##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2005
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number: 000-50552
 Asset Acceptance Capital Corp.
  Delaware
    
    80-0076779(State or other jurisdiction of
    
    (I.R.S.Employer Identification No.)incorporation or organization)
 
   þ o
  o þ
  o þ




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TABLE OF CONTENTS
 PagePart I Financial Information
    
    
    3Item 1. Consolidated Financial Statements (unaudited)
    
    
    3Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    13Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    28Item 4. Controls and Procedures
    
    
    28Part II Other Information
    
    
    29Item 1. Legal Proceedings
    
    
    29Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    29Item 6. Exhibits
    
    
    30Signatures
    
    
    31Rule 13a-14(a) Certification of Chief Executive OfficerRule 13a-14(a) Certification of Chief Financial OfficerSection 1350 Certification of CEO and CFO
  10-Q Report
 www.assetacceptance.com
 2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1 . Consolidated Financial Statements
 ASSET ACCEPTANCE CAPITAL CORP.
 Consolidated Statements of Financial Position
(Unaudited)
 September 30, 2005
    
    December 31, 2004ASSETSCash
    
    $
    52,253,038
    
    
    $
    14,204,579Purchased receivables
    
    
    247,211,038
    
    
    
    216,479,676Finance contract receivables, net
    
    
    738,405
    
    
    
    688,497Property and equipment, net
    
    
    10,769,323
    
    
    
    11,165,103Goodwill
    
    
    6,339,574
    
    
    
    6,339,574Other assets
    
    
    2,762,473
    
    
    
    3,628,291Total assets
    
    $
    320,073,851
    
    
    $
    252,505,720LIABILITIES AND STOCKHOLDERS EQUITYLiabilities:Deferred tax liability, net
    
    $
    60,282,966
    
    
    $
    41,246,766Accounts payable and other liabilities
    
    
    16,526,278
    
    
    
    13,824,600Capital lease obligations
    
    
    227,173
    
    
    
    254,185Total liabilities
    
    
    77,036,417
    
    
    
    55,325,551Stockholders 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
and outstanding shares 37,225,275 at
September 30, 2005 and December 31,
2004
    
    
    372,253
    
    
    
    372,253Additional paid in capital
    
    
    160,036,343
    
    
    
    159,348,233Retained earnings
    
    
    82,628,838
    
    
    
    37,459,683Total equity
    
    
    243,037,434
    
    
    
    197,180,169Total liabilities and equity
    
    $
    320,073,851
    
    
    $
    252,505,720
  3




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##### Table of Contents



ASSET ACCEPTANCE CAPITAL CORP.
 Consolidated Statements of Operations
(Unaudited)
 Three months ended September 30,
    
    Nine months ended September 30,2005
    
    2004
    
    2005
    
    2004RevenuesPurchased receivable revenues
    
    $
    63,899,194
    
    
    $
    55,870,763
    
    
    $
    198,466,124
    
    
    $
    156,810,383Loss on sale of purchased receivables
    
    
    (151
    )
    
    
    
    
    
    
    (25,982
    )
    
    
    Finance contract revenues
    
    
    117,503
    
    
    
    127,967
    
    
    
    414,207
    
    
    
    442,600Total revenues
    
    
    64,016,546
    
    
    
    55,998,730
    
    
    
    198,854,349
    
    
    
    157,252,983ExpensesSalaries and benefits
    
    
    19,574,631
    
    
    
    16,240,718
    
    
    
    57,188,114
    
    
    
    94,124,074Collections expense
    
    
    17,831,613
    
    
    
    15,671,416
    
    
    
    55,119,103
    
    
    
    40,750,626Occupancy
    
    
    2,087,299
    
    
    
    1,509,896
    
    
    
    6,229,148
    
    
    
    4,328,048Administrative
    
    
    1,885,207
    
    
    
    1,343,371
    
    
    
    5,487,853
    
    
    
    3,984,713Depreciation and amortization
    
    
    831,396
    
    
    
    669,213
    
    
    
    2,517,506
    
    
    
    2,132,800Loss (gain) on disposal of equipment
    
    
    14,862
    
    
    
    (1,041
    )
    
    
    15,340
    
    
    
    41,865Total operating expenses
    
    
    42,225,008
    
    
    
    35,433,573
    
    
    
    126,557,064
    
    
    
    145,362,126Income from operations
    
    
    21,791,538
    
    
    
    20,565,157
    
    
    
    72,297,285
    
    
    
    11,890,857Other income (expense)Interest income
    
    
    430,407
    
    
    
    2,692
    
    
    
    657,941
    
    
    
    11,933Interest expense
    
    
    (135,282
    )
    
    
    (227,015
    )
    
    
    (416,954
    )
    
    
    (1,566,200
    )Other
    
    
    4,378
    
    
    
    414
    
    
    
    (2,984
    )
    
    
    25,372Income before income taxes
    
    
    22,091,041
    
    
    
    20,341,248
    
    
    
    72,535,288
    
    
    
    10,361,962Income taxes
    
    
    8,384,460
    
    
    
    7,579,901
    
    
    
    27,366,133
    
    
    
    22,182,255Net income (loss)
    
    $
    13,706,581
    
    
    $
    12,761,347
    
    
    $
    45,169,155
    
    
    $
    (11,820,293
    )Pro forma income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    3,854,650Pro forma net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    6,507,312Weighted average number of shares:Basic
    
    
    37,225,275
    
    
    
    37,225,275
    
    
    
    37,225,275
    
    
    
    36,104,148Diluted
    
    
    37,305,950
    
    
    
    37,230,985
    
    
    
    37,271,255
    
    
    
    36,110,708Earnings (loss) per common share outstanding:Basic
    
    $
    0.37
    
    
    $
    0.34
    
    
    $
    1.21
    
    
    $
    (0.33
    )Diluted
    
    $
    0.37
    
    
    $
    0.34
    
    
    $
    1.21
    
    
    $
    (0.33
    )Pro forma earnings per common share outstanding:Basic
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    0.18Diluted
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    0.18
  4




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ASSET ACCEPTANCE CAPITAL CORP.
 Consolidated Statements of Cash Flows
(Unaudited)
 Nine months ended September 30,2005
    
    
    2004Cash flows from operating activitiesNet income (loss)
    
    $
    45,169,155
    
    
    $
    (11,820,293
    )Adjustments to reconcile net income (loss) to net cash provided by operating activities:Depreciation and amortization
    
    
    2,517,506
    
    
    
    2,132,800Deferred income taxes
    
    
    19,036,201
    
    
    
    22,169,359Share-based compensation expense
    
    
    688,110
    
    
    
    26,824,957Impairment of purchased receivables
    
    
    6,994,000
    
    
    
    Non-cash revenue
    
    
    (3,612,261
    )
    
    
    (2,196,090
    )Loss on disposal of equipment
    
    
    15,340
    
    
    
    41,865Charge-offs of finance contracts
    
    
    159,825
    
    
    
