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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES x 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 definitions of “large accelerated filer,” “accelerated filer,” “non-accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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

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


	June 30, 2012		December 31, 2011		September 30, 2012		December 31, 2011
Assets

Cash and cash equivalents	$	42,621	$	26,697	$	31,488	$	26,697
Finance receivables, net		966,508		926,734		973,594		926,734
Accounts receivable, net		8,580		7,862		8,417		7,862
Property and equipment, net		26,016		25,727		25,506		25,727
Goodwill		99,384		61,678		100,456		61,678
Intangible assets, net		22,364		14,596		21,167		14,596
Other assets		8,265		7,829		9,070		7,829


Total assets	$	1,173,738	$	1,071,123	$	1,169,698	$	1,071,123


Liabilities and Equity

Liabilities:
Accounts payable	$	10,508	$	7,439	$	10,234	$	7,439
Accrued expenses and other liabilities		6,859		6,076		11,197		6,076
Income taxes payable		8,468		13,109		7,359		13,109
Accrued payroll and bonuses		11,588		16,036		13,241		16,036
Net deferred tax liability		190,639		193,898		186,506		193,898
Line of credit		292,000		220,000		250,000		220,000
Long-term debt		849		1,246		674		1,246

Total liabilities		520,911		457,804		479,211		457,804


Commitments and contingencies (Note 13)

Redeemable noncontrolling interest		19,381		17,831		19,998		17,831


Stockholders’ equity:
Preferred stock, par value $0.01, authorized shares, 2,000, issued and outstanding shares - 0		—		—		—		—
Common stock, par value $0.01, 60,000 authorized shares, 16,879 issued and outstanding shares at June 30, 2012, and 17,134 issued and outstanding shares at December 31, 2011		169		171
Common stock, par value $0.01, 60,000 authorized shares, 16,881 issued and outstanding shares at September 30, 2012, and 17,134 issued and outstanding shares at December 31, 2011						169		171
Additional paid-in capital		147,881		167,719		149,818		167,719
Retained earnings		485,075		427,598		518,389		427,598
Accumulated other comprehensive income		321		—		2,113		—

Total stockholders’ equity		633,446		595,488		670,489		595,488


Total liabilities and equity	$	1,173,738	$	1,071,123	$	1,169,698	$	1,071,123

The accompanying notes are an integral part of these consolidated financial statements.


													Three Months Ended						Nine Months Ended
	Three Months Ended June 30,						Six Months Ended June 30,						September 30,						September 30,
	2012			2011			2012			2011			2012			2011			2012			2011

Revenues:
Income recognized on finance receivables, net	$	132,587		$	100,303		$	256,812		$	196,277		$	135,754		$	102,875		$	392,566		$	299,152
Fee income		15,298			14,492			31,218			30,295			14,765			11,401			45,983			41,696

Total revenues		147,885			114,795			288,030			226,572			150,519			114,276			438,549			340,848

Operating expenses:
Compensation and employee services		42,479			34,815			82,173			68,968			41,334			33,475			123,508			102,443
Legal collection fees		8,988			5,970			16,606			11,719			8,635			5,962			25,241			17,681
Legal collection costs		18,227			9,879			41,895			19,218			15,810			9,731			57,705			28,949
Agent fees		1,323			1,724			2,951			4,362			1,545			1,643			4,495			6,005
Outside fees and services		5,584			4,066			11,444			7,481			10,131			6,222			21,575			13,702
Communications		7,007			5,706			15,260			12,020			6,777			5,865			22,037			17,884
Rent and occupancy		1,656			1,438			3,268			2,835			1,786			1,517			5,053			4,353
Depreciation and amortization		3,555			3,316			7,210			6,532			3,623			3,223			10,833			9,755
Other operating expenses		4,470			3,501			8,206			6,353			3,820			2,808			12,027			9,161

Total operating expenses		93,289			70,415			189,013			139,488			93,461			70,446			282,474			209,933


Gain on sale of property		—			1,157			—			1,157			—			—			—			1,157


Income from operations		54,596			45,537			99,017			88,241			57,058			43,830			156,075			132,072
Other income and (expense):
Interest income		7			—			8			—			—			7			8			7
Interest expense		(2,381	)		(2,635	)		(5,034	)		(5,502	)		(2,189	)		(2,555	)		(7,223	)		(8,057	)


Income before income taxes		52,222			42,902			93,991			82,739			54,869			41,282			148,860			124,022

Provision for income taxes		20,171			17,326			36,751			33,454			21,742			16,089			58,493			49,544


Net income	$	32,051		$	25,576		$	57,240		$	49,285		$	33,127		$	25,193		$	90,367		$	74,478

Adjustment for (income)/loss attributable to redeemable noncontrolling interest		(36	)		(2	)		237			(590	)
Adjustment for (loss)/income attributable to redeemable noncontrolling interest														(187	)		(313	)		(424	)		277


Net income attributable to Portfolio Recovery Associates, Inc.	$	32,015		$	25,574		$	57,477		$	48,695		$	33,314		$	25,506		$	90,791		$	74,201


Net income per common share attributable to Portfolio Recovery Associates, Inc:
Basic	$	1.88		$	1.49		$	3.36		$	2.85		$	1.97		$	1.49		$	5.33		$	4.34
Diluted	$	1.87		$	1.48		$	3.34		$	2.83		$	1.96		$	1.48		$	5.30		$	4.31

Weighted average number of shares outstanding:
Basic		17,027			17,108			17,111			17,100			16,881			17,117			17,034			17,106
Diluted		17,133			17,225			17,200			17,212			17,022			17,228			17,140			17,218

The accompanying notes are an integral part of these consolidated financial statements.


												Three Months Ended						Nine Months Ended
	Three Months Ended June 30,						Six Months Ended June 30,					September 30,						September 30,
	2012			2011			2012		2011			2012			2011			2012			2011

Net income	$	32,051		$	25,576		$	57,240	$	49,285		$	33,127		$	25,193		$	90,367		$	74,478
Other comprehensive income:
Foreign currency translation adjustments		(1,026	)		—			321		—			1,792			—			2,113			—

Total other comprehensive income		(1,026	)		—			321		—			1,792			—			2,113			—

Comprehensive income		31,025			25,576			57,561		49,285			34,919			25,193			92,480			74,478
Comprehensive loss/(income) attributable to noncontrolling interest		(36	)		(2	)		237		(590	)
Comprehensive (loss)/income attributable to noncontrolling interest													(187	)		(313	)		(424	)		277

Comprehensive income attributable to Portfolio Recovery Associates, Inc.	$	30,989		$	25,574		$	57,798	$	48,695		$	35,106		$	25,506		$	92,904		$	74,201

The accompanying notes are an integral part of these consolidated financial statements.


							Additional					Accumulated Other		Total									Additional					Accumulated Other		Total
	Common Stock						Paid-in			Retained		Comprehensive		Stockholders’			Common Stock						Paid-in			Retained		Comprehensive		Stockholders’
	Shares			Amount			Capital			Earnings		Income		Equity			Shares			Amount			Capital			Earnings		Income		Equity

Balance at December 31, 2011		17,134		$	171		$	167,719		$	427,598	$	—	$	595,488			17,134		$	171		$	167,719		$	427,598	$	—	$	595,488

Components of comprehensive income:
Net income attributable to Portfolio Recovery Associates, Inc.		—			—			—			57,477		—		57,477			—			—			—			90,791		—		90,791
Foreign currency translation adjustment		—			—			—			—		321		321			—			—			—			—		2,113		2,113
Vesting of nonvested shares		77			1			(1	)		—		—		—			79			1			(1	)		—		—		—
Repurchase and cancellation of common stock		(332	)		(3	)		(22,723	)		—		—		(22,726	)		(332	)		(3	)		(22,723	)		—		—		(22,726	)
Amortization of share-based compensation		—			—			5,576			—		—		5,576			—			—			8,361			—		—		8,361
Income tax benefit from share-based compensation		—			—			1,435			—		—		1,435			—			—			1,484			—		—		1,484
Employee stock relinquished for payment of taxes		—			—			(2,077	)		—		—		(2,077	)		—			—			(2,170	)		—		—		(2,170	)
Adjustment of the noncontrolling interest measurement amount		—			—			(2,048	)		—		—		(2,048	)		—			—			(2,852	)		—		—		(2,852	)


Balance at June 30, 2012		16,879		$	169		$	147,881		$	485,075	$	321	$	633,446
Balance at September 30, 2012																		16,881		$	169		$	149,818		$	518,389	$	2,113	$	670,489

The accompanying notes are an integral part of these consolidated financial statements.


							Nine Months Ended
	Six Months Ended June 30,						September 30,
	2012			2011			2012			2011
Cash flows from operating activities:
Net income	$	57,240		$	49,285		$	90,367		$	74,478
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of share-based compensation		5,576			4,622			8,361			6,110
Depreciation and amortization		7,210			6,532			10,833			9,755
Deferred tax (benefit)/expense		(3,244	)		23,171			(7,377	)		27,327
Gain on sale of property		—			(1,157	)		—			(1,157	)
Changes in operating assets and liabilities:
Other assets		(121	)		(711	)		(353	)		(953	)
Accounts receivable		1,320			2,249			1,579			2,470
Accounts payable		(432	)		2,100			(856	)		1,921
Income taxes		(5,850	)		5,240			(7,024	)		5,014
Accrued expenses		(3,016	)		528			931			2,242
Accrued payroll and bonuses		(4,447	)		(4,882	)		(2,799	)		(4,036	)


Net cash provided by operating activities		54,236			86,977			93,662			123,171

Cash flows from investing activities:
Purchases of property and equipment		(2,952	)		(3,682	)		(5,362	)		(4,851	)
Proceeds from sale of property		—			1,267			—			1,267
Acquisition of finance receivables, net of buybacks		(229,388	)		(194,906	)		(329,444	)		(314,162	)
Collections applied to principal on finance receivables		193,608			146,721			286,907			226,014
Business acquisition, net of cash acquired		(48,653	)		—			(48,653	)		—


Net cash used in investing activities		(87,385	)		(50,600	)		(96,552	)		(91,732	)

Cash flows from financing activities:
Proceeds from exercise of options		—			149			—			150
Income tax benefit from share-based compensation		1,435			459			1,484			503
Proceeds from line of credit		151,000			2,000			160,000			27,000
Principal payments on line of credit		(79,000	)		(52,000	)		(130,000	)		(67,000	)
Repurchases of common stock		(22,726	)		—			(22,726	)		—
Distributions paid to noncontrolling interest		—			(2,059	)		—			(2,308	)
Principal payments on long-term debt		(397	)		(539	)		(572	)		(843	)


Net cash provided by/(used in) financing activities		50,312			(51,990	)		8,186			(42,498	)


Effect of exchange rate on cash		(1,239	)		—			(505	)		—

Net increase/(decrease) in cash and cash equivalents		15,924			(15,613	)		4,791			(11,059	)

Cash and cash equivalents, beginning of period		26,697			41,094			26,697			41,094


Cash and cash equivalents, end of period	$	42,621		$	25,481		$	31,488		$	30,035


Supplemental disclosure of cash flow information:
Cash paid for interest	$	5,312		$	5,256		$	7,577		$	7,771
Cash paid for income taxes		44,509			6,784			71,521			19,058

Noncash investing and financing activities:
Adjustment of the noncontrolling interest measurement amount	$	(2,048	)	$	(2,045	)	$	(2,852	)	$	(3,175	)
Distributions payable relating to noncontrolling interest		261			247			261			—
Employee stock relinquished for payment of taxes		(2,077	)		—			(2,170	)		—

The accompanying notes are an integral part of these consolidated financial statements.

Portfolio Recovery Associates, Inc., a Delaware corporation, and its subsidiaries (collectively, the “Company”) is a specialized financial and business service company. Its primary business is the purchase, collection and management of portfolios of defaulted consumer receivables. The Company also services receivables on behalf of clients on either a commission or transaction-fee basis and provides class action claims settlement recovery services and related payment processing to corporate clients.

The consolidated financial statements of the Company are prepared in accordance with U.S. generally accepted accounting principles and include the accounts of all of its subsidiaries. All significant intercompany accounts and transactions have been eliminated. Under the guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 280 “Segment Reporting” (“ASC 280”), the Company has determined that it has several operating segments that meet the aggregation criteria of ASC 280, and therefore, it has one reportable segment, accounts receivable management, based on similarities among the operating units including homogeneity of services, service delivery methods and use of technology.

With the acquisition of Mackenzie Hall Holdings Limited, a limited company organized under the laws of England and Wales, and its subsidiaries (“MHH”) on January 16, 2012, the Company began doing business in the United Kingdom. The assets, liabilities and operations of the Company’s foreign subsidiary are recorded based on the functional currency of the entity. For MHH, the functional currency is the local currency, which is the Pound Sterling. Accordingly, the assets, liabilities and operations are translated, for consolidation purposes, from the local currency to the U.S. dollar reporting currency at period-end rates for assets and liabilities and generally at average rates for results of operations and cash flows. The resulting unrealized gains or losses are reported as a component of accumulated other comprehensive income. Realized gains and losses resulting from foreign currency transactions are recorded in “Other operating expenses” in the consolidated income statements.

The following table shows the amount of revenue generated for the three and ~~six~~nine months ended ~~June~~September 30, 2012 and long-lived assets held at ~~June~~September 30, 2012 by geographical location (amounts in thousands):


									As Of And For The Three Months				As Of And For The Nine Months
	As Of And For The Three Months Ended June 30, 2012				As Of And For The Six Months Ended June 30, 2012				Ended September 30, 2012				Ended September 30, 2012
	Revenues		Long-Lived Assets		Revenues		Long-Lived Assets		Revenues		Long-Lived Assets		Revenues		Long-Lived Assets
United States	$	143,342	$	24,333	$	278,849	$	24,333	$	145,585	$	23,596	$	424,434	$	23,596
United Kingdom		4,543		1,683		9,181		1,683		4,934		1,910		14,115		1,910

Total	$	147,885	$	26,016	$	288,030	$	26,016	$	150,519	$	25,506	$	438,549	$	25,506

Revenues are attributed to countries based on the location of the related operations and long-lived assets consist of net property and equipment. Prior to the acquisition of MHH on January 16, 2012, all revenue generated and long-lived assets held related to the Company’s United States operations.

The accompanying unaudited consolidated 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 (“SEC”) and, therefore, do not include all information and disclosures required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of the Company, however, the accompanying unaudited consolidated financial statements contain all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the Company’s consolidated balance sheet as of ~~June~~September 30, 2012, its consolidated income statements and statements of comprehensive income for the three and ~~six~~nine months ended ~~June~~September 30, 2012 and 2011, its consolidated statement of changes in stockholders’ equity for the ~~six~~nine months ended ~~June~~September 30, 2012, and its consolidated statements of cash flows for the ~~six~~nine months ended ~~June~~September 30, 2012 and 2011. The consolidated income statements of the Company for the three and ~~six~~nine months ended ~~June 30, 2012 may not be indicative of future results.~~

September 30, 2012 may not be indicative of future results. Certain reclassifications have been made to prior year amounts to conform to the current year presentation. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s 2011 Annual Report on Form 10-K, as filed ~~for the year ended December 31, 2011.~~on February 28, 2012.

The Company accounts for its investment in finance receivables under the guidance of ASC Topic 310-30, “Loans and Debt Securities Acquired with Deteriorated Credit Quality” (“ASC 310-30”). The Company acquires portfolios of accounts that have experienced deterioration of credit quality between origination and the Company’s acquisition of the accounts. The amount paid for a portfolio reflects the Company’s determination that it is probable the Company will be unable to collect all amounts due according to an account’s contractual terms. At acquisition, the Company reviews the accounts to determine whether there is evidence of deterioration of credit quality since origination, and if it is probable that the Company will be unable to collect all amounts due according to the loan’s contractual terms. If both conditions exist, the Company then determines whether each such account is to be accounted for individually or whether such accounts will be assembled into pools based on common risk characteristics. The Company considers expected prepayments and estimates the amount and timing of undiscounted expected principal, interest and other cash flows (expected at acquisition) for each acquired portfolio based on the Company’s proprietary models, and the Company subsequently aggregates portfolios of accounts into pools. The Company determines the excess of the pool’s scheduled contractual principal and contractual interest payments over all cash flows expected at acquisition as an amount that should not be accreted (nonaccretable difference). The remaining amount, representing the excess of the pool’s cash flows expected to be collected over the amount paid, is accreted into income recognized on finance receivables over the remaining estimated life of the pool (accretable yield). ASC 310-30 requires that the excess of the contractual cash flows over expected cash flows, based on the Company’s estimates derived from its proprietary collection models, not be recognized as an adjustment of revenue or expense or on the balance sheet.

Under ASC 310-30 static pools of accounts may be established. These pools are aggregated based on certain common risk criteria. Each static pool is recorded at cost, which includes certain direct costs of acquisition paid to third parties, and is accounted for as a single unit for the recognition of income, payments applied to principal and loss provision. Once a static pool is established for a calendar quarter, individual receivable accounts are not added to the pool (unless replaced by the seller) or removed from the pool (unless sold or returned to the seller). ASC 310-30, utilizing the interest method, initially freezes the yield, estimated when the accounts are purchased as the basis for subsequent impairment testing. The yield is estimated and periodically recalculated based on the timing and amount of anticipated cash flows using the Company’s proprietary collection models. Income on finance receivables is accrued quarterly based on each static pool’s effective yield. Significant increases in expected future cash flows may be recognized prospectively, through an upward adjustment of the yield, over a pool’s remaining life. Any increase to the yield then becomes the new benchmark for impairment testing. Under ASC 310-30, rather than lowering the estimated yield if the collection estimates are not received or projected to be received, the carrying value of a pool would be written down to maintain the then current yield and is shown as a reduction in revenue in the consolidated income statements with a corresponding valuation allowance offsetting finance receivables, net, on the consolidated balance sheets. Cash flows greater than the interest accrual will reduce the carrying value of the static pool. This reduction in carrying value is defined as payments applied to principal (also referred to as principal amortization). Likewise, cash flows that are less than the interest accrual will accrete the carrying balance. Generally, the Company does not record accretion in the first six to twelve months of the life of the pool; accordingly, the Company utilizes either the cost recovery method or cash method when necessary to prevent accretion as permitted by ASC 310-30. Under the cash method, revenue is recognized as it would be under the interest method up to the amount of cash collections. Under the cost recovery method, no revenue is recognized until the Company has fully collected the cost of

the pool. A pool can become fully amortized (zero carrying balance on the balance sheet) while still generating cash collections. In this case, all cash collections are recognized as revenue when received. Additionally, the Company uses the cost recovery method when collections on a particular pool of accounts cannot be reasonably predicted. These cost recovery pools are not aggregated with other pools. Under the cost recovery method, no revenue is recognized until the Company has fully collected the cost of

the pool, or until such time that the Company considers the collections to be probable and estimable and begins to recognize income based on the interest method as described above. At ~~June~~September 30, 2012 and 2011, the Company had unamortized purchased principal (purchase price) in pools accounted for under the cost recovery method of ~~$0.6~~$4.5 million and ~~$1.2~~$12.8 million, respectively; at December 31, 2011, the amount was $7.4 million.

The Company establishes valuation allowances, if necessary, for acquired accounts subject to ASC 310-10. Valuation allowances are established only subsequent to acquisition of the accounts. At ~~June~~September 30, 2012 and 2011, the Company had a valuation allowance against its finance receivables of ~~$89.3~~$90.8 million and ~~$82.7~~$83.5 million, ~~respectively. At~~respectively; at December 31, 2011, the valuation allowance was $86.6 million.

The Company implements the accounting for income recognized on finance receivables under ASC 310-30 as follows. The Company creates each accounting pool using its projections of estimated cash flows and expected economic life. The Company then computes the effective yield that fully amortizes the pool to the end of its expected economic life based on the current projections of estimated cash flows. As actual cash flow results are recorded, the Company balances those results to the data contained in its proprietary models to ensure accuracy, then reviews each pool watching for trends, actual performance versus projections and curve shape (a graphical depiction of the timing of cash flows), sometimes re-forecasting future cash flows utilizing the Company’s statistical models. The review process is primarily performed by the Company’s finance staff; however, the Company’s operational and statistical staffs are also involved, providing updated statistical input and cash projections to the finance staff. To the extent there is overperformance, the Company will either increase the yield or release the allowance and consider increasing future cash projections, if persuasive evidence indicates that the overperformance is considered to be a significant betterment. If the over performance is considered more of an acceleration of cash flows (a timing difference), the Company will: a) adjust estimated future cash flows downward which effectively extends the amortization period to fall within a reasonable expectation of the pool’s economic life, b) introduce some level of future cash adjustment as noted previously coupled with an increase in yield in order for the amortization period to fall within a reasonable expectation of the pool’s economic life, or c) take no action at all if the amortization period falls within a reasonable expectation of the pool’s expected economic life. To the extent there is underperformance, the Company will record an allowance if the underperformance is significant and will also consider revising estimated future cash flows based on current period information, or take no action if the pool’s amortization period is reasonable and falls within the currently projected economic life.

Changes in finance receivables, net for the three and ~~six~~nine months ended ~~June~~September 30, 2012 and 2011 were as follows (amounts in thousands):


													Three Months Ended			Three Months Ended			Nine Months Ended			Nine Months Ended
	Three Months Ended			Three Months Ended			Six Months Ended			Six Months Ended			September 30, 2012			September 30, 2011			September 30, 2012			September 30, 2011
	June 30, 2012			June 30, 2011			June 30, 2012			June 30, 2011
Balance at beginning of period	$	945,242		$	866,992		$	926,734		$	831,330		$	966,508		$	879,515		$	926,734		$	831,330
Acquisitions of finance receivables, net of buybacks		121,246			88,501			233,339			194,906			100,063			119,256			333,402			314,162
Foreign currency translation adjustment		(142	)		—			43			—			321			—			365			—

Cash collections		(232,425	)		(176,281	)		(450,420	)		(342,998	)		(229,052	)		(182,168	)		(679,473	)		(525,166	)
Income recognized on finance receivables, net		132,587			100,303			256,812			196,277			135,754			102,875			392,566			299,152

Cash collections applied to principal		(99,838	)		(75,978	)		(193,608	)		(146,721	)		(93,298	)		(79,293	)		(286,907	)		(226,014	)


Balance at end of period	$	966,508		$	879,515		$	966,508		$	879,515		$	973,594		$	919,478		$	973,594		$	919,478

At the time of acquisition, the life of each pool is generally estimated to be between 60 to 96 months based on projected amounts and timing of future cash collections using the proprietary models of the Company. Based upon current projections, cash collections applied to principal on finance receivables as of ~~June~~September 30, 2012 are estimated to be as follows for the twelve months in the periods ending (amounts in thousands):

During the three and ~~six~~nine months ended ~~June~~September 30, 2012, the Company purchased approximately ~~$1.52~~$1.26 billion and ~~$2.98~~$4.24 billion, respectively, in face value of charged-off consumer receivables. During the three and ~~six~~nine months ended ~~June~~September 30, 2011, the Company purchased approximately ~~$1.41~~$5.68 billion and ~~$2.90~~$8.59 billion, respectively, in face value of charged-off consumer receivables. At ~~June~~September 30, 2012, the estimated remaining collections (“ERC”) on the receivables purchased in the three and ~~six~~nine months ended ~~June~~September 30, 2012, were ~~$232.2~~$195.7 million and ~~$423.7~~$594.8 million, respectively. At ~~June~~September 30, 2012, ERC on the receivables purchased in the three and ~~six~~nine months ended ~~June~~September 30, 2011, were ~~$140.1~~$195.3 million and ~~$296.3~~$468.9 million, respectively.

Accretable yield represents the amount of income recognized on finance receivables the Company can expect to generate over the remaining life of its existing portfolios based on estimated future cash flows as of the balance sheet date. Additions represent the original expected accretable yield to be earned by the Company based on its proprietary buying models. Reclassifications from nonaccretable difference to accretable yield primarily result from increases in the Company’s estimates of future cash flows. Reclassifications to nonaccretable difference from accretable yield result from decreases in the Company’s estimates of future cash flows and allowance charges that exceed any increases in the Company’s estimates of future cash flows. Changes in accretable yield for the three and ~~six~~nine months ended ~~June~~September 30, 2012 and 2011 were as follows (amounts in thousands):


	Three Months Ended			Three Months Ended			Six Months Ended			Six Months Ended			Three Months Ended			Three Months Ended			Nine Months Ended			Nine Months Ended
	June 30, 2012			June 30, 2011			June 30, 2012			June 30, 2011			September 30, 2012			September 30, 2011			September 30, 2012			September 30, 2011

Balance at beginning of period	$	1,088,752		$	926,278		$	1,026,614		$	892,188		$	1,151,653		$	936,490		$	1,026,614		$	892,188
Income recognized on finance receivables, net		(132,587	)		(100,303	)		(256,812	)		(196,277	)		(135,754	)		(102,875	)		(392,566	)		(299,152	)
Additions		122,616			91,666			222,168			201,168			102,997			155,680			325,165			356,848
Reclassifications from nonaccretable difference		74,191			18,849			160,815			39,411			45,182			16,519			205,997			55,930
Foreign currency translation adjustment		(1,319	)		—			(1,132	)		—			(104	)		—			(1,236	)		—

Balance at end of period	$	1,151,653		$	936,490		$	1,151,653		$	936,490		$	1,163,974		$	1,005,814		$	1,163,974		$	1,005,814

A valuation allowance is recorded for significant decreases in expected cash flows or change in timing of cash flows which would otherwise require a reduction in the stated yield on a pool of accounts. In any given period, the Company may be required to record valuation allowances due to pools of receivables underperforming expectations. Factors that may contribute to the recording of valuation allowances may include both internal as well as external factors. External factors which may have an impact on the collectability, and subsequently to the overall profitability of purchased pools of defaulted consumer receivables would include: new laws or regulations relating to collections, new interpretations of existing laws or regulations, and the overall condition of the economy. Internal factors which may have an impact on the collectability, and subsequently the overall profitability of purchased pools of defaulted consumer receivables would include necessary revisions to initial and post-acquisition scoring and modeling estimates, non-optimal operational activities (which relate to the collection and movement of accounts on both the collection floor of the Company and external channels), and decreases in productivity related to turnover and tenure of the Company’s collection staff.

