |  |     |   |  |     |   |  |     |   |  |     |   |  |     |   |  |     |   |  |    |   |  | 18  |  



|(1) | Does not include proceeds from sales of 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 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.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



33



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##### Table of Contents

Seasonality

The success of our business depends on our ability to collect on our purchased portfolios of charged-off consumer receivables. Collections
tend to be seasonally higher in the first and second quarters of the year due to consumers receipt of tax refunds and other factors. Conversely, collections tend to be lower in the third and fourth quarters of the year due to consumers
spending in connection with summer vacations, the holiday season and other factors. However, revenue recognized is relatively level, excluding the impact of impairments, due to the application of the provisions prescribed by FASB ASC Topic 310. In
addition, our operating results may be affected to a lesser extent by the timing of purchases of charged-off consumer receivables due to the initial costs associated with purchasing and integrating these receivables into our system. Consequently,
income and margins may fluctuate from quarter to quarter.

The following table illustrates our quarterly cash collections from
January 1, 2005 through September 30, 2009:

Cash Collections



|                       |  |      |             |      |   |             |  |      |             |      |   |             |  |   |            
|---------------------- |  | ---- | ----------- | ---- | - | ----------- |  | ---- | ----------- | ---- | - | ----------- |  | - | -----------
|Quarter                |  | 2009 |             | 2008 |   | 2007        |  | 2006 |             | 2005
|First                  |  | $    | 94,116,937  |      | $ | 100,264,281 |  | $    | 95,853,350  |      | $ | 89,389,858  |  | $ | 80,397,640 
|Second                 |  |      | 87,293,577  |      |   | 95,192,743  |  |      | 95,432,021  |      |   | 89,609,982  |  |   | 84,862,856 
|Third                  |  |      | 77,832,357  |      |   | 90,775,528  |  |      | 90,748,442  |      |   | 80,914,791  |  |   | 78,159,364 
|Fourth                 |  |      |            |      |   | 83,345,578  |  |      | 89,144,650  |      |   | 80,955,115  |  |   | 76,490,350 
|                       |  |      |             |      |   |             |  |      |             |      |   |             |  |   |            
|Total cash collections |  | $    | 259,242,871 |      | $ | 369,578,130 |  | $    | 371,178,463 |      | $ | 340,869,746 |  | $ | 319,910,210
|                       |  |      |             |      |   |             |  |      |             |      |   |             |  |   |            

The following table illustrates the cash collections and percentages by source of our
total cash collections:



|                        |        |                                  |            |      |                                 |        |      |   |            |      |        |   |   |   |             |        |       |   |  |   |             |  |       |  
|----------------------- | ------ | -------------------------------- | ---------- | ---- | ------------------------------- | ------ | ---- | - | ---------- | ---- | ------ | - | - | - | ----------- | ------ | ----- | - |  | - | ----------- |  | ----- | -
|                        |        | Three months ended September 30, |            |      | Nine months ended September 30, |       
|                        | 2009   |                                  |            | 2008 |                                 |        | 2009 |   |            | 2008 |       
|                        | Amount |                                  | %          |      |                                 | Amount |      | % |            |      | Amount |   | % |   |             | Amount |       | % | 
|Traditional collections |        | $                                | 32,671,121 |      | 42.0                            | %      |      | $ | 38,386,629 |      | 42.3   | % |   | $ | 109,795,754 |        | 42.4  | % |  | $ | 128,146,968 |  | 44.8  | %
|Legal collections       |        |                                  | 33,117,337 |      | 42.5                            |        |      |   | 38,067,946 |      | 41.9   |   |   |   | 110,294,317 |        | 42.5  |   |  |   | 116,118,956 |  | 40.6  |  
|Other collections       |        |                                  | 12,043,899 |      | 15.5                            |        |      |   | 14,320,953 |      | 15.8   |   |   |   | 39,152,800  |        | 15.1  |   |  |   | 41,966,628  |  | 14.6  |  
|                        |        |                                  |            |      |                                 |        |      |   |            |      |        |   |   |   |             |        |       |   |  |   |             |  |       |  
|Total cash collections  |        | $                                | 77,832,357 |      | 100.0                           | %      |      | $ | 90,775,528 |      | 100.0  | % |   | $ | 259,242,871 |        | 100.0 | % |  | $ | 286,232,552 |  | 100.0 | %
|                        |        |                                  |            |      |                                 |        |      |   |            |      |        |   |   |   |             |        |       |   |  |   |             |  |       |  

