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Asset Acceptance Capital Corp. Reports Third Quarter 2012 Results

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WARREN, Mich.--(BUSINESS WIRE)--

Asset Acceptance Capital Corp. (NASDAQ: AACC), a leading purchaser and collector of charged-off consumer debt, today reported results for the quarter ended September 30, 2012.

Third Quarter 2012 Financial Highlights:

Cash collections for the third quarter of 2012 were $89.2 million, an increase of 2.0% compared to the prior year period. Results included 14.8%, or $5.8 million, cash collection growth from the Company's legal channel.

Third quarter revenues were $54.7 million, down 3.4% compared to the prior year period. The Company reported net impairment reversals of $0.5 million compared to net impairment reversals of $2.7 million in the prior year period. Results in the current quarter included a non-cash impairment of $1.7 million, or $0.06 per fully diluted share, pre-tax, on one pool.

Operating expenses were $48.6 million representing a slight increase of $0.1 million, or 0.1% from the prior year. Results reflected a continued investment in the Company's legal channel and an increase in the associated up-front costs. Legal investments increased to $10.2 million, or $0.33 per fully diluted share, pre-tax, during the quarter compared to $8.3 million, or $0.27 per fully diluted share, pre-tax, in the prior year period. Operating expenses also included $0.3 million, or $0.01 per fully diluted share, pre-tax, of restructuring costs related to actions taken to close the Tempe, Arizona collections office. Cost to collect for the quarter was 54.5%, an improvement of 100 basis points from the third quarter 2011, notwithstanding the unfavorable comparative impacts of the increased legal investment and restructuring charges.

Income tax expense was a net benefit of $0.5 million which was due to tax credits, state tax refund claims from prior years, and additional benefits achieved through a state sourcing strategy. As a result of these benefits, the year-to-date effective tax rate was lowered to 24.5%.

The Company reported net income of $1.5 million, or $0.05 per fully diluted share, net of tax, during the third quarter of 2012, compared to a net income of $3.1 million, or $0.10 per fully diluted share, net of tax, in the third quarter of 2011.

Adjusted Earnings Before Interest Taxes Depreciation and Amortization (“Adjusted EBITDA”) was $42.5 million, a 1.8% increase from $41.7 million in the third quarter of 2011. Adjusted EBITDA was adversely impacted by the increased investment in legal costs compared to prior year.

During the third quarter of 2012, the Company invested $23.9 million to purchase charged-off consumer debt portfolios with a face value of $766.2 million, for a blended rate of 3.13%. This compares to the prior-year third quarter, when the Company invested $38.3 million to purchase consumer debt portfolios with a face value of $1.3 billion, for a blended rate of 2.91%. All purchase data is adjusted for buybacks.

Rion Needs, President and CEO of Asset Acceptance Capital Corp., commented, “While we are not content with the reported results for the quarter, we are executing on initiatives and investments that we expect will position the Company for accelerated growth going forward. These include the restructuring actions we took during the quarter and the continued investments in our legal channel. Our investments in this channel are beginning to pay dividends as evidenced by the continued momentum in this business, specifically the sequential growth rate in this channel during the quarter. In addition, we maintained a focus on further streamlining our business operations by reducing our cost and geographic footprint. We expect the closure of our Tempe, Arizona collections call center and expansion of our legal collections operations in our Riverview, Florida office to drive improved results in 2013 and beyond.”

On September 10, 2012, the Company announced that it will be expanding its legal collections operations in Riverview, Florida and closing its Tempe, Arizona collections call center. The closing of the Tempe collections office, along with related inventory reallocations is expected to increase earnings on an annual basis by approximately $4.0 million or $0.10 per share, net of tax.

First Nine Months 2012 Financial Highlights

For the nine-month period ended September 30, 2012, the Company reported cash collections of $282.2 million compared to cash collections of $267.9 million in the first nine months of 2011, an increase of $14.3 million or 5.3%. Results included 9.1%, or $10.9 million, cash collection growth from the Company's legal channel.

Total revenues in the first nine months of 2012 were $175.2 million compared to $161.7 million in the prior year. Revenue on purchased receivables was $174.5 million during the first nine months of 2012, an increase of 8.5% from the prior year.

