Asset Acceptance Capital (AACC) 10-Q 2009 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2009

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission file number: 000-50552

Asset Acceptance Capital Corp.

(Exact name of registrant as specified in its charter)

Delaware	80-0076779
(State or other jurisdiction of incorporation or organization)	(I.R.S.Employer Identification No.)

28405 Van Dyke Avenue

Warren, Michigan 48093

(Address of principal executive offices)

Registrant’s telephone number, including area code:

(586) 939-9600

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

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

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

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

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

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

As of April 20, 2009, 30,573,031 shares of the Registrant’s common stock were outstanding.

ASSET ACCEPTANCE CAPITAL CORP.

Quarterly Report on Form 10-Q

TABLE OF CONTENTS

			Page
	PART I – Financial Information
Item 1.	Consolidated Financial Statements (unaudited)		3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		20
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		37
Item 4.	Controls and Procedures		37
	PART II – Other Information
Item 1.	Legal Proceedings		37
Item 6.	Exhibits		38
Signatures			39
Exhibits:	10.1	2009 Annual Incentive Compensation Plan for Management (Portions of this document have been omitted pursuant to a request for confidential treatment)
	10.2	Employment Agreement dated January 21, 2009, between Rion B. Needs and Asset Acceptance, LLC
	10.3	Form of Restricted Stock Unit Award Agreement (Time Based)
	31.1	Rule 13a-14(a) Certification of Chief Executive Officer
	31.2	Rule 13a-14(a) Certification of Chief Financial Officer
	32.1	Section 1350 Certification of Chief Executive Officer and Chief Financial Officer

Quarterly Report on Form 10-Q

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

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PART I - FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

ASSET ACCEPTANCE CAPITAL CORP.

Consolidated Statements of Financial Position

	March 31, 2009			December 31, 2008
	(Unaudited)
ASSETS
Cash	$	8,262,457		$	6,042,859
Purchased receivables, net		346,048,993			361,808,502
Income taxes receivable		1,991,561			3,934,029
Property and equipment, net		12,217,904			12,526,817
Goodwill		14,323,071			14,323,071
Intangible assets		2,400,975			2,453,117
Other assets		6,529,066			7,082,721
Total assets	$	391,774,027		$	408,171,116
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Accounts payable	$	2,371,682		$	3,388,320
Accrued liabilities		19,339,111			21,476,207
Income taxes payable		1,142,554			658,329
Notes payable		162,047,514			181,550,000
Deferred tax liability, net		64,936,256			64,470,002
Total liabilities		249,837,117			271,542,858
Stockholders’ equity:
Preferred stock, $0.01 par value, 10,000,000 shares authorized; no shares issued and outstanding		—			—
Common stock, $0.01 par value, 100,000,000 shares authorized; issued shares — 33,169,552 at March 31, 2009 and December 31, 2008		331,696			331,696
Additional paid in capital		147,152,609			146,915,791
Retained earnings		39,790,458			35,188,314
Accumulated other comprehensive loss, net of tax		(4,195,172	)		(4,664,862	)
Common stock in treasury; at cost, 2,596,521 shares at March 31, 2009 and December 31, 2008		(41,142,681	)		(41,142,681	)
Total stockholders’ equity		141,936,910			136,628,258
Total liabilities and stockholders’ equity	$	391,774,027		$	408,171,116

See accompanying notes.

3

ASSET ACCEPTANCE CAPITAL CORP.

Consolidated Statements of Operations

(Unaudited)

	Three months ended March 31,
	2009			2008
Revenues
Purchased receivable revenues, net	$	56,739,679		$	63,722,688
Gain on sale of purchased receivables		—			159,105
Other revenues, net		251,519			472,937
Total revenues		56,991,198			64,354,730
Expenses
Salaries and benefits		19,846,517			22,071,973
Collections expense		22,126,683			21,955,673
Occupancy		1,810,861			1,927,488
Administrative		2,330,386			2,668,152
Depreciation and amortization		885,818			1,027,804
Impairment of assets		—			445,651
Loss on disposal of equipment and other assets		1,404			5,583
Total operating expenses		47,001,669			50,102,324
Income from operations		9,989,529			14,252,406
Other income (expense)
Interest income		961			23,251
Interest expense		(2,642,126	)		(3,344,597	)
Other		71,777			17,983
Income before income taxes		7,420,141			10,949,043
Income taxes		2,817,997			4,171,219
Net income	$	4,602,144		$	6,777,824
Weighted average number of shares:
Basic		30,610,988			30,553,019
Diluted		30,624,101			30,565,690
Earnings per common share outstanding:
Basic	$	0.15		$	0.22
Diluted	$	0.15		$	0.22

See accompanying notes.

4

ASSET ACCEPTANCE CAPITAL CORP.

Consolidated Statements of Cash Flows

(Unaudited)

	Three months ended March 31,
	2009			2008
Cash flows from operating activities
Net income	$	4,602,144		$	6,777,824
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		885,818			1,027,804
Deferred income taxes		470,561			1,510,293
Share-based compensation and other non-cash compensation expense		236,818			246,433
Net impairment of purchased receivables		3,449,300			384,283
Non-cash revenue		(32,815	)		(147,769	)
Loss on disposal of equipment and other assets		1,404			5,583
Gain on sale of purchased receivables		—			(159,105	)
Impairment of intangible assets		—			445,651
Changes in assets and liabilities:
(Decrease) increase in accounts payable and other accrued liabilities		(2,688,351	)		3,429,300
Decrease in other assets		553,655			536,083
Increase in net income taxes		2,426,693			2,601,488
Net cash provided by operating activities		9,905,227			16,657,868
Cash flows from investing activities
Investment in purchased receivables, net of buy backs		(21,617,749	)		(20,472,028	)
Principal collected on purchased receivables		33,960,773			36,305,079
Proceeds from the sale of purchased receivables		—			161,331
Purchase of property and equipment		(526,377	)		(2,419,214	)
Proceeds from sale of property and equipment		210			—
Net cash provided by investing activities		11,816,857			13,575,168
Cash flows from financing activities
Borrowings under notes payable		15,500,000			—
Repayment of notes payable		(35,002,486	)		(27,375,000	)
Payment of deferred financing costs		—			(569,544	)
Repayment of capital lease obligations		—			(9,056	)
Net cash used in financing activities		(19,502,486	)		(27,953,600	)
Net increase in cash		2,219,598			2,279,436
Cash at beginning of period		6,042,859			10,474,479
Cash at end of period	$	8,262,457		$	12,753,915
Supplemental disclosure of cash flow information
Cash paid for interest	$	2,772,175		$	3,434,253
Cash paid for income taxes		27,490			73,390
Non-cash investing and financing activities:
(Increase) decrease in fair value of swap liability		(465,383	)		3,374,207
Decrease (increase) in unrealized loss on interest rate swap		469,690			(2,174,008	)

See accompanying notes.

5

ASSET ACCEPTANCE CAPITAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation and Summary of Significant Accounting Policies

Nature of Operations

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

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

The accompanying unaudited financial statements of the Company have been prepared in accordance with Rule 10-01 of Regulation S-X promulgated by the Securities and Exchange Commission and, therefore, do not include all information and footnotes necessary for a fair presentation of financial position, operations and cash flows in conformity with U.S. generally accepted accounting principles. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary for a fair presentation of the Company’s financial position as of March 31, 2009 and its operations for the three months ended March 31, 2009 and 2008 and cash flows for the three months ended March 31, 2009 and 2008, and all adjustments were of a normal recurring nature. The operations of the Company for the three months ended March 31, 2009 and 2008 may not be indicative of future results. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.

Reporting Entity

The consolidated financial statements include the accounts of Asset Acceptance Capital Corp. consisting of direct and indirect subsidiaries AAC Investors, Inc., RBR Holding Corp., Asset Acceptance Holdings, LLC, Asset Acceptance, LLC, Consumer Credit, LLC and Premium Asset Recovery Corporation (“PARC”). All significant intercompany balances and transactions have been eliminated in consolidation. The Company currently has two operating segments according to Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards (“SFAS”) 131, “Disclosures about Segments of an Enterprise and Related Information”, one for purchased receivables and one for finance contract receivables. The finance contract receivables operating segment is not material and therefore is not disclosed separately from the purchased receivables segment.

Purchased Receivables Portfolios and Revenue Recognition

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

The Company accounts for its investment in purchased receivables using the guidance provided by the Accounting Standards Executive Committee Statement of Position 03-3, “Accounting for Certain Loans or Debt Securities Acquired in a Transfer” (“SOP 03-3”). The provisions of SOP 03-3 were adopted by the Company effective January 2005 and apply to purchased receivables acquired after December 31, 2004. The provisions of SOP 03-3 that relate to decreases in expected cash flows amend previously followed guidance, the Accounting Standards Executive Committee Practice Bulletin 6, “Amortization of Discounts on Certain Acquired Loans”, for consistent treatment and apply prospectively to purchased receivables acquired before January 1, 2005. The

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

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

The cost recovery method prescribed by SOP 03-3 is used when collections on a particular portfolio cannot be reasonably predicted. When appropriate, the cost recovery method may be used for pools that previously had a yield assigned to them. Under the cost recovery method, no revenue is recognized until the Company has fully collected the cost of the portfolio. As of March 31, 2009, the Company had 62 unamortized pools on the cost recovery method, including all healthcare pools, with an aggregate carrying value of $6,594,228 or about 1.9% of the total carrying value of all purchased receivables. The Company had 62 unamortized pools on the cost recovery method with an aggregate carrying value of $9,804,318, or about 2.7% of the total carrying value of all purchased receivables as of December 31, 2008.

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

Although not its usual business practice, the Company may periodically sell, on a non-recourse basis, all or a portion of a pool to third parties. The Company does not have any significant continuing involvement with the sold pools subsequent to sale. Proceeds of these sales are compared to the carrying value of the accounts and a gain or loss is recognized on the difference between proceeds received and carrying value, in accordance with SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities – a replacement of SFAS 125”, as amended. The agreements to sell receivables typically include general representations and warranties. Any accounts returned to the Company under these representations and warranties, and during the negotiated time frame, are netted against any “gains on sale of purchased receivables” or if they exceed the total reported gains for the period as a “loss on sale of purchased receivables”, which would be accrued for if material to the consolidated financial statements.

