e10vq
Table of Contents

 
 
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, 2008
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
(CASHAMERICA LOGO)
(Exact name of registrant as specified in its charter)
     
Texas   75-2018239
(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization)   Identification No.)
     
1600 West 7th Street    
Fort Worth, Texas   76102
(Address of principal executive offices)   (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, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
             
Large accelerated filer þ   Accelerated filer o   Non-accelerated filer o   Smaller reporting company o
(Do not check if a smaller reporting company)
     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o   No þ
APPLICABLE ONLY TO CORPORATE ISSUERS:
29,017,108 common shares, $.10 par value, were outstanding as of October 14, 2008
 
 

 


 

CASH AMERICA INTERNATIONAL, INC.
INDEX TO FORM 10-Q
                 
            Page
PART I. FINANCIAL INFORMATION        
 
               
 
  Item 1.   Financial Statements (Unaudited)        
 
      Consolidated Balance Sheets — September 30, 2008, 2007 and December 31, 2007     1  
 
      Consolidated Statements of Income — Three and Nine Months Ended September 30, 2008 and 2007     2  
 
      Consolidated Statements of Stockholders’ Equity — September 30, 2008 and 2007     3  
 
      Consolidated Statements of Comprehensive Income — Three and Nine Months Ended September 30, 2008 and 2007     3  
 
      Consolidated Statements of Cash Flows — Nine Months Ended September 30, 2008 and 2007     4  
 
      Notes to Consolidated Financial Statements     5  
 
  Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations     20  
 
  Item 3.   Quantitative and Qualitative Disclosures About Market Risk     47  
 
  Item 4.   Controls and Procedures     47  
 
               
PART II. OTHER INFORMATION        
 
               
 
  Item 1.   Legal Proceedings     48  
 
  Item 1A.   Risk Factors     48  
 
  Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds     48  
 
  Item 4.   Submission of Matters to a Vote of Security Holders     48  
 
  Item 5.   Other Information     49  
 
  Item 6.   Exhibits     49  
 
               
SIGNATURE     50  
 EX-2.1
 EX-10.1
 EX-31.1
 EX-31.2
 EX-32.1
 EX-32.2

 


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,  
    2008     2007     2007  
    (Unaudited)          
Assets
                       
 
                       
Current assets:
                       
Cash and cash equivalents
  $ 29,754     $ 26,412     $ 22,725  
Pawn loans
    158,226       136,722       137,319  
Cash advances, net
    87,034       82,785       88,148  
Merchandise held for disposition, net
    111,053       98,751       98,134  
Finance and service charges receivable
    29,658       25,528       26,963  
Income taxes recoverable
    1,306              
Other receivables and prepaid expenses
    13,658       15,349       16,292  
Deferred tax assets
    22,088       22,455       20,204  
 
                 
 
Total current assets
    452,777       408,002       409,785  
 
                       
Property and equipment, net
    181,524       147,813       161,676  
Goodwill
    420,840       283,554       306,221  
Intangible assets, net
    21,634       24,569       23,484  
Other assets
    3,501       3,017       3,478  
 
                 
Total assets
  $ 1,080,276     $ 866,955     $ 904,644  
 
                 
 
                       
Liabilities and Stockholders’ Equity
                       
 
                       
Current liabilities:
                       
Accounts payable and accrued expenses
  $ 66,414     $ 61,484     $ 65,399  
Accrued supplemental acquisition payment
    69,499       43,300       22,000  
Customer deposits
    8,754       8,211       7,856  
Income taxes currently payable
          16       3,755  
Current portion of long-term debt
    8,500       12,786       8,500  
 
                 
Total current liabilities
    153,167       125,797       107,510  
 
Deferred tax liabilities
    25,826       15,854       18,584  
Other liabilities
    2,202       1,621       1,671  
Long-term debt
    343,692       251,427       280,277  
 
                 
Total liabilities
    524,887       394,699       408,042  
 
                 
 
                       
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
    163,678       162,837       163,581  
Retained earnings
    424,999       337,909       363,180  
Accumulated other comprehensive (loss) income
    (59 )     (4 )     16  
Treasury shares, at cost (1,218,075 shares, 1,088,493 shares and 1,136,203 shares at September 30, 2008 and 2007, and December 31, 2007, respectively)
    (36,253 )     (31,510 )     (33,199 )
 
                 
Total stockholders’ equity
    555,389       472,256       496,602  
 
                 
Total liabilities and stockholders’ equity
  $ 1,080,276     $ 866,955     $ 904,644  
 
                 
See notes to consolidated financial statements.

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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,  
    2008     2007     2008     2007  
    (Unaudited)  
Revenue
                               
Finance and service charges
  $ 46,977     $ 41,386     $ 133,788     $ 117,011  
Proceeds from disposition of merchandise
    105,517       91,366       330,189       277,342  
Cash advance fees
    96,301       95,417       274,610       260,880  
Check cashing fees, royalties and other
    3,355       3,343       12,476       13,032  
 
                       
 
                               
Total Revenue
    252,150       231,512       751,063       668,265  
 
                               
Cost of Revenue
                               
Disposed merchandise
    68,033       57,693       206,290       172,402  
 
                       
 
                               
Net Revenue
    184,117       173,819       544,773       495,863  
 
                       
 
                               
Expenses
                               
Operations
    81,714       75,970       241,791       224,724  
Cash advance loss provision
    40,950       43,612       102,817       118,688  
Administration
    15,964       15,175       55,652       40,924  
Depreciation and amortization
    9,298       8,265       27,956       23,698  
 
                       
 
                               
Total Expenses
    147,926       143,022       428,216       408,034  
 
                       
 
                               
Income from Operations
    36,191       30,797       116,557       87,829  
 
                               
Interest expense
    (4,292 )     (4,378 )     (11,005 )     (12,119 )
Interest income
    113       145       220       999  
Foreign currency transaction (loss) gain
    (5 )     5       (77 )     63  
Gain on sale of foreign notes
          6,260             6,260  
 
                       
 
                               
Income before Income Taxes
    32,007       32,829       105,695       83,032  
Provision for income taxes
    13,082       12,213       40,822       29,973  
 
                       
 
                               
Net Income
  $ 18,925     $ 20,616     $ 64,873     $ 53,059  
 
                       
 
                               
Earnings Per Share:
                               
 
                               
Basic
  $ 0.65     $ 0.70     $ 2.21     $ 1.78  
Diluted
  $ 0.63     $ 0.68     $ 2.16     $ 1.74  
 
                               
Weighted average common shares outstanding:
                               
 
                               
Basic
    29,266       29,535       29,321       29,745  
Diluted
    30,035       30,235       30,082       30,464  
 
                               
Dividends declared per common share
  $ 0.035     $ 0.035     $ 0.105     $ 0.105  
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,  
    2008     2007  
    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
            163,581               161,683  
Exercise of stock options
                          (1,201 )
Shares issued under stock based plans
            (3,496 )             (751 )
Stock-based compensation expense
            3,016               2,277  
Income tax benefit from stock based compensation
            577               829  
 
                           
 
Balance at end of period
            163,678               162,837  
 
                           
 
                               
Retained earnings
                               
Balance at beginning of year
            363,180               287,962  
Net income
            64,873               53,059  
Dividends declared
            (3,054 )             (3,112 )
 
                           
 
                               
Balance at end of period
            424,999               337,909  
 
                           
 
                               
Accumulated other comprehensive income (loss)
                               
Balance at beginning of year
            16               20  
Unrealized derivatives loss
            (7 )             (20 )
Foreign currency translation loss, net of taxes
            (68 )             (4 )
 
                           
 
                               
Balance at end of period
            (59 )             (4 )
 
                           
 
                               
Notes receivable secured by common stock
                               
Balance at beginning of year
                          (18 )
Payments on notes receivable
                          18  
 
                           
 
Balance at end of period
                           
 
                           
 
                               
Treasury shares, at cost
                               
Balance at beginning of year
    (1,136,203 )     (33,199 )     (565,840 )     (11,943 )
Purchases of treasury shares
    (219,021 )     (7,144 )     (624,305 )     (22,246 )
Exercise of stock options
                67,154       1,928  
Shares issued under stock based plans
    137,149       4,090       34,498       751  
 
                       
 
Balance at end of period
    (1,218,075 )     (36,253 )     (1,088,493 )     (31,510 )
 
                       
Total Stockholders’ Equity
          $ 555,389             $ 472,256  
 
                           
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2008     2007     2008     2007  
    (Unaudited)  
Net income
  $ 18,925     $ 20,616     $ 64,873     $ 53,059  
Other comprehensive loss:
                               
Unrealized derivatives loss (1)
    (3 )     (1 )     (7 )     (20 )
Foreign currency translation loss (2)
    (55 )     (11 )     (68 )     (4 )
 
                       
 
Total Comprehensive Income
  $ 18,867     $ 20,604     $ 64,798     $ 53,035  
 
                       
 
(1)   Net of tax benefit of $2 and $4 for the three months and $4 and $11 for the nine months ended September 30, 2008 and 2007, respectively.
 
(2)   Net of tax benefit of $25 and $37 for the three and nine months ended September 30, 2008, respectively.
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,  
    2008     2007  
    (Unaudited)  
Cash Flows from Operating Activities
               
Net income
  $ 64,873     $ 53,059  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation and amortization
    27,956       23,698  
Cash advance loss provision
    102,817       118,688  
Stock-based compensation
    3,016       2,277  
Foreign currency transaction loss (gain)
    77       (63 )
Gain on settlement of foreign notes
          (6,260 )
Changes in operating assets and liabilities —
               
Merchandise held for disposition
    (12,434 )     1,461  
Finance and service charges receivable
    (3,510 )     (845 )
Prepaid expenses and other assets
    (2,929 )     (252 )
Accounts payable and accrued expenses
    1,355       4,160  
Customer deposits, net
    895       747  
Current income taxes
    (4,484 )     (1,846 )
Excess income tax benefit from stock-based compensation
    (577 )     (829 )
Deferred income taxes, net
    5,399       (3,036 )
 
           
Net cash provided by operating activities
    182,454       190,959  
 
           
Cash Flows from Investing Activities
               
Pawn loans made
    (371,381 )     (321,061 )
Pawn loans repaid
    184,398       165,141  
Principal recovered through dispositions of forfeited loans
    165,794       134,840  
Cash advances made, assigned or purchased
    (843,651 )     (866,873 )
Cash advances repaid
    744,204       746,891  
Acquisitions, net of cash acquired
    (65,220 )     (38,564 )
Purchases of property and equipment
    (44,461 )     (48,883 )
Proceeds from settlement of foreign notes
          16,529  
Proceeds from property insurance
    864       1,316  
 
           
Net cash used by investing activities
    (229,453 )     (210,664 )
 
           
Cash Flows from Financing Activities
               
Issuance of common stock
    55        
Net borrowings under bank lines of credit
    71,915       61,250  
Debt issuance costs paid
    (310 )     (282 )
Payments on notes payable
    (8,500 )     (16,786 )
Payments on notes receivable secured by common stock
          18  
Proceeds from exercise of stock options
    594       727  
Excess income tax benefit from stock-based compensation
    577       829  
Treasury shares purchased
    (7,144 )     (22,246 )
Dividends paid
    (3,054 )     (3,112 )
 
           
Net cash provided by financing activities
    54,133       20,398  
 
           
Effect of exchange rates on cash
    (105 )     (4 )
 
           
Net increase in cash and cash equivalents
    7,029       689  
Cash and cash equivalents at beginning of year
    22,725       25,723  
 
           
Cash and cash equivalents at end of period
  $ 29,754     $ 26,412  
 
           
 
               
Supplemental Disclosures
               
Non-cash investing and financing activities —
               
Pawn loans forfeited and transferred to merchandise held for disposition
  $ 166,235     $ 147,529  
Pawn loans renewed
  $ 71,173     $ 56,996  
Cash advances renewed
  $ 270,996     $ 221,719  
See notes to consolidated financial statements.

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CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 2008 and 2007 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 month periods 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, 2007 have been reclassified to conform to the presentation format adopted in 2008. 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 2007 Annual Report to Shareholders.
Revenue Recognition
Pawn Lending 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 it 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 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 authorization to debit that customer’s account via an Automated Clearing House (“ACH”) transaction for the aggregate amount of the payment due. The customer may repay the cash advance either in cash, or, as applicable, by allowing the check to be presented for collection, or by allowing 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 the period of the cash advance, pursuant to its terms. (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.)
          The Company provides a cash advance product in some markets under a credit services organization program, in which 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, 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

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CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
guaranteed loans is accrued and recorded as a liability. See Note 3.
Check Cashing Fees, Royalties and Other The Company records check cashing fees derived from both check cashing locations it owns and many of its lending locations in the period in which the check cashing service is provided. It records royalties derived from franchise locations on an accrual basis. Revenue derived from other financial services such as money order commissions, prepaid debit card fees, etc. is recognized when earned.
Allowance 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 are not included in the consolidated balance sheets. An accrual for contingent losses on third-party lender-owned cash advances that are guaranteed by the Company is maintained and included in “Accounts payable and accrued expenses” in the consolidated balance sheets.
          The Company aggregates and tracks cash advances written during each calendar month 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. It uses historical collection performance adjusted for recent portfolio performance trends to develop the expected loss rates 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.
          The Company’s online distribution channel periodically sells selected cash advances that have been previously written off. Proceeds from these sales are recorded as recoveries on losses previously charged to the allowance for losses.
Recent Accounting Pronouncements
          In September 2006, FASB issued Statement of Financial Accounting Standards (“SFAS”) 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 was effective for fiscal years beginning after November 15,

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CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2007 and interim periods within those fiscal years. In February 2008, FASB issued FASB Staff Position (“FSP”) FAS 157-2, “Effective Date of FASB Statement No. 157”, which delays the effective date of SFAS 157 for nonfinancial assets and nonfinancial liabilities that are recognized or disclosed in the financial statements on a nonrecurring basis. The FSP partially defers the effective date of SFAS 157 to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years for items within the scope of this FSP. The Company adopted the provisions of SFAS 157 and FSP FAS 157-2 for its financial assets and financial liabilities on January 1, 2008. The adoption of SFAS 157 and FSP FAS 157-2 did not have a material effect on the Company’s financial position or results of operations. In accordance with FSP FAS 157-2, the Company has not applied the provisions of SFAS 157 to its nonfinancial assets and nonfinancial liabilities. The Company will apply the provisions of SFAS 157 to these assets and liabilities beginning January 1, 2009 as required by FSP FAS 157-2. See Note 8. In October 2008, the FASB issued FSP FAS 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active, which clarifies the application of SFAS 157 as it relates to the valuation of financial assets in a market that is not active for those financial assets. FSP FAS 157-3 became effective for the Company upon issuance, and had no material impact on the Company’s financial position or results of operations.
          In February 2007, FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 permits entities to choose, at specified election dates, to measure eligible items at fair value (the “fair value option”) and requires an entity to report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. Upfront costs and fees related to items for which the fair value option is elected shall be recognized in earnings as incurred and not deferred. SFAS 159 was effective for fiscal years beginning after November 15, 2007. The adoption of SFAS 159 did not have a material effect on the Company’s financial position or results of operations.
          In November 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51 (“SFAS 160”). SFAS 160 establishes accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160 clarifies that a non-controlling interest in a subsidiary, which is sometimes referred to as an unconsolidated investment, is an ownership interest in the consolidated entity that should be reported as a component of equity in the consolidated financial statements. Among other requirements, SFAS 160 requires consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the non-controlling interest. It also requires disclosure, on the face of the consolidated income statement, of the amounts of consolidated net income attributable to the parent and to the non-controlling interest. SFAS 160 is effective for fiscal years beginning on or after December 15, 2008. The Company does not expect SFAS 160 to have a material effect on the Company’s financial position or results of operations.
          In December 2007, FASB issued SFAS No. 141, “Business Combinations — Revised” (“SFAS 141(R)”). SFAS 141(R) establishes principles and requirements for how an acquirer in a business combination: recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree; recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase price; and, determines what information to disclose to enable users of the consolidated financial statements to evaluate the nature and financial effects of the business combination. SFAS 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. In the past, the Company has completed significant acquisitions. The application of SFAS 141(R) will cause management to evaluate future transaction returns under different conditions, particularly related to the near term and long term economic impact of expensing transaction costs.