The following is a summary of activity within the Company’s valuation allowance account, all of which relates to loans acquired with deteriorated credit quality, for the three and ~~six~~nine months ended ~~June~~September 30, 2012 and 2011 (amounts in thousands):


	Three Months Ended June 30,
	2012									2011									Three Months Ended September 30,
				Purchased Bankruptcy									Purchased Bankruptcy						2012									2011
	Core Portfolio ⁽¹⁾			Portfolio⁽²⁾			Total			Core Portfolio ⁽¹⁾			Portfolio⁽²⁾			Total			Core Portfolio ⁽¹⁾			Purchased Bankruptcy Portfolio ⁽²⁾			Total			Core Portfolio ⁽¹⁾			Purchased Bankruptcy Portfolio ⁽²⁾			Total
Valuation allowance - finance receivables:
Beginning balance	$	76,110		$	10,955		$	87,065		$	71,830		$	8,617		$	80,447		$	75,850		$	13,419		$	89,269		$	73,630		$	9,100		$	82,730
Allowance charges		800			2,575			3,375			2,000			500			2,500			1,850			945			2,795			1,400			1			1,401
Reversal of previous recorded allowance charges		(1,060	)		(111	)		(1,171	)		(200	)		(17	)		(217	)		(1,150	)		(82	)		(1,232	)		(500	)		(160	)		(660	)

Net allowance charge		(260	)		2,464			2,204			1,800			483			2,283			700			863			1,563			900			(159	)		741

Ending balance	$	75,850		$	13,419		$	89,269		$	73,630		$	9,100		$	82,730		$	76,550		$	14,282		$	90,832		$	74,530		$	8,941		$	83,471


Finance receivables, net⁽³⁾:	$	473,340		$	487,331		$	960,671		$	437,644		$	441,871		$	879,515		$	479,558		$	480,402		$	959,960		$	453,168		$	466,310		$	919,478


	Six Months Ended June 30,
	2012									2011									Nine Months Ended September 30,
				Purchased Bankruptcy									Purchased Bankruptcy						2012										2011
	Core Portfolio ⁽¹⁾			Portfolio⁽²⁾			Total			Core Portfolio ⁽¹⁾			Portfolio⁽²⁾			Total			Core Portfolio ⁽¹⁾			Purchased Bankruptcy Portfolio⁽²⁾				Total			Core Portfolio ⁽¹⁾			Purchased Bankruptcy Portfolio⁽²⁾			Total
Valuation allowance - finance receivables:
Beginning balance	$	76,580		$	9,991		$	86,571		$	70,030		$	6,377		$	76,407		$	76,580		$	9,991			$	86,571		$	70,030		$	6,377		$	76,407
Allowance charges		2,150			3,675			5,825			4,850			2,950			7,800			4,000			4,620				8,620			6,250			2,951			9,201
Reversal of previous recorded allowance charges		(2,880	)		(247	)		(3,127	)		(1,250	)		(227	)		(1,477	)		(4,030	)		(329	)	��		(4,359	)		(1,750	)		(387	)		(2,137	)

Net allowance charge		(730	)		3,428			2,698			3,600			2,723			6,323			(30	)		4,291				4,261			4,500			2,564			7,064

Ending balance	$	75,850		$	13,419		$	89,269		$	73,630		$	9,100		$	82,730		$	76,550		$	14,282			$	90,832		$	74,530		$	8,941		$	83,471


Finance receivables, net:	$	473,340		$	487,331		$	960,671		$	437,644		$	441,871		$	879,515
Finance receivables, net⁽³⁾:																			$	479,558		$	480,402			$	959,960		$	453,168		$	466,310		$	919,478

Accounts receivable are recorded at the invoiced amount and do not bear interest. Amounts collected on accounts receivable are included in net cash provided by operating activities in the consolidated statements of cash flows. The Company maintains an allowance for doubtful accounts for estimated losses inherent in its accounts receivable portfolio. In establishing the required allowance, management considers historical losses adjusted to take into account current market conditions and its customers’ financial condition, the amount of receivables in dispute, the current receivables aging, and current payment patterns. The Company reviews its allowance for doubtful accounts monthly. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The balance of the allowance for doubtful accounts at ~~June~~September 30, 2012 and December 31, 2011 was ~~$2.7~~$2.3 million and $2.1 million, respectively. The Company does not have any off balance sheet credit exposure related to its customers.

On December 20, 2010, the Company entered into a credit agreement with Bank of America, N.A., as administrative agent, and a syndicate of lenders named therein (the “Credit Agreement”). Under the terms of the Credit Agreement, the credit facility includes an aggregate principal amount available of $407.5 million (subject to the borrowing base and applicable debt covenants) ~~which~~that consists of a $50 million fixed rate loan that matured on May 4, 2012, which was transferred from the Company’s then existing credit agreement, and a $357.5 million revolving credit facility that matures on December 20, 2014. The revolving credit facility automatically increased by $50 million upon the maturity and repayment of the fixed rate loan. The fixed rate loan bore interest at a rate of 6.8% per annum, payable monthly in arrears. The revolving loans accrue interest, at the option of the Company, at either

~~either~~ the base rate plus 1.75% per annum or the Eurodollar rate (as defined in the Credit Agreement) for the applicable term plus 2.75% per annum. The base rate is the highest of (a) the Federal Funds Rate plus 0.50%, (b) Bank of America’s prime rate, and (c) the Eurodollar rate plus 1.00%. Interest is payable on base rate loans quarterly in arrears and on Eurodollar loans in arrears on the last day of each interest period or, if such interest period exceeds three months, every three months. The Company’s revolving credit facility includes a $20 million swingline loan sublimit, ~~and~~ a $20 million letter of credit ~~sublimit. It also contains~~sublimit and an accordion loan feature that allows the Company to request an increase of up to $142.5 million in the amount available for borrowing under the revolving credit facility, whether from existing or new lenders, subject to terms of the Credit Agreement. ~~No existing lender is obligated to increase its commitment. On April 20,~~Through September 30, 2012, the Company closed a series of transactions to exercise a portion of the accordion loan feature of its existing credit facility with its administrative agent and its syndicate of lenders, thereby increasing the lenders’ commitments by ~~$50,950,000,~~$57.0 million, resulting in ~~$458,450,000~~$464.5 million aggregate principal amount available under the Company’s line of credit. The Company’s existing lenders under the Credit Agreement provided ~~$40,950,000~~$41.0 million of this increase, and ~~$10,000,000~~$16.0 million was provided by a new lender, which is now a party to the Credit Agreement. The Company may request additional increases of up to ~~$91,550,000~~$85.6 million under its credit facility. The Credit Agreement is secured by a first priority lien on substantially all of the Company’s assets. The Credit Agreement contains restrictive covenants and events of default including the following:

The revolving credit facility also bears an unused commitment fee of 0.375% per annum, payable quarterly in arrears.

The Company had ~~$292.0~~$250.0 million and $220.0 million of borrowings outstanding onunder its credit facility as of ~~June~~September 30, 2012 and December 31, 2011, respectively, of which $50 million represented borrowing under the non-revolving fixed rate loan at December 31, 2011. At ~~June~~September 30, 2012, the Company’s borrowings under its revolving credit facility consisted of 30-day Eurodollar rate loans and base rate loans with a weighted average annual interest rate equal to ~~3.12%~~2.97%.

The Company was in compliance with all covenants of its credit facility as of ~~June~~September 30, 2012 and December 31, 2011.

On February 6, 2009, the Company entered into a commercial loan agreement to finance computer software and equipment purchases in the amount of approximately $2.0 million. The loan was collateralized by the related computer software and equipment. The loan was a three year loan with a fixed rate of 4.78% with monthly installments, including interest, of $60,823 beginning on June 30, 2009, and it matured on February 28, 2012.

On December 15, 2010, the Company entered into a commercial loan agreement to finance computer software and equipment purchases in the amount of approximately $1.6 million. The loan is collateralized by the related computer software and equipment. The loan is a three year loan with a fixed rate of 3.69% with monthly installments, including interest, of $46,108 beginning on January 15, 2011, and it matures on December 15, 2013.

Property and equipment, at cost, consisted of the following as of the dates indicated (amounts in thousands):


							September 30,			December 31,
	June 30, 2012			December 31, 2011			2012			2011
Software	$	28,124		$	25,252		$	29,004		$	25,252
Computer equipment		13,242			12,221			13,728			12,221
Furniture and fixtures		6,840			6,501			6,924			6,501
Equipment		8,252			7,798			8,268			7,798
Leasehold improvements		6,689			6,117			6,833			6,117
Building and improvements		7,008			6,987			7,014			6,987
Land		1,269			1,269			1,269			1,269
Accumulated depreciation and amortization		(45,408	)		(40,418	)		(47,534	)		(40,418	)

Property and equipment, net	$	26,016		$	25,727		$	25,506		$	25,727

Depreciation and amortization expense relating to property and equipment, for the three and ~~six~~nine months ended ~~June~~September 30, 2012, was ~~$2.1~~$2.2 million and ~~$4.3~~$6.5 million, respectively. Depreciation and amortization expense relating to property and equipment, for the three and ~~six~~nine months ended ~~June~~September 30, 2011, was $2.1 million and ~~$4.0~~$6.0 million, respectively.

The Company, in accordance with the guidance of FASB ASC Topic 350-40 “Internal-Use Software” (“ASC 350-40”), capitalizes qualifying computer software costs incurred during the application development stage and amortizes them over their estimated useful life of three to seven years on a straight-line basis beginning when the project is completed. Costs associated with preliminary project stage activities, training, maintenance and all other post implementation stage activities are expensed as incurred. The Company’s policy provides for the capitalization of certain direct payroll costs for employees who are directly associated with internal use computer software projects, as well as external direct costs of services associated with developing or obtaining internal use software. Capitalizable personnel costs are limited to the time directly spent on such projects. As of ~~June~~September 30, 2012 and December 31, 2011, the Company has incurred and capitalized approximately ~~$6.8~~$7.2 million and $6.1 million, respectively, of these direct payroll costs and external direct costs related to software developed for internal use. Of these costs, at ~~June~~September 30, 2012 and December 31, 2011, approximately ~~$0.9~~$0.8 million and $1.3 million, respectively, is for projects that ~~are~~were in the development stage and, therefore are a component of “Other Assets.” Once the projects are completed, the costs ~~will be~~are transferred to Software and amortized over their estimated useful life of three to seven years. Amortization expense for the three and ~~six~~nine months ended ~~June~~September 30, 2012, was approximately $0.3 million and ~~$0.5~~$0.9 million, respectively. Amortization expense for the three and ~~six~~nine months ended ~~June~~September 30, 2011, was approximately $0.2 million and ~~$0.4~~$0.6 million, respectively. The remaining unamortized costs relating to internally developed software at ~~June~~September 30, 2012 and December 31, 2011 were approximately ~~$3.8~~$4.0 million and ~~$2.9~~$3.3 million, respectively. ~~The amount at December 31, 2011 was approximately $3.3 million.~~

In accordance with ASC 810, the Company has consolidated all financial statement accounts of Claims Compensation Bureau, LLC (“CCB”) in its consolidated balance sheets ~~as of June 30, 2012 and December 31, 2011,~~ and its consolidated income ~~statements for the three and six months ended June 30, 2012 and 2011.~~statements. The redeemable noncontrolling interest amount is separately stated on the consolidated balance sheets and represents the 38% interest in CCB not owned by the Company. In addition, net income/loss attributable to the noncontrolling interest is stated separately in the consolidated income ~~statements for the three and six months ended June 30, 2012 and 2011.~~statements.

The Company has the right through February 28, 2015 to purchase the remaining 38% of CCB at certain multiples of earnings before interest, taxes, depreciation and amortization (“EBITDA”). In addition, beginning March 1, 2012 and ending February 28, 2018, the noncontrolling interest can require the Company to purchase its membership units in CCB at pre-defined multiples of EBITDA.

The Company applies the provisions of FASB ASC Topic 480-10-S99 “Distinguishing Liabilities from Equity” (“ASC 480-10-S99”), which provides guidance on the accounting for equity securities that are subject to mandatory redemption requirements or whose redemption is outside the control of the issuer. The noncontrolling interest “put” arrangement is accounted for under ASC 480-10-S99, as redemption under the “put” arrangement is outside the control of the Company. As such, the redeemable noncontrolling interest is recorded outside of “permanent” equity. The Company measures the redeemable noncontrolling interest at the greater of its ASC 480-10-S99 measurement amount (estimated redemption value of the “put” option embedded in the noncontrolling interest) or its measurement amount under the guidance of ASC 810. The ASC 810 measurement amount includes adjustments for the noncontrolling interest’s pro-rata share of earnings, losses and distributions, pursuant to the limited liability company agreement of CCB. Adjustments to the measurement amount are recorded to stockholders’ equity. The Company used a present value calculation to estimate the redemption value of the “put” option as of the reporting date. As such, for the three and ~~six~~nine months ended ~~June~~September 30, 2012, the Company increased the redeemable noncontrolling interest by $0.8 million and ~~$2.0~~$2.8 million, respectively, with a corresponding reduction of stockholders’ equity. For the three and ~~six~~nine months ended ~~June~~September 30, 2011, the Company increased the redeemable noncontrolling interest by $1.1 million and ~~$2.0~~$3.2 million, respectively, with a corresponding reduction of stockholders’ equity. If material, the Company adjusts the numerator of earnings per share calculations for the current period change in the excess of the noncontrolling interest’s ASC 480-10-S99 measurement amount over the greater of its ASC 810 measurement amount or the estimated fair value of the noncontrolling interest. The maximum estimated redemption value of the noncontrolling interest under the terms of the put arrangement, was $22.8 million as of ~~June~~September 30, 2012 and December 31, 2011.

The following table represents the changes in the redeemable noncontrolling interest for the three and ~~six~~nine months ended ~~June~~September 30, 2012 and 2011 (amounts in thousands):


	Three Months Ended			Three Months Ended			Six Months Ended			Six Months Ended			Three Months Ended			Three Months Ended			Nine Months Ended			Nine Months Ended
	June 30, 2012			June 30, 2011			June 30, 2012			June 30, 2011			September 30, 2012			September 30, 2011			September 30, 2012			September 30, 2011
Balance at beginning of period	$	18,783		$	15,253		$	17,831		$	14,449		$	19,381		$	16,068		$	17,831		$	14,449
Net (loss)/income attributable to redeemable noncontrolling interest		36			2			(237	)		590			(187	)		(313	)		(424	)		277
Distributions paid or payable		(261	)		(247	)		(261	)		(1,016	)		—			—			(261	)		(1,017	)
Adjustment of the noncontrolling interest measurement amount		823			1,060			2,048			2,045			804			1,129			2,852			3,175

Balance at end of period	$	19,381		$	16,068		$	19,381		$	16,068		$	19,998		$	16,884		$	19,998		$	16,884

In accordance with the limited liability company agreement of CCB, distributions due to the members of ~~the LLC~~CCB are accrued each quarter and are payable as soon as reasonably possible subsequent to each quarter end.

In connection with the Company’s previous business acquisitions, the Company purchased certain tangible and intangible assets. Intangible assets purchased included client and customer relationships, non-compete agreements, trademarks and goodwill. Pursuant to ASC 350, goodwill is not amortized but rather is reviewed at least annually for impairment. During the fourth quarter of 2011, the Company underwent its annual review of goodwill. Based upon the results of this review, which was conducted as of October 1, 2011, no impairment charges to goodwill or the other intangible assets were necessary as of the date of this review. The Company believes that nothing has occurred since the review was performed through ~~June~~September 30, 2012 that would indicate a triggering event and thereby necessitate testing goodwill or the other intangible assets between annual tests. Accordingly, there were no impairment losses during the three or ~~six~~nine months ended ~~June~~September 30, 2012 and 2011. The Company expects to perform its next annual goodwill review during the fourth quarter of 2012. At ~~June~~September 30, 2012 and December 31, 2011, the carrying value of goodwill was ~~$99.4~~$100.5 million and $61.7 million, respectively. ~~See~~Refer to Note 9 “Business Acquisitions” for more information. The following table represents the changes in goodwill for the three and ~~six~~nine months ended ~~June~~September 30, 2012 and 2011 (amounts in thousands):


										Three Months Ended			Three Months Ended		Nine Months Ended		Nine Months Ended
	Three Months Ended			Three Months Ended		Six Months Ended		Six Months Ended		September 30, 2012			September 30, 2011		September 30, 2012		September 30, 2011
	June 30, 2012			June 30, 2011		June 30, 2012		June 30, 2011
Balance at beginning of period	$	97,480		$	61,678	$	61,678	$	61,678	$	99,384		$	61,678	$	61,678	$	61,678
Acquisition of MHH		—			—		34,270		—		—			—		34,270		—
Adjustment to provisional amount		3,060			—		3,060		—		(549	)		—		2,511		—
Foreign currency translation adjustment		(1,156	)		—		376		—		1,621			—		1,997		—

Balance at end of period	$	99,384		$	61,678	$	99,384	$	61,678	$	100,456		$	61,678	$	100,456	$	61,678

Intangible assets, excluding goodwill, consist of the following at ~~June~~September 30, 2012 and December 31, 2011 (amounts in thousands):


	June 30, 2012				December 31, 2011				September 30, 2012				December 31, 2011
	Gross Amount		Accumulated Amortization		Gross Amount		Accumulated Amortization		Gross Amount		Accumulated Amortization		Gross Amount		Accumulated Amortization

Client and customer relationships	$	39,876	$	20,197	$	30,777	$	17,950	$	40,134	$	21,337	$	30,777	$	17,950
Non-compete agreements		3,730		3,164		3,103		2,771		3,747		3,374		3,103		2,771
Trademarks		3,441		1,322		2,500		1,063		3,469		1,472		2,500		1,063

Total	$	47,046	$	24,683	$	36,380	$	21,784	$	47,350	$	26,183	$	36,380	$	21,784

Increases in the gross amounts of intangible assets during the ~~six~~nine months ended ~~June~~September 30, 2012 relate to the purchase of MHH on January 16, 2012. The combined original weighted average amortization period related to the acquired intangible assets of MHH is approximately 13 years. In accordance with ASC 350, the Company is amortizing the intangible assets over the estimated useful lives as indicated:

Total intangible amortization expense for the three and ~~six~~nine months ended ~~June~~September 30, 2012 was ~~$1.4~~$1.5 million and ~~$2.9~~$4.4 million, respectively. Total intangible amortization expense for the three and ~~six~~nine months ended ~~June~~September 30, 2011 was ~~$1.3~~$1.2 million and ~~$2.5~~$3.7 million, respectively. The Company reviews intangible assets at least annually for impairment.

On January 16, 2012, the Company acquired 100% of the equity interest in MHH. The transaction was completed in cash at a price of £33.5 million (approximately $51.3 million). The Company financed the acquisition with borrowings under its existing line of credit. Based in Kilmarnock, Scotland, MHH employs approximately ~~170~~250 people and offers outsourced and contingent consumer debt recovery on behalf of banks, credit providers and debt purchasers, as well as distressed and dormant niche portfolio purchasing. The acquisition of MHH expands the Company’s presence into new geographical markets outside the United States, further diversifying its revenues and available service offerings.

The Company accounted for this purchase in accordance with ASC Topic 805, “Business Combinations.” Under this guidance, an entity is required to recognize the assets acquired, liabilities assumed and the consideration given at their fair value on the acquisition date. The following tables summarize the fair value of the consideration given for MHH, as well as the preliminary fair value of the assets acquired and liabilities assumed related to the acquisition.

Recognized amounts of identifiable assets and liabilities are as follows (amounts in thousands):


Purchase price	$	51,258		$	51,258
Cash		(2,605	)		(2,605	)
Finance receivables, net		(3,906	)		(3,906	)
Accounts receivable		(2,038	)		(2,038	)
Prepaid expenses (included in other assets)		(330	)		(330	)
Customer relationships		(8,875	)		(8,875	)
Non-compete agreements		(612	)		(612	)
Trademarks		(918	)		(918	)
Fixed assets		(814	)
Property and equipment					(814	)
Accounts payable		3,500			3,500
Accrued expenses		1,461			912
Income tax payable		1,209			1,209

Goodwill	$	37,330		$	36,781

The Company is evaluating the purchase price allocations and at the time of the filing of this Form 10-Q, the valuation has not been completed. However, the Company has recorded provisional amounts for the assets acquired in its consolidated financial statements and will adjust the allocations relative to the fair value of the assets, asif necessary, during the remainder of the one-year measurement period.

The Company follows the provisions of FASB ASC Topic 718 “Compensation-Stock Compensation” (“ASC 718”) with respect to its stock plan. As of ~~June~~September 30, 2012, total future compensation costs related to nonvested awards of nonvested shares (not including nonvested shares granted under the Long-Term Incentive ~~Program~~Programs (“LTI”) is estimated to be ~~$4.8~~$4.0 million with a weighted average remaining life for all nonvested shares of ~~2.2~~2.0 years (not including nonvested shares granted under the LTI Programs). As of ~~June~~September 30, 2012, there are no future compensation costs related to stock options and there are no remaining vested stock options to be exercised.

Total share-based compensation expense was approximately ~~$3.3~~$2.8 million and ~~$5.6~~$8.4 million for the three and ~~six~~nine months ended ~~June~~September 30, 2012, respectively. Total share-based compensation expense was approximately ~~$2.0~~$1.5 million and ~~$4.6~~$6.1 million for the three and ~~six~~nine months ended ~~June~~September 30, 2011, respectively. Tax benefits resulting from tax deductions in excess of share-based compensation expense recognized under the provisions of ASC 718 (windfall tax benefits) are credited to additional paid-in capital in the Company’s Consolidated Balance Sheets. Realized tax shortfalls, if any, are first offset against the cumulative balance of windfall tax benefits, if any,

and then charged directly to income tax expense. The total tax benefit realized from share-based compensation was approximately ~~$0.1~~$0.2 million and ~~$2.8~~$3.0 million for the three and ~~six~~nine months ended ~~June~~September 30, 2012, respectively. The total tax benefit realized from share-based compensation was approximately ~~$0.5~~$0.1 million and ~~$1.5~~$1.6 million for the three and ~~six~~nine months ended ~~June~~September 30, 2011, respectively.

With the exception of the awards made pursuant to the LTI ~~Program~~Programs and a few employee and director grants, the nonvested shares generally vest ratably over three to five years and are expensed over their vesting period. These grants were made to key employees and directors of the Company and, therefore, were assumed to have no forfeiture rates associated with them due to the historically low turnover among this group.

The following summarizes all nonvested share transactions (excluding shares granted under the LTI Programs) from December 31, 2010 through ~~June~~September 30, 2012 (amounts in thousands, except per share amounts):


	Nonvested Shares Outstanding			Weighted-Average Price at Grant Date		Nonvested Shares Outstanding			Weighted-Average Price at Grant Date
December 31, 2010		91		$	47.89		91		$	47.89
Granted		48			76.59		48			76.59
Vested		(53	)		55.97		(53	)		55.97
Cancelled		(5	)		50.34		(5	)		50.34

December 31, 2011		81			59.31		81			59.31
Granted		48			63.18		49			63.18
Vested		(27	)		60.55		(31	)		59.75

June 30, 2012		102		$	60.84
September 30, 2012							99		$	61.08

The total grant date fair value of shares vested during the three and ~~six~~nine months ended ~~June~~September 30, 2012 was approximately ~~$0.4~~$0.2 million and ~~$1.6~~$1.8 million, respectively. The total grant date fair value of shares vested during the three and ~~six~~nine months ended ~~June~~September 30, 2011 was approximately ~~$0.9~~$0.2 million and ~~$2.6~~$2.8 million, respectively.

Pursuant to the Company’s stock plan, on January ~~20, 2009, January~~ 14, 2010 ~~January 14,~~and 2011 and January 9, 2012, the Compensation Committee approved the grant of ~~108,720,~~ 53,656, 73,914 and 65,647 performance and market based nonvested shares, respectively. All shares granted under the LTI Programs were granted to key employees of the Company. The 2009 grant was performance based and cliff vested after the requisite service period if certain financial goals were met. The goals were based upon diluted earnings per share (“EPS”) totals for 2009, the return on stockholders’ equity for the three year period beginning on January 1, 2009 and ending December 31, 2011, and the relative total stockholder return as compared to a peer group for the same three year period. The Company expensed the nonvested share grant over the requisite service period of two to three years beginning on January 1, 2009. The EPS component of the 2009 plan was not achieved and therefore no compensation expense was recognized relative to this component. The return on owners’ equity and relative total stockholder return components have been achieved at 98% and 145%, respectively, and the awards were paid to participants during the first quarter of 2012.

The 2010 grant is performance based and cliff vests after the requisite service period of two to three years if certain financial goals are met. The goals are based upon diluted EPS totals for 2010, the return on stockholders’ equity for the three year period beginning on January 1, 2010 and ending December 31, 2012, and the relative total stockholder return as compared to a peer group for the same three year period. For each component, the number of shares vested can double if the financial goals are exceeded and no shares will vest if the financial goals are not met. The EPS component of the 2010 plan was achieved at 190% and these shares vested at 50% on December 31, 2011

and the remaining 50% will vest on December 31, 2012. The Company is expensing the nonvested share grant over the requisite service period of two to three years beginning on January 1, 2010. If the Company believes that the number of shares granted will be more or less than originally projected, an adjustment to the expense will be made at that time based on the probable outcome.

The 2011 grant is performance based and cliff vests after the requisite service period of two to three years if certain financial goals are met. The goals are based upon the Company’s EBITDA for 2011, the return on stockholders’ equity for the three year period beginning on January 1, 2011 and ending December 31, 2013, and the relative total stockholder return as compared to a peer group for the same three year period. For each component, the number of shares vested can double if the financial goals are exceeded and no shares will vest if the financial goals are not met. The Company is expensing the nonvested share grant over the requisite service period of two to three years beginning on January 1, 2011. If the Company believes that the number of shares granted will be more or less than originally projected, an adjustment to the expense will be made at that time based on the probable outcome. The EBITDA component of the 2011 plan was achieved at 200% and these shares will vest 50% on December 31, 2012 and 50% on December 31, 2013.

The 2012 grant is performance based and cliff vests after the requisite service period of two to three years if certain financial goals are met. The goals are based upon the Company’s EBITDA for 2012, the return on stockholders’ equity for the three year period beginning on January 1, 2012 and ending December 31, 2014, and the relative total stockholder return as compared to a peer group for the same three year period. For each component, the number of shares vested can double if the financial goals are exceeded and no shares will vest if the financial goals are not met. The Company is expensing the nonvested share grant over the requisite service period of two to three years beginning on January 1, 2012. If the Company believes that the number of shares granted will be more or less than originally projected, an adjustment to the expense will be made at that time based on the probable outcome.

At ~~June~~September 30, 2012, total future compensation costs, assuming the current estimated levels are achieved, related to nonvested share awards granted under the 2010, 2011 and 2012 LTI Programs are estimated to be approximately ~~$8.9~~$8.6 million. The Company assumed a 7.5% forfeiture rate for this grant and the remaining shares have a weighted average life of ~~1.51~~1.29 years at ~~June~~September 30, 2012.

The Company follows the guidance of FASB ASC Topic 740 “Income Taxes” (“ASC 740”) as it relates to the provision for income taxes and uncertainty in income taxes. The guidance 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. There were no unrecognized tax benefits at both ~~June~~September 30, 2012 and 2011.