The following table categorizes our purchased receivable portfolios acquired from
January 1, 1999 through September 30, 2009 into major asset types:



|                               |  |                                         |            |   |       |   |                |        |   |       |  
|------------------------------ |  | --------------------------------------- | ---------- | - | ----- | - | -------------- | ------ | - | ----- | -
|Asset Type                     |  | Face Value ofCharged-offReceivables (2) |            | % |       |   | No. ofAccounts |        | % |      
|                               |  | (in thousands)                          |            |   |       |   | (in thousands) |        |   |      
|General Purpose Credit Cards   |  | $                                       | 19,777,462 |   | 51.5  | % |                | 8,576  |   | 26.2  | %
|Private Label Credit Cards     |  |                                         | 5,412,324  |   | 14.1  |   |                | 7,604  |   | 23.3  |  
|Telecommunications/Utility/Gas |  |                                         | 2,947,705  |   | 7.7   |   |                | 7,681  |   | 23.5  |  
|Healthcare                     |  |                                         | 2,486,402  |   | 6.5   |   |                | 4,034  |   | 12.3  |  
|Health Club                    |  |                                         | 1,676,120  |   | 4.4   |   |                | 1,419  |   | 4.4   |  
|Auto Deficiency                |  |                                         | 1,353,623  |   | 3.5   |   |                | 240    |   | 0.7   |  
|Installment Loans              |  |                                         | 1,256,665  |   | 3.3   |   |                | 362    |   | 1.1   |  
|Other (1)                      |  |                                         | 3,445,391  |   | 9.0   |   |                | 2,786  |   | 8.5   |  
|                               |  |                                         |            |   |       |   |                |        |   |       |  
|Total                          |  | $                                       | 38,355,692 |   | 100.0 | % |                | 32,702 |   | 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.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The age of a charged-off consumer receivables portfolio, or the time since an account has been charged-off, is an important factor in determining the price at which we will offer to purchase a receivables portfolio. Generally, there is an
inverse relationship between the age of a portfolio and the price at which we will purchase the portfolio. This relationship is due to the fact that older



34



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receivables are typically more difficult to collect. The accounts receivable management industry places receivables into the following categories depending on the number of collection agencies
that have previously attempted to collect on the receivables and the age of the receivables:



| |  |  | 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; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 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.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We specialize in the primary, secondary and tertiary markets, but we will purchase
accounts at any point in the delinquency cycle. We deploy our capital within these markets based upon the relative values of the available debt portfolios.

The following table categorizes our purchased receivable portfolios acquired from January 1, 1999 through September 30, 2009 into major account types:



|             |  |                                         |            |   |       |   |                |        |   |       |  
|------------ |  | --------------------------------------- | ---------- | - | ----- | - | -------------- | ------ | - | ----- | -
|Account Type |  | Face Value ofCharged-offReceivables (2) |            | % |       |   | No. ofAccounts |        | % |      
|             |  | (in thousands)                          |            |   |       |   | (in thousands) |        |   |      
|Fresh        |  | $                                       | 2,527,322  |   | 6.6   | % |                | 1,478  |   | 4.5   | %
|Primary      |  |                                         | 4,776,177  |   | 12.5  |   |                | 4,618  |   | 14.1  |  
|Secondary    |  |                                         | 8,343,020  |   | 21.8  |   |                | 7,838  |   | 24.0  |  
|Tertiary (1) |  |                                         | 18,275,585 |   | 47.6  |   |                | 15,607 |   | 47.7  |  
|Other        |  |                                         | 4,433,588  |   | 11.5  |   |                | 3,161  |   | 9.7   |  
|             |  |                                         |            |   |       |   |                |        |   |       |  
|Total        |  | $                                       | 38,355,692 |   | 100.0 | % |                | 32,702 |   | 100.0 | %
|             |  |                                         |            |   |       |   |                |        |   |       |  