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CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
          In March 2008, FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133 (“SFAS 161”). SFAS No. 161 requires enhanced disclosures concerning (1) the manner in which an entity uses derivatives (and the reasons it uses them), (2) the manner in which derivatives and related hedged items are accounted for under SFAS No. 133 and interpretations thereof, and (3) the effects that derivatives and related hedged items have on an entity’s financial position, financial performance, and cash flows. The standard is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The Company does not expect SFAS 161 to have a material effect on the Company’s financial position or results of operations.
     In April 2008, the FASB issued FSP No. FAS 142-3, Determination of the Useful Life of Intangible Assets, (“FSP FAS 142-3”) which amends the list of factors an entity should consider in developing renewal or extension assumptions used in determining the useful life of recognized intangible assets under SFAS No. 142, Goodwill and Other Intangible Assets. The new guidance applies to (1) intangible assets that are acquired individually or with a group of other assets and (2) intangible assets acquired in both business combinations and asset acquisitions. Under FSP FAS 142-3, entities estimating the useful life of a recognized intangible asset must consider their historical experience in renewing or extending similar arrangements or, in the absence of historical experience, must consider assumptions that market participants would use about renewal or extension. The standard is effective for financial statements issued for fiscal years beginning after December 15, 2008. The Company does not expect this standard to have a material impact on the consolidated results of operations or financial condition.
2. Acquisitions
CashNetUSA
          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, purchased 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 $35.9 million in cash and transaction costs of approximately $2.9 million, and has continued to use the CashNetUSA trade name in connection with its online operations.
          The Company also agreed to pay up to five supplemental earn-out payments during the two-year period after the closing. The amount of each supplemental payment will be based on a multiple of earnings attributable to CashNetUSA’s business as defined in the purchase agreement, for the twelve months preceding the date of determining each scheduled supplemental payment. Each supplemental payment will be reduced by amounts previously paid. The supplemental payments are to be paid in cash within 45 days of the payment measurement date. The Company may, at its option, pay up to 25% of each supplemental payment in shares of its common stock based on an average share price as of the measurement date thereby reducing the amount of the cash payment. Substantially all of these supplemental payments will be accounted for as goodwill.
          The Company made supplemental payments in cash of approximately $33.8 million, $43.4 million, and $63.2 million in February 2007, November 2007, and May 2008, respectively. These payments were based on the defined multiples of the trailing twelve months earnings of CashNetUSA through December 31, 2006, September 30, 2007, and March 31, 2008, respectively, and reflected adjustments for amounts previously paid. Another supplemental payment will be based on the trailing twelve months earnings of CashNetUSA as of September 30, 2008. As of September 30, 2008, the Company has accrued approximately $69.5 million for the payment as an addition to goodwill and to accrued supplemental acquisition payment based on the defined multiple of 5.0 times trailing twelve months earnings through September 30, 2008.

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CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
On October 31, 2008, the Company and TCG amended the underlying purchase agreement to provide that the Company will pay 50% of this payment in cash in early November 2008 and will defer payment of the remainder until March 31, 2009, with a deferral fee of 15% per annum on the deferred portion. At its election, the Company may make the deferred payment between December 15 and 31, 2008. Pursuant to the terms of the purchase agreement with TCG, payments determined at the March 31 and September 30, 2007 measurement dates were calculated at 5.5 times trailing twelve month earnings. The March 31, 2008 and the September 30, 2008 measurement dates were calculated at 5.0 times trailing twelve month earnings. As of March 31, 2009, the Company will calculate a final true up payment to be paid to TCG to reflect amounts collected between October 1, 2008 and March 31, 2009 on loans that had been charged off and uncollected on or before September 30, 2008, less the costs of collecting on such loans. If this calculation results in an amount greater than $0, the final true up payment will be payable by the Company to TCG on or before May 15, 2009.
Primary Cash Holdings, LLC
          On July 23, 2008, the Company, through its wholly-owned subsidiary, Primary Cash Holdings, LLC (“PCH”), purchased substantially all the assets of Primary Business Services, Inc., Primary Finance, Inc., Primary Processing, Inc. and Primary Members Insurance Services, Inc. (collectively, “PBSI”), a group of companies in the business of designing, marketing and selling pre-paid stored value cards, which are currently marketed to the general public and employers and their employees as multi-purpose payroll debit cards, and related activities that complement and support this business, including providing certain processing services and participating in receivables associated with a bank issued line of credit available on certain cards. The Company paid an initial purchase price of approximately $5.6 million in cash at closing, which included the repayment of the approximately $4.9 million note receivable owed to the Company as of the closing date. The Company also agreed to pay up to eight supplemental earn-out payments during the four-year period after the closing. The amount of each supplemental payment is to be based on a multiple of 3.5 times the consolidated earnings attributable to PBSI for the specified period (generally 12 months) preceding each scheduled supplemental payment, reduced by amounts previously paid. Substantially all of these supplemental payments will be accounted for as goodwill. The first supplemental payment is due April 2009 and the purchase agreement stipulates that this payment would not be less than $2.7 million; however, the Company may cancel its obligation to make any supplemental payments by transferring ownership of PCH to PBSI’s sole shareholder. The activities of PCH are included in the results of the internet distribution portion of the Company’s cash advance segment.
          During the nine months ended September 30, 2008, Cash America Holding, Inc., a wholly owned subsidiary of the Company, increased a loan to Primary Business Services, Inc. and affiliates (“PBSI”) from $2.3 million as of March 31, 2008 to $4.6 million at June 30, 2008. The Loan was made to PBSI and its affiliates, Primary Processing, Inc., Primary Finance, Inc. and Primary Members Insurance Services, Inc. (collectively, the “Borrowers”). The Loan was secured by all the current and future assets of the Borrowers, by the personal guaranty of the Borrowers’ principal stockholder and by a pledge of all outstanding shares of each of the Borrowers. The Loan matured on February 28, 2009, and bore interest at 12% per annum. The Borrowers were using the proceeds of the Loan to fund product development activities and for general business operations.
Other
          During the nine months ended September 30, 2008, the Company acquired one pawnshop for approximately $706,000.

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CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3.   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, most of its pawnshops and over the internet. The cash advance products are generally offered as single payment cash advance loans. These cash advance loans typically have terms 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 online. It arranges for customers to obtain cash advances from independent third-party lenders in other locations and online. 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 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 provides 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”). The CSO program includes arranging loans with independent third-party lenders, assisting in the preparation of loan applications and loan documents, and accepting loan payments. To assist the customer in obtaining a loan through the CSO program, the Company also, as part of the credit services it provides to the customer, guarantees, on behalf of the customer, the customer’s payment obligations to the third-party lender under the loan. A customer who obtains a loan through the CSO program pays the Company a 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 acquired by the Company as a result of its guaranty obligations are the responsibility of the Company. As of September 30, 2008, the CSO program was offered in Texas and Maryland. In July 2008, the Company discontinued offering the CSO program to customers in Florida and began underwriting its own loans pursuant to the Florida deferred presentment statute.
          If the Company collects a customer’s delinquent payment in an amount that is less than the amount the Company paid to the third-party lender pursuant to the guaranty, the Company must absorb the shortfall. If the amount collected exceeds the amount paid under the guaranty, the Company is entitled to the excess and recognizes the excess amount in income. Since the Company may not be successful in collecting 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.
          During the second quarter, the Company announced the potential closure of 139 cash advance locations in Ohio due to a change in Ohio’s governing laws for the product. The changes relate to the revenue on the loans and the economics of offering the product profitably. The Company has not made a final determination concerning the closure of any Ohio locations. It is, however, planning to offer alternative products and services under other provisions in Ohio law in at least a portion of its Ohio locations in the event the referendum described below is unsuccessful. This could significantly reduce the number of potential store closures; however, in such event, the Company will closely monitor the ongoing viability of such alternative products and services. The Company is also supporting a referendum for the November 2008 Ohio elections that will provide Ohio voters the opportunity to overturn key provisions of the recently adopted legislation. The Company expects to make further determinations concerning its Ohio operations during the fourth quarter following the national election.

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CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
          Cash advances outstanding at September 30, 2008 and 2007, were as follows (in thousands):
                 
    September 30,  
    2008     2007  
Funded by the Company
               
Active cash advances and fees receivable
  $ 73,097     $ 69,005  
Cash advances and fees in collection
    25,857       28,817  
 
           
                 
    September 30,  
    2008     2007  
Total Funded by the Company
    98,954       97,822  
Purchased by the Company from third-party lenders
    13,381       15,888  
 
           
Company-owned cash advances and fees receivable, gross
    112,335       113,710  
Less: Allowance for losses
    25,301       30,925  
 
           
Cash advances and fees receivable, net
  $ 87,034     $ 82,785  
 
           
          Changes in the allowance for losses for the Company-owned portfolio and the accrued loss for the third-party lender-owned portfolio during the three and nine months ended September 30, 2008 and 2007 were as follows (in thousands):
                                 
    Three months ended     Nine months ended  
    September 30,     September 30,  
    2008     2007     2008     2007  
Company-owned cash advances
                               
Balance at beginning of period
  $ 27,401     $ 32,173     $ 25,676     $ 19,513  
Cash advance loss provision
    41,302       43,604       102,688       118,011  
Charge-offs
    (47,762 )     (48,283 )     (123,443 )     (117,133 )
Recoveries
    4,360       3,431       20,380       10,534  
 
                       
Balance at end of period
  $ 25,301     $ 30,925     $ 25,301     $ 30,925  
 
                       
Accrual for third-party lender-owned cash advances
                               
Balance at beginning of period
  $ 2,309     $ 1,824     $ 1,828     $ 1,155  
(Decrease) increase in loss provision
    (352 )     8       129       677  
 
                       
Balance at end of period
  $ 1,957     $ 1,832     $ 1,957     $ 1,832  
 
                       
          Cash advances assigned to the Company for collection were $25.8 million and $35.0 million for the three months and $70.6 million and $81.3 million, for the nine months ended September 30, 2008 and 2007, respectively.
          The Company sells selected cash advances originated from its online distribution channel which had been previously written off. These sales generated proceeds of $1.1 million and $1.4 million for the three months ended and $3.2 million and $2.6 million for the nine months ended September 30, 2008 and 2007, respectively, which were recorded as recoveries on losses previously charged to the allowance for losses.
4. 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, 2008 and 2007 (in thousands, except per share amounts):
                                 
    Three months ended     Nine months ended  
    September 30,     September 30,  
    2008     2007     2008     2007  
Numerator:
                               
Net income available to common shareholders
  $ 18,925     $ 20,616     $ 64,873     $ 53,059  
 
                       
Denominator:
                               
Total weighted average basic shares(1)
    29,266       29,535       29,321       29,745  
Effect of shares applicable to stock option plans
    346       346       343       363  
Effect of restricted stock unit compensation plans
    423       354       418       356  
 
                       
Total weighted average diluted shares
    30,035       30,235       30,082       30,464  
Net income — basic
  $ 0.65     $ 0.70     $ 2.21     $ 1.78  
 
                       
Net income — diluted
  $ 0.63     $ 0.68     $ 2.16     $ 1.74  
 
                       

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CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
(1)   Included in “Total weighted average basic shares” are vested restricted stock units of 203 and 164 as well as shares in a non-qualified savings plan of 56 and 55 for the three months ended September 30, 2008 and 2007, respectively, and vested restricted stock units of 205 and 159 as well as shares in a non-qualified savings plan of 56 for both the nine months ended September 30, 2008 and 2007.

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CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. Long-Term Debt
          The Company’s long-term debt instruments and balances outstanding at September 30, 2008 and 2007, were as follows (in thousands):
                 
    September 30,  
    2008     2007  
USD line of credit up to $300,000 due 2012
  $ 234,790     $ 142,927  
GBP line of credit up to £7,500 due 2009
    8,902        
6.21% senior unsecured notes due 2021
    25,000       25,000  
6.09% senior unsecured notes due 2016
    35,000       35,000  
6.12% senior unsecured notes due 2015
    40,000       40,000  
7.20% senior unsecured notes due 2009
    8,500       17,000  
7.10% senior unsecured notes due 2008
          4,286  
 
           
Total debt
    352,192       264,213  
Less current portion
    8,500       12,786  
 
           
Total long-term debt
  $ 343,692     $ 251,427  
 
           
          On February 29, 2008, the Company exercised the $50 million accordion feature contained in its line of credit, increasing the committed amount under the line of credit from $250 million to $300 million. Interest on the amended line of credit is charged, at the Company’s option, at either USD 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% (1.375% at September 30, 2008), depending on the Company’s cash flow leverage ratios as defined in the amended agreement. The Company also pays a fee on the unused portion ranging from 0.25% to 0.30% (0.25% at September 30, 2008) based on the Company’s cash flow leverage ratios. The weighted average interest rate (including margin) on the line of credit at September 30, 2008 was 5.25%. On December 27, 2007, the Company entered into an interest rate cap agreement with a notional amount of $10.0 million of the Company’s outstanding floating rate line of credit for a term of 24 months at a fixed rate of 4.75%.
          On June 30, 2008, the Company established a line of credit facility with a group of banks to permit the issuance of up to $12.8 million in letters of credit. Fees payable for letters of credit are tied to the LIBOR margin consistent with the Company’s line of credit agreement. The Company pays a fee on the unused portion of the facility ranging from 0.25% to 0.30% (0.25% at September 30, 2008). As of September 30, 2008, there were $11.0 million in letters of credit issued under the facility.
          On May 7, 2008, the Company established a line of credit facility of up to £7.5 million with a foreign commercial bank. The balance outstanding at September 30, 2008 was £5.0 million (approximately $8.9 million). Interest on the line of credit is charged, at the Company’s option, at either Pound Sterling LIBOR plus a margin or at the agent’s base rate. The margin on the line of credit varies from 1.10% to 1.575% (1.325% at September 30, 2008) based on the Company’s cash flow leverage ratios. The weighted average interest rate (including margin) on the line of credit at September 30, 2008 was 7.37%.