The ~~U.S. Internal Revenue Service (the “IRS”)~~IRS examined the Company’s tax returns for the 2005 calendar year. The IRS concluded the audit and on March 19, 2009 issued Form 4549-A, Income Tax Examination Changes, for tax years ended December 31, 2007, 2006 and 2005. The IRS has asserted that cost recovery for tax revenue recognition does not clearly reflect taxable income and that unused line fees paid on credit facilities should be capitalized and amortized rather than taken as a current deduction. The Company believes it has sufficient support for the technical merits of its positions and that it is more likely than not these positions will ultimately be sustained; therefore, a reserve for uncertain tax positions is not necessary. On April 22, 2009, the Company filed a formal protest of the findings contained in the examination report prepared by the IRS. On August 26, 2011, the IRS issued a Notice of Deficiency for the tax years ended December 31, 2007, 2006, and 2005. The Company subsequently filed a petition in United States Tax Court to which the IRS responded on January 12, 2012. If the Company is unsuccessful in United States Tax Court, it can appeal to the federal Circuit Court of Appeals. Payment of the assessed taxes and interest could have an adverse affect on the Company’s financial condition, be material to the Company’s results of operations, and possibly require additional financing from other sources. In accordance with the U.S. Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), underpayments of federal tax accrue interest, compounded daily, at the applicable federal short term rate plus three percentage points. An additional two percentage points applies to large

corporate underpayments of $100,000 or more to periods after the applicable date as defined in the Internal Revenue Code. The Company files taxes in multiple state jurisdictions; therefore, any underpayment of state tax will accrue interest in accordance with the respective state statute. In 2011, the IRS expanded the audit to include the tax years ended December 31, 2010, 2009 and 2008.

At ~~June~~September 30, 2012, the tax years subject to examination by the major taxing jurisdictions, including the IRS, are 2003, 2005 and subsequent years. The 2003 tax year remains open to examination because of a net operating loss that originated in that year but was not fully utilized until the 2005 tax year. The examination periods for the 2007, 2006 and 2005 tax years were extended through December 31, 2011; however, because the IRS issued the Notice of Deficiency for those tax periods prior to December 31, 2011, the period for assessment is suspended until a decision of the Tax Court becomes final. The examination period for the 2008 tax year has been extended through ~~January 18,~~April 20, 2013.

ASC 740 requires the recognition of interest if the tax law would require interest to be paid on the underpayment of taxes, and recognition of penalties if a tax position does not meet the minimum statutory threshold to avoid payment of penalties. No interest or penalties were accrued or reversed in the three or ~~six~~nine month periods ended ~~June~~September 30, 2012 or 2011.

Basic EPS are computed by dividing net income available to common stockholders of Portfolio Recovery Associates, Inc. by weighted average common shares outstanding. Diluted EPS are computed using the same components as basic EPS with the denominator adjusted for the dilutive effect of stock options and nonvested share awards. Share-based awards that are contingent upon the attainment of performance goals are not included in the computation of diluted EPS until the performance goals have been attained. The dilutive effect of stock options and nonvested shares is computed using the treasury stock method, which assumes any proceeds that could be obtained upon the exercise of stock options and vesting of nonvested shares would be used to purchase common shares at the average market price for the period. The assumed proceeds include the windfall tax benefit that would be received upon assumed exercise. The following tables provide a reconciliation between the computation of basic EPS and diluted EPS for the three and ~~six~~nine months ended ~~June~~September 30, 2012 and 2011 (amounts in thousands, except per share amounts):


	For the Three Months Ended June 30,												For the Three Months Ended September 30,
	2012						2011						2012						2011
	Net Income attributable to Portfolio Recovery Associates, Inc.		Weighted Average Common Shares		EPS		Net Income attributable to Portfolio Recovery Associates, Inc.		Weighted Average Common Shares		EPS		Net Income attributable to Portfolio Recovery Associates, Inc.		Weighted Average Common Shares		EPS		Net Income attributable to Portfolio Recovery Associates, Inc.		Weighted Average Common Shares		EPS
Basic EPS	$	32,015		17,027	$	1.88	$	25,574		17,108	$	1.49	$	33,314		16,881	$	1.97	$	25,506		17,117	$	1.49
Dilutive effect of nonvested share awards				106						117						141						111

Diluted EPS	$	32,015		17,133	$	1.87	$	25,574		17,225	$	1.48	$	33,314		17,022	$	1.96	$	25,506		17,228	$	1.48


	For the Six Months Ended June 30,												For the Nine Months Ended September 30,
	2012						2011						2012						2011
	Net Income attributable to Portfolio Recovery Associates, Inc.		Weighted Average Common Shares		EPS		Net Income attributable to Portfolio Recovery Associates, Inc.		Weighted Average Common Shares		EPS		Net Income attributable to Portfolio Recovery Associates, Inc.		Weighted Average Common Shares		EPS		Net Income attributable to Portfolio Recovery Associates, Inc.		Weighted Average Common Shares		EPS
Basic EPS	$	57,477		17,111	$	3.36	$	48,695		17,100	$	2.85	$	90,791		17,034	$	5.33	$	74,201		17,106	$	4.34
Dilutive effect of nonvested share awards				89						112						106						112

Diluted EPS	$	57,477		17,200	$	3.34	$	48,695		17,212	$	2.83	$	90,791		17,140	$	5.30	$	74,201		17,218	$	4.31

There were no antidilutive options outstanding for the three or ~~six~~nine months ended ~~June~~September 30, 2012 and 2011.

The Company has employment agreements, most of which expire on December 31, 2014, with all of its executive officers and with several members of its senior management group. Such agreements provide for base salary payments as well as bonuses which are based on the attainment of specific management goals. Future compensation under these agreements is approximately ~~$14.5~~$13.3 million. The agreements also contain confidentiality and non-compete provisions.

The Company is party to various operating leases with respect to its facilities and equipment. The future minimum lease payments at ~~June~~September 30, 2012 is approximately ~~$22.3~~$22.0 million.

The Company is party to several forward flow agreements that allow for the purchase of defaulted consumer receivables at pre-established prices. The maximum remaining amount to be purchased under forward flow agreements at ~~June~~September 30, 2012 is approximately ~~$238.3~~$166.3 million.

In connection with the Company’s acquisition of 62% of the membership units of CCB on March 15, 2010, the Company acquired the right through February 28, 2015 to purchase, at a predetermined price, the remaining 38% of the membership units of CCB not held by the Company. Also, the owners of the noncontrolling interest can require the Company to purchase their respective interest during the period beginning on March 1, 2012 and ending on February 28, 2018. While the actual amount or timing of any future payment is unknown at this time, the maximum amount of consideration to be paid for the 38% interest is $22.8 million.

Certain agreements for the purchase of finance receivables portfolios contain provisions that may, in limited circumstances, require the Company to refund a portion or all of the collections subsequently received by the Company on particular accounts. The potential refunds as of the balance sheet date are not considered to be significant.

The Company is from time to time subject to routine legal claims and proceedings, most of which are incidental to the ordinary course of its business. The Company initiates lawsuits against customers and is occasionally countersued by them in such actions. Also, customers, either individually, as members of a class action, or through a governmental entity on behalf of customers, may initiate litigation against the Company in which they allege that the Company has violated a state or federal law in the process of collecting on an account. From time to time, other types of lawsuits are brought against the Company. Additionally, the Company receives subpoenas and other requests for information from regulators or governmental authorities who are investigating the Company’s debt collection activities. The Company makes every effort to respond appropriately to such requests. From time to time, other types of lawsuits are brought against the Company.

The Company accrues for potential liability arising from legal proceedings when it is probable that such liability has been incurred and the amount of the loss can be reasonably estimated. This determination is based upon currently available information for those proceedings in which the Company is involved, taking into account the Company’s best estimate of such losses for those cases for which such estimates can be made. The Company’s estimate involves significant judgment, given the varying stages of the proceedings (including the fact that many of them are currently in preliminary stages), the number of unresolved issues in many of the proceedings (including

issues regarding class certification and the scope of many of the claims), and the related uncertainty of the potential outcomes of these proceedings. In making determinations of the likely outcome of ~~the~~ pending litigation, ~~disclosed below,~~ the Company considers many factors, including, but not limited to, the nature of the claims, the Company’s experience with similar types of claims, the jurisdiction in which the matter is filed, input from outside legal counsel, the likelihood of resolving the matter through alternative mechanisms, the matter’s current status and the damages sought or demands made. Accordingly, the Company’s estimate will change from time to time, and actual losses may be more than the current estimate.

Subject to the inherent uncertainties involved in such proceedings, the Company believes, based upon its current knowledge and after consultation with counsel, that the legal proceedings currently pending against it, including those that fall outside of the Company’s routine legal proceedings, should not, either individually or in the aggregate, have a material adverse impact on the Company’s financial condition. However, it is possible, in light of the uncertainties involved in such proceedings or due to unexpected future developments, that an unfavorable resolution of a legal proceeding or claim could occur which may be material to the Company’s financial condition, results of operations, or cash flows for a particular period.

Excluding the matters described below and other putative class action suits which the Company believes are not material, the high end of the range of potential litigation losses in excess of the amount accrued is estimated by management to be less than $1,000,000 as of September 30, 2012. Notwithstanding our attempt to estimate a range of possible losses in excess of the amount accrued based on current information, actual future losses may exceed both the Company’s accrual and the range of potential litigation losses disclosed above.

In certain legal proceedings, the Company may have recourse to insurance or third party contractual indemnities to cover all or portions of its litigation expenses, judgments, or settlements. Loss estimates and accruals for potential liability related to legal proceedings are exclusive of potential recoveries, if any, under the Company’s insurance policies or third party indemnities. The Company has not recorded any potential recoveries under the Company’s insurance policies or third party indemnities.

The matters described below fall outside of the normal parameters of the Company’s routine legal proceedings.

As previously disclosed, the Company ~~was~~has been named as defendant in a number of putative class action cases, each ~~of which~~ alleging that the Company violated the Telephone Consumer Protection Act (“TCPA”) by calling consumers’ cellular telephones without their prior express consent. On December 21, 2011, the United States ~~District~~Judicial Panel on Multi-District Litigation entered an order transferring these matters into one consolidated proceeding in the United States District Court for the Southern District of California. On June 22, 2012, the putative class plaintiffs filed their consolidated complaint in the matter, now styled asIn re Portfolio Recovery Associates, LLC Telephone Consumer Protection Act Litigation, case No. ~~11-md-02295.~~11-md-02295 (“MDL action”). The Company filed a motion to dismiss the consolidated complaint. On October 9, 2012, the plaintiffs filed a motion requesting leave to file an amended consolidated complaint. A hearing on both motions is scheduled for November 26, 2012.

~~This~~On October 12, 2012, the United States Court of Appeals for the Ninth Circuit, affirmed the decision of the United States District Court for the Southern District of California in the matter ~~has not yet proceeded on whether or not~~ofMeyer v. Portfolio Recovery Associates, LLC, Case No. 11-cv-01008, which imposed a preliminary injunction prohibiting the Company from using its Avaya Proactive Contact Dialer to ~~certify~~place calls to cellular telephones with California area codes that were obtained through skip-tracing. On October 26, 2012, the Company filed a ~~class or~~petition seeking a rehearingen banc before the United States Court of Appeals for the Ninth Circuit.Meyer is one of the cases included in the MDL action listed above. BothMeyerand the MDL action are ongoing and no final determination on the merits ~~of the allegations, and no demand~~in either has been made. Additionally, even if a class is ultimately certified, further discovery must take place in order to determine its size. Therefore, any potential loss for these and other similar TCPA matters cannot be estimated at this time. However, in the event that a class is eventually certified and the Company neither settles nor prevails on these matters, or settles for a significant amount, the Company’s damages, when aggregated, could potentially exceed its established liability, and could be material to the Company’s financial condition, results of operations or cash flows for any particular reporting period.

The U.S. Internal Revenue Service (the “IRS”) examined the Company’s tax returns for the 2005 calendar year. The IRS concluded the audit and on March 19, 2009 issued Form 4549-A, Income Tax Examination Changes, for tax years ended December 31, 2007, 2006 and 2005. The IRS has asserted that cost recovery for tax revenue recognition does not clearly reflect taxable income and that unused line fees paid on credit facilities should be capitalized and amortized rather than taken as a current deduction. The Company believes it has sufficient support for the technical merits of its positions and that it is more likely than not these positions will ultimately be sustained; therefore, a reserve for uncertain tax positions is not necessary. On April 22, 2009, the Company filed a formal protest of the findings contained in the examination report prepared by the IRS. On August 26, 2011, the IRS issued a Notice of Deficiency for the tax years ended December 31, 2007, 2006, and 2005. The Company subsequently filed a petition in United States Tax Court to which the IRS responded on January 12, 2012. If the Company is unsuccessful in tax court, it can appeal to the federal Circuit Court of Appeals. Refer to Note 11 “Income Taxes” for additional information.

From time to time, the Company receives subpoenas and other requests for information from regulators or governmental authorities who are investigating the Company’s debt collection activities. The Company makes every effort to respond appropriately to such requests and cooperate fully with each investigation. Subsequent to June 30, 2012, the Company was notified of one such regulator’s interest in resolving its investigation. The Company has not yet had sufficient time to properly evaluate the resolution, as proposed, or to determine whether it would be material.

Excluding the above matters and other putative class action suits which the Company believes are not material, the high end of the range of potential litigation losses in excess of the Company’s established liability is estimated by management to be less than $1,000,000 as of June 30, 2012. Notwithstanding our attempt to estimate a range of possible losses in excess of the Company’s established liability based on current information, actual future losses may exceed both the Company’s established liability and the range of potential litigation losses disclosed above.

In accordance with the disclosure requirements of FASB ASC Topic 825, “Financial Instruments” (“ASC 825”), the table below summarizes fair value estimates for the Company’s financial instruments. The total of the fair value calculations presented does not represent, and should not be construed to represent, the underlying value of the Company. The carrying amounts in the table are recorded in the consolidated balance sheet under the indicated captions (amounts in thousands):


	June 30, 2012				December 31, 2011				September 30, 2012				December 31, 2011
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value

Financial assets:
Cash and cash equivalents	$	42,621	$	42,621	$	26,697	$	26,697	$	31,488	$	31,488	$	26,697	$	26,697
Finance receivables, net		966,508		1,542,523		926,734		1,269,277		973,594		1,602,245		926,734		1,269,277

Financial liabilities:
Line of credit	$	292,000	$	292,000	$	220,000	$	220,000	$	250,000	$	250,000	$	220,000	$	220,000
Long-term debt		849		849		1,246		1,246		674		674		1,246		1,246

As of ~~June~~September 30, 2012, and December 31, 2011, the Company did not account for any financial assets or financial liabilities at fair value. As defined by FASB ASC Topic 820, “Fair Value Measurements and Disclosures” (“ASC 820”), fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 also requires the consideration of differing levels of inputs in the determination of fair values. Those levels of input are summarized as follows:

The level in the fair value hierarchy within which a fair value measurement in its entirety falls is based on the lowest level input that is significant to the fair value measurement in its entirety.

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:

Cash and cash equivalents:The carrying amount approximates fair value and quoted prices for identical assets can be found in active markets. Accordingly, the Company estimates the fair value of cash and cash equivalents using level 1 inputs.

Finance receivables, net:The Company records purchased receivables at cost, which represents a significant discount from the contractual receivable balances due. The Company computed the estimated fair value of these receivables using proprietary pricing models that the Company utilizes to make portfolio purchase decisions. Accordingly, the Company’s fair value estimates use level 3 inputs as there is little observable market data available and management is required to use significant judgment in its estimates.

Line of credit:The carrying amount approximates fair value due to the short-term nature of the interest rate periods and the observable quoted prices for similar instruments in active markets. Accordingly, the Company uses ~~Level~~level 2 inputs for its fair value estimates.

Long-term debt:The carrying amount approximates fair value, as the interest rates approximate the rate currently offered to the Company for similar debt instruments of comparable maturities by the Company’s bankers. Accordingly, the Company uses ~~Level~~level 2 inputs for its fair value estimates.

On February 2, 2012, the Board of Directors of the Company authorized a share repurchase program of up to $100 million of the Company’s outstanding shares of common stock. The program is administered by a special committee of the Company’s Board of Directors. Repurchases would depend on prevailing market conditions and other factors. The repurchase program may be suspended or discontinued at any time. During the first ~~six~~nine months of 2012, the Company repurchased and retired 331,449 shares at an average price of $68.56 (including acquisition costs).

In May 2011, the FASB issued ASU No. 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS.” The amendments in ASU 2011-04 generally represent clarification of Topic 820, but also include instances where a particular principle or requirement for measuring fair value or disclosing information about fair value measurements has changed. This update results in common principles and requirements for measuring fair value and for disclosing information about fair value measurements in accordance with U.S. generally accepted accounting principles and International Financial Reporting Standards. The provisions of ASU 2011-04 are effective prospectively for interim and annual periods beginning after December 15, 2011. Early adoption is prohibited. The Company adopted ASU 2011-04 on January 1, 2012, and has included the required disclosures in its notes to its consolidated financial statements.

In June 2011, the FASB issued ASU 2011-05, “Comprehensive Income” (Topic 220) to amend its accounting guidance on the presentation of other comprehensive income (“OCI”) in an entity’s financial statements. The amended guidance eliminates the option to present the components of OCI as part of the statement of changes in stockholders’ equity and provides two options for presenting OCI: in a statement included in the statements of comprehensive income or in a separate statement immediately following the statements of comprehensive income. The amendments do not change the guidance for the items that have to be reported in OCI or when an item of OCI has to be moved into net income. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company adopted ASU 2011-05 on January 1, 2012, and has included the required disclosures in its consolidated financial statements.

In September 2011, the FASB issued ASU 2011-08, “Intangibles-Goodwill and Other” (Topic 350): “Testing Goodwill for Impairment” to amend the accounting guidance on goodwill impairment testing. The amended guidance reduces the complexity and costs of goodwill impairment testing by allowing an entity the option to make a qualitative evaluation about the likelihood of goodwill impairment to determine whether it should calculate the fair value of a reporting unit. The amended guidance also improves previous guidance by expanding upon the examples of events and circumstances that an entity should consider between annual impairment tests in determining whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The amendments are effective for interim and annual goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted. The Company adopted ASU 2011-08 on January 1, 2012 which had no material impact on its consolidated financial statements.

In July 2012, the FASB issued ASU 2012-02, “Intangibles-Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment” to amend the accounting guidance on intangible asset impairment testing. The ASU permits entities to perform an optional qualitative assessment for determining whether it is more likely than not that an indefinite-lived intangible asset is impaired. The guidance is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted. The Company is evaluating the impact of the ASU; however, it is not expected to have a significant impact on its consolidated financial statements.

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Statements Pursuant to Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995:

This report contains forward-looking statements within the meaning of the federal securities laws. These forward-looking statements involve risks, uncertainties and assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. All statements, other than statements of historical fact, are forward-looking statements, including statements regarding overall trends, gross margin trends, operating cost trends, liquidity and capital needs and other statements of expectations, beliefs, future plans and strategies, anticipated events or trends, and similar expressions concerning matters that are not historical facts. The risks, uncertainties and assumptions referred to above may include the following:

You should assume that the information appearing in this quarterly report is accurate only as of the date it was issued. Our business, financial condition, results of operations and prospects may have changed since that date.

For a discussion of the risks, uncertainties and assumptions that could affect our future events, developments or results, you should carefully review the following “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as the discussion of “Business” and “Risk Factors” described in our 2011 Annual Report on Form 10-K, filed on February 28, 2012.

Our forward-looking statements could be wrong in light of these and other risks, uncertainties and assumptions. The future events, developments or results described in this report could turn out to be materially different. We have no obligation to publicly update or revise our forward-looking statements after the date of this report and you should not expect us to do so.

Investors should also be aware that while we do, from time to time, communicate with securities analysts and others, we do not, by policy, selectively disclose to them any material nonpublic information or other confidential commercial information. Accordingly, stockholders should not assume that we agree with any statement or report issued by any analyst regardless of the content of the statement or report. We do not, by policy, confirm forecasts or projections issued by others. Thus, to the extent that reports issued by securities analysts contain any projections, forecasts or opinions, such reports are not our responsibility.

The Company is a specialized financial and business services company. Our primary business is the purchase, collection and management of portfolios of defaulted consumer receivables. We also service receivables on behalf of clients on either a commission or transaction-fee basis as well as providing class action claims settlement recovery services and related payment processing to corporate clients.

The Company is headquartered in Norfolk, Virginia, and employs approximately ~~3,000~~3,100 team members. The Company’s shares of common stock are traded on the NASDAQ Global Select Market under the symbol “PRAA.”

On January 16, 2012, wethe Company acquired 100% of the equity interest in MHH. Based in Kilmarnock, Scotland, MHH employs approximately ~~170~~250 people and offers outsourced and contingent consumer debt recovery on behalf of banks, credit providers and debt purchasers, as well as distressed and dormant niche portfolio purchasing.

During the ~~second~~third quarter of 2012, net income attributable to the Company was ~~$32.0~~$33.3 million, or ~~$1.87~~$1.96 per diluted share, compared with ~~$25.6~~$25.5 million, or $1.48 per diluted share, in the ~~second~~third quarter of 2011. Total revenue was ~~$147.9~~$150.5 million in the ~~second~~third quarter of 2012, up ~~28.8%~~31.7% from the same quarter one year earlier. Revenues in the recently completed quarter consisted of ~~$132.6~~$135.8 million in income recognized on finance receivables, net of allowance charges, and ~~$15.3~~$14.8 million in fee income. Income recognized on finance receivables, net of allowance charges, increased ~~$32.3~~$32.9 million, or ~~32.2%~~32.0%, over the same period in 2011, primarily as a result of a significant increase in cash collections. Cash collections were ~~$232.4~~$229.1 million in the ~~second~~third quarter of 2012, up ~~31.8%~~25.7% or ~~$56.1~~$46.9 million as compared to the ~~second~~third quarter of 2011. During the quarter, ~~we recorded $2.2~~$1.6 million in net allowance

charges were incurred, compared with ~~$2.3~~$0.7 million in the comparable quarter of 2011. Our performance has been positively impacted by operational efficiencies surrounding the cash collections process, including the continued refinement of ~~dialer technology and~~ account scoring analytics as it relates to both legal and non-legal collection channels. Additionally, we have

continued to develop our internal legal collection staff resources, which enables us to place accounts into that channel that otherwise would have been prohibitively expensive for legal action and to collect these accounts more efficiently and profitably.

Fee income increased from ~~$14.5~~$11.4 million in the ~~second~~third quarter of 2011 to ~~$15.3~~$14.8 million in the ~~second~~third quarter of 2012 primarily due to the acquisition of MHH in the first quarter of 2012 ~~offset by declines~~and an increase in revenue generated by our PRA Government Services (“PRA GS”) business, ~~and~~offset by a decline in revenue generated by our PRA Location Services (“PLS”)~~. The decline from GS is mainly attributable to a decline in revenue generated from state sales and use tax programs.~~ business. The decline from PLS is due primarily to the adverse impact of the economic slowdown on automobile financing and related collateral recovery activities.

A summary of how our income was generated during the three months ended ~~June~~September 30, 2012 and 2011 is as follows:


	For the Three Months Ended June 30,						For the Three Months Ended September 30,
($ in thousands)	2012			2011			2012			2011
Cash collections	$	232,425		$	176,281		$	229,052		$	182,168
Amortization of finance receivables		(97,634	)		(73,695	)		(91,735	)		(78,552	)
Allowance charges		(2,204	)		(2,283	)		(1,563	)		(741	)

Finance receivable income		132,587			100,303			135,754			102,875
Fee income		15,298			14,492			14,765			11,401

Total revenue	$	147,885		$	114,795		$	150,519		$	114,276

Operating expenses were ~~$93.3~~$93.5 million in the ~~second~~third quarter of 2012, up ~~32.5%~~32.8% over the ~~second~~third quarter of 2011, due primarily to increases in compensation expense, legal collection costs, legal collection fees and outside fees and ~~services and communications expense.~~services. Compensation expense increased primarily as a result of larger staff sizes, including the acquisition of MHH on January 16, 2012. Compensation and employee services expenses increased as total employees grew ~~21.1%~~23.9% to ~~3,032~~3,103 as of ~~June~~September 30, 2012, from 2,504 as of ~~June~~September 30, 2011. Legal collection costs were ~~$18.2~~$15.8 million for the three months ended ~~June~~September 30, 2012 compared to ~~$9.9~~$9.7 million for the three months ended ~~June~~September 30, 2011, an increase of ~~$8.3~~$6.1 million or ~~83.8%~~62.9%. This increase was the result of an increased portfolio size as well as a refinement of our internal scoring methodology that expanded our account selections for legal action. This strategy to expand the accounts brought into the legal collection process resulted in significant initial expenses, which ~~is expected to help~~may drive additional future cash collections and revenue. Legal collection fees increased from $6.0 million in the ~~second~~third quarter of 2011 to ~~$9.0~~$8.6 million in the ~~second~~third quarter of 2012, an increase of ~~$3.0~~$2.6 million or ~~50.0%~~43.3%. This increase was the result of an increase in cash collections from outside attorneys from ~~$27.3~~$27.2 million in the three months ended ~~June~~September 30, 2011 to ~~$41.5~~$39.9 million for the three months ended ~~June~~September 30, 2012, an increase of ~~$14.2~~$12.7 million or ~~52.0%~~46.7%. Outside fees and services increased primarily as a result of legal related expenses as well as increases in costs related to software development. ~~Communication expenses increased primarily due to a growth in mailings resulting from an increase in special letter campaigns and a greater number of finance receivables to work.~~

The results of operations include the financial results of Portfolio Recovery Associates, Inc. and all of our subsidiaries, all of which are in the receivables management business. Under the guidance of the FASB ASC Topic 280 “Segment Reporting” (“ASC 280”),we have determined that we have several operating segments that meet the aggregation criteria of ASC 280, and therefore, we have one reportable segment, accounts receivable management, based on similarities among the operating units including homogeneity of services, service delivery methods and use of technology.