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Changes in purchased receivable portfolios for the three months ended March 31, 2009 and 2008 were as follows:

	Three months ended March 31,
	2009			2008
Beginning balance	$	361,808,502		$	346,198,900
Investment in purchased receivables, net of buybacks		21,617,749			20,472,028
Cost of sale of purchased receivables, net of returns		—			(2,226	)
Cash collections		(94,116,937	)		(100,264,281	)
Purchased receivable revenues		56,739,679			63,722,688
Ending balance	$	346,048,993		$	330,127,109

Accretable yield represents the amount of revenue the Company can expect over the remaining life of the existing portfolios. Nonaccretable yield represents the difference between the remaining expected cash flows and the total contractual obligation outstanding (face value) of the purchased receivables. Changes in accretable yield for the three months ended March 31, 2009 and 2008 were as follows:

	Three months ended March 31,
	2009			2008
Beginning balance (1)	$	534,985,144		$	559,605,071
Revenue recognized on purchased receivables		(56,739,679	)		(63,722,688	)
Additions due to purchases during the period		41,391,387			19,883,169
Reclassifications from (to) nonaccretable yield		17,355,097			(15,474,731	)
Ending balance (1)	$	536,991,949		$	500,290,821

(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 21 and Critical Accounting Policies on page 35 for further information regarding these estimates.

Cash collections for the three months ended March 31, 2009 and 2008 include collections from fully amortized pools of which 100% of the collections were reported as revenue. Components of cash collections from fully amortized pools were as follows:

	Three months ended March 31,
	2009		2008
Cash collections from fully amortized pools:
Amortizing before the end of their expected life	$	7,241,960	$	8,464,569
Amortizing after their expected life		8,275,732		12,605,254
Accounted under the cost recovery method		2,735,868		1,176,527
Total cash collections from fully amortized pools	$	18,253,560	$	22,246,350

Changes in purchased receivables portfolios under the cost recovery method for the period ended March 31, 2009 and 2008 were as follows:

	Three months ended March 31,
	2009 (1)			2008 (1)
Portfolios under the cost recovery method:
Beginning balance	$	9,804,318		$	26,991,102
Addition of portfolios		89,078			2,069,185
Buybacks, impairments and resales adjustments		(474,321	)		(718,072	)
Cash collections on all portfolios under the cost recovery method until fully amortized		(2,824,847	)		(7,262,064	)
Ending balance	$	6,594,228		$	21,080,151

(1) The beginning and ending balances include the first quarter of 2005 aggregate and all healthcare portfolios. The carrying values of the first quarter of 2005 aggregate and all healthcare portfolios were $1,763,814 and $3,913,086, respectively, of the total carrying value of purchased receivables as of March 31, 2009. The carrying values of the first quarter of 2005 aggregate and all healthcare portfolios were $3,432,876 and $5,090,037, respectively, of the total carrying value of purchased receivables as of December 31, 2008.

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During the three months ended March 31, 2009 and 2008, the Company recorded net impairments of $3,449,300 and $384,283, respectively, related to its purchased receivables. The net impairment charge reduced revenue and the carrying value of the purchased receivable portfolios. Changes in the purchased receivables valuation allowance for the three months ended March 31, 2009 and 2008 were as follows:

	Three months ended March 31,
	2009			2008
Beginning balance	$	71,949,326		$	62,091,755
Impairments		3,791,000			1,795,533
Reversal of impairments		(341,700	)		(1,411,250	)
Deductions (1)		(1,713,600	)		(1,236,133	)
Ending balance	$	73,685,026		$	61,239,905

(1) Deductions represent impairments on purchased receivable portfolios that became fully amortized during the period and, therefore, the balance is eliminated because it can no longer be reversed.

Seasonality

Collections within portfolios tend to be seasonally higher in the first and second quarters of the year due to consumers’ receipt of tax refunds and other factors. Conversely, collections within portfolios tend to be lower in the third and fourth quarters of the year due to consumers’ spending in connection with summer vacations, the holiday season and other factors. However, revenue recognized is relatively level, excluding the impact of impairments, due to the application of the provisions prescribed by SOP 03-3. In addition, the Company’s operating results may be affected to a lesser extent by the timing of purchases of charged-off consumer receivables due to the initial costs associated with purchasing and loading these receivables into the Company’s systems. Consequently, income and margins may fluctuate from quarter to quarter.

Collections from Third Parties

The Company regularly utilizes unaffiliated third parties, primarily attorneys and other contingent collection agencies, to collect certain account balances on behalf of the Company in exchange for a percentage of balances collected by the third party. The Company includes the reimbursement of certain legal and other costs as cash collections, thereby recording the gross proceeds received by the unaffiliated third parties as cash collections. The Company records the percentage of the gross cash collections paid to the third parties as a component of collections expense. The percent of gross cash collections from such third party relationships were 31.8% and 28.9% for the three months ended March 31, 2009 and 2008, respectively.

Accrued Liabilities

As of March 31, 2009 and December 31, 2008, the total of accrued liabilities was $19,339,111 and $21,476,207, respectively. The details of the balances are identified in the following table.

	March 31, 2009		December 31, 2008
Fair value of derivative instruments		6,778,191	$	7,243,574
Accrued payroll, benefits and bonuses		5,697,492		7,676,269
Deferred rent		3,295,180		3,397,942
Accrued general and administrative expenses		2,346,629		2,128,355
Accrued interest expenses		588,805		870,829
Other accrued expenses		632,814		159,238
Total accrued liabilities	$	19,339,111	$	21,476,207

Concentration of Risk

For the three months ended March 31, 2009 and 2008, the Company invested 80.8% and 52.0%, respectively, in purchased receivables from its top three sellers. Two of the top three sellers were different in each of the three month periods presented.

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Interest Expense

Interest expense included interest on the Company’s credit facilities, unused facility fees, the ineffective portion of the change in fair value of the Company’s derivative financial instrument (refer to Note 3, “Derivative Financial Instruments and Risk Management”) and amortization of deferred financing costs. During the three months ended March 31, 2009, the Company recorded interest expense of $2,642,126, including the amortization of $154,401 in deferred financing costs. During the three months ended March 31, 2008, the Company recorded interest expense of $3,344,597, including the amortization of $129,117 in deferred financing costs.

In addition, interest expense of $20,116 and $19,769, related to software development for internal use was capitalized for the three months ended March 31, 2009 and 2008, respectively.

Earnings Per Share

Earnings per share reflect net income divided by the weighted-average number of shares outstanding. Diluted weighted average shares outstanding at March 31, 2009 and 2008 included 13,113 and 12,671 dilutive shares, respectively, related to outstanding stock options, deferred stock units, restricted shares and restricted share units (the “Share-Based Awards”). There were 993,652 and 740,085 outstanding Share-Based Awards that were not included within the diluted weighted-average shares as their fair value or exercise price exceeded the market price of the Company’s stock at March 31, 2009 and 2008, respectively.

Goodwill and Other Intangible Assets

Intangible assets with finite lives arising from business combinations are amortized over their estimated useful lives, ranging from five to seven years, using the straight-line and double-declining methods. As prescribed by SFAS 142, “Goodwill and Other Intangible Assets” (“SFAS 142”), goodwill and trademark and trade names with indefinite lives are not amortized. Goodwill and other intangible assets are reviewed annually to assess recoverability or more frequently if impairment indicators are present, in accordance with SFAS 142. Impairment charges are recorded for intangible assets when the estimated fair value is less than the book value of that asset. Refer to Note 7, “Fair Value”, for additional information about the fair value of goodwill and other intangible assets.

During the first quarter of 2008, the Company decided to no longer service medical receivables on a contingent fee basis. As a result, the Company recognized an impairment charge of $445,651, the net book value of intangible assets for customer contracts and relationships associated with the contingent collection business. This impairment is recorded in “Impairment of assets” in the consolidated statements of operations.

Comprehensive Income

Components of comprehensive income are changes in equity other than those resulting from investments by owners and distributions to owners. Net income is the primary component of comprehensive income. The Company’s only component of comprehensive income other than net income is the change in unrealized gain or loss on derivatives qualifying as cash flow hedges, net of income taxes. The aggregate amount of such changes to equity that have not yet been recognized in net income are reported in the equity portion of the accompanying consolidated statements of financial position as accumulated other comprehensive loss, net of income taxes. The accumulated other comprehensive income (loss), net of tax for the three months ended March 31, 2009 and 2008 is presented in the following table:

	March 31, 2009			March 31, 2008
Opening balance	$	(4,664,862	)	$	(2,012,127	)
Change		469,690			(2,174,008	)
Ending balance	$	(4,195,172	)	$	(4,186,135	)

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Recently Issued Accounting Pronouncements

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

SFAS No. 157, “Fair Value Measurements”

SFAS No. 157, “Fair Value Measurements” (“SFAS 157”) defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS 157 applies where other accounting pronouncements require or permit fair value measurements; it does not require any new fair value measurements. SFAS 157 was issued in September 2006 and was effective for fiscal years beginning after November 15, 2007. In February 2008, the FASB issued FASB Staff Position (“FSP”) No. FAS 157-2, “Effective Date of FASB Statement No. 157” (“FSP 157-2”). This FSP deferred the effective date of SFAS 157 for non-financial assets and liabilities that are not recognized or disclosed at fair value in the financial statements on a recurring basis to fiscal years, and interim periods, beginning after November 15, 2008. The Company has adopted SFAS 157 for non-financial assets and liabilities measured at fair value on a nonrecurring basis as of January 1, 2009. The application of SFAS 157 for non-financial assets and liabilities did not have a significant impact on the Company’s consolidated statements of financial position, operations or cash flows.

SFAS No. 141 (R), “Business Combinations” and SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51”

In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations”, (“SFAS 141(R)”), and SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51”, (“SFAS 160”). These pronouncements were required to be adopted concurrently and are effective for business combination transactions for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The adoption of SFAS 141(R) and SFAS 160 did not have a material impact on the Company’s consolidated statements of financial position, operations or cash flows.

SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities”

In March 2008, the FASB issued SFAS 161, “Disclosures about Derivative Instruments and Hedging Activities” (“SFAS 161”). SFAS 161 requires expanded disclosures regarding the location and amounts of derivative instruments in an entity’s financial statements, how derivative instruments and related hedged items are accounted for under SFAS 133, “Accounting for Derivative Instruments and Hedging Activities”, and how derivative instruments and related hedged items affect an entity’s financial position, operating results and cash flows. SFAS 161 is effective for periods beginning on or after November 15, 2008. The adoption of SFAS 161 did not have a material impact on the Company’s consolidated statements of financial position, operations or cash flows.

FASB Staff Position No. 142-3 “Determination of the Useful Life of Intangible Assets”

In April 2008, the FASB issued FSP No. FAS 142-3, “Determination of the Useful Life of Intangible Assets”, (“FSP 142-3”). FSP 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142. FSP 142-3 is effective for fiscal years beginning after December 15, 2008. The adoption of FSP 142-3 did not have a material impact on the Company’s consolidated statements of financial position, operations and cash flows.