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CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. 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. The Company realigned its administrative activities during the fourth quarter of 2007 to create more direct oversight of operations. For comparison purposes, all prior periods in the tables below have been revised to reflect this reclassification of expenses out of administrative expenses and into operations expenses. These revisions have not changed the consolidated performance of the Company for any period.
          Information concerning the operating segments is set forth below (in thousands):
                                 
    Pawn     Cash     Check        
    Lending     Advance(1)     Cashing     Consolidated  
Three Months Ended September 30, 2008:
                               
Revenue
                               
Finance and service charges
  $ 46,977     $     $     $ 46,977  
Proceeds from disposition of merchandise
    105,517                   105,517  
Cash advance fees
    8,584       87,717             96,301  
Check cashing fees, royalties and other
    967       1,610       778       3,355  
 
                       
Total revenue
    162,045       89,327       778       252,150  
Cost of revenue — disposed merchandise
    68,033                   68,033  
 
                       
Net revenue
    94,012       89,327       778       184,117  
 
                       
Expenses
                               
Operations
    52,344       29,065       305       81,714  
Cash advance loss provision
    2,725       38,225             40,950  
Administration
    6,183       9,505       276       15,964  
Depreciation and amortization
    5,995       3,246       57       9,298  
 
                       
Total expenses
    67,247       80,041       638       147,926  
 
                       
Income from operations
  $ 26,765     $ 9,286     $ 140     $ 36,191  
 
                       
 
                               
As of September 30, 2008:
                               
Total assets
  $ 625,192     $ 448,057     $ 7,027     $ 1,080,276  
 
                       
Goodwill
  $ 143,998     $ 271,532     $ 5,310     $ 420,840  
 
                       

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CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                                 
    Pawn     Cash     Check        
    Lending     Advance(1)     Cashing     Consolidated  
Three Months Ended September 30, 2007:
                               
Revenue
                               
Finance and service charges
  $ 41,386     $     $     $ 41,386  
Proceeds from disposition of merchandise
    91,366                   91,366  
Cash advance fees
    11,301       84,116             95,417  
Check cashing fees, royalties and other
    698       1,826       819       3,343  
 
                       
Total revenue
    144,751       85,942       819       231,512  
Cost of revenue — disposed merchandise
    57,693                   57,693  
 
                       
Net revenue
    87,058       85,942       819       173,819  
 
                       
Expenses
                               
Operations
    48,230       27,461       279       75,970  
Cash advance loss provision
    4,973       38,639             43,612  
Administration
    8,312       6,632       231       15,175  
Depreciation and amortization
    5,272       2,901       92       8,265  
 
                       
Total expenses
    66,787       75,633       602       143,022  
 
                       
Income from operations
  $ 20,271     $ 10,309     $ 217     $ 30,797  
 
                       
 
                               
As of September 30, 2007:
                               
Total assets
  $ 582,072     $ 277,986     $ 6,897     $ 866,955  
 
                       
Goodwill
  $ 143,665     $ 134,579     $ 5,310     $ 283,554  
 
                       
                                 
    Pawn     Cash     Check        
    Lending     Advance(1)     Cashing     Consolidated  
Nine Months Ended September 30, 2008:
                               
Revenue
                               
Finance and service charges
  $ 133,788     $     $     $ 133,788  
Proceeds from disposition of merchandise
    330,189                   330,189  
Cash advance fees
    26,514       248,096             274,610  
Check cashing fees, royalties and other
    2,969       6,871       2,636       12,476  
 
                       
Total revenue
    493,460       254,967       2,636       751,063  
Cost of revenue — disposed merchandise
    206,290                   206,290  
 
                       
Net revenue
    287,170       254,967       2,636       544,773  
 
                       
Expenses
                               
Operations
    157,575       83,219       997       241,791  
Cash advance loss provision
    7,667       95,150             102,817  
Administration
    28,914       25,914       824       55,652  
Depreciation and amortization
    17,525       10,249       182       27,956  
 
                       
Total expenses
    211,681       214,532       2,003       428,216  
 
                       
Income from operations
  $ 75,489     $ 40,435     $ 633     $ 116,557  
 
                       

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CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                                 
    Pawn     Cash     Check        
    Lending     Advance(1)     Cashing     Consolidated  
Nine Months Ended September 30, 2007:
                               
Revenue
                               
Finance and service charges
  $ 117,011     $     $     $ 117,011  
Proceeds from disposition of merchandise
    277,342                   277,342  
Cash advance fees
    31,411       229,469             260,880  
Check cashing fees, royalties and other
    2,438       7,777       2,817       13,032  
 
                       
Total revenue
    428,202       237,246       2,817       668,265  
Cost of revenue — disposed merchandise
    172,402                   172,402  
 
                       
Net revenue
    255,800       237,246       2,817       495,863  
 
                       
Expenses
                               
Operations
    143,706       80,074       944       224,724  
Cash advance loss provision
    11,542       107,146             118,688  
Administration
    22,842       17,326       756       40,924  
Depreciation and amortization
    15,406       7,998       294       23,698  
 
                       
Total expenses
    193,496       212,544       1,994       408,034  
 
                       
Income from operations
  $ 62,304     $ 24,702     $ 823     $ 87,829  
 
                       
 
(1)   The Cash Advance segment is comprised of two distribution channels for short-term cash advance products, a multi-unit “storefront” platform and an online, internet based lending platform. The following table summarizes the results from each channel’s contributions to the Cash Advance segment for the three months ended September 30, 2008 and 2007:
                         
                    Total  
            Internet     Cash  
    Storefront     Lending     Advance  
Three Months Ended September 30, 2008:
                       
Revenue
                       
Cash advance fees
  $ 26,859     $ 60,858     $ 87,717  
Check cashing fees, royalties and other
    1,553       57       1,610  
 
                 
Total revenue
    28,412       60,915       89,327  
 
                 
 
                       
Expenses
                       
Operations
    17,763       11,302       29,065  
Cash advance loss provision
    6,411       31,814       38,225  
Administration
    2,651       6,854       9,505  
Depreciation and amortization
    1,883       1,363       3,246  
 
                 
Total expenses
    28,708       51,333       80,041  
 
                 
Income from operations
  $ (296 )   $ 9,582     $ 9,286  
 
                 

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CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                         
                    Total  
            Internet     Cash  
    Storefront     Lending     Advance  
Three Months Ended September 30, 2007:
                       
Revenue
                       
Cash advance fees
  $ 34,249     $ 49,867     $ 84,116  
Check cashing fees, royalties and other
    1,826             1,826  
 
                 
Total revenue
    36,075       49,867       85,942  
 
                 
 
                       
Expenses
                       
Operations
    17,194       10,267       27,461  
Cash advance loss provision
    11,585       27,054       38,639  
Administration
    2,780       3,852       6,632  
Depreciation and amortization
    2,072       829       2,901  
 
                 
Total expenses
    33,631       42,002       75,633  
 
                 
Income from operations
  $ 2,444     $ 7,865     $ 10,309  
 
                 
                         
                    Total  
            Internet     Cash  
    Storefront     Lending     Advance  
Nine Months Ended September 30, 2008:
                       
Revenue
                       
Cash advance fees
  $ 82,979     $ 165,117     $ 248,096  
Check cashing fees, royalties and other
    6,810       61       6,871  
 
                 
Total revenue
    89,789       165,178       254,967  
 
                 
 
                       
Expenses
                       
Operations
    51,637       31,582       83,219  
Cash advance loss provision
    17,421       77,729       95,150  
Administration
    7,992       17,922       25,914  
Depreciation and amortization
    6,688       3,561       10,249  
 
                 
Total expenses
    83,738       130,794       214,532  
 
                 
Income from operations
  $ 6,051     $ 34,384     $ 40,435  
 
                 
                         
                    Total  
            Internet     Cash  
    Storefront     Lending     Advance  
Nine Months Ended September 30, 2007:
                       
Revenue
                       
Cash advance fees
  $ 95,240     $ 134,229     $ 229,469  
Check cashing fees, royalties and other
    7,772       5       7,777  
 
                 
Total revenue
    103,012       134,234       237,246  
 
                 
 
                       
Expenses
                       
Operations
    50,539       29,535       80,074  
Cash advance loss provision
    28,716       78,430       107,146  
Administration
    7,935       9,391       17,326  
Depreciation and amortization
    5,924       2,074       7,998  
 
                 
Total expenses
    93,114       119,430       212,544  
 
                 
Income from operations
  $ 9,898     $ 14,804     $ 24,702  
 
                 

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CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Litigation
          On August 6, 2004, James E. Strong filed a purported class action lawsuit in the State Court of Cobb County, Georgia against Georgia Cash America, Inc., Cash America International, Inc. (together with Georgia Cash America, Inc., “Cash America”), Daniel R. Feehan, and several unnamed officers, directors, owners and “stakeholders” of Cash America. The lawsuit alleges many different causes of action, among the most significant of which is that Cash America made illegal payday loans in Georgia in violation of Georgia’s usury law, the Georgia Industrial Loan Act and Georgia’s Racketeer Influenced and Corrupt Organizations Act. Community State Bank (“CSB”) for some time made loans to Georgia residents through Cash America’s Georgia operating locations. The complaint in this lawsuit claims that Cash America was the true lender with respect to the loans made to Georgia borrowers and that CSB’s involvement in the process is “a mere subterfuge.” Based on this claim, the suit alleges that Cash America is the “de facto” lender and is illegally operating in Georgia. The complaint seeks unspecified compensatory damages, attorney’s fees, punitive damages and the trebling of any compensatory damages. A previous decision by the trial judge to strike Cash America’s affirmative defenses based on arbitration (without ruling on Cash America’s previously filed motion to compel arbitration) was upheld by the Georgia Court of Appeals, and on September 24, 2007, the Georgia Supreme Court declined to review the decision. The case has been returned to the State Court of Cobb County, Georgia, where Cash America filed a motion requesting that the trial court rule on Cash America’s pending motion to compel arbitration and stay the State Court proceedings. The Court denied the motion to stay and ruled that the motion to compel arbitration was rendered moot after the discovery sanction was handed down by the Court. The Georgia Supreme Court declined to review these orders and remanded the case to the State Court of Cobb County, Georgia where discovery relating to the propriety of continuing this suit as a class action is likely to proceed. Cash America believes that the plaintiffs’ claims in this suit are without merit and is vigorously defending this lawsuit.
          Cash America and CSB also 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 CSB. The U.S. District Court dismissed the federal action for lack of subject matter jurisdiction, and Cash America and CSB appealed the dismissal of their complaint to the U.S. Court of Appeals for the 11th Circuit. The 11th Circuit issued a panel decision on April 27, 2007 reversing the district court’s dismissal of the action and remanding the action to the district court for a determination of the issue of the enforceability of the parties’ arbitration agreements. Plaintiff requested the 11th Circuit to review this decision en banc and this request was granted. The en banc rehearing took place on February 26, 2008. The 11th Circuit has stayed consideration of this matter pending the resolution of the United States Supreme Court case, Vaden v. Discover Bank (“Vaden”). Oral arguments in the Vaden case were heard by the United States Supreme Court in October 2008 and an opinion is expected to be issued in late 2008 or early 2009. The Strong litigation is still at an 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 certain 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 matters will not have a material adverse effect on the Company’s financial position, results of operations or liquidity.
8. Fair Value Measurements
          The Company adopted the provisions of SFAS 157 and FSP FAS 157-2 on January 1, 2008. The adoption of these pronouncements did not have a material effect on the Company’s financial position or results of operations. SFAS 157 defines fair value to be the price that would be received to sell an asset or

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CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 enables the reader of the financial statements to assess the inputs used to develop fair value measurements by establishing a hierarchy for ranking the quality and reliability of the information used to determine fair values. FSP FAS 157-2 defers the effective date of SFAS 157 until January 2009 for nonfinancial assets and nonfinancial liabilities that are recognized or disclosed in the financial statements on a nonrecurring basis. SFAS 157 requires that assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories:
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs that are not corroborated by market data.
          The Company’s financial assets and liabilities that are measured at fair value on a recurring basis as of September 30, 2008 are as follows (in thousands):
                                 
    September 30,     Fair Value Measurements Using  
    2008     Level 1     Level 2     Level 3  
Financial assets:
                               
Interest rate cap
  $ 11     $     $ 11     $  
Nonqualified savings plan assets
    7,331       7,331              
 
                       
Total
  $ 7,342     $ 7,331     $ 11     $  
 
                       
          The Company measures the value of its interest rate cap under Level 2 inputs as defined by SFAS 157. The Company relies on a mark to market valuation based on yield curves using observable market interest rates for the interest rate cap. The fair value of the nonqualified savings plan assets are measured under a Level 1 input. These assets are publicly traded equity securities for which market prices are readily observable.
9. Prenda Fácil
          The Company has entered into a letter of intent to acquire an 80% ownership interest in a 107 store chain of pawnshops in Mexico. The operations, which are based in Mexico City, have locations in 16 Mexican states under the brand name of “Prenda Fácil”. The terms of the acquisition call for the Company to own 80% of Prenda Fácil, with the current owners retaining the residual 20% interest. The acquisition is expected to be completed late in the fourth quarter of 2008 following the satisfactory completion of formal documentation, licensing, due diligence, financing and other matters customary in such transactions. To the extent this acquisition is closed in the fourth quarter of 2008, the Company would make a payment of between $90.0 million and $95.0 million. The Company has received a commitment of $33.0 million from a group of four banks for a term loan to supplement the purchase of Prenda Fácil. The commitment is for a four year term loan which begins amortization 18 months after closing and funding, which is expected to occur in conjunction with the closing of the acquisition.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
GENERAL
          The Company provides specialty financial services to individuals. These services include secured non-recourse loans, commonly referred to as pawn loans, to individuals through its pawn lending operations, unsecured cash advances in selected lending locations and on behalf of independent third-party lenders in other locations, and check cashing and related financial services through many of its lending locations and through franchised and Company-owned check cashing centers. The pawn loan portfolio generates finance and service charges revenue. A related activity of the pawn lending operations is the disposition of collateral from unredeemed pawn loans. In September 2006, the Company began offering cash advances over the internet and began arranging loans online on behalf of independent third-party lenders in November 2006 through its internet distribution platform. In July 2007, the Company began offering short-term unsecured loans to customers who reside throughout the United Kingdom through its internet distribution platform.
          As of September 30, 2008, the Company had 926 total locations offering products and services to its customers. The Company operates in three segments: pawn lending, cash advance and check cashing.
          As of September 30, 2008, the Company’s pawn lending operations consisted of 502 pawnshops, including 487 Company-owned units and 15 unconsolidated franchised units located in 22 states in the United States. During the 21 months ended September 30, 2008, the Company acquired six operating units, established seven locations, and combined or closed one location for a net increase of 12 owned pawn lending units. In addition, it opened three franchise locations.
          At September 30, 2008, the Company’s cash advance operations consisted of 290 cash advance locations in seven states and its internet distribution channel. For the 21 months ended September 30, 2008, the Company established 14 locations and combined or closed 19 locations for a net decrease of five locations. CashNetUSA serves multiple markets through its internet distribution channel and had cash advances outstanding in 33 states and in the United Kingdom as of September 30, 2008.
          As of September 30, 2008, the Company’s check cashing operations consisted of 129 franchised and five company-owned check cashing centers in 16 states. For the 21 months ended September 30, 2008, the Company established 11 locations and combined or closed 13 locations for a net decrease of two check cashing centers.
          On July 23, 2008, the Company, through its wholly-owned subsidiary, Primary Cash Holdings, LLC (“PCH”), purchased assets from Primary Business Services, Inc. and its affiliates related to the business of designing, marketing and selling pre-paid stored value cards and other related activities that complement and support this business. See Item 5 — “Other Items” below. Throughout this discussion, the activities of PCH are included in the results of the internet distribution portion of the Company’s cash advance segment.