    126,980Changes in assets and liabilities:Decrease (increase) in other assets
    
    
    714,814
    
    
    
    (903,865
    )Increase in accounts payable and other liabilities
    
    
    2,701,678
    
    
    
    3,478,762Net cash provided by operating activities
    
    
    74,384,368
    
    
    
    39,854,475Cash flows from investing activitiesInvestment in purchased receivables, net of buy backs
    
    
    (75,681,304
    )
    
    
    (59,911,516
    )Principal collected on purchased receivables
    
    
    41,568,202
    
    
    
    44,973,615Investment in finance contracts
    
    
    (678,071
    )
    
    
    (590,677
    )Principal collected on finance contracts
    
    
    468,338
    
    
    
    406,775Purchase of fixed assets
    
    
    (1,892,577
    )
    
    
    (1,224,125
    )Net cash used in investing activities
    
    
    (36,215,412
    )
    
    
    (16,345,928
    )Cash flows from financing activitiesBorrowings under line of credit
    
    
    10,500,000
    
    
    
    45,420,000Repayment of line of credit
    
    
    (10,500,000
    )
    
    
    (118,370,000
    )Repayment to related party
    
    
    
    
    
    
    (39,560,110
    )Repayment of capital lease obligations
    
    
    (120,497
    )
    
    
    (104,724
    )Dividends and distributions paid
    
    
    
    
    
    
    (1,000,000
    )Additional assets contributed
    
    
    
    
    
    
    50,406Proceeds from initial public offering, net of costs
    
    
    
    
    
    
    96,077,000Net cash used in financing activities
    
    
    (120,497
    )
    
    
    (17,487,428
    )Net increase in cash
    
    
    38,048,459
    
    
    
    6,021,119Cash at beginning of period
    
    
    14,204,579
    
    
    
    5,498,836Cash at end of period
    
    $
    52,253,038
    
    
    $
    11,519,955Supplemental disclosure of cash flow informationCash paid for interest
    
    $
    256,985
    
    
    $
    1,380,658Cash paid for income taxes
    
    
    4,984,181
    
    
    
    91,746Non-cash investing and financing activities:Capital lease obligations incurred
    
    
    93,483
    
    
    
    148,075
  5




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##### Table of Contents



ASSET ACCEPTANCE CAPITAL CORP.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 1. Summary of Significant Accounting Policies
 Nature of Operations
   Reporting Entity
   Purchased Receivables Portfolios and Revenue Recognition
  (SOP 03-3), January 1, 2005
  6




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Three months ended September 30,
    
    Nine months ended September 30,2005
    
    2004
    
    2005
    
    2004Beginning balance
    
    $
    233,953,247
    
    
    $
    197,503,693
    
    
    $
    216,479,676
    
    
    $
    183,719,667Investment in purchased
receivables, net of buybacks
    
    
    27,517,961
    
    
    
    14,305,024
    
    
    
    75,685,098
    
    
    
    59,911,516Cash collections
    
    
    (78,159,364
    )
    
    
    (66,825,822
    )
    
    
    (243,419,860
    )
    
    
    (199,587,908
    )Purchased receivable revenues
    
    
    63,899,194
    
    
    
    55,870,763
    
    
    
    198,466,124
    
    
    
    156,810,383Ending balance
    
    $
    247,211,038
    
    
    $
    200,853,658
    
    
    $
    247,211,038
    
    
    $
    200,853,658
  Three months ended September 30,
    
    Nine months ended September 30,2005
    
    2004
    
    2005
    
    2004Beginning balance
    
    $
    845,668,596
    
    
    $
    773,705,152
    
    
    $
    792,755,605
    
    
    $
    665,791,369Revenue recognized on purchased receivables
    
    
    (64,395,319
    )
    
    
    (55,870,763
    )
    
    
    (198,962,249
    )
    
    
    (156,810,383
    )Additions due to purchases during the period
    
    
    70,411,085
    
    
    
    32,590,530
    
    
    
    176,856,717
    
    
    
    166,160,387Reclassifications from nonaccretable yield
    
    
    10,147,989
    
    
    
    (12,433,286
    )
    
    
    91,182,278
    
    
    
    62,850,260Ending balance
    
    $
    861,832,351
    
    
    $
    737,991,633
    
    
    $
    861,832,351
    
    
    $
    737,991,633
 7




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##### Table of Contents



Three months ended September 30,
    
    Nine months ended September 30,2005
    
    2004
    
    2005
    
    2004Revenue from fully amortized pools:Pools that amortized before 60 months
    
    $
    8,312,947
    
    
    $
    4,860,788
    
    
    $
    22,779,854
    
    
    $
    10,916,061Pools that are 60 months or older
    
    
    4,543,583
    
    
    
    2,968,320
    
    
    
    15,044,442
    
    
    
    8,187,283Pools under full cost recovery
    
    
    1,135,232
    
    
    
    794,295
    
    
    
    3,254,546
    
    
    
    2,066,683Total revenue from fully amortized pools
    
    $
    13,991,762
    
    
    $
    8,623,403
    
    
    $
    41,078,842
    
    
    $
    21,170,027
  2005First
    
    
    Second
    
    
    Third
    
    
    Total ThroughQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    September 30,Impairments recorded:Impairments
    
    $
    700,000
    
    
    $
    1,698,000
    
    
    $
    5,112,000
    
    
    $
    7,510,000Reversal of impairments
(1)
    
    
    
    
    
    
    
    
    
    
    (516,000
    )
    
    
    (516,000
    )Total
    
    $
    700,000
    
    
    $
    1,698,000
    
    
    $
    4,596,000
    
    
    $
    6,994,000
 
 (1)
    
    Impairments reversed during the third quarter of 2005 relate to impairment charges recorded
during the second quarter of 2005. Finance Contract Receivables
  Collections from Third Parties
  Property and Equipment
  8




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##### Table of Contents



Initial Public Offering
   Share Appreciation Rights Compensation Charge
  Earnings (Loss) Per Share and Pro Forma Income Per Share
  Income Taxes and Deferred Tax Charge
   Recently Issued Accounting Pronouncements
 SFAS No. 123(R), Share-Based Payment
  9




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##### Table of Contents



2. Related-Party Transactions
   3. Line of Credit
  
    
    Funds borrowed can be used to purchase portfolios of charged-off receivables and for general corporate purposes.
    
    Leverage ratio (as defined in the line of credit agreement) cannot exceed 1.5 to 1.0.
    
    Debt to total capitalization ratio (as defined in the line of credit agreement) cannot exceed 1.25 to 1.0.
    
