e10vq
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
     
þ   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2006
OR
     
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission File Number 1-9733
(CASH AMERICA LOGO)
(Exact name of registrant as specified in its charter)
     
Texas
(State or other jurisdiction of
incorporation or organization)
  75-2018239
(I.R.S. Employer
Identification No.)
     
1600 West 7th Street
Fort Worth, Texas

(Address of principal executive offices)
  76102
(Zip Code)
(817) 335-1100
(Registrant’s telephone number, including area code)
NONE
(Former name, former address and former fiscal year, if changed since last report)
     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 þ   No o
     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one)
Large accelerated filer þ      Accelerated filer o     Non-accelerated filer o
     Indicated by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o   No þ
APPLICABLE ONLY TO CORPORATE ISSUERS:
29,609,782 common shares, $.10 par value, were outstanding as of October 13, 2006
 
 

 


 

CASH AMERICA INTERNATIONAL, INC.
INDEX TO FORM 10-Q
         
    Page  
       
 
       
       
    1  
    2  
    3  
    3  
    4  
    5  
    19  
    36  
    36  
 
       
       
 
       
    37  
    37  
    40  
    40  
 
       
    41  
 Certification of CEO Pursuant to Section 302
 Certification of CFO Pursuant to Section 302
 Certification of CEO Pursuant to Section 906
 Certification of CFO Pursuant to Section 906

 


Table of Contents

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
                         
    September 30,     December 31,  
    2006     2005     2005  
    (Unaudited)          
Assets
                       
Current assets:
                       
Cash and cash equivalents
  $ 30,241     $ 19,492     $ 18,852  
Pawn loans
    133,734       122,916       115,280  
Cash advances, net
    70,253       39,712       40,704  
Merchandise held for disposition, net
    83,179       73,827       72,683  
Finance and service charges receivable
    23,846       21,305       22,048  
Other receivables and prepaid expenses
    11,539       11,923       13,406  
Deferred tax assets
    14,657       13,364       11,274  
 
                 
Total current assets
    367,449       302,539       294,247  
Property and equipment, net
    110,983       93,184       94,856  
Goodwill
    193,379       173,313       174,987  
Intangible assets, net
    27,078       24,119       23,391  
Other assets
    12,296       10,816       11,167  
 
                 
Total assets
  $ 711,185     $ 603,971     $ 598,648  
 
                 
 
                       
Liabilities and Stockholders’ Equity
                       
Current liabilities:
                       
Accounts payable and accrued expenses
  $ 52,045     $ 32,401     $ 37,217  
Customer deposits
    7,470       6,579       6,239  
Income taxes currently payable
    2,456       885       1,449  
Current portion of long-term debt
    16,786       16,786       16,786  
 
                 
Total current liabilities
    78,757       56,651       61,691  
Deferred tax liabilities
    11,688       10,757       11,344  
Other liabilities
    1,578       1,445       1,689  
Long-term debt
    200,617       177,219       149,208  
 
                 
Total liabilities
    292,640       246,072       223,932  
 
                 
 
                       
Stockholders’ equity:
                       
Common stock, $.10 par value per share, 80,000,000 shares authorized, 30,235,164 shares issued
    3,024       3,024       3,024  
Additional paid-in capital
    160,234       156,022       156,557  
Retained earnings
    267,004       214,052       229,975  
Accumulated other comprehensive income (loss)
    21             (5 )
Notes receivable secured by common stock
    (382 )     (2,488 )     (2,488 )
Treasury shares, at cost (682,800 shares, 1,045,639 shares and 999,347 shares at September 30, 2006 and 2005, and December 31, 2005, respectively)
    (11,356 )     (12,711 )     (12,347 )
 
                 
Total stockholders’ equity
    418,545       357,899       374,716  
 
                 
Total liabilities and stockholders’ equity
  $ 711,185     $ 603,971     $ 598,648  
 
                 
See notes to consolidated financial statements.

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Table of Contents

CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2006     2005     2006     2005  
            (Unaudited)          
Revenue
                               
Finance and service charges
  $ 39,404     $ 35,980     $ 109,047     $ 102,476  
Proceeds from disposition of merchandise
    74,848       66,027       235,239       210,101  
Cash advance fees
    48,401       40,428       123,235       102,114  
Check cashing fees, royalties and other
    2,943       2,338       10,300       8,640  
 
                       
Total Revenue
    165,596       144,773       477,821       423,331  
Cost of Revenue
                               
Disposed merchandise
    46,281       40,863       141,909       127,757  
 
                       
Net Revenue
    119,315       103,910       335,912       295,574  
 
                       
Expenses
                               
Operations
    58,263       54,596       177,178       162,296  
Cash advance loss provision
    17,503       15,502       32,738       31,905  
Administration
    13,259       10,411       39,468       31,924  
Depreciation and amortization
    6,946       5,847       19,802       17,087  
 
                       
Total Expenses
    95,971       86,356       269,186       243,212  
 
                       
Income from Operations
    23,344       17,554       66,726       52,362  
Interest expense
    (3,162 )     (2,787 )     (8,010 )     (7,614 )
Interest income
    435       402       1,202       1,227  
Foreign currency transaction gain (loss)
    67       47       245       (868 )
Gain from termination of contract
                2,167        
 
                       
Income from Operations before Income Taxes
    20,684       15,216       62,330       45,107  
Provision for income taxes
    7,743       5,653       23,088       16,742  
 
                       
Net Income
  $ 12,941     $ 9,563     $ 39,242     $ 28,365  
 
                       
 
                               
Earnings Per Share:
                               
Basic
  $ 0.44     $ 0.33     $ 1.32     $ 0.97  
Diluted
  $ 0.42     $ 0.32     $ 1.29     $ 0.94  
Weighted average common shares outstanding:
                               
Basic
    29,707       29,309       29,652       29,329  
Diluted
    30,548       30,142       30,515       30,218  
Dividends declared per common share
  $ 0.025     $ 0.025     $ 0.075     $ 0.075  
See notes to consolidated financial statements.

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CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except share data)
                                 
    September 30,  
    2006     2005  
    Shares     Amounts     Shares     Amounts  
            (Unaudited)          
Common stock
                               
Balance at end of period
    30,235,164     $ 3,024       30,235,164     $ 3,024  
 
                       
Additional paid-in capital
                               
Balance at beginning of year
            156,557               154,294  
Exercise of stock options
            (813 )             (120 )
Issuance of shares under restricted stock units plan
            (353 )             (114 )
Stock-based compensation
            2,057               1,248  
Income tax benefit from stock based compensation
            2,786               714  
 
                           
Balance at end of period
            160,234               156,022  
 
                           
Retained earnings
                               
Balance at beginning of year
            229,975               187,860  
Net income
            39,242               28,365  
Dividends declared
            (2,213 )             (2,173 )
 
                           
Balance at end of period
            267,004               214,052  
 
                           
Accumulated other comprehensive income
                               
Balance at beginning of year
            (5 )              
Unrealized derivatives gain
            26                
 
                           
Balance at end of period
            21                
 
                           
Notes receivable secured by common stock
                               
Balance at beginning of year
            (2,488 )             (2,488 )
Payments on notes receivable
            2,106                
 
                           
Balance at end of period
            (382 )             (2,488 )
 
                           
Treasury shares, at cost
                               
Balance at beginning of year
    (999,347 )     (12,347 )     (938,386 )     (8,754 )
Purchases of treasury shares
    (150,321 )     (4,891 )     (281,192 )     (5,840 )
Exercise of stock options
    438,126       5,529       161,824       1,769  
Issuance of shares under restricted stock units plan
    28,742       353       12,115       114  
 
                       
Balance at end of period
    (682,800 )     (11,356 )     (1,045,639 )     (12,711 )
 
                       
Total Stockholders’ Equity
          $ 418,545             $ 357,899  
 
                           
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2006     2005     2006     2005  
            (Unaudited)          
Net income
  $ 12,941     $ 9,563     $ 39,242     $ 28,365  
 
                       
Other comprehensive income:
                               
Interest rate cap valuation adjustments
    (68 )           41        
Less: Applicable income benefits (taxes)
    24             (15 )      
 
                       
Other comprehensive income, net
    (44 )           26        
 
                       
Total Comprehensive Income
  $ 12,897     $ 9,563     $ 39,268     $ 28,365  
 
                       
See notes to consolidated financial statements.

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CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
                 
    Nine Months Ended  
    September 30,  
    2006     2005  
    (Unaudited)  
Cash Flows from Operating Activities
               
Net income
  $ 39,242     $ 28,365  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation and amortization
    19,802       17,087  
Cash advance loss provision
    32,738       31,905  
Stock-based compensation
    2,057       1,248  
Gain from termination of contract
    (2,167 )      
Foreign currency transaction (gain) loss
    (245 )     868  
Changes in operating assets and liabilities -
               
Merchandise held for disposition
    2,476       8,678  
Finance and service charges receivable
    (1,790 )     (1,368 )
Other receivables and prepaid expenses
    315       (1,456 )
Accounts payable and accrued expenses
    14,270       (639 )
Customer deposits, net
    1,100       853  
Current income taxes
    3,793       (906 )
Excess income tax benefit from stock-based compensation
    (2,786 )     (714 )
Deferred income taxes, net
    (3,054 )     (4,313 )
 
           
Net cash provided by operating activities
    105,751       79,608  
 
           
Cash Flows from Investing Activities
               
Pawn loans made
    (297,972 )     (273,296 )
Pawn loans repaid
    158,983       151,943  
Principal recovered through dispositions of forfeited loans
    110,532       95,430  
Cash advances made, assigned or purchased
    (499,312 )     (448,343 )
Cash advances repaid
    456,997       414,567  
Acquisitions, net of cash acquired
    (48,931 )     (16,654 )
Purchases of property and equipment
    (32,004 )     (20,143 )
Proceeds from property insurance
    1,247        
Proceeds from termination of contract/sale of assets
    2,198       486  
 
           
Net cash used by investing activities
    (148,262 )     (96,010 )
 
           
Cash Flows from Financing Activities
               
Net (repayments) borrowings under bank lines of credit
    68,194       46,665  
Payments on notes payable
    (16,786 )     (19,286 )
Loan costs paid
    (12 )     (940 )
Proceeds from exercise of stock options
    4,716       1,651  
Excess income tax benefit from stock-based compensation
    2,786       714  
Repayments of notes receivable secured by common stock
    2,106        
Treasury shares purchased
    (4,891 )     (5,840 )
Dividends paid
    (2,213 )     (2,173 )
 
           
Net cash provided by financing activities
    53,900       20,791  
 
           
Net increase in cash and cash equivalents
    11,389       4,389  
Cash and cash equivalents at beginning of year
    18,852       15,103  
 
           
Cash and cash equivalents at end of period
  $ 30,241     $ 19,492  
 
           
 
               
Supplemental Disclosures
               
Non-cash investing and financing activities –
               
Pawn loans forfeited and transferred to merchandise held for disposition
  $ 122,443     $ 110,596  
Pawn loans renewed
  $ 59,198     $ 56,887  
Cash advances renewed
  $ 20,834     $ 9,961  
See notes to consolidated financial statements.

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CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. Significant Accounting Policies
Basis of Presentation
     The consolidated financial statements include the accounts of Cash America International, Inc. and its majority-owned subsidiaries (the “Company”). All significant intercompany accounts and transactions have been eliminated in consolidation.
     The financial statements as of September 30, 2006 and 2005 and for the three and nine month periods then ended, are unaudited but, in management’s opinion, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for such interim periods. Operating results for the three and nine months are not necessarily indicative of the results that may be expected for the full fiscal year.
     Certain amounts in the consolidated financial statements for the three and nine months ended September 30, 2005 have been reclassified to conform to the presentation format adopted in 2006. These reclassifications have no effect on the net income previously reported.
     These financial statements and related notes should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2005 Annual Report to Stockholders.
Revenue Recognition
Pawn Lending Ÿ Pawn loans are made on the pledge of tangible personal property. The Company accrues finance and service charges revenue only on those pawn loans that the Company deems collectible based on historical loan redemption statistics. Pawn loans written during each calendar month are aggregated and tracked for performance. The gathering of this empirical data allows the Company to analyze the characteristics of its outstanding pawn loan portfolio and estimate the probability of collection of finance and service charges. For loans not repaid, the carrying value of the forfeited collateral (“merchandise held for disposition”) is stated at the lower of cost (cash amount loaned) or market. Revenue is recognized at the time that merchandise is sold. Interim customer payments for layaway sales are recorded as customer deposits and subsequently recognized as revenue during the period in which the final payment is received.
Cash Advances Ÿ Cash advances provide customers with cash in exchange for a promissory note or other repayment agreement supported, in most cases, by that customer’s personal check or other forms of authorization to debit that customer’s account via an Automated Clearing House (“ACH”) transaction for the aggregate amount of the payment due. To repay the cash advance, a customer may pay cash, or, as applicable, allow the check to be presented for collection, or allow the customer’s checking account to be debited through an ACH for the amount due. The Company accrues fees and interest on cash advances on a constant yield basis ratably over their terms. For those locations that offer cash advances from third-party lenders, the Company receives a credit services fee for services provided on their behalf and on behalf of borrowers. These fees are recorded in revenue when earned.
     During 2005, the Company started providing a cash advance product in some markets under a credit services organization program, whereby the Company assists in arranging loans for customers from independent third-party lenders. The Company also guarantees the customer’s payment obligations in the event of default if the customer is approved for and accepts the loan. The borrower pays fees to the Company under the credit services organization program (“CSO fees”) for performing services on the borrower's behalf, including credit services, and for agreeing to guaranty the borrower’s payment obligations to the lender. As a result of providing the guaranty, a portion