FASB Staff Position No. FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments”

FSP No. FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments” (“FSP 107-1 and APB-28-1”), amends SFAS No. 107, “Disclosures about Fair Value of Financial Instruments”, to require disclosures about fair value of financial instruments for interim reporting periods as well as in annual financial statements. This FSP also amends Accounting Principles Board (“APB”) Opinion No. 28, “Interim Financial Reporting”, to require those disclosures in summarized financial information at interim reporting periods. The Statement was issued in April 2009 and is effective prospectively for interim reporting periods ending after June 15, 2009. Early adoption is permitted for interim periods ending after March 15, 2009, and the Company

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adopted the disclosure requirements of FSP 107-1 and APB-28-1 as of March 31, 2009. The adoption did not have a material impact on the Company’s consolidated statements of financial position, operations or cash flows.

Reclassifications

Certain amounts in the prior periods presented have been reclassified to conform to the current period financial statement presentation. These reclassifications have no material effect on previously reported consolidated statements of financial position, operations or cash flows.

2. Notes Payable

The Company’s credit agreement with JPMorgan Chase Bank, N.A., as administrative agent, and a syndicate of lenders named therein, originated on June 5, 2007 and was amended on March 10, 2008 (the “Credit Agreement”). Under the terms of the Credit Agreement, the Company has a five-year $100,000,000 revolving credit facility (the “Revolving Credit Facility”) and a six-year $150,000,000 term loan facility (the “Term Loan Facility” and, together with the Revolving Credit Facility, the “Credit Facilities”). The Credit Facilities bear interest at prime or up to 125 basis points over prime depending upon the Company’s liquidity, as defined in the Credit Agreement. Alternately, at the Company’s discretion, the Company may borrow by entering into one, two, three, six or twelve-month contracts based on the London Inter Bank Offer Rate (“LIBOR”) at rates between 150 to 250 basis points over the respective LIBOR rates, depending on the Company’s liquidity. The Company’s Revolving Credit Facility includes an accordion loan feature that allows it to request a $25,000,000 increase as well as sublimits for $10,000,000 of letters of credit and for $10,000,000 of swingline loans. The Credit Agreement is secured by a first priority lien on all of the Company’s assets. The Credit Agreement also contains certain covenants and restrictions that the Company must comply with, which, as of March 31, 2009 were:

• Leverage Ratio (as defined) cannot exceed (i) 1.25 to 1.0 at any time on or before June 29, 2009, (ii) 1.125 to 1.0 at any time on or after June 30, 2009 and on or before December 30, 2010 or (iii) 1.0 to 1.0 at any time thereafter;

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

• Consolidated Tangible Net Worth must equal or exceed $80,000,000 plus 50% of positive consolidated net income for three consecutive fiscal quarters ending December 31, 2007 and for each fiscal year ending thereafter, such amount to be added as of December 31, 2007 and as of the end of each such fiscal year thereafter.

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

• 50% of the Excess Cash Flow for such fiscal year if the Leverage Ratio was greater than 1.0 to 1.0 as of the end of such fiscal year;

• 25% of the Excess Cash Flow for such fiscal year if the Leverage Ratio was less than or equal to 1.0 to 1.0 but greater than 0.875 to 1.0 as of the end of such fiscal year; or

• 0% if the Leverage Ratio is less than or equal to 0.875 to 1.0 as of the end of such fiscal year.

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

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

The Company had $162,047,514 and $181,550,000 principal balance outstanding on its Credit Facilities at March 31, 2009 and December 31, 2008, respectively, of which $144,947,514 and $147,750,000 was part of the Term Loan Facility at March 31, 2009 and December 31, 2008, respectively, and $17,100,000 and $33,800,000 was part of the Revolving Credit Facility, respectively. The Term Loan Facility requires quarterly repayments totaling $1,500,000 annually until March 2013 with the remaining balance due in June 2013.

The Company believes it is in compliance with all terms of the Credit Agreement as of March 31, 2009.

3. Derivative Financial Instruments and Risk Management

Risk Management

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

Based on the provisions of SFAS No. 133 as amended and interpreted, the Company records derivative financial instruments at fair value. Refer to Note 7, “Fair Value” for additional information. Counterparty default would expose the Company to fluctuations in variable interest rates.

Derivative Financial Instruments

In September 2007, the Company entered into an amortizing interest rate swap agreement whereby, on a quarterly basis, it swaps variable rates under its Term Loan Facility for fixed rates. At inception and for the first year, the notional amount of the swap was $125,000,000. Every year thereafter, on the anniversary of the swap agreement the notional amount will decrease by $25,000,000. As of March 31, 2009, the notional amount is $100,000,000. This swap agreement expires on September 13, 2012.

The Company’s financial derivative instrument is designated and qualifies as a cash flow hedge and the effective portion of the gain or loss on such hedge is reported as a component of other comprehensive income (“OCI”) in the consolidated financial statements. To the extent that the hedging relationship is not effective, the ineffective portion of the change in fair value of the derivative is recorded in other income (expense). Hedges that receive designated hedge accounting treatment are evaluated for effectiveness at the time that they are designated as well as through the hedging period. As of March 31, 2009, the Company does not have any fair value hedges.

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

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The following table summarizes the fair value of derivative instruments as recorded in the consolidated statements of financial position.

	Liability Derivatives
	March 31, 2009			December 31, 2008
	Financial Position Location	Fair Value		Financial Position Location	Fair Value
Derivatives designated as hedging instruments under SFAS 133
Interest rate swap	Accrued liabilities	$	6,778,191	Accrued liabilities	$	7,243,574
Total derivatives designated as hedging instruments under SFAS 133		$	6,778,191		$	7,243,574

The following table summarizes the impact of derivative instruments for the three months ended March 31, 2009 and 2008 as recorded in the consolidated statements of operations.

Derivatives in SFAS 133 cash flow hedging	Amount of Gain or (Loss) Recognized in OCI (Effective Portion)					Location of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)				Location of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)	Amount of Gain or (Loss) Recognized in Income (Ineffective Portion and Amount Excluded from Effectiveness Testing
	Three Months Ended March 31,						Three Months Ended March 31,					Three Months Ended March 31,
	2009		2008				2009		2008			2009		2008
Interest rate swap	$	465,383	$	(3,374,207	)	Interest expense	$	—	$	—	Interest expense	$	1,060	$	799
Total	$	465,383	$	(3,374,207	)	Total	$	—	$	—	Total	$	1,060	$	799

Placeholder for possible new paragraph.

4. Property and Equipment

Property and equipment, having estimated useful lives ranging from three to ten years consisted of the following:

	March 31, 2009			December 31, 2008
Computers and software	$	15,577,545		$	15,341,320
Furniture and fixtures		10,388,846			10,401,899
Leasehold improvements		2,278,449			2,264,658
Total property and equipment, cost		28,244,840			28,007,877
Less accumulated depreciation		(16,026,936	)		(15,481,060	)
Net property and equipment	$	12,217,904		$	12,526,817

5. Share-Based Compensation

The Company recognized share-based compensation in accordance with SFAS No. 123(R), “Share-Based Payment”, a revision of SFAS 123, “Accounting for Stock-Based Compensation”, using the modified prospective application. SFAS 123(R) requires all stock-based compensation awards granted to associates to be recognized in the consolidated financial statements at fair value.

The Company adopted a stock incentive plan (the “Stock Incentive Plan”) during February 2004 that authorizes the use of stock options, stock appreciation rights, restricted stock grants and units, performance share awards and annual incentive awards to eligible key associates, non-associate directors and consultants. The Company has reserved 3,700,000 shares of common stock for issuance in conjunction with share-based awards to be granted under the plan and 2,387,974 shares remain available to be granted as of March 31, 2009. The purpose of the plan is (1) to promote the best interests of the Company and its stockholders by encouraging associates and other participants to acquire an ownership interest in the Company, thus aligning their interests with those of stockholders and (2) to enhance the ability of the Company to attract and retain qualified associates, non-associate directors and consultants. No participant may be granted options during any one fiscal year to purchase more than 500,000 shares of common stock.

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Based on historical experience, the Company uses an annual forfeiture rate of 15% for associate grants. Grants made to non-associate directors have no forfeiture rates associated with them due to immediate vesting of grants to this group.

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

Stock Options

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

Options issue year:	2009		2008
Expected volatility	51.37	%	46.50	%
Expected dividends	0.00	%	0.00	%
Expected term	5 Years		5 Years
Risk-free rate	2.06	%	3.09	%

As of March 31, 2009, the Company had options outstanding for 902,292 shares of its common stock under the Stock Incentive Plan. These options have been granted to key associates and non-associate directors of the Company. Option awards are generally granted with an exercise price equal to the market price of the Company’s stock at the date of grant and have contractual terms ranging from seven to ten years. The options granted to key associates generally vest between one and five years from the grant date, whereas the options granted to non-associate directors generally vest immediately. The fair values of the stock options are expensed on a straight-line basis over the vesting period. The related expense for the three months ended March 31, 2009 includes $74,441 in salaries and benefits for associates. The related expense for the three months ended March 31, 2008 includes $51,170 in salaries and benefits for associates. The total tax benefit recognized in the consolidated statements of operations was $28,288 and $19,496 for the three months ended March 31, 2009 and 2008, respectively. The following summarizes all stock option related transactions from January 1, 2009 through March 31, 2009.

	Options Outstanding		Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term	Aggregate Intrinsic Value
					(in years)
January 1, 2009	712,991		$	13.89
Granted	203,229			3.57
Forfeited	(13,928	)		10.79
Outstanding at March 31, 2009	902,292			11.62	7.17	$	348,181
Exercisable at March 31, 2009	516,024		$	15.30	6.85	$	—

The weighted-average grant date fair value of the options granted during the three months ended March 31, 2009 was $1.65 per option. No options were exercised during the three months ended March 31, 2009 and 2008.

As of March 31, 2009, there was $1,044,421 of total unrecognized compensation expense related to nonvested stock options granted under the stock incentive plan. The total unrecognized compensation expense is comprised of $932,493 for options expected to vest and $111,928 for options not expected to vest. The unrecognized compensation expense options expected to vest is expected to be recognized over a weighted-average period of 2.87 years.

Deferred Stock Units

As of March 31, 2009, the Company had granted 30,023 deferred stock units (“DSUs”) of its common stock to non-associate directors under the Company’s Stock Incentive Plan. DSUs represent our obligation to deliver one share of common stock for each

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unit at a later date elected by the non-associate director, such as when his or her board service ends. DSUs vest immediately upon grant and are not subject to forfeiture. DSUs do not have voting rights but would receive common stock dividend equivalents in the form of additional DSUs. The value of each DSU is equal to the market price of the Company’s stock at the date of grant.