    Tangible net worth must exceed $145.0 million plus 50% of net income after September 30,
2004 which required a balance of $173.9 million as of September 30, 2005.
  4. Property and Equipment
  September 30, 2005
    
    December 31, 2004Computers and software
    
    $
    8,901,455
    
    
    $
    7,562,797Furniture and fixtures
    
    
    8,600,409
    
    
    
    8,259,527Leasehold improvements
    
    
    1,990,786
    
    
    
    1,810,998Equipment under capital lease
    
    
    488,744
    
    
    
    483,421Automobiles
    
    
    136,525
    
    
    
    136,525Total property and equipment, cost
    
    
    20,117,919
    
    
    
    18,253,268Less accumulated depreciation
    
    
    (9,348,596
    )
    
    
    (7,088,165
    )Net property and equipment
    
    $
    10,769,323
    
    
    $
    11,165,103
 5.
Stock-Based Compensation
   10




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##### Table of Contents



Stock Options
  Options
    
    Weighted-AverageOutstanding
    
    Exercise PriceJanuary 1, 2004
    
    
    
    
    
    
    Granted
    
    
    117,220
    
    
    $
    17.01Cancelled
    
    
    
    
    
    
    December 31, 2004
    
    
    117,220
    
    
    $
    17.01Granted
    
    
    129,999
    
    
    $
    21.50Cancelled
    
    
    
    
    
    
    September 30, 2005
    
    
    247,219
    
    
    $
    19.37
  Fair Value
    
    
    
    
    
    Weighted-Average
    
    
    
    
    
    
    
    
    
    Exercisableof Option
    
    Number
    
    Remaining
    
    Weighted-Average
    
    Number
    
    Weighted-AverageExercise Price
    
    Granted
    
    Outstanding
    
    Contractual Life
    
    Exercise Price
    
    Exercisable
    
    Exercise Price$15.00
    
    $
    4.84
    
    
    
    45,000
    
    
    
    8.35
    
    
    $
    15.00
    
    
    
    22,500
    
    
    $
    15.00$18.50
    
    $
    5.90
    
    
    
    30,000
    
    
    
    8.42
    
    
    $
    18.50
    
    
    
    15,000
    
    
    $
    18.50$19.48
    
    $
    6.57
    
    
    
    3,850
    
    
    
    8.63
    
    
    $
    19.48
    
    
    
    3,850
    
    
    $
    19.48$17.85
    
    $
    5.84
    
    
    
    4,200
    
    
    
    8.88
    
    
    $
    17.85
    
    
    
    4,200
    
    
    $
    17.85$17.97
    
    $
    8.48
    
    
    
    30,000
    
    
    
    9.24
    
    
    $
    17.97
    
    
    
    
    
    
    
    $17.99
    
    $
    8.47
    
    
    
    4,170
    
    
    
    9.24
    
    
    $
    17.99
    
    
    
    4,170
    
    
    $
    17.99$19.87
    
    $
    8.97
    
    
    
    3,775
    
    
    
    9.55
    
    
    $
    19.87
    
    
    
    3,775
    
    
    $
    19.87$18.89
    
    $
    8.56
    
    
    
    30,000
    
    
    
    9.56
    
    
    $
    18.89
    
    
    
    
    
    
    
    $18.89
    
    $
    8.56
    
    
    
    25,000
    
    
    
    9.56
    
    
    $
    18.89
    
    
    
    
    
    
    
    $19.48
    
    $
    11.68
    
    
    
    9,685
    
    
    
    9.62
    
    
    $
    19.48
    
    
    
    4,843
    
    
    $
    19.48$23.42
    
    $
    10.56
    
    
    
    45,624
    
    
    
    9.63
    
    
    $
    23.42
    
    
    
    
    
    
    
    $23.42
    
    $
    10.56
    
    
    
    3,200
    
    
    
    9.63
    
    
    $
    23.42
    
    
    
    3,200
    
    
    $
    23.42$27.34
    
    $
    12.45
    
    
    
    10,000
    
    
    
    9.83
    
    
    $
    27.34
    
    
    
    
    
    
    
    $27.61
    
    $
    12.58
    
    
    
    2,715
    
    
    
    9.88
    
    
    $
    27.61
    
    
    
    2,715
    
    
    $
    27.61Total / Average
    
    
    
    
    
    
    247,219
    
    
    
    9.16
    
    
    $
    19.37
    
    
    
    64,253
    
    
    $
    18.04
  Options issue year:
    
    2005
    
    2004Weighted-average fair value of options granted
    
    $
    9.94
    
    
    $
    6.26Expected volatility
    
    
    46.00
    %
    
    
    30.00
    %Risk-free interest rate
    
    
    3.82%-4.15
    %
    
    
    2.98%-3.93
    %Expected dividend yield
    
    
    0.00
    %
    
    
    0.00
    %Expected life
    
    5 Years
    
    
    5 Years
 11




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##### Table of Contents



Share Appreciation Rights
   6. Litigation Contingencies
  7. Income Taxes
    Three months ended September 30,
    
    Nine months ended September 30,2005
    
    2004
    
    2005
    
    2004Income taxes consist of:Federal actual
    
    $
    6,158,136
    
    
    $
    
    
    
    $
    7,008,136
    
    
    $
    State actual
    
    
    509,277
    
    
    
    4,708
    
    
    
    1,321,796
    
    
    
    12,895Federal deferred  net
    
    
    1,497,494
    
    
    
    7,127,341
    
    
    
    18,301,488
    
    
    
    20,926,642State deferred  net
    
    
    219,553
    
    
    
    447,852
    
    
    
    734,713
    
    
    
    1,242,718Total
    
    $
    8,384,460
    
    
    $
    7,579,901
    
    
    $
    27,366,133
    
    
    $
    22,182,255
  Three months ended September 30,
    
    Nine months ended September 30,2005
    
    2004
    
    2005
    
    2004Federal taxes at statutory rate
    
    $
    7,725,560
    
    
    $
    7,127,341
    
    
    $
    25,379,554
    
    
    $
    3,635,681Other adjustments
    
    
    56,857
    
    
    
    
    
    
    
    56,857
    
    
    
    S corporation benefit  federal
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (825,193
    )S corporation benefit  state
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (51,869
    )Deferred tax charge  federal
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,116,154Deferred tax charge  state
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,190,490State income taxes, net of federal tax benefit
    
    
    602,043
    
    
    
    452,560
    
    
    
    1,929,722
    
    
    
    116,992Effective income taxes
    
    $
    8,384,460
    
    
    $
    7,579,901
    
    
    $
    27,366,133
    
    
    $
    22,182,255
 12




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Company Overview
      Forward-Looking Statements
 
  
    
    our ability to purchase charged-off receivable portfolios on acceptable terms and in sufficient amounts;
    
    our ability to recover sufficient amounts on our charged-off receivable portfolios;
    
    our ability to hire and retain qualified personnel;
    
    a decrease in collections if bankruptcy filings increase or if bankruptcy laws or other debt collection laws change;
 13




