##### 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, 2006
 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
 A sset Acceptance Capital Corp.
 Exact name of registrant as specified in its charter
 Delaware
    
    80-0076779(State or other jurisdiction of
    
    (I.R.S.Employer Identification No.)incorporation or organization)
 28405 Van Dyke Avenue
Warren, Michigan 48093  Address of principal executive offices
 Registrants telephone number, including area code:
(586) 939-9600
  R £
  £ R £
  £ R




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##### 



ASSET ACCEPTANCE CAPITAL CORP.
 Quarterly Report on Form 10-Q
 TABLE OF CONTENTS
 PagePART I  Financial InformationItem 1.    Consolidated Financial Statements (unaudited)
    
    
    3Item 2.    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    14Item 3.    Quantitative and Qualitative Disclosures about Market Risk
    
    
    28Item 4.    Controls and Procedures
    
    
    28PART II  Other InformationItem 1.    Legal Proceedings
    
    
    28Item 4.    Submission of Matters to a Vote of Security Holders
    
    
    29Item 6.    Exhibits
    
    
    30Signatures
    
    
    31Exhibits: 10.1 Third Amendment to Lease Agreement for property located at 28405 Van Dyke10.2 Fourth Amendment to Lease Agreement for property located at 28405 Van Dyke10.3 Stock Purchase Agreement between Asset Acceptance Holdings, LLC and the Shareholders of Premium Asset Recovery Corporation10.4
Employment Agreement between Christopher L. Conway, Premium Asset Recovery Corporation, and Asset Acceptance Holdings, LLC10.5 Employment Agreement between Adam O. Holzhauer, Premium Asset Recovery Corporation, and Asset Acceptance Holdings, LLC31.1 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 OfficerFourth Amendment to Lease AgreementStock Purchase AgreementEmployment Agreement dated April 28, 2006Employment Agreement dated April 28, 2006Rule 13a-14(a) Certification of Chief Executive OfficerRule 13a-14(a) Certification of Chief Financial OfficerSection 1350 Certification of CEO and CFO
  Quarterly Report on Form 10-Q
 www.assetacceptance.com
 2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1 . Consolidated Financial Statements
 ASSET ACCEPTANCE CAPITAL CORP.
 Consolidated Statements of Financial Position
(Unaudited)
 June 30, 2006
    
    
    December 31, 2005ASSETSCash and cash equivalents
    
    $
    55,340,416
    
    
    $
    50,518,934Investments
    
    
    4,935,010
    
    
    
    Purchased receivables
    
    
    253,600,100
    
    
    
    248,990,772Property and equipment, net
    
    
    12,456,780
    
    
    
    10,747,627Goodwill
    
    
    14,335,263
    
    
    
    6,339,574Other assets
    
    
    12,026,470
    
    
    
    7,344,948Total assets
    
    $
    352,694,039
    
    
    $
    323,941,855LIABILITIES AND STOCKHOLDERS EQUITYLiabilities:Deferred tax liability, net
    
    $
    60,924,887
    
    
    $
    58,583,604Accounts payable and other liabilities
    
    
    15,806,222
    
    
    
    14,639,774Income taxes payable
    
    
    177,323
    
    
    
    1,071,179Capital lease obligations
    
    
    136,318
    
    
    
    186,944Total liabilities
    
    
    77,044,750
    
    
    
    74,481,501Stockholders 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, 2006 and
December 31, 2005
    
    
    372,253
    
    
    
    372,253Additional paid in capital
    
    
    161,618,999
    
    
    
    160,361,599Retained earnings
    
    
    113,735,443
    
    
    
    88,726,502Common stock in treasury; at cost, 5,160 shares at June 30, 2006
    
    
    (77,406
    )
    
    
    Total stockholders equity
    
    
    275,649,289
    
    
    
    249,460,354Total liabilities and stockholders equity
    
    $
    352,694,039
    
    
    $
    323,941,855
  3




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ASSET ACCEPTANCE CAPITAL CORP.
 Consolidated Statements of Income
(Unaudited)
 Three months ended June 30,
    
    
    Six months ended June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005RevenuesPurchased receivable revenues
    
    $
    63,943,322
    
    
    $
    68,700,736
    
    
    $
    131,208,102
    
    
    $
    134,566,930Gain (loss) on sale of purchased
receivables
    
    
    2,326,335
    
    
    
    (25,831
    )
    
    
    2,326,335
    
    
    
    (25,831
    )Other revenues
    
    
    511,535
    
    
    
    128,397
    
    
    
    627,740
    
    
    
    296,704Total revenues
    
    
    66,781,192
    
    
    
    68,803,302
    
    
    
    134,162,177
    
    
    
    134,837,803ExpensesSalaries and benefits
    
    
    20,558,512
    
    
    
    19,070,443
    
    
    
    43,884,014
    
    
    
    37,613,483Collections expense
    
    
    20,376,282
    
    
    
    18,844,591
    
    
    
    39,191,130
    
    
    
    37,287,490Occupancy
    
    
    2,254,632
    
    
    
    2,029,875
    
    
    
    4,429,488
    
    
    
    4,141,849Administrative
    
    
    2,965,691
    
    
    
    1,732,091
    
    
    
    5,316,190
    
    
    
    3,602,646Depreciation and amortization
    
    
    1,056,167
    
    
    
    842,962
    
    
    
    1,945,784
    
    
    
    1,686,110Loss on disposal of equipment
    
    
    5,377
    
    
    
    478
    
    
    
    5,522
    
    
    
    478Total operating expenses
    
    
    47,216,661
    
    
    
    42,520,440
    
    
    
    94,772,128
    
    
    
    84,332,056Income from operations
    
    
    19,564,531
    
    
    
    26,282,862
    
    
    
    39,390,049
    
    
    
    50,505,747Other income (expense)Interest income
    
    
    623,224
    
    
    
    192,626
    
    
    
    1,204,181
    
    
    
    227,534Interest expense
    
    
    (191,562
    )
    
    
    (140,854
    )
    
    
    (369,106
    )
    
    
    (281,672
    )Other
    
    
    (176,015
    )
    
    
    (7,337
    )
    
    
    (185,554
    )
    
    
    (7,362
    )Income before income taxes
    
    
    19,820,178
    
    
    
    26,327,297
    
    
    
    40,039,570
    
    
    
    50,444,247Income taxes
    
    
    7,401,332
    
    
    
    10,010,167
    
    
    
    15,030,629
    
    
    
    18,981,673Net income
    
    $
    12,418,846
    
    
    $
    16,317,130
    
    
    $
    25,008,941
    
    
    $
    31,462,574Weighted average number of shares:Basic
    
    
    37,215,664
    
    
    
    37,225,275
    
    
    
    37,210,419
    
    
    