The following table sets forth certain operating data as a percentage of total revenues for the periods indicated:


													For the Three Months						For the Nine Months
	For the Three Months Ended June 30,						For the Six Months Ended June 30,						Ended September 30,						Ended September 30,
	2012			2011			2012			2011			2012			2011			2012			2011
Revenues:
Income recognized on finance receivables, net		89.7	%		87.4	%		89.2	%		86.6	%		90.2	%		90.0	%		89.5	%		87.8	%
Fee income		10.3	%		12.6	%		10.8	%		13.4	%		9.8	%		10.0	%		10.5	%		12.2	%

Total revenues		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%
Operating expenses:
Compensation and employee services		28.7	%		30.3	%		28.5	%		30.4	%		27.5	%		29.3	%		28.2	%		30.1	%
Legal collection fees		6.1	%		5.2	%		5.8	%		5.2	%		5.7	%		5.2	%		5.8	%		5.2	%
Legal collection costs		12.3	%		8.6	%		14.5	%		8.5	%		10.5	%		8.5	%		13.2	%		8.5	%
Agent fees		0.9	%		1.5	%		1.0	%		1.9	%		1.0	%		1.4	%		1.0	%		1.8	%
Outside fees and services		3.8	%		3.5	%		4.0	%		3.3	%		6.7	%		5.4	%		4.9	%		4.0	%
Communication expenses		4.7	%		5.0	%		5.3	%		5.3	%		4.5	%		5.1	%		5.0	%		5.2	%
Rent and occupancy		1.1	%		1.3	%		1.1	%		1.3	%		1.2	%		1.3	%		1.2	%		1.3	%
Depreciation and amortization		2.4	%		2.9	%		2.5	%		2.9	%		2.4	%		2.8	%		2.5	%		2.9	%
Other operating expenses		3.0	%		3.0	%		2.8	%		2.8	%		2.5	%		2.5	%		2.7	%		2.7	%

Total operating expenses		63.0	%		61.3	%		65.5	%		61.6	%		62.0	%		61.5	%		64.5	%		61.7	%
Gain on sale of property		0.0	%		1.0	%		0.0	%		0.5	%		0.0	%		0.0	%		0.0	%		0.3	%


Income from operations		37.0	%		39.7	%		34.5	%		38.9	%		38.0	%		38.5	%		35.5	%		38.6	%
Other income and (expense):
Interest income		0.0	%		0.0	%		0.0	%		0.0	%		0.0	%		0.0	%		0.0	%		0.0	%
Interest expense		(1.6	%)		(2.3	%)		(1.7	%)		(2.4	%)		(1.5	%)		(2.2	%)		(1.6	%)		(2.4	%)

Income before income taxes		35.4	%		37.4	%		32.8	%		36.5	%		36.5	%		36.3	%		33.9	%		36.2	%
Provision for income taxes		13.6	%		15.1	%		12.8	%		14.8	%		14.4	%		14.1	%		13.3	%		14.5	%

Net income		21.8	%		22.3	%		20.0	%		21.7	%		22.1	%		22.2	%		20.6	%		21.7	%

Less net loss/(income) attributable to redeemable noncontrolling interest		0.0	%		(0.0	%)		0.1	%		(0.3	%)
Adjustment for (loss)/income attributable to redeemable noncontrolling interest														(0.1	%)		(0.3	%)		(0.1	%)		0.1	%


Net income attributable to Portfolio Recovery Associates, Inc.		21.8	%		22.3	%		20.1	%		21.4	%		22.2	%		22.5	%		20.7	%		21.6	%

Three Months Ended ~~June~~September 30, 2012 Compared To Three Months Ended ~~June~~September 30, 2011

Total revenues were ~~$147.9~~$150.5 million for the three months ended ~~June~~September 30, 2012, an increase of ~~$33.1~~$36.2 million, or ~~28.8%~~31.7%, compared to total revenues of ~~$114.8~~$114.3 million for the three months ended ~~June~~September 30, 2011.

Income recognized on finance receivables, net was ~~$132.6~~$135.8 million for the three months ended ~~June~~September 30, 2012, an increase of ~~$32.3~~$32.9 million, or ~~32.2%~~32.0%, compared to income recognized on finance receivables, net of ~~$100.3~~$102.9 million for the three months ended ~~June~~September 30, 2011. The increase was primarily due to an increase in cash collections on our finance receivables to ~~$232.4~~$229.1 million for the three months ended ~~June~~September 30, 2012, from ~~$176.3~~$182.2 million for the three months ended ~~June~~September 30, 2011, an increase of ~~$56.1~~$46.9 million or ~~31.8%~~25.7%. During the three months ended ~~June~~September 30, 2012, we acquired defaulted consumer receivables portfolios with an aggregate face value amount of ~~$1.5~~$1.3 billion at a cost of ~~$125.1~~$102.9 million. During the three months ended ~~June~~September 30, 2011, we acquired defaulted consumer receivable portfolios with an aggregate face value of ~~$1.4~~$5.7 billion at a cost of ~~$89.5~~$122.1 million. In any period, we acquire defaulted consumer receivables that can vary dramatically in their age, type and ultimate collectability. We may pay significantly different purchase rates for purchased receivables within any period as a result of this quality fluctuation. In addition, market forces can drive pricing rates up or down in any period, irrespective of other quality fluctuations. As a result, the average purchase rate paid for any given period can fluctuate dramatically based on our particular buying activity in that period. However, regardless of the average purchase price and for similar time frames, we intend to target a similar internal rate of return, after direct expenses, in pricing our portfolio acquisitions; therefore, the absolute rate paid is not necessarily relevant to the estimated profitability of a period’s buying.

change in timing of cash flows which would otherwise require a reduction in the stated yield on a pool of accounts. For the three months ended ~~June~~September 30, 2012, we recorded net allowance charges of ~~$2.2~~$1.6 million, of which ~~$2.5~~$0.9 million related to purchased bankruptcy portfolios primarily purchased in 2007 and 2008, $1.9 million related to Core portfolios primarily purchased in 2006 and 2007. This was offset by ~~a net~~an allowance reversal of ~~$0.3~~$1.1 million on Core portfolios purchased in 2005, and a $0.1 million reversal on purchased bankruptcy portfolios. In any given period, we may be required to record valuation allowances due to pools of receivables underperforming our expectations. Factors that may contribute to the recording of valuation allowances may include both internal as well as external factors. External factors which may have an impact on the collectability, and subsequently to the overall profitability, of purchased pools of defaulted consumer receivables include: new laws or regulations relating to collections, new interpretations of existing laws or regulations, and the overall condition of the economy. Internal factors which may have an impact on the collectability, and subsequently the overall profitability, of purchased pools of defaulted consumer receivables would include: necessary revisions to initial and post-acquisition scoring and modeling estimates, non-optimal operational activities (relating to the collection and movement of accounts on both our collection floor and external channels), ~~as well as~~and decreases in productivity related to turnover ~~and tenure~~ of our collection staff.

Fee income ~~was $15.3~~increased from $11.4 million ~~for~~in the ~~three months ended June 30,~~third quarter of 2011 to $14.8 million in the third quarter of 2012 ~~an increase of $0.8 million, or 5.5%, compared to fee income of $14.5 million for the three months ended June 30, 2011. Fee income increased~~ primarily due to the acquisition of MHH in the first quarter of 2012 ~~offset by declines~~and an increase in revenue generated by our PRA GS business, ~~and our PLS business. The decline from PRA GS is mainly attributable to~~offset by a decline in revenue generated ~~from state sales and use tax programs.~~by our PLS business. The decline from PLS is due primarily to the adverse impact of the economic slowdown on automobile financing and related collateral recovery activities.

Total operating expenses were ~~$93.3~~$93.5 million for the three months ended ~~June~~September 30, 2012, an increase of ~~$22.9~~$23.1 million or ~~32.5%~~32.8% compared to total operating expenses of $70.4 million for the three months ended ~~June~~September 30, 2011. Total operating expenses were ~~37.7%~~38.3% of cash receipts for the three months ended ~~June~~September 30, 2012 compared to ~~36.9%~~36.4% for the same period in 2011.

Compensation and employee services expenses were ~~$42.5~~$41.3 million for the three months ended ~~June~~September 30, 2012, an increase of ~~$7.7~~$7.8 million, or ~~22.1%~~23.3%, compared to compensation and employee services expenses of ~~$34.8~~$33.5 million for the three months ended ~~June~~September 30, 2011. Compensation expense increased primarily as a result of larger staff sizes, including the addition of new employees as a result of the acquisition of MHH on January 16, 2012. Compensation and employee services expenses increased as total employees grew ~~21.1%~~23.9% to ~~3,032~~3,103 as of ~~June~~September 30, 2012, from 2,504 as of ~~June~~September 30, 2011. Compensation and employee services expenses as a percentage of cash receipts decreased to ~~17.2%~~17.0% for the three months ended ~~June~~September 30, 2012, from ~~18.3%~~17.3% of cash receipts for the same period in 2011.

Legal collection fees represent ~~the~~ contingent fees incurred for the cash collections generated by our independent third party attorney network. Legal collection fees were ~~$9.0~~$8.6 million for the three months ended ~~June~~September 30, 2012, an increase of ~~$3.0~~$2.6 million, or ~~50.0%~~43.3%, compared to legal collection fees of $6.0 million for the three months ended ~~June~~September 30, 2011. This increase was the result of an increase in ~~our external legal~~cash collections ~~which increased $14.2~~from outside attorneys from $27.2 million ~~or 52.0%, from $27.3~~in the three months ended September 30, 2011 to $39.9 million for the three months ended ~~June~~September 30, ~~2011 to $41.5~~2012, an increase of $12.7 million ~~for the three months ended June 30, 2012.~~or 46.7%. Legal collection fees for the three months ended ~~June~~September 30, 2012 were ~~3.6%~~3.5% of cash receipts, compared to 3.1% for the three months ended ~~June~~September 30, 2011.

Legal collection costs ~~are~~consist of costs paid to courts where a lawsuit is ~~filed. It also includes~~filed and the cost of documents received from sellers of defaulted consumer receivables. Legal collection costs were ~~$18.2~~$15.8 million for the three months ended ~~June~~September 30, 2012, an increase of ~~$8.3~~$6.1 million, or ~~83.8%~~62.9%, compared to legal collection costs of ~~$9.9~~$9.7 million for the three months ended ~~June~~September 30, 2011. This increase was the result of an increased portfolio size as well as a refinement of our internal scoring methodology that expanded our account selections for legal action. This strategy to expand the accounts brought into the legal collection process resulted in significant initial expenses, which ~~is expected to help~~may drive additional future cash collections and revenue. These legal collection costs represent ~~7.4%~~6.5% and ~~5.2%~~4.4% of cash receipts for the three month periods ended ~~June~~September 30, 2012 and 2011, respectively.

Agent fees primarily represent costs paid to repossession agents to repossess vehicles. Agent fees were ~~$1.3~~$1.5 million for the three months ended ~~June~~September 30, 2012, a decrease of ~~$0.4~~$0.1 million, or ~~23.5%~~6.3%, compared to agent fees of ~~$1.7~~$1.6 million for the three months ended ~~June~~September 30, 2011. The decrease was primarily due to a decline in agent fees related to reduced business activity associated with PLS.

Outside fees and services expenses were ~~$5.6~~$10.1 million for the three months ended ~~June~~September 30, 2012, an increase of ~~$1.5~~$3.9 million or ~~36.6%~~62.9% compared to outside fees and services expenses of ~~$4.1~~$6.2 million for the three months ended ~~June~~September 30, 2011. Of the ~~$1.5~~$3.9 million increase, ~~$0.3~~$3.3 million increase was attributable to an increase in legal reserve accruals and corporate legal ~~expense~~expenses and the remaining ~~$1.2~~$0.6 million increase was mainly attributable to other outside fees and services including increases in non-capitalized software development costs.

Communication expenses were ~~$7.0~~$6.8 million for the three months ended ~~June~~September 30, 2012, an increase of ~~$1.3~~$0.9 million, or ~~22.8%~~15.3%, compared to communications expenses of ~~$5.7~~$5.9 million for the three months ended ~~June~~September 30, 2011. The increase was primarily due to additional postage expense resulting from an increase in special letter campaigns. The remaining increase was attributable to higher telephone expenses driven by a greater number of finance receivables to work, as well as ~~a significant~~an expansion of our ~~dialer capacity~~telephone system and a resulting increase in the number of collection calls made. ~~Mailings~~Expenses related to customer mailings were responsible for ~~76.9%~~66.7% or ~~$1.0~~$0.6 million of this increase, while the remaining ~~23.1%~~33.3% or $0.3 million was attributable to increased call volumes and other telephone related charges.

Rent and occupancy expenses were ~~$1.7~~$1.8 million for the three months ended ~~June~~September 30, 2012, an increase of $0.3 million, or ~~21.4%~~20.0%, compared to rent and occupancy expenses of ~~$1.4~~$1.5 million for the three months ended ~~June~~September 30, 2011. The increase was primarily due to the additional space leased for our Birmingham call center operations, the addition of our MHH foreign operations as well as increased utility charges.

Depreciation and amortization expenses were $3.6 million for the three months ended ~~June~~September 30, 2012, an increase of ~~$0.3~~$0.4 million or ~~9.1%~~12.5% compared to depreciation and amortization expenses of ~~$3.3~~$3.2 million for the three months ended ~~June~~September 30, 2011. The increase was primarily due to the additional depreciation and amortization expense incurred as a result of the acquisition of the ~~tangible~~property and equipment and intangible assets of MHH.

Other operating expenses were ~~$4.5~~$3.8 million for the three months ended ~~June~~September 30, 2012, an increase of $1.0 million or ~~28.6%~~35.7% compared to other operating expenses of ~~$3.5~~$2.8 million for the three months ended ~~June~~September 30, 2011. Of the $1.0 million increase, ~~$0.4~~$0.3 million was due to an increase in bad debt expense and ~~$0.3~~$0.2 million was due to an increase in travel and travel related expenses when compared to same prior year period. None of the remaining ~~$0.3~~$0.5 million increase was attributable to any significant identifiable items.

Interest income was ~~$7,000~~$0 and $0$7,000 for the three months ended ~~June~~September 30, 2012 and 2011, respectively.

Interest expense was ~~$2.4~~$2.2 million for the three months ended ~~June~~September 30, 2012, a decrease of ~~$0.2~~$0.4 million compared to interest expense of $2.6 million for the three months ended ~~June~~September 30, 2011. The decrease was primarily due to a decrease in our weighted average interest rate, which decreased to 3.0% for the three months ended September 30, 2012, compared to 3.7% for the three months ended September 30, 2011. This was offset by an increase in average borrowings under our revolving credit facility for the three months ended ~~June~~September 30, 2012 compared to the same period in 2011. The average borrowings on our credit facility were $259.7 million and $248.9 million for the three months ended September 30, 2012 and 2011, respectively.

Income tax expense was $21.7 million for the three months ended September 30, 2012, an increase of $5.6 million, or 34.8%, compared to income tax expense of $16.1 million for the three months ended September 30, 2011. The increase is primarily due to an increase of 32.9% in income before taxes for the three months ended September 30, 2012, compared to the same period in 2011, in addition to a ~~decrease in our weighted average interest rate, which decreased to 3.3% for the three months ended June 30, 2012, compared to 3.7% for the three months ended June 30, 2011.~~

~~Income tax expense was $20.2 million for the three months ended June 30, 2012, an~~ increase of $2.9 million, or 16.8%, compared to income tax expense of $17.3 million for the three months ended June 30, 2011. The increase is primarily due to an increase of 21.7% in income before taxes for the three months ended June 30, 2012, compared to the same period in 2011, offset by a decrease in the effective tax rate to ~~38.6%~~39.6% for the three months ended ~~June~~September 30, 2012, compared to an effective tax rate of ~~40.4%~~39.0% for the same period in 2011. The ~~decrease~~increase in the effective tax rate is primarily attributable ~~to a decrease in the state effective tax rate due~~ to a change in the mix of income apportionment between various ~~states as well as the impact of state tax credits.~~states.

~~Six Months~~Nine months Ended ~~June~~September 30, 2012 Compared To ~~Six Months~~Nine months Ended ~~June~~September 30, 2011

Total revenues were ~~$288.0~~$438.5 million for the ~~six~~nine months ended ~~June~~September 30, 2012, an increase of ~~$61.4~~$97.7 million, or ~~27.1%~~28.7%, compared to total revenues of ~~$226.6~~$340.8 million for the ~~six~~nine months ended ~~June~~September 30, 2011.

Income recognized on finance receivables, net was ~~$256.8~~$392.6 million for the ~~six~~nine months ended ~~June~~September 30, 2012, an increase of ~~$60.5~~$93.4 million, or ~~30.8%~~31.2%, compared to income recognized on finance receivables, net of ~~$196.3~~$299.2 million for the ~~six~~nine months ended ~~June~~September 30, 2011. The increase was primarily due to an increase in cash collections on our finance receivables to ~~$450.4~~$679.5 million for the ~~six~~nine months ended ~~June~~September 30, 2012, from ~~$343.0~~$525.2 million for the ~~six~~nine months ended ~~June~~September 30, 2011, an increase of ~~$107.4~~$154.3 million or ~~31.3%~~29.4%. During the ~~six~~nine months ended ~~June~~September 30, 2012, excluding the initial investment in the MHH portfolio, we acquired defaulted consumer receivables portfolios with an aggregate face value amount of ~~$3.0~~$4.2 billion at a cost of ~~$236.5~~$339.4 million. During the ~~six~~nine months ended ~~June~~September 30, 2011, we acquired defaulted consumer receivable portfolios with an aggregate face value of ~~$2.9~~$8.6 billion at a cost of ~~$197.4~~$319.5 million. In any period, we acquire defaulted consumer receivables that can vary dramatically in their age, type and ultimate collectability. We may pay significantly different purchase rates for purchased receivables within any period as a result of this quality fluctuation. In addition, market forces can drive pricing rates up or down in any period, irrespective of other quality fluctuations. As a result, the average purchase rate paid for any given period can fluctuate dramatically based on our particular buying activity in that period. However, regardless of the average purchase price and for similar time frames, we intend to target a similar internal rate of return, after direct expenses, in pricing our portfolio acquisitions; therefore, the absolute rate paid is not necessarily relevant to the estimated profitability of a period’s buying.

Income recognized on finance receivables, net is shown net of changes in valuation allowances recognized under FASB ASC Topic 310-30 “Loans and Debt Securities Acquired with Deteriorated Credit Quality” (“ASC 310-30”), which requires that a valuation allowance be recorded for significant decreases in expected cash flows or a change in timing of cash flows which would otherwise require a reduction in the stated yield on a pool of accounts. For the ~~six~~nine months ended ~~June~~September 30, 2012, we recorded net allowance charges of ~~$2.7~~$4.3 million of which ~~$3.4 million~~ related to purchased bankruptcy portfolios primarily purchased in ~~2007, offset by a net allowance reversal of $0.7 million on Core portfolios.~~2008. In any given period, we may be required to record valuation allowances due to pools of receivables underperforming our expectations. Factors that may contribute to the recording of valuation allowances

may have an impact on the collectability, and subsequently to the overall profitability, of purchased pools of defaulted consumer receivables include: new laws or regulations relating to collections, new interpretations of existing laws or regulations, and the overall condition of the economy. Internal factors which may have an impact on the collectability, and subsequently the overall profitability, of purchased pools of defaulted consumer receivables would include: necessary revisions to initial and post-acquisition scoring and modeling estimates, non-optimal operational activities (relating to the collection and movement of accounts on both our collection floor and external channels), ~~as well as~~and decreases in productivity related to turnover ~~and tenure~~ of our collection staff.

Fee income was ~~$31.2~~$46.0 million for the ~~six~~nine months ended ~~June~~September 30, 2012, an increase of ~~$0.9~~$4.3 million, or ~~3.0%~~10.3%, compared to fee income of ~~$30.3~~$41.7 million for the ~~six~~nine months ended ~~June~~September 30, 2011. Fee income increased primarily due to the acquisition of MHH in the first quarter of 2012 offset by declines in revenue generated by both our ~~PRA GS~~PLS business and ~~our PLS business. The decline from PRA GS is mainly attributable to a decline in revenue generated from state sales and use tax programs.~~Claims Compensation Bureau, LLC (“CCB”). The decline from PLS is due primarily to the adverse impact of the economic slowdown on automobile financing and related collateral recovery activities. The decline from CCB is due primarily to larger settlements of class action suits in the nine months ended September 30, 2011 as compared to the same period in 2012.

Total operating expenses were ~~$189.0~~$282.5 million for the ~~six~~nine months ended ~~June~~September 30, 2012, an increase of ~~$49.5~~$72.6 million or ~~35.5%~~34.6% compared to total operating expenses of ~~$139.5~~$209.9 million for the ~~six~~nine months ended ~~June~~September 30, 2011. Total operating expenses were ~~39.2%~~38.9% of cash receipts for the ~~six~~nine months ended ~~June~~September 30, 2012 compared to ~~37.4%~~37.0% for the same period in 2011.

Compensation and employee services expenses were ~~$82.2~~$123.5 million for the ~~six~~nine months ended ~~June~~September 30, 2012, an increase of ~~$13.2~~$21.1 million, or ~~19.1%~~20.6%, compared to compensation and employee services expenses of ~~$69.0~~$102.4 million for the ~~six~~nine months ended ~~June~~September 30, 2011. Compensation expense increased primarily as a result of larger staff sizes, including the addition of new employees as a result of the acquisition of MHH on January 16, 2012. Compensation and employee services expenses increased as total employees grew ~~21.1%~~23.9% to ~~3,032~~3,103 as of ~~June~~September 30, 2012, from 2,504 as of ~~June~~September 30, 2011. Compensation and employee services expenses as a percentage of cash receipts decreased to ~~17.1%~~17.0% for the ~~six~~nine months ended ~~June~~September 30, 2012, from ~~18.5%~~18.1% of cash receipts for the same period in 2011.

Legal collection fees represent ~~the~~ contingent fees incurred for the cash collections generated by our independent third party attorney network. Legal collection fees were ~~$16.6~~$25.2 million for the ~~six~~nine months ended ~~June~~September 30, 2012, an increase of ~~$4.9~~$7.5 million, or ~~41.9%~~42.4%, compared to legal collection fees of ~~$11.7~~$17.7 million for the ~~six~~nine months ended ~~June~~September 30, 2011. This increase was the result of an increase in our external legal collections which increased ~~$23.6~~$36.2 million or ~~44.8%~~45.3%, from ~~$52.7~~$80.0 million for the ~~six~~nine months ended ~~June~~September 30, 2011 to ~~$76.3~~$116.2 million for the ~~six~~nine months ended ~~June~~September 30, 2012. Legal collection fees for the ~~six~~nine months ended ~~June~~September 30, 2012 were ~~3.4%~~3.5% of cash receipts, compared to 3.1% for the ~~six~~nine months ended ~~June~~September 30, 2011.

Legal collection costs ~~are~~consist of costs paid to courts where a lawsuit is ~~filed. It also includes~~filed and the cost of documents received from sellers of defaulted consumer receivables. Legal collection costs were ~~$41.9~~$57.7 million for the ~~six~~nine months ended ~~June~~September 30, 2012, an increase of ~~$22.7~~$28.8 million, or ~~118.2%~~99.7%, compared to legal collection costs of ~~$19.2~~$28.9 million for the ~~six~~nine months ended ~~June~~September 30, 2011. This increase was the result of an increased portfolio size as well as a refinement of our internal scoring methodology that expanded our account selections for legal action. This strategy to expand the accounts brought into the legal collection process resulted in significant initial expenses, which ~~is expected to help~~may drive additional future cash collections and revenue. These legal collection costs represent ~~8.7%~~8.0% and 5.1% of cash receipts for the six month periods ended ~~June~~September 30, 2012 and 2011, respectively.

Agent fees primarily represent costs paid to repossession agents to repossess vehicles. Agent fees were ~~$3.0~~$4.5 million for the ~~six~~nine months ended ~~June~~September 30, 2012, a decrease of ~~$1.4~~$1.5 million, or ~~31.8%~~25.0%, compared to agent fees of ~~$4.4~~$6.0 million for the ~~six~~nine months ended ~~June~~September 30, 2011. The decrease was primarily due to a decline in agent fees related to reduced business activity associated with PLS.

Outside fees and services expenses were ~~$11.4~~$21.6 million for the ~~six~~nine months ended ~~June~~September 30, 2012, an increase of ~~$3.9~~$7.9 million or ~~52.0%~~57.7% compared to outside fees and services expenses of ~~$7.5~~$13.7 million for the ~~six~~nine months ended ~~June~~September 30, 2011. Of the ~~$3.9~~$7.9 million increase, ~~$1.4~~$4.7 million ~~increase~~ was attributable to an increase in legal reserve accruals and corporate legal ~~expense~~expenses and the remaining ~~$2.5~~$3.2 million increase was attributable to other outside fees and services including increases in non-capitalized software development costs.

Communication expenses were ~~$15.3~~$22.0 million for the ~~six~~nine months ended ~~June~~September 30, 2012, an increase of ~~$3.3~~$4.1 million, or ~~27.5%~~22.9%, compared to communications expenses of ~~$12.0~~$17.9 million for the ~~six~~nine months ended ~~June~~September 30, 2011. The increase was primarily due to additional postage expense resulting from an increase in special letter campaigns. The remaining increase was attributable to higher telephone expenses driven by a greater number of finance receivables to work, as well as ~~a significant~~an expansion of our ~~dialer capacity~~telephone system and a resulting increase in the number of collection calls ~~generated by the dialer. Mailings~~made. Expenses related to customer mailings were responsible for ~~87.9%~~85.4% or ~~$2.9~~$3.5 million of this increase, while the remaining ~~12.1%~~14.6% or ~~$0.4~~$0.6 million was attributable to increased call volumes and other telephone related charges.

Rent and occupancy expenses were ~~$3.3~~$5.1 million for the ~~six~~nine months ended ~~June~~September 30, 2012, an increase of ~~$0.5~~$0.7 million, or ~~17.9%~~15.9%, compared to rent and occupancy expenses of ~~$2.8~~$4.4 million for the ~~six~~nine months ended ~~June~~September 30, 2011. The increase was primarily due to the additional space leased for our Birmingham call center operations, the addition of our MHH foreign operations as well as increased utility charges.

Depreciation and amortization expenses were ~~$7.2~~$10.8 million for the ~~six~~nine months ended ~~June~~September 30, 2012, an increase of ~~$0.7~~$1.0 million or ~~10.8%~~10.2% compared to depreciation and amortization expenses of ~~$6.5~~$9.8 million for the ~~six~~nine months ended ~~June~~September 30, 2011. The increase was primarily due to the additional depreciation and amortization expense incurred as a result of the acquisition of the ~~tangible~~property and equipment and intangible assets of MHH.

Other operating expenses were ~~$8.2~~$12.0 million for the ~~six~~nine months ended ~~June~~September 30, 2012, an increase of ~~$1.8~~$2.8 million or ~~28.1%~~30.4% compared to other operating expenses of ~~$6.4~~$9.2 million for the ~~six~~nine months ended ~~June~~September 30, 2011. Of the ~~$1.8~~$2.8 million increase, ~~$0.7~~$0.4 increase was primarily attributable to additional taxes, fees and licenses and other operating expenses incurred by ~~our~~ MHH, ~~$0.4~~$0.8 million was due to an increase in bad debt expense, and ~~$0.5~~$0.7 million was due to an increase in travel and travel related expenses when compared to same prior year period. None of the remaining ~~$0.2~~$0.9 million increase was attributable to any significant identifiable items.

Gain on sale of property was $0 for the nine months ended September 30, 2012, compared to $1.2 million for the nine months ended September 30, 2011. The decrease is the result of the sale of a parcel of land adjacent to our Norfolk headquarters during the second quarter of 2011.

Interest income was $8,000 and $0$7,000 for the ~~six~~nine months ended ~~June~~September 30, 2012 and 2011, respectively.