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CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — Continued
of the CSO fees is accounted for in accordance with Financial Accounting Standards Board (“FASB”) Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” The CSO fees are deferred and amortized over the term of the loan and recorded as cash advance fees in the accompanying consolidated statements of income. The contingent loss on the guaranteed loans is accrued and recorded as a liability. See Note 4.
Check Cashing Ÿ The Company records fees derived from its owned check cashing locations and many of its lending locations in the period in which the service is provided. Royalties derived from franchise locations are recorded on an accrual basis.
Allowance or Accrual for Losses on Cash Advances
     In order to manage the portfolio of cash advances effectively, the Company utilizes a variety of underwriting criteria, monitors the performance of the portfolio, and maintains either an allowance or accrual for losses.
     The Company maintains either an allowance or accrual for losses on cash advances (including fees and interest) at a level estimated to be adequate to absorb credit losses inherent in the outstanding combined Company and third-party lender portfolio (the portion owned by independent third-party lenders). The allowance for losses on Company-owned cash advances offsets the outstanding cash advance amounts in the consolidated balance sheets. Active third-party lender-originated cash advances in which the Company has no participation interest are not included in the consolidated balance sheets. An accrual for contingent losses on third-party lender-owned guaranteed cash advances is maintained and included in “Accounts payable and accrued expenses” in the consolidated balance sheets.
     Cash advances written during each calendar month are aggregated and tracked to develop a performance history. The Company stratifies the outstanding combined portfolio by age, delinquency, and stage of collection when assessing the adequacy of the allowance for losses. Historical collection performance adjusted for recent portfolio performance trends is utilized to develop expected loss rates that are used to establish either the allowance or accrual. Increases in either the allowance or accrual are created by recording a cash advance loss provision in the consolidated statements of income. The Company charges off all cash advances once they have been in default for 60 days or sooner if deemed uncollectible. Recoveries on losses previously charged to the allowance are credited to the allowance when collected.
Recent Accounting Pronouncements
     In June 2006, FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”). FIN 48 requires that a more-likely-than-not threshold be met before the benefit of a tax position may be recognized in the financial statements and prescribes how such benefit should be measured. It requires that the new standard be applied to the balances of assets and liabilities as of the beginning of the period of adoption and that a corresponding adjustment be made to the opening balance of retained earnings. FIN 48 will be effective for fiscal years beginning after December 15, 2006. The Company is evaluating the potential effect of FIN 48, but does not expect it to have a material effect on the Company’s consolidated financial position or results of operations.
     In September 2006, FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value to be 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 and emphasizes that fair value is a market-based measurement, not an entity-specific measurement. It establishes a fair value hierarchy and expands disclosures about fair value measurements in both interim and

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CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — Continued
annual periods. SFAS 157 will be effective for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The Company does not expect SFAS 157 to have a material effect on the Company’s consolidated financial position or results of operations, but anticipates additional disclosures when it becomes effective.
2. Stock-Based Compensation
     Under various equity compensation plans (the “Plans”) it sponsors, the Company is authorized to issue up to 9,150,000 shares of Common Stock pursuant to “Awards” granted as incentive stock options (intended to qualify under Section 422 of the Internal Revenue Code of 1986, as amended), nonqualified stock options and restricted stock units. At September 30, 2006, 1,267,530 shares were reserved for future grants under these equity compensation plans.
Stock Options Ÿ Stock options currently outstanding under the Plans have contractual terms of up to 10 years and have an exercise price equal to or greater than the fair market value of the stock at grant date. On their respective grant dates, these stock options had vesting ranging from 1 to 7 years.
     Beginning January 1, 2006, the Company has accounted for its stock-based employee compensation plans in accordance with Statement of Financial Accounting Standards No. 123R, “Share-Based Payment” (“SFAS 123R”), using the modified prospective method. Under the modified prospective method, the Company is required to recognize compensation expense over the remaining vesting periods for the portion of stock-based awards for which the requisite service had not been rendered as of January 1, 2006. Prior to January 1, 2006, stock-based compensation was accounted for in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” often referred to as the “intrinsic value” based method, and no compensation expense was recognized for the stock options. In addition, the financial statements for the three and nine months ended September 30, 2005, which were prior to the adoption of SFAS 123R, have not been restated and do not reflect the recognition of the compensation cost related to the stock options. The following table illustrates the effect on net income and earnings per share had the Company applied SFAS No. 123R for the three and nine months ended September 30, 2005 (in thousands, except per share amounts):
                 
    Three     Nine  
    Months     Months  
    Ended     Ended  
    September 30,     September 30,  
    2005     2005  
Net income as reported
  $ 9,563     $ 28,365  
Deduct: Stock option compensation expense determined under fair value based method, net of related tax effect
    43       26  
 
           
Pro forma net income
  $ 9,520     $ 28,339  
 
           
Earnings Per Share:
               
Basic:
               
Net income – as reported
  $ 0.33     $ 0.97  
Net income – pro forma
  $ 0.33     $ 0.97  
Diluted:
               
Net income – as reported
  $ 0.32     $ 0.94  
Net income – pro forma
  $ 0.31     $ 0.94  
Pro forma weighted average common shares:
               
Basic
    29,309       29,329  
Diluted
    30,261       30,331  

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CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — Continued
     The terms of certain stock options include provisions which accelerate vesting if specified share price appreciation criteria are met. During the quarter ended September 30, 2006, all of the previously unvested outstanding stock options representing 22,500 shares were accelerated. The Company recognized total compensation expense of $260,000 ($169,000 net of related income tax benefit) and $378,000 ($246,000 net of related income tax benefit) for the three and nine months ended September 30, 2006, respectively, including a cost of $199,000 ($130,000 net of related income tax benefit) for the effect of the accelerated vesting.
     A summary of the Company’s stock option activity during the nine months ended September 30, 2006 and 2005 is as follows:
                                 
    Nine Months Ended September 30,  
    2006     2005  
            Weighted             Weighted  
            Average             Average  
            Exercise             Exercise  
    Shares     Price     Shares     Price  
Outstanding at beginning of year
    1,402,732     $ 10.31       1,632,866     $ 10.26  
Exercised
    (438,126 )     10.76       (161,824 )     10.19  
Forfeited
                (5,000 )     17.14  
 
                       
Outstanding at end of period
    964,606     $ 10.11       1,466,042     $ 10.24  
 
                       
Exercisable at end of period
    964,606     $ 10.11       1,443,542     $ 10.14  
 
                       
     Stock options outstanding and exercisable as of September 30, 2006, are summarized below:
                                         
Options Outstanding     Options Exercisable  
            Weighted     Weighted Average             Weighted  
    Number of     Average     Years of     Number of     Average  
     Range of   Shares     Exercise     Remaining     Shares     Exercise  
Exercise Prices   Outstanding     Price     Contractual Life     Exercisable     Price  
$5.94 to $9.41
    192,300     $ 7.90       4.9       192,300     $ 7.90  
$9.42 to $12.63
    688,506       9.97       4.1       688,506       9.97  
$12.64 to $17.14
    83,800       16.33       5.1       83,800       16.33  
 
                             
$5.94 to $17.14
    964,606     $ 10.11       4.4       964,606     $ 10.11  
 
                             
     The total intrinsic value of stock options is summarized as follows ($ in thousands):
            Aggregate  
    Number of     Intrinsic  
    Shares     Value  
Options outstanding and exercisable at September 30, 2006
    964,606     $ 27,945  
Options exercised during the nine months ended September 30, 2006
    438,126       8,020  
     Total cash received from exercises of stock options for the nine months ended September 30, 2006 and 2005 was $4.7 million and $1.7 million, respectively. Income tax benefits realized from the exercise of the stock options for the nine months ended September 30, 2006 and 2005 were $2.8 million and $698,000, respectively. These benefits were recorded as increases to additional paid-in capital.
Restricted Stock Units Ÿ In January 2004, the Company changed its approach to annual equity based compensation awards and, in lieu of stock options, granted restricted stock units (“RSUs” or singularly, “RSU”) to its officers under the provisions of the 1994 Long-Term Incentive Plan. In April 2004, the Company adopted the 2004 Long-Term Incentive Plan and has since granted RSUs to company officers and to the non-management members of the Board of Directors annually. Each vested RSU entitles the holder to

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CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — Continued
receive a share of the common stock of the Company to be issued upon vesting or, in the case of directors, upon retirement from the Board. The amount attributable to officer grants is being amortized to expense over the four-year period following the grant date. Director RSUs have the same vesting schedule, but for directors with five or more years of service, the vesting of RSUs held for one year or more accelerates if the director departs from the Board.
     In December 2003, the Company granted RSUs to its officers in conjunction with the adoption of the Supplemental Executive Retirement Plan. Each officer received a number of RSUs that, when vested, entitles the holder to receive a certain number of shares of the common stock to be issued upon termination of employment. The amounts attributable to this grant are being amortized to expense over the vesting periods of 4 to 15 years.
     Compensation expense related to the RSUs totaling $579,000 ($377,000 net of related income tax benefit) and $424,000 ($276,000 net of related income tax benefit) was recognized for the three months ended September 30, 2006 and 2005, respectively. RSU compensation expense for the nine months ended September 30, 2006 and 2005 was $1.7 million ($1.1 million net of related income tax benefit) and $1.2 million ($811,000 net of related income tax benefit), respectively.
     The following table summarizes the RSU activity during the nine months ended September 30, 2006 and 2005:
                                 
    Nine Months Ended September 30,  
    2006     2005  
            Weighted             Weighted  
            Average             Average  
            Fair Value             Fair Value  
            at Date of             at Date of  
    Units     Grant     Units     Grant  
Outstanding at beginning of year
    395,591     $ 21.30       342,798     $ 20.31  
Units granted
    106,248       24.87       100,061       24.99  
Shares issued
    (28,742 )     25.57       (12,115 )     22.46  
Units forfeited
                (35,153 )     21.75  
 
                       
Outstanding at end of period
    473,097     $ 21.85       395,591     $ 21.30  
 
                       
Units vested at end of period
    102,455     $ 19.64       50,083     $ 20.56  
 
                       
     The outstanding RSUs had an aggregate intrinsic value of $18.5 million and the outstanding vested RSUs had an aggregate intrinsic value of $4.0 million at September 30, 2006. Income tax benefits realized from the issuance of common stock for the vested RSUs for the nine months ended September 30, 2006 and 2005 were $259,000 and $111,000, respectively. The portions of these benefits recorded as increases to additional paid-in capital were $2,000 and $15,000 for the nine months ended September 30, 2006 and 2005, respectively. The income tax benefits represented the tax benefits realized upon issuance of common stock in excess of the amounts previously recognized in the financial statements.
3. Acquisitions
CashNetUSA Ÿ Pursuant to its business strategy of expanding its reach into new markets with new customers and new financial services, on September 15, 2006, the Company, through its wholly-owned subsidiary Cash America Net Holdings, LLC, completed the purchase of substantially all of the assets of The Check Giant, LLC (“TCG”). TCG offered short-term cash advances exclusively over the Internet under the name “CashNetUSA.” The Company paid an initial purchase price of approximately $35.5 million in cash at closing and transaction costs of approximately $2.0 million. The operating results of CashNetUSA have been

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CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — Continued
included in the Company’s consolidated financial statements from the date of acquisition. The asset purchase agreement provides for the Company to pay up to five supplemental earn-out payments during the two year period after the closing. The amount of each supplemental payment is to be based on a multiple of consolidated earnings attributable to CashNetUSA’s business for the twelve months preceding each scheduled supplemental payment, as described more fully in the asset purchase agreement. The supplemental payments will be reduced by amounts previously paid. The supplemental payments are to be paid in cash; the Company will, however, have the option of paying up to 25% of each supplemental payment in shares of its common stock based on an average share price value at that time, as defined in the asset purchase agreement. Substantially all of these supplemental payments will be accounted for as goodwill. The contingent payment is payable approximately 45 days after each measurement date defined in the asset purchase agreement. The goodwill recorded in connection with the acquisition is deductible for tax purposes. (See Note 9 for the pro forma financial information).
     Under the purchase method of accounting, the net assets of TCG were recorded at their respective fair values as of the purchase date. Fair values were determined by internal studies and independent third-party preliminary appraisals. Intangible assets acquired in this transaction, principally non-competition agreements and customer relationships, will be amortized over a period based on their useful lives. The purchase price of CashNetUSA was allocated on a preliminary basis as follows (in thousands):
         
Cash advances
  $ 19,394  
Property and equipment
    1,378  
Goodwill
    11,311  
Intangible assets
    5,487  
Other assets (liabilities), net
    (30 )
 
     
Net assets acquired
  $ 37,540  
 
     
     The final allocation will be determined after further analysis and consultation with third party advisors.
Other Acquisitions · On July 28, 2006, the Company acquired certain assets of 5 lending locations which predominately provide pawn loans in Alaska. In other purchase transactions during the nine months ended September 30, 2006, the Company acquired two other pawnshops. The goodwill recorded in connection with these acquisitions is deductible for tax purposes.