    37,225,275Diluted
    
    
    37,256,039
    
    
    
    37,264,387
    
    
    
    37,285,998
    
    
    
    37,254,817Earnings per common share
outstanding:Basic
    
    $
    0.33
    
    
    $
    0.44
    
    
    $
    0.67
    
    
    $
    0.85Diluted
    
    $
    0.33
    
    
    $
    0.44
    
    
    $
    0.67
    
    
    $
    0.84
  4




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ASSET ACCEPTANCE CAPITAL CORP.
 Consolidated Statements of Cash Flows
(Unaudited)
 Six months ended June 30,2006
    
    
    2005Cash flows from operating activitiesNet income
    
    $
    25,008,941
    
    
    $
    31,462,574Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation and amortization
    
    
    1,945,784
    
    
    
    1,686,110Deferred income taxes
    
    
    429,399
    
    
    
    17,318,837Share-based compensation expense
    
    
    1,199,050
    
    
    
    385,457Net impairment of purchased receivables
    
    
    8,151,500
    
    
    
    2,398,000Non-cash revenue
    
    
    (1,018,991
    )
    
    
    (3,375,043
    )Loss on disposal of equipment
    
    
    5,522
    
    
    
    478(Gain) loss on sale of purchased receivables
    
    
    (2,326,335
    )
    
    
    25,831Changes in assets and liabilities, net of effects from
purchase of PARC:(Increase) decrease in other assets
    
    
    220,292
    
    
    
    621,451Increase (decrease) in income taxes payable
    
    
    (728,065
    )
    
    
    5,489,000Increase (decrease) in accounts payable and other liabilities
    
    
    290,616
    
    
    
    (6,529,256
    )Net cash provided by operating activities
    
    
    33,177,713
    
    
    
    49,483,439Cash flows from investing activitiesProceeds from (repurchase of) the sale of purchased receivables
    
    
    2,750,539
    
    
    
    (29,609
    )Investment in purchased receivables, net of buy backs
    
    
    (44,531,507
    )
    
    
    (48,163,359
    )Principal collected on purchased receivables
    
    
    40,659,229
    
    
    
    31,670,609Purchase of investment securities
    
    
    (4,935,010
    )
    
    
    Payment for purchase of PARC, net of cash acquired
    
    
    (14,688,104
    )
    
    
    Purchase of property and equipment
    
    
    (3,261,654
    )
    
    
    (1,257,124
    )Proceeds from the sale of property and equipment
    
    
    158,135
    
    
    
    Net cash used in investing activities
    
    
    (23,848,372
    )
    
    
    (17,779,483
    )Cash flows from financing activitiesBorrowings under line of credit
    
    
    
    
    
    
    6,500,000Repayment of line of credit
    
    
    
    
    
    
    (6,500,000
    )Repayment of capital lease obligations
    
    
    (75,423
    )
    
    
    (79,432
    )Repayment of
bank and other secured debt assumed from PARC
    
    
    (4,413,380
    )
    
    
    Purchase of treasury shares
    
    
    (302,406
    )
    
    
    Proceeds received for treasury shares
    
    
    283,350
    
    
    
    Net cash used in financing activities
    
    
    (4,507,859
    )
    
    
    (79,432
    )Net increase in cash and cash equivalents
    
    
    4,821,482
    
    
    
    31,624,524Cash and cash equivalents at beginning of period
    
    
    50,518,934
    
    
    
    14,204,579Cash and cash equivalents at end of period
    
    $
    55,340,416
    
    
    $
    45,829,103Supplemental disclosure of cash flow informationCash paid for interest
    
    $
    133,993
    
    
    $
    94,861Cash paid (received) for income taxes
    
    $
    15,999,736
    
    
    $
    (237,265
    )Non-cash investing and financing activities:Capital lease obligations incurred
    
    $
    24,797
    
    
    $
    93,483Assumption of liabilities in conjunction with purchase of PARC:Fair value of assets acquired less cash acquired
    
    $
    20,323,409
    
    
    $
    Cash paid for capital stock less cash acquired
    
    
    (14,688,104
    )
    
    
    Net liabilities assumed
    
    $
    5,635,305
    
    
    $
    
  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
   Cash and Cash Equivalents
  Investments
  6




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Purchased Receivables Portfolios and Revenue Recognition
      7




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Three months ended June 30,
    
    
    Six months ended June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Beginning balance
    
    $
    252,898,222
    
    
    $
    234,551,905
    
    
    $
    248,990,772
    
    
    $
    216,479,676Investment in purchased
receivables, net of buybacks
    
    
    18,498,979
    
    
    
    15,563,462
    
    
    
    44,531,507
    
    
    
    48,163,359Investment in purchased
receivables acquired from
PARC on April 28, 2006 (1)
    
    
    8,293,763
    
    
    
    
    
    
    
    8,293,763
    
    
    
    Cost of sale of purchased
receivables, net of returns
    
    
    (424,204
    )
    
    
    
    
    
    
    (424,204
    )
    
    
    3,778Cash collections
    
    
    (89,609,982
    )
    
    
    (84,862,856
    )
    
    
    (178,999,840
    )
    
    
    (165,260,496
    )Purchased receivable revenues
    
    
    63,943,322
    
    
    
    68,700,736
    
    
    
    131,208,102
    
    
    
    134,566,930Ending balance
    
    $
    253,600,100
    
    
    $
    233,953,247
    
    
    $
    253,600,100
    
    
    $
    233,953,247
 
 (1)
    
    Preliminary valuation pending the completed valuation study.  Three months ended June 30,
    
    
    Six months ended June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Beginning balance
    
    $
    887,672,269
    
    
    $
    817,700,115
    
    
    $
    848,545,458
    
    
    $
    792,755,605Revenue recognized on purchased receivables
    
    
    (63,943,322
    )
    
    
    (68,700,736
    )
    
    
    (131,208,102
    )
    
    
    (134,566,930
    )Additions due to purchases during the period
    
    
    57,723,632
    
    
    
    40,399,277
    
    
    
    112,037,707
    
    
    
    106,445,632Reclassifications from nonaccretable yield
    
    
    12,442,173
    
    
    
    56,269,940
    
    
    
    64,519,689
    
    
    
    81,034,289Ending balance (1)
    
    $
    893,894,752
    
    
    $
    845,668,596
    
    
    $
    893,894,752
    
    
    $
    845,668,596
 
 (1)
    
    Accretable yields are a function of estimated remaining cash flows and are based on
historical cash collections. Please refer to Forward-Looking Statements on page 14 and
Critical Accounting Policies on page 27 for further information regarding these estimates.  Three months ended June 30,
    
    
    Six months ended June 30,Revenue from fully amortized pools:
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Pools that amortized before 60 months
    