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RESULTS OF CONTINUING 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,
    2008   2007   2008   2007
Revenue
                               
Finance and service charges
    18.6 %     17.9 %     17.8 %     17.5 %
Proceeds from disposition of merchandise
    41.8       39.5       44.0       41.5  
Cash advance fees
    38.2       41.2       36.6       39.0  
Check cashing fees, royalties and other
    1.4       1.4       1.6       2.0  
 
                               
Total Revenue
    100.0       100.0       100.0       100.0  
Cost of Revenue
                               
Disposed merchandise
    27.0       24.9       27.5       25.8  
 
                               
Net Revenue
    73.0       75.1       72.5       74.2  
 
                               
 
Expenses
                               
Operations
    32.4       32.8       32.2       33.7  
Cash advance loss provision
    16.2       18.8       13.7       17.8  
Administration
    6.3       6.6       7.4       6.1  
Depreciation and amortization
    3.7       3.6       3.7       3.5  
 
                               
Total Expenses
    58.6       61.8       57.0       61.1  
 
                               
 
Income from Operations
    14.4       13.3       15.5       13.1  
Interest expense
    (1.7 )     (1.9 )     (1.5 )     (1.8 )
Interest income
          0.1       0.1       0.2  
Foreign currency transaction gain
                       
Gain on sale of foreign notes
          2.7             0.9  
 
                               
Income before Income Taxes
    12.7       14.2       14.1       12.4  
Provision for income taxes
    5.2       5.3       5.4       4.5  
 
                               
Net Income
    7.5 %     8.9 %     8.7 %     7.9 %
 
                               

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          The following table sets forth certain selected consolidated financial and non-financial data as of September 30, 2008 and 2007, and for each of the three and nine months then ended (dollars in thousands unless noted otherwise).
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2008     2007     2008     2007  
PAWN LENDING OPERATIONS:
                               
Pawn loans
                               
Annualized yield on pawn loans
    123.9 %     121.4 %     128.2 %     124.1 %
Total amount of pawn loans written and renewed
  $ 161,225     $ 138,100     $ 442,553     $ 378,058  
Average pawn loan balance outstanding
  $ 150,792     $ 135,205     $ 139,363     $ 126,043  
Average pawn loan balance per average location in operation
  $ 310     $ 281     $ 287     $ 263  
Ending pawn loan balance per location in operation
  $ 325     $ 283     $ 325     $ 283  
Average pawn loan amount at end of period (not in thousands)
  $ 121     $ 109     $ 121     $ 109  
Profit margin on disposition of merchandise as a percentage of proceeds from disposition of merchandise
    35.5 %     36.9 %     37.5 %     37.8 %
Average annualized merchandise turnover
    2.6x       2.5x       2.8x       2.7x  
Average balance of merchandise held for disposition per average location in operation
  $ 213     $ 192     $ 204     $ 182  
Ending balance of merchandise held for disposition per location in operation
  $ 228     $ 204     $ 228     $ 204  
Pawnshop locations in operation —
                               
Beginning of period, owned
    487       480       485       475  
Acquired
          2       1       5  
Start-ups
          1       1       4  
Combined or closed
                      (1 )
 
                       
End of period, owned
    487       483       487       483  
Franchise locations at end of period
    15       12       15       12  
 
                       
Total pawnshop locations at end of period
    502       495       502       495  
 
                       
Average number of owned pawnshop locations
    487       482       486       479  
 
                       
Cash advances (a)
                               
Pawn locations offering cash advances at end of period
    432       429       432       429  
Average number of pawn locations offering cash advances
    432       427       431       425  
 
Amount of cash advances written at pawn locations:
                               
Funded by the Company
  $ 15,100     $ 16,652     $ 43,229     $ 48,899  
Funded by third-party lenders (b) (d)
    35,534       49,634       111,309       141,510  
 
                       
Aggregate amount of cash advances written at pawn locations(b) (f)
  $ 50,634     $ 66,286     $ 154,538     $ 190,409  
 
                       
 
Number of cash advances written at pawn locations (not in thousands):
                               
By the Company
    46,777       54,821       137,518       160,253  
By third-party lenders (b) (d)
    75,031       105,873       236,729       308,729  
 
                       
Aggregate number of cash advances written at pawn locations(b) (f)
    121,808       160,694       374,247       468,982  
 
                       
 
Cash advance customer balances due at pawn locations (gross):
                               
Owned by the Company (c)
  $ 7,096     $ 8,803     $ 7,096     $ 8,803  
Owned by third-party lenders (b) (d)
    6,594       9,179       6,594       9,179  
 
                       
Aggregate cash advance customer balances due at pawn locations (gross) (b) (f)
  $ 13,690     $ 17,982     $ 13,690     $ 17,982  
 
                       
(Continued on Next Page)

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    Three months ended     Nine months ended  
    September 30,     September 30,  
    2008     2007     2008     2007  
CASH ADVANCE OPERATIONS (e)
                               
Storefront operations:
                               
Amount of cash advances written:
                               
Funded by the Company
  $ 146,504     $ 187,302     $ 449,571     $ 522,719  
Funded by third-party lenders (b) (d)
    21,600       30,212       71,585       84,884  
 
                       
Aggregate amount of cash advances written (b) (f)
  $ 168,104     $ 217,514     $ 521,156     $ 607,603  
 
                       
 
Number of cash advances written (not in thousands):
                               
By the Company
    422,009       513,135       1,267,211       1,438,490  
By third-party lenders (b) (d)
    37,867       55,090       127,651       159,427  
 
                       
Aggregate number of cash advances written (b) (f)
    459,876       568,225       1,394,862       1,597,917  
 
                       
 
Cash advance customer balances due (gross):
                               
Owned by the Company (c)
  $ 40,295     $ 51,316     $ 40,295     $ 51,316  
Owned by third-party lenders (b) (d)
    4,462       5,259       4,462       5,259  
 
                       
Aggregate cash advance customer balances due (gross) (b) (f)
  $ 44,757     $ 56,575     $ 44,757     $ 56,575  
 
                       
 
Cash advance locations in operation (excluding online lending) —
                               
Beginning of period
    292       296       304       295  
Start-ups
          7             10  
Combined or closed
    (2 )     (2 )     (14 )     (4 )
 
                       
End of period
    290       301       290       301  
 
                       
Average number of cash advance locations
    291       299       298       297  
 
                       
 
                               
Internet lending operations:
                               
Amount of cash advances written:
                               
Funded by the Company
  $ 202,706     $ 157,887     $ 551,222     $ 435,665  
Funded by third-party lenders (b) (d)
    113,997       96,096       327,725       251,880  
 
                       
Aggregate amount of cash advances written (b) (f)
  $ 316,703     $ 253,983     $ 878,947     $ 687,545  
 
                       
 
Number of cash advances written (not in thousands):
                               
By the Company
    487,572       400,942       1,318,454       1,117,466  
By third-party lenders (b) (d)
    168,553       159,711       493,134       441,402  
 
                       
Aggregate number of cash advances written (b) (f)
    656,125       560,653       1,811,588       1,558,868  
 
                       
 
Cash advance customer balances due (gross):
                               
Owned by the Company (c)
  $ 64,944     $ 53,591     $ 64,944     $ 53,591  
Owned by third-party lenders (b) (d)
    19,960       16,631       19,960       16,631  
 
                       
Aggregate cash advance customer balances due (gross) (b) (f)
  $ 84,904     $ 70,222     $ 84,904     $ 70,222  
 
                       
 
Number of states with online lending at end of period
    33       31       33       31  
Number of foreign countries with online lending at end of period
    1       1       1       1  
(Continued on Next Page)

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    Three months ended     Nine months ended  
    September 30,     September 30,  
    2008     2007     2008     2007  
Combined Storefront and Internet lending operations:
                               
Amount of cash advances written:
                               
Funded by the Company
  $ 349,210     $ 345,189     $ 1,000,793     $ 958,384  
Funded by third-party lenders (b) (d)
    135,597       126,308       399,310       336,764  
 
                       
Aggregate amount of cash advances written (b) (f)
  $ 484,807     $ 471,497     $ 1,400,103     $ 1,295,148  
 
                       
 
Number of cash advances written (not in thousands):
                               
By the Company
    909,581       914,077       2,585,665       2,555,956  
By third-party lenders (b) (d)
    206,420       214,801       620,785       600,829  
 
                       
Aggregate number of cash advances written (b) (f)
    1,116,001       1,128,878       3,206,450       3,156,785  
 
                       
 
Cash advance customer balances due (gross):
                               
Owned by the Company (c)
  $ 105,239     $ 104,907     $ 105,239     $ 104,907  
Owned by third-party lenders (b) (d)
    24,422       21,890       24,422       21,890  
 
                       
Aggregate cash advance customer balances due (gross) (b) (f)
  $ 129,661     $ 126,797     $ 129,661     $ 126,797  
 
                       
 
                               
CONSOLIDATED CASH ADVANCE PRODUCT SUMMARY (a) (b) (e):
                               
Amount of cash advances written:
                               
Funded by the Company
  $ 364,310     $ 361,841     $ 1,044,022     $ 1,007,283  
Funded by third-party lenders (b) (d)
    171,131       175,942       510,619       478,274  
 
                       
Aggregate amount of cash advances written (b) (f)
  $ 535,441     $ 537,783     $ 1,554,641     $ 1,485,557  
 
                       
 
Number of cash advances written (not in thousands):
                               
By the Company
    956,358       968,898       2,723,183       2,716,209  
By third-party lenders (b) (d)
    281,451       320,674       857,514       909,558  
 
                       
Aggregate number of cash advances written (b) (f)
    1,237,809       1,289,572       3,580,697       3,625,767  
 
                       
Average amount per cash advance written (not in thousands)
                               
Funded by the Company
  $ 381     $ 373     $ 383     $ 371  
Funded by third-party lenders (b) (d)
    608       549       595       526  
 
                       
Aggregate average amount per cash advance written (b) (f)
  $ 433     $ 417     $ 434     $ 410  
 
                       
 
Cash advance customer balances due (gross):
                               
Owned by the Company (c)
  $ 112,335     $ 113,710     $ 112,335     $ 113,710  
Owned by third-party lenders (b) (d)
    31,016       31,069       31,016       31,069  
 
                       
Aggregate cash advance customer balances due (gross) (b) (f)
  $ 143,351     $ 144,779     $ 143,351     $ 144,779  
 
                       
 
Total locations offering cash advances at end of period (excluding online lending)
    722       730       722       730  
Average total locations offering cash advances (excluding online lending)
    723       726       729       722  
Number of states with online lending at end of period
    33       31       33       31  
Number of foreign countries with online lending at end of period
    1       1       1       1  
(Continued on Next Page)

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    Three months ended     Nine months ended  
    September 30,     September 30,  
    2008     2007     2008     2007  
CHECK CASHING OPERATIONS (Mr. Payroll):
                               
Centers in operation at end of period:
                               
Company-owned locations
    5       5       5       5  
Franchised locations (b)
    129       135       129       135  
 
                       
Combined centers in operation at end of period (b)
    134       140       134       140  
 
                       
 
Revenue from Company-owned locations
  $ 89     $ 106     $ 313     $ 379  
Revenue from franchise royalties and other
    689       713       2,323       2,438  
 
                       
Total revenue (c)
  $ 778     $ 819     $ 2,636     $ 2,817  
 
                       
 
Face amount of checks cashed:
                               
Company-owned locations
  $ 7,106     $ 7,902     $ 22,322     $ 25,724  
Franchised locations (b)
    295,791       291,255       968,000       958,277  
 
                       
Combined face amount of checks cashed (b)
  $ 302,897     $ 299,157     $ 990,322     $ 984,001  
 
                       
 
Fees collected from customers:
                               
Company-owned locations
  $ 89     $ 106     $ 313     $ 379  
Franchised locations (b)
    4,073       3,968       13,740       13,544  
 
                       
Combined fees collected from customers (b)
  $ 4,162     $ 4,074     $ 14,053     $ 13,923  
 
                       
 
Fees as a percentage of checks cashed:
                               
Company-owned locations
    1.3 %     1.3 %     1.4 %     1.5 %
Franchised locations (b)
    1.4       1.4       1.4       1.4  
 
                       
Combined fees as a percentage of checks cashed (b)
    1.4 %     1.4 %     1.4 %     1.4 %
 
                       
 
Average check cashed (not in thousands):
                               
Company-owned locations
  $ 400     $ 375     $ 405     $ 396  
Franchised locations (b)
    437       416       465       442  
 
                       
Combined average check cashed (b)
  $ 437     $ 415     $ 463     $ 441  
 
                       
 
(a)   Includes cash advance activities at the Company’s pawn lending locations.
 
(b)   Non-GAAP presentation. For informational purposes and to provide a greater understanding of the Company’s businesses. Management believes that information provided with this level of detail is meaningful and useful in understanding the activities and business metrics of the Company’s operations.
 
(c)   Amounts recorded in the Company’s consolidated financial statements.
 
(d)   Cash advances written by third-party lenders that were arranged by the Company on behalf of the third-party lenders.
 
(e)   Includes cash advance activities at the Company’s cash advance locations and through the Company’s internet distribution channel.
 
(f)   Includes (i) cash advances written by the Company, and (ii) cash advances written by third-party lenders that were arranged by the Company on behalf of the third-party lenders.

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CRITICAL ACCOUNTING POLICIES
     There have been no changes of critical accounting policies since December 31, 2007.
RECENT ACCOUNTING PRONOUNCEMENTS
     In September 2006, FASB issued Statement of Financial Accounting Standards (“SFAS”) 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 was effective for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. In February 2008, FASB issued FASB Staff Position (“FSP”) FAS 157-2, “Effective Date of FASB Statement No. 157”, which delays the effective date of SFAS 157 for nonfinancial assets and nonfinancial liabilities that are recognized or disclosed in the financial statements on a nonrecurring basis. The FSP partially defers the effective date of SFAS 157 to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years for items within the scope of this FSP. The Company adopted the provisions of SFAS 157 and FSP FAS 157-2 for its financial assets and financial liabilities on January 1, 2008. The adoption of SFAS 157 and FSP FAS 157-2 did not have a material effect on the Company’s financial position or results of operations. In accordance with FSP FAS 157-2, the Company has not applied the provisions of SFAS 157 to its nonfinancial assets and nonfinancial liabilities. The Company will apply the provisions of SFAS 157 to these assets and liabilities beginning January 1, 2009 as required by FSP FAS 157-2. In October 2008, the FASB issued FSP FAS 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active, which clarifies the application of SFAS 157 as it relates to the valuation of financial assets in a market that is not active for those financial assets. FSP FAS 157-3 became effective for the Company upon issuance, and had no material impact on the Company’s financial position or results of operations.
     In February 2007, FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 permits entities to choose, at specified election dates, to measure eligible items at fair value (the “fair value option”) and requires an entity to report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. Upfront costs and fees related to items for which the fair value option is elected shall be recognized in earnings as incurred and not deferred. SFAS 159 was effective for fiscal years beginning after November 15, 2007. The adoption of SFAS 159 did not have a material effect on the Company’s financial position or results of operations.
     In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51 (“SFAS 160”). SFAS 160 establishes accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160 clarifies that a non-controlling interest in a subsidiary, which is sometimes referred to as an unconsolidated investment, is an ownership interest in the consolidated entity that should be reported as a component of equity in the consolidated financial statements. Among other requirements, SFAS 160 requires consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the non-controlling interest. It also requires disclosure, on the face of the consolidated income statement, of the amounts of consolidated net income attributable to the parent and to the non-controlling interest. SFAS 160 is effective for fiscal years beginning on or after December 15, 2008. The Company does not expect SFAS 160 to have a material effect on the Company’s financial position or results of operations.
     In December 2007, FASB issued SFAS No. 141, “Business Combinations – Revised” (“SFAS 141(R)”).  SFAS 141(R) establishes principles and requirements for how an acquirer in a business combination: recognizes and measures in its financial statements the identifiable assets acquired, the

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liabilities assumed, and any non-controlling interest in the acquiree; recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase price; and, determines what information to disclose to enable users of the consolidated financial statements to evaluate the nature and financial effects of the business combination.  SFAS 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. In the past, the Company has completed significant acquisitions. The application of SFAS 141(R) will cause management to evaluate future transaction returns under different conditions, particularly related to the near term and long term economic impact of expensing transaction costs.
     In March 2008, FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133 (“SFAS No. 161”). SFAS No. 161 requires enhanced disclosures concerning (1) the manner in which an entity uses derivatives (and the reasons it uses them), (2) the manner in which derivatives and related hedged items are accounted for under SFAS No. 133 and interpretations thereof, and (3) the effects that derivatives and related hedged items have on an entity’s financial position, financial performance, and cash flows. The standard is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The Company does not expect SFAS 161 to have a material effect on the Company’s financial position or results of operations.
     In April 2008, the FASB issued FSP No. FAS 142-3, Determination of the Useful Life of Intangible Assets, (“FSP FAS 142-3”) which amends the list of factors an entity should consider in developing renewal or extension assumptions used in determining the useful life of recognized intangible assets under SFAS No. 142, Goodwill and Other Intangible Assets. The new guidance applies to (1) intangible assets that are acquired individually or with a group of other assets and (2) intangible assets acquired in both business combinations and asset acquisitions.  Under FSP FAS 142-3, entities estimating the useful life of a recognized intangible asset must consider their historical experience in renewing or extending similar arrangements or, in the absence of historical experience, must consider assumptions that market participants would use about renewal or extension.   The Company does not expect this standard to have a material impact on the consolidated results of operations or financial condition.