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CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — Continued
     The following table summarizes the allocation of the purchase prices of all other acquisitions for the nine months ended September 30, 2006 and 2005 ($ in thousands):
                 
    Nine Months Ended  
    September 30,  
    2006     2005  
Number of locations acquired:
               
Pawn shops
    7       6  
Cash advance locations
          1  
Purchase price allocated to:
               
Pawn loans
  $ 1,908     $ 2,806  
Merchandise held for disposition
    1,061       841  
Finance and service charges receivable
    227       311  
Cash advances
    480       34  
Property and equipment
    68       129  
Goodwill
    7,205       9,483  
Intangible assets
    675       2,170  
Other assets (liabilities), net
    413       (78 )
Customer deposits
    (131 )     (41 )
 
           
Net assets acquired
    11,906       15,655  
Final settlement for prior year acquisition
          850  
Purchase price adjustments for prior year acquisitions
          159  
Cash consideration payable
    (10 )     (10 )
 
           
Total cash paid for acquisitions
  $ 11,896     $ 16,654  
 
           
4. Cash Advances, Allowance for Losses and Accruals for Losses on Third-Party Lender-Owned
     Cash Advances
     The Company offers cash advance products through its cash advance locations and most of its pawnshops. In addition, the Company has recently introduced cash advances through an internet distribution channel in conjunction with its acquisition of CashNetUSA. The cash advance products are generally offered as single payment cash advance loans. These cash advance loans typically have a term of 7 to 45 days and are generally payable on the customer’s next payday. The Company originates cash advances in some of its locations and in other locations arranges for customers to obtain cash advances from independent third-party lenders. In a cash advance transaction, a customer executes a promissory note or other repayment agreement typically supported by that customer’s personal check or authorization to debit the customer’s checking account via an ACH transaction. Customers may repay the amount due either with cash, by allowing their check to be presented for collection, or by allowing their checking account to be debited via an ACH transaction.
     The Company offers services in connection with single payment cash advances originated by independent third-party lenders, whereby the Company acts as a credit services organization on behalf of consumers in accordance with applicable state laws (the “CSO program”). Credit services that the Company provides to its customers include arranging loans with independent third-party lenders, assisting in the preparation of loan applications and loan documents, and accepting loan payments at any Company location offering the loans. If a customer obtains a loan from an independent third-party lender through the CSO program, the Company, on behalf of the customer, also guarantees the customer’s loan payment obligations to the third-party lender. A customer who obtains a loan through the CSO program pays the Company a fee for the credit services and the guaranty, and enters into a contract with the Company governing the credit services arrangement. Losses on cash advances acquired by the Company as a result of its guaranty obligations are the

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CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — Continued
responsibility of the Company. As of September 30, 2006, the CSO program was offered in Texas, Florida and, on a limited basis, Michigan.
     The Company discontinued offering single payment third-party bank-originated cash advances to its Texas, Florida and North Carolina customers in January 2006, discontinued offering single and multi-payment third-party bank-originated cash advances to its Georgia customers in April 2006, and discontinued offering multi-payment third-party bank-originated cash advances to its California customers in July 2006.
     If the Company collects a customer’s delinquent amount that exceeds the amount paid to the third-party lender pursuant to the terms of the guaranty, the Company is entitled to the excess and recognizes it in income when collected. Since the Company may not be successful in collection of these delinquent amounts, the Company’s cash advance loss provision includes amounts estimated to be adequate to absorb credit losses from cash advances in the aggregate cash advance portfolio, including those expected to be acquired by the Company as a result of its guaranty obligations. The estimated amounts of losses on portfolios owned by the third-party lenders are included in “Accounts payable and accrued expenses” in the consolidated balance sheets.
     Cash advances outstanding at September 30, 2006 and 2005, were as follows (in thousands):
                 
    September 30,  
    2006     2005  
Originated by the Company
               
Active cash advances and fees receivable
  $ 54,741     $ 31,372  
Cash advances and fees in collection
    20,146       10,680  
 
           
Total originated by the Company
    74,887       42,052  
 
           
Originated by third-party lenders (1)
               
Active cash advances and fees receivable
    17,072       16,116  
Cash advances and fees in collection
    5,773       6,197  
 
           
Total originated by third-party lenders (1)
    22,845       22,313  
 
           
Combined gross portfolio
    97,732       64,365  
Less: Elimination of cash advances owned by third-party lenders
    16,390       14,177  
Less: Discount on cash advances assigned by third-party lenders
          474  
 
           
Company-owned cash advances and fees receivable, gross
    81,342       49,714  
Less: Allowance for losses
    11,089       10,002  
 
           
Cash advances and fees receivable, net
  $ 70,253     $ 39,712  
 
           
 
(1)   Amounts include cash advances owned by third-party bank lenders of $-0- and $7,974 for 2006 and 2005, respectively. These bank programs were discontinued in 2006.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — Continued
     Changes in the allowance for losses for the three and nine months ended September 30, 2006 and 2005, were as follows ($ in thousands):
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2006     2005     2006     2005  
Allowance for company-owned cash advances
                               
Balance at beginning of period
  $ 7,541     $ 7,720     $ 6,309     $ 4,358  
Cash advance loss provision
    17,641       15,282       32,859       31,420  
Charge-offs
    (16,266 )     (14,990 )     (35,924 )     (32,691 )
Recoveries
    2,173       1,990       7,845       6,915  
 
                       
Balance at end of period
  $ 11,089     $ 10,002     $ 11,089     $ 10,002  
 
                       
Accrual for third-party lender-owned cash advances
                               
Balance at beginning of period
  $ 891     $ 607     $ 874     $ 342  
(Decrease) increase in loss provision
    (138 )     220       (121 )     485  
 
                       
Balance at end of period
  $ 753     $ 827     $ 753     $ 827  
 
                       
Combined statistics
                               
Combined cash advance loss provision
  $ 17,503     $ 15,502     $ 32,738     $ 31,905  
 
                       
Combined cash advance loss provision as a % of combined cash advances written
    5.9 %     5.8 %     4.4 %     4.8 %
 
                       
Charge-offs (net of recoveries) as a % of combined cash advances written
    4.8 %     4.9 %     3.7 %     3.9 %
 
                       
Combined allowance for losses and accrued third-party lenders losses as a % of combined gross portfolio
    12.1 %     16.8 %     12.1 %     16.8 %
 
                       
     Cash advances assigned to the Company for collection or acquired as a result of its guaranty to third-party lenders were $26.5 million and $55.6 million, for the nine months ended September 30, 2006 and 2005, respectively. The Company’s participation interest in bank-originated cash advances was $-0- and $1.9 million at September 30, 2006 and 2005, respectively.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — Continued
5. Earnings Per Share Computation
     The following table sets forth the reconciliation of numerators and denominators for the basic and diluted earnings per share computation for the three and nine months ended September 30, 2006 and 2005 (in thousands, except per share amounts):
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2006     2005     2006     2005  
Numerator:
                               
Net income available to common stockholders
  $ 12,941     $ 9,563     $ 39,242     $ 28,365  
 
                       
 
                               
Denominator:
                               
Weighted average common shares outstanding
    29,548       29,196       29,496       29,220  
Weighted average vested RSUs
    102       51       96       46  
Weighted average shares in non-qualified savings plan
    57       62       60       63  
 
                       
Total weighted average basic shares
    29,707       29,309       29,652       29,329  
Effect of shares applicable to stock option plans
    465       486       493       534  
Effect of RSU compensation plans
    370       347       369       355  
Weighted average shares for earn-out contingency
    6             1        
 
                       
Total weighted average diluted shares
    30,548       30,142       30,515       30,218  
 
                       
 
                               
Earnings per share:
                               
Net income – Basic
  $ 0.44     $ 0.33     $ 1.32     $ 0.97  
 
                       
Net income – Diluted
  $ 0.42     $ 0.32     $ 1.29     $ 0.94  
 
                       
     The shares held in the Company’s non-qualified savings plan have been reclassified to the basic earnings per share computation as the distribution of those shares is not contingent upon future services. All prior periods presented have been restated to reflect this reclassification. There is no impact to the previously reported basic earnings per share.
6. Long-Term Debt
     The Company’s long-term debt instruments and balances outstanding at September 30, 2006 and 2005, were as follows (in thousands):
                 
    September 30,  
    2006     2005  
Line of credit up to $250,000 due 2010
  $ 139,331     $ 139,148  
6.12% senior unsecured notes due 2015
    40,000        
7.20% senior unsecured notes due 2009
    25,500       34,000  
7.10% senior unsecured notes due 2008
    8,572       12,857  
8.14% senior unsecured notes due 2007
    4,000       8,000  
 
           
Total debt
    217,403       194,005  
Less current portion
    16,786       16,786  
 
           
Total long-term debt
  $ 200,617     $ 177,219  
 
           
     Interest on the line of credit is charged, at the Company’s option, at either LIBOR plus a margin or at the agent’s base rate. The margin on the line of credit varies from 0.875% to 1.875% (1.125% at September 30, 2006), depending on the Company’s cash flow leverage ratios as defined in the agreement. The Company also pays a fee on the unused portion ranging from 0.25% to 0.30% (0.25% at September 30, 2006) based on the Company’s cash flow leverage ratios. The weighted average interest rate (including the margin) on the line of credit at September 30, 2006 was 6.6%.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — Continued
7. Operating Segment Information
     The Company has three reportable operating segments: pawn lending, cash advance and check cashing. The cash advance and check cashing segments are managed separately due to the different operational strategies required and, therefore, are reported as separate segments. To more accurately estimate the administrative expenses associated with each operating segment, the Company began in the second quarter of 2006 to allocate its aggregate administrative expenses on a different basis. Management believes that the current methodology creates a more balanced allocation among the segments based on the time, resources and activities associated with the Company’s administrative activities of each operating segment. All prior periods in the tables below have been revised to reflect this change in the allocation of administrative burden. The revised allocation has not changed the consolidated performance of the Company for any period. There are no other changes to the segment results other than to the administrative expense allocation. A comparison of the expense allocations under the current and previous methodologies are found in Note 8.
     The information concerning the operating segments is set forth below (in thousands):
                                 
    Pawn     Cash     Check        
    Lending     Advance     Cashing     Consolidated  
Three Months Ended September 30, 2006:
                               
Revenue
                               
Finance and service charges
  $ 39,404     $     $     $ 39,404  
Proceeds from disposition of merchandise
    74,848                   74,848  
Cash advance fees
    11,963       36,438             48,401  
Check cashing fees, royalties and other
          1,887       1,056       2,943  
 
                       
Total revenue
    126,215       38,325       1,056       165,596  
Cost of revenue – disposed merchandise
    46,281                   46,281  
 
                       
Net revenue
    79,934       38,325       1,056       119,315  
 
                       
Expenses
                               
Operations
    43,148       14,788       327       58,263  
Cash advance loss provision
    5,934       11,569             17,503  
Administration
    7,843       5,118       298       13,259  
Depreciation and amortization
    4,748       2,107       91       6,946  
 
                       
Total expenses
    61,673       33,582       716       95,971  
 
                       
Income from operations
  $ 18,261     $ 4,743     $ 340     $ 23,344  
 
                       
As of September 30, 2006:
                               
Total assets
  $ 529,258     $ 174,621     $ 7,306     $ 711,185  
 
                       

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — Continued
                                 
    Pawn     Cash     Check        
    Lending     Advance     Cashing     Consolidated  
Three Months Ended September 30, 2005:
                               
Revenue
                               
Finance and service charges
  $ 35,980     $     $     $ 35,980  
Proceeds from disposition of merchandise
    66,027                   66,027  
Cash advance fees
    11,341       29,087             40,428  
Check cashing fees, royalties and other
          1,393       945       2,338  
 
                       
Total revenue
    113,348       30,480       945       144,773  
Cost of revenue – disposed merchandise
    40,863                   40,863  
 
                       
Net revenue
    72,485       30,480       945       103,910  
 
                       
Expenses
                               
Operations
    41,130       13,123       343       54,596  
Cash advance loss provision
    5,201       10,301             15,502  
Administration
    6,116       4,017       278       10,411  
Depreciation and amortization
    3,957       1,811       79       5,847  
 
                       
Total expenses
    56,404       29,252       700       86,356  
 
                       
Income from operations
  $ 16,081     $ 1,228     $ 245     $ 17,554  
 
                       
As of September 30, 2005:
                               
Total assets
  $ 482,134     $ 114,835     $ 7,002     $ 603,971  
 
                       
 
                               
Nine Months Ended September 30, 2006:
                               
Revenue
                               
Finance and service charges
  $ 109,047     $     $     $ 109,047  
Proceeds from disposition of merchandise
    235,239                   235,239  
Cash advance fees
    31,893       91,342             123,235  
Check cashing fees, royalties and other
          7,220       3,080       10,300  
 
                       
Total revenue
    376,179       98,562       3,080       477,821  
Cost of revenue – disposed merchandise
    141,909                   141,909  
 
                       
Net revenue
    234,270       98,562       3,080       335,912  
 
                       
Expenses
                               
Operations
    132,164       44,033       981       177,178  
Cash advance loss provision
    11,541       21,197             32,738  
Administration
    23,417       14,872       1,179       39,468  
Depreciation and amortization
    13,568       5,973       261       19,802  
 
                       
Total expenses
    180,690       86,075       2,421       269,186  
 
                       
Income from operations
  $ 53,580     $ 12,487     $ 659     $ 66,726  
 
                       

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CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — Continued
                                 
    Pawn     Cash     Check        
    Lending     Advance     Cashing     Consolidated  
Nine Months Ended September 30, 2005:
                               
Revenue
                               
Finance and service charges
  $ 102,476     $     $     $ 102,476  
Proceeds from disposition of merchandise
    210,101                   210,101  
Cash advance fees
    30,371       71,743             102,114  
Check cashing fees, royalties and other.
          5,721       2,919       8,640  
 