    $
    7,148,243
    
    
    $
    9,700,422
    
    
    $
    13,821,064
    
    
    $
    17,413,407Pools that are 60 months or older
    
    
    8,946,849
    
    
    
    4,372,391
    
    
    
    17,593,028
    
    
    
    8,199,491Pools under full cost recovery
    
    
    1,111,529
    
    
    
    885,291
    
    
    
    2,498,637
    
    
    
    1,474,182Total revenue from fully amortized pools
    
    $
    17,206,621
    
    
    $
    14,958,104
    
    
    $
    33,912,729
    
    
    $
    27,087,080
 8




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Three months ended June 30,
    
    
    Six months ended June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Beginning balance
    
    $
    24,979,355
    
    
    $
    700,000
    
    
    $
    22,285,355
    
    
    $
    Impairments
    
    
    6,900,000
    
    
    
    1,698,000
    
    
    
    10,195,000
    
    
    
    2,398,000Reversal of impairments (1)
    
    
    (1,442,500
    )
    
    
    
    
    
    
    (2,043,500
    )
    
    
    Deductions (2)
    
    
    (29,500
    )
    
    
    
    
    
    
    (29,500
    )
    
    
    Ending balance
    
    $
    30,407,355
    
    
    $
    2,398,000
    
    
    $
    30,407,355
    
    
    $
    2,398,000
 
 (1)
    
    Impairment reversals relate to impairment charges recognized during the fiscal year ended
December 31, 2005.(2)
    
    Deductions represent impairments on permanently impaired purchased receivable portfolios that
were written-off. Collections from Third Parties
  Earnings Per Share
  Recently Issued Accounting Pronouncements
 SFAS Interpretation No. 48, Accounting for Uncertainity in Income Taxes  An Interpretation
of SFAS No. 109
  Reclassifications
  9




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##### Table of Contents



2. 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 Credit Agreement) cannot exceed 1.5 to 1.0;
    
    debt to total capitalization ratio (as defined in the 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 $189.4 million as of June 30, 2006.
   3. Property and Equipment
  June 30, 2006
    
    
    December 31, 2005Computers and software
    
    $
    10,813,246
    
    
    $
    8,984,055Furniture and fixtures
    
    
    9,813,140
    
    
    
    9,158,973Leasehold improvements
    
    
    2,032,346
    
    
    
    2,017,496Equipment under capital lease
    
    
    436,444
    
    
    
    485,299Automobiles
    
    
    47,404
    
    
    
    136,525Total property and equipment, cost
    
    
    23,142,580
    
    
    
    20,782,348Less accumulated depreciation
    
    
    (10,685,800
    )
    
    
    (10,034,721
    )Net property and equipment
    
    $
    12,456,780
    
    
    $
    10,747,627
 4. Acquisition of PARC
  10




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Assets acquired:Cash
    
    $
    1,568,688Investments in purchased receivables
    
    
    8,293,763Non-competition agreements
    
    
    1,400,000Customer relationships and contracts
    
    
    830,000Trademark and trade name
    
    
    1,980,000Other assets
    
    
    1,223,957Goodwill
    
    
    7,995,689Liabilities assumed:Bank and other secured debt
    
    
    (4,413,380
    )Other liabilities
    
    
    (2,621,925
    )Total purchase price including acquisition costs
    
    
    16,256,792Less: cash acquired
    
    
    (1,568,688
    )Total cash paid for the capital stock, less cash acquired
    
    $
    14,688,104
   5. Intangible Assets Related to PARC Acquisition
  6. Share-Based Compensation
    11




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Options issue year:
    
    2006
    
    2005Expected volatility
    
    
    46.00
    %
    
    
    46.00
    %Expected dividends
    
    
    0.00
    %
    
    
    0.00
    %Expected term
    
    5 Years
    
    
    5 YearsRisk-free rate
    
    
    4.55%-4.99
    %
    
    
    3.82%-4.39
    %
 Stock Options
  Weighted-Average
    
    
    AggregateOptions
    
    
    Weighted-Average
    
    
    Remaining
    
    
    IntrinsicOutstanding
    
    
    Exercise Price
    
    
    Contractual Term
    
    
    ValueJanuary 1, 2006
    
    
    251,009
    
    
    $
    19.38Granted
    
    
    77,997
    
    
    
    18.93Exercised
    
    
    (15,000
    )
    
    
    18.89Forfeited or expired
    
    
    (18,750
    )
    
    
    18.89Outstanding at June 30, 2006
    
    
    295,256
    
    
    
    19.31
    
    
    
    8.75
    
    
    $
    416,896Exercisable at June 30, 2006
    
    
    270,256
    
    
    $
    19.09
    
    
    
    8.76
    
    
    $
    389,446
    Restricted Shares
    12




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##### Table of Contents



7. Litigation Contingencies
  8. Income Taxes
  9. Subsequent Event  Lease Agreement Amendment Effective
   13




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Company Overview
        Forward-Looking Statements
  14




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##### Table of Contents




    
    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;
    
    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 Statement of Position 03-3 as well as the
Accounting Standards Executive Committee Practice Bulletin 6;
    
    changes in, or failure to comply with, governmental regulations, including our ability
to maintain compliance with Section 404 of the Sarbanes-Oxley Act and the costs related to
compliance;
    
    our ability to successfully integrate PARC into our business operations;
    
    our ability to acquire and to collect on charged-off receivable portfolios in industries
in which we have little or no experience;
    
    our ability to maintain existing, and secure additional financing on acceptable terms;
    
    the loss of any of our executive officers or other key personnel;
    
    the costs, uncertainties and other effects of legal and administrative proceedings;
    
    our ability to successfully expand our businesses and train and integrate new account representatives;
    
    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.
 15




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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 30,2006
    
    2005
    
    2006
    
    2005
    
    
    2006
    
    2005
    
    2006
    
    2005RevenuesPurchased receivable revenues
    
    
    95.7
    %
    
    
    99.8
    %
    
    
    97.8
    %
    
    
    99.8
    %
    
    
    
    71.3
    %
    
    
    81.0
    %
    
    
    73.3
    %
    
    
    81.4
    %Gain (loss) on sales of
purchased receivables
    
    
    3.5
    
    
    
    (0.0
    )
    
    
    1.7
    
    
    
    0.0
    
    
    
    
    2.6
    
    
    
    (0.0
    )
    
    
    1.3
    
    
    
    (0.0
    )Other revenues
    
    
    0.8
    
    
    
    0.2
    
    
    
    0.5
    
    
    
    0.2
    
    
    
    
    0.6
    
    
    
    0.1
    
    
    
    0.4
    
    
    
    0.2Total revenues
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    
    74.5
    
    
    
    81.1
    
    
    
