##### 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
June 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
(State or other jurisdiction of
incorporation or organization)
    
    80-0076779
(I.R.S.Employer Identification No.)
 
   þ o
  o þ




---



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
    
    
    29Item 4. Controls and Procedures
    
    
    29Part II Other Information
    
    
    30Item 1. Legal Proceedings
    
    
    30Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    30Item 4. Submission of Matters to a Vote of Security Holders
    
    
    31Item 6. Exhibits
    
    
    31Signatures
    
    
    32Rule 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




---



##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1 . Financial Statements
 ASSET ACCEPTANCE CAPITAL CORP.
 Consolidated Statements of Financial Position
(Unaudited)
 June 30, 2005
    
    December 31, 2004ASSETSCash
    
    $
    45,829,103
    
    
    $
    14,204,579Purchased receivables
    
    
    233,953,247
    
    
    
    216,479,676Finance contract receivables, net
    
    
    694,557
    
    
    
    688,497Property and equipment, net
    
    
    10,933,125
    
    
    
    11,165,103Goodwill
    
    
    6,339,574
    
    
    
    6,339,574Other assets
    
    
    2,526,778
    
    
    
    3,628,291Total assets
    
    $
    300,276,384
    
    
    $
    252,505,720LIABILITIES AND STOCKHOLDERS EQUITYLiabilities:Deferred tax liability, net
    
    $
    58,565,603
    
    
    $
    41,246,766Accounts payable and other liabilities
    
    
    12,414,344
    
    
    
    13,824,600Capital lease obligations
    
    
    268,236
    
    
    
    254,185Total liabilities
    
    
    71,248,183
    
    
    
    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
June 30, 2005 and December 31, 2004
    
    
    372,253
    
    
    
    372,253Additional paid in capital
    
    
    159,733,691
    
    
    
    159,348,233Retained earnings
    
    
    68,922,257
    
    
    
    37,459,683Total equity
    
    
    229,028,201
    
    
    
    197,180,169Total liabilities and equity
    
    $
    300,276,384
    
    
    $
    252,505,720
  3




---



##### Table of Contents



ASSET ACCEPTANCE CAPITAL CORP.
 Consolidated Statements of Operations
(Unaudited)
 Three months ended June 30,
    
    Six months ended June 30,2005
    
    2004
    
    2005
    
    2004RevenuesPurchased receivable revenues
    
    $
    68,700,736
    
    
    $
    51,352,846
    
    
    $
    134,566,930
    
    
    $
    100,939,620Loss on sale of purchased receivables
    
    
    (25,831
    )
    
    
    
    
    
    
    (25,831
    )
    
    
    Finance contract revenues
    
    
    128,397
    
    
    
    153,776
    
    
    
    296,704
    
    
    
    314,633Total revenues
    
    
    68,803,302
    
    
    
    51,506,622
    
    
    
    134,837,803
    
    
    
    101,254,253ExpensesSalaries and benefits
    
    
    19,070,443
    
    
    
    16,465,210
    
    
    
    37,613,483
    
    
    
    77,883,356Collections expense
    
    
    18,844,591
    
    
    
    12,773,687
    
    
    
    37,287,490
    
    
    
    25,079,210Occupancy
    
    
    2,029,875
    
    
    
    1,419,857
    
    
    
    4,141,849
    
    
    
    2,818,152Administrative
    
    
    1,732,091
    
    
    
    1,361,671
    
    
    
    3,602,646
    
    
    
    2,641,342Depreciation and amortization
    
    
    842,962
    
    
    
    736,747
    
    
    
    1,686,110
    
    
    
    1,463,587Loss on disposal of equipment
    
    
    478
    
    
    
    16,380
    
    
    
    478
    
    
    
    42,906Total operating expenses
    
    
    42,520,440
    
    
    
    32,773,552
    
    
    
    84,332,056
    
    
    
    109,928,553Income (loss) from operations
    
    
    26,282,862
    
    
    
    18,733,070
    
    
    
    50,505,747
    
    
    
    (8,674,300
    )Other income (expense)Interest income
    
    
    192,626
    
    
    
    2,288
    
    
    
    227,534
    
    
    
    9,241Interest expense
    
    
    (140,854
    )
    
    
    (337,991
    )
    
    
    (281,672
    )
    
    
    (1,339,185
    )Other
    
    
    (7,337
    )
    
    
    174
    
    
    
    (7,362
    )
    
    
    24,958Income (loss) before income taxes
    
    
    26,327,297
    
    
    
    18,397,541
    
    
    
    50,444,247
    
    
    
    (9,979,286
    )Income taxes
    
    
    10,010,167
    
    
    
    6,820,181
    
    
    
    18,981,673
    
    
    
    14,602,354Net income (loss)
    
    $
    16,317,130
    
    
    $
    11,577,360
    
    
    $
    31,462,574
    
    
    $
    (24,581,640
    )Pro forma income tax benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (3,712,295
    )Pro forma net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (6,266,991
    )Weighted average number of shares:Basic
    
    
    37,225,275
    
    
    
    37,225,275
    
    
    
    37,225,275
    
    
    
    35,537,424Diluted
    
    
    37,264,387
    
    
    
    37,235,470
    
    
    
    37,254,817
    
    
    
    35,537,424Earnings (loss) per common share outstanding:Basic
    
    $
    0.44
    
    
    $
    0.31
    
    
    $
    0.85
    
    
    $
    (0.69
    )Diluted
    
    $
    0.44
    
    
    $
    0.31
    
    
    $
    0.84
    
    
    $
    (0.69
    )Pro forma loss per common share outstanding:Basic
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (0.18
    )Diluted
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (0.18
    )
  4