|(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.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We also review the geographic distribution of accounts within a portfolio because collection laws differ from state to state. The following table illustrates our purchased receivables portfolios acquired from January 1, 1999 through
September 30, 2009 based on geographic location of debtor:



|                    |  |                                            |            |   |       |   |                |        |   |       |  
|------------------- |  | ------------------------------------------ | ---------- | - | ----- | - | -------------- | ------ | - | ----- | -
|Geographic Location |  | Face Value ofCharged-offReceivables (3)(4) |            | % |       |   | No. ofAccounts |        | % |      
|                    |  | (in thousands)                             |            |   |       |   | (in thousands) |        |   |      
|Texas (1)           |  | $                                          | 5,566,568  |   | 14.5  | % |                | 5,120  |   | 15.7  | %
|California          |  |                                            | 4,433,347  |   | 11.6  |   |                | 3,757  |   | 11.5  |  
|Florida (1)         |  |                                            | 3,791,927  |   | 9.9   |   |                | 2,397  |   | 7.3   |  
|New York            |  |                                            | 2,278,469  |   | 5.9   |   |                | 1,409  |   | 4.3   |  
|Michigan (1)        |  |                                            | 2,173,042  |   | 5.7   |   |                | 2,596  |   | 7.9   |  
|Ohio (1)            |  |                                            | 1,884,032  |   | 4.9   |   |                | 2,372  |   | 7.3   |  
|Illinois (1)        |  |                                            | 1,560,289  |   | 4.1   |   |                | 1,753  |   | 5.4   |  
|Pennsylvania        |  |                                            | 1,367,393  |   | 3.6   |   |                | 1,016  |   | 3.1   |  
|New Jersey (1)      |  |                                            | 1,234,002  |   | 3.2   |   |                | 1,011  |   | 3.1   |  
|North Carolina      |  |                                            | 1,117,205  |   | 2.9   |   |                | 752    |   | 2.3   |  
|Georgia             |  |                                            | 1,081,938  |   | 2.8   |   |                | 891    |   | 2.7   |  
|Other (2)           |  |                                            | 11,867,480 |   | 30.9  |   |                | 9,628  |   | 29.4  |  
|                    |  |                                            |            |   |       |   |                |        |   |       |  
|Total               |  | $                                          | 38,355,692 |   | 100.0 | % |                | 32,702 |   | 100.0 | %
|                    |  |                                            |            |   |       |   |                |        |   |       |  



|(1) | Collection site(s) located in this state.
|--- | -----------------------------------------



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|(2) | Each state included in Other represents less than 2.0% individually of the face value of total charged-off consumer receivables.
|--- | ----------------------------------------------------------------------------------------------------------------------------------

|(3) | 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.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | 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.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Liquidity and Capital Resources

Historically, our primary sources of cash have been from operations and bank
borrowings. We have traditionally used cash for acquisitions of purchased receivables, repayment of bank borrowings, purchasing property and equipment and working capital to support growth.

Borrowings

We maintain a credit agreement with JPMorgan Chase Bank, N.A., as administrative agent, and a syndicate of lenders named therein, that originated on June 5, 2007 and was amended on March 10, 2008 (the Credit
Agreement). Under the terms of the Credit Agreement, we have a five-year $100.0 million revolving credit facility (the Revolving Credit Facility) and a six-year $150.0 million term loan facility (the Term Loan
Facility and together with the Revolving Credit Facility, the Credit Facilities). The Credit Facilities bear interest at prime or up to 125 basis points over prime depending upon our liquidity, as defined in the Credit Agreement.
Alternately, at our discretion, we may borrow by entering into one, two, three, six or twelve-month London Inter Bank Offer Rate (LIBOR) contracts at rates between 150 to 250 basis points over the respective LIBOR rates, depending on our
liquidity. Our Revolving Credit Facility includes an accordion loan feature that allows us to request a $25.0 million increase as well as sublimits for $10.0 million of letters of credit and for $10.0 million of swingline loans. The Credit Agreement
is secured by a first priority lien on all of our assets. The Credit Agreement also contains certain covenants and restrictions that we must comply with, which as of September 30, 2009 were:



| |  |  | Leverage Ratio (as defined) cannot exceed (i) 1.125 to 1.0 at any time on or after June 30, 2009 and on or before December 30, 2010 or
(ii) 1.0 to 1.0 at any time thereafter;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Ratio of Consolidated Total Liabilities to Consolidated Tangible Net Worth (as defined) cannot exceed (i) 2.5 to 1.0 at any time on or before
December 30, 2009, (ii) 2.25 to 1.0 at any time on or after December 31, 2009 and on or before December 30, 2010, (iii) 2.0 to 1.0 at any time on or after December 31, 2010 and on or before December 30, 2011 or
(iv) 1.5 to 1.0 to any time thereafter; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Consolidated Tangible Net Worth (as defined) 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.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The Credit Agreement contains a provision that requires us to repay Excess Cash Flow (as defined) to reduce the indebtedness outstanding
under our Credit Agreement. The annual repayment of our Excess Cash Flow was effective with the issuance of our audited consolidated financial statements for year ended 2008, and we made the required payment of $2.4 million during the first quarter
of 2009. The Excess Cash Flow repayment provisions are:



| |  |  | 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.
| | - |  | -------------------------------------------------------------------------------------------------



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Commitment fees on the unused portion of the Revolving Credit Facility are paid quarterly,
in arrears, and are calculated as an amount equal to a margin of 0.25% to 0.50%, depending on our liquidity, on the average amount available on the Revolving Credit Facility.

The Credit Agreement requires us to effectively cap, collar or exchange interest rates on a notional amount of at least 25% of the
outstanding principal amount of the Term Loan Facility. We have an interest rate swap agreement that hedges a portion of the interest rate expense on the Term Loan Facility.

We had $146.2 million principal balance outstanding on our Credit Facilities at September 30, 2009. We believe we are in compliance
with all terms of the Credit Agreement as of September 30, 2009. On October 27, 2009, the Company entered into an amendment to the Credit Agreement. Refer to Note 9 of the consolidated financial statements, Subsequent Event for
additional information.

Cash Flows

The majority of our purchases of receivables have been funded with borrowings against our Revolving Credit Facility and with internal cash
flow. For the nine months ended September 30, 2009, we invested $78.1 million in purchased receivables, net of buybacks, funded primarily by internal cash flow. Our cash balance decreased from $6.0 million at December 31, 2008 to $5.8
million as of September 30, 2009. Net repayments on our Credit Facilities included $60.2 million of repayments partially offset by $24.8 million of borrowings against our Revolving Credit Facility.

Our operating activities provided cash of $27.1 million and $26.4 million for the nine months ended September 30, 2009 and 2008,
respectively. Cash provided by operating activities for the nine months ended September 30, 2009 and 2008 was generated primarily from net income earned through cash collections as adjusted for non-cash items and the timing of payments of
income taxes, accounts payable and accrued liabilities as of September 30, 2009 compared to December 31, 2008.

Investing activities provided cash of $8.1 million for the nine months ended September 30, 2009. Cash provided by investing activities was primarily due to cash collections applied to principal, net of acquisitions of purchased
receivables, which was partially offset by purchases of property and equipment. During the nine months ended September 30, 2009, we purchased $42.4 million less receivables than during the same period in 2008 resulting in the significant
increase in investing cash flow. Investing activities used $25.3 million for the nine months ended September 30, 2008. Cash used by investing activities was primarily due to investment in purchased receivables in excess of cash collections
applied to purchased receivables and purchases of property and equipment.

Financing activities used cash of $35.4 million and
$2.8 million for the nine months ended September 30, 2009 and 2008, respectively. Cash used by financing activities for the nine months ended September of 2009 was primarily due to net repayments of $35.4 million on our Revolving Credit
Facility and Term Loan Facility, which included the $2.4 million Excess Cash Flow repayment on the Term Loan Facility. Cash used by financing activities for the nine months ended September of 2008 was primarily due to net repayments on our Revolving
Credit Facility and Term Loan Facility of $2.1 million and to payment of financing fees of $0.7 million associated with the first amendment of the Credit Agreement.