The fair value of the DSUs granted during the three months ended March 31, 2009 were expensed immediately to correspond with the vesting schedule. The related expense for the three months ended March 31, 2009 and 2008 includes $21,880 and $31,259 in administrative expenses, respectively.

The following summarizes all DSUs related transactions from January 1, 2009 through March 31, 2009.

	DSUs	Weighted-Average Grant-Date Fair Value
January 1, 2009	23,681	$	10.37
Granted	6,342		3.45
Balance at March 31, 2009	30,023	$	8.91

There was no unrecognized compensation expense related to nonvested share-based compensation arrangement granted with DSUs for the three months ended March 31, 2009 and 2008.

Restricted Shares and Restricted Share Units

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

The fair value of the RSUs is expensed on a straight-line basis over the vesting period based on the number of RSUs that are expected to vest. For RSUs with performance conditions, if goals are not expected to be met, the compensation expense previously recognized is reversed. The related expense for the three months ended March 31, 2009 and 2008 included $140,497 and $164,004, respectively, in salaries and benefits expense for associates.

The Company issues shares of common stock for RSUs as they vest. During 2008, 49,955 shares of common stock were issued for vested RSUs. The following summarizes all RSU related transactions from January 1, 2009 through March 31, 2009.

Nonvested RSUs	RSUs		Weighted-Average Grant-Date Fair Value
Nonvested at January 1, 2009	224,610		$	10.27
Granted	113,827			3.57
Forfeited	(23,681	)		8.69
Nonvested at March 31, 2009	314,756		$	7.96

As of March 31, 2009, there was $2,051,855 of total unrecognized expense related to nonvested RSUs. The total unrecognized expense is comprised of $1,175,109 for RSUs expected to vest and $876,746 for RSUs not expected to vest. The unrecognized compensation expense for RSUs expected to vest is expected to be recognized over a weighted-average period of 2.61 years.

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6. Contingencies and Commitments

Litigation Contingencies

The Company is involved in certain legal matters that management considers incidental to its business. The Company recognizes liabilities for contingencies and commitments when a loss is probable and estimable. The company recognizes expense for defense costs when incurred.

Management has evaluated pending and threatened litigation against the Company as of March 31, 2009 and does not believe the exposure to be material.

Registration Rights Agreement

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

7. Fair Value

The Company adopted SFAS 157 as of January 1, 2008 as it applies to financial assets and liabilities. The Company adopted SFAS 157 as it relates to non-financial assets and liabilities, including goodwill and other indefinite-lived assets, on January 1, 2009.

The Company has chosen not to adopt SFAS No. 159, “Fair Value Option” (“SFAS” 159). SFAS 159 allows entities to choose to measure eligible financial instruments and certain other items at fair value, that are not otherwise required to be measured at fair value.

As required under SFAS 157, the Company groups assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:

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

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

Interest Rate Swap Agreement

	Fair Value Measurements at Reporting Date Using
	March 31, 2009		Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Interest rate swap	$	6,778,191		$	6,778,191

The fair value of the interest rate swap agreement represents the amount the Company would receive or pay to terminate or otherwise settle the contract at the consolidated statements of financial position date, taking into consideration current unearned gains

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and losses. The fair value was determined using a market approach, and is based on the three-month LIBOR curve for the remaining term of the swap agreement. Refer to Note 3, “Derivative Financial Instruments and Risk Management”, for additional information about the fair value of the interest rate swap.

Goodwill and Other Intangible Assets

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

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

The annual impairment test for other intangible assets not subject to amortization, for example, trademark and trade names, consists of a comparison of the fair value of the intangible asset with its carrying value. If the carrying value of the intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. The estimates of fair value of intangible assets not subject to amortization are determined using various discounted cash flow valuation methodologies, which include Level 3 inputs. Significant assumptions are inherent in this process, including estimates of discount rates. Discount rate assumptions are based on an assessment of the risk inherent in the respective intangible assets. The Company performed a discounted cash flow analysis of its trademark and trade names as of December 31, 2008 and determined that no impairment charges were required.

The following disclosures are made pursuant to SFAS 107 and FAS 107-1 and APB 28-1. These assets and liabilities are not within the scope of SFAS 157 because they are not measured at fair value.

Purchased Receivables

The Company initially records purchased receivables at cost, which is discounted from the contractual receivable balance. The ending balance of the purchased receivables is reduced as cash is received based upon the guidance of PB6 and SOP 03-3. The carrying value of receivables was $346,048,993 and $361,808,502 at March 31, 2009 and December 31, 2008, respectively. The Company computes fair value of these receivables by discounting the future cash flows generated by its forecasting model using an adjusted weighted average cost of capital, reflective of other market participant’s cost of capital. The fair value of the purchased receivables approximated carrying value at both March 31, 2009 and December 31, 2008.

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Credit Facilities

The Company’s Credit Facilities had carrying amounts of $162,047,514 and $181,550,000 as of March 31, 2009 and December 31, 2008, respectively. The Company computed the approximate fair value of the Credit Facilities to be $113,600,235 and $117,244,500 as of March 31, 2009 and December 31, 2008, respectively. The fair value of the Company’s Credit Facilities is based on borrowing rates currently available to the Company and similar market participants.

8. Income Taxes

The Company accounts for income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes” (“SFAS 109”). SFAS 109 requires the recognition of deferred tax assets and liabilities based on differences between financial reporting and the tax bases of the assets and liabilities, measured using the enacted tax rates and laws that will be in effect when the differences are expected to be reversed. An allowance against deferred tax assets is recorded when it is more likely than not that such tax benefits will not be realized.

The Company accounts for uncertain tax positions in accordance with SFAS Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken in a tax return.

The Company recorded an income tax provision of $2,817,997 and $4,171,219 for the three months ended March 31, 2009 and 2008, respectively. The provision for income tax expense reflects an effective income tax rate of 38.0% and 38.1% for the three months ended March 31, 2009 and 2008, respectively.

The Company’s liability for income taxes associated with uncertain tax positions includes estimated interest and penalties. Interest and penalties related to the Company’s uncertain tax positions are included in income tax expense and administrative expense, respectively, in the consolidated statements of operations.

The corporate federal income tax returns of the Company for 2005 through 2008 are subject to examination by the IRS, generally for three years after they are filed. The state income tax returns and other state tax filings of the Company are subject to examination by the state taxing authorities, for various periods generally up to four years after they are filed.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Company Overview

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

Market prices for charged-off accounts receivable portfolios (“paper”) have continued to fall in 2009 as they have over the last several quarters beginning in the second half of 2007. Lower expected liquidation of the paper by collection companies because of macro-economic factors is the primary reason for the recent decline in market pricing. Macro-economic factors include reduced availability of credit, falling real estate values, higher food and energy prices, increased unemployment and other factors (“macro-economic factors”). In addition, we believe that some competitors’ ability to fund portfolio purchases has been reduced during the recent financial crisis. Finally, we believe that increases in charge-off rates being experienced by major credit grantors is leading to an increase in supply of receivables available for sale. Reduced competition and increased supply may have also contributed to improved pricing.

During the three months ended March 31, 2009, we invested $22.1 million (net of buybacks) in charged-off consumer receivable portfolios, with an aggregate face value of $747.8 million, or 2.95% of face value. In the three months ended March 31, 2008, we invested $22.0 million (net of buybacks through March 31, 2009) in paper, with an aggregate face amount of $542.8 million, or 4.06% of face value. Our level of investment in paper during the first quarter of 2009 reflects our strategy to slow our purchasing in the first half of 2009 to build up capital so we are able to purchase at what we believe will be more advantageous prices in the second half of 2009 and into 2010.

The change in average purchase price in 2009 when compared to 2008 may not be representative of the change in overall market pricing because the paper purchased in the two periods may not be comparable. Our debt purchasing metrics (dollars invested, face amount, average purchase price, types of paper and sources of paper) may vary significantly from quarter to quarter. During the first quarter of 2009, an increasing portion of our investment in purchased receivables was from forward flow contracts. Forward flow contracts commit a debt seller to sell a steady flow of paper to us, and commit us to purchase paper for a fixed percentage of the face value. Due to the macro-economic factors, debt sellers and debt buyers alike believe that there will be continued downward pressure on the prices that are paid for paper. We believe debt sellers are attempting to lock in pricing when possible through forward flow contracts. For the three months ended March 31, 2009, we acquired $15.5 million (net of buybacks) under forward flow contracts compared to $10.8 million (net of buybacks through March 31, 2009) during the three months ended March 31, 2008. Forward flow contracts may be attractive to us because they provide operational advantages from the consistent amount and type of accounts acquired.

Cash collections declined for the three months ended March 31, 2009 when compared to the same period in 2008 reflecting a more difficult collections environment due to macro-economic factors. Cash collections decreased by $6.2 million or 6.1% to $94.1 million for the three months ended March 31, 2009 compared to $100.3 million for the three months ended March 31, 2008. Traditional call center collections declined by $6.5 million or 13.7% as account representative productivity fell by 20.3% in the three months ended March 31, 2009 when compared to the three months ended March 31, 2008. We continue to balance our volume of paper outsourced to our agency network with our capacity-constrained in-house collection staff. We believe that our agency network is experiencing productivity declines similar to, or greater than, our in-house traditional call center collections associates. We expect to continue to increase our in-house staffing levels during 2009 in order to maximize overall cash collections.

Net income for the three months ended March 31, 2009 was $4.6 million, a decline of 32.1% from $6.8 million for the three months ended March 31, 2008. Contributing to our decline in net income was higher amortization of purchased receivables in determining purchased receivable revenues. Purchased receivable revenues declined by $7.0 million because of a combination of a $6.2 million decrease in cash collections and increased purchased receivable amortization of $0.8 million. Amortization of purchased

20

receivables, the difference between cash collections and purchased receivable revenues, increased to 39.7% of cash collections for the three months ended March 31, 2009 versus 36.4% in the three months ended March 31, 2008. The increased purchased receivables amortization rate was primarily the result of lower multiples of purchase price expected to be collected and an increase in net impairments of purchased receivables to $3.4 million in the first quarter of 2009 from $0.4 million in the first quarter of 2008. As prices for paper rose through mid-2007, our expected collection multiple of purchase price was reduced from prior levels. Macro-economic factors negatively affecting consumers are also a factor in the lower multiples of purchase price expected to be collected, even as pricing for paper continues to decline. The lower multiple of purchase price expected to be collected generally results in a lower yield to be assigned for revenue recognition purposes. When lower yields are assigned, a larger proportion of our cash collections are treated as purchased receivable amortization instead of purchase receivable revenues. Impairments are generated when currently assigned yields are too high in relation to collection expectations, which have declined because of macro-economic factors affecting the consumers’ ability to repay their obligations or for other reasons.