---



##### Table of Contents



ASSET ACCEPTANCE CAPITAL CORP.
 Consolidated Statements of Cash Flows
(Unaudited)
 Six months ended June 30,2005
    
    2004Cash flows from operating activitiesNet income (loss)
    
    $
    31,462,574
    
    
    $
    (24,581,640
    )Adjustments to reconcile net income (loss) to net cash provided
by operating activities:Depreciation and amortization
    
    
    1,686,110
    
    
    
    1,463,587Deferred income taxes
    
    
    17,318,837
    
    
    
    14,594,166Share-based compensation expense
    
    
    385,457
    
    
    
    26,726,917Impairment of purchased receivables
    
    
    2,398,000
    
    
    
    Loss on disposal of equipment
    
    
    478
    
    
    
    42,906Charge-offs of finance contracts
    
    
    102,816
    
    
    
    70,623Changes in assets and liabilities:Decrease (increase) in other assets
    
    
    627,510
    
    
    
    (547,992
    )Increase (decrease) in accounts payable and other liabilities
    
    
    (1,040,256
    )
    
    
    425,705Net cash provided by operating activities
    
    
    52,941,526
    
    
    
    18,194,272Cash flows from investing activitiesInvestment in purchased receivables, net of buy backs
    
    
    (48,163,359
    )
    
    
    (45,438,734
    )Principal collected on purchased receivables
    
    
    28,291,788
    
    
    
    31,822,466Investment in finance contracts
    
    
    (433,233
    )
    
    
    (413,909
    )Principal collected on finance contracts
    
    
    324,358
    
    
    
    260,601Purchase of fixed assets
    
    
    (1,257,124
    )
    
    
    (884,633
    )Net cash used in investing activities
    
    
    (21,237,570
    )
    
    
    (14,654,209
    )Cash flows from financing activitiesBorrowings under line of credit
    
    
    6,500,000
    
    
    
    41,320,000Repayment of line of credit
    
    
    (6,500,000
    )
    
    
    (96,670,000
    )Repayment to related party
    
    
    
    
    
    
    (39,560,110
    )Repayment of capital lease obligations
    
    
    (79,432
    )
    
    
    (67,112
    )Dividends and distributions paid
    
    
    
    
    
    
    (1,000,000
    )Additional assets contributed
    
    
    
    
    
    
    50,406Proceeds from initial public offering, net of costs
    
    
    
    
    
    
    96,077,000Net cash provided by (used in) financing activities
    
    
    (79,432
    )
    
    
    150,184Net increase in cash
    
    
    31,624,524
    
    
    
    3,690,247Cash at beginning of period
    
    
    14,204,579
    
    
    
    5,498,836Cash at end of period
    
    $
    45,829,103
    
    
    $
    9,189,083Supplemental disclosure of cash flow informationCash paid for interest
    
    $
    94,861
    
    
    $
    1,217,810Cash paid (received) for income taxes
    
    
    (237,265
    )
    
    
    93,584Non-cash investing and financing activities:Capital lease obligations incurred
    
    
    93,483
    
    
    
    133,292
  5




---



##### 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
   6




---



##### Table of Contents



Three months ended June 30,
    
    Six months ended June 30,2005
    
    2004
    
    2005
    
    2004Beginning balance
    
    $
    234,551,905
    
    
    $
    180,236,262
    
    
    $
    216,479,676
    
    
    $
    183,719,667Investment in purchased receivables, net of buybacks
    
    
    15,563,462
    
    
    
    33,480,616
    
    
    
    48,167,137
    
    
    
    45,606,492Cash collections
    
    
    (84,862,856
    )
    
    
    (67,566,031
    )
    
    
    (165,260,496
    )
    
    
    (132,762,086
    )Purchased receivable revenues
    
    
    68,700,736
    
    
    
    51,352,846
    
    
    
    134,566,930
    
    
    
    100,939,620Ending balance
    
    $
    233,953,247
    
    
    $
    197,503,693
    
    
    $
    233,953,247
    
    
    $
    197,503,693
  Three months ended June 30,
    
    Six months ended June 30,2005
    
    2004
    
    2005
    
    2004Beginning balance
    
    $
    817,700,115
    
    
    $
    708,172,196
    
    
    $
    792,755,605
    
    
    $
    665,791,369Revenue recognized on purchased receivables
    
    
    (68,700,736
    )
    
    
    (51,352,846
    )
    
    
    (134,566,930
    )
    
    
    (100,939,620
    )Additions due to purchases during the period
    
    
    40,399,277
    
    
    
    91,814,309
    
    
    
    106,445,632
    
    
    
    133,569,857Reclassifications from nonaccretable difference
    
    
    56,269,940
    
    
    
    25,071,493
    
    
    
    81,034,289
    
    
    
    75,283,546Ending balance
    
    $
    845,668,596
    
    
    $
    773,705,152
    
    
    $
    845,668,596
    
    
    $
    773,705,152
 7




---



##### Table of Contents



Three months ended June 30,
    
    Six months ended June 30,Revenue from fully amortized pools:
    
    2005
    
    2004
    
    2005
    
    2004Pools that amortized before 60 months
    
    $
    9,700,422
    
    
    $
    4,194,642
    
    
    $
    17,413,407
    
    
    $
    6,406,166Pools that are 60 months or older
    
    
    4,372,391
    
    
    
    2,763,132
    
    
    
    8,199,491
    
    
    