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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.
     Other revenue is comprised mostly of check cashing fees but includes royalties and small miscellaneous other revenue items.
     Cash advance fees contributed 52.3% and 54.9% of net revenue for the three months and 50.4% and 52.6% of net revenue for the nine months ended September 30, 2008 and 2007, respectively. The slight decrease in the percentage contribution of cash advance fees to net revenue is primarily due to the significant growth in pawn related net revenue and a reduction in revenue from the Company’s storefront cash advance locations during the periods. Net revenue from pawn lending activities, defined as the total of finance and service charges on pawn loans and the gross profit from the sale of merchandise, contributed 45.9% and 43.2% of net revenue for the three months and 47.3% and 44.8% of net revenue for the nine months ended September 30, 2008 and 2007, respectively. The following graphs show consolidated net revenue and depict the mix of the components of net revenue for the three and nine months ended September, 30, 2008 and 2007:
   
(PIE CHART) (PIE CHART)
   
(PIE CHART) (PIE CHART)

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Contribution to Increase in Net Revenue. The Company’s net revenue increased 5.9% and 9.9% for the three and nine months ended September 30, 2008 compared to the prior year same periods. Net revenue from pawn lending activities accounted for 91.3% and 73.1% of net revenue growth over the prior year for the three and nine months ended September 30, 2008, respectively. Revenue from cash advance activities accounted for 8.6% and 28.1% of net revenue growth over the prior year for the three and nine months ended September 30, 2008, respectively. While the percent of contribution to the growth in consolidated net revenue generated by pawn lending operations was a smaller percentage in 2007 versus 2006, net revenue from pawn lending activities increased 11.1% and 10.3% for the three and nine month periods ended September 30, 2007 compared to the prior year. The disproportionate growth in net revenue from cash advance activities in the prior year was mostly due to the inclusion of the operations of the online distribution channel acquired in September 2006 that were not in the comparable periods through August of that year. These trends are depicted in the following graphs:
   
(PIE CHART) (PIE CHART)
   
(PIE CHART) (PIE CHART)

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Quarter Ended September 30, 2008 Compared To Quarter Ended September 30, 2007
Consolidated Net Revenue. Consolidated net revenue increased $10.3 million, or 5.9%, to $184.1 million during the three months ended September 30, 2008 (the “current quarter”) from $173.8 million during the three months ended September 30, 2007 (the “prior year quarter”). The following table sets forth net revenue by operating segment for the three months ended September 30, 2008 and 2007 (dollars in thousands):
                                 
    Three months ended September 30,  
    2008     2007     Increase/(Decrease)  
Cash advance operations – storefront
  $ 28,552     $ 36,075     $ (7,523 )     (20.9 )%
Cash advance operations – internet lending
    60,775       49,867       10,908       21.9 %
                 
Total cash advance operations
    89,327       85,942       3,385       3.9 %
Pawn lending operations
    94,012       87,058       6,954       8.0 %
Check cashing operations
    778       819       (41 )     (5.0 )%
                 
Consolidated net revenue
  $ 184,117     $ 173,819     $ 10,298       (5.9 )%
                 
     The components of consolidated net revenue are finance and service charges from pawn loans, which increased $5.6 million; profit from the disposition of merchandise, which increased $3.8 million; cash advance fees generated from pawn locations, cash advance locations and via the internet distribution channel, which increased $0.9 million; and combined segment revenue from check cashing fees, royalties and other, which increased $12,000.
Finance and Service Charges. Finance and service charges from pawn loans increased $5.6 million, or 13.5%, from $41.4 million in the prior year quarter to $47.0 million in the current quarter. The increase is due primarily to higher loan balances attributable to the increased amount of pawn loans written through existing and new locations added during 2007 and higher yields on pawn loans. An increase in the average balance of pawn loans outstanding contributed $4.8 million of the increase and the higher annualized yield, which is a function of the blend in permitted rates for fees and service charges on pawn loans in all operating locations, contributed $0.8 million of the increase. Management believes the Company’s decision to reduce the loan term from 90 days to 60 days in 198 pawn locations in the last half of 2007 contributed to higher reported pawn loan yields as portfolio performance has improved. This is partially due to a shortening of the average loan period and customer payments of finance and service charges occurring earlier than in prior periods.
     The average balances of pawn loans outstanding during the current quarter increased by $15.6 million, or 11.5%, compared to the prior year quarter, primarily related to an increase in the average amount per loan made. The increase was driven by a 13.4% increase in the average amount per loan outstanding that was partially offset by a 1.7% decrease in the average number of pawn loans outstanding during the current period. Pawn loan balances at September 30, 2008 were $158.2 million, which was 15.7% higher than at September 30, 2007. Annualized loan yield was 123.9% in the current quarter, compared to 121.4% in the prior year quarter. Same store pawn loan balances at September 30, 2008 increased by $20.5 million, or 15.0%, compared to the prior year quarter.

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Profit from Disposition of Merchandise. Profit from disposition of merchandise is the amount by which the proceeds received from disposition of merchandise exceed 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 (dollars in thousands):
                                                 
    Three Months Ended September 30,
    2008   2007
    Merch-   Refined           Merch-   Refined    
    andise   Gold   Total   andise   Gold   Total
Proceeds from dispositions
  $ 62,621     $ 42,896     $ 105,517     $ 61,483     $ 29,883     $ 91,366  
Profit on disposition
  $ 25,644     $ 11,840     $ 37,484     $ 24,848     $ 8,825     $ 33,673  
Profit margin
    41.0 %     27.6 %     35.5 %     40.4 %     29.5 %     36.9 %
Percentage of total profit
    68.4 %     31.6 %     100.0 %     73.8 %     26.2 %     100.0 %
     The total proceeds from disposition of merchandise and refined gold increased $14.2 million, or 15.5%, and the combined profit from the disposition of merchandise and refined gold increased $3.8 million, or 11.3%. Overall gross profit margin decreased slightly from 36.9% in the prior year quarter to 35.5% in the current quarter, primarily due to a greater mix of refined gold sales in the current quarter. Gross profit margins from sales of refined gold are generally lower than gross profit margins on the sale of merchandise at store locations.
     Proceeds from disposition of merchandise (including jewelry sales), excluding refined gold, increased $1.1 million, or 1.9%, in the current quarter compared to the prior year quarter. Excluding the effect of the disposition of refined gold, the profit margin on the disposition of merchandise increased to 41.0% in the current quarter compared to 40.4% in the prior year quarter.
     Sales of refined gold were up 43.6% to $42.9 million in the current quarter compared to $29.9 million in the prior year quarter leading to a $3.0 million, or 34.2%, increase in profit from refined gold sales. The profit margin on the disposition of refined gold decreased from 29.5% in the prior year quarter to 27.6% in the current quarter. The increase in gross profit dollars on the disposition of refined gold during the current quarter is primarily attributable to the 11% increase in the volume of refined gold sold and higher prevailing market prices for gold than the prior year. The selling price per ounce and the cost per ounce of refined gold increased 28% and 33%, respectively, compared to the prior year quarter.
     The higher level of merchandise sales activity and refined gold sales was supported by higher levels of merchandise available for disposition entering the current quarter and by the net addition of four pawn locations since September 30, 2007. The consolidated merchandise turnover rate was 2.6 times during the current quarter as compared to 2.5 times in the prior year quarter. Management expects that profit margin on the disposition of merchandise in the near term will likely remain at or slightly below current levels mainly due to higher inventory levels and an increase in the percentage mix of refined gold sales, which typically have lower gross profit margins.

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     The composition of merchandise available for disposition has continued to migrate towards a greater percentage being jewelry items. This trend is due to higher gold prices, which enhance the value of the underlying collateral. The increase in the value of gold in recent years has been greater than the increase in the collateral value of other items, leading to a higher percentage of jewelry merchandise available for disposition. The table below summarizes the age of merchandise held for disposition before valuation allowance of $1.9 million and $2.1 million at September 30, 2008 and 2007, respectively (dollars in thousands).
                                 
    2008     2007  
    Amount     %     Amount     %  
Merchandise held for 1 year or less –
                               
Jewelry
  $ 75,718       67.0 %   $ 60,747       60.3 %
Other merchandise
    28,784       25.5       30,405       30.1  
 
                       
 
    104,502       92.5       91,152       90.4  
 
                       
Merchandise held for more than 1 year –
                               
Jewelry
    5,222       4.6       6,008       6.0  
Other merchandise
    3,224       2.9       3,709       3.6  
 
                       
 
    8,446       7.5       9,717       9.6  
 
                       
Total merchandise held for disposition
  $ 112,948       100.0 %   $ 100,869       100.0 %
 
                       
Cash Advance Fees. Cash advance fees increased $0.9 million, or 0.9%, to $96.3 million in the current quarter from $95.4 million in the prior year quarter. The increase in revenue from cash advance fees is mainly due to organic growth in total customers from the online distribution channel, including the addition of new markets in 2007, which contributed to an increase in customers. Cash advance fees from the Company’s online distribution platform increased 22.0%; however, much of this increase was offset by the 21.6% decrease in cash advance fees from the storefront distribution channel, as well as a 24.0% decrease in cash advance fees from pawn lending operations. Storefront and pawn lending activities were affected by a tightening of lending criteria during the last half of 2007 and adjustments to lending practices in the state of Ohio following changes in the statutory and regulatory environment in that market. In addition, the Company closed 14 cash advance locations during the nine months ended September 30, 2008.
     As of September 30, 2008, the cash advance products were available in 722 lending locations, including 432 pawnshops and 290 cash advance locations, and through the online distribution channel. Of these lending locations, 249 arrange for customers to obtain cash advance products from independent third-party lenders for a fee. Cash advance fees include revenue from the cash advance portfolio owned by the Company and fees paid to the Company for arranging for cash advance products from independent third-party lenders for customers. (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.)
     The following table sets forth cash advance fees by operating segment for the three months ended September 30, 2008 and 2007 (dollars in thousands):
                                 
    Three months ended September 30,  
    2008     2007     Increase/(Decrease)  
Cash advance operations – storefront
  $ 26,859     $ 34,249     $ (7,390 )     (21.6 )%
Cash advance operations – internet lending
    60,858       49,867       10,991       22.0  
 
                       
Total cash advance operations
    87,717       84,116       3,601       4.3 %
Pawn lending operations
    8,584       11,301       (2,717 )     (24.0 )
 
                       
Consolidated cash advance fees
  $ 96,301     $ 95,417     $ 884       0.9 %
 
                       
     The overall amount of cash advances written decreased by $2.3 million, or 0.4%, to $535.4 million in the current quarter from $537.8 million in the prior year quarter. However, cash advances written through the online platform increased 24.7%, while the volume of cash advances written in storefront locations and pawn

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lending locations fell 22.7% and 23.6%, respectively. Included in the amount of cash advances written in the current quarter and the prior year quarter were $171.1 million and $175.9 million, respectively, of cash advances extended to customers by third-party lenders. Storefront and pawn lending volumes were impacted by changes in underwriting criteria made since the last half of 2007 to reduce loan losses. The Company also made additional adjustments in its Ohio locations which reduced loan volumes following statutory changes that could eliminate stores in that market. In addition, online cash advance volumes were negatively affected during the period as a result of changes in underwriting related to the expected regulatory changes in the economics of the online cash advance products in the states of Pennsylvania and Minnesota, as discussed below.
     The average amount per cash advance from the combined portfolio increased to $433 from $417. The average balances of combined cash advances outstanding during the current quarter increased by 4.6% compared to the prior year quarter. The increase was driven by a 3.7% increase in the average amount per cash advance written during the current quarter which was partially offset by a 4.0% decrease in the number of cash advances written during the current quarter.
     The outstanding combined portfolio balance of cash advances decreased $1.4 million, or 1.0%, to $143.4 million at September 30, 2008 from $144.8 million at September 30, 2007. Those amounts included $112.3 million and $113.7 million at September 30, 2008 and 2007, respectively, of cash advances which are owned by the Company and included in the Company’s consolidated balance sheets. An allowance for losses of $25.3 million and $30.9 million has been provided in the consolidated financial statements for September 30, 2008 and 2007, respectively, which is netted against the outstanding cash advance amounts on the Company’s consolidated balance sheets.
     The Company anticipates that changes announced by the Department of Banking in Pennsylvania related to online offerings of cash advance products will likely lead to the Company’s discontinuation of its online cash advance product in that state early in 2009. Similarly, the State of Minnesota has announced changes in its governance of online cash advance products that could cause a material change to the economics of the product in that state late in 2008. In both states, the Company is reviewing these changes and related state laws to determine if there are alternatives that would allow the Company to continue to offer economically feasible products to customers in those markets. As a result, the Company began decreasing the number of cash advance loans extended to customers in these markets during the third quarter of 2008.

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     The following table summarizes cash advances outstanding at September 30, 2008 and 2007 and contains certain non-Generally Accepted Accounting Principles (“non-GAAP”) measures with respect to cash advances owned by third-party lenders that are not included in the Company’s consolidated balance sheets. The Company believes that presenting these non-GAAP measures is meaningful and necessary because management evaluates and measures the cash advance portfolio performance on an aggregate basis (dollars in thousands).
                 
    September 30,  
    2008     2007  
Funded by the Company (a)
               
Active cash advances and fees receivable
  $ 73,097     $ 69,005  
Cash advances and fees in collection
    25,857       28,817  
 
           
Total funded by the Company (a)
    98,954       97,822  
Funded by the third-party lenders (b) (c)
               
Active cash advances and fees receivable
    31,072       31,069  
Cash advances and fees in collection
    13,325       15,888  
 
           
Total funded by third-party lenders (b) (c)
    44,397       46,957  
 
           
Combined gross portfolio (b) (d)
    143,351       144,779  
Less: Elimination of cash advances owned by third-party lenders
    31,016       31,069  
 
           
Company-owned cash advances and fees receivable, gross
    112,335       113,710  
Less: Allowance for losses
    25,301       30,925  
 
           
Cash advances and fees receivable, net
  $ 87,034     $ 82,785  
 
           
 
               
Allowance for loss on Company-owned cash advances
  $ 25,301     $ 30,925  
Accrued losses on third-party lender owned cash advances
    1,957       1,832  
 
           
Combined allowance for losses and accrued third-party lender losses
  $ 27,258     $ 32,757  
 
           
Combined allowance for losses and accrued third-party lender losses as a % of combined gross portfolio (b)
    19.0 %     22.6 %
 
           
 
(a)   Cash advances written by the Company in its pawn and cash advance locations and through the Company’s internet distribution channel.
 
(b)   Non-GAAP presentation. For informational purposes and to provide a greater understanding of the Company’s businesses. Management believes that information provided with this level of detail is meaningful and useful in understanding the activities and business metrics of the Company’s operations.
 
(c)   Cash advances written by third-party lenders that were arranged by the Company on behalf of the third-party lenders, all at the Company’s pawn and cash advance locations and through the Company’s internet distribution channel.
 