    75.0
    
    
    
    81.6ExpensesSalaries and benefits
    
    
    30.8
    
    
    
    27.7
    
    
    
    32.7
    
    
    
    27.9
    
    
    
    
    23.0
    
    
    
    22.5
    
    
    
    24.5
    
    
    
    22.7Collections expense
    
    
    30.5
    
    
    
    27.4
    
    
    
    29.2
    
    
    
    27.6
    
    
    
    
    22.7
    
    
    
    22.2
    
    
    
    21.9
    
    
    
    22.6Occupancy
    
    
    3.4
    
    
    
    3.0
    
    
    
    3.3
    
    
    
    3.1
    
    
    
    
    2.5
    
    
    
    2.4
    
    
    
    2.5
    
    
    
    2.5Administrative
    
    
    4.4
    
    
    
    2.5
    
    
    
    4.0
    
    
    
    2.7
    
    
    
    
    3.3
    
    
    
    2.0
    
    
    
    3.0
    
    
    
    2.2Depreciation and amortization
    
    
    1.6
    
    
    
    1.2
    
    
    
    1.4
    
    
    
    1.2
    
    
    
    
    1.2
    
    
    
    1.0
    
    
    
    1.1
    
    
    
    1.0Loss on disposal of equipment
    
    
    0.0
    
    
    
    0.0
    
    
    
    0.0
    
    
    
    0.0
    
    
    
    
    0.0
    
    
    
    0.0
    
    
    
    0.0
    
    
    
    0.0Total operating expenses
    
    
    70.7
    
    
    
    61.8
    
    
    
    70.6
    
    
    
    62.5
    
    
    
    
    52.7
    
    
    
    50.1
    
    
    
    53.0
    
    
    
    51.0Income from operations
    
    
    29.3
    
    
    
    38.2
    
    
    
    29.4
    
    
    
    37.5
    
    
    
    
    21.8
    
    
    
    31.0
    
    
    
    22.0
    
    
    
    30.6Other income (expense)Interest income
    
    
    0.9
    
    
    
    0.3
    
    
    
    0.9
    
    
    
    0.1
    
    
    
    
    0.7
    
    
    
    0.2
    
    
    
    0.7
    
    
    
    0.1Interest expense
    
    
    (0.3
    )
    
    
    (0.2
    )
    
    
    (0.3
    )
    
    
    (0.2
    )
    
    
    
    (0.2
    )
    
    
    (0.2
    )
    
    
    (0.2
    )
    
    
    (0.2
    )Other
    
    
    (0.2
    )
    
    
    (0.0
    )
    
    
    (0.2
    )
    
    
    (0.0
    )
    
    
    
    (0.2
    )
    
    
    0.0
    
    
    
    (0.1
    )
    
    
    0.0Income before income taxes
    
    
    29.7
    
    
    
    38.3
    
    
    
    29.8
    
    
    
    37.4
    
    
    
    
    22.1
    
    
    
    31.0
    
    
    
    22.4
    
    
    
    30.5Income taxes
    
    
    11.1
    
    
    
    14.6
    
    
    
    11.2
    
    
    
    14.1
    
    
    
    
    8.2
    
    
    
    11.8
    
    
    
    8.4
    
    
    
    11.5Net Income
    
    
    18.6
    %
    
    
    23.7
    %
    
    
    18.6
    %
    
    
    23.3
    %
    
    
    
    13.9
    %
    
    
    19.2
    %
    
    
    14.0
    %
    
    
    19.0
    %
 Three Months Ended June 30, 2006 Compared To Three Months Ended June 30, 2005
 Revenue
   16




---



##### Table of Contents



Operating Expenses
  Salaries and Benefits.
 Collections Expense.
 Occupancy.
 Administrative.
 Depreciation and Amortization.
 Interest Income.
 Interest Expense.
 17




---



##### Table of Contents



Income Taxes.
 Six Months Ended June 30, 2006 Compared To Six Months Ended June 30, 2005
 Revenue
   Operating Expenses
  Salaries and Benefits.
 18




---



##### Table of Contents



Collections Expense.
 Occupancy.
 Administrative.
 Depreciation and Amortization.
 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(3)
    
    
    Collections
    
    
    Purchase Price (2)(dollars in thousands)1995
    
    
    53
    
    
    $
    1,518
    
    
    $
    7,952
    
    
    $
    
    
    
    $
    7,952
    
    
    
    524
    %1996
    
    
    46
    
    
    
    3,844
    
    
    
    17,460
    
    
    
    86
    
    
    
    17,546
    
    
    
    4561997
    
    
    45
    
    
    
    4,345
    
    
    
    28,803
    
    
    
    796
    
    
    
    29,599
    
    
    
    6811998
    
    
    61
    
    
    
    16,411
    
    
    
    79,741
    
    
    
    5,222
    
    
    
    84,963
    
    
    
    5181999
    
    
    51
    
    
    
    12,925
    
    
    
    58,038
    
    
    
    7,103
    
    
    
    65,141
    
    
    
    5042000
    
    
    49
    
    
    
    20,594
    
    
    
    112,915
    
    
    
    22,206
    
    
    
    135,121
    
    
    
    6562001
    
    
    62
    
    
    
    43,130
    
    
    
    222,642
    
    
    
    63,411
    
    
    
    286,053
    
    
    
    6632002
    
    
    94
    
    
    
    72,285
    
    
    
    264,083
    
    
    
    133,272
    
    
    
    397,355
    
    
    
    5502003
    
    
    76
    
    
    
    87,309
    
    
    
    269,774
    
    
    
    244,138
    
    
    
    513,912
    
    
    
    5892004
    
    
    106
    
    
    
    86,974
    
    
    
    126,727
    
    
    
    245,572
    
    
    
    372,299
    
    
    
    4282005
    
    
    104
    
    
    
    101,102
    
    
    
    55,797
    
    
    
    262,168
    
    
    
    317,965
    
    
    
    3142006 (4, 5)
    
    
    99
    
    
    
    54,351
    
    
    
    8,050
    
    
    
    163,521
    
    
    
    171,571
    
    
    
    316Total
    
    
    846
    
    
    $
    504,788
    
    
    $
    1,251,982
    
    
    $
    1,147,495
    
    
    $
    2,399,477
    
    
    
    475
    %
 
 (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)
    
    Estimated remaining collections are based on historical cash collections. Please refer to
Forward-Looking Statements on page 14 and Critical Accounting policies on page 27 for further
information regarding these estimates.(4)
    
    Includes only six months of activity through June 30, 2006.(5)
    
    Includes 62 portfolios from the acquisition of PARC on April 28, 2006 that were preliminarily
allocated a purchase price value of $8.3 million.  Unamortized
    
    
    UnamortizedUnamortized
    
    
    