    5,123,062Pools under full cost recovery
    
    
    885,291
    
    
    
    424,968
    
    
    
    1,474,182
    
    
    
    1,017,396Total revenue from fully amortized pools
    
    $
    14,958,104
    
    
    $
    7,382,742
    
    
    $
    27,087,080
    
    
    $
    12,546,624
  Impairments recorded:
    
    Through June 30, 2005Beginning balance
    
    $
    1Q  2005
    
    
    700,0002Q  2005
    
    
    1,698,000Total
    
    $
    2,398,000
 Finance Contract Receivables
  Collections from Third Parties
  Property and Equipment
  8




---



##### Table of Contents



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




---



##### 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 $167.0 million as of June 30, 2005.
  4. Property and Equipment
  June 30, 2005
    
    December 31, 2004Computers and software
    
    $
    8,568,688
    
    
    $
    7,562,797Furniture and fixtures
    
    
    8,486,552
    
    
    
    8,259,527Leasehold improvements
    
    
    1,831,484
    
    
    
    1,810,998Equipment under capital lease
    
    
    533,026
    
    
    
    483,421Automobiles
    
    
    136,525
    
    
    
    136,525Total property and equipment, cost
    
    
    19,556,275
    
    
    
    18,253,268Less accumulated depreciation
    
    
    (8,623,150
    )
    
    
    (7,088,165
    )Net property and equipment
    
    $
    10,933,125
    
    
    $
    11,165,103
 5. Stock Based Compensation
   10




---



##### Table of Contents



Stock Options
  Options
    
    Weighted-AverageOutstanding
    
    Exercise PriceJanuary 1, 2004
    
    
    
    
    
    
    Granted
    
    
    117,220
    
    
    $
    17.01December 31, 2004
    
    
    117,220
    
    
    $
    17.01Granted
    
    
    117,284
    
    
    $
    20.86Cancelled
    
    
    
    
    
    
    June 30, 2005
    
    
    234,504
    
    
    $
    18.93
  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
    
    
    
    8.60
    
    
    $
    15.00
    
    
    
    22,500
    
    
    $
    15.00$18.50
    
    $
    5.90
    
    
    
    30,000
    
    
    
    8.67
    
    
    $
    18.50
    
    
    
    15,000
    
    
    $
    18.50$19.48
    
    $
    6.57
    
    
    
    3,850
    
    
    
    8.88
    
    
    $
    19.48
    
    
    
    3,850
    
    
    $
    19.48$17.85
    
    $
    5.84
    
    
    
    4,200
    
    
    
    9.13
    
    
    $
    17.85
    
    
    
    4,200
    
    
    $
    17.85$17.97
    
    $
    8.48
    
    
    
    30,000
    
    
    
    9.50
    
    
    $
    17.97
    
    
    
    
    
    
    
    $17.99
    
    $
    8.47
    
    
    
    4,170
    
    
    
    9.50
    
    
    $
    17.99
    
    
    
    4,170
    
    
    $
    17.99$19.87
    
    $
    8.97
    
    
    
    3,775
    
    
    
    9.81
    
    
    $
    19.87
    
    
    
    3,775
    
    
    $
    19.87$18.89
    
    $
    8.56
    
    
    
    30,000
    
    
    
    9.81
    
    
    $
    18.89
    
    
    
    
    
    
    
    $18.89
    
    $
    8.56
    
    
    
    25,000
    
    
    
    9.81
    
    
    $
    18.89
    
    
    
    
    
    
    
    $19.48
    
    $
    11.68
    
    
    
    9,685
    
    
    
    9.88
    
    
    $
    19.48
    
    
    
    4,843
    
    
    $
    19.48$23.42
    
    $
    10.56
    
    
    
    45,624
    
    
    
    9.88
    
    
    $
    23.42
    
    
    
    
    
    
    
    $23.42
    
    $
    10.56
    
    
    
    3,200
    
    
    
    9.88
    
    
    $
    23.42
    
    
    
    3,200
    
    
    $
    23.42Total / Average
    
    
    
    
    
    
    234,504
    
    
    
    9.37
    
    
    $
    18.93
    
    
    
    61,538
    
    
    $
    17.62
  Options issue year:
    
    2005
    
    2004Weighted-average fair value of options granted
    
    $
    9.66
    
    
    $
    6.26Expected Volatility
    
    
    46.00
    %
    
    
    30.00
    %Risk-free interest rate
    
    
    3.82%3.97
    %
    
    
    2.98%3.93
    %Expected dividend yield
    
    
    0.00
    %
    
    
    0.00
    %Expected life
    
    5 Years
    
    5 Years
 11




---



##### Table of Contents



Share Appreciation Rights
   6. Litigation Contingencies
  7. Income Taxes
    Three months ended June 30,
    
    Six months ended June 30,2005
    
    2004
    
    2005
    
    2004Income taxes consist of:Federal actual
    
    $
    480,000
    
    
    $
    
    
    
    $
    850,000
    
    
    $
    State actual
    
    
    481,250
    
    
    
    (3,371
    )
    
    
    812,519
    
    
    
    8,187Federal deferred  net
    
    
    8,733,146
    
    
    
    6,419,865
    
    
    
    16,803,994
    
    
    
    13,799,301State deferred  net
    
    
    315,771
    
    
    
    403,687
    
    
    
    515,160
    
    
    