---



##### Table of Contents




    
    our ability to make reasonable estimates of the timing and amount of future cash
receipts for purposes of recording purchased receivable revenues in accordance with
Accounting Standards Executive Committee Practice Bulletin 6 as well as the Accounting
Standards Executive Committee Statement of Position 03-3;
    
    changes in, or failure to comply with, governmental regulations, including our ability
to timely comply with Section 404 of the Sarbanes-Oxley Act and the costs related to
compliance;
    
    the costs and uncertainties related to compliance with Internal Revenue Code Section
6050P and the related Treasury Regulations and the issuance of 1099-C information returns;
    
    our ability to maintain existing, and secure additional financing on acceptable terms;
    
    the loss of any of our executive officers or other key personnel;
    
    the costs, uncertainties and other effects of legal and administrative proceedings;
    
    our ability to successfully expand our businesses and train and integrate new collectors;
    
    the temporary or permanent loss of our computer or telecommunications systems, as well
as our ability to respond to changes in technology and increased competition;
    
    changes in our overall performance based upon significant macroeconomic conditions; and
    
    other unanticipated events and conditions that may hinder our ability to compete.
 Significant Events During the Nine Months Ended September 30, 2005
  14




---



##### Table of Contents



Results of Operations
  Percent of Total Revenues
    
    
    Percent of Cash CollectionsThree Months Ended
    
    Nine Months Ended
    
    
    Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,
    
    
    September 30,
    
    September 30,2005
    
    2004
    
    2005
    
    2004
    
    
    2005
    
    2004
    
    2005
    
    2004RevenuesPurchased receivable revenues
    
    
    99.8
    %
    
    
    99.8
    %
    
    
    99.8
    %
    
    
    99.7
    %
    
    
    
    81.8
    %
    
    
    83.6
    %
    
    
    81.5
    %
    
    
    78.6
    %Loss on sale of purchased
receivables
    
    
    0.0
    
    
    
    0.0
    
    
    
    (0.0
    )
    
    
    0.0
    
    
    
    
    0.0
    
    
    
    0.0
    
    
    
    (0.0
    )
    
    
    0.0Finance contract revenues
    
    
    0.2
    
    
    
    0.2
    
    
    
    0.2
    
    
    
    0.3
    
    
    
    
    0.1
    
    
    
    0.2
    
    
    
    0.2
    
    
    
    0.2Total revenues
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    
    81.9
    
    
    
    83.8
    
    
    
    81.7
    
    
    
    78.8ExpensesSalaries and benefits
    
    
    30.6
    
    
    
    29.0
    
    
    
    28.8
    
    
    
    59.9
    (1)
    
    
    
    25.0
    
    
    
    24.3
    
    
    
    23.5
    
    
    
    47.1
    (1)Collections expense
    
    
    27.9
    
    
    
    28.0
    
    
    
    27.7
    
    
    
    25.9
    
    
    
    
    22.8
    
    
    
    23.4
    
    
    
    22.6
    
    
    
    20.4Occupancy
    
    
    3.3
    
    
    
    2.7
    
    
    
    3.1
    
    
    
    2.7
    
    
    
    
    2.7
    
    
    
    2.3
    
    
    
    2.6
    
    
    
    2.2Administrative
    
    
    2.9
    
    
    
    2.4
    
    
    
    2.7
    
    
    
    2.5
    
    
    
    
    2.4
    
    
    
    2.0
    
    
    
    2.3
    
    
    
    2.0Depreciation and amortization
    
    
    1.3
    
    
    
    1.2
    
    
    
    1.3
    
    
    
    1.4
    
    
    
    
    1.1
    
    
    
    1.0
    
    
    
    1.0
    
    
    
    1.1Loss on disposal of equipment
    
    
    0.0
    
    
    
    (0.0
    )
    
    
    0.0
    
    
    
    0.0
    
    
    
    
    0.0
    
    
    
    (0.0
    )
    
    
    0.0
    
    
    
    0.0Total operating expenses
    
    
    66.0
    
    
    
    63.3
    
    
    
    63.6
    
    
    
    92.4
    (1)
    
    
    
    54.0
    
    
    
    53.0
    
    
    
    52.0
    
    
    
    72.8
    (1)Income loss from operations
    
    
    34.0
    
    
    
    36.7
    
    
    
    36.4
    
    
    
    7.6
    
    
    
    
    27.9
    
    
    
    30.8
    
    
    
    29.7
    
    
    
    6.0Other income (expense)Interest income
    
    
    0.7
    
    
    
    0.0
    
    
    
    0.3
    
    
    
    0.0
    
    
    
    
    0.5
    
    
    
    0.0
    
    
    
    0.3
    
    
    
    0.0Interest expense
    
    
    (0.2
    )
    
    
    (0.4
    )
    
    
    (0.2
    )
    
    
    (1.0
    )
    
    
    
    (0.2
    )
    
    
    (0.4
    )
    
    
    (0.2
    )
    
    
    (0.8
    )Other
    
    
    0.0
    
    
    
    0.0
    
    
    
    (0.0
    )
    
    
    0.0
    
    
    
    
    0.0
    
    
    
    0.0
    
    
    
    (0.0
    )
    
    
    0.0Income loss before income taxes
    
    
    34.5
    
    
    
    36.3
    
    
    
    36.5
    
    
    
    6.6
    
    
    
    
    28.2
    
    
    
    30.4
    
    
    
    29.8
    
    
    
    5.2Income taxes
    
    
    13.1
    
    
    
    13.5
    
    
    
    13.8
    
    
    
    14.1
    
    
    
    
    10.7
    
    
    
    11.3
    
    
    
    11.2
    
    
    
    11.1Net Income (loss)
    
    
    21.4
    %
    
    
    22.8
    %
    
    
    22.7
    %
    
    
    (7.5
    )%
    
    
    
    17.5
    %
    
    
    19.1
    %
    
    
    18.6
    %
    
    
    (5.9
    )%Pro forma income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.5
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.9
    %Pro forma net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.1
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.3
    %
 
 (1)
    
    Excluding the $45.7 million compensation and related payroll tax charge, salaries and
benefits were 30.8% and 24.3% of revenues and collections, respectively, and total operating
expenses were 63.4% and 49.9% of revenues and collections, respectively, for the nine months
ended September 30, 2004. See discussion in Managements Discussion and Analysis of Financial
Condition and Results of Operations  Nine Months Ended September 30, 2005 Compared to Nine
Months Ended September 30, 2004  Operating Expenses. Three Months Ended September 30, 2005 Compared To Three Months Ended September 30, 2004
 Revenue
    15




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##### Table of Contents



Operating Expenses
  Salaries and Benefits.
  Collections Expense.
 Occupancy.
 Administrative.
 Depreciation and Amortization.
 Interest Income.
 Interest Expense.
 Income Taxes.
 16




---



##### Table of Contents



Nine Months Ended September 30, 2005 Compared To Nine Months Ended September 30, 2004
 Revenue
    Operating Expenses
    17




---



##### Table of Contents



Salaries and Benefits.
  Collections Expense.
 Occupancy.
 Administrative.
 Depreciation and Amortization.
 Interest
Income.
 Interest Expense.
 Income Taxes.
 18




