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** **

 

** **

**UNITEDSTATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q**

 

**(MarkOne)**

**x****                             ****QUARTERLY REPORT PURSUANT TOSECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

** **

**Forthe quarterly period ended March 31, 2009**

** **

**OR**

 

**o****                                ****TRANSITION REPORT PURSUANTTO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

** **

**Forthe transition period from              to**

 

**COMMISSION FILE NUMBER 001-32363**

 

**ADVANCEAMERICA, CASH ADVANCE CENTERS, INC.**

(Exact name of registrant as specified in its charter)

 

| **Delaware**                                                     | ** ** | **58-2332639**                        |
|------------------------------------------------------------------|------------|---------------------------------------|
| (State or other  jurisdiction of  incorporation or organization) | ** ** | (I.R.S. Employer  Identification No.) |

 

**135North Church StreetSpartanburg, South Carolina 29306**(Address ofprincipal executive offices) (Zip Code)

** **

**864-342-5600**(Registrant’stelephone number, including area code)

** **

**None**(Former name,former address and former fiscal year, if changed since last report)

 

Indicate by checkmark whether the registrant: (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days.   Yes x No o

 

Indicate by checkmark whether the registrant has submitted electronically and posted on itscorporate Web site, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 ofthis chapter) during the preceding 12 months (or for such shorter period thatthe registrant was required to submit and post such files). Yes o  No o

 

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer,a non-accelerated filer, or a smaller reporting company. See definitions of “largeaccelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2of the Exchange Act. (Check one):

 
| Large accelerated filer o | Accelerated filer x | Non-accelerated filer o                   | Smaller reporting company o |
|--------------------------------|--------------------------|------------------------------------------------|----------------------------------|
|                           |                     | (Do not check if a smaller  reporting company) |                             |

 

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act).  Yes o No x

 

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

 

| **Class**                               | ** ** | **Outstanding as of May 8, 2009** |
|-----------------------------------------|------------|------------------------------------------------------------|
| Common Stock,  par value $.01 per share |       | 61,649,535  shares                                         |

 

 

 

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**ADVANCEAMERICA, CASH ADVANCE CENTERS, INC.**

**Form 10-Q**

**For the three months ended March 31,2009**

 
| ** **                             | **Page**                                                                                                       |
|----------------------------------------|----------------------------------------------------------------------------------------------------------------|
| **FORWARD-LOOKING STATEMENTS**         | 3                                                                                                              |
| **PART I. FINANCIAL INFORMATION** | 4                                                                                                              |
| Item 1.                           | Financial Statements                                                                                           | 4 |
|                                   | Unaudited Consolidated  Balance Sheets December 31, 2008 and March 31, 2009                          | 4 |
|                                   | Interim Unaudited  Consolidated Statements of Income Three Months Ended March 31, 2008 and  2009          | 5 |
|                                   | Interim  Unaudited Consolidated Statement of Stockholders’ Equity Three Months Ended  March 31, 2009 | 6 |
|                                   | Interim  Unaudited Consolidated Statements of Cash Flows Three Months Ended  March 31, 2008 and 2009      | 7 |
|                                   | Notes to  Interim Unaudited Consolidated Financial Statements                                                  | 8 |
| Item 2.                           | Management’s Discussion and Analysis of  Financial Condition and Results of Operations                    | 22 |
| Item 3.                           | Quantitative  and Qualitative Disclosures About Market Risk                                                    | 41 |
| Item 4.                           | Controls and  Procedures                                                                                       | 42 |
| **PART II. OTHER  INFORMATION**   | 43                                                                                                             |
| Item 1.                           | Legal Proceedings                                                                                              | 43 |
| Item 1A.                          | Risk Factors                                                                                                   | 43 |
| Item 2.                           | Unregistered  Sales of Equity Securities and Use of Proceeds                                                   | 43 |
| Item 6.                           | Exhibits                                                                                                       | 43 |
| **SIGNATURES**                         | 44                                                                                                             |
| **INDEX TO EXHIBITS**                  | 45                                                                                                             |
|                                        |                                                                                                                |  |  |