    794,866Total
    
    $
    10,010,167
    
    
    $
    6,820,181
    
    
    $
    18,981,673
    
    
    $
    14,602,354
  Three months ended June 30,
    
    Six months ended June 30,2005
    
    2004
    
    2005
    
    2004Federal taxes at statutory rate
    
    $
    9,213,146
    
    
    $
    6,419,865
    
    
    $
    17,653,994
    
    
    $
    (3,491,660
    )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
    
    
    797,021
    
    
    
    400,316
    
    
    
    1,327,679
    
    
    
    (335,568
    )Effective income taxes
    
    $
    10,010,167
    
    
    $
    6,820,181
    
    
    $
    18,981,673
    
    
    $
    14,602,354
 12




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Company Overview
     Forward Looking Statements
 Form 10-K
  
    
    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; and
    
    other unanticipated events and conditions that may hinder our ability to compete.
 Significant Events During the Six Months Ended June 30, 2005
  14




---



##### Table of Contents



Results of Operations
  Percent of Total Revenues
    
    
    Percent of Cash CollectionsThree Months Ended
    
    Six Months Ended
    
    
    Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,
    
    
    June 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004
    
    
    2005
    
    2004
    
    2005
    
    2004RevenuesPurchased receivable revenues
    
    
    99.8
    %
    
    
    99.7
    %
    
    
    99.8
    %
    
    
    99.7
    %
    
    
    
    81.0
    %
    
    
    76.0
    %
    
    
    81.4
    %
    
    
    76.0
    %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
    
    
    
    0.3
    
    
    
    0.2
    
    
    
    0.3
    
    
    
    
    0.1
    
    
    
    0.2
    
    
    
    0.2
    
    
    
    0.3Total revenues
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    
    81.1
    
    
    
    76.2
    
    
    
    81.6
    
    
    
    76.3ExpensesSalaries and benefits
    
    
    27.7
    
    
    
    32.0
    
    
    
    27.9
    
    
    
    76.9
    (1)
    
    
    
    22.5
    
    
    
    24.4
    
    
    
    22.7
    
    
    
    58.7
    (1)Collections expense
    
    
    27.4
    
    
    
    24.8
    
    
    
    27.6
    
    
    
    24.8
    
    
    
    
    22.2
    
    
    
    18.9
    
    
    
    22.6
    
    
    
    18.9Occupancy
    
    
    3.0
    
    
    
    2.8
    
    
    
    3.1
    
    
    
    2.8
    
    
    
    
    2.4
    
    
    
    2.1
    
    
    
    2.5
    
    
    
    2.1Administrative
    
    
    2.5
    
    
    
    2.6
    
    
    
    2.7
    
    
    
    2.6
    
    
    
    
    2.0
    
    
    
    2.0
    
    
    
    2.2
    
    
    
    2.0Depreciation and amortization
    
    
    1.2
    
    
    
    1.4
    
    
    
    1.2
    
    
    
    1.5
    
    
    
    
    1.0
    
    
    
    1.1
    
    
    
    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
    
    
    61.8
    
    
    
    63.6
    
    
    
    62.5
    
    
    
    108.6
    (1)
    
    
    
    50.1
    
    
    
    48.5
    
    
    
    51.0
    
    
    
    82.8
    (1)Income (loss) from operations
    
    
    38.2
    
    
    
    36.4
    
    
    
    37.5
    
    
    
    (8.6
    )
    
    
    
    31.0
    
    
    
    27.7
    
    
    
    30.6
    
    
    
    (6.5
    )Other income (expense)Interest income
    
    
    0.3
    
    
    
    0.0
    
    
    
    0.1
    
    
    
    0.0
    
    
    
    
    0.2
    
    
    
    0.0
    
    
    
    0.1
    
    
    
    0.0Interest expense
    
    
    (0.2
    )
    
    
    (0.7
    )
    
    
    (0.2
    )
    
    
    (1.3
    )
    
    
    
    (0.2
    )
    
    
    (0.5
    )
    
    
    (0.2
    )
    
    
    (1.0
    )Other
    
    
    (0.0
    )
    
    
    0.0
    
    
    
    (0.0
    )
    
    
    0.0
    
    
    
    
    0.0
    
    
    
    0.0
    
    
    
    0.0
    
    
    
    0.0Income (loss) before income taxes
    
    
    38.3
    
    
    
    35.7
    
    
    
    37.4
    
    
    
    (9.9
    )
    
    
    
    31.0
    
    
    
    27.2
    
    
    
    30.5
    
    
    
    (7.5
    )Income taxes
    
    
    14.6
    
    
    
    13.2
    
    
    
    14.1
    
    
    
    14.4
    
    
    
    
    11.8
    
    
    
    10.1
    
    
    
    11.5
    
    
    
    11.0Net Income (loss)
    
    
    23.7
    %
    
    
    22.5
    %
    
    
    23.3
    %
    
    
    (24.3
    )%
    
    
    
    19.2
    %
    
    
    17.1
    %
    
    
    19.0
    %
    
    
    (18.5
    )%Pro forma income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3.7
    )%
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2.8
    )%Pro forma net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6.2
    )%
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4.7
    )%
 
 (1)
    
    Excluding the $45.7 million compensation and related payroll tax charge, salaries and
benefits were 31.8% and 24.3% of revenues and collections, respectively and total operating
expenses were 63.5% and 48.4% of revenues and collections, respectively, for the six months
ended June 30, 2004. See discussion in Managements Discussion and Analysis of Financial
Condition and Results of Operations  Six Months Ended June 30, 2005 Compared to Six Months
Ended June 30, 2004  Operating Expenses. Three Months Ended June 30, 2005 Compared To Three Months Ended June 30, 2004
 Revenue
   15