(d)   Includes (i) cash advances written by the Company, and (ii) cash advances written by third-party lenders that were arranged by the Company on behalf of the third-party lenders, all at the Company’s pawn and cash advance locations and through the Company’s internet distribution channel.
     Management anticipates lower levels of consolidated cash advance fees for the remainder of 2008 and into the first half of 2009 as a result of expected regulatory changes in the economics of cash advance products in the states of Pennsylvania and Minnesota. To the extent the Company decides to completely close all of its 139 cash advance locations in Ohio, cash advance fee growth will be reduced more significantly in the final quarter of 2008 and most of 2009 for the storefront locations. However, at this time, the Company is planning to offer alternative products and services under other provisions in Ohio law in at least a portion of its Ohio locations in the event that the referendum, described in the “Operations Expenses” section below, is unsuccessful. This could significantly reduce the number of potential store closures; however, in such event, the Company will closely monitor the ongoing viability of such alternative products and services. The Company is also supporting a referendum for the November 2008 Ohio elections that will provide Ohio voters the opportunity to overturn key provisions of the recently adopted legislation. The Company expects to make further determinations concerning its Ohio operations during the fourth quarter following the national election.

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Check Cashing Fees, Royalties and Other. Check cashing fees, royalties and other income from all segments increased $12,000, or 0.4%, to $3.4 million in the current quarter. The components of these fees are as follows (dollars in thousands):
                                                                 
    Three months ended September 30,  
    2008     2007  
    Pawn     Cash     Check             Pawn     Cash     Check        
    Lending     Advance     Cashing     Total     Lending     Advance     Cashing     Total  
Check cashing fees
  $ 122     $ 956     $ 89     $ 1,167     $ 148     $ 1,044     $ 106     $ 1,298  
Royalties
    185             681       866       134             692       826  
Other
    660       654       8       1,322       416       782       21       1,219  
 
                                               
 
  $ 967     $ 1,610     $ 778     $ 3,355     $ 698     $ 1,826     $ 819     $ 3,343  
 
                                               
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 which are guaranteed by the Company. The allowance is based on historical trends in portfolio performance based on the status of the balance owed by the customer. 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. The cash advance loss provision was $41.0 million for the current quarter and $43.6 million for the prior year quarter. The loss provision reflected a $2.6 million decrease, principally due to lower loss rates on improved portfolio performance.
     Continuing a trend of improvements in the cash advance portfolio performance, the loss provision expense as a percentage of cash advances written decreased to 7.6% compared to 8.1% in the prior year. The loss provision as a percentage of cash advance fees decreased to 42.5% in the current quarter from 45.7% in the prior year quarter. The lower loss provision is primarily due to an improved mix of customers, which is more heavily weighted to customers with better histories of repayment of loans and a lower concentration of new customers with no performance history, and a higher percentage of collections on loans that were past due. Total charge-offs less recoveries divided by total cash advances written was 8.1% in the current quarter compared to 8.3% in the prior year quarter.
     During the current period and consistent with past quarterly activities, the Company’s online distribution channel sold selected cash advances which had been previously written off. These sales generated proceeds of $1.1 million and $1.4 million for the three months ended September 30, 2008 and 2007, respectively, and have been recorded as recoveries in each period.
     Due to the short-term nature of the cash advance product and the high velocity of loans written, seasonal trends are evidenced in quarter-to-quarter performance. The table below shows the Company’s sequential loss experience for each of the five calendar quarters ending September 30, 2008 under a variety of metrics used by the Company to evaluate performance. Management believes that the higher loss levels experienced in 2007 were due to a large increase in new customers during the early part of the year. Typically, in the normal business cycle, sequential losses, as measured by the current period loss provision as a percentage of combined loans written in the period, are lowest in the first quarter and increase throughout the year, with the final two quarters experiencing the peak levels of losses.  The quarterly sequential performance deviated from this typical cycle during 2007, as sequential loss rates decreased from the third quarter to the fourth quarter. Management believes that this sequential decrease during 2007 was unusual and due mainly to the increase in customers with established borrowing histories as a percentage of all customers in the latter half of the year.  This change in mix was primarily in the portfolio of cash advances originated by the Company’s online channel.  In addition, management took steps to reduce losses in its storefront business beginning in the last half of 2007, including additional underwriting guidelines and more emphasis on collections activities.  These changes accounted for a smaller portion of the decrease in loss

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rates in relation to the customer composition mix, but loss levels in this business have been reduced compared to the prior year. Management believes that the sequential trend in cash advance loan losses will return to its more traditional trend of lowest loss levels in the first quarter and will increase sequentially thereafter. Therefore, management anticipates that fourth quarter 2008 loss rates will be higher than the third quarter of 2008, which will be above the prior year fourth quarter.
                                         
    2007     2008  
    Third     Fourth     First     Second     Third  
    Quarter     Quarter     Quarter     Quarter     Quarter  
Combined cash advance loss provision as a % of combined cash advances written (a) (b)
    8.1 %     6.8 %     5.5 %     6.5 %     7.6 %
Charge-offs (net of recoveries) as a % of combined cash advances written (a) (b)
    8.3 %     7.8 %     6.5 %     5.2 %     8.1 %
Combined cash advance loss provision as a % of cash advance fees (a) (b)
    45.7 %     38.8 %     31.8 %     37.4 %     42.5 %
 
                                       
Combined cash advances and fees receivable, gross(a) (b)
  $ 144,779     $ 148,404     $ 124,463     $ 145,653     $ 143,351  
Combined allowance for losses on cash advances
    32,757       27,504       22,803       29,710       27,258  
 
                             
Combined cash advances and fees receivable, net(a) (b)
  $ 112,022     $ 120,900     $ 101,660     $ 115,943     $ 116,093  
 
                             
Combined allowance for losses and accrued third-party lender losses as a % of combined gross portfolio (a) (b)
    22.6 %     18.5 %     18.3 %     20.4 %     19.0 %
 
                             
 
(a)   Non-GAAP presentation. For informational purposes and to provide a greater understanding of the Company’s businesses. Management believes that information provided with this level of detail is meaningful and useful in understanding the activities and business metrics of the Company’s operations.
 
(b)   Includes (i) cash advances written by the Company, and (ii) cash advances written by third-party lenders that were arranged by the Company on behalf of the third-party lenders, all at the Company’s pawn and cash advance locations and through the Company’s internet distribution channel.

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     The following table summarizes the cash advance loss provision for the three months ended September 30, 2008 and 2007, respectively, and contains certain non-GAAP measures with respect to the cash advances written by third-party lenders that are not included in the Company’s consolidated balance sheets and related statistics.  The Company believes that presenting these non-GAAP measures is meaningful and necessary because management evaluates and measures the cash advance portfolio performance on an aggregate basis including its evaluation of the loss provision for the Company-owned portfolio and the third-party lender-owned portfolio that the Company guarantees (dollars in thousands).
                 
    Three Months Ended  
    September 30,  
    2008     2007  
Cash advance loss provision:
               
Loss provision on Company-owned cash advances
  $ 41,302     $ 43,604  
Loss provision on third-party owned cash advances
    (352 )     8  
 
           
Combined cash advance loss provision
  $ 40,950     $ 43,612  
 
           
Charge-offs, net of recoveries
  $ 43,402     $ 44,854  
 
           
Cash advances written:
               
By the Company (a)
  $ 364,310     $ 361,841  
By third-party lenders (b) (c)
    171,131       175,942  
 
           
Combined cash advances written (b) (d)
  $ 535,441     $ 537,783  
 
           
Combined cash advance loss provision as a % of combined cash advances written (b) (d)
    7.6 %     8.1 %
Charge-offs (net of recoveries) as a % of combined cash advances written (b) (d)
    8.1 %     8.3 %
 
(a)   Cash advances written by the Company in its pawn and cash advance locations and through the Company’s internet distribution channel.
 
(b)   Non-GAAP presentation. For informational purposes and to provide a greater understanding of the Company’s businesses. Management believes that information provided with this level of detail is meaningful and useful in understanding the activities and business metrics of the Company’s operations.
 
(c)   Cash advances written by third-party lenders that were arranged by the Company on behalf of the third-party lenders, all at the Company’s pawn and cash advance locations and through the Company’s internet distribution channel.
 
(d)   Includes (i) cash advances written by the Company, and (ii) cash advances written by third-party lenders that were arranged by the Company on behalf of the third-party lenders, all at the Company’s pawn and cash advance locations and through the Company’s internet distribution channel.
Operations Expenses. Consolidated operations expenses, as a percentage of total revenue, were 32.4% in the current quarter down from 32.8% in the prior year quarter. These expenses increased $5.7 million, or 7.6%, in the current quarter compared to the prior year quarter. Pawn lending operating expenses increased $4.1 million, or 8.5%, to $52.3 million, primarily due to higher personnel related costs due to staffing increases, benefits and incentive payments. The operations expenses for the cash advance activities increased $1.7 million, or 6.3%, to $29.2 million in the current quarter compared to the prior year quarter.

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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 76.5% of total operations expenses in the current quarter and 79.9% in the prior year quarter. The comparison is as follows (dollars in thousands):
                                 
    Three Months Ended September 30,  
    2008     2007  
            % of             % of  
    Amount     Revenue     Amount     Revenue  
Personnel
  $ 43,476       17.2 %   $ 42,526       18.4 %
Occupancy
    19,039       7.6       18,152       7.8  
Other
    19,199       7.6       15,292       6.6  
 
                       
Total
  $ 81,714       32.4 %   $ 75,970       32.8 %
 
                       
     During the current quarter, the Company incurred approximately $2.0 million of operations expense consisting primarily of development costs related to activities supporting a referendum to overturn recent Ohio legislation that would render the Company’s cash advance products in that state uneconomical, and also including costs related to activities supporting a ballot initiative in Arizona to preserve the cash advance option for Arizona consumers by extending the current cash advance statute beyond its currently-scheduled expiration date and incorporating several consumer protection measures in the statute. To the extent the Company chooses to close a portion of its Ohio locations and offer alternative products in others, it estimates that a one-time expense of between $1.3 and $2.5 million would be incurred. This one-time expense is the estimated costs for the write-off of assets, remaining lease payment liabilities and severance costs for workers. Final amounts within this range would be based on the number of stores actually closed and the availability to reassign workers to other locations.
     The increase in personnel expenses is mainly due to unit additions during 2007, an increase in staffing levels, the growth of the Company’s online distribution channel and normal recurring salary adjustments. The increase in occupancy expense is primarily due to recurring rent increases, as well as higher utility costs and property taxes.
Administration Expenses. Consolidated administration expenses, as a percentage of total revenue, were 6.3% in the current quarter compared to 6.6% in the prior year quarter. The components of administration expenses for the three months ended September 30, 2008 and 2007 are as follows (dollars in thousands):
                                 
    Three Months Ended September 30,  
    2008     2007  
            % of             % of  
    Amount     Revenue     Amount     Revenue  
Personnel
  $ 10,290       4.1 %   $ 10,075       4.4 %
Other
    5,674       2.2       5,100       2.2  
 
                       
Total
  $ 15,964       6.3 %   $ 15,175       6.6 %
 
                       
     The increase in administrative expense was mainly due to a variety of factors, including recurring rent increases, as well as higher utility costs and property taxes, health and workers compensation insurance increases and higher management incentives due to better financial performance.
Depreciation and Amortization. Depreciation and amortization expense as a percentage of total revenue was 3.7% in the current quarter, compared to 3.6% in the prior year quarter. Total depreciation and amortization expense increased $1.0 million, or 12.5%, primarily due to the increase in operating locations.
Interest Expense. Interest expense as a percentage of total revenue was 1.7% in the current quarter and 1.9% in the prior year quarter. Interest expense decreased $0.1 million, or 2.0%, to $4.3 million in the current quarter as compared to $4.4 million in the prior year quarter. The decrease was primarily due to the lower weighted average floating interest rate (3.9% during the current quarter compared to 6.5% during the prior year quarter), partially offset by the increase in average floating rate borrowings ($239.4 million

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during the current quarter compared to $140.2 million in the prior year quarter). The average amount of debt outstanding increased during the current quarter to $351.8 million from $265.4 million during the prior year quarter. The effective blended borrowing cost was 4.7% in the current quarter and 6.4% in the prior year quarter.
Interest Income. Interest income decreased $32,000 to $113,000 in the current quarter compared to $145,000 in the prior year quarter. The prior year quarter interest income is primarily from the two notes receivable denominated in Swedish kronor that the Company held in connection with its 2004 sale of its foreign pawn lending operations. These notes were sold in August 2007. The interest income in the current year period is primarily from a note receivable with PBSI; this note receivable was paid in full when the assets of PBSI were acquired in July 2008.
Foreign Currency Transaction Gain/Loss. The Company held two notes receivable denominated in Swedish kronor until they were sold in August 2007. Exchange rate changes between the United States dollar and the Swedish kronor resulted in a net gain of $5,000 (net of a loss of $12,000 from foreign currency forward contracts) in the prior year quarter.
     In July 2007, the Company began offering cash advances to residents of the United Kingdom.  The functional currency of the Company’s United Kingdom operations is the British pound.  In June 2008, the Company entered into a line of credit facility of £7.5 million with a foreign commercial bank and designated the debt as a hedging instrument of the Company’s net investment in its subsidiary that offers cash advances to residents of the United Kingdom. In the current quarter, the Company recorded foreign currency transaction losses of approximately $5,000.
Gain on Sale of Foreign Notes. In August 2007, the Company received gross proceeds in the amount of $16.8 million on the sale of notes receivable that it had received in 2004 as part of the proceeds from the sale of Svensk Pantbelåning, its former Swedish pawn lending subsidiary. In September 2004, the Company sold Svensk Pantbelåning to Rutland Partners, LLP for cash and two subordinated notes receivable. One of the notes receivable was convertible into approximately 27.7% of the parent company of Svensk Pantbelåning on a fully-diluted basis. In August 2007, Rutland Partners LLP sold Svensk Pantbelåning to a third party who also purchased the notes receivable from the Company. The Company’s total proceeds of $16.8 million represent $12.4 million in the repayment of principal and interest owed on notes receivable and $4.4 million for the value of its conversion rights under the convertible note. For the three months ended September 30, 2007, the Company recognized a pre-tax gain of approximately $6.3 million from the sale of the notes.
Income Taxes. The Company’s effective tax rate was 40.9% for the current quarter compared to 37.2% for the prior year quarter.  The increase in the effective tax rate is primarily attributable to $2.0 million of nondeductible expenses incurred during the quarter primarily related to development activities surrounding the change in Ohio law.  If those expenses were deductible the effective tax rate for the current quarter would have been 38.6%.  The remaining increase is primarily attributable to an increase in state and local taxes.
Nine Months Ended September 30, 2008 Compared To Nine Months Ended September 30, 2007
Consolidated Net Revenue. Consolidated net revenue increased $48.9 million, or 9.9%, to $544.8 million during the nine months ended September 30, 2008 (the “current period”) from $495.9 million during the nine months ended September 30, 2007 (the “prior year period”). The following table sets forth net revenue by operating segment for the nine months ended September 30, 2008 and 2007 ($ in thousands):

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    Nine months ended September 30,  
    2008     2007     Increase/(Decrease)  
Cash advance operations – storefront
  $ 89,933     $ 103,012     $ (13,079 )     (12.7 )%
Cash advance operations – internet lending
    165,038       134,234       30,804       22.9 %
 
                   
Total cash advance operations
    254,971       237,246       17,725       7.5 %
Pawn lending operations
    287,166       255,800       31,366       12.3 %
Check cashing operations
    2,636       2,817       (181 )     (6.4 )%
 