Total operating expenses in the first nine months of 2012 were $145.3 million, an increase of $5.4 million or 3.8%. Cost to collect was 51.5% of cash collections compared to 52.2% from the prior year period. Results included legal channel investment of $25.7 million, or $0.83 per fully diluted share, pre-tax, compared to $21.5 million, or $0.70 per fully diluted share, pre-tax, for the comparable period last year.

Net income for the first nine months of 2012 was $10.7 million, or $0.34 per fully diluted share, net of tax, compared to net income of $7.8 million, or $0.25 per fully diluted share, net of tax, in the same period of 2011, an increase of 36.7%.

For the first nine months of 2012, Adjusted EBITDA was $142.5 million, a 6.0% increase from $134.5 million in the first nine months of 2011.

During the first nine months of 2012, the Company invested $104.0 million to purchase charged-off consumer debt portfolios with a face value of $3,651.0 million, for a blended rate of 2.85% of face value. This compares to the prior-year nine month period, when the Company invested $133.9 million to purchase charged-off consumer debt portfolios with a face value of $4,140.9 million, for a blended rate of 3.23% of face value. All purchase data is adjusted for buybacks.

Please refer to Supplemental Financial Data beginning on page six for additional information about the Company's financial results for the three and nine months ended September 30, 2012 and prior year periods. In addition, please see a reconciliation of net income according to Generally Accepted Accounting Principles (“GAAP”) to Adjusted EBITDA beginning on page 13.

Third Quarter 2012 Earnings Conference Call

Asset Acceptance Capital Corp. will host a conference call at 4:30 p.m. Eastern today to discuss these results and current business trends. To listen to a live webcast of the call, please go to the investor section of the Company's web site at www.AssetAcceptance.com. A replay of the webcast will be available until October 29, 2013.

About Asset Acceptance Capital Corp.

For 50 years, Asset Acceptance has provided credit originators, such as credit card issuers, consumer finance companies, retail merchants, utilities and others an efficient alternative in recovering defaulted consumer debt. For more information, please visit www.AssetAcceptance.com.

Asset Acceptance Capital Corp. Safe Harbor Statement

This press release contains certain statements, including the Company's plans and expectations regarding its operating strategies, charged-off receivables, collections and costs, which are forward-looking statements and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include reference to the Company's presentations and webcasts. These forward-looking statements reflect the Company's views, expectations and beliefs at the time such statements were made with respect to such matters, as well as the Company's future plans, objectives, events, portfolio purchases and pricing, collections and financial results such as revenues, expenses, income, earnings per share, capital expenditures, operating margins, financial position, expected results of operations and other financial items. Forward-looking statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions (“Risk Factors”) that make the timing, extent, likelihood and degree of occurrence of these matters difficult to predict. Words such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “should,” “could,” “will,” variations of such words and similar expressions are intended to identify forward-looking statements.

There are a number of factors, many of which are beyond the Company's control, which could cause actual results and outcomes to differ materially from those described in the forward-looking statements. These Risk Factors include the Risk Factors discussed under “Item 1A Risk Factors” in the Company's most recently filed Annual Report on Form 10-K and in other SEC filings, in each case under a section titled “Risk Factors” or similar headings and those discussions regarding risk factors as well as the discussion of forward-looking statements in such sections are incorporated herein by reference. Other Risk Factors exist, and new Risk Factors emerge from time to time that may cause actual results to differ materially from those contained in any forward-looking statements. Factors that could affect our results and cause them to materially differ from those contained in the forward-looking statements include the following:

  • failure to comply with government regulation;
  • increased costs or a decrease in collections if changes in the way we conduct business or additional costs to conduct business result from supervision and regulation by the Consumer Financial Protection Bureau or unknown ramifications from the Dodd-Frank Wall Street Reform and Consumer Protection Act;
  • our ability to purchase charged-off receivable portfolios on acceptable terms and in sufficient amounts;
  • instability in the financial markets and continued economic weakness or recession impacting our ability to acquire and collect on charged-off receivable portfolios and our operating results;
  • our ability to maintain existing, and to secure additional financing on acceptable terms;
  • changes in relationships with third parties collecting on our behalf;
  • intense competition on bids for portfolio purchases that could impair our ability to achieve our goals;
  • ongoing risks of litigation in our litigious industry, including individual and class actions under consumer credit, collections and other laws;
  • concentration of a significant portion of our portfolio purchases during any period with a small number of sellers;
  • our ability to substantiate our application of tax rules against examinations and challenges made by tax authorities;
  • our ability to collect sufficient amounts from our purchases of charged-off receivable portfolios;
  • our ability to diversify beyond collecting on our purchased receivables portfolios into ancillary lines of business;
  • a decrease in collections as a result of negative attention or news regarding the debt collection industry and debtors' willingness to pay the debt we acquire;
  • our ability to respond to technology downtime and changes in technology to remain competitive;
  • our ability to make reasonable estimates of the timing and amount of future cash receipts and assumptions underlying the calculation of the net impairment charges or IRR increases for purposes of recording purchased receivable revenues;
  • the costs, uncertainties and other effects of legal and administrative proceedings impacting our ability to collect on judgments in our favor;
  • our ability to successfully hire, train, integrate into our collections operations and retain in-house account representatives; and
  • other unanticipated events and conditions that may hinder our ability to compete.

Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. Furthermore, the Company expressly disclaims any obligation to update, amend or clarify forward-looking statements.

Supplemental Financial Data

Quarterly trends for certain financial metrics are shown in the table below.

(Unaudited, $ in Millions, except collections per account representative)   Q3 ‘12   Q2 ‘12   Q1 ‘12   Q4 ‘11  

Q3 ‘11

Total revenues   $ 54.7     $ 58.7     $ 61.8     $ 56.4     $ 56.6  
Cash collections   $ 89.2     $ 91.9     $ 101.1     $ 82.1     $ 87.4  
Operating expenses to cash collections     54.5 %     52.7 %     47.8 %     55.1 %     55.5 %
Call center collections   $ 44.1     $ 48.8     $ 58.7     $ 44.7     $ 48.2  
Legal collections   $ 45.1     $ 43.1     $ 42.4     $ 37.4     $ 39.2  
Amortization rate     39.0 %     36.4 %     39.1 %     31.6 %     35.6 %
Core amortization (1)     44.4 %     42.0 %     44.7 %     36.9 %     41.6 %
Collections on fully amortized portfolios   $ 10.9     $ 12.2     $ 12.7     $ 11.8     $ 12.6  
Investment in purchased receivables (2)   $ 23.9     $ 58.9     $ 21.2     $ 26.7     $ 38.3  
Face value of purchased receivables (2)   $ 766.2     $ 2,080.7     $ 804.1     $ 1,180.4     $ 1,317.1  
Average cost of purchased receivables (2)     3.13 %     2.83 %     2.63 %     2.27 %     2.91 %
Number of purchased receivable portfolios     17       28       27       26       31  
Collections per account representative FTE (3)   $ 47,593     $ 49,873     $ 60,482     $ 42,282     $ 42,135  
Average account representative FTE's (3)     413       446       480       546       601  
         
(1)   The core amortization rate is calculated as total amortization divided by collections on amortizing portfolios.
(2) All purchase data is adjusted for buybacks.
(3) Historical information has not been adjusted for collection center closings.
 
 
 

The following table summarizes purchased receivable revenues and amortization rates by year of purchase:

  Three months ended September 30, 2012

Year
of Purchase

Collections   Revenue  

Amortization
Rate (1)

  Monthly

Yield (2)

 

Net
Impairments
(Reversals)

 

Zero Basis

Collections

2006 and prior $ 13,002,016 $ 11,848,325 N/M N/M $ (1,584,800 ) $ 8,726,718
2007 5,968,564 4,167,287 30.2 % 8.62 % (618,000 ) 1,271,044
2008 8,135,013 5,207,535 36.0 7.51 882,334
2009 12,589,633 8,163,725 35.2 7.71 38,364
2010 15,003,601 7,797,744 48.0 3.99
2011 22,769,691 9,824,350 56.9 2.70 1,717,000
2012   11,699,729   7,424,774 36.5 2.89      
Totals $ 89,168,247 $ 54,433,740 39.0 % 5.11 % $ (485,800 ) $ 10,918,460
 