                       
Total revenue
    342,948       77,464       2,919       423,331  
Cost of revenue – disposed merchandise
    127,757                   127,757  
 
                       
Net revenue
    215,191       77,464       2,919       295,574  
 
                       
Expenses
                               
Operations
    123,046       38,199       1,051       162,296  
Cash advance loss provision
    11,469       20,436             31,905  
Administration
    19,032       12,041       851       31,924  
Depreciation and amortization
    11,566       5,279       242       17,087  
 
                       
Total expenses
    165,113       75,955       2,144       243,212  
 
                       
Income from operations
  $ 50,078     $ 1,509     $ 775     $ 52,362  
 
                       
8. Supplemental Disclosure of Operating Segment Information
     As described in Note 7, the Company revised the method of allocating its aggregate administrative expenses in the second quarter of 2006. The following tables provide comparative information by operating segment showing the current and previous allocation methods for the three and nine months ended September 30, 2006 (in thousands):
                                                 
    Pawn Lending   Cash Advance   Check Cashing
    Current   Previous   Current   Previous   Current   Previous
    Method   Method   Method   Method   Method   Method
Three Months Ended September 30, 2006:
                                               
Total revenue
  $ 126,215     $ 126,215     $ 38,325     $ 38,325     $ 1,056     $ 1,056  
Net revenue
    79,934       79,934       38,325       38,325       1,056       1,056  
Administration
    7,843       10,254       5,118       2,765       297       240  
All other expenses
    53,830       53,830       28,464       28,464       419       418  
Income from operations
    18,261       15,850       4,743       7,096       340       398  
Nine Months Ended September 30, 2006:
                                               
Total revenue
  $ 376,179     $ 376,179     $ 98,562     $ 98,562     $ 3,080     $ 3,080  
Net revenue
    234,270       234,270       98,562       98,562       3,080       3,080  
Administration
    23,417       30,571       14,872       7,897       1,178       1,000  
All other expenses
    157,273       157,273       71,203       71,203       1,243       1,243  
Income from operations
    53,580       46,426       12,487       19,462       659       838  

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CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — Continued
9. Pro Forma Financial Information
     Although the initial purchase price paid at the date of acquisition of CashNetUSA was less than 10% of the Company’s total assets at December 31, 2005, management anticipates that with the future contingent earn-out payments during the next 24 months, this acquisition may have a material impact on the Company’s financial position and results of operations. The following unaudited pro forma financial information reflects the consolidated results of operations of the Company as if the acquisition of CashNetUSA had occurred on January 1, 2005. The unaudited pro forma financial information has been prepared for informational purposes only and does not purport to be indicative of what would have resulted had the acquisition transaction occurred on the date indicated or what may result in the future ($ in thousands, except per share data):
                                 
    Nine Months Ended   Year Ended
    September 30, 2006   December 31, 2005
    As Reported   Pro Forma (a)   As Reported   Pro Forma (a)
Total revenue
  $ 477,821     $ 515,401     $ 594,346     $ 603,506  
Net revenue
    335,912       373,492       410,547       419,707  
Total expenses
    269,186       304,093       329,835       342,094  
Net income
    39,242       40,060       44,821       41,731  
Net income per share:
                               
Basic
  $ 1.32     $ 1.35     $ 1.53     $ 1.43  
Diluted
  $ 1.29     $ 1.31     $ 1.48     $ 1.38  
 
(a)   Pro forma adjustments reflect:
 
  (i)    the inclusion of operating results of CashNetUSA for the period January 1, 2006 through September 15, 2006, the date of acquisition, for the 2006 pro forma and the twelve months operating results for the 2005 pro forma;
 
  (ii)   the adjustments of depreciable asset bases and lives for property and equipment and amortization of intangible assets acquired by the Company;
 
  (iii)   the additional interest incurred in the acquisition of CashNetUSA’s operating assets;
 
  (iv)   the tax effect of CashNetUSA’s earnings and net pro forma adjustments at the statutory rate of 35%; and
 
  (v)   the additional shares to be issued assuming 25% of the contingent payment is to be paid with Company shares.
10. Litigation
     In the suit Strong v. Georgia Cash America, Inc. et al. currently pending in the State Court of Cobb County, Georgia (“State Court”), and described in the Company’s prior reports to the Securities and Exchange Commission, the plaintiffs and Georgia Cash America, Inc. et al. (collectively, “Cash America”) are conducting discovery related to the plaintiffs’ efforts to avoid arbitration in accordance with the arbitration provisions of the loan contract the plaintiffs executed. The parties are currently in dispute over the scope of the discovery requests made by the plaintiffs, and Cash America intends to appeal a recent State Court discovery ruling on this issue. Cash America is also seeking enforcement of the arbitration provisions and has filed a Motion to Stay and Compel Arbitration with the State Court. The Company believes that the plaintiffs’ claims in this suit are without merit and is vigorously defending this lawsuit. As stated in the Company’s prior reports to the Securities and Exchange Commission, there is also a related federal court action pending, wherein Cash America and Community State Bank (“CSB”) commenced a federal lawsuit in the U.S. District Court for the Northern District of Georgia seeking to compel Plaintiffs to arbitrate their claims against Cash America and the CSB. The U.S. District Court dismissed the federal action for lack of subject matter jurisdiction, and Cash America and CSB have appealed the dismissal of their complaint to the U.S. Court of Appeals for the 11th Circuit. This appeal is scheduled for oral argument in November 2006. The Strong litigation is still at a very early stage, and neither the likelihood of an unfavorable outcome nor the ultimate liability, if any, with respect to this litigation can be determined at this time.
     The Company is a defendant in lawsuits encountered in the ordinary course of its business. Certain of these matters are covered to an extent by insurance. In the opinion of management, the resolution of these

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CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — Continued
matters will not have a material adverse effect on the Company’s financial position, results of operations or liquidity.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
GENERAL
     The Company is a provider of specialty financial services to individuals. It offers secured non-recourse loans, commonly referred to as pawn loans, through its pawn lending operations. The pawn loan portfolio generates finance and service charges revenue. A related activity of the pawn lending operations is the disposition of merchandise, primarily collateral from unredeemed pawn loans. The Company also offers unsecured cash advances in selected lending locations and on behalf of independent third-party lenders in other locations. In September 2006 the Company began offering online cash advances. In addition, the Company provides check cashing and related financial services through many of its lending locations and through franchised and Company-owned check cashing centers.
     On September 15, 2006, the Company, through its wholly-owned subsidiary Cash America Net Holdings, LLC, completed the purchase of substantially all of the assets of The Check Giant, LLC (“TCG”). TCG offered short-term cash advances exclusively over the Internet under the name “CashNetUSA.” The Company paid an initial purchase price of approximately $35.5 million in cash at closing and transaction costs of approximately $2.0 million. The operating results of CashNetUSA have been included in the Company’s consolidated financial statements from the date of acquisition. The asset purchase agreement provides for the Company to pay up to five supplemental earn-out payments during the two year period after the closing. The amount of each supplemental payment is to be based on a multiple of consolidated earnings attributable to CashNetUSA’s business for the twelve months preceding each scheduled supplemental payment, as described more fully in the asset purchase agreement. The supplemental payments will be reduced by amounts previously paid. The supplemental payments are to be paid in cash; the Company will, however, have the option of paying up to 25% of each supplemental payment in shares of its common stock based on an average share price value at that time, as defined in the asset purchase agreement. Substantially all of these supplemental payments will be accounted for as goodwill. The contingent payment is payable approximately 45 days after each measurement date, as defined in the asset purchase agreement.
     As of September 30, 2006, the Company had 905 total locations and an internet based subsidiary offering products and services to its customers. The Company operates in three segments: pawn lending, cash advance (including the CashNetUSA operations) and check cashing.
     As of September 30, 2006, the Company’s pawn lending operations consisted of 474 pawnshops in 23 states; 463 are Company-owned units and 11 are unconsolidated franchised units. During the twenty-one months ended September 30, 2006, the Company acquired 16 operating units, established 9 locations, and combined or closed 3 locations for a net increase of 22 Company-owned pawn lending units. In addition, 4 franchise locations were opened, and 4 were either converted to Company-owned locations or were terminated.
     At September 30, 2006, the Company’s cash advance operations operated 293 cash advance locations in 7 states. During the twenty-one months ended September 30, 2006, the Company acquired one operating unit, established 44 locations, and combined or closed 5 locations for a net increase of 40 cash advance locations. CashNetUSA serves multiple markets through its internet distribution channel and had cash advances outstanding in 27 states as of September 30, 2006.

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     As of September 30, 2006, the Company’s check cashing operations consisted of 138 total locations, including 133 franchised and 5 company-owned check cashing centers in 19 states.
RESULTS OF OPERATIONS
     The following table sets forth the components of the consolidated statements of income as a percentage of total revenue for the periods indicated.
                                 
    Three Months Ended   Nine Months Ended
    September 30,   September 30,
    2006   2005   2006   2005
Revenue
                               
Finance and service charges
    23.8 %     24.9 %     22.8 %     24.2 %
Proceeds from disposition of merchandise
    45.2       45.6       49.2       49.6  
Cash advance fees
    29.2       27.9       25.8       24.1  
Check cashing fees, royalties and other
    1.8       1.6       2.2       2.1  
 
                               
Total Revenue
    100.0       100.0       100.0       100.0  
Cost of Revenue
                               
Disposed merchandise
    27.9       28.2       29.7       30.2  
 
                               
Net Revenue
    72.1       71.8       70.3       69.8  
 
                               
Expenses
                               
Operations
    35.2       37.7       37.1       38.3  
Cash advance loss provision
    10.6       10.7       6.9       7.5  
Administration
    8.0       7.2       8.3       7.5  
Depreciation and amortization
    4.2       4.1       4.1       4.1  
 
                               
Total Expenses
    58.0       59.7       56.4       57.4  
 
                               
Income from Operations
    14.1       12.1       13.9       12.4  
Interest expense
    (1.9 )     (1.9 )     (1.7 )     (1.8 )
Interest income
    0.3       0.3       0.3       0.3  
Foreign currency transaction gain (loss)
                      (0.2 )
Gain from termination of contract
                0.5        
 
                               
Income before Income Taxes
    12.5       10.5       13.0       10.7  
Provision for income taxes
    4.7       3.9       4.8       4.0  
 
                               
Net Income
    7.8 %     6.6 %     8.2 %     6.7 %
 
                               

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     The following table sets forth selected consolidated financial and operating data as of September 30, 2006 and 2005, and for the three and nine months then ended ($ in thousands).
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2006     2005     2006     2005  
PAWN LENDING OPERATIONS:
                               
Pawn loans
                               
Annualized yield on pawn loans
    119.3 %     118.7 %     123.3 %     124.5 %
Total amount of pawn loans written and renewed
  $ 129,269     $ 118,353     $ 357,170     $ 330,531  
Average pawn loan balance outstanding
  $ 131,089     $ 120,230     $ 118,297     $ 110,070  
Average pawn loan balance per average location in operation
  $ 284     $ 268     $ 258     $ 248  
Ending pawn loan balance per location in operation
  $ 289     $ 271     $ 289     $ 271  
Average pawn loan amount at end of period (not in thousands)
  $ 100     $ 92     $ 100     $ 92  
Profit margin on disposition of merchandise as a percentage of proceeds from disposition of merchandise
    38.2 %     38.1 %     39.7 %     39.2 %
Average annualized merchandise turnover
    2.4 x     2.4 x     2.6 x     2.6 x
Average balance of merchandise held for disposition per average location in operation
  $ 167     $ 153     $ 157     $ 146  
Ending balance of merchandise held for disposition per location in operation
  $ 180     $ 163     $ 180     $ 163  
Pawnshop locations in operation –
                               
Beginning of period, owned
    457       445       456       441  
Acquired
    5       4       7       6  
Start-ups
    1       4       2       7  
Combined or closed
                (2 )     (1 )
 
                       
End of period, owned
    463       453       463       453  
Franchise locations at end of period
    11       11       11       11  
 
                       
Total pawnshop locations at end of period
    474       464       474       464  
 
                       
Average number of owned pawnshop locations
    462       448       459       444  
 
                       
Cash advances
                               
Total amount of cash advances written (a)
  $ 76,040     $ 76,543     $ 200,786     $ 201,474  
Number of cash advances written (not in thousands) (a)
    190,692       218,594       510,196       598,514  
Average amount per cash advance (not in thousands) (a)
  $ 399     $ 350     $ 394     $ 337  
Combined cash advances outstanding (a)
  $ 19,253     $ 20,217     $ 19,253     $ 20,217  
Cash advances outstanding per location at end of period (a)
  $ 46     $ 47     $ 46     $ 47  
Cash advances outstanding before allowance for losses (b)
  $ 8,780     $ 11,024     $ 8,780     $ 11,024  
Locations offering cash advances at end of period
    421       434       421       434  
 
                       
Average number of locations offering cash advances
    420       431       427       429  
 
                       
CASH ADVANCE OPERATIONS:
                               
Total amount of cash advances written (a)
  $ 219,267     $ 189,127     $ 551,189     $ 467,362  
Number of cash advances written (not in thousands) (a)
    589,138       504,999       1,480,025       1,290,460  
Average amount per cash advance (not in thousands) (a)
  $ 372     $ 375     $ 372     $ 362  
Combined cash advances outstanding (a)
  $ 78,479     $ 44,148     $ 78,479     $ 44,148  
Cash advances outstanding before allowance for losses (b)
  $ 72,562     $ 38,690     $ 72,562     $ 38,690  
Cash advance locations in operation –
                               
Beginning of period
    291       271       286       253  
Acquired
                      1  
Start-ups
    2       8       10       27  
Combined or closed
                (3 )     (2 )
 
                       
End of period
    293       279       293       279  
 
                       
Average number of cash advance locations
    292       275       289       267  
 
                       
(Continued on Next Page)

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    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2006     2005     2006     2005  
CHECK CASHING OPERATIONS (Mr. Payroll Corp)(c)
                               
Face amount of checks cashed
  $ 311,562     $ 294,868     $ 998,154     $ 909,491  
Gross fees collected
  $ 4,264     $ 3,950     $ 14,216     $ 12,720  
Fees as a percentage of checks cashed
    1.4 %     1.3 %     1.4 %     1.4 %
Average check cashed (not in thousands)
  $ 401     $ 375     $ 425     $ 387  
Centers in operation at end of period
    138       137       138       137  
 
                       
Average number of check cashing centers
    138       136       139       135  
 
                       
 
(a)   Includes cash advances made by the Company and cash advances made by third-party lenders offered at the Company’s locations.
 