                   
Consolidated net revenue
  $ 544,773     $ 495,863     $ 48,910       9.9 %
 
                   
     Higher revenue from the Company’s cash advance product, higher finance and service charges from pawn loans and higher profit from the disposition of merchandise accounted for the increase in net revenue. Finance and service charges from pawn loans increased $16.8 million; profit from the disposition of merchandise increased $19.0 million; cash advance fees generated from pawn locations, cash advance locations and via the internet distribution channel increased $13.7 million; and combined segment revenue from check cashing fees, royalties and other, decreased $556,000.
Finance and Service Charges. Finance and service charges from pawn loans increased $16.8 million, or 14.3%, from $117.0 million in the prior year period to $133.8 million in the current period. The increase is primarily due to higher loan balances attributable to the increased amount of pawn loans written through existing and new locations added during 2007. An increase in the average balance of pawn loans outstanding contributed $16.7 million of the increase and the higher annualized yield, which is a function of the blend in permitted rates for fees and service charges on pawn loans in all operating locations, contributed $0.1 million of the increase. Finance and service charges from same stores (stores that have been open for at least twelve months) increased $15.7 million, or 13.4%, in the current period compared to the prior year period.
     The average balance of pawn loans outstanding during the current period increased $13.3 million, or 10.6%, compared to the prior year period. The increase was driven by an 11.7% increase in the average amount per loan outstanding, and was partially offset by a 1.0% decrease in the average number of pawn loans outstanding during the current period. Annualized loan yield was 128.2% in the current period, compared to 124.1% in the prior year period.
Profit from Disposition of Merchandise. Profit from disposition of merchandise represents the proceeds received from disposition of merchandise in excess of the cost of disposed merchandise. The following table summarizes the proceeds from disposition of merchandise and the related profit for the current period compared to the prior year period ($ in thousands):
                                                 
    Nine Months Ended September 30,
    2008   2007
    Merch-   Refined           Merch-   Refined    
    andise   Gold   Total   andise   Gold   Total
Proceeds from dispositions
  $ 206,671     $ 123,518     $ 330,189     $ 196,571     $ 80,771     $ 277,342  
Profit on disposition
  $ 84,930     $ 38,969     $ 123,899     $ 79,872     $ 25,068     $ 104,940  
Profit margin
    41.1 %     31.5 %     37.5 %     40.6 %     31.0 %     37.8 %
Percentage of total profit
    68.5 %     31.5 %     100.0 %     76.1 %     23.9 %     100.0 %
     The total proceeds from disposition of merchandise and refined gold increased $52.8 million, or 19.1% and the total profit from the disposition of merchandise and refined gold increased $19.0 million, or 18.1%, primarily due to higher levels of retail sales complemented by higher gross profit margin on the disposition of refined gold. Overall gross profit margin decreased slightly from 37.8% in the prior year period to 37.5% in the current period. In addition, excluding the effect of the disposition of refined gold, the profit margin on the disposition of merchandise (including jewelry sales) was 41.1% and 40.6% for the current period and the prior year period, respectively.
     The profit margin on the disposition of refined gold increased to 31.5% in the current period compared to 31.0% in the prior year period primarily due to the increase in price per ounce of gold sold. The increase in gross profit dollars on the disposition of refined gold during the current period is attributable

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to the 22.0% higher volume of gold sold and a 27.5% higher price per ounce, slightly lower than the 28.0% rise in cost per ounce compared to the prior year period.
     Proceeds from disposition of merchandise, excluding refined gold, increased $10.1 million, or 5.1%, in the current period compared to the prior year period. The higher level of retail sales activity was supported by higher levels of merchandise available for disposition entering the current period and by the net addition of four pawn locations since September 30, 2007. The consolidated merchandise turnover rate was 2.8 times during the current period, compared to 2.7 times during the prior year period.
Cash Advance Fees. Cash advance fees increased $13.7 million, or 5.3%, to $274.6 million in the current period from $260.9 million in the prior year period. The increase was primarily due to higher levels of assets outstanding under the Company’s online distribution channel, including the addition of new markets in 2007, which contributed to an increase in customers. Cash advance fees from the Company’s online distribution platform increased 23.0%; however, a portion of this increase was offset by the 12.9% decrease in cash advance fees from the storefront distribution channel, as well as a 15.6% decrease in cash advance fees from pawn lending operations. Storefront and pawn lending activities were affected by a tightening of lending criteria during the last half of 2007 and adjustments to lending practices in the state of Ohio following changes in the statutory and regulatory environment in that market. In addition, the Company closed 14 cash advance locations during the nine months ended September 30, 2008.
     The following table sets forth cash advance fees by operating segment for the nine months ended September 30, 2008 and 2007 ($ in thousands):
                                 
    Nine months ended September 30,  
    2008     2007     Increase/(Decrease)  
Cash advance operations — storefront
  $ 82,979     $ 95,240     $ (12,261 )     (12.9 )%
Cash advance operations — internet lending
    165,117       134,229       30,888       23.0  
 
                       
Total cash advance operations
    248,096       229,469       18,627       8.1 %
Pawn lending operations
    26,514       31,411       (4,897 )     (15.6 )
 
                       
Consolidated cash advance fees
  $ 274,610     $ 260,880     $ 13,730       5.3 %
 
                       
     The amount of cash advances written increased by $69.1 million, or 4.7%, to $1.6 billion in the current period from $1.5 billion in the prior year period. Cash advances written through the online platform increased 27.8%, while the volume of cash advances written in the Company’s storefront and pawn lending operations fell 14.2% and 18.8%, respectively. Storefront and pawn lending volumes were impacted by changes in underwriting criteria made since the last half of 2007 to reduce loan losses. The Company also made additional adjustments in its Ohio locations which reduced loan volumes following statutory changes that could eliminate stores in that market. In addition, online cash advance volumes were negatively affected during the period as a result of changes in underwriting related to the expected regulatory changes in the economics of the online cash advance products in the states of Pennsylvania and Minnesota, as discussed below. Included in the amount of cash advances written in the current period and the prior year period were $510.6 million and $478.3 million, respectively, extended to customers by third-party lenders. The average amount per cash advance increased to $434 from $410.
     The Company anticipates that changes announced by the Department of Banking in Pennsylvania related to online offerings of cash advance products will likely lead to the Company’s discontinuation of its online cash advance product in that state early in 2009. Similarly, the State of Minnesota has announced changes in its governance of online cash advance products that could cause a material change to the economics of the product in that state late in 2008. In both states, the Company is reviewing these changes and related state laws to determine if there are alternatives that would allow the Company to continue to offer economically feasible products to customers in those markets. As a result, the Company began decreasing the number of cash advance loans extended to customers in these markets during the third quarter of 2008.
Check Cashing Fees, Royalties and Other. Check cashing fees, royalties and other income decreased $556,000 to $12.5 million in the current period, or 4.3%, from $13.0 million in the prior year period primarily due to a lower volume of checks being cashed, potentially due to an increase in competition. The components of these fees are as follows (in thousands):
                                                                 
    Nine Months Ended September 30,  
    2008     2007  
    Pawn     Cash     Check           Pawn     Cash     Check        
    Lending     Advance     Cashing     Total     Lending     Advance     Cashing     Total  
Check cashing fees
  $ 506     $ 4,071     $ 313     $ 4,890     $ 617     $ 4,620     $ 380     $ 5,617  
Royalties
    542             2,284       2,826       394             2,381       2,775  
Other
    1,917       2,804       39       4,760       1,427       3,157       56       4,640  
 
                                               
 
  $ 2,965     $ 6,875     $ 2,636     $ 12,476     $ 2,438     $ 7,777     $ 2,817     $ 13,032  
 
                                               

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Cash Advance Loss Provision. The cash advance loss provision was $102.8 million for the current period and $118.7 million for the prior year period. The loss provision reflected a $15.9 million decrease, which is primarily due to an improved mix of customers, which is more heavily weighted to customers with better histories of repayment of loans and a lower concentration of new customers with no performance history. The loss provision as a percentage of combined cash advances written decreased to 6.6% in the current period from 8.0% in the prior year period while actual net charge-offs (charge-offs less recoveries) as a percentage of combined cash advances written were 6.6% in the current period compared to 7.2% in the prior year period. The loss provision as a percentage of cash advance fees decreased to 37.4% in the current period from 45.5% in the prior year period. The lower loss provision is primarily due to an improved mix of customers, which is more heavily weighted to customers with better histories of repayment of loans and a lower concentration of new customers with no performance history, and a higher percentage of collections on loans that were past due.
     During the current period and consistent with past quarterly activities, the Company’s online distribution channel sold selected cash advances which had been previously written off. These sales generated proceeds of $3.2 million and $3.5 million for the nine months ended September 30, 2008 and 2007, respectively, and have been recorded as recoveries in each period.
     The following table summarizes the cash advance loss provision for the nine months ended September 30, 2008 and 2007 (dollars in thousands):
                 
    Nine Months Ended  
    September 30,  
    2008     2007  
Cash advance loss provision:
               
Loss provision on Company-owned cash advances
  $ 102,688     $ 118,011  
Loss provision on third-party owned cash advances
    129       677  
 
           
Combined cash advance loss provision
  $ 102,817     $ 118,688  
 
           
Charge-offs, net of recoveries
  $ 103,063     $ 106,599  
 
           
Cash advances written:
               
By the Company (a)
  $ 1,044,021     $ 1,007,283  
By third-party lenders (b) (c)
    510,619       478,274  
 
           
Combined cash advances written (b) (d)
  $ 1,554,640     $ 1,485,557  
 
           
Combined cash advance loss provision as a % of combined cash advances written (b) (d)
    6.6 %     8.0 %
Charge-offs (net of recoveries) as a % of combined cash advances written (b) (d)
    6.6 %     7.2 %
 
(a)   Cash advances written by the Company in its pawn and cash advance locations and through the Company’s internet distribution channel.
 
(b)   Non-GAAP presentation. For informational purposes and to provide a greater understanding of the Company’s businesses. Management believes that information provided with this level of detail is meaningful and useful in understanding the activities and business metrics of the Company’s operations.
 
(c)   Cash advances written by third-party lenders that were arranged by the Company on behalf of the third-party lenders, all at the Company’s pawn and cash advance locations and through the Company’s internet distribution channel.
 
(d)   Includes (i) cash advances written by the Company, and (ii) cash advances written by third-party lenders that were arranged by the Company on behalf of the third-party lenders, all at the Company’s pawn and cash advance locations and through the Company’s internet distribution channel.
Operations Expenses. Consolidated operations expenses, as a percentage of total revenue, were 32.2% in the current period compared to 33.7% in the prior year period. These expenses increased $17.1 million, or 7.6%, in the current period compared to the prior year period. Pawn lending operating expenses increased $13.9 million, or 9.6%, primarily due to higher personnel costs and increased occupancy expenses partly due to the net increase of four pawnshop locations since September 30, 2007, and an increase in store level incentives. Cash advance operating expenses increased $3.3 million, or 4.1%, primarily as a result of the acquisition of a subsidiary that offers cash advances online.

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     The combination of personnel and occupancy expenses represents 78.6% of total operations expenses in the both current period and prior year period. The comparison is as follows ($ in thousands):
                                 
    Nine Months Ended September 30,  
    2008     2007  
            % of             % of  
    Amount     Revenue     Amount     Revenue  
Personnel
  $ 133,408       17.8 %   $ 124,042       18.6 %
Occupancy
    56,556       7.5 %     52,618       7.9 %
Other
    51,827       6.9 %     48,064       7.2 %
 
                       
Total
  $ 241,791       32.2 %   $ 224,724       33.7 %
 
                       
     The increase in personnel expenses is mainly due to unit additions during 2007, an increase in staffing levels, the growth of the Company’s online distribution channel and normal recurring salary adjustments. The increase in occupancy expense is primarily due to unit additions and recurring rent increases, as well as higher utility costs and property taxes. During the period, the Company also incurred approximately $3.8 million consisting primarily of: costs associated with development activities supporting a referendum to overturn recent Ohio legislation that would render the Company’s cash advance products in that state uneconomical; costs related to activities supporting a ballot initiative in Arizona to preserve the cash advance option for Arizona consumers by extending the current cash advance statute beyond its currently-scheduled expiration date and incorporating several consumer protection measures in the statute; severance costs related to changes in storefront management and store closures. To the extent the Company chooses to close a portion of its Ohio locations and offer alternative products in others, it estimates that a one-time expense of between $1.3 and $2.5 million would be incurred. This one-time expense is the estimated costs for the write-off of assets, remaining lease payment liabilities and severance costs for workers. Final amounts within this range would be based on the number of stores actually closed and the availability to reassign workers to other locations.
Administration Expenses. Consolidated administration expenses, as a percentage of total revenue, were 7.4% in the current period compared to 6.1% in the prior year period. The components of administration expenses for the nine months ended September 30, 2008 and 2007 are as follows ($ in thousands):
                                 
    Nine Months Ended September 30,  
    2008     2007  
            % of             % of  
    Amount     Revenue     Amount     Revenue  
Personnel
  $ 36,976       4.9 %   $ 26,835       4.0 %
Other
    18,676       2.5       14,089       2.1  
 
                       
Total
  $ 55,652       7.4 %   $ 40,924       6.1 %
 
                       
     The significant increase in administrative expense was mainly due to a variety of factors, including health and workers compensation insurance increases, higher management incentives due to performance and increased infrastructure spending at the Company’s online lending facilities.
Depreciation and Amortization. Depreciation and amortization expense as a percentage of total revenue was 3.7% in the current period and 3.5% in the prior year period. Total depreciation and amortization expense increased $4.3 million, or 18.0%, primarily due to accelerated depreciation costs related to planned store closures as well as accelerated depreciation on legacy computer hardware which will be replaced during the deployment of the Company’s new point-of-sale system.
Interest Expense. Interest expense as a percentage of total revenue was 1.5% in the current period and 1.8% in the prior year period. Interest expense decreased $1.1 million, or 9.2%, to $11.0 million in the current period as compared to $12.1 million in the prior year period. The decrease was primarily due to the offset of the higher average floating interest rate borrowings ($189.4 million during the current period and $106.0 million during the prior year period) by the lower weighted average floating interest rate (4.2% during the current period compared to 6.4% during the prior year period). The average amount of debt outstanding increased during the current period to $304.8 million from $236.9 million during the prior year

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period. The effective blended borrowing cost was 5.0% in the current period and 6.4% in the prior year period.
Interest Income. Interest income decreased $779,000 to $220,000 in the current period compared to $1.0 million in the prior year period. The interest income in the prior year period was primarily from the two notes receivable denominated in Swedish kronor that the Company held in connection with its 2004 sale of its foreign pawn lending operations. These notes were sold in August 2007. The interest income in the current year period is primarily from a note receivable with PBSI; this note receivable was paid in full when the assets of PBSI were acquired in July 2008.
Foreign Currency Transaction Gain/Loss. The Company held two notes receivable denominated in Swedish kronor until they were sold in August 2007. Exchange rate changes between the United States dollar and the Swedish kronor resulted in a net gain of $63,000 (including a gain of $52,000 from foreign currency forward contracts) in the prior year period.
     In July 2007, the Company began offering cash advances to residents of the United Kingdom.  The functional currency of the Company’s United Kingdom operations is the British pound.  In June 2008, the Company entered into a line of credit facility of £7.5 million with a foreign commercial bank and designated the debt as a hedging instrument of the Company’s net investment in its subsidiary that offers cash advances to residents of the United Kingdom. In the current period, the Company recorded foreign currency transaction losses of approximately $77,000.
Income Taxes. The Company’s effective tax rate was 38.6% for the current period compared to 36.1% for the prior year period.  The Company recognized a one-time $1.1 million deferred tax benefit during the prior year period as a result of a change in Texas law enacted during that period.  The Company incurred $2.8 million of nondeductible expenses during the current period primarily related to development activities surrounding the change in Ohio law.   Excluding the one-time Texas deferred tax benefit, the effective rate for the prior year period would have been 37.5%. If the current period expense related to the development activities surrounding the change in Ohio law were deductible the effective tax rate for the current period would be 37.7%.
LIQUIDITY AND CAPITAL RESOURCES
     The Company’s cash flows and other key indicators of liquidity are summarized as follows ($ in thousands):
                 
    Nine Months Ended
    September 30,
    2008   2007
Operating activities cash flows
  $ 182,454     $ 190,959  
Investing activities cash flows:
               