We believe that cash generated from operations combined with borrowing available under our Credit Facilities, will be sufficient to fund our operations for the next twelve months, although no assurance
can be given in this regard. In the future, if we need additional capital for investment in purchased receivables, working capital or to grow our business or acquire other businesses, we may seek to sell additional equity or debt securities or we
may seek to increase the availability under our Revolving Credit Facility.



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##### Table of Contents

Future Contractual Cash Obligations

The following table summarizes our future contractual cash obligations as of September 30, 2009:



|                                               |      |                          |            |            |      |            |      |   |           |  |   |           |  |   |             |  |   |          
|---------------------------------------------- | ---- | ------------------------ | ---------- | ---------- | ---- | ---------- | ---- | - | --------- |  | - | --------- |  | - | ----------- |  | - | ---------
|                                               |      | Year Ending December 31, |            | Thereafter
|                                               | 2009 |                          | 2010       |            | 2011 |            | 2012 |   | 2013      | 
|Operating lease obligations                    |      | $                        | 1,393,250  |            | $    | 5,209,873  |      | $ | 4,907,674 |  | $ | 4,590,545 |  | $ | 4,188,049   |  | $ | 9,652,811
|Purchase obligations (1,2)                     |      |                          | 16,173,045 |            |      | 180,000    |      |   |          |  |   |          |  |   |            |  |   |         
|Revolving credit (3)                           |      |                          |           |            |      |           |      |   |          |  |   | 2,000,000 |  |   |            |  |   |         
|Term loan (4)                                  |      |                          | 375,000    |            |      | 1,500,000  |      |   | 1,500,000 |  |   | 1,500,000 |  |   | 139,322,514 |  |   |         
|Contractual interest on derivative instruments |      |                          | 939,385    |            |      | 3,444,413  |      |   | 2,198,781 |  |   | 946,267   |  |   |            |  |   |         
|                                               |      |                          |            |            |      |            |      |   |           |  |   |           |  |   |             |  |   |          
|Total (5)                                      |      | $                        | 18,880,680 |            | $    | 10,334,286 |      | $ | 8,606,455 |  | $ | 9,036,812 |  | $ | 143,510,563 |  | $ | 9,652,811
|                                               |      |                          |            |            |      |            |      |   |           |  |   |           |  |   |             |  |   |          



|(1) | In 2007, we signed an agreement with a software provider and initiated a project to install a new collection platform. We have a contractual commitment to purchase $0.5
million in additional software and consulting services over the next year to fully implement this software.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | We have seven forward flow contracts that have terms beyond September 30, 2009. Five forward flow contracts have the last contract expiring in December 2009 and
they have estimated monthly purchases of approximately $4.9 million, depending upon circumstances. The other two on-going forward flow contracts have estimated monthly purchases of approximately $20,000 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 Credit Agreement. Interest on
our Revolving Credit Facility is variable and is not included within the amount outstanding as of September 30, 2009.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | To the extent that a balance is outstanding on our Term Loan Facility, it would be due in June 2013. The variable interest is not included within the amount outstanding
as of September 30, 2009. The scheduled obligations do not consider potential Excess Cash Flow payments, which may be required prior to expiration of the term loan. See page 36 for additional discussion of the Excess Cash Flow requirements.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | We have recorded a liability of $1.0 million relating to uncertain tax positions, which has been excluded from the table above because the amount and fiscal year of
payment cannot be reliably estimated.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Off-Balance Sheet Arrangements

We currently do not have any off-balance sheet arrangements.

Recently Issued Accounting Pronouncements

Refer to Note 1 to Consolidated
Financial Statements entitled Basis of Presentation and Summary of Significant Accounting Policies for a discussion of recent accounting pronouncements and their impact on our consolidated financial statements.

Critical Accounting Policies

Revenue Recognition

We utilize the interest method of accounting
for our purchased receivables because we believe that the amounts and timing of cash collections for our purchased receivables can be reasonably estimated. This belief is predicated on our historical results and our knowledge of the industry.