 
  Three months ended September 30, 2011

Year
of Purchase

Collections   Revenue  

Amortization
Rate (1)

 

Monthly
Yield (2)

 

Net
Impairments
(Reversals)

 

Zero Basis

Collections

2005 and prior $ 12,851,763 $ 12,121,177 N/M N/M $ (1,228,100 ) $ 10,282,392
2006 6,458,530 4,176,153 35.3 % 11.27 % (1,155,000 ) 634,018
2007 8,804,890 4,353,546 50.6 5.14 (350,000 ) 250,263
2008 11,593,862 6,374,200 45.0 5.45 1,448,771
2009 16,156,896 9,550,306 40.9 5.67 11,734
2010 18,249,572 9,280,467 49.1 3.11
2011   13,322,377   10,438,718 21.6 3.26      
Totals $ 87,437,890 $ 56,294,567 35.6 % 5.42 % $ (2,733,100 ) $ 12,627,178
 
 
  Nine months ended September 30, 2012

Year

of Purchase

Collections   Revenue  

Amortization
Rate (1)

 

Monthly
Yield (2)

 

Net

Impairments
(Reversals)

 

Zero Basis
Collections

2006 and prior $ 45,613,202 $ 41,303,484 N/M N/M $ (6,889,600 ) $ 28,805,984
2007 20,898,497 14,438,725 30.9 % 8.92 % (3,611,400 ) 3,419,320
2008 28,521,507 18,199,860 36.2 7.65 3,419,482
2009 43,607,885 29,325,416 32.8 8.12 (2,304,000 ) 149,997
2010 50,883,808 25,316,350 50.2 3.81
2011 73,170,271 34,555,839 52.8 2.85 3,427,000
2012   19,474,946   11,356,088 41.7 2.95      
Totals $ 282,170,116 $ 174,495,762 38.2 % 5.61 % $ (9,378,000 ) $ 35,794,783
 
 
  Nine months ended September 30, 2011

Year

of Purchase

Collections   Revenue  

Amortization
Rate (1)

 

Monthly

Yield (2)

 

Net

Impairments

(Reversals)

 

Zero Basis

Collections

2005 and prior $ 41,869,974 $ 37,104,776 N/M N/M $ (3,367,100 ) $ 31,083,506
2006 20,279,215 12,713,065 37.3 % 9.61 % (2,705,800 ) 2,109,765
2007 29,072,113 13,449,001 53.7 4.49 117,000 863,639
2008 37,871,244 19,602,641 48.2 4.84 4,812,507
2009 54,729,671 29,209,017 46.6 5.04 2,304,000 11,734
2010 60,288,455 30,236,967 49.8 3.06
2011   23,783,710   18,441,263 22.5 3.30      
Totals $ 267,894,382 $ 160,756,730 40.0 % 5.33 % $ (3,651,900 ) $ 38,881,151
 
(1)   “N/M” indicates that the calculated percentage 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.
 
 
 

Purchased Receivable Revenues

The table below shows components of revenue from purchased receivables, the amortization rate and the core amortization rate. We use the core amortization rate to monitor performance of pools with remaining balances, and to determine if impairments, impairment reversals, or yield increases should be recorded. Core amortization trends may identify over or under performance compared to forecasts for pools with remaining balances.

The following factors contributed to the change in amortization rates from the prior year:

  • total amortization and the amortization rate increased for the third quarter of 2012 compared to 2011. For the first nine months of 2012 compared to the same period in 2011, total amortization increased while the amortization rate decreased. The increase in the amortization rate for the third quarter was due to lower zero basis collections and net impairment reversals in 2012, while the decrease in the rate during the first nine months of 2012 compared to 2011 was primarily the result of higher net impairment reversals and higher total collections. Portfolio balances that amortize too slowly in relation to current or expected collections may lead to impairments. If portfolio balances amortize too quickly and we expect collections to continue to exceed expectations, previously recognized impairments may be reversed, or if there are no impairments to reverse, assigned yields may increase;
  • amortization of receivable balances for each period of 2012 increased compared to 2011 as a result of higher collections on amortizing pools;
  • net impairment reversals are recorded as a reduction to amortization and decrease the amortization rate, while net impairments have the opposite effect. Higher net impairment reversals for the first nine months of 2012 decreased total amortization compared to the same period in 2011, while lower net impairment reversals for the third quarter of 2012 had the opposite effect; and
  • declining zero basis collections in the third quarter and first nine months of 2012 compared to the same periods in 2011 increased the amortization rate because 100% of these collections are recorded as revenue and do not contribute towards portfolio amortization.