    
    
    
    Balance as a
    
    
    Balance as aBalance as of
    
    
    Purchase
    
    
    Percentage of
    
    
    Percentage ofPurchase Period
    
    June 30, 2006
    
    
    Price (1)
    
    
    Purchase Price
    
    
    Total(dollars in thousands)2000
    
    $
    41
    
    
    $
    20,594
    
    
    
    0.2
    %
    
    
    0.0
    %2001
    
    
    1,752
    
    
    
    43,130
    
    
    
    4.1
    
    
    
    0.72002
    
    
    19,500
    
    
    
    72,285
    
    
    
    27.0
    
    
    
    7.72003
    
    
    39,953
    
    
    
    87,309
    
    
    
    45.8
    
    
    
    15.82004
    
    
    57,429
    
    
    
    86,974
    
    
    
    66.0
    
    
    
    22.62005
    
    
    83,802
    
    
    
    101,102
    
    
    
    82.9
    
    
    
    33.02006 (2)
    
    
    51,123
    
    
    
    54,351
    
    
    
    94.1
    
    
    
    20.2Total
    
    $
    253,600
    
    
    $
    465,745
    
    
    
    54.5
    %
    
    
    100.0
    %
 
 (1)
    
    Purchase price refers to the cash paid to a seller to acquire a portfolio less the purchase
price refunded by a seller due to the return of non-compliant accounts (also defined as
buybacks) less the purchase price for accounts that were sold at the time of purchase to
another debt purchaser.(2)
    
    Includes only six months of activity through June 30, 2006. 20




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##### Table of Contents



Account Representative Productivity and Turnover
  Account Representatives by Experience (1)
 Three months ended
    
    
    Six months ended
    
    
    Year endedJune 30,
    
    
    June 30,
    
    
    December 31,Number of account representatives:
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005
    
    
    2005
    
    
    2004One year or more (2)
    
    
    574
    
    
    
    513
    
    
    
    567
    
    
    
    510
    
    
    
    510
    
    
    
    471Less than one year (3)
    
    
    421
    
    
    
    541
    
    
    
    472
    
    
    
    517
    
    
    
    540
    
    
    
    437Total account representatives
    
    
    995
    
    
    
    1,054
    
    
    
    1,039
    
    
    
    1,027
    
    
    
    1,050
    
    
    
    908
 
 (1)
    
    This excludes Full Time Equivalent (FTE) account representatives from PARC from the
date of acquisition through June 30, 2006.(2)
    
    Based on number of average traditional call center FTE account representatives with one
or more years of service.(3)
    
    Based on number of average traditional call center FTE account representatives with less
than one year of service, including new employees in training. Collection Averages by Experience (1)
 Three months ended
    
    
    Six months ended
    
    
    Year endedJune 30,
    
    
    June 30,
    
    
    December 31,Collection averages:
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005
    
    
    2005
    
    
    2004One year or more (2)
    
    $
    49,629
    
    
    $
    51,856
    
    
    $
    101,899
    
    
    $
    107,547
    
    
    $
    199,734
    
    
    $
    195,426Less than one year (3)
    
    
    32,819
    
    
    
    32,634
    
    
    
    63,598
    
    
    
    65,653
    
    
    
    117,859
    
    
    
    139,891Overall average
    
    
    42,515
    
    
    
    41,987
    
    
    
    84,488
    
    
    
    86,455
    
    
    
    157,661
    
    
    
    168,708
 
 (1)
    
    This excludes collections and FTE account representatives from PARC from the date of
acquisition through June 30, 2006.(2)
    
    Based on number of traditional call center FTE account representatives with one or more
years of service.(3)
    
    Based on number of traditional call center FTE account representatives with less than one
year of service, including new employees in training.  Turnover by Experience (1)
 Three months ended
    
    
    Six months ended
    
    
    Year endedJune 30,
    
    
    June 30,
    
    
    December 31,Account representatives turnover:
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005
    
    
    2005
    
    
    2004One year or more (2)
    
    
    54.5
    %
    
    
    40.6
    %
    
    
    41.8
    %
    
    
    43.3
    %
    
    
    39.3
    %
    
    
    38.4
    %Less than one year (3)
    
    
    107.0
    
    
    
    109.8
    
    
    
    102.1
    
    
    
    116.2
    
    
    
    117.8
    
    
    
    103.3Overall turnover
    
    
    75.7
    
    
    
    74.8
    
    
    
    68.3
    
    
    
    79.4
    
    
    
    78.8
    
    
    
    69.0
 
 (1)
    
    This excludes FTE account representatives from PARC from the date of acquisition through
June 30, 2006.(2)
    
    Based on number of traditional call center FTE account representatives with one or more
years of service.(3)
    
    Based on number of traditional call center FTE account representatives with less than one
year of service, including new employees in training. 21




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##### Table of Contents



Cash Collections
  Historical Collections (1)
 Six MonthsEndedPurchase
    
    Purchase
    
    Year Ended December 31,
    
    June 30,Period
    
    Price(3)
    
    1995
    
    1996
    
    1997
    
    1998
    
    1999
    
    2000
    
    2001
    
    2002
    
    2003
    
    2004
    
    2005
    
    2006(dollars in thousands)Pre-1995
    
    
    
    
    
    $
    4,303
    
    
    $
    3,218
    
    
    $
    2,290
    
    
    $
    1,481
    
    
    $
    1,106
    
    
    $
    912
    
    
    $
    695
    
    
    $
    478
    
    
    $
    511
    
    
    $
    369
    
    
    $
    375
    
    
    $
    1541995
    
    
    1,518
    
    
    
    388
    
    
    
    1,566
    
    
    
    1,659
    
    
    
    1,118
    
    
    
    786
    
    
    
    708
    
    
    
    472
    
    
    
    343
    
    
    
    278
    
    
    
    227
    
    
    
    212
    
    
    
    791996
    
    
    3,844
    
    
    
    
    
    
    
    827
    
    
    
    3,764
    
    
    
    3,085
    
    
    
    2,601
    
    
    
    2,098
    
    
    
    1,440
    
    
    
    1,041
    
    
    
    816
    
    
    
    687
    
    
    
    683
    
    
    
    2641997
    
    
    4,345
    
    
    
    
    
    
    
    
    
    
    
    1,682
    
    
    
    4,919
    
    
    
    5,573
    
    
    
    5,017
    
    
    
    3,563
    
    
    
    2,681
    
    
    
    1,785
    
    
    
    1,526
    
    
    
    1,342
    
    
    
    6061998
    
    
    16,411
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,835
    
    
    
    15,220
    
    
    
    15,045
    
    
    
    12,962
    
    
    
    11,021
    
    
    
    7,987
    
    
    
    5,582
    
    
    