We adopted the provisions of FASB ASC Topic 310 in January 2005 and apply it to purchased receivables acquired after
December 31, 2004. The provisions of FASB ASC Topic 310 that relate to decreases in expected cash flows amend previously followed guidance for consistent treatment and apply prospectively to purchased receivables acquired before January 1,
2005. We purchase pools of homogenous accounts receivable and record each pool at its acquisition cost. Pools purchased after 2004 may be aggregated into one or more static pools within each quarter, based on common risk characteristics. Risk
characteristics of purchased receivables are assumed to be similar since purchased receivables are usually in the late stages of the post charged-off collection cycle. We therefore aggregate most pools purchased within each quarter. Pools purchased
before 2005 may not be aggregated with other pool purchases. Each static pool, either aggregated or non-aggregated, retains its own identity and does not change over the remainder of its life. Each static pool is accounted for as a single unit for
recognition of revenue, principal payments and impairments.



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Each static pool of receivables is statistically modeled to determine its projected cash
flows based on historical cash collections for pools with similar characteristics. An IRR is calculated for each static pool of receivables based on the projected cash flows. The IRR is applied to the remaining balance of each static pool of
accounts to determine the revenue recognized. Each static pool is analyzed at least quarterly to assess the actual performance compared to the expected performance. To the extent there are differences in actual performance versus expected
performance, the IRR is adjusted prospectively to reflect the revised estimate of cash flows over the remaining life of the static pool. Effective January 2005, under FASB ASC Topic 310, if the revised cash flow estimates are less than the original
estimates, the IRR remains unchanged and an impairment is recognized. If cash flow estimates increase subsequent to recording an impairment, reversal of the previously recognized impairment is made prior to any increases to the IRR.

The cost recovery method is used when collections on a particular portfolio cannot be reasonably predicted. Under the cost recovery method,
no revenue is recognized until we have fully collected the cost of the portfolio.

Application of the interest method of
accounting requires the use of estimates, primarily estimated remaining collections, to calculate a projected IRR for each pool. These estimates are primarily based on historical cash collections. If future cash collections are materially different
in amount or timing than the remaining collections estimate, earnings could be affected, either positively or negatively. Higher collection amounts or cash collections that occur sooner than projected will have a favorable impact on yields and
revenues. Lower collection amounts or cash collections that occur later than projected will have an unfavorable impact and may result in an impairment being recorded.

Goodwill and Intangible Assets not Subject to Amortization

We
periodically review the carrying value of intangible assets not subject to amortization, including goodwill, to determine whether impairment may exist. US GAAP requires that goodwill and certain intangible assets not subject to amortization be
assessed annually for impairment using fair value measurement techniques.

Specifically, goodwill impairment is determined
using a two-step test. The first step of the goodwill impairment test is used to identify potential impairment by comparing the fair value of a reporting unit with its book value, including goodwill. If the fair value of the reporting unit exceeds
its book value, goodwill is considered not impaired and the second step of the impairment test is unnecessary. If the book value of the reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed to measure
the amount of impairment loss, if any. The second step of the goodwill impairment test compares the implied fair value of the reporting units goodwill with the book value of that goodwill. If the book value of the reporting units
goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business
combination. That is, the fair value of the reporting unit is allocated to all of the assets and liabilities of that unit as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the purchase
price paid to acquire the reporting unit.

The estimate of fair value of our goodwill reporting unit, the purchased
receivables operating segment, is determined using various valuation techniques including market capitalization and an analysis of discounted cash flows. At the time of the annual goodwill impairment test in the fourth quarter of 2008, market
capitalization was substantially higher than book value and goodwill was considered not to be impaired. Given recent declines in our stock price, we also performed a discounted cash flow analysis. A discounted cash flow analysis requires us to make
various judgmental assumptions including assumptions about future cash flows, growth rates, and discount rates. We base assumptions about future cash flows and growth rates on our budget and long-term plans. Discount rate assumptions are based on an
assessment of the risk inherent in the reporting unit. The fair value of goodwill using a market capitalization approach and a discounted cash flow analysis exceeded the book value as of December 31, 2008.