Interest expense was ~~$5.0~~$7.2 million for the ~~six~~nine months ended ~~June~~September 30, 2012, a decrease of ~~$0.5~~$0.9 million compared to interest expense of ~~$5.5~~$8.1 million for the ~~six~~nine months ended ~~June~~September 30, 2011. The decrease was primarily due to a decrease in ~~our~~ average borrowings under our revolving credit facility for the ~~six~~nine months ended ~~June~~September 30, 2012

compared to the same period in 2011, in addition to a decrease in our weighted average interest rate, which decreased to ~~3.5%~~3.4% for the ~~six~~nine months ended ~~June~~September 30, 2012, compared to 3.7% for the ~~six~~nine months ended ~~June~~September 30, 2011. The average borrowings on our credit facility were $262.5 million and $271.4 million for the nine months ended September 30, 2012 and 2011, respectively

Income tax expense was ~~$36.8~~$58.5 million for the ~~six~~nine months ended ~~June~~September 30, 2012, an increase of ~~$3.3~~$9.0 million, or ~~9.9%~~18.2%, compared to income tax expense of ~~$33.5~~$49.5 million for the ~~six~~nine months ended ~~June~~September 30, 2011. The increase is primarily due to an increase of ~~13.6%~~20.0% in income before taxes for the ~~six~~nine months ended ~~June~~September 30, 2012, compared to the same period in 2011, partially offset by a decrease in the effective tax rate to ~~39.1%~~39.3% for the ~~six~~nine months ended ~~June~~September 30, 2012, compared to an effective tax rate of ~~40.4%~~39.9% for the same period in 2011. The decrease in the effective tax rate is primarily attributable to a decrease in the state effective tax rate due to ~~a change in the mix of income apportionment between various states as well as~~ the impact of state tax credits.


																						Three Months Ended												Nine Months Ended
	Three Months Ended June 30,						% Change				Six Months Ended June 30,							% Change				September 30,								%				September 30,								%
	2012			2011						2012				2011				% Change			2012				2011				Change				2012				2011				Change
EARNINGS (in thousands)							% Change
Income recognized on finance receivables, net	$	132,587		$	100,303			32	%		$	256,812			$	196,277			31	%		$	135,754			$	102,875				32	%		$	392,566			$	299,152				31	%
Fee income		15,298			14,492			6	%			31,218				30,295			3	%			14,765				11,401				30	%			45,983				41,696				10	%
Total revenues		147,885			114,795			29	%			288,030				226,572			27	%			150,519				114,276				32	%			438,549				340,848				29	%
Operating expenses		93,289			70,415			32	%			189,013				139,488			36	%			93,461				70,446				33	%			282,474				209,933				35	%
Income from operations		54,596			45,537			20	%			99,017				88,241			12	%			57,058				43,830				30	%			156,075				132,072				18	%
Net interest expense		2,374			2,635			-10	%			5,026				5,502			-9	%			2,189				2,548				-14	%			7,215				8,050				-10	%
Net income		32,051			25,576			25	%			57,240				49,285			16	%			33,127				25,193				31	%			90,367				74,478				21	%
Net income attributable to Portfolio Recovery Associates, Inc.		32,015			25,574			25	%			57,477				48,695			18	%			33,314				25,506				31	%			90,791				74,201				22	%

PERIOD-END BALANCES (in thousands)
Cash and cash equivalents	$	42,621		$	25,481			67	%		$	42,621			$	25,481			67	%		$	31,488			$	30,035				5	%		$	31,488			$	30,035				5	%
Finance receivables, net		966,508			879,515			10	%			966,508				879,515			10	%			973,594				919,478				6	%			973,594				919,478				6	%
Goodwill and intangible assets, net		121,748			77,643			57	%			121,748				77,643			57	%			121,623				76,426				59	%			121,623				76,426				59	%
Total assets		1,173,738			1,021,617			15	%			1,173,738				1,021,617			15	%			1,169,698				1,064,104				10	%			1,169,698				1,064,104				10	%
Line of credit		292,000			250,000			17	%			292,000				250,000			17	%			250,000				260,000				-4	%			250,000				260,000				-4	%
Total liabilities		520,911			463,153			12	%			520,911				463,153			12	%			479,211				478,915				0	%			479,211				478,915				0	%
Total equity		633,446			542,396			17	%			633,446				542,396			17	%			670,489				568,305				18	%			670,489				568,305				18	%

FINANCE RECEIVABLE COLLECTIONS (dollars in thousands)
Cash collections	$	232,425		$	176,281			32	%		$	450,420			$	342,998			31	%		$	229,052			$	182,168				26	%		$	679,473			$	525,166				29	%
Principal amortization without allowance charges		97,634			73,695			32	%			190,910				140,398			36	%			91,735				78,552				17	%			282,646				218,950				29	%
Principal amortization with allowance charges		99,838			75,978			31	%			193,608				146,721			32	%			93,298				79,293				18	%			286,907				226,014				27	%
Principal amortization w/ allowance charges as % of cash collections:
Including fully amortized pools		43.0	%		43.1	%		0	%			43.0	%			42.8	%		0	%			40.7	%			43.5	%			-6	%			42.2	%			43.0	%			-2	%
Excluding fully amortized pools		44.4	%		45.7	%		-3	%			44.6	%			45.5	%		-2	%			42.0	%			45.7	%			-8	%			43.7	%			45.6	%			-4	%

ALLOWANCE FOR FINANCE RECEIVABLES (dollars in thousands)
Balance at period-end	$	89,269		$	82,730			8	%		$	89,269			$	82,730			8	%		$	90,832			$	83,471				9	%		$	90,832			$	83,471				9	%
Allowance charge		2,204			2,283			-3	%			2,698				6,323			-57	%			1,563				741				111	%			4,261				7,064				-40	%
Allowance charge to period-end net finance receivables		0.23	%		0.26	%		-12	%			0.28	%			0.72	%		-61	%			0.16	%			0.08	%			99	%			0.44	%			0.77	%			-43	%
Allowance charge to net finance receivable income		1.66	%		2.28	%		-27	%			1.05	%			3.22	%		-67	%			1.15	%			0.72	%			60	%			1.09	%			2.36	%			-54	%
Allowance charge to cash collections		0.95	%		1.30	%		-27	%			0.60	%			1.84	%		-68	%			0.68	%			0.41	%			68	%			0.63	%			1.35	%			-53	%

PURCHASES OF FINANCE RECEIVABLES (1) (dollars in thousands)
Purchase price - core	$	69,512		$	52,323			33	%		$	121,616			$	113,617			7	%		$	52,703			$	57,240				-8	%		$	174,319			$	170,857				2	%
Face value - core		1,033,331			1,034,898			0	%			2,005,599				2,043,656			-2	%			674,135				5,027,874				-87	%			2,679,734				7,071,530				-62	%
Purchase price - bankruptcy		53,460			37,204			44	%			110,352				83,811			32	%			41,277				64,848				-36	%			151,629				148,659				2	%
Face value - bankruptcy		448,244			378,051			19	%			816,691				860,993			-5	%			341,359				654,508				-48	%			1,158,050				1,515,501				-24	%
Purchase price - total		122,972			89,527			37	%			231,968				197,428			17	%			93,980				122,088				-23	%			325,948				319,516				2	%
Face value - total		1,481,575			1,412,949			5	%			2,822,290				2,904,648			-3	%			1,015,494				5,682,382				-82	%			3,837,784				8,587,031				-55	%
Number of portfolios - total		105			76			38	%			187				155			21	%			95				95				0	%			282				250				13	%

ESTIMATED REMAINING COLLECTIONS (1) (in thousands)
Estimated remaining collections - core	$	1,305,641		$	1,072,777			22	%		$	1,305,641			$	1,072,777			22	%		$	1,323,134			$	1,154,406				15	%		$	1,323,134			$	1,154,406				15	%
Estimated remaining collections - bankruptcy		802,353			743,228			8	%			802,353				743,228			8	%			791,018				770,886				3	%			791,018				770,886				3	%
Estimated remaining collections - total		2,107,994			1,816,005			16	%			2,107,994				1,816,005			16	%			2,114,152				1,925,292				10	%			2,114,152				1,925,292				10	%

SHARE DATA (share amounts in thousands)
Net income per common share - diluted	$	1.87		$	1.48			26	%		$	3.34			$	2.83			18	%		$	1.96			$	1.48				32	%		$	5.30			$	4.31				23	%
Weighted average number of shares outstanding - diluted		17,133			17,225			-1	%			17,200				17,212			0	%			17,022				17,228				-1	%			17,140				17,218				0	%
Shares repurchased		300,849			—			100	%			331,449				—			100	%			—				—				100	%			331,449				—				100	%
Average price paid per share repurchased (including acquisitions costs)	$	68.62			—			100	%		$	68.56				—			100	%		$	—				—				100	%		$	68.56				—				100	%
Closing market price	$	91.26		$	84.79			8	%		$	91.26			$	84.79			8	%		$	104.43			$	62.22				68	%		$	104.43			$	62.22				68	%

RATIOS AND OTHER DATA (dollars in thousands)
Return on average equity (2)		20.34	%		19.20	%		6	%			18.54	%			18.74	%		-1	%			20.29	%			18.27	%			11	%			19.15	%			18.57	%			3	%
Return on revenue (3)		21.67	%		22.28	%		-3	%			19.87	%			21.75	%		-9	%			22.01	%			22.05	%			0	%			20.61	%			21.85	%			-6	%
Operating margin (4)		36.92	%		39.67	%		-7	%			34.38	%			38.95	%		-12	%			37.91	%			38.35	%			-1	%			35.59	%			38.75	%			-8	%
Operating expense to cash receipts (5)		37.66	%		36.91	%		2	%			39.24	%			37.37	%		5	%			38.33	%			36.39	%			5	%			38.94	%			37.03	%			5	%
Debt to equity (6)		46.33	%		46.43	%		0	%			46.33	%			46.43	%		0	%			37.39	%			46.02	%			-19	%			37.28	%			46.02	%			-19	%
Number of collectors		1,952			1,517			29	%			1,952				1,517			29	%			1,992				1,520				31	%			1,992				1,520				31	%
Number of employees		3,032			2,504			21	%			3,032				2,504			21	%			3,103				2,504				24	%			3,103				2,504				24	%
Cash receipts (5)	$	247,723		$	190,773			30	%		$	481,639			$	373,293			29	%		$	243,817			$	193,569				26	%		$	725,456			$	566,862				28	%
Line of credit - unused portion at period end		166,450			157,500			6	%			166,450				157,500			6	%			214,450				147,500				45	%			214,450				147,500				45	%


	For the Quarter Ended															For the Quarter Ended
	June 30 2012			March 31 2012			December 31 2011			September 30 2011			June 30 2011			September 30 2012			June 30 2012			March 31 2012			December 31 2011			September 30 2011
EARNINGS (in thousands)
Income recognized on finance receivables, net	$	132,587		$	124,226		$	102,743		$	102,875		$	100,303		$	135,754		$	132,587		$	124,226		$	102,743		$	102,875
Fee income		15,298			15,920			15,344			11,401			14,492			14,765			15,298			15,920			15,344			11,401
Total revenues		147,885			140,146			118,087			114,276			114,795			150,519			147,885			140,146			118,087			114,276
Operating expenses		93,289			95,725			72,134			70,447			70,415			93,461			93,289			95,725			72,134			70,446
Income from operations		54,596			44,421			45,953			43,830			45,537			57,058			54,596			44,421			45,953			43,830
Net interest expense		2,374			2,652			2,512			2,548			2,635			2,189			2,374			2,652			2,512			2,548
Net income		32,051			25,189			26,666			25,193			25,576			33,127			32,051			25,189			26,666			25,193
Net income attributable to Portfolio Recovery Associates, Inc.		32,015			25,462			26,590			25,506			25,574			33,314			32,015			25,462			26,590			25,506

PERIOD-END BALANCES (in thousands)
Cash and cash equivalents	$	42,621		$	28,068		$	26,697		$	30,035		$	25,481		$	31,488		$	42,621		$	28,068		$	26,697		$	30,035
Finance receivables, net		966,508			945,242			926,734			919,478			879,515			973,594			966,508			945,242			926,734			919,478
Goodwill and intangible assets, net		121,748			124,659			76,274			76,426			77,643			121,623			121,748			124,659			76,274			76,426
Total assets		1,173,738			1,142,026			1,071,123			1,064,104			1,021,617			1,169,698			1,173,738			1,142,026			1,071,123			1,064,104
Line of credit		292,000			265,000			220,000			260,000			250,000			250,000			292,000			265,000			220,000			260,000
Total liabilities		520,911			502,531			457,804			478,915			463,153			479,211			520,911			502,531			457,804			478,915
Total equity		633,446			620,712			595,488			568,305			542,396			670,489			633,446			620,712			595,488			568,305

FINANCE RECEIVABLE COLLECTIONS (dollars in thousands)
Cash collections	$	232,425		$	217,996		$	180,324		$	182,168		$	176,281		$	229,052		$	232,425		$	217,996		$	180,324		$	182,168
Principal amortization without allowance charges		97,634			93,276			74,481			78,552			73,695			91,735			97,634			93,276			74,481			78,552
Principal amortization with allowance charges		99,838			93,770			77,581			79,293			75,978			93,298			99,838			93,770			77,581			79,293
Principal amortization w/ allowance charges as % of cash collections:
Including fully amortized pools		43.0	%		43.0	%		43.0	%		43.5	%		43.1	%		40.7	%		43.0	%		43.0	%		43.0	%		43.5	%
Excluding fully amortized pools		44.4	%		44.8	%		44.9	%		45.7	%		45.7	%		42.0	%		44.4	%		44.8	%		44.9	%		45.7	%

ALLOWANCE FOR FINANCE RECEIVABLES (dollars in thousands)
Balance at period-end	$	89,269		$	87,065		$	86,571		$	83,471		$	82,730		$	90,832		$	89,269		$	87,065		$	86,571		$	83,471
Allowance charge		2,204			494			3,100			741			2,283			1,563			2,204			494			3,100			741
Allowance charge to period-end net finance receivables		0.23	%		0.05	%		0.33	%		0.08	%		0.26	%		0.16	%		0.23	%		0.05	%		0.33	%		0.08	%
Allowance charge to net finance receivable income		1.66	%		0.40	%		3.02	%		0.72	%		2.28	%		1.15	%		1.66	%		0.40	%		3.02	%		0.72	%
Allowance charge to cash collections		0.95	%		0.23	%		1.72	%		0.41	%		1.30	%		0.68	%		0.95	%		0.23	%		1.72	%		0.41	%

PURCHASES OF FINANCE RECEIVABLES (1) (dollars in thousands)
Purchase price - core	$	69,512		$	52,104		$	42,532		$	57,240		$	52,323		$	52,703		$	69,512		$	52,104		$	42,532		$	57,240
Face value - core		1,033,331			972,268			829,232			5,027,874			1,034,898			674,135			1,033,331			972,268			829,232			5,027,874
Purchase price - bankruptcy		53,460			56,892			46,360			64,848			37,204			41,277			53,460			56,892			46,360			64,848
Face value - bankruptcy		448,244			368,447			376,094			654,508			378,051			341,359			448,244			368,447			376,094			654,508
Purchase price - total		122,972			108,996			88,892			122,088			89,527			93,980			122,972			108,996			88,892			122,088
Face value - total		1,481,575			1,340,715			1,205,326			5,682,382			1,412,949			1,015,494			1,481,575			1,340,715			1,205,326			5,682,382
Number of portfolios - total		105			82			83			95			76			95			105			82			83			95

ESTIMATED REMAINING COLLECTIONS (1) (in thousands)
Estimated remaining collections - core	$	1,305,641		$	1,226,292		$	1,159,086		$	1,154,406		$	1,072,777		$	1,323,134		$	1,305,641		$	1,226,292		$	1,159,086		$	1,154,406
Estimated remaining collections - bankruptcy		802,353			796,161			794,262			770,886			743,228			791,018			802,353			796,161			794,262			770,886
Estimated remaining collections - total		2,107,994			2,022,453			1,953,348			1,925,292			1,816,005			2,114,152			2,107,994			2,022,453			1,953,348			1,925,292

SHARE DATA (share amounts in thousands)
Net income per common share - diluted	$	1.87		$	1.47		$	1.54		$	1.48		$	1.48		$	1.96		$	1.87		$	1.47		$	1.54		$	1.48
Weighted average number of shares outstanding - diluted		17,133			17,267			17,269			17,228			17,225			17,022			17,133			17,267			17,269			17,228
Shares repurchased		300,849			30,600			—			—			—			—			300,849			30,600			—			—
Average price paid per share repurchased (including acquisitions costs)	$	68.62		$	68.02			—			—			—		$	—		$	68.62		$	68.02			—			—
Closing market price	$	91.26		$	71.72		$	67.52		$	62.22		$	84.79		$	104.43		$	91.26		$	71.72		$	67.52		$	62.22

RATIOS AND OTHER DATA (dollars in thousands)
Return on average equity (2)		20.34	%		16.70	%		18.18	%		18.27	%		19.20	%		20.29	%		20.34	%		16.70	%		18.18	%		18.27	%
Return on revenue (3)		21.67	%		17.97	%		22.58	%		22.05	%		22.28	%		22.01	%		21.67	%		17.97	%		22.58	%		22.05	%
Operating margin (4)		36.92	%		31.70	%		38.91	%		38.35	%		39.67	%		37.91	%		36.92	%		31.70	%		38.91	%		38.35	%
Operating expense to cash receipts (5)		37.66	%		40.92	%		36.87	%		36.39	%		36.91	%		38.33	%		37.66	%		40.92	%		36.87	%		36.39	%
Debt to equity (6)		46.33	%		42.84	%		37.15	%		46.02	%		46.43	%		37.39	%		46.33	%		42.84	%		37.15	%		46.02	%
Number of collectors		1,952			1,934			1,658			1,520			1,517			1,992			1,952			1,934			1,658			1,520
Number of employees		3,032			3,014			2,641			2,504			2,504			3,103			3,032			3,014			2,641			2,504
Cash receipts (5)	$	247,723		$	233,916		$	195,668		$	193,569		$	190,773		$	243,817		$	247,723		$	233,916		$	195,668		$	193,569
Line of credit - unused portion at period end		166,450			142,500			187,500			147,500			157,500			214,450			166,450			142,500			187,500			147,500

The following tables show certain data related to our domestic finance receivables portfolio. These tables describe the purchase price, actual cash collections and future estimates of cash collections, income recognized on finance receivables (gross and net of allowance charges), principal amortization, allowance charges, net finance receivable balances and related multiples. Further, these tables disclose our entire domestic portfolio, as well as its subsets: the portfolio of purchased bankrupt accounts and our Core portfolio. The accounts represented in the purchased bankruptcy tables are those portfolios of accounts that were bankrupt at the time of purchase. This contrasts with accounts that file for bankruptcy after we purchase them, which continue to be tracked in their corresponding Core portfolio. Our United Kingdom portfolio is not significant and is therefore not included in these tables.

Core customers sometimes file for bankruptcy protection subsequent to our purchase of the related Core portfolio. When this occurs, we adjust our collection practices accordingly to comply with bankruptcy procedures; however, for accounting purposes, these accounts remain in the related Core portfolio. Conversely, bankrupt accounts may be dismissed voluntarily or involuntarily subsequent to our purchase of the related bankrupt portfolio. Dismissal occurs when the terms of the bankruptcy are not met by the petitioner. When this occurs, we are typically free to pursue collection outside of bankruptcy procedures; however, for accounting purposes, these accounts remain in the related bankruptcy pool.

The purchase price multiples (the ratio of total estimated collections to purchase price) from 2005 through the ~~second~~third quarter of 2012 described in the tables below are lower than multiples in previous years. This trend is primarily, but not entirely, related to pricing competition. When competition increases and/or supply decreases, ~~so that~~ pricing often becomes negatively impacted ~~on a~~ relative ~~basis (total lifetime~~to expected collections, ~~in relation to purchase price),~~and yields tend to trend lower. The opposite ~~occurs~~tends to occur when ~~pricing trends are favorable.~~competition decreases and/or supply increases.

To the extent that lower purchase price multiples are the ultimate result of more competitive pricing and lower yields, this will generally lead to higher amortization rates (payments applied to principal as a percentage of cash collections), lower operating margins and ultimately lower profitability. As portfolio pricing becomes more favorable on a relative basis, our profitability will tend to increase. It is important to consider, however, that to the extent we can improve our collection operations by collecting additional cash from a discreet quantity and quality of accounts, and/or by collecting cash at a lower cost structure, we can positively impact the collection to purchase price ~~ratio~~multiples and operating margins. We continue to make significant enhancements to our analytical abilities, management personnel and capabilities, all with the intent to collect more cash at lower cost.

Additionally, however, the processes we employ to initially book newly acquired pools of accounts and forecast future estimated collections for any given portfolio of accounts has evolved over the years due to a number of factors including economic conditions. Our revenue recognition under ASC 310-30 is driven by estimates of the ultimate magnitude of estimated lifetime collections as well as the timing of those collections. We have progressed towards booking new portfolio purchases using a higher confidence level for both estimated collection amounts and timing. Subsequent to the initial booking, as we gain collection experience and comfort with a pool of accounts, we continuously update ERC. These processes, along with the aforementioned operational enhancements, have tended to cause the ratio of collections, including ERC, to purchase price for any given year of buying to gradually increase over time. As a result, our estimate of lifetime collections to purchase price has generally, but not always, shown relatively steady increases as pools have aged. Thus, all factors being equal in terms of pricing, one would typically tend to see a higher collection to purchase price ratio from a pool of accounts that was six years from purchase than say a pool that was just two years from purchase.


				Inception through June 30, 2012															As of June 30, 2012																Inception through September 30, 2012																				As of September 30, 2012
($ in thousands)	($ in thousands)			Actual Cash Collections Including Cash Sales			Income Recognized on Finance Receivables			Principal Amortization				Allowance Charges		Income Recognized on Finance Receivables, Net			Net Finance Receivables Balance			Estimated Remaining Collections			Total Estimated Collections		Total Estimated Collections to Purchase Price			($ in thousands)					Actual Cash Collections Including Cash Sales				Income Recognized on Finance Receivables				Principal Amortization				Allowance Charges				Income Recognized on Finance Receivables, Net				Net Finance Receivables Balance			Estimated Remaining Collections			Total Estimated Collections				Total Estimated Collections to Purchase Price
Purchase Period		Purchase Price																																	Actual Cash Collections Including Cash Sales				Income Recognized on Finance Receivables				Principal Amortization				Allowance Charges				Income Recognized on Finance Receivables, Net				Net Finance Receivables Balance			Estimated Remaining Collections			Total Estimated Collections				Total Estimated Collections to Purchase Price
									Net Finance Receivables Balance				Estimated Remaining Collections
																					Purchase Price									Actual Cash Collections Including Cash Sales				Income Recognized on Finance Receivables				Principal Amortization				Allowance Charges				Income Recognized on Finance Receivables, Net				Net Finance Receivables Balance				Estimated Remaining Collections			Total Estimated Collections			Total Estimated Collections to Purchase Price
1996		$	3,080			$				10,164								$			7,041									Actual Cash Collections Including Cash Sales			$	Income Recognized on Finance Receivables			3,123	Principal Amortization				Allowance Charges				Income Recognized on Finance Receivables, Net			$	Net Finance Receivables Balance			0	Estimated Remaining Collections			Total Estimated Collections			Total Estimated Collections to Purchase Price			$	7,041			$	0	$	60	$	10,224		332	%	$	3,080
1997			7,685					25,362				17,258				8,104					0				17,258		0			121			25,483			332	%			7,685				25,387				17,282				8,105				0			17,282			0				147			25,534			332	%
1998			11,089					37,059			26,073				10,986		0			26,073			0			522		37,581				339	%			11,089				37,130				26,144				10,986				0				26,144			0			455				37,585			339	%
1999			18,898		68,559			49,385			19,174				0		49,385			0			1,127			69,686		369	%			18,898				68,715				49,540				19,175				0				49,540				0			1,033			69,748				369	%
2000			25,020		114,480			89,283			25,197				0		89,283			0			3,039			117,519		470	%			25,020				114,900				89,704				25,196				0				89,704				0			2,569			117,469				470	%
2001			33,481		172,207			137,855			34,352				0		137,855			0			4,308			176,515		527	%			33,481				172,937				138,585				34,352				0				138,585				0			3,716			176,653				528	%
2002			42,325		192,918			150,594			42,324				0		150,594			0			7,399			200,317		473	%			42,325				194,041				151,716				42,325				0				151,716				0			7,292			201,333				476	%
2003			61,448		256,522			195,074			61,448				0		195,074			0			13,296			269,818		439	%			61,448				258,244				196,796				61,448		��		0				196,796				0			12,915			271,159				441	%
2004			59,176		190,819			132,842			57,977				1,200		131,642			0			13,107			203,926		345	%			59,176				192,361				134,384				57,977				1,200				133,184				0			12,368			204,729				346	%
2005			143,169		295,027			177,077			117,950				15,879		161,198			9,339			16,923			311,950		218	%			143,168				298,170				178,552				119,618				14,697				163,855				8,853			16,062			314,232				219	%
2006			107,693		194,265			121,146			73,119				21,065		100,081			13,508			23,221			217,486		202	%			107,673				197,088				122,525				74,563				22,615				99,910				10,496			18,173			215,261				200	%
2007			258,391		429,798			237,512			192,286				21,730		215,782			44,370			79,877			509,675		197	%			258,379				440,216				242,527				197,689				22,325				220,202				38,359			68,421			508,637				197	%
2008			275,153		398,512			231,042			167,470				29,395		201,647			78,254			129,372			527,884		192	%			275,148				415,563				237,716				177,847				29,995				207,721				67,272			111,076			526,639				191	%
2009			281,441		515,276			333,154			182,122				0		333,154			99,319			296,651			811,927		288	%			281,438				558,585				362,283				196,302				0				362,283				85,138			261,958			820,543				292	%
2010			358,153		426,544			244,803			181,741				0		244,803			176,437			447,682			874,226		244	%			358,149				484,149				280,949				203,200				0				280,949				154,974			411,458			895,607				250	%
2011			395,809		196,685			112,958			83,727				0		112,958			312,084			657,805			854,490		216	%			394,261				258,182				147,227				110,955				0				147,227				283,307			610,947			869,129				220	%
2012			231,878		15,560			10,991			4,569				0		10,991			227,360			413,484			429,044		185	%			324,627				39,508				26,455				13,053				0				26,455				311,561			575,519			615,027				189	%

Total		$	2,313,889	$	3,539,757		$	2,274,088		$	1,265,669			$	89,269	$	2,184,819		$	960,671		$	2,107,994		$	5,647,751		244	%		$	2,405,045			$	3,765,347			$	2,409,433			$	1,355,914			$	90,832			$	2,318,601			$	959,960		$	2,114,152		$	5,879,499				244	%


Purchased Bankruptcy Portfolio
				Inception through June 30, 2012															As of June 30, 2012
($ in thousands)				Actual Cash Collections Including Cash Sales			Income Recognized on Finance Receivables			Principal Amortization				Allowance Charges		Income Recognized on Finance Receivables, Net			Net Finance Receivables Balance			Estimated Remaining Collections			Total Estimated Collections		Total Estimated Collections to Purchase Price
Purchase Period		Purchase Price
									Net Finance Receivables Balance				Estimated Remaining Collections