    4,653
    
    
    
    1,8571999
    
    
    12,925
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,761
    
    
    
    11,331
    
    
    
    10,862
    
    
    
    9,750
    
    
    
    8,278
    
    
    
    6,675
    
    
    
    5,022
    
    
    
    2,1112000
    
    
    20,594
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,895
    
    
    
    23,444
    
    
    
    22,559
    
    
    
    20,318
    
    
    
    17,196
    
    
    
    14,062
    
    
    
    5,9632001
    
    
    43,130
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,630
    
    
    
    50,327
    
    
    
    50,967
    
    
    
    45,713
    
    
    
    39,865
    
    
    
    17,0672002
    
    
    72,285
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,340
    
    
    
    70,813
    
    
    
    72,024
    
    
    
    67,649
    
    
    
    30,7602003
    
    
    87,309
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36,067
    
    
    
    94,564
    
    
    
    94,234
    
    
    
    44,7432004
    
    
    86,974
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,365
    
    
    
    68,354
    
    
    
    35,0082005
    
    
    101,102
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,459
    
    
    
    32,3392006 (2)
    
    
    54,351
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,049Total
    
    
    
    
    
    $
    4,691
    
    
    $
    5,611
    
    
    $
    9,395
    
    
    $
    15,438
    
    
    $
    29,047
    
    
    $
    44,006
    
    
    $
    71,068
    
    
    $
    120,540
    
    
    $
    197,820
    
    
    $
    267,928
    
    
    $
    319,910
    
    
    $
    179,000
 Cumulative Collections (1)
 TotalThroughPurchase
    
    Purchase
    
    Total Through December 31,
    
    June 30,Period
    
    Price(3)
    
    1995
    
    1996
    
    1997
    
    1998
    
    1999
    
    2000
    
    2001
    
    2002
    
    2003
    
    2004
    
    2005
    
    2006(dollars in thousands)1995
    
    $
    1,518
    
    
    $
    388
    
    
    $
    1,954
    
    
    $
    3,613
    
    
    $
    4,731
    
    
    $
    5,517
    
    
    $
    6,225
    
    
    $
    6,697
    
    
    $
    7,040
    
    
    $
    7,318
    
    
    $
    7,545
    
    
    $
    7,757
    
    
    $
    7,8361996
    
    
    3,844
    
    
    
    
    
    
    
    827
    
    
    
    4,591
    
    
    
    7,676
    
    
    
    10,277
    
    
    
    12,375
    
    
    
    13,815
    
    
    
    14,856
    
    
    
    15,672
    
    
    
    16,359
    
    
    
    17,042
    
    
    
    17,3061997
    
    
    4,345
    
    
    
    
    
    
    
    
    
    
    
    1,682
    
    
    
    6,601
    
    
    
    12,174
    
    
    
    17,191
    
    
    
    20,754
    
    
    
    23,435
    
    
    
    25,220
    
    
    
    26,746
    
    
    
    28,088
    
    
    
    28,6941998
    
    
    16,411
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,835
    
    
    
    20,055
    
    
    
    35,100
    
    
    
    48,062
    
    
    
    59,083
    
    
    
    67,070
    
    
    
    72,652
    
    
    
    77,305
    
    
    
    79,1621999
    
    
    12,925
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,761
    
    
    
    15,092
    
    
    
    25,954
    
    
    
    35,704
    
    
    
    43,982
    
    
    
    50,657
    
    
    
    55,679
    
    
    
    57,7902000
    
    
    20,594
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,895
    
    
    
    32,339
    
    
    
    54,898
    
    
    
    75,216
    
    
    
    92,412
    
    
    
    106,474
    
    
    
    112,4372001
    
    
    43,130
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,630
    
    
    
    67,957
    
    
    
    118,924
    
    
    
    164,637
    
    
    
    204,502
    
    
    
    221,5692002
    
    
    72,285
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,340
    
    
    
    93,153
    
    
    
    165,177
    
    
    
    232,826
    
    
    
    263,5862003
    
    
    87,309
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36,067
    
    
    
    130,631
    
    
    
    224,865
    
    
    
    269,6082004
    
    
    86,974
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,365
    
    
    
    91,719
    
    
    
    126,7272005
    
    
    101,102
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,459
    
    
    
    55,7982006 (2)
    
    
    54,351
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,049
 Cumulative Collections as Percentage of Purchase Price (1)
 TotalThroughPurchase
    
    Purchase
    
    Total Through December 31,
    
    June 30,Period
    
    Price(3)
    
    1995
    
    1996
    
    1997
    
    1998
    
    1999
    
    2000
    
    2001
    
    2002
    
    2003
    
    2004
    
    2005
    
    20061995
    
    $
    1,518
    
    
    
    26
    %
    
    
    129
    %
    
    
    238
    %
    
    
    312
    %
    
    
    363
    %
    
    
    410
    %
    
    
    441
    %
    
    
    464
    %
    
    
    482
    %
    
    
    497
    %
    
    
    511
    %
    
    
    516
    %1996
    
    
    3,844
    
    
    
    
    
    
    
    22
    
    
    
    119
    
    
    
    200
    
    
    
    267
    
    
    
    322
    
    
    
    359
    
    
    
    386
    
    
    
    408
    
    
    
    426
    
    
    
    443
    
    
    
    4501997
    
    
    4,345
    
    
    
    
    
    
    
    
    
    
    
    39
    
    
    
    152
    
    
    
    280
    
    
    
    396
    
    
    
    478
    
    
    
    539
    
    
    
    580
    
    
    
    616
    
    
    
    646
    
    
    
    6601998
    
    
    16,411
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29
    
    
    
    122
    
    
    
    214
    
    
    
    293
    
    
    
    360
    
    
    
    409
    
    
    
    443
    
    
    
    471
    
    
    
    4821999
    
    
    12,925
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29
    
    
    
    117
    
    
    
    201
    
    
    
    276
    
    
    
    340
    
    
    
    392
    
    
    
    431
    
    
    
    4472000
    
    
    20,594
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    43
    
    
    
    157
    
    
    
    267
    
    
    
    365
    
    
    
    449
    
    
    
    517
    
    
    
    5462001
    
    
    43,130
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41
    
    
    
    158
    
    
    
    276
    
    
    
    382
    
    
    
    474
    
    
    
    5142002
    
    
    72,285
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31
    
    
    
    129
    
    
    
    229
    
    
    
    322
    
    
    
    3652003
    
    
    87,309
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41
    
    
    
    150
    
    
    
    258
    
    
    
    3092004
    
    
    86,974
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27
    
    
    
    105
    
    
    
    1462005
    
    
    101,102
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23
    
    
    
    552006 (2)
    
    
    54,351
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15
 
 (1)
    