 

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**FORWARD-LOOKINGSTATEMENTS**

 

The mattersdiscussed in this Quarterly Report on Form 10-Q that are forward-lookingstatements are based on current management expectations that involvesubstantial risks and uncertainties, which could cause actual results to differmaterially from the results expressed in, or implied by, these forward-lookingstatements. These statements can be identified by the fact that they do notrelate strictly to historical or current facts. They use words such as “expect,”“intend,” “plan,” “believe,” “project,” “anticipate,” “may,” “will,” “should,” “would,”“could,” “estimate,” “continue” and other words and terms of similar meaning inconjunction with a discussion of future operating or financial performance. Youshould read statements that contain these words carefully because they discussour future expectations, contain projections of our future results ofoperations or of our financial position or state other “forward-looking”information.

 

The mattersdescribed in “Part I. Item 1A. Risk Factors” in our Annual Report on Form 10-Kfor the year ended December 31, 2008, as well as any cautionary languagein this Quarterly Report, provide examples of risks, uncertainties and eventsthat may cause our actual results to differ materially from the expectations wedescribe in our forward-looking statements. Although we believe that ourexpectations are based on reasonable assumptions, actual results may differmaterially from those in the forward-looking statements as a result of variousfactors, including, but not limited to, the examples we provided.

 

Forward-lookingstatements speak only as of the date of this Quarterly Report. Except asrequired under federal securities laws and the rules and regulations ofthe U.S. Securities and Exchange Commission, we do not have any intention,and do not undertake, to update any forward-looking statements to reflectevents or circumstances arising after the date of this Quarterly Report,whether as a result of new information, future events or otherwise. As a resultof these risks and uncertainties, readers are cautioned not to place unduereliance on the forward-looking statements included in this Quarterly Report orthat may be made elsewhere from time to time by, or on behalf of, us. Allforward-looking statements attributable to us are expressly qualified by thesecautionary statements.

 

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**PART I.FINANCIAL INFORMATION**

 

**ITEM 1.  FINANCIAL STATEMENTS.**

 

**AdvanceAmerica, Cash Advance Centers, Inc.**

 

**UnauditedConsolidated Balance Sheets**

 

**December 31, 2008 and March 31,2009**

 