(b)   Amounts recorded in the Company’s consolidated financial statements.
 
(c)   Includes franchised and company-owned locations.
CRITICAL ACCOUNTING POLICIES
     Since January 1, 2006, the Company has accounted for its stock-based employee compensation plans in accordance with Statement of Financial Accounting Standards No. 123R, “Share-Based Payment,” using the modified prospective method. Under the modified prospective method, the Company recognizes compensation expense for the portion of stock-based awards for which the requisite service had not been rendered as of January 1, 2006 over the remaining vesting periods. During the three and nine months ended September 30, 2006, the Company recognized compensation expense of $260,000 ($169,000 net of related taxes) and $378,000 ($246,000 net of related taxes), respectively, for its stock options. The financial statements for the three and nine months ended September 30, 2005 have not been restated and do not reflect the recognition of the compensation cost related to the stock options.
     There have been no other changes of critical accounting policies since December 31, 2005.
RECENT ACCOUNTING PRONOUNCEMENTS
     In June 2006, FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”). FIN 48 requires that a more-likely-than-not threshold be met before the benefit of a tax position may be recognized in the financial statements and prescribes how such benefit should be measured. It requires that the new standard be applied to the balances of assets and liabilities as of the beginning of the period of adoption and that a corresponding adjustment be made to the opening balance of retained earnings. FIN 48 will be effective for fiscal years beginning after December 15, 2006. The Company is evaluating the potential effect of FIN 48, but does not expect it to have a material effect on the Company’s consolidated financial position or results of operations.
     In September 2006, FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value to be 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 and emphasizes that fair value is a market-based measurement, not an entity-specific measurement. It establishes a fair value hierarchy and expands disclosures about fair value measurements in both interim and annual periods. SFAS 157 will be effective for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The Company does not expect SFAS 157 to have a material effect on the Company’s consolidated financial position or results of operations but anticipates additional disclosures when it becomes effective.

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OVERVIEW
Components of Consolidated Net Revenue. Consolidated net revenue is total revenue reduced by the cost of merchandise sold in the period. It represents the income available to satisfy expenses and is the measure management uses to evaluate top line performance. The components of consolidated net revenue are finance and service charges from pawn loans, profit from the disposition of merchandise, cash advance fees and other revenue which is comprised mostly of check cashing fees but includes royalties and other revenue items. Growth in cash advance fees has increased the related contribution of the cash advance products to consolidated net revenue during the three and nine months ended September 30, 2006 compared to the same periods of 2005. The growth in cash advance fees is primarily attributable to higher average balances and the addition of new units and the recent addition of cash advances made over the internet beginning in mid-September of 2006. While slightly decreased as a percentage of total net revenue, aggregate pawn-related net revenue, consisting of finance and service charges plus profit on the disposition of merchandise, remains the dominant source of net revenue at 56.9% and 58.9% for the three months ended September 30, 2006 and 2005, and at 60.3% and 62.6% for the nine months ended September 30, 2006 and 2005, respectively. The following charts depict the mix of the components of consolidated net revenue for the three and nine months ended September 30, 2006 and 2005:
     
Q3 2006
  Q3 2006
$119.3 million
  $103.9 million
(PIE CHART)
  (PIE CHART)
 
   
9 months 2006
  9 months 2005
$335.9 million
  $295.6 million
(PIE CHART)
  (PIE CHART)

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Contribution to Increase in Net Revenue. Increases in the components of the Company’s net revenue led to an increase in net revenue of 14.8% and 13.6% for the three and nine months ended September 30, 2006 compared to the prior year same periods. Cash advance fees have increased primarily because of the growth and development of newly opened cash advance locations and the recent addition of cash advances made over the internet. As illustrated below, these increases represented 51.8% and 52.4% of the Company’s overall increase in net revenue from the three and nine months ended September 30, 2005 to the three and nine months ended September 30, 2006 and 50.7% and 46.4% of the overall increase from the three and nine months ended September 30, 2004 to the three and nine months ended September 30, 2005. The increase in pawn-related net revenue in the aggregate, finance and service charges plus profit from the disposition of merchandise, decreased from 47.8% to 44.3% and from 52.0% to 43.5% of the increase in net revenue for the three and nine months of 2006 compared to the same periods of 2005. These trends are depicted in the following charts:
     
Q3 2006 over Q3 2005
  Q3 2005 over Q3 2004
$15.4 million increase
  $27.0 million increase
(PIE CHART)
  (PIE CHART)
 
   
9 months 2006 over 9 months 2005
  9 months 2005 over 9 months 2004
$40.3 million increase
  $72.7 million increase
(PIE CHART)
  (PIE CHART)

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Quarter Ended September 30, 2006 Compared To Quarter Ended September 30, 2005
Consolidated Net Revenue. Consolidated net revenue increased $15.4 million, or 14.8%, to $119.3 million during the three months ended September 30, 2006 (the “current quarter”) from $103.9 million during the three months ended September 30, 2005 (the “prior year quarter”). The following table sets forth net revenue results and growth rate by operating segment for the three months ended September 30, 2006 and 2005 ($ in thousands):
                                 
    Three Months Ended September 30,  
    2006     2005     Increase  
Pawn lending operations
  $ 79,934     $ 72,485     $ 7,449       10.3 %
Cash advance operations
    38,325       30,480       7,845       25.7  
Check cashing operations
    1,056       945       111       11.7  
 
                       
Consolidated net revenue
  $ 119,315     $ 103,910     $ 15,405       14.8 %
 
                       
     Higher revenue from the Company’s cash advance product, higher finance and service charges from pawn loans, higher profit from the disposition of merchandise and a small increase in revenue from check cashing operations accounted for the increase in net revenue.
     The components of consolidated net revenue are finance and service charges from pawn loans, which increased $3.4 million; profit from the disposition of merchandise, which increased $3.4 million; cash advance fees generated from pawn locations, cash advance locations and the internet distribution channel, which increased $8.0 million; and check cashing fees, royalties and other, which increased $605,000.
Finance and Service Charges. Finance and service charges increased $3.4 million, or 9.5%, from $36.0 million in the prior year quarter to $39.4 million in the current quarter. The increase is primarily due to higher loan balances attributable to the increased amount of pawn loans written. An increase in the average balance of pawn loans outstanding and slightly higher annualized yield of pawn loan portfolio contributed $3.2 million and $174,000 of the increase, respectively. Finance and service charges from same stores (stores that have been open for at least twelve months) increased 4.6%, or $1.7 million, in the current quarter compared to the prior year quarter primarily as a result of an increase of $7.3 million in pawn loans written and a higher average amount per pawn loan written.
     Pawn loan balances at September 30, 2006 were up $10.8 million, or 8.8% higher than at September 30, 2005, primarily as a result of the increase in average pawn loan balances per average pawnshop location and the net addition of 10 company-owned pawn locations since September 30, 2005. The average balance of pawn loans outstanding was 9.0% higher in the current quarter than in the prior year quarter. The increase in the average balance of pawn loans outstanding was primarily driven by a 10.0% increase in the average amount per loan which was partially offset by a 0.9% decrease in the average number of pawn loans outstanding during the current quarter. Annualized loan yield increased to 119.3% in the current quarter from 118.7% in the prior year quarter. The increase in annualized loan yield is partially attributable to a change in the rate charged in the Company’s Florida locations. Same store pawn loan balances at September 30, 2006 were $8.9 million, or 7.4%, higher than at September 30, 2005.

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Profit from Disposition of Merchandise. Profit from disposition of merchandise represents the proceeds received from disposition of merchandise in excess of the cost of disposed merchandise. The following table summarizes the proceeds from disposition of merchandise and the related profit for the current quarter compared to the prior year quarter ($ in thousands):
                                                 
    Three Months Ended September 30,  
    2006     2005  
    Merch-     Refined             Merch-     Refined        
    andise     Gold     Total     andise     Gold     Total  
Proceeds from dispositions
  $ 56,134     $ 18,714     $ 74,848     $ 52,663     $ 13,364     $ 66,027  
 
                                   
Profit on disposition
  $ 22,906     $ 5,661     $ 28,567     $ 21,798     $ 3,366     $ 25,164  
 
                                   
Profit margin
    40.8 %     30.3 %     38.2 %     41.4 %   $ 25.2 %     38.1 %
 
                                   
     While the total proceeds from disposition of merchandise and refined gold increased $8.8 million, or 13.4%, the combined profit from the disposition of merchandise and refined gold increased $3.4 million, or 13.5%, primarily due to higher levels of retail sales and stronger gross profit margin on the disposition of refined gold. Overall gross profit margin increased from 38.1% in the prior year quarter to 38.2% in the current quarter as the gross profit margin and relative percentage of refined gold sales was higher than the prior year quarter. Excluding the effect of the disposition of refined gold, the profit margin on the disposition of merchandise (including jewelry sales) was 40.8% for the current quarter and 41.4% for the prior year quarter. The profit margin on the disposition of refined gold increased to 30.3% in the current quarter compared to 25.2% in the prior year quarter primarily due to higher prevailing market prices of gold which caused the hedge-adjusted selling price per ounce to increase 28.3% compared to the prior year quarter. In addition, the Company experienced a 9.6% increase in the volume of refined gold sold during the quarter which is in line with the increase in pawn loan balances for the period. Proceeds from disposition of merchandise, excluding refined gold, increased $3.5 million, or 6.6%, in the current quarter. The higher level of retail sales activity was supported by higher levels of merchandise available for disposition entering the current quarter and by the net addition of 10 company-owned pawn locations since September 30, 2005. The consolidated merchandise turnover rate was 2.4 times during both the current quarter and the prior year quarter.
     Management anticipates that profit margin on the overall disposition of merchandise in the near term will likely remain at current levels or decline slightly due to higher inventory levels and the potential of an increased percentage of refined gold sales, due primarily to the current prevailing higher market value of gold. Refined gold sales typically have a lower gross profit margin than retail dispositions so a change in the disposition mix that increases the amount of refined gold sales will likely dilute the overall margin on disposition activities.
     The table below summarizes the age of merchandise held for disposition before valuation allowance of $2.0 million at September 30, 2006 and $1.9 million at September 30, 2005 ($ in thousands).
                                 
    2006     2005  
    Amount     %     Amount     %  
Merchandise held for 1 year or less –
                               
Jewelry
  $ 49,908       58.6 %   $ 43,890       57.9 %
Other merchandise
    27,156       31.9       23,851       31.5  
 
                       
 
    77,064       90.5       67,741       89.4  
 
                       
Merchandise held for more than 1 year –
                               
Jewelry
    5,125       6.0       5,266       7.0  
Other merchandise
    3,010       3.5       2,724       3.6  
 
                       
 
    8,135       9.5       7,990       10.6  
 
                       
Total merchandise held for disposition
  $ 85,199       100.0 %   $ 75,731       100.0 %
 
                       

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Cash Advance Fees. Cash advance fees increased $8.0 million, or 19.7%, to $48.4 million in the current quarter from $40.4 million in the prior year quarter. The increase was primarily due to the growth and development of new cash advance units with some additional contribution from the acquisition of CashNetUSA in mid-September 2006. As of September 30, 2006, the cash advance products were available in 714 lending locations, including 421 pawnshops and 293 cash advance locations, and on the internet. Of these lending locations, 303 locations arrange for customers to obtain cash advance products from independent third-party lenders for a fee. Cash advance fees from same stores increased $2.6 million, or 6.6%, to $42.3 million in the current quarter as compared to $39.7 million in the prior year quarter. Cash advance fees include revenue from the cash advance portfolio owned by the Company and fees paid to the Company for credit services to customers for cash advance products from independent third-party lenders. (Although cash advance transactions may take the form of loans or deferred check deposit transactions, the transactions are referred to throughout this discussion as “cash advances” for convenience.)
     Cash advance fees increased by 22.3% in the cash advance operating segment and increased by 5.5% in the pawn lending operating segment. The following table sets forth cash advance fees by operating segment for the three months ended September 30, 2006 and 2005 ($ in thousands):
                                 
    Three Months Ended September 30,  
    2006     2005     Increase  
Pawn lending operations
  $ 11,963     $ 11,341     $ 622       5.5 %
Cash advance operations
    36,438       29,087       7,351       22.3  
 