    Does not include proceeds from sales of any receivables.(2)
    
    Includes $8.3 million of portfolios acquired from the acquisition of PARC on April 28, 2006.(3)
    
    Purchase 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 referred to as
buybacks) less the purchase price for accounts that were sold at the time of purchase to
another debt purchaser. 22




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##### Table of Contents



Seasonality
   
 Cash Collections
 Quarter
    
    2002
    
    
    2003
    
    
    2004
    
    
    2005
    
    
    2006First
    
    $
    27,297,721
    
    
    $
    44,017,730
    
    
    $
    65,196,055
    
    
    $
    80,397,640
    
    
    $
    89,389,858Second
    
    
    30,475,078
    
    
    
    51,190,533
    
    
    
    67,566,031
    
    
    
    84,862,856
    
    
    
    89,609,982Third
    
    
    29,337,914
    
    
    
    48,622,829
    
    
    
    66,825,822
    
    
    
    78,159,364
    
    
    
    Fourth
    
    
    33,429,419
    
    
    
    53,988,333
    
    
    
    68,339,797
    
    
    
    76,490,350
    
    
    
    Total cash collections
    
    $
    120,540,132
    
    
    $
    197,819,425
    
    
    $
    267,927,705
    
    
    $
    319,910,210
    
    
    $
    178,999,840
  Three months ended June 30,
    
    
    Six months ended June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Traditional collections
    
    
    48.2
    %
    
    
    52.1
    %
    
    
    49.6
    %
    
    
    53.8
    %Legal collections
    
    
    39.4
    
    
    
    36.5
    
    
    
    38.1
    
    
    
    34.4Other collections
    
    
    12.4
    
    
    
    11.4
    
    
    
    12.3
    
    
    
    11.8Total cash collections
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
  23




---



##### Table of Contents



Face Value ofCharged-off
    
    
    
    
    
    
    No. ofAsset Type
    
    Receivables (2)(3)
    
    
    %
    
    
    Accounts (3)
    
    
    %(in thousands)Visa®/MasterCard®/Discover®
    
    $
    10,663,555
    
    
    
    44.7
    %
    
    
    4,491
    
    
    
    19.5
    %Private Label Credit Cards
    
    
    3,284,571
    
    
    
    13.8
    
    
    
    4,793
    
    
    
    20.8Telecommunications/Utility/Gas
    
    
    2,141,016
    
    
    
    9.0
    
    
    
    5,268
    
    
    
    22.9Health Club
    
    
    1,408,412
    
    
    
    5.9
    
    
    
    1,436
    
    
    
    6.2Auto Deficiency
    
    
    1,387,698
    
    
    
    5.8
    
    
    
    248
    
    
    
    1.1Wireless Telecommunications
    
    
    713,942
    
    
    
    3.0
    
    
    
    1,682
    
    
    
    7.4Installment Loans
    
    
    635,328
    
    
    
    2.6
    
    
    
    213
    
    
    
    0.9Other (1)
    
    
    3,624,630
    
    
    
    15.2
    
    
    
    4,890
    
    
    
    21.2Total
    
    $
    23,859,152
    
    
    
    100.0
    %
    
    
    23,021
    
    
    
    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.(3)
    
    This excludes the face value of charged-off receivables and the number of accounts acquired
through PARC either from the acquisition of PARC on April 28, 2006 or from the purchases by
PARC from the date of acquisition through June 30, 2006.  
    
    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 collector for the first time. These accounts
typically sell for the highest purchase price.
    
    Primary accounts are typically 270 to 360 days past due, have been previously placed
with one third party collector and typically receive a lower purchase price.
    
    Secondary and tertiary accounts are typically more than 360 days past due, have been
placed with two or three third party collectors and receive even lower purchase prices.
   Face Value ofCharged-off
    
    
    
    
    
    
    No. ofAccount Type
    
    Receivables (2)(3)
    
    
    %
    
    
    Accounts (3)
    
    
    %(in thousands)Fresh
    
    $
    1,104,191
    
    
    
    4.6
    %
    
    
    477
    
    
    
    2.1
    %Primary
    
    
    3,950,309
    
    
    
    16.6
    
    
    
    2,674
    
    
    
    11.6Secondary
    
    
    4,315,522
    
    
    
    18.1
    
    
    
    4,756
    
    
    
    20.7Tertiary (1)
    
    
    13,238,673
    
    
    
    55.5
    
    
    
    14,461
    
    
    
    62.8Other
    
    
    1,250,457
    
    
    
    5.2
    
    
    
    653
    
    
    
    2.8Total
    
    $
    23,859,152
    
    
    
    100.0
    %
    
    
    23,021
    
    
    
    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.(3)
    
    This excludes the face value of charged-off receivables and the number of accounts acquired
through PARC either from the acquisition of PARC on April 28, 2006 or from the purchases by
PARC from the date of acquisition through June 30, 2006.  Face Value ofCharged-off
    
    
    
    
    
    
    No. ofGeographic Location
    
    Receivables (3)(4)
    
    
    %
    
    
    Accounts (4)
    
    
    %(in thousands)Texas (1)
    
    $
    3,315,099
    
    
    
    13.9
    %
    
    
    2,846
    
    
    
    12.4
    %California
    
    
    2,687,461
    
    
    
    11.3
    
    
    
    2,806
    
    
    
    12.2Florida (1)
    
    
    2,278,623
    
    
    
    9.5
    
    
    
    1,600
    
    
    
    6.9Michigan (1)
    
    
    1,822,051
    
    
    
    7.6
    
    
    
    2,292
    
    
    
    10.0New York
    
    
    1,455,758
    
    
    
    6.1
    
    
    
    1,199
    
    
    
    5.2Ohio (1)
    
    
    1,281,219
    
    
    
    5.4
    
    
    
    1,471
    
    
    
    6.4Illinois (1)
    
    
    1,078,952
    
    
    
    4.5
    
    
    
    1,366
    
    
    
    5.9Pennsylvania
    
    
    725,338
    
    
    
    3.0
    
    
    
    609
    
    
    
    2.6North Carolina
    
    
    695,099
    
    
    
    2.9
    
    
    
    544
    
    
    
    2.4Georgia
    
    
    610,113
    
    
    
    2.6
    
    
    
    531
    
    
    
    2.3Other (2)
    
    
    7,909,439
    
    
    
    33.2
    
    
    
    7,757
    
    
    
    33.7Total
    
    $
    23,859,152
    
    
    
    100.0
    %
    
    
    23,021
    
    
    
    100.0
    %
 
 (1)
    
    Collection site located in this state.(2)
    
    Each state included in Other represents under 2.0% individually of the face value of total
charged-off consumer receivables.(3)
    