1996 - 2003		$	0			$				0								$			0									$	0			$	0			$	0			$	0		$	0		$	0			0	%
2004			7,468					14,357				8,089				6,268					1,200										6,889				0			107			14,464			194	%
2005			29,301					43,362			14,697				28,665		584							14,113								52				115				43,477				148	%
2006			17,645		30,852			14,355			16,497				1,050		13,305			98			427			31,279		177	%
2007			78,547		100,483			34,868			65,615				8,285		26,583			4,647			5,754			106,237		135	%
2008			108,608		139,513			65,882			73,631				2,300		63,582			32,677			44,316			183,829		169	%
2009			156,056		255,753			163,392			92,361				0		163,392			63,694			152,226			407,979		261	%
2010			209,228		205,714			110,544			95,170				0		110,544			114,058			204,536			410,250		196	%
2011			183,416		45,370			25,355			20,015				0		25,355			163,307			243,717			289,087		158	%
2012			109,841		3,959			2,919			1,040				0		2,919			108,798			151,155			155,114		141	%

Total		$	900,110	$	839,363		$	440,101		$	399,262			$	13,419	$	426,682		$	487,331		$	802,353		$	1,641,716		182	%


Core Portfolio
				Inception through June 30, 2012															As of June 30, 2012
($ in thousands)				Actual Cash Collections Including Cash Sales			Income Recognized on Finance Receivables			Principal Amortization				Allowance Charges		Income Recognized on Finance Receivables, Net			Net Finance Receivables Balance			Estimated Remaining Collections			Total Estimated Collections		Total Estimated Collections to Purchase Price
Purchase Period		Purchase Price
									Net Finance Receivables Balance				Estimated Remaining Collections

1996		$	3,080			$				10,164								$			7,041									$	3,123			$	0			$	7,041			$	0		$	60		$	10,224			332	%
1997			7,685					25,362				17,258				8,104					0										17,258				0			121			25,483			332	%
1998			11,089					37,059			26,073				10,986		0							26,073								0				522				37,581				339	%
1999			18,898		68,559			49,385			19,174				0		49,385			0			1,127			69,686		369	%
2000			25,020		114,480			89,283			25,197				0		89,283			0			3,039			117,519		470	%
2001			33,481		172,207			137,855			34,352				0		137,855			0			4,308			176,515		527	%
2002			42,325		192,918			150,594			42,324				0		150,594			0			7,399			200,317		473	%
2003			61,448		256,522			195,074			61,448				0		195,074			0			13,296			269,818		439	%
2004			51,708		176,462			124,753			51,709				0		124,753			0			13,000			189,462		366	%
2005			113,868		251,665			162,380			89,285				15,295		147,085			9,287			16,808			268,473		236	%
2006			90,048		163,413			106,791			56,622				20,015		86,776			13,410			22,794			186,207		207	%
2007			179,844		329,315			202,644			126,671				13,445		189,199			39,723			74,123			403,438		224	%
2008			166,545		258,999			165,160			93,839				27,095		138,065			45,577			85,056			344,055		207	%
2009			125,385		259,523			169,762			89,761				0		169,762			35,625			144,425			403,948		322	%
2010			148,925		220,830			134,259			86,571				0		134,259			62,379			243,146			463,976		312	%
2011			212,393		151,315			87,603			63,712				0		87,603			148,777			414,088			565,403		266	%
2012			122,037		11,601			8,072			3,529				0		8,072			118,562			262,329			273,930		224	%

Total		$	1,413,779	$	2,700,394		$	1,833,987		$	866,407			$	75,850	$	1,758,137		$	473,340		$	1,305,641		$	4,006,035		283	%


				Year to Date June 30, 2012																	As of June 30, 2012																Year to Date September 30, 2012																				As of September 30, 2012
($ in thousands)	($ in thousands)			Actual Cash Collections Including Cash Sales			Income Recognized on Finance Receivables			Principal Amortization				Allowance Charges			Income Recognized on Finance Receivables, Net				Net Finance Receivables Balance			Estimated Remaining Collections			Total Estimated Collections		Total Estimated Collections to Purchase Price			($ in thousands)					Actual Cash Collections Including Cash Sales				Income Recognized on Finance Receivables				Principal Amortization				Allowance Charges				Income Recognized on Finance Receivables, Net				Net Finance Receivables Balance			Estimated Remaining Collections			Total Estimated Collections				Total Estimated Collections to Purchase Price
Purchase Period		Purchase Price																																			Actual Cash Collections Including Cash Sales				Income Recognized on Finance Receivables				Principal Amortization				Allowance Charges				Income Recognized on Finance Receivables, Net				Net Finance Receivables Balance			Estimated Remaining Collections			Total Estimated Collections				Total Estimated Collections to Purchase Price
									Net Finance Receivables Balance				Estimated Remaining Collections
																							Purchase Price									Actual Cash Collections Including Cash Sales				Income Recognized on Finance Receivables				Principal Amortization				Allowance Charges				Income Recognized on Finance Receivables, Net				Net Finance Receivables Balance				Estimated Remaining Collections			Total Estimated Collections			Total Estimated Collections to Purchase Price
1996		$	3,080			$				21										$			21									Actual Cash Collections Including Cash Sales			$	Income Recognized on Finance Receivables			0	Principal Amortization				Allowance Charges				Income Recognized on Finance Receivables, Net			$	Net Finance Receivables Balance			0	Estimated Remaining Collections			Total Estimated Collections			Total Estimated Collections to Purchase Price			$	21			$	0	$	60	$	10,224		332	%	$	3,080
1997			7,685					52				52					0						0				52		0			121			25,483			332	%			7,685				76				76				0				0			76			0				147			25,534			332	%
1998			11,089					121			121				0			0				121			0			522		37,581				339	%			11,089				192				192				0				0				192			0			455				37,585			339	%
1999			18,898		397			397			0				0			397				0			1,127			69,686		369	%			18,898				552				552				0				0				552				0			1,033			69,748				369	%
2000			25,020		1,091			1,091			0				0			1,091				0			3,039			117,519		470	%			25,020				1,512				1,512				0				0				1,512				0			2,569			117,469				470	%
2001			33,481		1,743			1,743			0				0			1,743				0			4,308			176,515		527	%			33,481				2,473				2,473				0				0				2,473				0			3,716			176,653				528	%
2002			42,325		2,643			2,643			0				0			2,643				0			7,399			200,317		473	%			42,325				3,765				3,765				0				0				3,765				0			7,292			201,333				476	%
2003			61,448		4,125			4,125			0				0			4,125				0			13,296			269,818		439	%			61,448				5,847				5,847				0				0				5,847				0			12,915			271,159				441	%
2004			59,176		3,669			3,669			0				0			3,669				0			13,107			203,926		345	%			59,176				5,211				5,211				0				0				5,211				0			12,368			204,730				346	%
2005			143,169		7,143			3,149			3,994				(2,067	)		5,216				9,339			16,923			311,950		218	%			143,168				10,286				4,624				5,662				(3,249	)			7,873				8,853			16,062			314,233				219	%
2006			107,693		7,109			3,767			3,342				650			3,117				13,508			23,221			217,486		202	%			107,673				9,932				5,146				4,786				2,200				2,946				10,496			18,173			215,260				200	%
2007			258,391		27,572			12,000			15,572				2,265			9,735				44,370			79,877			509,675		197	%			258,379				37,990				17,016				20,974				2,860				14,156				38,359			68,421			508,638				197	%
2008			275,153		39,580			16,176			23,404				1,850			14,326				78,254			129,372			527,884		192	%			275,148				56,631				22,851				33,780				2,450				20,401				67,272			111,076			526,639				191	%
2009			281,441		93,412			61,025			32,387				0			61,025				99,319			296,651			811,927		288	%			281,438				136,721				90,154				46,567				0				90,154				85,138			261,958			820,543				292	%
2010			358,153		121,929			69,388			52,541				0			69,388				176,437			447,682			874,226		244	%			358,149				179,534				105,533				74,001				0				105,533				154,974			411,458			895,607				250	%
2011			395,809		119,495			67,013			52,482				0			67,013				312,084			657,805			854,490		216	%			394,261				180,992				101,282				79,710				0				101,282				283,307			610,947			869,129				220	%
2012			231,878		15,560			10,991			4,569				0			10,991				227,360			413,484			429,044		185	%			324,627				39,508				26,455				13,053				0				26,455				311,561			575,519			615,027				189	%

Total		$	2,313,889	$	445,662		$	257,371		$	188,291			$	2,698		$	254,673			$	960,671		$	2,107,993		$	5,647,751		244	%		$	2,405,045			$	671,250			$	392,717			$	278,533			$	4,261			$	388,456			$	959,960		$	2,114,152		$	5,879,501				244	%


Purchased Bankruptcy Portfolio
				Year to Date June 30, 2012																	As of June 30, 2012
($ in thousands)				Actual Cash Collections Including Cash Sales			Income Recognized on Finance Receivables			Principal Amortization				Allowance Charges			Income Recognized on Finance Receivables, Net				Net Finance Receivables Balance			Estimated Remaining Collections			Total Estimated Collections		Total Estimated Collections to Purchase Price
Purchase Period		Purchase Price
									Net Finance Receivables Balance				Estimated Remaining Collections

1996 - 2003		$	0			$				0										$			0									$	0			$	0			$	0			$	0		$	0		$	0			0	%
2004			7,468					63				63					0						0										63				0			107			14,464			194	%
2005			29,301					140			27				113			(97	)							124								52				115				43,477				148	%
2006			17,645		371			236			135				(150	)		386				98			427			31,279		177	%
2007			78,547		5,109			820			4,289				3,175			(2,355	)			4,647			5,754			106,237		135	%
2008			108,608		15,931			4,937			10,994				500			4,437				32,677			44,316			183,829		169	%
2009			156,056		54,558			33,027			21,531				0			33,027				63,694			152,226			407,979		261	%
2010			209,228		61,729			29,210			32,519				0			29,210				114,058			204,536			410,250		196	%
2011			183,416		30,152			14,848			15,304				0			14,848				163,307			243,717			289,087		158	%
2012			109,841		3,959			2,919			1,040				0			2,919				108,798			151,155			155,114		141	%

Total		$	900,110	$	172,012		$	86,087		$	85,925			$	3,428		$	82,659			$	487,331		$	802,353		$	1,641,716		182	%


Core Portfolio
				Year to Date June 30, 2012																	As of June 30, 2012
($ in thousands)				Actual Cash Collections Including Cash Sales			Income Recognized on Finance Receivables			Principal Amortization				Allowance Charges			Income Recognized on Finance Receivables, Net				Net Finance Receivables Balance			Estimated Remaining Collections			Total Estimated Collections		Total Estimated Collections to Purchase Price
Purchase Period		Purchase Price
									Net Finance Receivables Balance				Estimated Remaining Collections

1996		$	3,080			$				21										$			21									$	0			$	0			$	21			$	0		$	60		$	10,224			332	%
1997			7,685					52				52					0						0										52				0			121			25,483			332	%
1998			11,089					121			121				0			0								121								0				522				37,581				339	%
1999			18,898		397			397			0				0			397				0			1,127			69,686		369	%
2000			25,020		1,091			1,091			0				0			1,091				0			3,039			117,519		470	%
2001			33,481		1,743			1,743			0				0			1,743				0			4,308			176,515		527	%
2002			42,325		2,643			2,643			0				0			2,643				0			7,399			200,317		473	%
2003			61,448		4,125			4,125			0				0			4,125				0			13,296			269,818		439	%
2004			51,708		3,606			3,606			0				0			3,606				0			13,000			189,462		366	%
2005			113,868		7,003			3,122			3,881				(1,970	)		5,092				9,287			16,808			268,473		236	%
2006			90,048		6,738			3,531			3,207				800			2,731				13,410			22,794			186,207		207	%
2007			179,844		22,463			11,180			11,283				(910	)		12,090				39,723			74,123			403,438		224	%
2008			166,545		23,649			11,239			12,410				1,350			9,889				45,577			85,056			344,055		207	%
2009			125,385		38,854			27,998			10,856				0			27,998				35,625			144,425			403,948		322	%
2010			148,925		60,200			40,178			20,022				0			40,178				62,379			243,146			463,976		312	%
2011			212,393		89,343			52,165			37,178				0			52,165				148,777			414,088			565,403		266	%
2012			122,037		11,601			8,072			3,529				0			8,072				118,562			262,329			273,930		224	%

Total		$	1,413,779	$	273,650		$	171,284		$	102,366			($	730	)	$	172,014			$	473,340		$	1,305,641		$	4,006,035		283	%


				Quarter Ended June 30, 2012																	As of June 30, 2012																Quarter Ended September 30, 2012																				As of September 30, 2012
($ in thousands)	($ in thousands)			Actual Cash Collections Including Cash Sales			Income Recognized on Finance Receivables			Principal Amortization				Allowance Charges			Income Recognized on Finance Receivables, Net				Net Finance Receivables Balance			Estimated Remaining Collections			Total Estimated Collections		Total Estimated Collections to Purchase Price			($ in thousands)					Actual Cash Collections Including Cash Sales				Income Recognized on Finance Receivables				Principal Amortization				Allowance Charges				Income Recognized on Finance Receivables, Net				Net Finance Receivables Balance			Estimated Remaining Collections			Total Estimated Collections				Total Estimated Collections to Purchase Price
Purchase Period		Purchase Price																																			Actual Cash Collections Including Cash Sales				Income Recognized on Finance Receivables				Principal Amortization				Allowance Charges				Income Recognized on Finance Receivables, Net				Net Finance Receivables Balance			Estimated Remaining Collections			Total Estimated Collections				Total Estimated Collections to Purchase Price
									Net Finance Receivables Balance				Estimated Remaining Collections
																							Purchase Price									Actual Cash Collections Including Cash Sales				Income Recognized on Finance Receivables				Principal Amortization				Allowance Charges				Income Recognized on Finance Receivables, Net				Net Finance Receivables Balance				Estimated Remaining Collections			Total Estimated Collections			Total Estimated Collections to Purchase Price
1996		$	3,080			$				12										$			12									Actual Cash Collections Including Cash Sales			$	Income Recognized on Finance Receivables			0	Principal Amortization				Allowance Charges				Income Recognized on Finance Receivables, Net			$	Net Finance Receivables Balance			0	Estimated Remaining Collections			Total Estimated Collections			Total Estimated Collections to Purchase Price			$	12			$	0	$	60	$	10,224		332	%	$	3,080
1997			7,685					22				22					0						0				22		0			121			25,483			332	%			7,685				24				24				0				0			24			0				147			25,534			332	%
1998			11,089					69			69				0			0				69			0			522		37,581				339	%			11,089				71				71				0				0				71			0			455				37,585			339	%
1999			18,898		180			180			0				0			180				0			1,127			69,686		369	%			18,898				156				156				0				0				156				0			1,033			69,748				369	%
2000			25,020		488			488			0				0			488				0			3,039			117,519		470	%			25,020				421				421				0				0				421				0			2,569			117,469				470	%
2001			33,481		827			827			0				0			827				0			4,308			176,515		527	%			33,481				730				730				0				0				730				0			3,716			176,653				528	%
2002			42,325		1,273			1,273			0				0			1,273				0			7,399			200,317		473	%			42,325				1,123				1,123				0				0				1,123				0			7,292			201,333				476	%
2003			61,448		1,900			1,900			0				0			1,900				0			13,296			269,818		439	%			61,448				1,722				1,722				0				0				1,722				0			12,915			271,159				441	%
2004			59,176		1,781			1,781			0				0			1,781				0			13,107			203,926		345	%			59,176				1,542				1,542				0				0				1,542				0			12,368			204,730				346	%
2005			143,169		3,399			1,474			1,925				(711	)		2,185				9,339			16,923			311,950		218	%			143,168				3,142				1,475				1,667				(1,182	)			2,657				8,853			16,062			314,233				219	%
2006			107,693		3,304			1,697			1,607				750			947				13,508			23,221			217,486		202	%			107,673				2,822				1,379				1,443				1,550				(171	)			10,496			18,173			215,260				200	%
2007			258,391		12,850			5,655			7,195				2,165			3,490				44,370			79,877			509,675		197	%			258,379				10,419				5,015				5,404				595				4,420				38,359			68,421			508,638				197	%
2008			275,153		19,104			7,573			11,531				0			7,573				78,254			129,372			527,884		192	%			275,148				17,051				6,675				10,376				600				6,075				67,272			111,076			526,639				191	%
2009			281,441		47,069			31,065			16,004				0			31,065				99,319			296,651			811,927		288	%			281,438				43,309				29,129				14,180				0				29,129				85,138			261,958			820,543				292	%
2010			358,153		62,355			36,146			26,209				0			36,146				176,437			447,682			874,226		244	%			358,149				57,605				36,146				21,459				0				36,146				154,974			411,458			895,607				250	%
2011			395,809		63,152			35,209			27,943				0			35,209				312,084			657,805			854,490		216	%			394,261				61,498				34,269				27,229				0				34,269				283,307			610,947			869,129				220	%
2012			231,878		12,017			8,301			3,716				0			8,301				227,360			413,484			429,044		185	%			324,627				23,948				15,464				8,484				0				15,464				311,561			575,519			615,027				189	%

Total		$	2,313,889	$	229,802		$	133,672		$	96,130			$	2,204		$	131,468			$	960,671		$	2,107,994		$	5,647,751		244	%		$	2,405,045			$	225,590			$	135,348			$	90,242			$	1,563			$	133,785			$	959,960		$	2,114,152		$	5,879,501				244	%


Purchased Bankruptcy Portfolio
				Quarter Ended June 30, 2012																	As of June 30, 2012
($ in thousands)				Actual Cash Collections Including Cash Sales			Income Recognized on Finance Receivables			Principal Amortization				Allowance Charges			Income Recognized on Finance Receivables, Net				Net Finance Receivables Balance			Estimated Remaining Collections			Total Estimated Collections		Total Estimated Collections to Purchase Price
Purchase Period		Purchase Price
									Net Finance Receivables Balance				Estimated Remaining Collections

1996 - 2003		$	0			$				0										$			0									$	0			$	0			$	0			$	0		$	0		$	0			0	%
2004			7,468					33				33					0						0										33				0			107			14,464			194	%
2005			29,301					73			14				59			(61	)							75								52				115				43,477				148	%
2006			17,645		152			89			63				(50	)		139				98			427			31,279		177	%
2007			78,547		2,355			292			2,063				2,575			(2,283	)			4,647			5,754			106,237		135	%
2008			108,608		8,036			2,300			5,736				0			2,300				32,677			44,316			183,829		169	%
2009			156,056		28,339			17,368			10,971				0			17,368				63,694			152,226			407,979		261	%
2010			209,228		32,543			15,493			17,050				0			15,493				114,058			204,536			410,250		196	%
2011			183,416		17,604			7,721			9,883				0			7,721				163,307			243,717			289,087		158	%
2012			109,841		2,883			2,286			597				0			2,286				108,798			151,155			155,114		141	%

Total		$	900,110	$	92,018		$	45,596		$	46,422			$	2,464		$	43,132			$	487,331		$	802,353		$	1,641,716		182	%


Core Portfolio
				Quarter Ended June 30, 2012																	As of June 30, 2012
($ in thousands)				Actual Cash Collections Including Cash Sales			Income Recognized on Finance Receivables			Principal Amortization				Allowance Charges			Income Recognized on Finance Receivables, Net				Net Finance Receivables Balance			Estimated Remaining Collections			Total Estimated Collections		Total Estimated Collections to Purchase Price
Purchase Period		Purchase Price
									Net Finance Receivables Balance				Estimated Remaining Collections

1996		$	3,080			$				12										$			12									$	0			$	0			$	12			$	0		$	60		$	10,224			332	%
1997			7,685					22				22					0						0										22				0			121			25,483			332	%
1998			11,089					69			69				0			0								69								0				522				37,581				339	%
1999			18,898		180			180			0				0			180				0			1,127			69,686		369	%
2000			25,020		488			488			0				0			488				0			3,039			117,519		470	%
2001			33,481		827			827			0				0			827				0			4,308			176,515		527	%
2002			42,325		1,273			1,273			0				0			1,273				0			7,399			200,317		473	%
2003			61,448		1,900			1,900			0				0			1,900				0			13,296			269,818		439	%
2004			51,708		1,748			1,748			0				0			1,748				0			13,000			189,462		366	%
2005			113,868		3,326			1,460			1,866				(650	)		2,110				9,287			16,808			268,473		236	%
2006			90,048		3,152			1,608			1,544				800			808				13,410			22,794			186,207		207	%
2007			179,844		10,495			5,363			5,132				(410	)		5,773				39,723			74,123			403,438		224	%
2008			166,545		11,068			5,273			5,795				0			5,273				45,577			85,056			344,055		207	%
2009			125,385		18,730			13,697			5,033				0			13,697				35,625			144,425			403,948		322	%
2010			148,925		29,812			20,653			9,159				0			20,653				62,379			243,146			463,976		312	%
2011			212,393		45,548			27,488			18,060				0			27,488				148,777			414,088			565,403		266	%
2012			122,037		9,134			6,015			3,119				0			6,015				118,562			262,329			273,930		224	%

Total		$	1,413,779	$	137,784		$	88,076		$	49,708			($	260	)	$	88,336			$	473,340		$	1,305,641		$	4,006,035		283	%

The following graph shows the purchase price of our ~~owned~~ domestic portfolios by year and includes the acquisition amount for the ~~six~~nine months ended ~~June~~September 30, 2012. The purchase price number represents the cash paid to the seller, plus certain capitalized costs, less buybacks.

As shown in the above chart, the composition of our domestic purchased portfolios has shifted in favor of bankrupt accounts in recent years. We began buying bankrupt accounts during 2004 and slowly increased the volume of accounts we acquired through 2006 as we tested our models, refined our processes and validated our operating assumptions. After observing a high level of modeling confidence in our early purchases, we began increasing our level of purchases more dramatically commencing in 2007.

Our ability to profitably purchase and liquidate pools of bankrupt accounts provides diversity to our distressed asset acquisition business. Although we generally buy bankrupt portfolios from many of the same consumer lenders from whom we acquire Core customer portfolios, the volumes and pricing characteristics as well as the competitors are different. Based upon market dynamics, the profitability of portfolios purchased in the bankrupt and Core markets may differ over time. We have found periods when bankrupt accounts were more profitable and other times when Core accounts were more profitable. From 2004 through 2008, our bankruptcy buying fluctuated between 13% and 39% of our total portfolio purchasing in those years. In 2009, for the first time in our history, bankruptcy purchasing exceeded that of our Core buying, finishing at 55% of total portfolio purchasing for the year and during 2010 this percentage increased to 59%. This occurred as severe dislocations in the financial markets, coupled with legislative uncertainty, caused pricing in the bankruptcy market to decline substantially, thereby driving our strategy to make advantageous bankruptcy portfolio acquisitions during this period. For 2011 and the first ~~six~~nine months of 2012, bankruptcy buying represented 48% and 47%, respectively, of our total portfolio purchasing.

In order to collect our Core portfolios, we generally need to employ relatively higher amounts of labor and incur additional collection costs to generate each dollar of cash collections as compared with bankruptcy portfolios. In order to achieve acceptable levels of net return on investment (after direct expenses), we are generally targeting a total cash collections to purchase price multiple in the 2.25-3.0x range. On the other hand, bankrupt accounts generate the majority of cash collections through the efforts of the U.S. bankruptcy courts. In this process, cash is remitted to our Company with no corresponding cost other than the cost of filing claims at the time of purchase and general administrative costs for monitoring the progress of each account through the bankruptcy process. As a result, overall collection costs are much lower for us when liquidating a pool of bankrupt accounts as compared to a pool of Core accounts, but conversely the price we pay for bankrupt accounts is generally higher than Core accounts. We generally target similar returns on investment (measured after direct expenses) for bankrupt and Core portfolios at any given point in the market cycles. However, because of the lower related collection costs, we can pay more for bankrupt portfolios, which causes the estimated total cash collections to purchase price multiples of bankrupt pools to be in the 1.4-2.0x range generally. In summary, compared to a pool of Core accounts, to the extent both pools had identical targeted returns on investment (measured after direct expenses), the bankrupt pool would be expected to generate less revenue, a lower yield, less direct expenses, similar operating income, and a higher operating margin.

In addition, collections on younger, newly filed bankrupt accounts tend to be of a lower magnitude in the earlier months when compared to Core charge-off accounts. This lower level of early period collections is due to the fact that we primarily purchase portfolios of accounts that represent unsecured claims in bankruptcy, and these unsecured claims are scheduled to begin paying out after payment of the secured and priority claims. As a result of the administrative processes regarding payout priorities within the court-administered bankruptcy plans, unsecured creditors do not generally begin receiving meaningful collections on unsecured claims until 12 to 18 months after the bankruptcy filing date. Therefore, to the extent that we purchase portfolios with more recent bankruptcy filing dates, as we did to a significant extent commencing in 2009, we would expect to experience a delay in cash collections compared with Core charged-off portfolios.

We utilize a long-term approach to collecting our owned portfolios of receivables. This approach has historically caused us to realize significant cash collections and revenues from purchased portfolios of finance receivables years after they are originally acquired. As a result, we have in the past been able to temporarily reduce our level of current period acquisitions without a corresponding negative current period impact on cash collections and revenue.

The following tables, which exclude any proceeds from cash sales of finance receivables, demonstrate our ability to realize significant multi-year cash collection streams on our domestic ~~owned~~ portfolios.