---



##### Table of Contents



Supplemental Performance Data
 Portfolio Performance
  Total EstimatedCash Collections
    
    
    Estimated
    
    
    Total
    
    
    Collections as aNumber of
    
    
    Purchase
    
    
    Including Cash
    
    
    Remaining
    
    
    Estimated
    
    
    Percentage ofPurchase Period
    
    Portfolios
    
    
    Price (1)
    
    
    Sales (2)
    
    
    Collections
    
    
    Collections
    
    
    Purchase Price (2)(dollars in thousands)1990
    
    
    9
    
    
    $
    638
    
    
    $
    3,122
    
    
    $
    
    
    
    $
    3,122
    
    
    
    489
    %1991
    
    
    12
    
    
    
    280
    
    
    
    1,463
    
    
    
    
    
    
    
    1,463
    
    
    
    5231992
    
    
    29
    
    
    
    309
    
    
    
    2,917
    
    
    
    
    
    
    
    2,917
    
    
    
    9441993
    
    
    30
    
    
    
    790
    
    
    
    7,867
    
    
    
    
    
    
    
    7,867
    
    
    
    9961994
    
    
    36
    
    
    
    1,427
    
    
    
    6,881
    
    
    
    
    
    
    
    6,881
    
    
    
    4821995
    
    
    53
    
    
    
    1,519
    
    
    
    7,835
    
    
    
    14
    
    
    
    7,849
    
    
    
    5171996
    
    
    46
    
    
    
    3,844
    
    
    
    17,002
    
    
    
    411
    
    
    
    17,413
    
    
    
    4531997
    
    
    45
    
    
    
    4,345
    
    
    
    27,911
    
    
    
    2,195
    
    
    
    30,106
    
    
    
    6931998
    
    
    61
    
    
    
    16,412
    
    
    
    76,856
    
    
    
    6,877
    
    
    
    83,733
    
    
    
    5101999
    
    
    51
    
    
    
    12,925
    
    
    
    54,803
    
    
    
    10,781
    
    
    
    65,584
    
    
    
    5072000
    
    
    49
    
    
    
    20,596
    
    
    
    103,665
    
    
    
    22,925
    
    
    
    126,590
    
    
    
    6152001
    
    
    62
    
    
    
    43,133
    
    
    
    196,886
    
    
    
    78,772
    
    
    
    275,658
    
    
    
    6392002
    
    
    94
    
    
    
    72,288
    
    
    
    218,106
    
    
    
    165,960
    
    
    
    384,066
    
    
    
    5312003
    
    
    76
    
    
    
    87,317
    
    
    
    204,062
    
    
    
    290,133
    
    
    
    494,195
    
    
    
    5662004
    
    
    106
    
    
    
    87,835
    
    
    
    75,985
    
    
    
    286,245
    
    
    
    362,230
    
    
    
    4122005 (3)
    
    
    81
    
    
    
    77,237
    
    
    
    13,633
    
    
    
    244,730
    
    
    
    258,363
    
    
    
    335
 
 (1)
    
    Purchase price refers to the cash paid to a seller to acquire a portfolio less the purchase
price refunded by a seller due to the return of non-compliant accounts (also defined as
buybacks) less the purchase price for accounts that were sold at the time of purchase to
another debt purchaser.(2)
    
    For purposes of this table, cash collections include selected cash sales which were entered
into subsequent to purchase. Cash sales, however, exclude the sales of portfolios which
occurred at the time of purchase.(3)
    
    Includes only nine months of activity through September 30, 2005.  Unamortized
    
    UnamortizedUnamortized
    
    
    
    
    
    Balance as a
    
    Balance as aBalance as of
    
    Purchase
    
    Percentage of
    
    Percentage ofPurchase Period
    
    September 30, 2005
    
    Price (1)
    
    Purchase Price (2)
    
    Total(dollars in thousands)2000
    
    $
    123
    
    
    $
    20,596
    
    
    
    0.60%
    
    
    
    0.05
    %2001
    
    
    6,888
    
    
    
    43,133
    
    
    
    15.97
    
    
    
    2.792002
    
    
    31,261
    
    
    
    72,288
    
    
    
    43.25
    
    
    
    12.652003
    
    
    55,016
    
    
    
    87,317
    
    
    
    63.01
    
    
    
    22.252004
    
    
    73,892
    
    
    
    87,835
    
    
    
    84.13
    
    
    
    29.892005 (3)
    
    
    80,031
    
    
    
    77,237
    
    
    
    103.62
    
    
    
    32.37Totals
    
    $
    247,211
    
    
    $
    388,406
    
    
    
    63.65%
    
    
    
    100.00
    %
 
 (1)
    
    Purchase price refers to the cash paid to a seller to acquire a portfolio less the purchase
price refunded by a seller due to the return of non-compliant accounts (also defined as
buybacks) less the purchase price for accounts that were sold at the time of purchase to
another debt purchaser.(2)
    
    For purposes of this table, cash collections include selected cash sales which were entered
into subsequent to purchase. Cash sales, however, exclude the sales of portfolios which
occurred at the time of purchase.(3)
    
    Includes only nine months of activity through September 30, 2005. 19




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##### Table of Contents



Collector Productivity and Turnover
  Collectors by Experience
 Three months ended
    
    Nine months ended
    
    Year endedSeptember 30,
    
    September 30,
    
    December 31,2005
    
    2004
    
    2005
    
    2004
    
    2004
    
    2003Number of collectors:One year or more (1)
    
    
    509
    
    
    
    486
    
    
    
    510
    
    
    
    462
    
    
    
    472
    
    
    
    322Less than one year (2)
    
    
    558
    
    
    
    424
    
    
    
    530
    
    
    
    435
    
    
    
    436
    
    
    
    478Total
    
    
    1,067
    
    
    
    910
    
    
    
    1,040
    
    
    
    897
    
    
    
    908
    
    
    
    800
 
 (1)
    
    Based on number of average traditional call center Full Time Equivalent (FTE) collectors
with one or more years of service.(2)
    
    Based on number of average traditional call center FTE collectors with less than one year
of service, including new employees in training. Collection Averages by Experience
 Three months
    
    Nine months
    
    Year endedended September 30,
    
    ended September 30,
    
    December 31,2005
    
    2004
    
    2005
    
    2004
    
    2004
    
    2003Collection Averages:One year or more (1)
    
    $
    45,405
    
    
    $
    46,797
    
    
    $
    152,961
    
    
    $
    148,376
    
    
    $
    195,094
    
    
    $
    171,506Less than one year (2)
    
    
    28,281
    
    
    
    32,706
    
    
    
    93,657
    
    
    
    109,447
    
    
    
    140,157
    
    
    
    135,792Overall Average
    
    
    36,453
    
    
    
    40,224
    
    
    
    122,713
    
    
    
    129,486
    
    
    
    168,708
    
    
    
    150,178
 
 (1)
    