**(in thousands, except per share data)**

 
| ** **                                                                                                                                                                                      | ** ** | **December 31,  2008** | ** ** | **March 31,  2009** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|--------------------------|------------|
| **Assets**                                                                                                                                                                                      |       |                        |       |                     |       |
| Current assets                                                                                                                                                                                  |       |                        |       |                     |       |
| Cash and cash  equivalents                                                                                                                                                                      |       | $                           | 16,017     |                     | $          | 13,763 |   |
| Advances and  fees receivable, net                                                                                                                                                              |       | 220,115                     |       | 172,809                  |       |
| Deferred income  taxes                                                                                                                                                                          |       | 13,008                      |       | 13,008                   |       |
| Other current  assets                                                                                                                                                                           |       | 15,721                      |       | 17,729                   |       |
| Total current  assets                                                                                                                                                                           |       | 264,861                     |       | 217,309                  |       |
| Restricted cash                                                                                                                                                                                 |       | 4,633                       |       | 7,917                    |       |
| Property and  equipment, net                                                                                                                                                                    |       | 46,091                      |       | 40,482                   |       |
| Goodwill                                                                                                                                                                                        |       | 126,661                     |       | 126,593                  |       |
| Other assets                                                                                                                                                                                    |       | 4,764                       |       | 4,588                    |       |
| Total assets                                                                                                                                                                                    |       | $                           | 447,010    |                     | $          | 396,889 |   |
| **Liabilities  and Stockholders’ Equity**                                                                                                                                                  |       |                        |       |                     |       |
| Current  liabilities                                                                                                                                                                            |       |                        |       |                     |       |
| Accounts payable                                                                                                                                                                                |       | $                           | 13,977     |                     | $          | 13,231 |   |
| Accrued liabilities                                                                                                                                                                             |       | 33,917                      |       | 25,698                   |       |
| Income taxes  payable                                                                                                                                                                           |       | 1,625                       |       | 2,312                    |       |
| Accrual for  third-party lender losses                                                                                                                                                          |       | 3,960                       |       | 3,160                    |       |
| Current portion  of long-term debt                                                                                                                                                              |       | 545                         |       | 520                      |       |
| Total current  liabilities                                                                                                                                                                      |       | 54,024                      |       | 44,921                   |       |
| Revolving credit  facility                                                                                                                                                                      |       | 189,817                     |       | 137,774                  |       |
| Long-term debt                                                                                                                                                                                  |       | 4,590                       |       | 4,474                    |       |
| Deferred income  taxes                                                                                                                                                                          |       | 22,311                      |       | 22,311                   |       |
| Deferred revenue                                                                                                                                                                                |       | 4,791                       |       | 4,270                    |       |
| Other  liabilities                                                                                                                                                                              |       | 218                         |       | 243                      |       |
| Total  liabilities                                                                                                                                                                              |       | 275,751                     |       | 213,993                  |       |
| Commitments and  contingencies (Note 5)                                                                                                                                                    |       |                        |       |                     |       |
| Stockholders’  equity                                                                                                                                                                      |       |                        |       |                     |       |
| Preferred stock,  par value $.01 per share, 25,000 shares authorized; no shares issued and  outstanding                                                                                         |       | —                      |       | —                   |       |
| Common stock,  par value $.01 per share, 250,000 shares authorized; 96,821 shares issued and  61,087 and 61,649 outstanding as of December 31, 2008 and March 31,  2009, respectively |       | 968                         |       | 968                      |       |
| Paid in capital                                                                                                                                                                                 |       | 288,635                     |       | 288,989                  |       |
| Retained  earnings                                                                                                                                                                              |       | 143,961                     |       | 155,255                  |       |
| Accumulated  other comprehensive loss                                                                                                                                                           |       | (2,585                      | )          | (2,754                   | )          |
| Common stock in  treasury (35,734 and 35,172 shares at cost at December 31, 2008 and  March 31, 2009, respectively)                                                                   |       | (259,720                    | )          | (259,562                 | )          |
| Total  stockholders’ equity                                                                                                                                                                |       | 171,259                     |       | 182,896                  |       |
| Total  liabilities and stockholders’ equity                                                                                                                                                |       | $                           | 447,010    |                     | $          | 396,889 |   |

 

The accompanying notes are an integral part of theseconsolidated financial statements.

 

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**AdvanceAmerica, Cash Advance Centers, Inc.**

 

**InterimUnaudited Consolidated Statements of Income**

 

**Three Months Ended March 31,2008 and 2009**

 