(in thousands)	(in thousands)																																						(in thousands)
Purchase Period		Purchase Price		1996-2002			2003			2004			2005				2006			Cash Collection Period						2009		2010		2011			YTD 2012			Total				Purchase Price				Cash Collection Period
Purchase Period		Purchase Price							2007							2008									1996-2002			2010		2011		2003				Total				Purchase Price			2004				2005				2006				2007				2008				2009				2010				2011				YTD 2012				Total
1996		$	3,080	1996-2002		$	2003	8,521		2004	$	398	2005		$	285	2006		$	210		$	237		$	2009	102	$	83	$	78		YTD 2012	$	68		$	100			$	21			$	10,103			$	3,080			$	8,521			$	398			$	285			$	210			$	237			$	102			$	83			$	78		$	68		$	100	$	28	$	10,110
1997			7,685		19,597			1,324			1,022			860				597			437			346			215		216		187			52			24,853				7,685				19,597				1,324				1,022				860				597				437				346				215				216				187			76			24,877
1998			11,089		26,081			2,797			2,200			1,811				1,415			882			616			397		382		332			121			37,034				11,089				26,081				2,797				2,200				1,811				1,415				882				616				397				382				332			192			37,105
1999			18,898		39,895			7,336			5,615			4,352				3,032			2,243			1,533			1,328		1,139		997			397			67,867				18,898				39,895				7,336				5,615				4,352				3,032				2,243				1,533				1,328				1,139				997			552			68,022
2000			25,020		45,870			16,628			14,098			10,924				8,067			5,202			3,604			3,198		2,782		2,554			1,091			114,018				25,020				45,870				16,628				14,098				10,924				8,067				5,202				3,604				3,198				2,782				2,554			1,512			114,439
2001			33,481		41,879			28,003			26,717			22,639				16,048			10,011			6,164			5,299		4,422		3,791			1,743			166,716				33,481				41,879				28,003				26,717				22,639				16,048				10,011				6,164				5,299				4,422				3,791			2,473			167,446
2002			42,325		15,073			36,258			35,742			32,497				24,729			16,527			9,772			7,444		6,375		5,844			2,643			192,904				42,325				15,073				36,258				35,742				32,497				24,729				16,527				9,772				7,444				6,375				5,844			3,765			194,026
2003			61,448		—			24,308			49,706			52,640				43,728			30,695			18,818			13,135		10,422		8,945			4,125			256,522				61,448				—				24,308				49,706				52,640				43,728				30,695				18,818				13,135				10,422				8,945			5,847			258,244
2004			59,176		—			—			18,019			46,475				40,424			30,750			19,339			13,677		9,944		8,522			3,669			190,819				59,176				—				—				18,019				46,475				40,424				30,750				19,339				13,677				9,944				8,522			5,211			192,361
2005			143,169		—			—			—			18,968				75,145			69,862			49,576			33,366		23,733		17,234			7,143			295,027				143,168				—				—				—				18,968				75,145				69,862				49,576				33,366				23,733				17,234			10,286			298,170
2006			107,693		—			—			—			—				22,971			53,192			40,560			29,749		22,494		18,190			7,109			194,265				107,673				—				—				—				—				22,971				53,192				40,560				29,749				22,494				18,190			9,932			197,088
2007			258,391		—			—			—			—				—			42,263			115,011			94,805		83,059		67,088			27,572			429,798				258,379				—				—				—				—				—				42,263				115,011				94,805				83,059				67,088			37,990			440,216
2008			275,153		—			—			—			—				—			—			61,277			107,974		100,337		89,344			39,580			398,512				275,148				—				—				—				—				—				—				61,277				107,974				100,337				89,344			56,631			415,563
2009			281,441		—			—			—			—				—			—			—			57,338		177,407		187,119			93,412			515,276				281,438				—				—				—				—				—				—				—				57,338				177,407				187,119			136,721			558,585
2010			358,153		—			—			—			—				—			—			—			—		86,562		218,053			121,929			426,544				358,149				—				—				—				—				—				—				—				—				86,562				218,053			179,534			484,149
2011			395,809		—			—			—			—				—			—			—			—		—		77,190			119,495			196,685				394,261				—				—				—				—				—				—				—				—				—				77,190			180,992			258,182
YTD 2012			231,878																															15,560			15,560				324,627																																											39,508			39,508

Total		$	2,313,889	$	196,916		$	117,052		$	153,404		$	191,376			$	236,393		$	262,166		$	326,699		$	368,003	$	529,342	$	705,490		$	445,662		$	3,532,503			$	2,405,045			$	196,916			$	117,052			$	153,404			$	191,376			$	236,393			$	262,166			$	326,699			$	368,003			$	529,342			$	705,490		$	671,250		$	3,758,091

Cash Collections By Year, By Year of Purchase – Purchased Bankruptcy Portfolio


(in thousands)																																							(in thousands)
Purchase Period																																								Purchase Price				Cash Collection Period
Purchase Period																																								Purchase Price				1996-2002				2003				2004				2005				2006				2007				2008				2009				2010				2011			YTD 2012			Total
2004																																								$	7,468			$	—			$	—			$	743			$	4,554			$	3,956			$	2,777			$	1,455			$	496			$	164			$	149		$	84		$	14,378
2005																																									29,301				—				—				—				3,777				15,500				11,934				6,845				3,318				1,382				466			196			43,418
2006																																									17,630				—				—				—				—				5,608				9,455				6,522				4,398				2,972				1,526			530			31,011
2007																																									78,544				—				—				—				—				—				2,850				27,972				25,630				22,829				16,093			6,676			102,050
2008																																									108,607				—				—				—				—				—				—				14,024				35,894				37,974				35,690			22,780			146,362
2009																																									156,054				—				—				—				—				—				—				—				16,635				81,780				102,780			81,773			282,968
2010																																									209,224				—				—				—				—				—				—				—				—				39,486				104,499			93,312			237,297
2011																																									182,180				—				—				—				—				—				—				—				—				—				15,218			48,052			63,270
YTD 2012																																									149,633				—				—				—				—				—				—								—				—				—			9,704			9,704

Total																																								$	938,641			$	—			$	—			$	743			$	8,331			$	25,064			$	27,016			$	56,818			$	86,371			$	186,587			$	276,421		$	263,107		$	930,458


Cash Collections By Year, By Year of Purchase – Core Portfolio																																							Cash Collections By Year, By Year of Purchase – Core Portfolio

(in thousands)	(in thousands)																																						(in thousands)
Purchase Period		Purchase Price		1996-2002			2003			2004			2005				2006			Cash Collection Period						2009		2010		2011			YTD 2012			Total				Purchase Price				Cash Collection Period
Purchase Period		Purchase Price							2007							2008									1996-2002			2010		2011		2003				Total				Purchase Price			2004				2005				2006				2007				2008				2009				2010				2011				YTD 2012				Total
1996		$	3,080	1996-2002		$	2003	8,521		2004	$	398	2005		$	285	2006		$	210		$	237		$	2009	102	$	83	$	78		YTD 2012	$	68		$	100			$	21			$	10,103			$	3,080			$	8,521			$	398			$	285			$	210			$	237			$	102			$	83			$	78		$	68		$	100	$	28	$	10,110
1997			7,685		19,597			1,324			1,022			860				597			437			346			215		216		187			52			24,853				7,685				19,597				1,324				1,022				860				597				437				346				215				216				187			76			24,877
1998			11,089		26,081			2,797			2,200			1,811				1,415			882			616			397		382		332			121			37,034				11,089				26,081				2,797				2,200				1,811				1,415				882				616				397				382				332			192			37,105
1999			18,898		39,895			7,336			5,615			4,352				3,032			2,243			1,533			1,328		1,139		997			397			67,867				18,898				39,895				7,336				5,615				4,352				3,032				2,243				1,533				1,328				1,139				997			552			68,022
2000			25,020		45,870			16,628			14,098			10,924				8,067			5,202			3,604			3,198		2,782		2,554			1,091			114,018				25,020				45,870				16,628				14,098				10,924				8,067				5,202				3,604				3,198				2,782				2,554			1,512			114,439
2001			33,481		41,879			28,003			26,717			22,639				16,048			10,011			6,164			5,299		4,422		3,791			1,743			166,716				33,481				41,879				28,003				26,717				22,639				16,048				10,011				6,164				5,299				4,422				3,791			2,473			167,446
2002			42,325		15,073			36,258			35,742			32,497				24,729			16,527			9,772			7,444		6,375		5,844			2,643			192,904				42,325				15,073				36,258				35,742				32,497				24,729				16,527				9,772				7,444				6,375				5,844			3,765			194,026
2003			61,448		—			24,308			49,706			52,640				43,728			30,695			18,818			13,135		10,422		8,945			4,125			256,522				61,448				—				24,308				49,706				52,640				43,728				30,695				18,818				13,135				10,422				8,945			5,847			258,244
2004			51,708		—			—			17,276			41,921				36,468			27,973			17,884			13,181		9,780		8,373			3,606			176,462				51,708				—				—				17,276				41,921				36,468				27,973				17,884				13,181				9,780				8,373			5,127			177,983
2005			113,868		—			—			—			15,191				59,645			57,928			42,731			30,048		22,351		16,768			7,003			251,665				113,867				—				—				—				15,191				59,645				57,928				42,731				30,048				22,351				16,768			10,090			254,752
2006			90,048		—			—			—			—				17,363			43,737			34,038			25,351		19,522		16,664			6,738			163,413				90,043				—				—				—				—				17,363				43,737				34,038				25,351				19,522				16,664			9,402			166,077
2007			179,844		—			—			—			—				—			39,413			87,039			69,175		60,230		50,995			22,463			329,315				179,835				—				—				—				—				—				39,413				87,039				69,175				60,230				50,995			31,314			338,166
2008			166,545		—			—			—			—				—			—			47,253			72,080		62,363		53,654			23,649			258,999				166,541				—				—				—				—				—				—				47,253				72,080				62,363				53,654			33,851			269,201
2009			125,385		—			—			—			—				—			—			—			40,703		95,627		84,339			38,854			259,523				125,384				—				—				—				—				—				—				—				40,703				95,627				84,339			54,948			275,617
2010			148,925		—			—			—			—				—			—			—			—		47,076		113,554			60,200			220,830				148,925				—				—				—				—				—				—				—				—				47,076				113,554			86,222			246,852
2011			212,393		—			—			—			—				—			—			—			—		—		61,972			89,343			151,315				212,081				—				—				—				—				—				—				—				—				—				61,972			132,940			194,912
YTD 2012			122,037		—			—			—			—				—			—			—			—		—		—			11,601			11,601				174,994				—				—				—				—				—				—				—				—				—				—			29,804			29,804

Total		$	1,413,779	$	196,916		$	117,052		$	152,661		$	183,045			$	211,329		$	235,150		$	269,881		$	281,632	$	342,755	$	429,069		$	273,650		$	2,693,140			$	1,466,404			$	196,916			$	117,052			$	152,661			$	183,045			$	211,329			$	235,150			$	269,881			$	281,632			$	342,755			$	429,069		$	408,143		$	2,827,633

When we acquire a new pool of finance receivables, our estimates typically result in a 60 - 96 month projection of cash collections, depending on the type of finance receivables acquired. The following chart shows our historical cash collections (including cash sales of finance receivables) in relation to the aggregate of the total estimated collection projections made at the time of each respective pool purchase, adjusted for buybacks, for the last ten years.

Primarily as a result of the downturn in the economy, the decline in the availability of consumer credit, our efforts to help customers establish reasonable payment plans, and improvements in our collections capabilities which have allowed us to profitably collect on accounts with lower balances or lower quality, the average payment size has decreased over the past several years. However, due to improved scoring and segmentation, together with enhanced productivity, we have been able to generate increased amounts of cash collections by generating enough incremental payments to overcome the decrease in payment size. The decreasing average payment size trend moderated during the first ~~half~~nine months of 2012.

The following tables display various collections productivity measures that we track. The tables below contain our collector productivity metrics as defined by calendar quarter.


	Core cash collections⁽¹⁾												Core cash collections⁽¹⁾
	2007		2008		2009		2010		2011		2012		2007		2008		2009		2010		2011		2012
Q1	$	141	$	116	$	120	$	135	$	162	$	166	$	141	$	116	$	120	$	135	$	162	$	166
Q2	$	129	$	115	$	114	$	127	$	154	$	169	$	129	$	115	$	114	$	127	$	154	$	169
Q3	$	120	$	110	$	111	$	127	$	152		—	$	120	$	110	$	111	$	127	$	152	$	171
Q4	$	107	$	98	$	109	$	129	$	137		—	$	107	$	98	$	109	$	129	$	137		—


	Total cash collections⁽²⁾												Total cash collections⁽²⁾
	2007		2008		2009		2010		2011		2012		2007		2008		2009		2010		2011		2012
Q1	$	156	$	133	$	147	$	182	$	241	$	258	$	156	$	133	$	147	$	182	$	241	$	258
Q2	$	142	$	136	$	143	$	188	$	243	$	275	$	142	$	136	$	143	$	188	$	243	$	275
Q3	$	131	$	134	$	144	$	200	$	249		—	$	131	$	134	$	144	$	200	$	249	$	279
Q4	$	119	$	123	$	148	$	204	$	228		—	$	119	$	123	$	148	$	204	$	228		—


	Non-legal cash collections⁽³⁾												Non-legal cash collections⁽³⁾
	2007		2008		2009		2010		2011		2012		2007		2008		2009		2010		2011		2012
Q1	$	108	$	96	$	118	$	154	$	204	$	216	$	108	$	96	$	118	$	154	$	204	$	216
Q2	$	96	$	99	$	116	$	160	$	205	$	225	$	96	$	99	$	116	$	160	$	205	$	225
Q3	$	88	$	99	$	119	$	170	$	212		—	$	88	$	99	$	119	$	170	$	212	$	230
Q4	$	80	$	94	$	123	$	174	$	194		—	$	80	$	94	$	123	$	174	$	194		—


	Non-legal/non-bankruptcy cash collections ⁽⁴⁾												Non-legal/non-bankruptcy cash collections ⁽⁴⁾
	2007		2008		2009		2010		2011		2012		2007		2008		2009		2010		2011		2012
Q1	$	92	$	79	$	90	$	106	$	125	$	125	$	92	$	79	$	90	$	106	$	125	$	125
Q2	$	83	$	78	$	87	$	100	$	116	$	120	$	83	$	78	$	87	$	100	$	116	$	120
Q3	$	76	$	76	$	87	$	97	$	115		—	$	76	$	76	$	87	$	97	$	115	$	122
Q4	$	68	$	69	$	84	$	98	$	103		—	$	68	$	69	$	84	$	98	$	103		—

The following chart illustrates the excess of our cash collections on our owned portfolios over income recognized on finance receivables on a quarterly basis. The difference between cash collections and income recognized on finance receivables is referred to as payments applied to principal. It is also referred to as amortization of purchase price. This amortization is the portion of cash collections that is used to recover the cost of the portfolio investment represented on the balance sheet.

Collections tend to be higher in the first and second quarters of the year and lower in the third and fourth quarters of the year, due to customer payment patterns in connection with seasonal employment trends, income tax refunds and holiday spending habits. Historically, our growth has partially offset the impact of this seasonality.

The following table displays our quarterly cash collections by source, for the periods indicated.


Cash Collection Source ($ in thousands)	Q22012		Q12012		Q42011		Q32011		Q22011		Q12011		Q42010		Q32010		Q32012		Q22012		Q12012		Q42011		Q32011		Q22011		Q12011		Q42010
Call Center & Other Collections	$	73,582	$	79,805	$	61,227	$	63,967	$	64,566	$	67,377	$	53,775	$	51,711	$	72,394	$	73,582	$	79,805	$	61,227	$	63,967	$	64,566	$	67,377	$	53,775
External Legal Collections		41,464		34,852		26,316		27,245		27,329		25,378		21,446		20,217		39,913		41,464		34,852		26,316		27,245		27,329		25,378		21,446
Internal Legal Collections		25,361		23,345		17,615		16,444		16,007		15,598		12,841		12,130		25,650		25,361		23,345		17,615		16,444		16,007		15,598		12,841
Purchased Bankruptcy Collections		92,018		79,994		75,166		74,512		68,379		58,364		56,301		53,319		91,095		92,018		79,994		75,166		74,512		68,379		58,364		56,301

Total Cash Collections	$	232,425	$	217,996	$	180,324	$	182,168	$	176,281	$	166,717	$	144,363	$	137,377	$	229,052	$	232,425	$	217,996	$	180,324	$	182,168	$	176,281	$	166,717	$	144,363

The following table shows the changes in finance receivables, net, including the amounts paid to acquire new portfolios (amounts in thousands).


	Three Months Ended			Three Months Ended			Six Months Ended			Six Months Ended
	June 30, 2012			June 30, 2011			June 30, 2012			June 30, 2011			Three Months Ended September 30, 2012			Three Months Ended September 30, 2011			Nine Months Ended September 30, 2012			Nine Months Ended September 30, 2011
Balance at beginning of year	$	945,242		$	866,992		$	926,734		$	831,330		$	966,508		$	879,515		$	926,734		$	831,330
Acquisitions of finance receivables⁽¹⁾		121,246			88,501			233,339			194,906			100,063			119,256			333,402			314,162
Foreign currency translation adjustment		(142	)		—			44			—			321			—			365			—
Cash collections applied to principal on finance receivables⁽²⁾		(99,838	)		(75,978	)		(193,609	)		(146,721	)		(93,298	)		(79,293	)		(286,907	)		(226,014	)


Balance at end of year	$	966,508		$	879,515		$	966,508		$	879,515		$	973,594		$	919,478		$	973,594		$	919,478


Estimated Remaining Collections	$	2,118,162		$	1,816,005		$	2,118,162		$	1,816,005		$	2,137,580		$	1,925,292		$	2,137,580		$	1,925,292

The following table categorizes our life to date portfolio purchases as of ~~June~~September 30, 2012, into the major asset types represented (amounts in thousands):


Asset Type	No. of Accounts		%			Life to Date Purchased Face Value⁽¹⁾		%			Original Purchase Price⁽²⁾		%			No. of Accounts		%			Life to Date Purchased Face Value⁽¹⁾		%			Original Purchase Price⁽²⁾		%
Major Credit Cards		16,945		57	%	$	47,508,503		70	%	$	1,730,346		73	%		17,168		57	%	$	48,070,374		70	%	$	1,782,221		72	%
Consumer Finance		6,110		21			7,154,736		11			131,730		6			6,121		20			7,249,254		11			132,431		6
Private Label Credit Cards		5,973		20			8,303,061		12			455,186		19			6,247		21			8,662,165		13			496,590		20
Auto Deficiency		640		2			4,484,071		7			51,408		2			640		2			4,484,071		6			51,408		2

Total:		29,668		100	%		67,450,371		100	%		2,368,670		100	%		30,176		100	%		68,465,864		100	%		2,462,650		100	%

The following table summarizes our life to date portfolio purchases as of ~~June~~September 30, 2012, into the delinquency categories represented (amounts in thousands).


Account Type	No. of Accounts		%			Life to Date Purchased Face Value⁽¹⁾		%			Original Purchase Price⁽²⁾		%			No. of Accounts		%			Life to Date Purchased Face Value (1)		%			Original Purchase Price (2)		%
Fresh		2,025		7	%	$	5,445,196		8	%	$	505,290		21	%		2,151		7	%	$	5,681,556		8	%	$	535,821		22	%
Primary		4,417		15			8,064,351		12			402,446		17			4,514		15			8,244,705		12			415,750		17
Secondary		5,218		18			8,104,946		12			312,980		13			5,327		18			8,194,206		12			317,546		13
Tertiary		4,011		14			5,411,196		8			75,675		3			4,011		13			5,411,196		8			75,675		3
BK Trustees		4,075		14			18,394,586		27			943,208		40			4,152		14			18,735,945		27			984,485		40
Other		9,922		32			22,030,096		33			129,071		6			10,021		33			22,198,256		33			133,373		5

Total:		29,668		100	%		67,450,371		100	%		2,368,670		100	%		30,176		100	%		68,465,864		100	%		2,462,650		100	%

We also review the geographic distribution of accounts within a portfolio because we have found that state specific laws and rules can have an effect on the collectability of accounts located there. In addition, economic factors and bankruptcy trends vary regionally and are factored into our maximum purchase price equation.

The following table summarizes our life to date portfolio purchases as of ~~June~~September 30, 2012, by geographic location (amounts in thousands):


Geographic Distribution	No. of Accounts		%			Life to Date Purchased Face Value⁽¹⁾		%			Original Purchase Price⁽²⁾		%			No. of Accounts		%			Life to Date Purchased Face Value⁽¹⁾		%			Original Purchase Price⁽²⁾		%
California		3,092		10	%	$	8,866,114		13	%	$	306,571		13	%		3,170		11	%	$	9,028,470		13	%	$	321,274		13	%
Texas		4,351		15			7,589,084		11			207,980		9			4,412		15			7,678,914		11			216,471		9
Florida		2,319		8			6,417,185		10			215,560		9			2,377		8			6,522,074		10			225,620		9
New York		1,676		6			4,015,529		6			126,848		5			1,712		6			4,077,150		6			132,283		5
Ohio																	1,463		5			2,551,238		4			102,760		4
Pennsylvania		1,055		4			2,480,513		4			85,926		4			1,077		4			2,516,136		4			89,565		4
Ohio		1,443		5			2,508,812		4			98,594		4
Illinois		1,106		4			2,342,338		3			90,426		4			1,127		4			2,384,400		3			94,577		4
North Carolina		1,038		3			2,313,187		3			79,846		3			1,067		4			2,371,789		3			84,305		3
Georgia		948		3			2,226,286		3			91,256		4			969		3			2,258,858		3			95,149		4
New Jersey		675		2			1,826,761		3			67,034		3			689		2			1,851,392		3			69,952		3
Michigan		782		3			1,806,554		3			72,022		3			798		3			1,839,273		3			75,366		3
Arizona		515		2			1,440,281		2			49,679		2			527		2			1,463,913		2			52,072		2
Virginia		809		3			1,435,987		2			55,352		2			822		3			1,458,304		2			57,810		2
Tennessee		627		2			1,399,435		2			55,008		2			639		2			1,419,058		2			57,196		2
Massachusetts		505		2			1,248,192		2			42,620		2			514		2			1,265,054		2			44,457		2
Indiana		532		2			1,179,668		2			50,936		2			542		2			1,201,007		2			53,197		2
Other⁽³⁾		8,195		26			18,354,445		27			673,012		29			8,271		24			18,578,834		27			690,596		29

Total:		29,668		100	%		67,450,371		100	%		2,368,670		100	%		30,176		100	%		68,465,864		100	%		2,462,650		100	%

Historically, our primary sources of cash have been cash flows from operations, bank borrowings and equity offerings. Cash has been used for acquisitions of finance receivables, corporate acquisitions, repurchase of our common stock, payment of cash dividends, repayments of bank borrowings, purchases of property and equipment and working capital to support our growth.

As of ~~June~~September 30, 2012, cash and cash equivalents totaled ~~$42.6~~$31.5 million, as compared to $26.7 million at December 31, 2011. Total debt outstanding on our ~~$458.5~~$464.5 million line of credit was ~~$292.0~~$250.0 million as of ~~June~~September 30, 2012, which represents availability of ~~$166.5~~$214.5 million (subject to the borrowing base and applicable debt covenants).

We have in place forward flow commitments for the purchase of defaulted consumer receivables over the next 12 months of approximately ~~$238.3~~$166.3 million as of ~~June~~September 30, 2012. Additionally we may enter into new or renewed flow commitments in the next twelve months and close on spot transactions in addition to the aforementioned flow agreements. We believe that funds generated from operations and from cash collections on finance receivables, together with existing cash and available borrowings under our credit agreement with Bank Of America, N.A., as administrative agent, and a syndicate of lenders named therein (the “Credit Agreement”) will be sufficient to finance our operations, planned capital expenditures, the aforementioned forward flow commitments, and a material amount of additional portfolio purchasing in excess of the currently committed flow amounts during the next twelve months.

We are cognizant of the market fundamentals in the debt purchase and company acquisition market which, because of significant supply and tight capital availability, could increase buying opportunities. Accordingly, we filed a $150 million shelf registration during the third quarter of 2009. We issued $75.5 million of equity securities under that registration statement during February of 2010 in order to take advantage of market opportunities while retaining the ability to issue up to an additional $74.5 million of equity or debt securities under the shelf registration statement in the future. The outcome of any future transaction is subject to market conditions. In addition, on April 20, 2012 and August 9, 2012, we closed a series of transactions to exercise a portion of the accordion loan feature of our existing credit thereby increasing the lenders’ commitments by ~~$50,950,000,~~$56,950,000, resulting in ~~$458,450,000~~$464,450,000 aggregate principal amount available under our line of credit. Please see the “Borrowings” section below for additional information on the line of credit.

With the acquisition of a controlling interest in CCB, we have the right to call (purchase) the noncontrolling interest through February 2015. In addition, the noncontrolling interest has the right to put the remainder of the shares to us beginning in March 2012 and ending February 2018. The total maximum amount we would have to pay for the noncontrolling interest in CCB in any scenario is $22.8 million.

We file income tax returns using the cost recovery method for tax revenue recognition as it relates to our debt purchasing business. We were notified on June 21, 2007 that we were being examined by the IRS for the 2005 tax year. The IRS concluded the audit and on March 19, 2009 issued Form 4549-A, Income Tax Examination Changes, for tax years ended December 31, 2007, 2006 and 2005. The IRS has asserted that cost recovery for tax revenue recognition does not clearly reflect taxable income and that unused line fees paid on credit facilities should be capitalized and amortized rather than taken as a current deduction. On April 22, 2009, we filed a formal protest of the findings contained in the examination report prepared by the IRS. On August 26, 2011, the IRS issued a Notice of Deficiency for the tax years ended December 31, 2007, 2006, and 2005. We subsequently filed a petition in United States Tax Court to which the IRS responded on January 12, 2012. We believe we have sufficient support for the technical merits of our positions and that it is more-likely-than-not that these positions will ultimately be sustained; therefore, a reserve for uncertain tax positions is not necessary for these tax positions. If we are unsuccessful in tax court, we can appeal to the federal Circuit Court of Appeals. If judicial appeals prove unsuccessful, we may ultimately be required to pay the related deferred taxes, any potential interest, and penalties, possibly requiring additional financing from other sources. In accordance with the Internal Revenue Code, underpayments of federal tax accrue interest, compounded daily, at the applicable federal short term rate plus three percentage points. An additional two percentage points applies to large corporate underpayments of $100,000 or more to periods after the applicable date as defined in the Internal Revenue Code. We file taxes in multiple state jurisdictions; therefore, any underpayment of state tax will accrue interest in accordance with the respective state statute. The deferred tax liability related to revenue recognition on our debt purchasing business is ~~$193.1~~$191.4 million at ~~June~~September 30, 2012. In 2011, the IRS expanded the audit to include the tax years ended December 31, 2010, 2009 and 2008.

In forming our tax positions, we consider inputs based on industry practice, tax advice from professionals and drawing similarities of our facts and circumstances to those in established case law (most notably as it relates to revenue recognition,Underhill andLiftin). These tax positions deal not only with revenue recognition, but also with general tax compliance, including sales and use, franchise, gross receipts, payroll, property and income tax issues, including our tax base and apportionment factors.

A diverse group of companies participate in our industry including distressed debt purchasers, Wall Street hedge funds, small private collection companies and other such investment firms. These participants are diverse in their structure, processes, and profitability. We base our primary tax revenue recognition policy on the nature of the assets that we acquire. We therefore file income tax returns using the cost recovery method for tax revenue recognition as it relates to our debt purchasing business.

Cash generated from operations is dependent upon our ability to collect on our finance receivables. Many factors, including the economy and our ability to hire and retain qualified collectors and managers, are essential to our ability to generate cash flows. Fluctuations in these factors that cause a negative impact on our business could have a material impact on our future cash flows.