---



##### Table of Contents



Operating Expenses
  Salaries and Benefits.
  Collections Expense.
 Occupancy.
 Administrative.
 Depreciation.
 16




---



##### Table of Contents



Interest Income.
 Interest Expense.
 Income Taxes.
 Six Months Ended June 30, 2005 Compared To Six Months Ended June 30, 2004
 Revenue
    Operating Expenses
  17




---



##### Table of Contents



Salaries and Benefits.
  Collections Expense.
 Occupancy.
 Administrative.
 18




---



##### Table of Contents



Depreciation.
 Interest Income.
 Interest Expense.
 Income Taxes.
 19




---



##### 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
    
    
    $
    3,115
    
    
    $
    
    
    
    $
    3,115
    
    
    
    488
    %1991
    
    
    12
    
    
    
    280
    
    
    
    1,461
    
    
    
    
    
    
    
    1,461
    
    
    
    5221992
    
    
    29
    
    
    
    309
    
    
    
    2,910
    
    
    
    
    
    
    
    2,910
    
    
    
    9421993
    
    
    30
    
    
    
    790
    
    
    
    7,847
    
    
    
    
    
    
    
    7,847
    
    
    
    9931994
    
    
    36
    
    
    
    1,427
    
    
    
    6,853
    
    
    
    
    
    
    
    6,853
    
    
    
    4801995
    
    
    53
    
    
    
    1,519
    
    
    
    7,779
    
    
    
    43
    
    
    
    7,822
    
    
    
    5151996
    
    
    46
    
    
    
    3,844
    
    
    
    16,861
    
    
    
    513
    
    
    
    17,374
    
    
    
    4521997
    
    
    45
    
    
    
    4,345
    
    
    
    27,608
    
    
    
    1,618
    
    
    
    29,226
    
    
    
    6731998
    
    
    61
    
    
    
    16,412
    
    
    
    75,818
    
    
    
    8,250
    
    
    
    84,068
    
    
    
    5121999
    
    
    51
    
    
    
    12,925
    
    
    
    53,650
    
    
    
    10,101
    
    
    
    63,751
    
    
    
    4932000
    
    
    49
    
    
    
    20,596
    
    
    
    100,521
    
    
    
    30,357
    
    
    
    130,878
    
    
    
    6352001
    
    
    62
    
    
    
    43,133
    
    
    
    187,600
    
    
    
    87,147
    
    
    
    274,747
    
    
    
    6372002
    
    
    94
    
    
    
    72,294
    
    
    
    202,235
    
    
    
    176,696
    
    
    
    378,931
    
    
    
    5242003
    
    
    76
    
    
    
    87,323
    
    
    
    181,748
    
    
    
    314,296
    
    
    
    496,044
    
    
    
    5682004
    
    
    106
    
    
    
    88,166
    
    
    
    58,987
    
    
    
    305,380
    
    
    
    364,367
    
    
    
    4132005 (3)
    
    
    50
    
    
    
    49,380
    
    
    
    5,842
    
    
    
    145,220
    
    
    
    151,062
    
    
    
    306
 
 (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 six months of activity through June 30, 2005. 20




---



##### Table of Contents



Unamortized
    
    UnamortizedUnamortized
    
    
    
    
    
    Balance as a
    
    Balance as aBalance as of
    
    Purchase
    
    Percentage of
    
    Percentage ofPurchase Period
    
    June 30, 2005
    
    Price (1)
    
    Purchase Price (2)
    
    Total(dollars in thousands)2000
    
    $
    400
    
    
    $
    20,596
    
    
    
    1.94
    %
    
    
    0.17
    %2001
    
    
    8,432
    
    
    
    43,133
    
    
    
    19.55
    
    
    
    3.602002
    
    
    34,636
    
    
    
    72,294
    
    
    
    47.91
    
    
    
    14.812003
    
    
    58,436
    
    
    
    87,323
    
    
    
    66.92
    
    
    
    24.982004
    
    
    80,508
    
    
    
    88,166
    
    
    
    91.31
    
    
    
    34.412005 (3)
    
    
    51,541
    
    
    
    49,380
    
    
    
    104.38
    
    
    
    22.03Totals
    
    $
    233,953
    
    
    $
    360,892
    
    
    
    64.83
    %
    
    
    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 six months of activity through June 30, 2005. Collector Productivity
  Collectors by Experience
 Year ended December 31,
    
    Three months ended June 30,
    
    Six months ended June 30,Number of collectors:
    
    2003
    
    2004
    
    2004
    
    2005
    
    2004
    
    2005One year or more (1)
    
    
    322
    
    
    
    472
    
    
    
    468
    
    
    
    513
    
    
    
    449
    
    
    
    510Less than one year (2)
    
    
    478
    
    
    
    436
    
    
    
    449
    
    
    
    541
    
    
    
    441
    
    
    
    517Total
    
    
    800
    
    
    
    908
    
    
    
    917
    
    
    
    1,054
    
    
    

    890
    
    
    
    1,027
 
 (1)
    
    Based on number of traditional call center Full Time Equivalent (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. Collection Averages by Experience
 Year ended December 31,
    
    Three months ended June 30,
    
    Six months ended June 30,Collection Averages:
    
    2003
    
    2004
    
    2004
    
    2005
    
    2004
    
    2005One year or more (1)
    
    $
    171,506
    
    
    $
    195,094
    
    
    $
    49,290
    
    
    $
    51,856
    
    
    $
    101,907
    
    
    $
    107,547Less than one year (2)
    