**(in thousands, except per share data)**

 
| ** **                                      | ** ** | **2008** | ** ** | **2009** | ** ** |
|-------------------------------------------------|------------|----------|------------|----------|------------|
| **Total  Revenues**                             |       | $        | 165,456    |     | $          | 156,393 |   |
| **Center  Expenses:**                           |       |     |       |     |       |
| Salaries and  related payroll costs             |       | 51,401   |       | 47,513   |       |
| Provision for  doubtful accounts                |       | 20,780   |       | 21,098   |       |
| Occupancy costs                                 |       | 25,424   |       | 24,773   |       |
| Center  depreciation expense                    |       | 4,295    |       | 3,723    |       |
| Advertising  expense                            |       | 3,146    |       | 2,181    |       |
| Other center  expenses                          |       | 14,595   |       | 12,706   |       |
| Total center  expenses                          |       | 119,641  |       | 111,994  |       |
| Center gross  profit                            |       | 45,815   |       | 44,399   |       |
| **Corporate  and Other Expenses (Income):**     |       |     |       |     |       |
| General and  administrative expenses            |       | 16,375   |       | 14,071   |       |
| Corporate  depreciation expense                 |       | 768      |       | 688      |       |
| Interest expense                                |       | 2,688    |       | 1,699    |       |
| Interest income                                 |       | (41      | )          | (17      | )          |
| Loss on disposal  of property and equipment     |       | 126      |       | 33       |       |
| Loss on  impairment of assets                   |       | 236      |       | 2,209    |       |
| Income before  income taxes                     |       | 25,663   |       | 25,716   |       |
| Income tax  expense                             |       | 10,859   |       | 10,573   |       |
| Net income                                      |       | $        | 14,804     |     | $          | 15,143 |   |
| Net income per  common share:                   |       |     |       |     |       |
| Basic                                           |       | $        | 0.21       |     | $          | 0.25 |   |
| Diluted                                         |       | $        | 0.21       |     | $          | 0.25 |   |
| Dividends  declared per common share            |       | $        | 0.125      |     | $          | 0.0625 |   |
| Weighted average  number of shares outstanding: |       |     |       |     |       |
| Basic                                           |       | 70,665   |       | 60,858   |       |
| Diluted                                         |       | 70,665   |       | 61,234   |       |

 

The accompanying notes are an integral part of theseconsolidated financial statements.

 

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**AdvanceAmerica, Cash Advance Centers, Inc.**

 

**InterimUnaudited Consolidated Statement of Stockholders’ Equity**

 

**Three Months Ended March 31,2009**

 

**(in thousands, except per share data)**

 
| ** **                                              | ** ** | ** **        | ** ** | ** ** | ** ** | ** **  | ** ** | ** **   | ** ** | **Accumulated**   | ** ** | ** **       | ** ** | ** ** | ** ** |
|---------------------------------------------------------|------------|-------------------|------------|------------|------------|-------------|------------|--------------|------------|-------------------|------------|------------------|------------|------------|------------|
| ** **                                              | ** ** | **Common  Stock** | ** ** | ** ** | ** ** | ** **  | ** ** | **Other**    | ** ** | **Common  Stock** | ** ** | ** **       | ** ** |
| ** **                                              | ** ** | ** **        | ** ** | **Par**    | ** ** | **Paid-In** | ** ** | **Retained** | ** ** | **Comprehensive** | ** ** | **In  Treasury** | ** ** | ** ** | ** ** |
| ** **                                              | ** ** | **Shares**        | ** ** | **Value**  | ** ** | **Capital** | ** ** | **Earnings** | ** ** | **Loss**          | ** ** | **Shares**       | ** ** | **Amount** | ** ** | **Total** | ** ** |
| **Balances,  December 31, 2008**                   |       | 96,821            |       | $          | 968        |        | $          | 288,635      |       | $                 | 143,961    |             | $          | (2,585     | )          | (35,734 | ) | $ | (259,720 | ) | $ | 171,259 |   |
| Comprehensive  income:                                  |       |              |       |       |       |        |       |         |       |              |       |             |       |       |       |   |   |
| Net income                                              |       | —            |       | —     |       | —      |       | 15,143       |       | —            |       | —           |       | —     |       | 15,143 |   |
| Foreign currency  translation                           |       | —            |       | —     |       | —      |       | —       |       | (169              | )          | —           |       | —     |       | (169 | ) |
| Total  comprehensive income                             |       |              |       |       |       |        |       |         |       |              |       |             |       |       |       | 14,974 |   |
| Dividends paid  ($0.0625 per share)                     |       | —            |       | —     |       | —      |       | (3,828       | )          | —            |       | —           |       | —     |       | (3,828 | ) |
| Dividends payable                                       |       | —            |       | —     |       | —      |       | (21          | )          | —            |       | —           |       | —     |       | (21 | ) |
| Purchases of  treasury stock                            |       | —            |       | —     |       | —      |       | —       |       | —            |       | (3               | )          | (5         | )          | (5 | ) |
| Issuance of  restricted stock                           |       | —            |       | —     |       | —      |       | —       |       | —            |       | 564              |       | —     |       | — |   |
| Forfeitures of  restricted stock                        |       | —            |       | —     |       | —      |       | —       |       | —            |       | (3               | )          | —     |       | — |   |
| Vesting of  restricted stock issued from treasury stock |       | —            |       | —     |       | (132        | )          | —       |       | —            |       | —           |       | 132        |       | — |   |
| Amortization of  restricted stock                       |       | —            |       | —     |       | 197         |       | —       |       | —            |       | —           |       | —     |       | 197 |   |
| Stock option  expense                                   |       | —            |       | —     |       | 313         |       | —       |       | —            |       | —           |       | —     |       | 313 |   |
| Issuance of  common stock to director in lieu of cash   |       | —            |       | —     |       | (24         | )          | —       |       | —            |       | 4                |       | 31         |       | 7 |   |
| **Balances,  March 31, 2009**                      |       | 96,821            |       | $          | 968        |        | $          | 288,989      |       | $                 | 155,255    |             | $          | (2,754     | )          | (35,172 | ) | $ | (259,562 | ) | $ | 182,896 |   |