    Based on number of traditional call center FTE collectors with one or more years of service.(2)
    
    Based on number of traditional call center FTE collectors with less than one year of service,
including new employees in training.  Turnover
by Experience
 Three Months Ended September 30,
  
    Nine Months Ended September 30,2005

2004


    2005
    
    2004Total Collector Turnover
    

97.9
%


77.1
%

    
85.7
%
    
    
68.6
%Collectors < 1 year of experience
    

146.0



113.6



    126.5
    
    
    
    100.2Collectors > 1 year of experience
    

48.8



45.7



    45.1
    
    
    
    39.7
 20




---



##### Table of Contents



Cash Collections
  Historical Collections (1)
 Nine MonthsEndedPurchase
    
    Purchase
    
    
    Year Ended December 31,
    
    
    September 30,Period
    
    Price(2)
    
    
    1994
    
    
    1995
    
    
    1996
    
    
    1997
    
    
    1998
    
    
    1999
    
    
    2000
    
    
    2001
    
    
    2002
    
    
    2003
    
    
    2004
    
    
    2005(dollars in thousands)Pre-1994
    
    
    
    
    
    $
    3,067
    
    
    $
    2,540
    
    
    $
    1,788
    
    
    $
    1,285
    
    
    $
    834
    
    
    $
    649
    
    
    $
    555
    
    
    $
    437
    
    
    $
    302
    
    
    $
    324
    
    
    $
    243
    
    
    $
    1821994
    
    $
    1,427
    
    
    
    345
    
    
    
    1,763
    
    
    
    1,430
    
    
    
    1,005
    
    
    
    647
    
    
    
    457
    
    
    
    357
    
    
    
    258
    
    
    
    176
    
    
    
    188
    
    
    
    126
    
    
    
    961995
    
    
    1,519
    
    
    
    
    
    
    
    388
    
    
    
    1,566
    
    
    
    1,659
    
    
    
    1,118
    
    
    
    786
    
    
    
    708
    
    
    
    472
    
    
    
    343
    
    
    
    278
    
    
    
    227
    
    
    
    1741996
    
    
    3,844
    
    
    
    
    
    
    
    
    
    
    
    827
    
    
    
    3,764
    
    
    
    3,085
    
    
    
    2,601
    
    
    
    2,098
    
    
    
    1,440
    
    
    
    1,041
    
    
    
    816
    
    
    
    687
    
    
    
    4891997
    
    
    4,345
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,682
    
    
    
    4,919
    
    
    
    5,573
    
    
    
    5,017
    
    
    
    3,563
    
    
    
    2,681
    
    
    
    1,784
    
    
    
    1,526
    
    
    
    1,0551998
    
    
    16,412
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,835
    
    
    
    15,220
    
    
    
    15,045
    
    
    
    12,962
    
    
    
    11,021
    
    
    
    7,987
    
    
    
    5,582
    
    
    
    3,6251999
    
    
    12,925
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,761
    
    
    
    11,331
    
    
    
    10,862
    
    
    
    9,750
    
    
    
    8,278
    
    
    
    6,675
    
    
    
    3,8982000
    
    
    20,596
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,895
    
    
    
    23,444
    
    
    
    22,559
    
    
    
    20,318
    
    
    
    17,196
    
    
    
    10,7762001
    
    
    43,133
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,630
    
    
    
    50,327
    
    
    
    50,967
    
    
    
    45,713
    
    
    
    31,1752002
    
    
    72,288
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,340
    
    
    
    70,813
    
    
    
    72,024
    
    
    
    52,4322003
    
    
    87,317
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36,067
    
    
    
    94,564
    
    
    
    73,2652004
    
    
    87,835
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,365
    
    
    
    52,6202005
    
    
    77,237
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,633Total
    
    
    
    
    
    $
    3,412
    
    
    $
    4,691
    
    
    $
    5,611
    
    
    $
    9,395
    
    
    $
    15,438
    
    
    $
    29,047
    
    
    $
    44,006
    
    
    $
    71,068
    
    
    $
    120,540
    
    
    $
    197,820
    
    
    $
    267,928
    
    
    $
    243,420
 Cumulative Collections (1)
 TotalThroughPurchase
    
    Purchase
    
    
    Total Through December 31,
    
    
    September 30,Period
    
    Price(2)
    
    
    1994
    
    
    1995
    
    
    1996
    
    
    1997
    
    
    1998
    
    
    1999
    
    
    2000
    
    
    2001
    
    
    2002
    
    
    2003
    
    
    2004
    
    
    2005(dollars in thousands)1994
    
    $
    1,427
    
    
    $
    345
    
    
    $
    2,108
    
    
    $
    3,538
    
    
    $
    4,543
    
    
    $
    5,190
    
    
    $
    5,647
    
    
    $
    6,004
    
    
    $
    6,262
    
    
    $
    6,438
    
    
    $
    6,626
    
    
    $
    6,752
    
    
    $
    6,8481995
    
    
    1,519
    
    
    
    
    
    
    
    388
    
    
    
    1,954
    
    
    
    3,613
    
    
    
    4,731
    
    
    
    5,517
    
    
    
    6,225
    
    
    
    6,697
    
    
    
    7,040
    
    
    
    7,318
    
    
    
    7,545
    
    
    
    7,7191996
    
    
    3,844
    
    
    
    
    
    
    
    
    
    
    
    827
    
    
    
    4,591
    
    
    
    7,676
    
    
    
    10,277
    
    
    
    12,375
    
    
    
    13,815
    
    
    
    14,856
    
    
    
    15,672
    
    
    
    16,359
    
    
    
    16,8481997
    
    
    4,345
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,682
    
    
    
    6,601
    
    
    
    12,174
    
    
    
    17,191
    
    
    
    20,754
    
    
    
    23,435
    
    
    
    25,219
    
    
    
    26,745
    
    
    
    27,8001998
    
    
    16,412
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,835
    
    
    
    20,055
    
    
    
    35,100
    
    
    
    48,062
    
    
    
    59,083
    
    
    
    67,070
    
    
    
    72,652
    
    
    
    76,2771999
    
    
    12,925
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,761
    
    
    
    15,092
    
    
    
    25,954
    
    
    
    35,704
    
    
    
    43,982
    
    
    
    50,657
    
    
    
    54,5552000
    
    
    20,596
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,895
    
    
    
    32,339
    
    
    
    54,898
    
    
    
    75,216
    
    
    
    92,412
    
    
    
    103,1882001
    
    
    43,133
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,630
    
    
    
    67,957
    
    
    
    118,924
    
    
    
    164,637
    
    
    
    195,8122002
    
    
    72,288
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,340
    
    
    
    93,153
    
    
    
    165,177
    
    
    
    217,6092003
    
    
    87,317
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36,067
    
    
    
    130,631
    
    
    
    203,8962004
    
    
    87,835
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,365
    
    
    