The annual impairment test for other intangible assets not subject to amortization, for example, trademark and trade names, consists of a
comparison of the fair value of the intangible asset with its carrying value. If the carrying value of the intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. The estimates of fair value of
intangible assets not subject to amortization are determined using various discounted cash flow valuation methodologies. Significant assumptions are inherent in this process, including estimates of discount rates and future cash flows. Discount rate
assumptions are



39



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##### Table of Contents

based on an assessment of the risk inherent in the respective intangible assets, and include estimates of the cost of debt and equity for market participants in the Companys industry. We
performed a discounted cash flow analysis of our trademark and trade names as of September 30, 2009 and determined that the carrying value exceeded the fair value. We recorded an impairment of $1,167,600 in Impairment of assets in
the accompanying consolidated statements of operations.

Income Taxes

We record a tax provision for the anticipated tax consequences of the reported results of operations. The provision for income taxes is
computed using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities,
and for operating losses and tax credit carry-forwards. Deferred tax assets and liabilities are measured using the enacted tax rates and laws that will be in effect when the differences are expected to be reversed.

We believe it is more likely than not that forecasted income, including income that may be generated as a result of certain tax planning
strategies, together with the tax effects of the deferred tax liabilities, will be sufficient to fully recover the remaining deferred tax assets. In the event that all or part of the deferred tax assets are determined not to be realizable in the
future, a valuation allowance would be established and charged to earnings in the period such determination is made. Similarly, if we subsequently realize deferred tax assets that were previously determined to be unrealizable, the respective
valuation allowance would be reversed, resulting in a positive adjustment to earnings in the period such determination is made. In addition, the calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties
in the application of complex tax laws. Resolution of these uncertainties in a manner inconsistent with our expectations could have a material impact on our results of operations and financial position. We account for uncertain tax positions using a
recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.



|Item 3. | Quantitative and Qualitative Disclosures about Market Risk
|------- | ----------------------------------------------------------

Our exposure to market risk relates to the interest rate risk with our Credit Facilities. We may periodically enter into interest rate swap
agreements to modify the interest rate exposure associated with our outstanding debt. The outstanding borrowings on our Credit Facilities were $146.2 million and $181.6 million as of September 30, 2009 and December 31, 2008, respectively.
In September 2007, we entered into an amortizing interest rate swap agreement whereby, on a quarterly basis, we swap variable rates equal to three-month LIBOR for fixed rates on the notional amount of $125 million. Every year thereafter, on the
anniversary of the swap agreement the notional amount will decrease by $25 million. The outstanding unhedged borrowings on our Credit Facilities were $71.2 million as of September 30, 2009. Interest rates on unhedged borrowings may be
based on the Prime rate or LIBOR, at our discretion. Assuming a 200 basis point increase in interest rates, interest expense would have increased approximately $0.8 million on the unhedged borrowings for each of the nine months ended
September 30, 2009 and 2008, respectively.

For the nine months ended September 30, 2009, the swap was determined to
be highly effective in hedging against fluctuations in variable interest rates associated with the underlying debt. Interest rates have decreased since we entered into our swap agreement, reducing the fair value and resulting in a liability balance.
Additional declines in interest rates will further reduce the fair value, while increasing interest rates will increase the fair value.



|Item 4. | Controls and Procedures
|------- | -----------------------

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15 of the Securities Exchange Act of 1934. Based upon that evaluation, our Chief Executive Officer and our Chief
Financial Officer concluded that our disclosure controls and procedures are effective at the reasonable assurance level to cause material information required to be disclosed by us in the reports that we file or submit under the Securities Exchange
Act of 1934 to be recorded, processed, summarized and reported within the time periods specified in the Commissions rules and forms.



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##### Table of Contents

There have been no changes in our internal controls over financial reporting that occurred
during our fiscal quarter ended September 30, 2009 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II - OTHER INFORMATION



|Item 1. | Legal Proceedings
|------- | -----------------

In the
ordinary course of our business, we are involved in numerous legal proceedings. We regularly initiate collection lawsuits, using both our in-house attorneys and our network of third party law firms, against consumers and are occasionally countersued
by them in such actions. Also, consumers occasionally initiate litigation against us, in which they allege that we have violated a federal or state law in the process of collecting on their account. It is not unusual for us to be named in a class
action lawsuit relating to these allegations, with these lawsuits routinely settling for immaterial amounts. We do not believe that these ordinary course matters, individually or in the aggregate, are material to our business or financial condition.
However, there can be no assurance that a class action lawsuit would not, if decided against us, have a material and adverse effect on our financial condition.