 

The accompanying notes are an integral part of these consolidatedfinancial statements.

 

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**AdvanceAmerica, Cash Advance Centers, Inc.**

 

**InterimUnaudited Consolidated Statements of Cash Flows**

 

**Three Months Ended March 31,2008 and 2009**

 

**(in thousands)**

 
| ** **                                                                                             | ** ** | **2008** | ** ** | **2009** | ** ** |
|--------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| **Cash  flows from operating activities**                                                              |       |     |       |     |       |
| Net income                                                                                             |       | $        | 14,804     |     | $          | 15,143 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities, net of  acquisition |       |     |       |     |       |
| Depreciation and  amortization                                                                         |       | 5,068    |       | 4,425    |       |
| Non-cash  interest expense                                                                             |       | 239      |       | 156      |       |
| Provision for  doubtful accounts                                                                       |       | 20,780   |       | 21,098   |       |
| Deferred income  taxes                                                                                 |       | 2,393    |       | —   |       |
| Loss on disposal  of property and equipment                                                            |       | 126      |       | 33       |       |
| Loss on  impairment of assets                                                                          |       | 236      |       | 2,209    |       |
| Amortization of  restricted stock                                                                      |       | 216      |       | 197      |       |
| Stock option  expense                                                                                  |       | 323      |       | 313      |       |
| Common stock  issued to director in lieu of cash                                                       |       | 25       |       | 7        |       |
| Changes in  operating assets and liabilities                                                           |       |     |       |     |       |
| Fees receivable,  net                                                                                  |       | 538      |       | (4,772   | )          |
| Other current  assets                                                                                  |       | (9,542   | )          | (2,039   | )          |
| Other assets                                                                                           |       | 124      |       | 17       |       |
| Accounts payable                                                                                       |       | 759      |       | 2,041    |       |
| Accrued  liabilities                                                                                   |       | (6,087   | )          | (8,264   | )          |
| Income taxes  payable                                                                                  |       | 56       |       | 687      |       |
| Deferred revenue                                                                                       |       | 5,771    |       | (520     | )          |
| Other  liabilities                                                                                     |       | 19       |       | —   |       |
| Net cash  provided by operating activities                                                             |       | 35,848   |       | 30,731   |       |
| **Cash  flows from investing activities**                                                              |       |     |       |     |       |
| Changes in  advances receivable                                                                        |       | 18,790   |       | 30,157   |       |
| Changes in  restricted cash                                                                            |       | 537      |       | (3,284   | )          |
| Acquisition of  business, net of cash acquired                                                         |       | (482     | )          | —   |       |
| Proceeds from  sale of property and equipment                                                          |       | 12       |       | 40       |       |
| Purchases of  property and equipment                                                                   |       | (3,176   | )          | (1,053   | )          |
| Net cash  provided by investing activities                                                             |       | 15,681   |       | 25,860   |       |
| **Cash  flows from financing activities**                                                              |       |     |       |     |       |
| Payments on  revolving credit facility, net                                                            |       | (15,055  | )          | (52,043  | )          |