    
    135,792
    
    
    
    140,157

    
    
    
    34,415
    
    
    
    32,634
    
    
    
    76,576
    
    
    
    65,653Overall Average
    
    
    150,178
    
    
    
    168,708
    
    
    
    42,013
    
    
    
    41,987
    
    
    
    89,327
    
    
    
    86,455
 
 (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. 21




---



##### Table of Contents



Cash Collections
  Historical Collections (1)
 Six MonthsEndedPurchase
    
    Purchase
    
    Year Ended December 31,
    
    June 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
    
    
    $
    323
    
    
    $
    243
    
    
    $
    1431994
    
    $
    1,427
    
    
    
    345
    
    
    
    1,763
    
    
    
    1,430
    
    
    
    1,005
    
    
    
    647
    
    
    
    457
    
    
    
    357
    
    
    
    258
    
    
    
    176
    
    
    
    188
    
    
    
    126
    
    
    
    671995
    
    
    1,519
    
    
    
    
    
    
    
    388
    
    
    
    1,566
    
    
    
    1,659
    
    
    
    1,118
    
    
    
    786
    
    
    
    708
    
    
    
    472
    
    
    
    343
    
    
    
    278
    
    
    
    227
    
    
    
    1181996
    
    
    3,844
    
    
    
    
    
    
    
    
    
    
    
    827
    
    
    
    3,764
    
    
    
    3,085
    
    
    
    2,601
    
    
    
    2,098
    
    
    
    1,440
    
    
    
    1,041
    
    
    
    816
    
    
    
    687
    
    
    
    3481997
    
    
    4,345
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,682
    
    
    
    4,919
    
    
    
    5,573
    
    
    
    5,017
    
    
    
    3,563
    
    
    
    2,681
    
    
    
    1,784
    
    
    
    1,526
    
    
    
    7541998
    
    
    16,412
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,835
    
    
    
    15,220
    
    
    
    15,045
    
    
    
    12,962
    
    
    
    11,021
    
    
    
    7,987
    
    
    
    5,582
    
    
    
    2,5871999
    
    
    12,925
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,761
    
    
    
    11,331
    
    
    
    10,862
    
    
    
    9,750
    
    
    
    8,278
    
    
    
    6,675
    
    
    
    2,7452000
    
    
    20,596
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,895
    
    
    
    23,444
    
    
    
    22,559
    
    
    
    20,318
    
    
    
    17,196
    
    
    
    7,6322001
    
    
    43,133
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,630
    
    
    
    50,327
    
    
    
    50,967
    
    
    
    45,713
    
    
    
    21,8902002
    
    
    72,294
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,340
    
    
    
    70,813
    
    
    
    72,024
    
    
    
    36,5622003
    
    
    87,323
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36,067
    
    
    
    94,564
    
    
    
    50,9512004
    
    
    88,166
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,365
    
    
    
    35,6222005
    
    
    49,380
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,842Total
    
    
    
    
    
    $
    3,412
    
    
    $
    4,691
    
    
    $
    5,611
    
    
    $
    9,395
    
    
    $
    15,438
    
    
    $
    29,047
    
    
    $
    44,006
    
    
    $
    71,068
    
    
    $
    120,540
    
    
    $
    197,819
    
    
    $
    267,928
    
    
    $
    165,261
 Cumulative Collections (1)
 TotalThroughPurchase
    
    Purchase
    
    Total Through December 31,
    
    June 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
    
    
    $
    6,8191995
    
    
    1,519
    
    
    
    
    
    
    
    388
    
    
    
    1,954
    
    
    
    3,613
    
    
    
    4,731
    
    
    
    5,517
    
    
    
    6,225
    
    
    
    6,697
    
    
    
    7,040
    
    
    
    7,318
    
    
    
    7,545
    
    
    
    7,6631996
    
    
    3,844
    
    
    
    
    
    
    
    
    
    
    
    827
    
    
    
    4,591
    
    
    
    7,676
    
    
    
    10,277
    
    
    
    12,375
    
    
    
    13,815
    
    
    
    14,856
    
    
    
    15,672
    
    
    
    16,359
    
    
    
    16,7071997
    
    
    4,345
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,682
    
    
    
    6,601
    
    
    
    12,174
    
    
    
    17,191
    
    
    
    20,754
    
    
    
    23,435
    
    
    
    25,219
    
    
    
    26,745
    
    
    
    27,4991998
    
    
    16,412
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,835
    
    
    
    20,055
    
    
    
    35,100
    
    
    
    48,062
    
    
    
    59,083
    
    
    
    67,070
    
    
    
    72,652
    
    
    
    75,2391999
    
    
    12,925
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,761
    
    
    
    15,092
    
    
    
    25,954
    
    
    
    35,704
    
    
    
    43,982
    
    
    
    50,657
    
    
    
    53,4022000
    
    
    20,596
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,895
    
    
    
    32,339
    
    
    
    54,898
    
    
    
    75,216
    
    
    
    92,412
    
    
    
    100,0442001
    
    
    43,133
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,630
    
    
    
    67,957
    
    
    
    118,924
    
    
    
    164,637
    
    
    
    186,5272002
    
    
    72,294
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,340
    
    
    
    93,153
    
    
    
    165,177
    
    
    
    201,7392003
    
    
    87,323
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36,067
    
    
    
    130,631
    
    
    
    181,5822004
    
    
    88,166
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,365
    
    
    
    58,9872005
    
    
    49,380
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,842
 Cumulative Collections as Percentage of Purchase Price (1)
 TotalThroughPurchase
    
