Asset Acceptance Reports Official Earnings for 2005; Higher Collections but Wireless Telecom Portfolios Weigh

Asset Acceptance Capital Corp., a leading purchaser and collector of charged-off consumer debt, today announced fourth quarter and year-ended December 31, 2005 results, highlighted by an 11.9 percent increase in cash collections compared with the prior-year fourth quarter.

Revenues declined to $53.8 million for the fourth quarter ended December 31, 2005, compared with revenues of $57.5 million in the fourth quarter of 2004, in-line with the estimates provided on February 2, 2006. Asset Acceptance reported that cash collections grew to $76.5 million in the fourth quarter of 2005, versus cash collections of $68.3 million in the prior year period. Net income for the quarter was $6.1 million, or $0.16 per fully diluted share, compared with net income of $12.6 million, or $0.34 per fully diluted share, for the fourth quarter of 2004. The decline in fourth quarter profitability is largely attributable to net impairment charges of $15.3 million, $9.0 million after taxes, or $0.24 per share, in recognition of a lower than anticipated rate of collections on purchased portfolios.

During the fourth quarter of 2005, Asset Acceptance invested $25.6 million to purchase consumer debt portfolios with a face value of $884.0 million, representing a blended rate of 2.89 percent of face value. This compares to the prior-year fourth quarter, when the Company invested $26.9 million to purchase consumer debt portfolios with a face value of $1.25 billion, representing a blended rate of 2.15 percent of face value. For the full-year 2005, Asset Acceptance invested $102.3 million to purchase consumer debt portfolios, up 17.1 percent from the full-year 2004 period, with a cumulative face value of $4.17 billion. All purchase data is adjusted for buybacks.

“As discussed in early February, our fourth quarter results were largely impacted by higher than anticipated purchased receivable impairments related to investments in several large wireless telecom portfolios in 2005,” said Brad Bradley president and CEO of Asset Acceptance Capital Corp. “While this experience has left us more cautious in our pursuit of newer asset classes which may incur a higher degree of risk than certain traditional credit card portfolios, our purchasing strategy remains intact, grounded in our ability to be disciplined yet opportunistic purchasers of appropriately priced consumer debt portfolios.”

“The pricing climate in the fourth quarter remained stable at elevated levels, similar to what was experienced in the third quarter. We remained opportunistic, but disciplined in our approach to purchasing portfolios that we believe will provide satisfactory returns,” continued Bradley.

For the fiscal year-ended December 31, 2005, Asset Acceptance reported total revenue of $252.7 million, a 17.7 percent increase from 2004. Cash collections for the full-year fiscal 2005 were $319.9 million, an increase of 19.4 percent from 2004.

“In spite of the challenges we faced in the third and fourth quarters, we are reporting double-digit percentage gains in both revenue and profitability in fiscal 2005,” stated Bradley. In fiscal 2005, we surpassed the 1,000 account representative mark for the first time, ending the year with nearly 15 percent more associates than in the previous year. As we enter 2006, we plan to continue to leverage the well-trained talent within our ranks to our advantage and look to add additional talent to our growing collections operations.”

Fourth Quarter and Year-Ended 2005: Key Highlights

• Total revenues declined 6.4 percent year-on-year to $53.8 million for the fourth quarter 2005, compared with revenues of $57.5 million in the fourth quarter of 2004. Total revenues for 2005 increased to $252.7 million, up 17.7 percent from 2004.
• For the fourth quarter of 2005, investment in purchased receivables of $25.6 million was down 4.9 percent compared to the same period in 2004. Investment in purchased receivables increased to $102.3 million year- to-date, up 17.1 percent from 2004.
• Total cash collections increased 11.9 percent year-on-year to $76.5 million in the fourth quarter of 2005, versus cash collections of $68.3 million in the fourth quarter of 2004. Total cash collections year-to- date increased to $319.9 million, up 19.4 percent from 2004.
• Call center, legal and other collections all increased in the fourth quarter and full-year 2005 versus the same periods in 2004.
  • Call center collections increased year-on-year by 2.1 percent to $37.9 million. Call center collections for 2005 increased to $165.6 million, up 8.0 percent from 2004.
  • Legal collections increased year-on-year by 25.7 percent to $28.7 million. Legal collections for 2005 increased to $114.7 million, up 38.2 percent from 2004.
  • Other collections, which include forwarding, bankruptcy and probate collections, increased for 2005 by 17.7 percent to $9.9 million. Other collections for 2005 increased to $39.6 million, up 25.1 percent from 2004.
• Collections on fully amortized portfolios, commonly referred to as zero-basis collections, increased year-on-year by 50.0 percent to $15.0 million. Zero-basis collections increased for the full year 2005 to $56.1 million, up 79.9 percent from 2004.
• Net income for the fourth quarter 2005 declined 51.5 percent year-on- year to $6.1 million or $0.16 per fully diluted share. Net income year-to-date increased to $51.3 million or $1.38 per fully diluted share, compared to a net income of $0.7 million, or $0.02 per fully diluted share during 2004, including one-time items recognized within the first quarter of 2004. On an adjusted basis, net income increased 7.3 percent in the twelve months ended December 31, 2005 versus the year ago period, with the Company earning adjusted net income of $47.8 million, or $1.31 per fully diluted share. The reported (GAAP) results accounted for within the year-ended 2004 included a previously announced one-time compensation and related payroll tax charge of $45.7 million resulting from the vesting of share appreciation rights upon the initial public offering and a deferred income tax charge of $19.3 million as a result of the reorganization in anticipation of the initial public offering. A reconciliation of reported GAAP net loss to the adjusted basis is set forth below.
• Quarterly account representative productivity on a full-time equivalent basis was $35,114 in the fourth quarter of 2005, a decline of 10.8 percent from the year-ago period. The Company reported that on a year- on-year basis, the average number of account representatives increased 14.5 percent to 1,081 account representatives in the current period.
• Asset Acceptance collected on purchases made from credit card issuers, retailers, finance companies, utilities, healthcare providers and other credit originators during the fourth quarter of 2005 and continues to maintain a diverse mix of asset types in its consumer debt portfolios.

Mark A. Redman, vice president-finance and CFO of Asset Acceptance Capital Corp., concluded: “Collections growth continued to slow in 2005, largely due to the leveling off of the face amount of purchased receivables over the last four years. However, our capital structure remains solid, highlighted by a strong cash position and no debt outstanding on our line of credit. We generated enough profits during 2005 to invest over $100 million in purchased receivables and grow our cash position by $36.3 million. We believe our business strategy remains sound, while our ongoing initiatives to identify, attract and retain new collections talent continues to be a key priority for the Company as we move forward into 2006.”