We reduced our operating expenses in absolute dollars for the three months ended March 31, 2009 compared to the same period in 2008. Total operating expenses were $47.0 million for the three months ended March 31, 2009 a decrease of $3.1 million from $50.1 million in the three months ended March 31, 2008. As a percentage of cash collections, operating expenses were 50.0% for both of the three months ended March 31, 2009 and 2008. Salaries and benefits declined in the three months ended March 31, 2009 by $2.3 million, compared to the three months ended March 31, 2008. In the first quarter of 2009, collections expense increased by $0.2 million versus the first quarter of 2008. All other operating expense categories decreased individually, including occupancy, administrative, depreciation and amortization and impairment of assets by a total of $1.1 million in the three months ended March 31, 2009 compared to March 31, 2008. The reduced salaries and benefits costs reflect our managing staffing levels for non-revenue generating positions and incentive compensation programs to the current level of collections. Our collections from third party relationships (attorneys and collection agencies) have increased to 31.8% of total cash collections for the three months ended March 31, 2009 from 28.9% for the three months ended March 31, 2008. Total forwarding fees on cash collections from these third party relationships have increased to $10.3 million in the three months ended March 31, 2009 versus $8.4 million in the three months ended March 31, 2008. The remaining expenses included in collections expense declined by $1.8 million during the same period. The $1.8 million decline in the three months ended March 31, 2009 primarily reflected reduced data provider, letter and mailing, telephone and legal costs.

Forward-Looking Statements

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

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

• an economic recession limiting our ability to acquire and to collect on charged-off receivable portfolios;

• our ability to purchase charged-off receivable portfolios on acceptable terms and in sufficient amounts;

• our ability to recover sufficient amounts on our charged-off receivable portfolios;

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• our ability to hire and retain qualified personnel;

• a decrease in collections if bankruptcy filings increase or if bankruptcy laws or other debt collection laws change;

• a decrease in collections as a result of negative attention or news regarding the debt collection industry and debtor’s willingness to pay the debt we acquire;

• our ability to make reasonable estimates of the timing and amount of future cash receipts and values and assumptions underlying the calculation of the net impairment charges for purposes of recording purchased receivable revenues in accordance with Accounting Standards Executive Committee Statement of Position 03-3 (“SOP 03-3”) as well as the Accounting Standards Executive Committee Practice Bulletin 6 (“PB 6”);

• our ability to acquire and to collect on charged-off receivable portfolios in industries in which we have little or no experience;

• our ability to maintain existing, and secure additional financing on acceptable terms;

• the loss of any of our executive officers or other key personnel;

• the costs, uncertainties and other effects of legal and administrative proceedings;

• our ability to effectively manage excess capacity, reduce workforce or close remote call center locations;

• the temporary or permanent loss of our computer or telecommunications systems, as well as our ability to respond to changes in technology and increased competition;

• changes in our overall performance based upon significant macro-economic conditions;

• changes in interest rates could adversely affect earnings or cash flows;

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

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

• other unanticipated events and conditions that may hinder our ability to compete.

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Results of Operations

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

	Percent of Total Revenues				Percent of Cash Collections
	Three Months Ended March 31,				Three Months Ended March 31,
	2009		2008		2009		2008
Revenues
Purchased receivable revenues, net	99.6	%	99.0	%	60.3	%	63.6	%
Gain on sale of purchased receivables	0.0		0.3		0.0		0.1
Other revenues, net	0.4		0.7		0.3		0.5
Total revenues	100.0		100.0		60.6		64.2
Expenses
Salaries and benefits	34.8		34.3		21.1		22.0
Collections expense	38.8		34.1		23.5		21.9
Occupancy	3.2		3.0		2.0		1.9
Administrative	4.1		4.1		2.5		2.7
Depreciation and amortization	1.6		1.6		0.9		1.0
Impairment of assets	0.0		0.7		0.0		0.5
Loss on disposal of equipment and other assets	(0.0	)	(0.0	)	(0.0	)	(0.0	)
Total operating expenses	82.5		77.8		50.0		50.0
Income from operations	17.5		22.2		10.6		14.2
Other income (expense)
Interest income	0.0		0.0		0.0		0.0
Interest expense	(4.6	)	(5.2	)	(2.8	)	(3.3	)
Other	0.1		0.0		0.1		0.0
Income before income taxes	13.0		17.0		7.9		10.9
Income taxes	5.0		6.5		3.0		4.1
Net income	8.0	%	10.5	%	4.9	%	6.8	%

Three Months Ended March 31, 2009 Compared To Three Months Ended March 31, 2008

Revenue

Total revenues were $57.0 million for the three months ended March 31, 2009, a decrease of $7.4 million, or 11.4%, from total revenues of $64.4 million for the three months ended March 31, 2008. Purchased receivable revenues were $56.7 million for the three months ended March 31, 2009, a decrease of $7.0 million, or 11.0%, from the three months ended March 31, 2008 amount of $63.7 million. Purchased receivable revenues reflect an amortization rate, or the difference between cash collections and revenue, of 39.7%, an increase of 3.3 percentage points, from the amortization rate of 36.4% for the three months ended March 31, 2008. The increased amortization rate is primarily due to lower average internal rates of return assigned to recent years’ purchases and increased net impairments. Purchased receivable revenues reflect net impairments recognized during the three months ended March 31, 2009 and 2008 of $3.4 million and $0.4 million, respectively. Cash collections on charged-off consumer receivables decreased 6.1% to $94.1 million for the three months ended March 31, 2009 from $100.3 million for the same period in 2008. Cash collections for the three months ended March 31, 2009 and 2008 include collections from fully amortized portfolios of $18.3 million and $22.2 million, respectively, of which 100% were reported as revenue.

During the three months ended March 31, 2009, we acquired charged-off consumer receivable portfolios with an aggregate face value of $747.8 million at a cost of $22.1 million, or 2.95% of face value, net of buybacks. Included in these purchase totals were 25 portfolios with an aggregate face value of $413.1 million at a cost of $15.5 million, or 3.75% of face value, which were acquired through nine forward flow contracts. Revenues on portfolios purchased from our top three sellers during vintage years 1993 through 2008 were $16.1 million and $17.8 million during the three months ended March 31, 2009 and 2008, respectively, with two of the same sellers included in the top three in both three-month periods. During the three months ended March 31, 2008, we acquired charged-off consumer receivable portfolios with an aggregate face value of $542.8 million at a cost of $22.0 million, or 4.06% of face value (adjusted for buybacks through March 31, 2009). Included in these purchase totals were 35 portfolios with an aggregated face

23

value of $203.1 million at a cost of $10.8 million, or 5.34% of face value (adjusted for buybacks through March 31, 2009), which were acquired through 11 forward flow contracts. From period to period we may buy charged-off receivables of varying ages, types and demographics. As a result, the cost of our purchases, as a percent of face value, may fluctuate from one period to the next.

Operating Expenses

Total operating expenses were $47.0 million for the three months ended March 31, 2009, a decrease of $3.1 million, or 6.2%, compared to total operating expenses of $50.1 million for the three months ended March 31, 2008. Total operating expenses were 50.0% of cash collections for both of the three months ended March 31, 2009 and 2008. Operating expenses are traditionally measured in relation to revenues. However, we measure operating expenses in relation to cash collections. We believe this is appropriate because of varying amortization rates, which is the difference between cash collections and revenues recognized, from period to period, due to seasonality of collections and other factors that can distort the analysis of operating expenses when measured against revenues. Additionally, we believe that the majority of our operating expenses are variable in relation to cash collections.

Salaries and Benefits.Salaries and benefits expense were $19.8 million for the three months ended March 31, 2009, a decrease of $2.3 million, or 10.1%, compared to salaries and benefits expense of $22.1 million for the three months ended March 31, 2008. Salaries and benefits expense were 21.1% of cash collections for the three months ended March 31, 2009, compared with 22.0% for the same period in 2008. Salaries and benefits expense decreased primarily because of a decrease in total average headcount for the three months ended March 31, 2009 compared to the same period in 2008. Salaries and benefits expense also decreased because of lower collections generated by in-house collectors for the three months ended March 31, 2009 compared to the same period in 2008, which resulted in lower variable compensation expense.

We recognized $0.2 million of share-based compensation expense in salaries and benefits expense for both of the three months ended March 31, 2009 and 2008. As of March 31, 2009, there was $3.1 million of total unrecognized compensation expense related to nonvested awards of which $2.1 million was expected to vest over a weighted average period of 2.73 years. As of March 31, 2008, there was $4.0 million of total unrecognized compensation expense related to nonvested awards of which $1.2 million was expected to vest over a weighted average period of 3.16 years.

Collections Expense.Collections expense was $22.1 million and $22.0 million for the three months ended March 31, 2008, respectively. Collections expense was 23.5% of cash collections during the three months ended March 31, 2009 compared with 21.9% for the same period in 2008. Collections expense increased primarily due to increased forwarding fees of $1.9 million paid on cash collections from third party relationships (attorneys and collection agencies) as a result of an increase in our collections from third party relationships to 31.8% of total cash collections for the three months ended March 31, 2009, from 28.9% for the three months ended March 31, 2008. These increased forwarding fees were partially offset by a $1.8 million decline primarily in data provider, letter and mailing, telephone and legal costs for the three months ended March 31, 2009 compared to the same period in 2008.

Occupancy.Occupancy expense was $1.8 million for the three months ended March 31, 2009, a decrease of $0.1 million, or 6.1%, compared to occupancy expense of $1.9 million for the three months ended March 31, 2008. Occupancy expense was 2.0% of cash collections for the three months ended March 31, 2009 compared with 1.9% for the same period in 2008.

Administrative.Administrative expenses decreased to $2.3 million for the three months ended March 31, 2009, from $2.7 million for the three months ended March 31, 2008, reflecting a $0.4 million, or 12.7% decrease. Administrative expenses were 2.5% of cash collections during the three months ended March 31, 2009 compared with 2.7% for the same period in 2008. Administrative expenses decreased primarily due to improved expense management in many areas, such as office supplies and travel, offset by higher software maintenance costs and spending for outside consultants.

Depreciation and Amortization.Depreciation and amortization expense was $0.9 million for the three months ended March 31, 2009, a decrease of $0.1 million or 13.8% compared to depreciation and amortization expense of $1.0 million for the three months ended March 31, 2008. Depreciation and amortization expense was 0.9% of cash collections during the three months ended March 31, 2009 compared with 1.0% for the same period in 2008.