    75,9852005
    
    
    77,237
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,633
 Cumulative Collections as Percentage of Purchase Price (1)
 TotalThroughPurchase
    
    Purchase
    
    
    Total Through December 31,
    
    
    September 30,Period
    
    Price(2)
    
    
    1994
    
    
    1995
    
    
    1996
    
    
    1997
    
    
    1998
    
    
    1999
    
    
    2000
    
    
    2001
    
    
    2002
    
    
    2003
    
    
    2004
    
    
    20051994
    
    $
    1,427
    
    
    
    24
    %
    
    
    148
    %
    
    
    248
    %
    
    
    318
    %
    
    
    364
    %
    
    
    396
    %
    
    
    421
    %
    
    
    439
    %
    
    
    451
    %
    
    
    464
    %
    
    
    473
    %
    
    
    480
    %1995
    
    
    1,519
    
    
    
    
    
    
    
    26
    
    
    
    129
    
    
    
    238
    
    
    
    311
    
    
    
    363
    
    
    
    410
    
    
    
    441
    
    
    
    463
    
    
    
    482
    
    
    
    497
    
    
    
    5081996
    
    
    3,844
    
    
    
    
    
    
    
    
    
    
    
    22
    
    
    
    119
    
    
    
    200
    
    
    
    267
    
    
    
    322
    
    
    
    359
    
    
    
    386
    
    
    
    408
    
    
    
    426
    
    
    
    4381997
    
    
    4,345
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    39
    
    
    
    152
    
    
    
    280
    
    
    
    396
    
    
    
    478
    
    
    
    539
    
    
    
    580
    
    
    
    616
    
    
    
    6401998
    
    
    16,412
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29
    
    
    
    122
    
    
    
    214
    
    
    
    293
    
    
    
    360
    
    
    
    409
    
    
    
    443
    
    
    
    4651999
    
    
    12,925
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29
    
    
    
    117
    
    
    
    201
    
    
    
    276
    
    
    
    340
    
    
    
    392
    
    
    
    4222000
    
    
    20,596
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    43
    
    
    
    157
    
    
    
    267
    
    
    
    365
    
    
    
    449
    
    
    
    5012001
    
    
    43,133
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41
    
    
    
    158
    
    
    
    276
    
    
    
    382
    
    
    
    4542002
    
    
    72,288
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31
    
    
    
    129
    
    
    
    228
    
    
    
    3012003
    
    
    87,317
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41
    
    
    
    150
    
    
    
    2342004
    
    
    87,835
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27
    
    
    
    872005
    
    
    77,237
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18
 
 (1)
    
    Does not include proceeds from sales of any receivables.(2)
    
    Purchase amount refers to the cash paid to a seller to acquire a portfolio less the purchase
price refunded by a seller due to the return of non-compliant accounts (also defined as
buybacks) less the purchase price for accounts that were sold at the time of purchase to
another debt purchaser. 21




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##### Table of Contents



Seasonality
   
 Total Cash Collections
 Quarter
    
    2001
    
    
    2002
    
    
    2003
    
    
    2004
    
    
    2005First
    
    $
    15,592,577
    
    
    $
    27,297,721
    
    
    $
    44,017,730
    
    
    $
    65,196,055
    
    
    $
    80,397,640Second
    
    
    17,661,537
    
    
    
    30,475,078
    
    
    
    51,190,533
    
    
    
    67,566,031
    
    
    
    84,862,856Third
    
    
    17,766,800
    
    
    
    29,337,914
    
    
    
    48,622,829
    
    
    
    66,825,822
    
    
    
    78,159,364Fourth
    
    
    20,046,733
    
    
    
    33,429,419
    
    
    
    53,988,333
    
    
    
    68,339,797
    
    
    
    
  Three months ended
September 30,
    

Nine
months ended
September 30,2005
    
    2004
    
    2005
    
    2004Traditional collections
    
    
    49.75
    %
    
    
    54.76
    %
    
    
    52.45
    %
    
    
    58.18
    %Legal collections
    
    
    37.20
    
    
    
    32.36
    
    
    
    35.32
    
    
    
    30.15Other collections
    
    
    13.05
    
    
    
    12.88
    
    
    
    12.23
    
    
    
    11.67Total collections
    
    
    100.00
    %
    
    
    100.00
    %
    
    
    100.00
    %
    
    
    100.00
    %
 22




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##### Table of Contents



Face Value ofCharged-off
    
    
    
    
    
    
    No. ofAsset Type
    
    Receivables (2)
    
    
    %
    
    
    Accounts
    
    
    %Visa(R)/MasterCard(R)/Discover(R)
    
    $
    9,535,339,642
    
    
    
    43.3
    %
    
    
    4,141,217
    
    
    
    19.3
    %Private Label Credit Cards
    
    
    3,032,186,249
    
    
    
    13.8
    
    
    
    4,545,382
    
    
    
    21.2Telecommunications/Utility/Gas
    
    
    2,558,051,286
    
    
    
    11.6
    
    
    
    6,146,978
    
    
    
    28.6Auto Deficiency
    
    
    1,388,816,864
    
    
    
    6.3
    
    
    
    248,811
    
    
    
    1.2Health Club
    
    
    1,355,169,052
    
    
    
    6.1
    
    
    
    1,393,087
    
    
    
    6.5Installment Loans
    
    
    651,081,700
    
    
    
    3.0
    
    
    
    209,587
    
    
    
    1.0Other (1)
    
    
    3,502,647,971
    
    
    
    15.9
    
    
    
    4,773,388
    
    
    
    22.2Total
    
    $
    22,023,292,764
    
    
    
    100.0
    %
    
    
    21,458,450
    
    
    
    100.0
    %
 
 (1)
    
    Other includes charged-off receivables of several debt types, including student loan,
mobile home deficiency and retail mail order. This includes the purchase of a single portfolio
in June 2002 with a face value of $1.2 billion at a cost of $1.2 million (or 0.1% of face
value) and consisting of approximately 3.8 million accounts.(2)
    
    Face value of charged-off receivables represents the cumulative amount of purchases net of
buybacks. The amount is not adjusted for payments received, settlements or additional accrued
interest on any accounts in such portfolios after the date we purchased the applicable
portfolio.  
    
    Fresh accounts are typically 120 to 270 days past due, have been charged-off by the
credit originator and are either being sold prior to any post charge-off collection activity
or are placed with a third party for the first time. These accounts typically sell for the
highest purchase price.
    
    Primary accounts are typically 270 to 360 days past due, have been previously placed with
one third party collector and typically receive a lower purchase price.
    