($ in millions)

 

Three Months Ended

September 30,

 

Nine Months Ended

September 30,

2012   2011 2012   2011
Cash collections:
Collections on amortizing pools $ 78.3 $ 74.8 $ 246.4 $ 229.0
Zero basis collections   10.9     12.6     35.8     38.9  
Total collections $ 89.2   $ 87.4   $ 282.2   $ 267.9  
 
Amortization:
Amortization of receivables balances $ 35.3 $ 33.5 $ 116.9 $ 109.0
Reversals of impairments (2.2 ) (2.7 ) (12.8 ) (6.5 )
Impairments 1.7 3.4 2.8
Cost recovery amortization       0.3     0.2     1.8  
Total amortization $ 34.8   $ 31.1   $ 107.7   $ 107.1  
 
Purchased receivable revenues, net $ 54.4   $ 56.3   $ 174.5   $ 160.8  
 
Amortization rate 39.0 % 35.6 % 38.2 % 40.0 %
 
Core amortization rate (1) 44.4 % 41.6 % 43.7 % 46.8 %
 
(1)   The core amortization rate is calculated as total amortization divided by collections on amortizing portfolios.
 
 
 

ASSET ACCEPTANCE CAPITAL CORP.

Consolidated Statements of Operations

(Unaudited)

   
 
Three Months Ended September 30, Nine Months Ended September 30,

2012

 

2011

2012

 

2011

Revenues
Purchased receivable revenues, net $ 54,433,740 $ 56,294,567 $ 174,495,762 $ 160,756,730
Gain on sale of purchased receivables 7,727
Other revenues, net   261,055     318,965     734,274     943,210  
Total revenues   54,694,795     56,613,532     175,237,763     161,699,940  
Expenses
Salaries and benefits 14,389,078 16,943,855 45,881,833 51,702,960
Collections expense 28,922,617 26,089,521 84,782,927 73,828,877
Occupancy 1,466,425 1,465,568 4,287,620 4,302,259
Administrative 2,333,977 3,155,217 6,519,031 7,190,614
Depreciation and amortization 1,166,107 944,118 3,655,785 2,994,633
Restructuring charges 284,842 358,467
Gain on disposal of equipment and other assets       (92,075 )   (174,451 )   (86,182 )
Total operating expenses   48,563,046     48,506,204     145,311,212     139,933,161  
Income from operations 6,131,749 8,107,328 29,926,551 21,766,779
Other income (expense)
Interest expense (5,137,234 ) (2,631,787 ) (15,832,845 ) (7,932,278 )
Interest income 139 152 22,885 283
Other   673     476     33,579     (1,640 )
Income before income taxes 995,327 5,476,169 14,150,170 13,833,144
Income tax (benefit) expense   (539,974 )   2,405,567     3,469,622     6,018,137  
Net income $ 1,535,301   $ 3,070,602   $ 10,680,548   $ 7,815,007  
 
Weighted-average number of shares:
Basic 30,924,121 30,781,016 30,871,237 30,752,965
Diluted 31,179,325 30,843,313 31,038,925 30,834,889
Earnings per common share outstanding:
Basic $ 0.05 $ 0.10 $ 0.35 $ 0.25
Diluted $ 0.05 $ 0.10 $ 0.34 $ 0.25
 
 
 

ASSET ACCEPTANCE CAPITAL CORP.