                       
Consolidated cash advance fees
  $ 48,401     $ 40,428     $ 7,973       19.7 %
 
                       
     The amount of cash advances written increased by $29.6 million, or 11.1%, to $295.3 million in the current quarter from $265.7 million in the prior year quarter. Included in the amount of cash advances written in the current quarter and the prior year quarter were $92.0 million and $93.8 million, respectively, extended to customers by third-party lenders. The average amount per cash advance increased to $379 from $367 due primarily to changes in permitted loan amounts and adjustments to underwriting. The combined Company and third-party lender portfolios of cash advances generated $50.0 million in revenue during the current quarter compared to $45.5 million in the prior year quarter. The outstanding combined portfolio balance of cash advances increased $33.3 million, or 51.8%, to $97.7 million at September 30, 2006 from $64.4 million at September 30, 2005. Those amounts included $81.4 million and $49.7 million at September 30, 2006 and 2005, respectively, which are included in the Company’s consolidated balance sheets. An allowance for losses of $11.1 million and $10.0 million has been provided in the consolidated financial statements for September 30, 2006 and 2005, respectively, which is netted against the outstanding cash advance amounts on the Company’s consolidated balance sheets.
     Cash advance fees related to cash advances originated by all third-party lenders were $17.6 million in the current quarter on $92.0 million in cash advances originated by third-party lenders, representing 36.5% of total cash advance revenue. The cash advance loss provision expense associated with these cash advances was $7.3 million, direct operating expenses, excluding allocated administrative expenses, were $4.3 million, and depreciation and amortization expense was $451,000 in the current quarter. Therefore, management estimates that the approximate contribution before interest and taxes on cash advances originated by all third-party lenders in the current quarter was $5.5 million. This estimate does not include shared operating costs in pawn locations where the product is offered.
     In March 2005, the Federal Deposit Insurance Corporation (“FDIC”) issued revised guidelines affecting certain short-term cash advance products offered by FDIC regulated banks. The revised guidance applies to the cash advance product that was offered by third-party banks in many of the Company’s locations. The revised guidance, which became effective July 1, 2005, permitted the banks to provide a customer with this cash advance product for no more than three months out of a twelve-month period. In order to address the short-term credit needs of customers who no longer had access to the banks’ cash advance product, the Company began offering an alternative short-term credit product in selected markets in 2005. On July 1, 2005, the Company introduced a credit services organization program (the “CSO

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program”). Under the CSO program, the Company acts as a credit services organization on behalf of consumers in accordance with applicable state laws. Credit services that the Company provides to its customers include arranging loans with independent third-party lenders, assisting in the preparation of loan applications and loan documents, and accepting loan payments at the location where the loans were arranged. If a customer obtains a loan from a third-party lender through the CSO program, the Company, on behalf of its customer, also guarantees the customer’s payment obligations under the loan to the third-party lender. A customer who obtains a loan through the CSO program pays the Company a CSO fee for the credit services, including the guaranty, and enters into a contract with the Company governing the credit services arrangement. Losses on cash advances assigned to the Company or acquired by the Company as a result of its guaranty are the responsibility of the Company. As of September 30, 2006, the Company offered the CSO program in Texas, Florida and, on a limited basis, Michigan.
     In July 2005, the Company elected to discontinue offering third-party bank originated cash advances to consumers in Michigan and in January 2006, the Company elected to discontinue offering third-party bank originated cash advances to consumers in Texas, Florida and North Carolina. Consumer demand for bank-originated cash advances in Florida and Texas was effectively satisfied by replacing the bank originated cash advance program in those states with the CSO program instituted by the Company in July 2005 and consumer demand in Michigan is being effectively satisfied with state law Company-originated cash advances and, on a limited basis, with a CSO program. Customer acceptance of the cash advance product offered through the CSO program has been substantially the same as that of the cash advance products offered by the third-party banks. In most of these locations the Company offered both the bank program and the CSO program to customers during the last half of 2005.
     During the third quarter of 2005, the Company discontinued offering single payment cash advances originated by third-party banks in California and began offering Company-originated cash advances under applicable state law. As an additional service alternative to its customers, during the fourth quarter of 2005 the Company introduced third-party commercial bank originated multi-payment installment cash advances in California and Georgia. The Company discontinued offering multi-payment bank products in Georgia during the second quarter of 2006 and discontinued offering multi-payment bank products in California during July 2006 due principally to its third-party commercial banks’ response to concerns that the FDIC raised to FDIC-supervised banks in late February 2006 concerning the FDIC’s perception of risks associated with FDIC supervised banks’ origination of certain cash advance products with the assistance of third-party marketers and servicers.
     Management anticipates that cash advance fees will continue to grow during the remainder of 2006 due primarily to increased consumer awareness and demand for the cash advance product, higher outstanding balances at September 30, 2006 compared to September 30, 2005, the growth of balances from new units opened in 2005 and 2006 and the acquisition of an online cash advance delivery channel.
Check Cashing Fees, Royalties and Other. Check cashing fees, royalties and other revenue increased $605,000 to $2.9 million in the current quarter, or 25.9%, from $2.3 million in the prior year quarter primarily due to the growth in cash advance units that offer check cashing services and newly added check cashing service in 2006 at many of the pawnshop locations. Check cashing revenues for the cash advance segment and check cashing segment were $1.9 million and $1.0 million in the current quarter, and were $1.4 million and $945,000 in the prior year quarter, respectively.
Operations Expenses. Consolidated operations expenses, as a percentage of total revenue, were 35.2% in the current quarter compared to 37.7% in the prior year quarter. These expenses increased $3.7 million, or 6.7%, in the current quarter compared to the prior year quarter. Pawn lending operating expenses increased $2.0 million, or 4.9%, primarily due to the net increase of 10 pawnshop locations since September 30, 2005, the increase in store level incentives and the increase in marketing expenses. Cash advance operating expenses increased $1.7 million, or 12.7%, primarily as a result of the net establishment of 14 locations since September 30, 2005, the growth in expenses in the Company’s collection centers and the acquisition of CashNetUSA.

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     As a multi-unit operator in the consumer finance industry, the Company’s operations expenses are predominately related to personnel and occupancy expenses. Personnel expenses include base salary and wages, performance incentives, and benefits. Occupancy expenses include rent, property taxes, insurance, utilities, and maintenance. The combination of personnel and occupancy expenses represents 85.2% of total operations expenses in the current quarter and 86.3% in the prior year quarter. The comparison is as follows ($ in thousands):
                                 
    Three Months Ended September 30,  
    2006     2005  
            % of             % of  
    Amount     Revenue     Amount     Revenue  
Personnel
  $ 33,525       20.2 %   $ 31,959       22.1 %
Occupancy
    16,168       9.7       15,194       10.5  
Other
    8,570       5.1       7,443       5.1  
 
                       
Total
  $ 58,263       35.0 %   $ 54,596       37.7 %
 
                       
     The increase in personnel expenses is mainly due to unit additions since the prior year quarter and an increase in staffing levels and normal recurring salary adjustments. The increase in occupancy expense is primarily due to unit additions, higher utility costs and property taxes.
Administration Expenses. Consolidated administration expenses, as a percentage of total revenue, were 8.0% in the current quarter compared to 7.2% in the prior year quarter. The components of administration expenses for the three months ended September 30, 2006 and 2005 are as follows ($ in thousands):
                                 
    Three Months Ended September 30,  
    2006     2005  
            % of             % of  
    Amount     Revenue     Amount     Revenue  
Personnel
  $ 8,902       5.3 %   $ 7,578       5.2 %
Other
    4,357       2.7       2,833       2.0  
 
                       
Total
  $ 13,259       8.0 %   $ 10,411       7.2 %
 
                       
     The increase in administration expenses was principally attributable to increased staffing levels consistent with the Company’s expansion into new markets and distribution channels and an increase in accrued management incentive in conjunction with the financial performance of the Company compared to its business plan.
Cash Advance Loss Provision. The Company maintains an allowance for losses on cash advances at a level projected to be adequate to absorb credit losses inherent in the outstanding combined cash advance portfolio. The cash advance loss provision is utilized to increase the allowance carried against the outstanding company owned cash advance portfolio as well as expected losses in the third-party lender-owned portfolios. The allowance is based on historical trends in portfolio performance based on the status of the balance owed by the customer with the full amount of the customer’s obligations being completely reserved upon becoming 60 days past due. The cash advance loss provision was $17.5 million for the current quarter and $15.5 million for the prior year quarter. The loss provision reflected a $2.0 million increase principally due to the higher volume of combined cash advances written, a higher implied loss rate estimate based on portfolio performance trends and the acquisition of CashNetUSA. The loss provision as a percentage of combined cash advances written increased to 5.9% in the current quarter from 5.8% in the prior year quarter while actual net charge-offs (charge-offs less recoveries) as a percentage of combined cash advances written were 4.8% in the current quarter compared to 4.9% in the prior year quarter. The loss provision as a percentage of cash advance fees decreased to 36.2% in the current quarter from 38.3% in the prior year quarter. Management expects future loss rates and the relative loan loss provision to be higher than the prior year in the fourth quarter of 2006 due primarily to its internet cash advance product which typically incurs higher relative loss rates than traditional bricks and mortar locations.

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Depreciation and Amortization. Depreciation and amortization expense as a percentage of total revenue was 4.2% in the current quarter and 4.1% in the prior year quarter. Total depreciation and amortization expense increased $1.1 million, or 18.8%, primarily due to the increase in operating locations and the amortization of certain intangible assets obtained in acquisitions.
Interest Expense. Interest expense as a percentage of total revenue was 1.9% in both the current quarter and the prior year quarter. Interest expense increased $375,000, or 13.5%, to $3.2 million in the current quarter as compared to $2.8 million in the prior year quarter. The increase in interest is primarily due to the higher weighted average floating interest rate on the bank line of credit (6.3% during the current quarter compared to 4.8% during the prior year quarter) and the issuance (in December 2005) of $40 million 6.12% senior unsecured notes which were partially offset by the decrease in the weighted average amount of borrowings. The average amount of debt outstanding decreased during the current quarter to $179.2 million from $184.2 million during the prior year quarter. The effective blended borrowing cost was 7.0% in the current quarter compared to 6.0% in the prior year quarter.
Interest Income. Interest income was $435,000 in the current quarter compared to $402,000 in the prior year quarter. The increase was primarily due to the higher interest earned on excess cash and currency exchange rate fluctuations in interest on notes denominated in Swedish kronor.
Foreign Currency Transaction Gain/Loss. Exchange rate changes between the United States dollar and the Swedish kronor resulted in a net gain of $67,000 and $47,000 in the current quarter and the prior year quarter, respectively. Included in the net gain were gains of $6,000 and $11,000 for the current quarter and prior year quarter, respectively, resulting from the foreign currency forward contracts totaling 68 million Swedish kronor (approximately $9.3 million at maturity) that were established by the Company in 2005 to minimize the financial impact of currency market fluctuations.
Income Taxes. The Company’s effective tax rate was 37.4% for the current quarter compared to 37.2% for the prior year quarter. The increase is primarily due to an increase in state income taxes.
Nine Months Ended September 30, 2006 Compared To Nine Months Ended September 30, 2005
Consolidated Net Revenue. Consolidated net revenue increased $40.3 million, or 13.6%, to $335.9 million during the nine months ended September 30, 2006 (the “current period”) from $295.6 million during the nine months ended September 30, 2005 (the “prior year period”). The following table sets forth net revenue results by operating segment for the nine months ended September 30, 2006 and 2005 ($ in thousands):
                                 
    Nine Months Ended September 30,  
    2006     2005     Increase  
Pawn lending operations
  $ 234,270     $ 215,191     $ 19,079       8.9 %
Cash advance operations
    98,562       77,464       21,098       27.2  
Check cashing operations
    3,080       2,919       161       5.5  
 
                       
Consolidated net revenue
  $ 335,912     $ 295,574     $ 40,338       13.6 %
 
                       
     Higher revenue from the Company’s cash advance product, higher finance and service charges from pawn loans, higher profit from the disposition of merchandise and a small increase in revenue from check cashing operations accounted for the increase in net revenue.
     Finance and service charges from pawn loans increased $6.5 million; profit from the disposition of merchandise increased $11.0 million; cash advance fees generated from pawn locations, cash advance locations and the internet distribution channel increased $21.1 million; and check cashing fees, royalties and other income increased $1.7 million.