    Purchase
    
    Total Through December 31,
    
    June 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
    %
    
    
    478
    %1995
    
    
    1,519
    
    
    
    
    
    
    
    26
    
    
    
    129
    
    
    
    238
    
    
    
    311
    
    
    
    363
    
    
    
    410
    
    
    
    441
    
    
    
    463
    
    
    
    482
    
    
    
    497
    
    
    
    5041996
    
    
    3,844
    
    
    
    
    
    
    
    
    
    
    
    22
    
    
    
    119
    
    
    
    200
    
    
    
    267
    
    
    
    322
    
    
    
    359
    
    
    
    386
    
    
    
    408
    
    
    
    426
    
    
    
    4351997
    
    
    4,345
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    39
    
    
    
    152
    
    
    
    280
    
    
    
    396
    
    
    
    478
    
    
    
    539
    
    
    
    580
    
    
    
    616
    
    
    
    6331998
    
    
    16,412
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29
    
    
    
    122
    
    
    
    214
    
    
    
    293
    
    
    
    360
    
    
    
    409
    
    
    
    443
    
    
    
    4581999
    
    
    12,925
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29
    
    
    
    117
    
    
    
    201
    
    
    
    276
    
    
    
    340
    
    
    
    392
    
    
    
    4132000
    
    
    20,596
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    43
    
    
    
    157
    
    
    
    266
    
    
    
    365
    
    
    
    449
    
    
    
    4862001
    
    
    43,133
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41
    
    
    
    158
    
    
    
    276
    
    
    
    382
    
    
    
    4322002
    
    
    72,294
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31
    
    
    
    129
    
    
    
    228
    
    
    
    2792003
    
    
    87,323
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41
    
    
    
    149
    
    
    
    2082004
    
    
    88,166
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26
    
    
    
    672005
    
    
    49,380
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12
 
 (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. 22




---



##### 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
    
    
    
    Fourth
    
    
    20,046,733
    
    
    
    33,429,419
    
    
    
    53,988,333
    
    
    
    68,339,797
    
    
    
    
  Three months ended June 30,
    
    Six months ended June 30,2005
    
    2004
    
    2005
    
    2004Traditional collections
    
    
    52.15
    %
    
    
    57.00
    %
    
    
    53.74
    %
    
    
    59.90
    %Legal collections
    
    
    36.49
    
    
    
    31.65
    
    
    
    34.43
    
    
    
    29.03Other collections
    
    
    11.36
    
    
    
    11.35
    
    
    
    11.83
    
    
    
    11.07Total collections
    
    
    100.00
    %
    
    
    100.00
    %
    
    
    100.00
    %
    
    
    100.00
    %
 23




---



##### Table of Contents



Face Value ofCharged-off
    
    
    
    
    
    No. ofAsset Type
    
    Receivables (2)
    
    %
    
    Accounts
    
    %Visa(R)/MasterCard(R)/Discover(R)
    
    $
    9,079,716,329
    
    
    
    43.4
    %
    
    
    4,004,058
    
    
    
    19.7
    %Private Label Credit Cards
    
    
    3,042,396,474
    
    
    
    14.5
    
    
    
    4,569,402
    
    
    
    22.5Telecommunications/Utility/Gas
    
    
    2,164,398,458
    
    
    
    10.4
    
    
    
    5,215,062
    
    
    
    25.6Auto Deficiency
    
    
    1,389,853,769
    
    
    
    6.6
    
    
    
    249,019
    
    
    
    1.2Health Club
    
    
    1,330,834,959
    
    
    
    6.4
    
    
    
    1,374,922
    
    
    
    6.8Installment loans
    
    
    651,382,190
    
    
    
    3.1
    
    
    
    209,599
    
    
    
    1.0Other (1)
    
    
    3,268,071,358
    
    
    
    15.6
    
    
    
    4,719,513
    
    
    
    23.2Total
    
    $
    20,926,653,537

    
    
    
    100.0
    %
    
    
    20,341,575
    
    
    
    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
    
    $
    1,029,429,534
    
    
    
    4.9
    %
    
    
    418,539
    
    
    
    2.1
    %Primary
    
    
    3,779,461,124
    
    
    
    18.1
    
    
    
    2,527,636
    
    
    
    12.4Secondary
    
    
    3,639,874,357
    
    
    
    17.4
    
    
    
    3,606,323
    
    
    
    17.7Tertiary (1)
    
    
    11,205,811,974
    
    
    
    53.5
    
    
    
    13,122,753
    
    
    
    64.5Other
    
    
    1,272,076,548
    
    
    
    6.1
    
    
    
    666,324
    
    
    
    3.3Total
    
    $
    20,926,653,537
    
    
    
    100.0
    %
    
    
    20,341,575
    
    
    
    100.0
    %
 24




---



##### Table of Contents



(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.  Face Value ofCharged-off
    
    
    
    
    
    No. ofGeographic Location
    
    Receivables (3)
    
    %
    
    Accounts
    
    %Texas (1)
    
    $
    2,890,225,168
    
    
    
    13.8
    %
    
    
    2,544,607
    
    
    
    12.5
    %California
    
    
    2,371,125,273
    
    
    
    11.3
    
    
    
    2,642,683
    
    
    
    13.0Florida (1)
    
    
    1,971,018,435
    
    
    
    9.4
    
    
    
    1,397,207
    
    
    
    6.9Michigan (1)
    
    
    1,527,772,095
    
    
    
    7.3
    
    
    
    1,806,806
    
    
    
    8.9New York
    
    
    1,233,051,576
    
    
    