Consolidated Statements of Comprehensive Income

(Unaudited)

   
 
Three Months Ended September 30, Nine Months Ended September 30,
2012   2011 2012   2011
Net income $ 1,535,301 $ 3,070,602 $ 10,680,548 $ 7,815,007
Other comprehensive income (loss):
Unrealized gain (loss) on cash flow hedging:
Unrealized (loss) gain arising during period (143,362 ) 69,528 (969,535 ) (60,359 )
Less: reclassification adjustment for loss included in net income   310,265     544,663     1,008,677     1,714,648  
Net unrealized gain on cash flow hedging 166,903 614,191 39,142 1,654,289
 
Other comprehensive gain, before tax 166,903 614,191 39,142 1,654,289
Income tax expense related to other comprehensive income   (80,879 )   (219,716 )   (84,789 )   (613,976 )
Other comprehensive income (loss), net of tax   86,024     394,475     (45,647 )   1,040,313  
Comprehensive income $ 1,621,325   $ 3,465,077   $ 10,634,901   $ 8,855,320  
 
 
 

ASSET ACCEPTANCE CAPITAL CORP.

Consolidated Statements of Financial Position

   
September 30, 2012   December 31, 2011
(Unaudited)
ASSETS
 
Cash $ 13,585,816 $ 6,990,757
Purchased receivables, net 344,497,047 348,710,787
Income taxes receivable 604,670 354,241
Property and equipment, net 12,076,571 14,488,659
Goodwill 14,323,071 14,323,071
Other assets   10,867,028     11,172,804  
Total assets $ 395,954,203   $ 396,040,319  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
Liabilities:
Accounts payable $ 3,096,373 $ 3,296,905
Accrued liabilities 18,103,252 20,018,561
Income taxes payable 716,885 1,925,761
Notes payable 159,125,247 172,122,870
Capital lease obligations 37,657 221,420
Deferred tax liability, net   65,327,152     60,474,041  
Total liabilities   246,406,566     258,059,558  
 
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 — 33,437,571 and 33,334,281 at September 30, 2012 and December 31, 2011, respectively 334,376 333,343
Additional paid in capital 151,469,966 150,449,620
Retained earnings 39,843,193 29,162,645
Accumulated other comprehensive loss, net of tax (578,239 ) (532,592 )
Common stock in treasury; at cost, 2,667,479 and 2,649,729 shares at September 30, 2012 and December 31, 2011, respectively   (41,521,659 )   (41,432,255 )
Total stockholders' equity   149,547,637     137,980,761  
Total liabilities and stockholders' equity $ 395,954,203   $ 396,040,319  
 
 
 

ASSET ACCEPTANCE CAPITAL CORP.

Consolidated Statements of Cash Flows

(Unaudited)

 
Nine Months Ended September 30,

2012

 

2011

Cash flows from operating activities
Net income $ 10,680,548 $ 7,815,007
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 3,655,785 2,994,633
Amortization of deferred financing costs and debt discount 2,667,453 1,062,123
Amortization of de-designated hedge 116,696
Deferred income taxes 4,768,322 5,783,570
Share-based compensation expense 1,021,379 1,073,241
Net impairment reversals of purchased receivables (9,378,000 ) (3,651,900 )
Non-cash revenue (6,184 ) (129 )
Gain on disposal of equipment and other assets (174,451 ) (86,182 )
Gain on sale of purchased receivables (7,727 )
Changes in assets and liabilities:
Increase in other assets (593,331 ) (862,185 )
Decrease in accounts payable and other accrued liabilities (2,096,402 ) (5,452,798 )
(Increase) decrease in net income taxes payable   (1,459,305 )   3,068,923  
Net cash provided by operating activities   9,194,783     11,744,303  
 
Cash flows from investing activities
Investments in purchased receivables, net of buybacks (103,548,645 ) (133,906,306 )
Principal collected on purchased receivables 117,058,538 110,789,681
Purchases of property and equipment (1,518,315 ) (2,491,159 )
Proceeds from sale of property and equipment 352,076 99,000
Proceeds from sale of purchased receivables   95,758      
Net cash provided by (used in) investing activities   12,439,412     (25,508,784 )
 
Cash flows from financing activities
Repayments of term loan facility (6,562,500 ) (1,125,000 )
Net borrowings on revolving credit facility (8,200,000 ) 17,500,000
Payments of deferred financing costs (3,469 ) (260,878 )
Payments on capital lease obligations (183,763 ) (65,247 )
Purchases of treasury shares   (89,404 )   (106,565 )
Net cash (used in) provided by financing activities   (15,039,136 )   15,942,310  
Net increase in cash 6,595,059 2,177,829
Cash at beginning of period   6,990,757     5,635,503  
Cash at end of period $ 13,585,816   $ 7,813,332  
 