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Impairment of Assets. There was no impairment of assets for the three months ended March 31, 2009. Impairment of assets was $0.4 million for the three months ended March 31, 2008 as we decided to no longer service medical receivables on a contingent fee basis. As a result, we recognized an impairment charge of the net carrying balance of intangible assets for customer contracts and relationships associated with the contingent medical collection business.

Interest Expense.Interest expense was $2.6 million for the three months ended March 31, 2009, a decrease of $0.7 million compared to interest expense of $3.3 million for the three months ended March 31, 2008. Interest expense was 2.8% of cash collections during the three months ended March 31, 2009 compared with 3.3% for the same period in 2009. The decrease in interest expense was due to lower average interest rates and decreased average borrowings during the three months ended March 31, 2009 compared to the same period in 2008. Average borrowings were $166.9 million for the three months ended March 31, 2009, compared to $173.5 million for the three months ended March 31, 2008. Interest expense also includes the amortization of deferred financing costs of $154,401 and $129,117 for the three months ended March 31, 2009 and 2008, respectively.

Income Taxes.Income tax expense of $2.8 million reflects a federal tax rate of 35.5% and a state tax rate of 2.5% (net of federal tax benefit) for the three months ended March 31, 2009. For the three months ended March 31, 2008, income tax expense was $4.2 million and reflected a federal tax rate of 35.2% and state tax rate of 2.9% (net of federal tax benefit). Income tax expense decreased $1.4 million, or 32.4% from income tax expense of $4.2 million for the three months ended March 31, 2008. The decrease in tax expense was primarily due to a decrease in pre-tax financial statement income, which was $7.4 million for the three months ended March 31, 2009, compared to $10.9 million for the same period in 2008.

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Supplemental Performance Data

Portfolio Performance

The following table summarizes our historical portfolio purchase price and cash collections on an annual vintage basis from January 1, 2003 through March 31, 2009.

Purchase Period	Number of Portfolios(4)	Purchase Price (1,4)		Cash Collections		Estimated Remaining Collections (2,3)		Total Estimated Collections		Total Estimated Collections as a Percentage of Purchase Price
	(dollars in thousands)
2003	76	$	87,150	$	408,765	$	29,355	$	438,120	503	%
2004	106		86,541		241,638		45,778		287,416	332
2005	104		100,762		177,626		51,502		229,128	227
2006	154		142,260		230,506		160,605		391,111	275
2007	158		169,520		150,571		222,742		373,313	220
2008	164		154,760		66,102		310,491		376,593	243
2009 (5)	31		22,078		1,032		62,568		63,600	288
Total	793	$	763,071	$	1,276,240	$	883,041	$	2,159,281	283	%

(1) Purchase price refers to the cash paid to a seller to acquire a portfolio less the purchase price refunded by a seller due to the return of non-compliant accounts (also referred to as buybacks) less the purchase price for accounts that were sold at the time of purchase to another debt purchaser.

(2) Estimated remaining collections are based on historical cash collections. Please refer to Forward-Looking Statements on page 21 and Critical Accounting Policies on page 35 for further information regarding these estimates.

(3) Estimated remaining collections refers to the sum of all future projected cash collections on our owned portfolios using up to an 84 month collection forecast from the date of purchase. Estimated remaining collections for pools on a cost recovery method for revenue recognition purposes are equal to the carrying value. There are no estimated remaining collections for pools on a cost recovery method that are fully amortized.

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

(5) Includes only three months of activity through March 31, 2009.

The following table summarizes the remaining unamortized balances of our purchased receivables portfolios by year of purchase as of March 31, 2009.

Purchase Period	Unamortized Balance as of March 31, 2009		Purchase Price (1)		Unamortized Balance as a Percentage of Purchase Price		Unamortized Balance as a Percentage of Total
	(dollars in thousands)
2003	$	5,393	$	87,150	6.2	%	1.6	%
2004		18,435		86,541	21.3		5.3
2005		26,079		100,762	25.9		7.5
2006 (2)		61,801		142,260	43.4		17.9
2007		93,104		169,520	54.9		26.9
2008		119,632		154,760	77.3		34.6
2009 (3)		21,605		22,078	97.9		6.2
Total	$	346,049	$	763,071	45.3	%	100.0	%

(1) Purchase price refers to the cash paid to a seller to acquire a portfolio less the purchase price for accounts that were sold at the time of purchase to another debt purchaser.

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

(3) Includes only three months of activity through March 31, 2009.

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The following table summarizes the purchased receivable revenues and amortization rates by year of purchase for the three months ended March 31, 2009 and 2008, respectively.

	Three months ended March 31, 2009
Year of Purchase	Collections		Revenue		Amortization Rate (1)		Monthly Yield (2)		Net Impairments			Zero Basis Collections
2003 and prior	$	17,233,931	$	16,193,556	N/M	%	N/M	%	$	(76,300	)	$	14,133,389
2004		6,876,528		3,323,676	51.7		5.46			2,017,600			1,032,336
2005		7,438,156		3,777,544	49.2		4.38			257,000			42,505
2006		16,272,598		11,240,280	30.9		5.73			796,000			1,997,549
2007		21,118,819		11,223,873	46.9		3.74			—			958,309
2008		24,144,876		10,422,230	56.8		2.68			455,000			89,472
2009		1,032,029		558,520	45.9		3.43			—			—
Totals	$	94,116,937	$	56,739,679	39.7		5.31		$	3,449,300		$	18,253,560
	Three months ended March 31, 2008
Year of Purchase	Collections		Revenue		Amortization Rate (1)		Monthly Yield (2)		Net Impairments			Zero Basis Collections
2002 and prior	$	14,575,197	$	14,187,683	N/M	%	N/M	%	$	(550,000	)	$	13,079,109
2003		11,897,021		10,145,297	14.7		31.89			(481,050	)		6,196,687
2004		9,594,231		6,579,328	31.4		7.11			1,050,347			975,199
2005		10,611,978		5,759,834	45.7		3.91			92,986			36,408
2006		24,887,906		15,533,913	37.6		5.56			92,000			1,958,947
2007		27,347,947		11,201,973	59.0		2.50			180,000			—
2008		1,350,001		314,660	76.7		1.38			—			—
Totals	$	100,264,281	$	63,722,688	36.4		6.20		$	384,283		$	22,246,350

(1) “N/M” indicates that the calculated percentage for aggregated vintage years is not meaningful.

(2) The monthly yield is the weighted-average yield determined by dividing purchased receivable revenues recognized in the period by the average of the beginning monthly carrying values of the purchased receivables for the period presented.

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Account Representative Productivity

We measure traditional call center account representative tenure by two major categories, those with less than one year of experience and those with one or more years of experience. The following tables display our results.

Account Representatives by Experience

	Three months ended March 31,		Year ended December 31,
	2009	2008	2008	2007 (3)
Number of account representatives:
One year or more (1)	573	495	515	558
Less than one year (2)	382	406	437	356
Total account representatives	955	901	952	914

(1) Based on number of average traditional call center Full Time Equivalent (“FTE”) account representatives and supervisors with one or more years of service.

(2) Based on number of average traditional call center FTE account representatives and supervisors with less than one year of service, including new associates in training.

(3) Certain associates have been reclassified to make the prior year disclosures comparable to 2008.

The following table displays our account representative productivity.

Overall Account Representative Collection Averages

	Three months ended March 31,				Year ended December 31,
	2009		2008		2008		2007 (1)
Overall collection averages	$	42,940	$	53,908	$	173,209	$	193,000

(1) The overall collection average has been restated to make the prior year disclosures comparable to 2008.

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Cash Collections

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

Historical Collections (1)

Purchase Period	Purchase Price (3)		Year Ended December 31,																														Three Months Ended March 31, 2009
			1999			2000			2001			2002			2003			2004			2005			2006			2007			2008
	(dollars in thousands)
Pre-1999			$	25,286		$	23,779		$	19,132		$	15,565		$	11,377		$	8,391		$	7,265		$	5,360		$	4,205		$	3,043		$	611
1999	$	12,924		3,761			11,331			10,862			9,750			8,278			6,675			5,022			3,935			2,949			1,982			402
2000		20,592		—			8,896			23,444			22,559			20,318			17,196			14,062			10,603			7,410			5,258			1,014
2001		43,030		—			—			17,630			50,327			50,967			45,713			39,865			30,472			21,714			13,351			2,636
2002		72,255		—			—			—			22,339			70,813			72,024			67,649			55,373			39,839			24,529			4,860
2003		87,150		—			—			—			—			36,067			94,564			94,234			79,423			58,359			38,408			7,710
2004		86,541		—			—			—			—			—			23,365			68,354			62,673			48,093			32,276			6,877
2005		100,762		—			—			—			—			—			—			23,459			60,280			50,811			35,638			7,438
2006 (2)		142,260		—			—			—			—			—			—			—			32,751			101,529			79,953			16,273
2007		169,520		—			—			—			—			—			—			—			—			36,269			93,183			21,119
2008		154,760		—			—			—			—			—			—			—			—			—			41,957			24,145
2009		22,078		—			—			—			—			—			—			—			—			—			—			1,032
Total			$	29,047		$	44,006		$	71,068		$	120,540		$	197,820		$	267,928		$	319,910		$	340,870		$	371,178		$	369,578		$	94,117
Cumulative Collections (1)
Purchase Period	Purchase Price (3)		Total Through December 31,																														Total Through March 31, 2009
			1999			2000			2001			2002			2003			2004			2005			2006			2007			2008
	(dollars in thousands)
1999	$	12,924	$	3,761		$	15,092		$	25,954		$	35,704		$	43,982		$	50,657		$	55,679		$	59,614		$	62,563		$	64,545			64,947
2000		20,592		—			8,896			32,340			54,899			75,217			92,413			106,475			117,078			124,488			129,746			130,760
2001		43,030		—			—			17,630			67,957			118,924			164,637			204,502			234,974			256,688			270,039			272,675
2002		72,255		—			—			—			22,339			93,152			165,176			232,825			288,198			328,037			352,566			357,426
2003		87,150		—			—			—			—			36,067			130,631			224,865			304,288			362,647			401,055			408,765
2004		86,541		—			—			—			—			—			23,365			91,719			154,392			202,485			234,761			241,638
2005		100,762		—			—			—			—			—			—			23,459			83,739			134,550			170,188			177,626
2006 (2)		142,260		—			—			—			—			—			—			—			32,751			134,280			214,233			230,506
2007		169,520		—			—			—			—			—			—			—			—			36,269			129,452			150,571
2008		154,760		—			—			—			—			—			—			—			—			—			41,957			66,102
2009		22,078		—			—			—			—			—			—			—			—			—			—			1,032
Cumulative Collections as Percentage of Purchase Price (1)
Purchase Period	Purchase Price (3)		Total Through December 31,																														Total Through March 31, 2009
			1999			2000			2001			2002			2003			2004			2005			2006			2007			2008
1999	$	12,924		29	%		117	%		201	%		276	%		340	%		392	%		431	%		461	%		484	%		499	%		503	%
2000		20,592		—			43			157			267			365			449			517			569			605			630			635
2001		43,030		—			—			41			158			276			383			475			546			597			628			634
2002		72,255		—			—			—			31			129			229			322			399			454			488			495
2003		87,150		—			—			—			—			41			150			258			349			416			460			469
2004		86,541		—			—			—			—			—			27			106			178			234			271			279
2005		100,762		—			—			—			—			—			—			23			83			134			169			176
2006 (2)		142,260		—			—			—			—			—			—			—			23			94			151			162
2007		169,520		—			—			—			—			—			—			—			—			21			76			89
2008		154,760		—			—			—			—			—			—			—			—			—			27			43
2009		22,078		—			—			—			—			—			—			—			—			—			—			5

(1) Does not include proceeds from sales of any receivables.