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Finance and Service Charges. Finance and service charges increased $6.5 million, or 6.4%, from $102.5 million in the prior year period to $109.0 million in the current period. The increase is primarily due to higher loan balances attributable to the increased amount of pawn loans written. An increase in the average balance of pawn loans outstanding contributed $7.6 million of the increase and was partially offset by a $1.1 million decrease resulting from the lower annualized yield of the pawn loan portfolio described below. Finance and service charges from same stores increased $2.8 million in the current period compared to the prior year period.
The average balance of pawn loans was 7.5% higher in the current period than in the prior year period. The increase in the average balance of pawn loans outstanding was driven by an 8.6% increase in the average amount per loan which was partially offset by a 1.0% decrease in the average number of pawn loans outstanding during the current period. Annualized loan yield declined to 123.3% in the current period from 124.5% in the prior year period. The decrease in annualized loan yield is partially attributable to four pawnshops damaged by Hurricane Katrina in August 2005 that had not reopened for business as of September 30, 2006. The statutory rates in the New Orleans market generate higher than average pawn loan yields. Pawn loan yields were also negatively impacted by a higher amount of unredeemed pawn loans in the current period compared to the prior year period which generally dilutes yield. This impact was slightly offset by an increase in rates charged in the Company’s Florida pawn lending business earlier in 2006.
Profit from Disposition of Merchandise. The following table summarizes the proceeds from disposition of merchandise and the related profit for the current period compared to the prior year period ($ in thousands):
                                                 
    Nine Months Ended September 30,  
    2006     2005  
    Merch-     Refined             Merch-     Refined        
    andise     Gold     Total     andise     Gold     Total  
Proceeds from dispositions
  $ 182,852     $ 52,387     $ 235,239     $ 171,197     $ 38,904     $ 210,101  
 
                                   
Profit on disposition
  $ 76,249     $ 17,081     $ 93,330     $ 71,662     $ 10,682     $ 82,344  
 
                                   
Profit margin
    41.7 %     32.6 %     39.7 %     41.9 %   $ 27.5 %     39.2 %
 
                                   
     While the total proceeds from disposition of merchandise and refined gold increased $25.1 million, or 12.0%, the combined profit from the disposition of merchandise and refined gold increased $11.0 million, or 13.3%, primarily due to higher levels of retail sales and stronger gross profit margin on the disposition of refined gold. Overall gross profit margin increased from 39.2% in the prior year period to 39.7% in the current period as the gross profit margin and relative percentage of refined gold sales was higher than the prior year period. Excluding the effect of the disposition of refined gold, the profit margin on the disposition of merchandise (including jewelry sales) was 41.7% for the current period and 41.9% for the prior year period. The profit margin on the disposition of refined gold increased to 32.6% in the current period compared to 27.5% in the prior year period primarily due to higher prevailing market prices of gold which caused the hedge-adjusted selling price per ounce to increase 25.3% compared to the prior year period and to the increased volume of refined gold sold. Proceeds from disposition of merchandise, excluding refined gold, increased $11.7 million, or 6.8%, in the current period due primarily to the net addition of 10 pawn locations and to the higher levels of retail sales activity which was supported by higher levels of merchandise available for disposition entering the current period. The consolidated merchandise turnover rate was 2.6 times during both the current period and the prior year period.
Cash Advance Fees. Cash advance fees increased $21.1 million, or 20.7%, to $123.2 million in the current period from $102.1 million in the prior year period. The increase was primarily due to the growth and development of new cash advance units, higher average cash advance balances outstanding and higher rates of collections resulting from additional staffing at the Company’s collection facilities during the current period resulting from the new unit growth with some additional contribution from the acquisition of CashNetUSA in mid-September. Cash advance fees from same stores increased $10.7 million, or 10.5%, to $112.7 million in the current period as compared to $102.0 million in the prior year period.

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     The following table sets forth cash advance fees by operating segment for the nine months ended September 30, 2006 and 2005 ($ in thousands):
                                 
    Nine Months Ended September 30,  
    2006     2005     Increase  
Pawn lending operations
  $ 31,893     $ 30,371     $ 1,522       5.0 %
Cash advance operations
    91,342       71,743       19,599       27.3  
 
                       
Consolidated cash advance fees
  $ 123,235     $ 102,114     $ 21,121       20.7 %
 
                       
     Cash advance fees in the cash advance operating segment increased 27.3% and increased 5.0% in the pawn lending operating segment, mostly due to new locations added over the last 24 months and higher average balances outstanding, with some additional contribution from the acquisition of CashNetUSA. In addition, the increase in cash advance revenue benefited consolidated earnings more than the prior year period primarily due to greater efficiencies in expenses, including the cash advance loss provision, which benefited both segments in the current period.
     The amount of cash advances written increased by $83.2 million, or 12.4%, to $752.0 million in the current period from $668.8 million in the prior year period. Included in the amount of cash advances written in the current period and the prior year period were $255.7 million and $262.5 million, respectively, extended to customers by third-party lenders. The average amount per cash advance increased to $378 from $354 due primarily to changes in permitted loan amounts and adjustments to underwriting. The combined Company and third-party lender portfolios of cash advances generated $122.9 million in revenue during the current period compared to $109.7 million in the prior year period.
     Cash advance fees related to cash advances originated by all third-party lenders were $47.1 million in the current period on $255.7 million in cash advances originated by third-party lenders, representing 38.3% of total cash advance revenue. The cash advance loss provision expense associated with these cash advances was $14.7 million, direct operating expenses, excluding allocated administrative expenses, were $14.3 million, and depreciation and amortization expense was $1.4 million in the current period. Therefore, management estimates that the approximate contribution before interest and taxes on cash advances originated by all third-party lenders in the current period was $16.8 million. This estimate does not include shared operating costs in pawn locations where the product is offered.
Check Cashing Fees, Royalties and Other. Check cashing fees, royalties and other income increased $1.7 million to $10.3 million in the current period, or 19.2%, from $8.6 million in the prior year period mostly due to the growth in cash advance units and newly added check cashing services in 2006 at many of the pawnshop locations. Check cashing revenues for the cash advance segment and check cashing segment were $7.2 million and $3.1 million in the current period, and were $5.7 million and $2.9 million in the prior year period, respectively.
Operations Expenses. Consolidated operations expenses, as a percentage of total revenue, were 37.1% in the current period compared to 38.3% in the prior year period. These expenses increased $14.9 million, or 9.2%, in the current period compared to the prior year period. Pawn lending operating expenses increased $9.1 million, or 7.4%, primarily due to the net increase of 10 pawnshop locations since September 30, 2005, the increase in store level incentives and the increase in marketing expenses. Cash advance operating expenses increased $5.8 million, or 15.3%, primarily as a result of the net establishment of 14 locations which resulted in higher staffing levels and the acquisition of CashNetUSA. In addition, the growth in expenses in the Company’s collection centers also contributed to the expense increase.

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     The combination of personnel and occupancy expenses represents 84.6% of total operations expenses in the current period and 84.7% in the prior year period. The comparison is as follows ($ in thousands):
                                 
    Nine Months Ended September 30,  
    2006     2005  
            % of             % of  
    Amount     Revenue     Amount     Revenue  
Personnel
  $ 101,791       21.3 %   $ 92,639       21.9 %
Occupancy
    48,080       10.0       44,739       10.6  
Other
    27,307       5.7       24,918       5.8  
 
                       
Total
  $ 177,178       37.0 %   $ 162,296       38.3 %
 
                       
     The increase in personnel expenses is mainly due to unit additions since the prior year period and an increase in staffing levels, mainly in the collection centers, and normal recurring salary adjustments. The increase in occupancy expense is primarily due to unit additions. The increase in expenses in the collection centers accounted for $1.5 million of the increase in operating expenses. The addition of CashNetUSA accounted for $595,000 of the total increase in operating expenses.
Administration Expenses. Consolidated administration expenses, as a percentage of total revenue, were 8.3% in the current period compared to 7.5% in the prior year period. The components of administration expenses for the nine months ended September 30, 2006 and 2005 are as follows ($ in thousands):
                                 
    Nine Months Ended September 30,  
    2006     2005  
            % of             % of  
    Amount     Revenue     Amount     Revenue  
Personnel
  $ 27,279       5.7 %   $ 22,264       5.3 %
Other
    12,189       2.6       9,660       2.2  
 
                       
Total
  $ 39,468       8.3 %   $ 31,924       7.5 %
 
                       
     The increase in administration expenses was principally attributable to increased staffing levels consistent with the Company’s expansion into new markets and an increase in accrued management incentive in conjunction with the financial performance of the Company compared to its business plan.
Cash Advance Loss Provision. The cash advance loss provision increased $833,000 to $32.7 million in the current period, compared to $31.9 million in the prior year period. Of the total increase, $2.9 million was principally due to the higher volume of combined cash advances written and the acquisition of CashNetUSA which was offset by a decrease of $2.1 million attributable to a decrease in the implied loss rate estimates based on portfolio performance trends. The loss provision as a percentage of combined cash advances written decreased to 4.4% in the current period from 4.8% in the prior year period while actual net charge-offs (charge-offs less recoveries) as a percentage of combined cash advances written were 3.7% in the current period compared to 3.9% in the prior year period. The loss provision as a percentage of cash advance fees decreased to 26.6% in the current period from 31.2% in the prior year period.
Depreciation and Amortization. Depreciation and amortization expense as a percentage of total revenue was 4.1% for both the current period and the prior year period. Total depreciation and amortization expense increased $2.7 million, or 15.9%, primarily due to the increase in operating locations and the amortization of certain intangible assets obtained in acquisitions.
Interest Expense. Interest expense as a percentage of total revenue was 1.7% in the current period and 1.8% in the prior year period. Interest expense increased $396,000 to $8.0 million in the current period from $7.6 million in the prior year period. The increase in interest expense resulting from the higher weighted average floating interest rate on the bank line of credit (6.0% during the current year period compared to 4.4% during

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the prior year period) and the issuance (in December 2005) of $40 million 6.12% senior unsecured notes was partially offset by the decrease in interest expense as a result of lower debt level. The average amount of debt outstanding decreased during the current period to $150.0 million from $163.1 million during the prior year period. The effective blended borrowing cost was 7.2% in the current period compared to 6.2% in the prior year period.
Interest Income. Interest income was $1.2 million in both the current period and the prior year period.
Foreign Currency Transaction Gain/Loss. Exchange rate changes between the United States dollar and the Swedish kronor resulted in a net gain of $245,000 and a net loss of $868,000 in the current period and the prior year period, respectively. Included in the net gain/loss were a loss of $469,000 and a gain of $509,000 for the current period and prior year period, respectively, resulting from the foreign currency forward contracts.
Gain from Termination of Contract. On April 30, 2006, management entered into an agreement with a landlord of a lending location to terminate the lease and vacate the property for $2.2 million. The Company recorded a pre-tax net gain of $2.2 million ($1.4 million net of related taxes) from this transaction.
Income Taxes. The Company’s effective tax rate was 37.0% for the current period compared to 37.1% for the prior year period.
LIQUIDITY AND CAPITAL RESOURCES
     The Company’s cash flows and other key indicators of liquidity are summarized as follows ($ in thousands, except ratios):
                 
    Nine Months Ended
    September 30,
    2006   2005
Operating activities cash flows
  $ 105,751     $ 79,608  
Investing activities cash flows:
               
Pawn loans
  $ (28,457 )   $ (25,923 )
Cash advances
    (42,315 )     (33,776 )
Acquisitions
    (48,931 )     (16,654 )
Property and equipment additions
    (32,004 )     (20,143 )
Proceeds from property insurance
    1,247        
Proceeds from termination of contract/sale of assets
    2,198       486  
Financing activities cash flows
  $ 53,900     $ 20,791  
Working capital
  $ 288,692     $ 245,888  
Current ratio
    4.7 x     5.3 x
Merchandise turnover
    2.6 x     2.6 x
Cash flows from operating activities. Net cash provided by operating activities was $105.8 million for the current period. Net cash generated from the Company’s pawn lending operations and cash advance operations was $61.0 million and $45.0 million, respectively. Check cashing operations used cash of $204,000. The improvement in cash flows from operating activities in the current period as compared to the prior year period was primarily due to the improvement in results of pawn lending operations and to the development of cash advance locations opened in recent periods.
     Historically, the Company’s finance and service charge revenue is highest in the third and fourth fiscal quarters (July through December) primarily due to higher average loan balances. Proceeds from the disposition of merchandise are also generally highest in the Company’s fourth and first fiscal quarters (October through March) primarily due to the holiday season and the impact of tax refunds. The net effect of these factors is that revenues and income from operations typically are highest in the fourth and first fiscal

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quarters and likewise the Company’s cash flow is generally greatest in these two fiscal quarters.
Cash flows from investing activities. The Company’s investments in pawn loans and cash advances used cash of $28.5 million and $42.3 million during the current period, respectively. In addition, the acquisition of CashNetUSA and the assets of 7 pawnshops used cash of $48.9 million. The Company also invested $32.0 million in property and equipment for the establishment of a new pawnshop location, eight new cash advance locations and a customer service center; the remodeling of selected operating units, ongoing enhancements to the information technology infrastructure, and other property additions.
     On September 15, 2006, the Company, through its wholly-owned subsidiary, Cash America Net Holdings, LLC, completed the purchase of substantially all of the assets of The Check Giant, LLC (“TCG”). TCG offered short-term cash advances exclusively over the Internet under the name “CashNetUSA.” The Company paid an initial purchase price of approximately $35.5 million in cash at closing and transaction costs of approximately $2.0 million. The asset purchase agreement provides for the Company to pay up to five supplemental earn-out payments during the two year period after the closing. The amount of each supplemental payment is to be based on a multiple of consolidated earnings attributable to CashNetUSA’s business for the twelve months preceding each scheduled supplemental payment, as described more fully in the asset purchase agreement. The supplemental payments will be reduced by amounts previously paid. The supplemental payments are to be paid in cash; the Company will, however, have the option of paying up to 25% of each supplemental payment in shares of its common stock based on an average share price value at that time, as defined in the asset purchase agreement.
     Management anticipates that capital expenditures for the remainder of 2006 will be approximately $5 to $10 million for enhancements to communications and information systems, the remodeling of selected operating units, and the establishment of up to 3 new cash advance-only locations and pawnshops. The additional capital required to pursue acquisition opportunities is not included in the estimate of capital expenditures because of the uncertainties surrounding any potential transaction of this nature at this time.
Cash flows from financing activities. During the current period, the Company borrowed $68.2 million under its bank lines of credit, of which $47.3 million was used for the acquisitions of CashNetUSA, five pawn lending locations in Alaska and other acquisitions. The Company reduced its long-term debt by $16.8 million through the scheduled principal payments on senior unsecured notes. Additional uses of cash included $2.2 million for dividends paid. On April 20, 2005, the Board of Directors authorized the Company’s repurchase of up to a total of 1,500,000 shares of its common stock (the “2005 authorization”). Management expects to purchase shares of the Company from time to time in the open market, and funding will come from operating cash flow. During the nine months ended September 30, 2006, 150,500 shares were purchased for an aggregate amount of $4.7 million. Stock options for 438,126 shares were exercised by officers and employees and generated proceeds of $4.7 million of additional equity. From November 2005 through June 2006, the Company’s Chief Executive Officer exercised stock options and sold Company shares pursuant to a pre-arranged, systematic trading plan to sell company shares pursuant to guidelines specified by Rule 10b5-1 under the Securities and Exchange Act of 1934 and in accordance with the Company’s policies with respect to insider sales (the “Plan”). The proceeds from the Plan and the exercise of options were used to fully repay the Chief Executive Officer’s pre-2003 secured loan and accrued interest thereon totaling $2.1 million under the Company’s now discontinued officer stock loan program. Another executive officer also repaid $525,000 (including accrued interest) on a similar officer stock loan.
     The line of credit agreement and the senior unsecured notes require the Company to maintain certain financial ratios. The Company is in compliance with all covenants and other requirements set forth in its debt agreements. A significant decline in demand for the Company’s products and services may cause the Company to reduce its planned level of capital expenditures and lower its working capital needs in order to maintain compliance with the financial ratios in those agreements. A violation of the credit agreements could result in an acceleration of the Company’s debt and increase the Company’s borrowing costs and could even adversely affect the Company’s ability to renew existing credit facilities, or obtain access to new credit