Our operating activities provided cash of ~~$54.2~~$93.7 million and ~~$87.0~~$123.2 million for the ~~six~~nine months ended ~~June~~September 30, 2012 and 2011, respectively. In these periods, cash from operations was generated primarily from net income earned through cash collections and fee income received for the period. The decrease was primarily due to a ~~decrease~~change in deferred tax expense from ~~$23.2~~$27.3 million for the ~~six~~nine months ended ~~June~~September 30, 2011 to ~~$(3.2)~~a deferred tax benefit of $7.4 million for the ~~six~~nine months ended ~~June~~September 30, ~~2012.~~2012 as a result of the decrease in the deferred tax liability associated with the difference in accounting treatment for book and tax purposes related to income recognition on our finance receivables. This was offset by an increase in net income to ~~$57.2 million for the six months ended June 30, 2012, from $49.3~~$90.4 million for the nine months ended ~~June~~September 30, 2012, from $74.5 million for the nine months ended September 30, 2011. The remaining changes were due to net changes in other accounts related to our operating activities.

Our investing activities used cash of ~~$87.4~~$96.6 million and ~~$50.6~~$91.7 million during the ~~six~~nine months ended ~~June~~September 30, 2012 and 2011, respectively. Cash provided by investing activities is primarily driven by cash collections applied to principal on finance receivables. Cash used in investing activities is primarily driven by acquisitions of defaulted consumer receivables, purchases of property and equipment and business acquisitions. The majority of the increase was due to net cash payments for business acquisitions totaling $48.7 million during the ~~six~~nine months ended ~~June~~September 30, 2012, as compared to $0 during the ~~six~~nine months ended ~~June~~September 30, 2011, as well as an increase in acquisitions of finance receivables, which increased from ~~$194.9~~$314.2 million for the ~~six~~nine months ended ~~June~~September 30, 2011 to ~~$229.4~~$329.4 million for the ~~six~~nine months ended ~~June~~September 30, 2012, partially offset by an increase in collections applied to principal on finance receivables from ~~$146.7~~$226.0 million for the nine ~~three~~months ended ~~June~~September 30, 2011 to ~~$193.6~~$286.9 million for the ~~six~~nine months ended ~~June~~September 30, 2012.

Our financing activities provided cash of ~~$50.3~~$8.2 million and used cash of ~~$52.0~~$42.5 million during the ~~six~~nine months ended ~~June~~September 30, 2012 and 2011, respectively. Cash is primarily provided by draws on our line of ~~credit, proceeds from equity offerings, proceeds from debt financing and stock option exercises.~~credit. Cash used in financing activities is primarily driven by principal payments on our line of credit, principal payments on long-term debt and repurchases of our common stock. The majority of the increase was due to net cash proceeds received on our line of credit totaling ~~$72.0~~$30.0 million during the ~~six~~nine months ended ~~June~~September 30, 2012, offset by $22.7 million of cash used to repurchase shares of our common stock, compared to net repayments on our line of credit of ~~$50.0~~$40.0 million and no stock purchases during the ~~six~~nine months ended ~~June~~September 30, 2011.

Cash paid for interest was ~~$5.3~~$7.6 million and 7.8 million for ~~both of~~ the ~~six~~nine months ended ~~June~~September 30, 2012 and ~~2011.~~2011, respectively. Interest was paid on our line of credit and long-term debt. Cash paid for income taxes was ~~$44.5~~$71.5 million and ~~$6.8~~$19.1 million for the ~~six~~nine months ended ~~June~~September 30, 2012 and 2011, respectively. The increase ~~was primarily due to an increase~~ in taxable income in 2012 versus 2011 is due to more revenue recognized for income tax purposes than financial book purposes primarily as the ~~six months ended June 30, 2012 as compared to~~difference between the ~~six months ended June 30, 2011.~~accounting for finance receivables under ASC 310-30 and under cost recovery for income tax purposes.

On December 20, 2010, we entered into the Credit Agreement. Under the terms of the Credit Agreement, the credit facility includes an aggregate principal amount available of $407.5 million (subject to the borrowing base and applicable debt covenants), which consists of a $50 million fixed rate loan that matured on May 4, 2012, which was transferred from our then existing credit agreement, and a $357.5 million revolving credit facility that matures on December 20, 2014. The revolving credit facility automatically increased by $50 million upon the maturity and

repayment of the fixed rate loan. The fixed rate loan bore interest at a rate of 6.8% per annum, payable monthly in arrears. The revolving loans accrue interest, at our option, at either the base rate plus 1.75% per annum or the Eurodollar rate (as defined) for the applicable term plus 2.75% per annum. The base rate is the highest of (a) the Federal Funds Rate plus 0.50%, (b) Bank of America’s prime rate, and (c) the Eurodollar rate plus 1.00%. Interest is payable on base rate loans quarterly in arrears and on Eurodollar loans in arrears on the last day of each interest period or, if such interest period exceeds three months, every three months. Our revolving credit facility includes a $20 million swingline loan sublimit, ~~and~~ a $20 million letter of credit ~~sublimit. It also contains~~sublimit and an accordion loan feature that allows us to request an increase of up to $142.5 million in the amount available for borrowing under the revolving credit facility, whether from existing or new lenders, subject to the terms of the Credit Agreement. ~~No existing lender is obligated to increase its commitment. On April 20,~~Through September 30, 2012,, we closed a series of transactions to exercise a portion of the accordion loan feature of our existing credit facility with our administrative agent and our syndicate of lenders, thereby increasing the lenders’ commitments by ~~$50,950,000,~~$57.0 million, resulting in ~~$458,450,000~~$464.5 million aggregate principal amount available under our line of credit. Our existing lenders under the Credit Agreement provided ~~$40,950,000~~$41.0 million of this increase, and ~~$10,000,000~~$16.0 million was provided by atwo new ~~lender~~lenders which isare now a party to the Credit Agreement. The Company may request additional increases of up to ~~$91,550,000~~$85.6 million under its credit facility. The Credit Agreement is secured by a first priority lien on substantially all of our assets. The Credit Agreement contains restrictive covenants and events of default include the following:

The revolving credit facility also bears an unused commitment fee of 0.375% per annum, payable quarterly in arrears.

At ~~June~~September 30, 2012, all of our borrowings under our revolving credit facility consisted of 30-day Eurodollar rate loans and base rate loans with a weighted average annual interest rate equal to ~~3.12%~~2.97%.

We had ~~$292.0~~$250.0 million and $220.0 million of borrowings outstanding onunder our credit facility as of ~~June~~September 30, 2012 and December 31, 2011, respectively, of which ~~$50~~$50.0 million represented borrowings under the non-revolving fixed rate loan at December 31, 2011.

We were in compliance with all covenants of our credit facility as of ~~June~~September 30, 2012 and December 31, 2011.

We intend to use remaining accumulated and future undistributed earnings of foreign subsidiaries to expand operations outside the United States; therefore, such undistributed earnings of foreign subsidiaries are considered to be indefinitely reinvested outside the United States. Accordingly, no provision for U.S. federal and state income tax has been provided thereon. If management intentions change and eligible undistributed earnings of foreign subsidiaries are repatriated, taxes would be accrued and paid on such earnings.

Stockholders’ equity was ~~$633.4~~$670.5 at ~~June~~September 30, 2012 and $595.5 million at December 31, 2011. The increase was primarily attributable to ~~$57.5~~$90.8 million in net income attributable to the Company during the first ~~six~~nine months of 2012 partially offset by a decrease of $22.7 million resulting from the repurchase of 331,449 shares of our common stock under our $100 million repurchase program.

Our contractual obligations as of ~~June~~September 30, 2012 were as follows (amounts in thousands):


	Payments due by period										Payments due by period
Contractual Obligations	Total		Less than 1 year		1 - 3 years		3 - 5 years		More than 5 years		Total		Less than 1 year		1 - 3 years		3 - 5 years		More than 5 years
Operating Leases	$	22,301	$	4,557	$	8,740	$	5,909	$	3,095	$	22,022	$	4,757	$	8,855	$	5,799	$	2,611
Line of Credit⁽¹⁾		316,078		9,689		306,389		—		—		269,303		8,549		260,754		—		—
Long-term Debt		830		553		277		—		—		691		553		138		—		—
Purchase Commitments^{(2) (3)}		266,208		266,208		—		—		—		200,345		200,345		—		—		—
Employment Agreements		14,513		8,043		6,398		72		—		13,285		7,831		5,401		53		—

Total	$	619,930	$	289,050	$	321,804	$	5,981	$	3,095	$	505,646	$	222,035	$	275,148	$	5,852	$	2,611

We do not have any off balance sheet arrangements as defined by Regulation S-K 303(a)(4) promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”).

In May 2011, the FASB issued ASU No. 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS.” The amendments in ASU 2011-04 generally represent clarification of Topic 820, but also include instances where a particular principle or requirement for measuring fair value or disclosing information about fair value measurements has changed. This update results in common principles and requirements for measuring fair value and for disclosing information about fair value measurements in accordance with U.S. generally accepted accounting principles and International Financial Reporting Standards. The provisions of ASU 2011-04 are effective prospectively for interim and annual periods beginning after December 15, 2011. Early adoption is prohibited. We adopted ASU 2011-04 on January 1, 2012, and have included the required disclosures in our notes to our consolidated financial statements.

In June 2011, the FASB issued ASU 2011-05, “Comprehensive Income” (Topic 220) to amend its accounting guidance on the presentation of OCI in an entity’s financial statements. The amended guidance eliminates the option to present the components of OCI as part of the statement of changes in stockholders equity and provides two options for presenting OCI: in a statement included in the income statement or in a separate statement immediately following the income statement. The amendments do not change the guidance for the items that have to be reported in OCI or when an item of OCI has to be moved into net income. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. We adopted ASU 2011-05 on January 1, 2012, and have included the required disclosures in our consolidated financial statements.

In September 2011, the FASB issued ASU 2011-08, “Intangibles-Goodwill and Other” (Topic 350): “Testing Goodwill for Impairment” to amend the accounting guidance on goodwill impairment testing. The amended guidance reduces the complexity and costs of goodwill impairment testing by allowing an entity the option to make a qualitative evaluation about the likelihood of goodwill impairment to determine whether it should calculate the fair value of a reporting unit. The amended guidance also improves previous guidance by expanding upon the examples of events and circumstances that an entity should consider between annual impairment tests in determining whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The amendments are effective for interim and annual goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted. We adopted ASU 2011-08 on January 1, 2012 which had no material impact on our consolidated financial statements.

In July 2012, the FASB issued ASU 2012-02, “Intangibles-Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment” to amend the accounting guidance on intangible asset impairment testing. The ASU permits entities to perform an optional qualitative assessment for determining whether it is more likely than not that an indefinite-lived intangible asset is impaired. The guidance is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted. We are evaluating the impact of the ASU; however, we do not expect it to have a significant impact on our consolidated financial statements.

Our consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires estimation and judgment that affect the reported amounts of revenues, expenses, assets, and liabilities. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. The following critical accounting policies are a subset of our significant accounting policies described in Note 1 to the consolidated financial statements. These critical accounting policies affect significant areas of our financial statements and involve judgment and estimates. If these estimates differ significantly from actual results, the impact on our consolidated financial statements may be material.

Management believes our critical accounting policies and estimates are those related to revenue recognition, valuation of acquired intangibles and goodwill, and income taxes. Management believes these policies to be critical because they are both important to the portrayal of our financial condition and results, and because they require management to make judgments and estimates about matters that are inherently uncertain. Our senior management has reviewed these critical accounting policies and related disclosures with the Audit Committee of our Board of Directors.

We account for our investment in finance receivables under the guidance of ASC ~~Topic 310-30, “Loans and Debt Securities Acquired with Deteriorated Credit Quality” (“ASC 310-30”).~~310-30. We acquire portfolios of accounts that have experienced deterioration of credit quality between origination and our acquisition of the accounts. The amount paid for a portfolio reflects our determination that it is probable we will be unable to collect all amounts due according to an account’s contractual terms. At acquisition, we review the accounts to determine whether there is evidence of deterioration of credit quality since origination, and if it is probable that we

amounts due according to the loan’s contractual terms. If both conditions exist, we then determine whether each such account is to be accounted for individually or whether such accounts will be assembled into pools based on common risk characteristics. We consider expected prepayments and estimate the amount and timing of undiscounted expected principal, interest and other cash flows (expected at acquisition) for each acquired portfolio based on our proprietary models, and then subsequently aggregate portfolios of accounts into pools. We determine the excess of the pool’s scheduled contractual principal and contractual interest payments over all cash flows expected at acquisition as an amount that should not be accreted (nonaccretable difference). The remaining amount, representing the excess of the pool’s cash flows expected to be collected over the amount paid, is accreted into income recognized on finance receivables over the remaining estimated life of the pool (accretable yield). ASC 310-30 requires that the excess of the contractual cash flows over expected cash flows, based on our estimates derived from our proprietary collection models, not be recognized as an adjustment of revenue or expense or on the balance sheet.

Under ASC 310-30 static pools of accounts may be established. These pools are aggregated based on certain common risk criteria. Each static pool is recorded at cost, which includes certain direct costs of acquisition paid to third parties, and is accounted for as a single unit for the recognition of income, payments applied to principal and loss provision. Once a static pool is established for a calendar quarter, individual receivable accounts are not added to the pool (unless replaced by the seller) or removed from the pool (unless sold or returned to the seller). ASC 310-30, utilizing the interest method, initially freezes the yield, estimated when the accounts are purchased as the basis for subsequent impairment testing. The yield is estimated and periodically recalculated based on the timing and amount of anticipated cash flows using our proprietary collection models. Income on finance receivables is accrued quarterly based on each static pool’s effective yield. Significant increases in expected future cash flows may be recognized prospectively, through an upward adjustment of the yield, over a pool’s remaining life. Any increase to the yield then becomes the new benchmark for impairment testing. Under ASC 310-30, rather than lowering the estimated yield if the collection estimates are not received or projected to be received, the carrying value of a pool would be written down to maintain the then current yield and is shown as a reduction in revenue in the consolidated income statements with a corresponding valuation allowance offsetting finance receivables, net, on the consolidated balance sheets. Quarterly cash flows greater than the interest accrual will reduce the carrying value of the static pool. This reduction in carrying value is defined as payments applied to principal (also referred to as principal amortization). Likewise, cash flows that are less than the interest accrual will accrete the carrying balance. Generally, we do not record accretion in the first six to twelve months of the estimated life of the pool; accordingly, we utilize either the cost recovery method or cash method when necessary to prevent accretion as permitted by ASC 310-30. Under the cash method, revenue is recognized as it would be under the interest method up to the amount of cash collections. Under the cost recovery method, no revenue is recognized until we have fully collected the cost of the pool. A pool can become fully amortized (zero carrying balance on the balance sheet) while still generating cash collections. In this case, all cash collections are recognized as revenue when received. Additionally, we use the cost recovery method when collections on a particular pool of accounts cannot be reasonably predicted. These cost recovery pools are not aggregated with other pools. Under the cost recovery method, no revenue is recognized until we have fully collected the cost of the pool, or until such time that we consider the collections to be probable and estimable and begin to recognize income based on the interest method as described above.

We establish valuation allowances, if necessary, for acquired accounts subject to ASC 310-10. Valuation allowances are established only subsequent to acquisition of the accounts.

We implement the accounting for income recognized on finance receivables under ASC 310-30 as follows. We create each accounting pool using our projections of estimated cash flows and expected economic life. We then compute the effective yield that fully amortizes the pool to the end of its expected economic life based on the current projections of estimated cash flows. As actual cash flow results are recorded, we balances those results to the data contained in our proprietary models to ensure accuracy, then review each pool watching for trends, actual performance versus projections and curve shape (a graphical depiction of the timing of cash flows), sometimes re-forecasting future cash flows utilizing our statistical models. The review process is primarily performed by our finance staff; however, our operational and statistical staff is also involved, providing updated statistical input and cash projections to the finance staff. To the extent there is overperformance, we will either increase the yield or release the allowance and consider increasing future cash projections, if persuasive evidence indicates that the overperformance is considered to be a significant betterment. If the over performance is considered more of an acceleration of cash flows (a timing difference), we will: a) adjust estimated future cash flows downward which effectively extends the amortization period to fall within a reasonable expectation of the pool’s economic life, b)

introduce some level of future cash adjustment as noted previously coupled with an increase in yield in order for the amortization period to fall within a reasonable expectation of the pool’s economic life, or c) take no action at all if the amortization period falls within a reasonable expectation of the pool’s expected economic life. To the extent there is underperformance, we will record an allowance if the underperformance is significant and will also consider revising estimated future cash flows based on current period information, or take no action if the pool’s amortization period is reasonable and falls within the currently projected economic life.

We utilize the provisions of ASC Topic 605-45, “Principal Agent Considerations” (“ASC 605-45”), to account for fee income revenue from our fee-for-service subsidiaries. ASC 605-45 requires an analysis to be completed to determine if certain revenues should be reported gross or reported net of their related operating expense. This analysis includes an assessment of who retains inventory/credit risk, controls vendor selection, establishes pricing and remains the primary obligor on the transaction. Each of these factors was considered to determine the correct method of recognizing revenue from our subsidiaries.

Our skip tracing subsidiary utilizes both gross and net reporting under ASC 605-45. We generate revenue by working an account and successfully locating a customer for our client. An “investigative fee” is received for these services. In addition, we incur “agent expenses” where we hire a third-party collector to effectuate repossession. In many cases we have an arrangement with our client which allows us to bill the client for these fees. We have determined these fees to be gross revenue based on the criteria in ASC 605-45 and they are recorded as such in the line item “Fee income,” because we are primarily liable to the third party collector. There is a corresponding expense in “Agent fees” for these pass-through items. We also incur fees to release liens on the repossessed collateral. These lien-release fees and related reimbursement of these fees are netted in the line “Agent fees.”

Our government processing and collection business’ primary source of income is derived from servicing taxing authorities in several different ways: processing all of their tax payments and tax forms, collecting delinquent taxes, identifying taxes that are not being paid and auditing tax payments. The processing and collection pieces are standard commission based billings or fee-for-service transactions. When an audit is conducted, there are two components. The first component is a billing for the hours incurred to conduct the audit. This billing is marked up from the actual costs incurred. The gross billing is a component of the line item “Fee income” and the expense is included in the line item “Compensation and employee services.” The second component is expenses incurred while conducting the audit. Most jurisdictions will reimburse us for direct expenses incurred for the audit including such items as travel and meals. The billed amounts are included in the line item “Fee income” and the expense component is included in its appropriate expense category, generally, “Other operating expenses.”

Our claims administration and payment processing business utilizes net reporting under ASC 605-45. We generate revenue by filing claims with the class action claims administrator on behalf of our clients and receiving the related settlement payment. Under SEC Staff Accounting Bulletin 104 (“SAB 104”), we have determined that our fee is not earned until we have received the settlement funds. When a payment is received from the claims administrator for settlement of a lawsuit, the fee is recorded on a net basis as revenue and included in the line item “Fee income.” The balance of the received amounts is recorded as a liability and included in the line item “Accounts payable.”

In accordance with ASC Topic 350, ~~“Intangibles –~~ “Intangibles—Goodwill and Other” (“ASC 350”), we amortize intangible assets over their estimated useful lives. Goodwill, pursuant to ASC 350, is not amortized but rather is reviewed for impairment annually or earlier if indicators of potential impairment exist. The review of goodwill for potential impairment is highly subjective and requires that: (1) goodwill is allocated to various reporting units of our business to which it relates; and (2) we estimate the fair value of those reporting units to which the goodwill relates and then determine the book value of those reporting units. If the estimated fair value of reporting units with allocated goodwill is determined to be less than their book value, we are required to estimate the fair value of all identifiable assets and liabilities of those reporting units in a manner similar to a purchase price allocation for an acquired business. This requires independent valuation of certain unrecognized assets. Once this process is complete, the amount of goodwill impairment, if any, can be determined.

We follow the guidance of FASB ASC Topic 740 “Income Taxes” (“ASC 740”) as it relates to the provision for income taxes and uncertainty in income taxes. Accordingly, we record a tax provision for the anticipated tax consequences of the reported results of operations. In accordance with ASC 740, 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 currently enacted tax rates that apply to taxable income in effect for the years in which those tax assets are expected to be realized or settled. The evaluation of a tax position in accordance with the guidance is a two-step process. The first step is recognition: the enterprise determines whether it is more-likely-than-not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. In evaluating whether a tax position has met the more-likely-than-not recognition threshold, the enterprise should presume that the position will be examined by the appropriate taxing authority that would have full knowledge of all relevant information. The second step is measurement: a tax position that meets the more-likely-than-not recognition threshold is measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured as the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not recognition threshold should be derecognized in the first subsequent financial reporting period in which that threshold is no longer met. We record interest and penalties related to unrecognized tax benefits as a component of income tax expense.

We utilize the cost recovery method of income recognition for tax purposes. We believe cost recovery to be an acceptable method for companies in the bad debt purchasing industry, as under the cost recovery method, for tax purposes, collections on finance receivables are applied first to principal to reduce the finance receivables to zero before any income is recognized.

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.

We are subject to interest rate risk with our variable rate credit line. We assess this interest rate risk by estimating the increase in interest expense that would occur due to an increase in short-term interest rates. The average borrowings on our variable rate credit line were ~~$245.0~~$259.7 million and ~~$216.3~~$198.9 million for the three months ended ~~June~~September 30, 2012 and 2011, respectively. Assuming a 200 basis point increase in interest rates, for example, interest expense would have increased by ~~$1.2~~$1.3 million and ~~$1.1~~$1.0 million for the three months ended ~~June~~September 30, 2012 and 2011, respectively. As of ~~June~~September 30, 2012 and December 31, 2011, we had ~~$292.0~~$250.0 million and ~~$220.0~~$170.0 million, respectively, of variable rate debt outstanding on our credit lines. We do not have any other variable rate debt outstanding as of ~~June~~September 30, 2012. We had no interest rate hedging programs in place for the three months ended ~~June~~September 30, 2012 and 2011. Significant increases in future interest rates on the variable rate credit line could lead to a material decrease in future earnings assuming all other factors remained constant.

In the first quarter of 2012, we acquired MHH. MHH conducts business in the Pound Sterling, but we report our financial results in U.S. dollars. Therefore, as a result of the MHH acquisition, we face exposure to fluctuations

in currency exchange rates. Significant fluctuations in exchange rates between the U.S. dollar and the Pound Sterling may adversely affect our net income. We may or may not implement a hedging program related to currency exchange rate fluctuations.

Evaluation of Disclosure Controls and Procedures.We maintain disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial and Administrative Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Also, controls may become inadequate because of changes in conditions and the degree of compliance with the policies or procedures may deteriorate. We conducted an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial and Administrative Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation, the Chief Executive Officer and Chief Financial and Administrative Officer have concluded that, as of ~~June~~September 30, 2012, our disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting. There was no change in our internal control over financial reporting that occurred during the quarter ended ~~June~~September 30, 2012 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

We are from time to time subject to routine legal claims and proceedings, most of which are incidental to the ordinary course of our business. We initiate lawsuits against customers and are occasionally countersued by them in such actions. Also, customers, either individually, as members of a class action, or through a governmental entity on behalf of customers, may initiate litigation against us in which they allege that we have violated a state or federal law in the process of collecting on an account. From time to time, other types of lawsuits are brought against us.

No legal proceedings were commenced during the period covered by this report that the Company believes could reasonably be expected to have a material adverse effect on its financial condition, results of operations and cash ~~flows, nor have there been any~~flows. Refer to Note 13 “Commitments and Contingencies” of our Consolidated Financial Statements for material developments with respect to legal proceedings previously disclosed with respect to prior periods.

An investment in our common stock involves a high degree of risk. You should carefully consider the specific risk factors listed under Part I, Item 1A of our 2011 Annual Report on Form 10-K filed on February 28, 2012, together with all other information included or incorporated in our reports filed with the SEC. Any such risks may materialize, and additional risks not known to us, or that we now deem immaterial, may arise. In such event, our business, financial condition, results of operations or prospects could be materially adversely affected. If that occurs, the market price of our common stock could fall, and you could lose all or part of your investment.

On February 2, 2012, the Company’s Board of Directors authorized a share repurchase program to purchase up to $100,000,000 of the Company’s outstanding shares of common stock on the open market. The following table provides information about the Company’s common stock purchased during the second quarter of 2012.

Pursuant to the requirements of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


Delaware		75-3078675
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

120 Corporate Boulevard, Norfolk, Virginia		23502
(Address of principal executive offices)		(zip code)


Class		Outstanding as of ~~August 5,~~November 1, 2012

Common Stock, $0.01 par value		~~16,880,545~~16,882,070


		Page(s)

PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements		3

	Consolidated Balance Sheets (unaudited) as of ~~June~~September 30, 2012 and December 31, 2011		3

	Consolidated Income Statements (unaudited) for the three and ~~six~~nine months ended ~~June~~September 30, 2012 and 2011		4

	Consolidated Statements of Comprehensive Income (unaudited) for the three and ~~six~~nine months ended ~~June~~September 30, 2012 and 2011		5

	Consolidated Statement of Changes in Stockholders’ Equity (unaudited) for the ~~six~~nine months ended ~~June~~September 30, 2012		6

	Consolidated Statements of Cash Flows (unaudited) for the ~~six~~nine months ended ~~June~~September 30, 2012 and 2011		7

	Notes to Consolidated Financial Statements (unaudited)		8-25

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		26-56

Item 3.	Quantitative and Qualitative Disclosure About Market Risk		56-57

Item 4.	Controls and Procedures		57

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings		57

Item 1A.	Risk Factors		57

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		58

Item 3.	Defaults Upon Senior Securities		58

Item 4.	Mine Safety Disclosure		58

Item 5.	Other Information		58

Item 6.	Exhibits		58

SIGNATURES			59


June 30, 2013	$	340,355
June 30, 2014		275,026
June 30, 2015		207,355
June 30, 2016		109,064
June 30, 2017		34,563
June 30, 2018		145

	$	966,508


September 30, 2013	$	352,374
September 30, 2014		273,710
September 30, 2015		204,808
September 30, 2016		105,186
September 30, 2017		37,516

	$	973,594


	Acquisition Date	Customer Relationships	Non-Compete Agreements	Trademarks
MHH	January 16, 2012	15 years	1 year	3 years


Month Ended	Total Number of Shares Purchased		Average Price Paid per Share		Maximum Remaining Purchase Price for Share Repurchases Under the Plan
April 30, 2012		69,400	$	67.87	$	93,208,449
May 31, 2012		135,249		69.48		83,811,218
June 30, 2012		96,200		67.95		77,274,249


Total		300,849	$	68.62	$	77,274,249

31.2		Section 302 Certifications of Chief Financial and Administrative Officer.

32.1		Section 906 Certifications of Chief Executive Officer and Chief Financial and Administrative Officer.

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document


	PORTFOLIO RECOVERY ASSOCIATES, INC.
	(Registrant)

Date: ~~August 9,~~November 7, 2012	By:	/s/ Steven D. Fredrickson
		Steven D. Fredrickson
		Chief Executive Officer, President and
		Chairman of the Board of Directors
		(Principal Executive Officer)

Date: ~~August 9,~~November 7, 2012	By:	/s/ Kevin P. Stevenson
		Kevin P. Stevenson
		Chief Financial and Administrative Officer,
		Executive Vice President, Treasurer and Assistant
		Secretary (Principal Financial and Accounting Officer)

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company