(2) Includes $8.3 million of portfolios acquired from the acquisition of PARC on April 28, 2006.

(3) Purchase price refers to the cash paid to a seller to acquire a portfolio less the purchase price for accounts that were sold at the time of purchase to another debt purchaser.

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Seasonality

The success of our business depends on our ability to collect on our purchased portfolios of charged-off consumer receivables. Collections within portfolios tend to be seasonally higher in the first and second quarters of the year due to consumers’ receipt of tax refunds and other factors. Conversely, collections within portfolios tend to be lower in the third and fourth quarters of the year due to consumers’ spending in connection with summer vacations, the holiday season and other factors. However, revenue recognized is relatively level, excluding the impact of impairments, due to the application of the provisions prescribed by SOP 03-3. In addition, our operating results may be affected to a lesser extent by the timing of purchases of charged-off consumer receivables due to the initial costs associated with purchasing and integrating these receivables into our system. Consequently, income and margins may fluctuate from quarter to quarter.

The following table illustrates our quarterly cash collections from January 1, 2005 through March 31, 2009.

Cash Collections

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

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

	For the three months ended March 31,
	2009				2008
	$		%		$		%
Traditional collections	$	41,020,445	43.6	%	$	47,528,939	47.4	%
Legal collections		38,694,026	41.1			38,177,527	38.1
Other collections		14,402,466	15.3			14,557,815	14.5
Total cash collections	$	94,116,937	100.0	%	$	100,264,281	100.0	%

The following chart categorizes our purchased receivable portfolios acquired from January 1, 1999 through March 31, 2009 into major asset types, as of March 31, 2009.

Asset Type	Face Value of Charged-off Receivables (2)		%		No. of Accounts	%
	(in thousands)				(in thousands)
Visa®/MasterCard®/Discover®	$	18,112,515	50.2	%	7,998	25.3	%
Private Label Credit Cards		5,139,821	14.3		7,228	22.9
Telecommunications/Utility/Gas		2,948,272	8.2		7,683	24.3
Health Club		1,676,610	4.6		1,414	4.5
Auto Deficiency		1,353,623	3.8		240	0.8
Installment Loans		1,223,367	3.4		354	1.1
Wireless Telecommunications		719,151	2.0		1,727	5.5
Other (1)		4,867,041	13.5		4,929	15.6
Total	$	36,040,400	100.0	%	31,573	100.0	%

(1) “Other” includes charged-off receivables of several debt types, including student loan, mobile home deficiency and retail mail order. This excludes the purchase of a single portfolio in June 2002 with a face value of $1.2 billion at a cost of $1.2 million (or 0.1% of face value) and consisting of approximately 3.8 million accounts.

(2) Face value of charged-off receivables represents the cumulative amount of purchases net of buybacks. The amount is not adjusted for payments received, settlements or additional accrued interest on any accounts in such portfolios after the date we purchased the applicable portfolio.

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The age of a charged-off consumer receivables portfolio, or the time since an account has been charged-off, is an important factor in determining the price at which we will offer to purchase a receivables portfolio. Generally, there is an inverse relationship between the age of a portfolio and the price at which we will purchase the portfolio. This relationship is due to the fact that older receivables are typically more difficult to collect. The accounts receivable management industry places receivables into the following categories depending on the number of collection agencies that have previously attempted to collect on the receivables and the age of the receivables:

• fresh accounts are typically 120 to 270 days past due, have been charged-off by the credit originator and are either being sold prior to any post charged-off collection activity or are placed with a third party collector for the first time. These accounts typically sell for the highest purchase price;

• primary accounts are typically 270 to 360 days past due, have been previously placed with one third party collector and typically receive a lower purchase price; and

• secondary and tertiary accounts are typically more than 360 days past due, have been placed with two or three third party collectors and receive even lower purchase prices.

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

The following chart categorizes our purchased receivable portfolios acquired from January 1, 1999 through March 31, 2009 into major account types as of March 31, 2009.

Account Type	Face Value of Charged-off Receivables (2)		%		No. of Accounts	%
	(in thousands)				(in thousands)
Fresh	$	2,405,791	6.7	%	1,452	4.6	%
Primary		4,769,111	13.2		4,647	14.7
Secondary		7,494,706	20.8		7,328	23.2
Tertiary (1)		16,991,435	47.1		15,028	47.6
Other		4,379,357	12.2		3,118	9.9
Total	$	36,040,400	100.0	%	31,573	100.0	%

(1) Excludes the purchase of a single portfolio in June 2002 with a face value of $1.2 billion at a cost of $1.2 million (or 0.1% of face value), and consisting of approximately 3.8 million accounts.

(2) Face value of charged-off receivables represents the cumulative amount of purchases net of buybacks. The amount is not adjusted for payments received, settlements or additional accrued interest on any accounts in such portfolios after the date we purchased the applicable portfolio.

We also review the geographic distribution of accounts within a portfolio because collection laws differ from state to state. The following chart illustrates our purchased receivables portfolios acquired from January 1, 1999 through March 31, 2009 based on geographic location of debtor, as of March 31, 2009.

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Geographic Location	Face Value of Charged-off Receivables (3)(4)		%		No. of Accounts	%
	(in thousands)				(in thousands)
Texas (1)	$	5,276,378	14.6	%	4,980	15.8	%
California		4,116,794	11.4		3,637	11.5
Florida (1)		3,577,590	9.9		2,309	7.3
New York		2,124,579	5.9		1,342	4.3
Michigan (1)		2,026,227	5.6		2,496	7.9
Ohio (1)		1,824,599	5.1		2,341	7.4
Illinois (1)		1,479,405	4.1		1,714	5.4
Pennsylvania		1,295,171	3.6		977	3.1
New Jersey (1)		1,175,390	3.3		958	3.0
North Carolina		1,050,066	2.9		717	2.3
Georgia		1,010,710	2.8		847	2.7
Other (2)		11,083,491	30.8		9,255	29.3
Total	$	36,040,400	100.0	%	31,573	100.0	%

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

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

(3) Excludes the purchase of a single portfolio in June 2002 with a face value of $1.2 billion at a cost of $1.2 million (or 0.1% of face value) and consisting of approximately 3.8 million accounts.

(4) Face value of charged-off receivables represents the cumulative amount of purchases net of buybacks. The amount is not adjusted for payments received, settlements or additional accrued interest on any accounts in such portfolios after the date we purchased the applicable portfolio.

Liquidity and Capital Resources

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

In 2008, we entered into an agreement with a third party collecting on our behalf. Under this agreement, we will receive a total cash advance of $7.0 million in quarterly installments through November 2009. We have received $5.5 million through the quarter ended March 31, 2009, and incurred $7.0 million in court cost expenses, which were offset with the cash advance. An asset of $1.5 million for the court costs incurred in excess of the cash advance received is included in other assets in the consolidated statements of financial position. The parent company of the third party collecting on our behalf announced its intent to sell the entity; however, we do not anticipate such event to affect performance under the agreement.

Borrowings

We maintain a credit agreement with JPMorgan Chase Bank, N.A., as administrative agent, and a syndicate of lenders named therein, that originated on June 5, 2007 and was amended on March 10, 2008 (the “Credit Agreement”). Under the terms of the Credit Agreement, we have a five-year $100.0 million revolving credit facility (the “Revolving Credit Facility”) and a six-year $150.0 million term loan facility (the “Term Loan Facility” and together with the Revolving Credit Facility, the “Credit Facilities”). The Credit Facilities bear interest at prime or up to 125 basis points over prime depending upon our liquidity, as defined in the Credit Agreement. Alternately, at our discretion, we may borrow by entering into one, two, three, six or twelve-month London Inter Bank Offer Rate (“LIBOR”) contracts at rates between 150 to 250 basis points over the respective LIBOR rates, depending on our liquidity. Our Revolving Credit Facility includes an accordion loan feature that allows us to request a $25.0 million increase as well as sublimits for $10.0 million of letters of credit and for $10.0 million of swingline loans. The Credit Agreement is secured by a first priority lien on all of our assets. The Credit Agreement also contains certain covenants and restrictions that we must comply with, which as of March 31, 2009 were:

• Leverage Ratio (as defined) cannot exceed (i) 1.25 to 1.0 at any time on or before June 29, 2009, (ii) 1.125 to 1.0 at any time on or after June 30, 2009 and on or before December 31, 2010 or (iii) 1.0 to 1.0 at any time thereafter;

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

• Consolidated Tangible Net Worth must equal or exceed $80.0 million plus 50% of positive consolidated net income for three consecutive fiscal quarters ending December 31, 2007 and for each fiscal year ending thereafter, such amount to be added as of December 31, 2007 and as of the end of each such fiscal year thereafter.

The Credit Agreement contains a provision that requires us to repay Excess Cash Flow, as defined, to reduce the indebtedness outstanding under our Credit Agreement. The annual repayment of our Excess Cash Flow was effective with the issuance of our audited consolidated financial statements for the year ended 2008, and we made the required payment of $2.4 million during the three months ended March 31, 2009. The Excess Cash Flow repayment provisions are:

• 50% of the Excess Cash Flow for such fiscal year if the Leverage Ratio was greater than 1.0 to 1.0 as of the end of such fiscal year;

• 25% of the Excess Cash Flow for such fiscal year if the Leverage Ratio was less than or equal to 1.0 to 1.0 but greater than 0.875 to 1.0 as of the end of such fiscal year; or

• 0% if the Leverage Ratio is less than or equal to 0.875 to 1.0 as of the end of such fiscal year.

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

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

We had $162.0 million principal balance outstanding on our Credit Facilities at March 31, 2009. We believe we are in compliance with all terms of the Credit Agreement as of March 31, 2009.