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facilities in the future. The Company does not anticipate a significant decline in demand for its services and has historically been successful in maintaining compliance with and renewing its debt agreements.
     Management believes that the borrowings available ($107.9 million at September 30, 2006) under the credit facilities, cash generated from operations and current working capital of $288.7 million should be sufficient to meet the Company’s anticipated capital requirements for the foreseeable future.
CAUTIONARY STATEMENT REGARDING RISKS AND UNCERTAINTIES THAT MAY AFFECT FUTURE RESULTS
     This quarterly report, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains statements that are forward-looking, as that term is defined by the Private Securities Litigation Reform Act of 1995 or by the Securities and Exchange Commission in its rules. The Company intends that all forward-looking statements be subject to the safe harbors created by these laws and rules. When used in this Quarterly Report on Form 10-Q, the words “believes,” “estimates,” “plans,” “expects,” “anticipates,” and similar expressions as they relate to the Company or its management are intended to identify forward-looking statements. The statements in this report that are not historical facts are based on current expectations. All forward-looking statements are based on current expectations regarding important risk factors. These risks and uncertainties are beyond the ability of the Company to control, and, in many cases, the Company cannot predict all of the risks and uncertainties that could cause its actual results to differ materially from those expressed in the forward-looking statements. Actual results may differ materially from those expressed in the forward-looking statements, and such statements should not be regarded as a representation by the Company or any other person that the results expressed in the statements will be achieved. Among the factors that could cause the results to differ include the ability to successfully integrate a newly acquired business into the Company’s existing operations, and other risk factors described in Part II, Item 1A of this report and in other of the Company’s filings with the Securities and Exchange Commission.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
     Market risks relating to the Company’s operations result primarily from changes in interest rates, foreign exchange rates, and gold prices. The Company does not engage in speculative or leveraged transactions, nor does it hold or issue financial instruments for trading purposes. There have been no material changes to the Company’s exposure to market risks since December 31, 2005.
Item 4. Controls and Procedures
     Under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, management of the Company has evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of September 30, 2006 (“Evaluation Date”). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date, the Company’s disclosure controls and procedures are effective.
     There have been no changes during the quarter ended September 30, 2006 in the Company’s internal control over financial reporting that were identified in connection with management’s evaluation described in Item 4 above that have materially affected, or are reasonably likely to materially affect the Company’s internal control over financial reporting.
     The Company’s management, including its Chief Executive Officer and Chief Financial Officer, does not expect that the Company’s disclosure controls and procedures or internal controls will prevent all possible error and fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of

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controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
     See Note 10 of Notes to Consolidated Financial Statements.
Item 1A. Risk Factors
     Important risk factors that could cause results or events to differ from current expectations are described below. These factors are not intended to be an all-encompassing list of risks and uncertainties that may affect the operations, performance, development and results of the Company’s business.
  A decreased demand for the Company’s products and specialty financial services and failure of the Company to adapt to such decrease could adversely affect results. Although the Company’s products and services are a staple of its customer base, the demand for a particular product or service may decrease due to a variety of factors, such as the availability of competing products, changes in customers’ financial conditions, or regulatory restrictions that reduce customer access to particular products. Should the Company fail to adapt to a significant change in its customers’ demand for, or access to, its products, the Company’s revenues could decrease significantly. Even if the Company does make adaptations, customers may resist or may reject products whose adaptations make them less attractive or less available. In any event, the effect of any product change on the results of the Company’s business may not be fully ascertainable until the change has been in effect for some time. In particular, the Company has changed, and will continue to change, some of the cash advance products and services it offers due to guidelines or rules published by regulatory agencies which have a direct or indirect effect on the governance of the Company and the products it offers.
  Adverse changes in laws or regulations affecting the Company’s short-term consumer loan services could negatively impact the Company’s operations. The Company’s products and services are subject to extensive regulation and supervision under various federal, state and local laws, ordinances and regulations. The Company faces the risk that restrictions or limitations resulting from the enactment, change, or interpretation of laws and regulations could have a negative effect on the Company’s business activities. In particular, short-term consumer loans have come under increased scrutiny and increasingly restrictive regulation in recent years. Some regulatory activity may limit the number of short-term loans that customers may receive or have outstanding, such as the limits prescribed by the FDIC in March 2005 and supplemented in February 2006, and regulations adopted by some states requiring that all borrowers of certain short-term loan products be listed on a database and limiting the number of such loans they may have outstanding; and regulations limiting the availability of the Company’s cash advance products to active duty military personnel. Certain consumer advocacy groups and federal and state legislators have also asserted that laws and regulations should be tightened so as to severely limit, if not eliminate, the availability of certain cash advance products to consumers, despite the significant demand for it. Adoption of such federal and state regulation or legislation could restrict, or even eliminate, the availability of cash advance products at some or all of the Company’s locations.
  The failure of third-parties who provide products, services or support to the Company to maintain their products, services or support could disrupt Company operations or result in a loss of revenue. The Company’s cash advance revenues depend in part on the willingness and ability of unaffiliated third party lenders to make loans to its customers or to provide services. The loss of the relationship with these lenders, and an inability to replace them with new lenders, or the failure of these lenders to maintain quality and consistency in their loan programs, could cause the Company to lose customers and substantially decrease the revenues and earnings of the Company’s cash advance business.

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    The Company also relies on third parties to provide other services that facilitate loans over the internet. The Company makes other non-cash advance products and services provided by various third party vendors available to its customers. If a third-party provider fails to provide its product or service or to maintain its quality and consistency, the Company could lose customers and related revenue from those products or services. The Company also uses third parties to support and maintain certain of its communication systems and computerized point-of-sale and information systems. The failure of such third parties to fulfill their support and maintenance obligations could disrupt the Company’s operations.
  The Company’s growth is subject to external factors and other circumstances over which the Company has limited control or that are beyond the Company’s control. These factors and circumstances could adversely affect the Company’s ability to grow through the opening and acquisition of new operating units. The Company’s expansion strategy includes acquiring existing stores and opening new ones. The success of this strategy is subject to numerous external factors, such as the availability of attractive acquisition candidates, the availability of sites with acceptable restrictions and suitable terms, the Company’s ability to attract, train and retain qualified unit management personnel and the ability to obtain required government permits and licenses. Some of these factors are beyond the Company’s control. The failure to execute this expansion strategy would adversely affect the Company’s ability to expand its business and could materially adversely affect its business, prospects, results of operations and financial condition.
  Increased competition from banks, savings and loans, other short-term consumer lenders, and other entities offering similar financial services, as well as retail businesses that offer products and services offered by the Company, could adversely affect the Company’s results of operations. The Company has many competitors to its core lending and merchandise disposition operations. Its principal competitors are other pawnshops, cash advance companies, online lenders, consumer finance companies and other financial institutions that serve the Company’s primary customer base. Many other financial institutions or other businesses that do not now offer products or services directed toward the Company’s traditional customer base, many of whom may be much larger than the Company, could begin doing so. Significant increases in the number and size of competitors for the Company’s business could result in a decrease in the number of cash advances or pawn loans that the Company writes, resulting in lower levels of revenues and earnings in these categories. Furthermore, the Company has many competitors to its retail operations, such as retailers of new merchandise, retailers of pre-owned merchandise, other pawnshops, thrift shops, online retailers and online auction sites. Increased competition or aggressive marketing and pricing practices by these competitors could result in decreased revenues, margins and turnover rates in the Company’s retail operations.
  A sustained deterioration of economic conditions could reduce demand for the Company’s products and services and result in reduced earnings. While the credit risk for much of the Company’s consumer lending is mitigated by the collateralized nature of pawn lending, a sustained deterioration in the economy could adversely affect the Company’s operations through deterioration in performance of its pawn loan or cash advance portfolios, or by reducing consumer demand for the purchase of pre-owned merchandise.
  Adverse real estate market fluctuations could affect the Company’s profits. The Company leases most of its locations. A significant rise in real estate prices could result in an increase in store lease costs as the Company opens new locations and renews leases for existing locations.
  Changes in the capital markets or the Company’s financial condition could reduce available capital. The Company regularly accesses the debt capital markets to refinance existing debt obligations and to obtain capital to finance growth. Efficient access to these markets is critical to the Company’s ongoing financial success; however, the Company’s future access to the debt capital markets could become restricted due to a variety of factors, including a deterioration of the Company’s earnings, cash flows, balance sheet quality, or overall business or industry prospects, a significant deterioration in the state of the capital markets or a negative bias toward the Company’s industry by market participants.

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  Media reports and public perception of short-term consumer loans as being predatory or abusive could materially adversely affect the Company’s cash advance business. In recent years, consumer advocacy groups and some media reports have advocated governmental action to prohibit or place severe restrictions on short-term consumer loans. The consumer advocacy groups and media reports generally focus on the cost to a consumer for this type of loan, which is alleged to be higher than the interest typically charged by banks to consumers with better credit histories. Though the consumer advocacy groups and media reports do not discuss the lack of viable alternatives for our customers’ borrowing needs or the comparative cost to the customer when alternatives are not available, they do typically characterize these short-term consumer loans as predatory or abusive despite the large customer demand for these loans. If the negative characterization of these types of loans becomes increasingly accepted by consumers, demand for the cash advance products could significantly decrease, which could materially affect the Company’s results of operations and financial condition. Additionally, if the negative characterization of these types of loans is accepted by legislators and regulators, the Company could become subject to more restrictive laws and regulations that could materially adversely affect the Company’s financial condition and results of operations.
  Other risk factors are discussed under Quantitative and Qualitative Disclosures about Market Risk in Part I, Item 3 of this Form 10-Q and in the Company’s 2005 Annual Report on Form 10-K.
  Other risks that are indicated in the Company’s filings with the Securities and Exchange Commission may apply as well.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
     (c) The following table provides the information with respect to purchases made by the Company of shares of its common stock during each of the months in the first, second and third quarters of 2006:
                                 
                    Total Number of     Maximum Number  
    Total Number     Average     Shares Purchased as     of Shares that May  
    of Shares     Price Paid     Part of Publicly     Yet Be Purchased  
          Period   Purchased     Per Share     Announced Plan     Under the Plan (1)  
January 1 to January 31
    3,280 (2)   $ 23.67             1,321,200  
February 1 to February 28
    6,167 (2)     26.65             1,321,200  
March 1 to March 31
    514 (2)     29.19             1,321,200  
 
                         
Total first quarter
    9,961       25.80                
 
                         
April 1 to April 30
    418 (3)     32.35             1,321,200  
May 1 to May 31
    46,410 (3)     31.59       45,500       1,275,700  
June 1 to June 30
    70,357 (3)     30.30       70,000       1,205,700  
 
                         
Total second quarter
    117,185       30.82       115,500          
 
                         
July 1 to July 31
    448 (3)     34.47             1,205,700  
August 1 to August 31
    35,258 (3)     33.48       35,000       1,170,700  
September 1 to September 30
    306 (3)     37.50             1,170,700  
 
                         
Total third quarter
    36,012       33.52       35,000          
 
                         
Total nine months
    163,158     $ 31.11       150,500          
 
                         
 
(1)   On April 20, 2005, the Board of Directors authorized the Company’s repurchase of up to a total of 1,500,000 shares of its common stock.
 
(2)   Includes 423 shares, 1,645 shares and 514 shares purchased on behalf of participants relating to the Company’s Non-Qualified Savings Plan for January, February and March, respectively. Also includes 2,857 shares and 4,522 shares received as partial tax payments for shares issued under stock-based compensation plans for January and February, respectively.
 
(3)   Includes 418 shares, 910 shares, 357, 448, 258 and 306 shares purchased on behalf of participants relating to the Company’s Non-Qualified Savings Plan for April, May, June, July, August and September, respectively.
Item 6. Exhibits
  31.1   Certification of Chief Executive Officer
 
  31.2   Certification of Chief Financial Officer
 
  32.1   Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
  32.2   Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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SIGNATURE
     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
         
 
       
 
  CASH AMERICA INTERNATIONAL, INC.    
 
 
 
(Registrant)
   
         
     
  By:   /s/ Thomas A. Bessant, Jr.    
    Thomas A. Bessant, Jr.   
    Executive Vice President and
Chief Financial Officer 
 
 
Date: November 2, 2006

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