    Face value of charged-off receivables represents the cumulative amount of purchases net of
buybacks. The amount is not adjusted for payments received, settlements or additional accrued
interest on any accounts in such portfolios after the date we purchased the applicable
portfolio.(4)
    
    This excludes the face value of charged-off receivables and the number of accounts acquired
through PARC either from the acquisition of PARC on April 28, 2006 or from the purchases by
PARC from the date of acquisition through June 30, 2006. Liquidity and Capital Resources
   Borrowings
  25




---



##### Table of Contents




    
    funds borrowed can be used to purchase portfolios of charged-off receivables and for
general corporate purposes;
    
    leverage ratio (as defined in the Credit Agreement) cannot exceed 1.5 to 1.0;
    
    debt to total capitalization ratio (as defined in the 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 $189.4 million as of June 30, 2006.
  In accordance with the Credit Agreement, we obtained approval from the lender prior to the
PARC acquisition.
 Cash Flows
        26




---



##### Table of Contents



Future Contractual Cash Obligations
  Year Ending December 31,2006
    
    
    2007
    
    
    2008(3)
    
    
    2009
    
    
    2010
    
    
    ThereafterCapital lease obligations
    
    $
    58,974
    
    
    $
    63,802
    
    
    $
    18,634
    
    
    $
    
    
    
    $
    
    
    
    $
    Operating lease obligations (1)
    
    
    3,220,569
    
    
    
    6,466,582
    
    
    
    5,517,649
    
    
    
    4,681,820
    
    
    
    3,789,110
    
    
    
    12,333,794Purchased receivables (2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Line of credit (3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Employment agreements
    
    
    407,500
    
    
    
    315,000
    
    
    
    315,000
    
    
    
    105,000
    
    
    
    
    
    
    
    Total
    
    $
    3,687,043
    
    
    $
    6,845,384
    
    
    $
    5,851,283
    
    
    $
    4,786,820
    
    
    $
    3,789,110
    
    
    $
    12,333,794
 
 (1)
    
    In April 2006, we entered into an amendment with respect to the lease for the Warren,
Michigan facility, the effectiveness of which was contingent upon the sale of the building by
December 31, 2006. This amendment became effective on July 7, 2006 and extended the expiration
of our lease agreement from November 30, 2014 to May 31, 2016 with increases in the future
minimum contractual obligations. The future minimum contractual obligations will increase to
approximately $1.4 million $2.8 million, $2.8 million, $2.9 million, $3.0 million and $16.9
million in 2006, 2007, 2008, 2009, 2010 and thereafter, respectively, from $1.2 million, $2.5
million, $2.6 million, $2.6 million, $2.7 million and $11.1 million in 2006, 2007, 2008, 2009,
2010 and thereafter, respectively.(2)
    
    During the six months ended June 30, 2006, we renewed one forward flow contract and acquired
two on-going forward flow contracts that commit us to purchase receivables for a fixed
percentage of the face amount of the receivables. The one renewed forward flow contract
expires in November 2006 and calls for monthly purchases of approximately $205,000, depending
upon circumstances and the other two on-going forward flow contracts call for monthly
purchases of approximately $12,400 over the next twelve months.(3)
    
    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, 2006. Off-Balance Sheet Arrangements
  Critical Accounting Policies
    27




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures about Market Risk
  
 Item 4. Controls and Procedures
  
 PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
   28




---



##### Table of Contents



Item 4. Submission of Matters to a Vote of Security Holders
  Director
    
    Votes for
    
    Votes WithheldJennifer L. Adams
    
    
    30,553,947
    
    
    
    218,584Donald Haider
    
    
    30,710,292
    
    
    
    62,239H. Eugene Lockhart
    
    
    30,704,436
    
    
    
    68,095
  
  29




---



##### Table of Contents



Item 6. Exhibits
 ExhibitNumber
    
    Description10.1
    
    Third Amendment to Lease Agreement for property located at 28405 Van Dyke
(Incorporated by reference to Exhibit 10.1 filed with Asset Acceptance Capital
Corp. Quarterly report on Form 10-Q for the quarterly period ended March 31,
2006 (Quarterly Report No. 000-50552))10.2*
    
    Fourth Amendment to Lease Agreement for property located at 28405 Van Dyke10.3*
    
    Stock Purchase Agreement between Asset Acceptance Holdings, LLC and the
Shareholders of Premium Asset Recovery Corp.10.4*
    
    Employment Agreement dated April 28, 2006, between Christopher L. Conway,
Premium Asset Recovery Corp. and Asset Acceptance Holdings, LLC10.5*
    
    Employment Agreement dated April 28, 2006, between Adam O. Holzhauer, Premium
Asset Recovery Corp. and Asset Acceptance Holdings, LLC31.1*
    
    Rule 13a-14(a) Certification of Chief Executive Officer31.2*
    
    Rule 13a-14(a) Certification of Chief Financial Officer32.1*
    
    Section 1350 Certification of Chief Executive Officer and Chief Financial Officer
 
 *
    
    Filed herewith 30




---



##### Table of Contents



SIGNATURES
  ASSET ACCEPTANCE CAPITAL CORP.Date: August 8, 2006
    By:
    /s/ Nathaniel F. Bradley IVNathaniel F. Bradley IVChairman of the Board, President and
Chief Executive Officer
(Principal Executive Officer) Date: August 8, 2006
    By:
    /s/ Mark A. RedmanMark A. RedmanVice President  Finance and

Chief Financial Officer

(Principal Financial and Accounting Officer) 31




---



##### Table of Contents



Exhibit Index
 ExhibitNumber
    

Description10.1
    
    Third Amendment to Lease Agreement for property located
at 28405 Van Dyke (Incorporated by reference to Exhibit
10.1 filed with Asset Acceptance Capital Corp. Quarterly
report on Form 10-Q for the quarterly period ended March
31, 2006 (Quarterly Report No. 000-50552))10.2*
    
    Fourth Amendment to Lease Agreement for property located
at 28405 Van Dyke10.3*
    
    Stock Purchase Agreement between Asset Acceptance
Holdings, LLC and the Shareholders of Premium Asset
Recovery Corp.10.4*
    
    Employment Agreement dated April 28, 2006, between
Christopher L. Conway, Premium Asset Recovery Corp. and
Asset Acceptance Holdings, LLC10.5*
    
    Employment Agreement dated April 28, 2006, between Adam
O. Holzhauer, Premium Asset Recovery Corp. and Asset
Acceptance Holdings, LLC31.1*
    
    Rule 13a-14(a) Certification of Chief Executive Officer31.2*
    
    Rule 13a-14(a) Certification of Chief Financial Officer32.1*
    
    Section 1350 Certification of Chief Executive Officer and
Chief Financial Officer
 
 *
    
    Filed herewith