We are not a party to any material legal proceedings. However, we expect to continue to initiate collection lawsuits as a part of the ordinary course of our business (resulting occasionally in
countersuits against us) and we may, from time to time, become a party to various other legal proceedings arising in the ordinary course of business.



|Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds
|------- | -----------------------------------------------------------

Companys Repurchases of Its Common Stock

The following table
provides information about the Companys common stock repurchases during the third quarter of 2009:



|                               |  |                                |  |                           |      |                                                                               |   |                                                                             |  
|------------------------------ |  | ------------------------------ |  | ------------------------- | ---- | ----------------------------------------------------------------------------- | - | --------------------------------------------------------------------------- | -
|Period                         |  | Total Numberof SharesPurchased |  | AveragePricePaid perShare |      | Total Number ofShares Purchased as Partof Publicly AnnouncedPlans or Programs |   | Maximum Number ofShares that May YetBe Purchased Underthe Plans or Programs
|July 1, 2009  July 31, 2009   |  |                               |  | $                         |     |                                                                               |  |                                                                             | 
|Aug 1, 2009  Aug 31, 2009 (1) |  | 11,095                         |  |                           | 7.55 |                                                                               |  |                                                                             | 
|Sept 1, 2009  Sept 30, 2009   |  |                               |  |                           |     |                                                                               |  |                                                                             | 
|                               |  |                                |  |                           |      |                                                                               |   |                                                                             |  
|Total                          |  | 11,095                         |  | $                         | 7.55 |                                                                               |  |                                                                             | 
|                               |  |                                |  |                           |      |                                                                               |   |                                                                             |  



|(1) | The shares were withheld for tax obligations in connection with the vesting of restricted share units. The shares were withheld at the fair market value on the vesting
date of the restricted share units.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We did not sell any equity securities during the third quarter of 2009 that
were not registered under the Securities Act.



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##### Table of Contents

|Item 6. | Exhibits
|------- | --------



|              |  |                                                                                                             
|------------- |  | ------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                 
|              | 
|10.1*         |  | Lease agreement entered into on September 17, 2009, between Asset Acceptance, LLC and Gateway Montrose, Inc.
|              | 
|10.2*         |  | Employment Agreement dated September 8, 2009, between Mark A. Redman and Asset Acceptance, LLC              
|              | 
|10.3*         |  | Employment Agreement dated September 8, 2009, between Deborah L. Everly and Asset Acceptance, LLC           
|              | 
|31.1*         |  | Rule 13a-14(a) Certification of Chief Executive Officer                                                     
|              | 
|31.2*         |  | Rule 13a-14(a) Certification of Chief Financial Officer                                                     
|              | 
|32.1*         |  | Section 1350 Certification of Chief Executive Officer and Chief Financial Officer                           



|* | Filed herewith
|- | --------------



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##### Table of Contents

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report
to be signed on its behalf by the undersigned, thereunto duly authorized on November 4, 2009.



|                       |  |  |  |                                |  |                                                                                                         
|---------------------- |  |  |  | ------------------------------ |  | --------------------------------------------------------------------------------------------------------
|                       |  |  |  | ASSET ACCEPTANCE CAPITAL CORP.
|                       |  |  | 
|Date: November 4, 2009 |  |  |  | By:                            |  | /S/    RION B.
NEEDS                                                                                    
|                       |  |  |  |                                |  | Rion B. Needs                                                                                           
|                       |  |  |  |                                |  | President and Chief Executive Officer (Principal Executive Officer)                                     
|Date: November 4, 2009 |  |  |  |                                |  |                                                                                                         
|                       |  |  |  | By:                            |  | /S/    MARK A.
REDMAN                                                                                   
|                       |  |  |  |                                |  | Mark A. Redman                                                                                          
|                       |  |  |  |                                |  | Senior Vice President  Finance and Chief Financial Officer (Principal Financial and Accounting Officer)



43