Pawn loans
  $ (21,189 )   $ (21,080 )
Cash advances
    (99,447 )     (119,982 )
Acquisitions
    (65,220 )     (38,564 )
Property and equipment additions
    (44,461 )     (48,883 )
Proceeds from property insurance
    864       1,316  
Proceeds from sale of foreign notes
          16,529  
Financing activities cash flows
  $ 54,133     $ 20,398  
Working capital
  $ 299,610     $ 282,205  
Current ratio
    3.0     3.2
Merchandise turnover
    2.8     2.7

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Cash flows from operating activities. Net cash provided by operating activities from continuing operations was $181.7 million for the nine months ended September 30, 2008, a decrease of 4.9% compared to the prior year period, primarily due to the non-recurring $6.3 million gain on the sale of foreign notes receivable in the prior year and higher taxes payable in 2008. Net cash generated by the Company’s pawn lending operations, cash advance operations and check cashing operations were $47.0 million, $134.0 million and $0.7 million, respectively.
Cash flows from investing activities. The Company’s pawn lending activities used cash of $21.2 million and cash advance activities used cash of $99.4 million during the current period. The Company also invested $44.5 million in property and equipment, including $12.1 million for the development of a new point-of-sale system and $32.4 million for the development and enhancements to communications and information systems, as well as investments for remodeling certain locations.
     Another supplemental payment in connection with the acquisition of substantially all of the assets of The Check Giant LLC (“TCG”) will be based on the trailing twelve months earnings of CashNetUSA as of September 30, 2008. As of September 30, 2008, the Company has accrued approximately $69.5 million for the payment as an addition to goodwill and to accrued supplemental acquisition payment based on the defined multiple of 5.0 times trailing twelve months earnings through September 30, 2008. On October 31, 2008, the Company and TCG amended the underlying purchase agreement to provide that the Company will pay 50% of this payment in cash in early November 2008 and will defer payment of the remainder until March 31, 2009 with a deferral fee of 15% per annum on the deferred portion. At its election, the Company may make the deferred payment between December 15 and 31, 2008. As of March 31, 2009, the Company will calculate a final true up payment to be paid to TCG to reflect amounts collected between October 1, 2008 and March 31, 2009 on loans that had been charged off and uncollected on or before September 30, 2008, less the costs of collecting on such loans.  If this calculation results in an amount greater than $0, the final true up payment will be payable by the Company to TCG on or before May 15, 2009.  The magnitude of this payment is not expected to be significant since it is based on excess recoveries of loans recently fully reserved under the Company’s loan loss provision for online cash advances, to the extent there are any.
     Management anticipates that capital expenditures for the remainder of 2008 will be approximately $10 to $15 million, primarily for the remodeling of selected operating units, for the continuing development and enhancements to communications and information systems, including the multi-year project to upgrade the Company’s proprietary point-of-sale and information system, and for the establishment of approximately three to ten combined total of new cash advance-only locations and pawnshops. Management expects the implementation of the new point-of-sale system, which is expected to begin during 2009, will result in a substantial increase in depreciation expense.
     During the second quarter, the Company announced the potential closure of 139 cash advance locations in Ohio due to a change in Ohio’s governing laws for the product. The changes relate to the revenue on the loans and the economics of offering the product profitably. The Company has not made a final determination concerning the closure of any Ohio locations.  It is, however, planning to offer alternative products and services under other provisions in Ohio law in at least a portion of its Ohio locations in the event that the referendum described below is unsuccessful. This could significantly reduce the number of potential store closures; however, in such event, the Company will closely monitor the ongoing viability of such alternative products and services.  The Company is also supporting a referendum for the November 2008 Ohio elections that will provide Ohio voters the opportunity to overturn key provisions of the recently adopted legislation.  The Company expects to make further determinations concerning its Ohio operations during the fourth quarter following the national election.
     On July 23, 2008, the Company, through its wholly-owned subsidiary, Primary Cash Holdings, LLC (“PCH”), purchased substantially all the assets of Primary Business Services, Inc., Primary Finance, Inc., Primary Processing, Inc. and Primary Members Insurance Services, Inc. (collectively, “PBSI”), a group of companies in the business of designing, marketing and selling pre-paid stored value cards, which are currently marketed to the general public and employers and their employees as multi-purpose payroll debit cards, and related activities that complement and support this business, including providing certain processing services and participating in receivables associated with a bank issued line of credit available on

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certain cards. The Company paid an initial purchase price of approximately $5.6 million in cash at closing, which included the repayment of the approximately $4.9 million note receivable owed to the Company as of the closing date. The Company also agreed to pay up to eight supplemental earn-out payments during the four-year period after the closing.  The amount of each supplemental payment is to be based on a multiple of 3.5 times the consolidated earnings attributable to PBSI for the specified period (generally 12 months) preceding each scheduled supplemental payment, reduced by amounts previously paid. The first supplemental payment is due April 2009 and it is stipulated that this payment would not be less than $2.7 million; however, the Company may cancel its obligation to make any supplemental payments by transferring ownership of PCH to PBSI’s sole shareholder.
     The Company has entered into a letter of intent to acquire an 80% ownership interest in a 107 store chain of pawnshops in Mexico. The operations, which are based in Mexico City, have locations in 16 Mexican states under the brand name of “Prenda Fácil”. The terms of the acquisition call for the Company to own 80% of Prenda Fácil, with the current owners retaining the residual 20% interest The acquisition is expected to be completed late in the fourth quarter of 2008 following the satisfactory completion of formal documentation, licensing, due diligence, financing and other matters customary in such transaction. To the extent this acquisition is closed in the fourth quarter of 2008, the Company would make a payment of between $90.0 million and $95.0 million. The current provision calls for this payment to be in cash. The Company is negotiating supplemental credit facilities for this payment.
Cash flows from financing activities. During the nine months ended September 30, 2008, the Company borrowed $71.9 million under its bank lines of credit. Uses of cash included $3.0 million for dividends paid. On October 24, 2007, the Board of Directors authorized the Company’s repurchase of 1,500,000 shares. 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, 2008, 195,000 shares were purchased for an aggregate amount of $6.3 million under the 2007 authorization. In addition, 23,851 shares were acquired as partial payments of taxes for shares issued under stock-based compensation plans for an aggregate amount of $0.7 million. During the nine months ended September 30, 2008, stock options for 46,805 shares were exercised, which generated $0.6 million of additional equity.
     On February 29, 2008, the Company exercised the $50 million accordion feature contained in its existing line of credit. As a result, the committed amount under the line of credit increased from $250 million to $300 million. On May 7, 2008, the Company established a line of credit facility up to £7.5 million with a foreign commercial bank. The balance outstanding at September 30, 2008 was £5.0 million (approximately $8.9 million). This line of credit provides working capital to the Company’s online lending operations to customers residing in the United Kingdom. On June 30, 2008, the Company established a letter of credit facility with a group of banks to permit the issuance of up to $12.8 million in letters of credit.
     The credit agreements and the senior unsecured notes require that the Company 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 agreement or the senior unsecured note agreements could result in an acceleration of the Company’s debt and increase the Company’s borrowing costs and could adversely affect the Company’s ability to renew its existing credit facility or obtain new credit on favorable terms 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.
     The Company’s short term liquidity requirements are provided under its $300.0 million line of credit, which is a multi-year committed facility by a group of ten commercial banks. As a result, the Company has not been affected by the credit disruptions in the capital markets in recent weeks as it relates to managing near term liquidity for working capital purposes.

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     Management believes that the borrowings available ($66.8 million at September 30, 2008) under the credit facilities, cash generated from operations and current working capital of $299.6 million should be sufficient to meet the Company’s anticipated capital requirements for its core business. Additional capital will be required if the acquisition of Prenda Fácil is completed in the fourth quarter. The current market for credit to be used in acquisitions is limited. The Company expects that outcome for such transaction capital could be debt or equity and under terms less favorable than the Company’s other credit facilities. The Company has received a commitment of $33.0 million from a group of four banks for a term loan to supplement the purchase of Prenda Fácil. The commitment is for a four year term loan which begins amortization 18 months after closing and funding, which is expected to occur in conjunction with the closing of the acquisition.
CAUTIONARY NOTE CONCERNING FACTORS THAT MAY AFFECT FUTURE RESULTS
     This report contains forward-looking statements about the business, financial condition and prospects of the Company. The actual results of the Company could differ materially from those indicated by the forward-looking statements because of various risks and uncertainties including, without limitation, changes in consumer credit, tax and other laws and governmental rules and regulations applicable to the Company’s business, changes in demand for the Company’s services, the actions of third parties who offer products and services at the Company’s locations, fluctuations in the price of gold, changes in competition, the ability of the Company to open new operating units in accordance with its plans, economic conditions, real estate market fluctuations, interest rate fluctuations, changes in foreign currency exchange rates, changes in the capital markets, the ability to successfully complete the proposed acquisition of Prenda Fácil , the ability to successfully integrate newly acquired businesses into the Company’s operations and other risks indicated in the Company’s filings with the Securities and Exchange Commission. These risks and uncertainties are beyond the ability of the Company to control, nor can the Company predict, in many cases, all of the risks and uncertainties that could cause its actual results to differ materially from those indicated by the forward-looking statements. When used in this report, terms such as “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 Company disclaims any intention or obligation to update or revise any forward-looking statements to reflect events or circumstances occurring after the date of this report.
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, 2007.
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, 2008 (“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 (i) to ensure that information required to be disclosed in reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms; and (ii) to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures.
     There was no change in the Company’s internal control over financial reporting during the quarter ended September 30, 2008, that has materially affected, or is reasonably likely to materially affect, the

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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.  The Company’s disclosure controls and procedures are, however, designed to provide reasonable assurance of achieving their objectives, and the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s financial controls and procedures are effective at that reasonable assurance level.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
     See Note 7 of Notes to Consolidated Financial Statements.
Item 1A. Risk Factors
     There have been no material changes from the risk factors disclosed in Part 1, Item 1A, of the Company’s 2007 Form 10-K.
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 nine months of 2008:
                                 
                    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
    9,919 (2)   $ 27.40             1,450,000  
February 1 to February 29
    51,455 (2)     32.69       40,000       1,410,000  
March 1 to March 31
    55,507 (2)     29.41       55,000       1,355,000  
April 1 to April 30
    2,263 (2)     43.26             1,355,000  
May 1 to May 31
    50,493 (2)     34.97       50,000       1,305,000  
June 1 to June 30
    50,784 (2)     32.33       50,000       1,255,000  
July 1 to July 31
    795 (2)     40.49             1,255,000  
August 1 to August 31
    1,970 (2)     42.62             1,255,000  
September 1 to September 30.
    448 (2)     40.00             1,255,000  
 
                         
Total
    223,634     $ 32.31       195,000          
 
                         
 
(1)   On October 24, 2007, 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 shares purchased on behalf of participants relating to the Company’s Non-Qualified Savings Plan of 400, 1,141, 507, 458, 493, 346, 329, 661, and 448 shares for the months of January, February, March, April, May, June, July, August, and September respectively, and shares received as partial tax payments for shares issued under stock-based compensation plans of 9,519, 10,314, 1,805, 438, 466, and 1,309 shares for the months of January, February, April, June, July, and August respectively.
Item 4. Submission of Matters to a Vote of Security Holders
     None.

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Item 5. Other Information
Ohio. During the second quarter, the Company announced the potential closure of 139 cash advance locations in Ohio due to recently adopted legislation that changes statutes governing the Ohio cash advance product. The Company has not made a final determination concerning the closure of any Ohio locations.  It is, however, planning to offer alternative products and services under other provisions in Ohio law in at least a portion of its Ohio locations if the referendum described below is unsuccessful. This could significantly reduce the number of potential store closures; however, in such event, the Company will closely monitor the ongoing viability of such alternative products and services.  The Company is also supporting a referendum for the November 2008 Ohio elections that will provide Ohio voters the opportunity to overturn key provisions of the recently adopted legislation.  The Company expects to make further determinations concerning its Ohio operations during the fourth quarter following the national election.
     On July 26, 2008, the Department of Banking in Pennsylvania announced a change in its policies relating to the online offering of cash advance products by companies not located in that state. The Company anticipates that changes announced by the Department of Banking in Pennsylvania related to its online offering of cash advance products will likely lead to the discontinuation of the product in that state early in 2009. Similarly, the State of Minnesota has announced changes in its governance of online cash advance products which could cause a material change to the economics of the product in that state late in 2008. In both cases the Company is reviewing these changes and related State laws to determine if alternatives exist to continue to offer economically feasible products to customers in those markets.
Executive Change-in-Control Severance Agreement with Timothy S. Ho. Timothy S. Ho, the President of the Company’s Internet Services Division, has entered into an Executive Change-in-Control Severance Agreement with the Company, effective as of October 23, 2008. This agreement provides that if Mr. Ho is terminated other than for cause within twenty-four months after a “change in control” of the Company (as that term is defined in the agreement), then he or she will be entitled to (1) earned and unpaid salary, (2) a pro-rated portion of the target bonus under the existing bonus plan based on the number of months employed during the year, (3) a lump sum equal to two times the executive’s annual salary, (4) a lump sum equal to two times the greater of (i) the target bonus for the year, or (ii) the actual bonus for the preceding year, (5) immediate vesting of any outstanding unvested cash-based and equity-based long-term incentive awards, (6) continued health benefits for twenty-four months, and (7) executive placement services from an executive search/placement firm. In addition, the Company would be obligated to pay the officer an amount sufficient to cover the costs of any excise tax that may be triggered by the payments referred to in the preceding sentence, together with an amount sufficient to cover his or her additional state and federal income, excise, and employment taxes that may arise on this additional payment. Mr. Ho’s agreement, which is in substantially the same form as the Executive Change-in-Control Severance Agreements between the Company and its other senior officers, is filed as an exhibit to this Report.
Amendment of Asset Purchase Agreement with The Check Giant, LLC and Payment of Supplemental Payment. On October 31, 2008, the Company and The Check Giant, LLC (“TCG”) amended the purchase agreement with TCG to modify the payment provisions relating to the fifth supplemental payment due in November 2008. The amendment provides that the Company will make 50% of the fifth supplemental payment in cash as soon as practicable after the effectiveness of the amendment, and defer the remainder until March 31, 2009, with a deferral fee of 15% per annum on the deferred portion. At its election, the Company may make the deferred payment between December 15 and 31, 2008. The Company, through its wholly-owned subsidiary Cash America Net Holdings, LLC, will pay the first portion of this supplemental payment, in the amount of approximately $34.7 million, in cash in early November 2008.
     This supplemental payment, and the prior such payments, are related to the Company’s purchase of substantially all of the assets of TCG pursuant to the terms of the asset purchase agreement dated July 9, 2006, as amended on September 15, 2006, May 4, 2007 and October 31, 2008. At the time of the acquisition, TCG offered short-term cash advances over the internet under the name “CashNetUSA.” In the asset purchase agreement, the Company agreed to make up to five supplemental earn-out payments at scheduled times during the two year period after the closing of the purchase, which occurred September 15, 2006. The fifth supplemental payment, half of which will be paid in early November 2008, was based on a 5.0 times multiple of consolidated earnings attributable to CashNetUSA’s business for the twelve months ended September 30, 2008, the date for determining this supplemental payment, as described more fully in the asset purchase agreement, and was adjusted for amounts previously paid. As of September 30, 2008, the Company has accrued approximately $69.5 million for the total fifth supplemental payment. The Company previously made supplemental payments of approximately $33.8 million, $43.4 million and $63.2 million for the twelve month periods ending December 31, 2006, September 30, 2007 and March 31, 2008, respectively. The Company made no supplemental payment for the twelve-month period ending March 31, 2007.
Item 6. Exhibits
       
 
  2.1
  Amendment No. 3 dated October 31, 2008 to Asset Purchase Agreement between the Company and The Check Giant, LLC and its members and subsidiaries
 
   
 
10.1
  Executive Change-in-Control Severance Agreement dated October 23, 2008 between the Company and Timothy S. Ho
 
   
 
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: October 31, 2008

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