    5.9
    
    
    
    1,062,309
    
    
    
    5.2Ohio (1)
    
    
    1,204,751,876
    
    
    
    5.8
    
    
    
    1,402,165
    
    
    
    6.9Illinois (1)
    
    
    961,831,977
    
    
    
    4.6
    
    
    
    1,213,977
    
    
    
    6.0Pennsylvania
    
    
    636,672,710
    
    
    
    3.0
    
    
    
    556,792
    
    
    
    2.7North Carolina
    
    
    587,734,502
    
    
    
    2.8
    
    
    
    464,215
    
    
    
    2.3Georgia
    
    
    532,696,167
    
    
    
    2.6
    
    
    
    454,418
    
    
    
    2.2Other (2)
    
    
    7,009,773,758
    
    
    
    33.5
    
    
    
    6,796,396
    
    
    
    33.4Total
    
    $
    20,926,653,537
    
    
    
    100.0
    %
    
    
    20,341,575
    
    
    
    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;
 25




---



##### Table of Contents




    
    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 $167.0 million as of June 30, 2005.
   Cash Flows
        26




---



##### Table of Contents



Future Contractual Cash Obligations
  Year Ending December 31,2005
    
    2006
    
    2007
    
    2008(1)
    
    2009
    
    ThereafterCapital lease obligations
    
    $
    84,764
    
    
    $
    129,173
    
    
    $
    54,682
    
    
    $
    10,914
    
    
    $
    
    
    
    $
    Operating lease obligations
    
    
    2,680,065
    
    
    
    6,110,747
    
    
    
    5,871,854
    
    
    
    4,945,812
    
    
    
    4,130,472
    
    
    
    15,300,075Purchased receivables (2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Line of credit (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Employment agreements
    
    
    408,750
    
    
    
    500,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    3,173,579
    
    
    $
    6,739,920
    
    
    $
    5,926,536
    
    
    $
    4,956,726
    
    
    $
    4,130,472
    
    
    $
    15,300,075
 
 (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 June 30, 2005.(2)
    
    During 2004, we entered into five forward flow contracts that commit us to purchase
receivables for a fixed percentage of the face amount of the receivables. Three of the
contracts have terms beyond June 2005 with the last contract expiring November 2006. Those
three contracts call for monthly purchases of approximately $850,000, depending upon
circumstances. 27




---



##### Table of Contents



Off-Balance Sheet Arrangements
  Internal Revenue Code Section 6050P and Related Treasury Regulations
   Critical Accounting Policies
     28




---



##### 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
  29




---



##### 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
    
    April 20, 2005
    
    
    755
    
    
    $
    19.87Terrence L. Daniels
    
    April 20, 2005
    
    
    755
    
    
    $
    19.87Donald Haider
    
    April 20, 2005
    
    
    755
    
    
    $
    19.87Anthony Ignaczak
    
    April 20, 2005
    
    
    755
    
    
    $
    19.87H. Eugene Lockhart
    
    April 20, 2005
    
    
    755
    
    
    $
    19.87Jennifer L. Adams
    
    May 17, 2005
    
    
    7,500
    
    
    $
    23.42Terrence L. Daniels
    
    May 17, 2005
    
    
    7,500
    
    
    $
    23.42Donald Haider
    
    May 17, 2005
    
    
    7,500
    
    
    $
    23.42Anthony Ignaczak
    
    May 17, 2005
    
    
    7,500
    
    
    $
    23.42William Jacobs
    
    May 17, 2005
    
    
    4,062
    
    
    $
    23.42H. Eugene Lockhart
    
    May 17, 2005
    
    
    7,500
    
    
    $
    23.42William Pickard
    
    May 17, 2005
    
    
    4,062
    
    
    $
    23.42Jennifer L. Adams
    
    May 18, 2005
    
    
    640
    
    
    $
    23.42Terrence L. Daniels
    
    May 18, 2005
    
    
    640
    
    
    $
    23.42Donald Haider
    
    May 18, 2005
    
    
    640
    
    
    $
    23.42Anthony Ignaczak
    
    May 18, 2005
    
    
    640
    
    
    $
    23.42H. Eugene Lockhart
    
    May 18, 2005
    
    
    640
    
    
    $
    23.42
 30




---



##### Table of Contents



Item 4. Submission of Matters to a Vote of Security Holders
  Name of Director
    
    Votes For
    
    Votes WithheldTerrence D. Daniels
    
    
    35,235,048
    
    
    
    253,246William F. Pickard
    
    
    35,484,821
    
    
    
    3,473Rufus H. Reitzel, Jr.
    
    
    35,244,094
    
    
    
    244,200
  
  
 Item 6. Exhibits
    31




---



##### Table of Contents



SIGNATURES
  ASSET ACCEPTANCE CAPITAL CORP.Date: August 1, 2005
    
    By:
    
    /s/ Nathaniel F. Bradley IVNathaniel F. Bradley IVPresident and Chief Executive Officer(Principal Executive Officer)Date: August 1, 2005
    
    By:
    
    /s/ Mark A. RedmanMark A. RedmanVice President  Finance andChief Financial Officer(Principal Financial and Accounting Officer)
 32




---



##### Table of Contents



EXHIBIT INDEX
 EX
    
    DESCRIPTION31.1
    
    Rule 13a-14(a) Certification of Chief Executive Officer31.2
    
    Rule 13a-14(a) Certification of Chief Financial Officer32.1
    
    Section 1350 Certification of Chief Executive Officer and Chief Financial Officer
 33