Cash Flows

The majority of our purchases have been funded with borrowings against our Revolving Credit Facility and with internal cash flow. For the three months ended March 31, 2009, we invested $21.6 million in purchased receivables, net of buybacks, while having a net repayment of $19.5 million on our Credit Facilities. The net repayment on our Credit Facilities included $35.0 million of repayments partially offset by $15.5 million of borrowings against our Revolving Credit Facility. Our cash balance has increased from $6.0 million at December 31, 2008 to $8.3 million as of March 31, 2009.

Our operating activities provided cash of $9.9 million and $16.7 million for the three months ended March 31, 2009 and 2008, respectively. Cash provided by operating activities for the three months ended March 31, 2009 and 2008 was generated primarily from net income earned through cash collections as adjusted for the timing of payments in income taxes payable, accounts payable and accrued liabilities as of March 31, 2009 compared to December 31, 2008.

Investing activities provided cash of $11.8 million and $13.6 million for the three months ended March 31, 2009 and 2008, respectively. Cash provided by investing activities for the three months ended March 31, 2009 and 2008 was primarily due to cash collections applied to principal, net of acquisitions of purchased receivables, which was partially offset by purchases of property and equipment.

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Financing activities used cash of $19.5 million and $28.0 million for the three months ended March 31, 2009 and 2008, respectively. Cash used by financing activities for the three months ended March 31, 2009 was primarily due to repayments on our Revolving Credit Facility and Term Loan Facility, which included the $2.4 million Excess Cash Flow repayment of the Term Loan Facility. Cash used by financing activities for the three months ended March 31, 2008 was due to repayments on our Revolving Credit Facility, Term Loan Facility and payment of credit facility charges of $0.6 million associated with the amendment of the Credit Agreement.

Although cash collections declined for the three months ended March 31, 2009 compared to the prior year period, we believe that cash generated from operations combined with borrowing available under our Credit Facilities will be sufficient to fund our operations for the next twelve months, although no assurance can be given in this regard. In the future, if we need additional capital for investment in purchased receivables, working capital or to grow our business or acquire other businesses, we may seek to sell additional equity or debt securities or we may seek to increase the availability under our Revolving Credit Facility.

Future Contractual Cash Obligations

The following table summarizes our future contractual cash obligations as of March 31, 2009:

	Year Ending December 31,
	2009(3)		2010		2011		2012		2013		Thereafter
Operating lease obligations	$	4,067,925	$	4,611,233	$	4,321,372	$	4,020,146	$	3,642,407	$	8,995,391
Purchase agreement (1)		1,336,000		—		—		—		—		—
Purchased receivables (2)		33,285,990		—		—		—		—		—
Revolving credit (3)		—		—		—		17,100,000		—		—
Term loan (4)		1,125,000		1,500,000		1,500,000		1,500,000		139,322,514		—
Contractual interest on derivative instruments		3,485,705		3,444,413		2,198,781		946,267
Total (5)	$	43,300,620	$	9,555,646	$	8,020,153	$	23,566,413	$	142,964,921	$	8,995,391

(1) In 2007, we signed a software agreement with a software provider and initiated a project to install a new collection platform. We have a contractual commitment to purchase $1.3 million in additional software and consulting services. Costs will be capitalized in accordance with the guidance in SOP 98-1 “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use”. This project is funded with cash from operations and borrowings on our Revolving Credit Facility.

(2) We have nine forward flow contracts that have terms beyond March 31, 2009 with the last contract expiring in December 2009. Seven forward flow contracts have estimated monthly purchases of approximately $4.4 million, depending upon circumstances, and the other two on-going forward flow contracts have estimated monthly purchases of approximately $15,500 over the next twelve months.

(3) To the extent that a balance is outstanding on our Revolving Credit Facility, it would be due in June 2012 or earlier as defined in the Credit Agreement. Interest on our Revolving Credit Facility is variable and is not included within the amount outstanding as of March 31, 2009.

(4) To the extent that a balance is outstanding on our Term Loan Facility, it would be due in June 2013. The variable interest is not included within the amount outstanding as of March 31, 2009.

(5) We have recorded a liability of $0.9 million relating to uncertain tax positions, which has been excluded from the table above because the amount and fiscal year of the payment cannot be reliably estimated.

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Off-Balance Sheet Arrangements

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

Recently Issued Accounting Pronouncements

Refer to Note 1 to Consolidated Financial Statements entitled “Basis of Presentation and Summary of Significant Accounting Policies” for a discussion of recent accounting pronouncements and their impact on our Consolidated Financial Statements.

Critical Accounting Policies

Revenue Recognition

We utilize the interest method of accounting for our purchased receivables because we believe that the amounts and timing of cash collections for our purchased receivables can be reasonably estimated. This belief is predicated on our historical results and our knowledge of the industry. The interest method is prescribed by SOP 03-3.

We adopted the provisions of SOP 03-3 in January 2005 and apply SOP 03-3 to purchased receivables acquired after December 31, 2004. The provisions of SOP 03-3 that relate to decreases in expected cash flows amend previously followed guidance, PB 6, for consistent treatment and apply prospectively to purchased receivables acquired before January 1, 2005. We purchase pools of homogenous accounts receivable and record each pool at its acquisition cost. Pools purchased after 2004 may be aggregated into one or more static pools within each quarter, based on common risk characteristics. Risk characteristics of purchased receivables are assumed to be similar since purchased receivables are usually in the late stages of the post charged-off collection cycle. We therefore aggregate most pools purchased within each quarter. Pools purchased before 2005 may not be aggregated with other pool purchases. Each static pool, either aggregated or non-aggregated, retains its own identity and does not change over the remainder of its life. Each static pool is accounted for as a single unit for recognition of revenue, principal payments and impairments.

Each static pool of receivables is statistically modeled to determine its projected cash flows based on historical cash collections for pools with similar characteristics. An internal rate of return (“IRR”) is calculated for each static pool of receivables based on the projected cash flows. The IRR is applied to the remaining balance of each static pool of accounts to determine the revenue recognized. Each static pool is analyzed at least quarterly to assess the actual performance compared to the expected performance. To the extent there are differences in actual performance versus expected performance, the IRR is adjusted prospectively to reflect the revised estimate of cash flows over the remaining life of the static pool. Effective January 2005, under SOP 03-3, if the revised cash flow estimates are less than the original estimates, the IRR remains unchanged and an impairment is recognized. If cash flow estimates increase subsequent to recording an impairment, reversal of the previously recognized impairment is made prior to any increases to the IRR.

The cost recovery method prescribed by SOP 03-3 is used when collections on a particular portfolio cannot be reasonably predicted. Under the cost recovery method, no revenue is recognized until we have fully collected the cost of the portfolio.

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

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Goodwill and Intangible Assets not Subject to Amortization

We periodically review the carrying value of intangible assets not subject to amortization, including goodwill, to determine whether impairment may exist. SFAS No. 142, “Goodwill and Other Intangible Assets”, requires that goodwill and certain intangible assets not subject to amortization be assessed annually for impairment using fair value measurement techniques.

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

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

The annual impairment test for other intangible assets not subject to amortization, for example, trademark and trade names, consists of a comparison of the fair value of the intangible asset with its carrying value. If the carrying value of the intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. The estimates of fair value of intangible assets not subject to amortization are determined using various discounted cash flow valuation methodologies. Significant assumptions are inherent in this process, including estimates of discount rates. Discount rate assumptions are based on an assessment of the risk inherent in the respective intangible assets. We performed a discounted cash flow analysis of our trademark and trade names as of December 31, 2008 and determined that no impairment charges were required.

Income Taxes

We record a tax provision for the anticipated tax consequences of the reported results of operations. In accordance with SFAS No. 109, “Accounting for Income Taxes,” (“SFAS 109”) the provision for income taxes is computed using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities, and for operating losses and tax credit carry-forwards. Deferred tax assets and liabilities are measured using the enacted tax rates and laws that will be in effect when the differences are expected to be reversed.

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

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FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—an interpretation of SFAS No. 109” (“FIN 48”), clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS 109. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Our exposure to market risk relates to the interest rate risk with our Credit Facilities. We may periodically enter into interest rate swap agreements to modify the interest rate exposure associated with our outstanding debt. The outstanding borrowings on our Credit Facilities were $162.0 million and $181.6 million as of March 31, 2009 and December 31, 2008, respectively. In September 2007, we entered into an amortizing interest rate swap agreement whereby, on a quarterly basis, we swap variable rates equal to three-month LIBOR for fixed rates on the notional amount of $125 million. Every year thereafter, on the anniversary of the swap agreement the notional amount will decrease by $25 million. The outstanding unhedged borrowings on our Credit Facilities were $62.0 million as of March 31, 2009, consisting of $17.1 million outstanding on the Revolving Credit Facility and $44.9 million outstanding on the term loan facility. Interest rates on unhedged borrowings may be based on the Prime rate or LIBOR, at our discretion. Assuming a 200 basis point increase in interest rates, interest expense would have increased approximately $0.8 million and $0.3 million on the unhedged borrowings for the three months ended March 31, 2009 and 2008, respectively.

For the three months ended March 31, 2009, the swap was determined to be highly effective in hedging against fluctuations in variable interest rates associated with the underlying debt. Interest rates have decreased since we entered into our swap agreement, reducing the fair value and resulting in a liability balance. Additional declines in interest rates will further reduce the fair value, while increasing interest rates will increase the fair value.

Interest rate fluctuations do not have a material impact on interest income.

Item 4. Controls and Procedures

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

There have been no changes in our internal controls over financial reporting that occurred during our fiscal quarter ended March 31, 2009 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

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

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

Item 6. Exhibits

Exhibit Number	Description
10.1+*	2009 Annual Incentive Compensation Plan for Management (Portions of this document have been omitted pursuant to a request for confidential treatment)
10.2+*	Employment Agreement dated January 21, 2009, between Rion B. Needs and Asset Acceptance, LLC
10.3+*	Form of Restricted Stock Unit Award Agreement (Time Based)
31.1*	Rule 13a-14(a) Certification of Chief Executive Officer
31.2*	Rule 13a-14(a) Certification of Chief Financial Officer
32.1*	Section 1350 Certification of Chief Executive Officer and Chief Financial Officer

* Filed herewith

+ Management contract or compensatory plan or arrangement

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized on May 1, 2009.

	ASSET ACCEPTANCE CAPITAL CORP.
Date: May 1, 2009	By:	/s/ Rion B. Needs
		Rion B. Needs
		President and Chief Executive Officer (Principal Executive Officer)
Date: May 1, 2009	By:	/s/ Mark A. Redman
		Mark A. Redman
		Senior Vice President-Finance and Chief Financial Officer (Principal Financial and Accounting Officer)

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