    Secondary and tertiary accounts are typically more than 360 days past due, have been
placed with two or three third party collectors and receive even lower purchase prices.
   Face Value ofCharged-off
    
    
    
    
    
    
    No. ofAccount Type
    
    Receivables (2)
    
    
    %
    
    
    Accounts
    
    
    %Fresh
    
    $
    1,053,059,039
    
    
    
    4.8
    %
    
    
    436,735
    
    
    
    2.0
    %Primary
    
    
    3,833,748,292
    
    
    
    17.4
    
    
    
    2,554,619
    
    
    
    11.9Secondary
    
    
    3,722,036,308
    
    
    
    16.9
    
    
    
    3,814,847
    
    
    
    17.8Tertiary (1)
    
    
    12,142,808,573
    
    
    
    55.1
    
    
    
    13,986,342
    
    
    
    65.2Other
    
    
    1,271,640,552
    
    
    
    5.8
    
    
    
    665,907
    
    
    
    3.1Total
    
    $
    22,023,292,764
    
    
    
    100.0
    %
    
    
    21,458,450
    
    
    
    100.0
    %
 
 (1)
    
    This includes 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. 23




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##### Table of Contents



Face Value ofCharged-off
    
    
    
    
    
    
    No. ofGeographic Location
    
    Receivables (3)
    
    
    %
    
    
    Accounts
    
    
    %Texas (1)
    
    $
    3,010,372,446
    
    
    
    13.7
    %
    
    
    2,635,291
    
    
    
    12.3
    %California
    
    
    2,491,158,691
    
    
    
    11.3
    
    
    
    2,690,677
    
    
    
    12.5Florida (1)
    
    
    2,062,710,550
    
    
    
    9.4
    
    
    
    1,471,002
    
    
    
    6.9Michigan (1)
    
    
    1,561,218,173
    
    
    
    7.1
    
    
    
    1,876,874
    
    
    
    8.8New York
    
    
    1,323,172,682
    
    
    
    6.0
    
    
    
    1,141,125
    
    
    
    5.3Ohio (1)
    
    
    1,232,211,505
    
    
    
    5.6
    
    
    
    1,442,486
    
    
    
    6.7Illinois (1)
    
    
    1,028,199,762
    
    
    
    4.7
    
    
    
    1,338,322
    
    
    
    6.2Pennsylvania
    
    
    666,661,661
    
    
    
    3.0
    
    
    
    575,186
    
    
    
    2.7North Carolina
    
    
    621,393,002
    
    
    
    2.8
    
    
    
    489,519
    
    
    
    2.3Georgia
    
    
    552,848,810
    
    
    
    2.5
    
    
    
    480,600
    
    
    
    2.2Other (2)
    
    
    7,473,345,482
    
    
    
    33.9
    
    
    
    7,317,368
    
    
    
    34.1Total
    
    $
    22,023,292,764
    
    
    
    100.0
    %
    
    
    21,458,450
    
    
    
    100.0
    %
 
 (1)
    
    Collection site located in this state.(2)
    
    Each state included in Other represents under 2.0% individually of the face value of total
charged-off consumer receivables.(3)
    
    Face value of charged-off receivables represents the cumulative amount of purchases net of
buybacks. The amount is not adjusted for payments received, settlements or additional accrued
interest on any accounts in such portfolios after the date we purchased the applicable
portfolio. Liquidity and Capital Resources
  Borrowings
  
    
    funds borrowed can be used to purchase portfolios of charged-off receivables and for general corporate purposes;
    
    leverage ratio (as defined in the line of credit agreement) cannot exceed 1.5 to 1.0;
    
    debt to total capitalization ratio (as defined in the line of credit agreement) cannot exceed 1.25 to 1.0; and
    
    tangible net worth must exceed $145.0 million plus 50% of net income after September 30,
2004 which required a balance of $173.9 million as of September 30, 2005.
   24




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##### Table of Contents



Cash Flows
       25




---



##### Table of Contents



Future Contractual Cash Obligations
  Year Ending December 31,2005
    
    
    2006
    
    
    2007
    
    
    2008(1)
    
    
    2009
    
    
    ThereafterCapital lease obligations
    
    $
    42,382
    
    
    $
    129,173
    
    
    $
    54,682
    
    
    $
    9,514
    
    
    $
    
    
    
    $
    Operating lease obligations
    
    
    1,403,141
    
    
    
    6,132,650
    
    
    
    5,903,767
    
    
    
    4,966,757
    
    
    
    4,129,345
    
    
    
    15,338,799Purchased receivables (2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Line of credit (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Employment agreements
    
    
    283,750
    
    
    
    976,250
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    1,729,273
    
    
    $
    7,238,073
    
    
    $
    5,958,449
    
    
    $
    4,976,271
    
    
    $
    4,129,345
    
    
    $
    15,338,799
 
 (1)
    
    To the extent that a balance is outstanding on our line of credit, it would be due in May
2008. There was no outstanding balance on our line of credit as of September 30, 2005.(2)
    
    During the nine months ended September 30, 2004, we entered into four forward flow contracts
that commit us to purchase receivables for a fixed percentage of the face amount of the
receivables. Three of the four forward flow contracts were renewed during 2005 with terms
beyond September 2005 with the last contract expiring December 2006. The remainder of those
three contracts call for monthly purchases of approximately $330,000, depending upon
circumstances. 26




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##### Table of Contents



Off-Balance Sheet Arrangements
  Internal Revenue Code Section 6050P and Related Treasury Regulations
   Critical Accounting Policies
     27




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##### Table of Contents



New Accounting Pronouncements
 SFAS No. 123(R), Share-Based Payment
  
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
  
 Item 4. Controls and Procedures
  28




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##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
   
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
   Director
    
    Option Grant Date
    
    Number of Options
    
    Exercise PriceJennifer L. Adams
    
    August 17, 2005
    
    
    543
    
    
    $
    27.61Terrence L. Daniels
    
    August 17, 2005
    
    
    543
    
    
    $
    27.61Donald Haider
    
    August 17, 2005
    
    
    543
    
    
    $
    27.61Anthony Ignaczak
    
    August 17, 2005
    
    
    543
    
    
    $
    27.61H. Eugene Lockhart
    
    August 17, 2005
    
    
    543
    
    
    $
    27.61
  Employee
    
    Option Grant Date
    
    Number of Options
    
    Exercise PriceDarren Bradshaw
    
    July 29, 2005
    
    
    10,000
    
    
    $
    27.34
 29




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##### Table of Contents



Item 6. Exhibits
    30




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SIGNATURES
  ASSET ACCEPTANCE CAPITAL CORP.Date: November 3, 2005
    
    By:
    
    /s/ Nathaniel F. Bradley IVNathaniel F. Bradley IVPresident and Chief Executive Officer(Principal Executive Officer)Date: November 3, 2005
    
    By:
    
    /s/ Mark A. RedmanMark A. RedmanVice President  Finance andChief Financial Officer(Principal Financial and Accounting Officer)
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EXHIBIT NO.
    
    DESCRIPTIONEX-31.1
    
    Rule 13a-14(a) Certification of Chief Executive OfficerEX-31.2
    
    Rule 13a-14(a) Certification of Chief Financial OfficerEX-32.1
    
    Section 1350 Certification of Chief Executive Officer and Chief Financial Officer