Supplemental disclosure of cash flow information
Cash paid for interest, net of capitalized interest $ 13,282,699 $ 6,909,686
Net cash paid (received) for income taxes 160,606 (2,817,694 )
Non-cash investing and financing activities:
Change in fair value of interest rate swap liabilities (77,554 ) 1,654,289
Change in unrealized loss on cash flow hedge, net of tax 45,647 (1,040,313 )
 
 
 

Reconciliation of GAAP Net Income to Adjusted EBITDA (Unaudited)

This press release includes a discussion of "Adjusted EBITDA," which is a non-GAAP financial measure. The Company defines Adjusted EBITDA as net income or loss plus (a) the provision for income taxes, (b) interest expense, (c) depreciation and amortization, (d) share-based compensation, (e) gain or loss on sale of assets, net, (f) non-cash restructuring charges and impairment of assets, (g) purchased receivables amortization, (h) loss on extinguishment of debt, and (i) in accordance with the Company's credit facilities, certain FTC related charges and cash restructuring charges (not to exceed $2.25 million for any period of four consecutive fiscal quarters).

The Company believes this non-GAAP financial measure provides important supplemental information to management and investors. This non-GAAP financial measure reflects an additional way of viewing aspects of the Company's operations that, when viewed with the GAAP results and the accompanying reconciliation to the most directly comparable GAAP financial measure, provide a more complete understanding of factors and trends affecting the Company's business and results of operations.

Management uses Adjusted EBITDA for planning purposes, including the preparation of internal budgets and forecasts; in communications with the Board of Directors, stockholders, analysts and investors concerning its financial performance; as a key component in management's annual incentive compensation plan; and as a measure of operating performance for the financial covenants in the Company's amended credit agreement. The Company also believes that analysts and investors use Adjusted EBITDA as a supplemental measure to evaluate the overall operating performance of companies in its industry.

Adjusted EBITDA, which is a non-GAAP financial measure, should not be considered an alternative to, or more meaningful than, net income or loss prepared on a GAAP basis. Management strongly encourages investors to review the Company's consolidated financial statements in their entirety and to not rely on any single financial measure. Because non-GAAP financial measures are not standardized, it may not be possible to compare this financial measure with other companies' non-GAAP financial measures having the same or similar names. In addition, the Company expects to continue to incur expenses similar to the non-GAAP adjustments described above, and exclusion of these items from the Company's non-GAAP measure should not be construed as an inference that these costs are unusual, infrequent or non-recurring.

The Company provided the following table which reconciles GAAP net income, as reported, to Adjusted EBITDA:

  Three Months Ended September 30,   Nine Months Ended September 30,
2012   2011 2012   2011
Net income $ 1,535,301 $ 3,070,602 $ 10,680,548 $ 7,815,007
Adjustments:
Income tax (benefit) expense (539,974 ) 2,405,567 3,469,622 6,018,137
Interest expense 5,137,234 2,631,787 15,832,845 7,932,278
Depreciation and amortization 1,166,107 944,118 3,655,785 2,994,633
Share-based compensation 180,334 289,581 1,021,379 1,073,241
Purchased receivables amortization 34,734,507 31,143,323 107,674,354 107,137,652
Gain on sale of assets, net (92,075 ) (182,178 ) (86,182 )
Non-cash restructuring charges 206,386 195,103
Cash restructuring charges 78,456 163,364
FTC related charges       1,354,633     7,898     1,597,560  
Adjusted EBITDA $ 42,498,351   $ 41,747,536   $ 142,518,720   $ 134,482,326  
 
(1)   Adjusted EBITDA as reported for 2011 has been restated to be consistent with the current presentation. The definition of Adjusted EBITDA was updated during 2011 in order to be consistent with a similar definition used in our Credit Agreement. The restatement increased the amounts previously disclosed by $152 and $283 for the three and nine months ended September 30, 2011. We believe the revised definition of Adjusted EBITDA better matches the uses as described above.

Asset Acceptance Capital Corp.
Mary Arraf, 586-983-7087
marraf@assetacceptance.com

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