| Payments on  mortgage payable                                                                          |       | (100     | )          | (108     | )          |
| Payments on note  payable                                                                              |       | (32      | )          | (34      | )          |
| Payments of  financing costs                                                                           |       | (1,585   | )          | —   |       |
| Purchases of  treasury stock                                                                           |       | (36,834  | )          | (5       | )          |
| Payments of  dividends                                                                                 |       | (8,853   | )          | (3,828   | )          |
| Changes in book  overdrafts                                                                            |       | (763     | )          | (2,775   | )          |
| Net cash used in  financing activities                                                                 |       | (63,222  | )          | (58,793  | )          |
| Effect of  exchange rate changes on cash and cash equivalents                                          |       | (23      | )          | (52      | )          |
| Net decrease in  cash and cash equivalents                                                             |       | (11,716  | )          | (2,254   | )          |
| Cash and cash  equivalents, beginning of period                                                        |       | 28,251   |       | 16,017   |       |
| Cash and cash  equivalents, end of period                                                              |       | $        | 16,535     |     | $          | 13,763 |   |
|                                                                                                   |       |     |       |     |       |
| Supplemental  disclosures of cash flow information:                                                    |       |     |       |     |       |
| Cash paid during  the period for:                                                                      |       |     |       |     |       |
| Interest                                                                                               |       | $        | 2,945      |     | $          | 1,652 |   |
| Income taxes                                                                                           |       | 12,770   |       | 9,673    |       |
| Supplemental  schedule of non-cash investing and financing activity:                                   |       |     |       |     |       |
| Property and  equipment purchases included in accounts payable and accrued expenses                    |       | 372      |       | 60       |       |
| Restricted stock  dividends payable                                                                    |       | 30       |       | 21       |       |
| Net assets  acquired through acquisition of business                                                   |       | 61       |       | —   |       |

 

The accompanying notes are an integral part of theseconsolidated financial statements.

 

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**AdvanceAmerica, Cash Advance Centers, Inc.**

 

**Notes toInterim Unaudited Consolidated Financial Statements**

 

**1. Summary of Significant AccountingPolicies**

 

**Basis of Presentation**

 

The accompanyinginterim unaudited consolidated financial statements of Advance America, CashAdvance Centers, Inc. (“AACACI”) and its wholly owned subsidiaries(collectively, the “Company”) have been prepared in accordance with accountingprinciples generally accepted in the United States for interim financialinformation and the rules and regulations of the U.S. Securities andExchange Commission (the “SEC”). They do not include all information andfootnotes required by accounting principles generally accepted in the UnitedStates for complete financial statements. Although management believes that thedisclosures are adequate to prevent the information from being misleading, theinterim unaudited consolidated financial statements should be read inconjunction with the Company’s audited financial statements in the Company’sAnnual Report on Form 10-K for the year ended December 31, 2008 filedwith the SEC. In the opinion of the Company’s management, all adjustments,consisting of normal recurring accruals considered necessary for a fairstatement of the Company’s financial condition, have been included. The resultsof operations for the three months ended March 31, 2009 are notnecessarily indicative of the results that may be expected for future interimperiods or the entire year ending December 31, 2009.

 

**Description of Business**

 

The Companyconducts business in most states under the authority of a variety of enablingstate statutes including cash advance, deferred presentment, check-cashing,small loan, credit service organization and other state laws whereby advancesare made directly to customers. The Company’s operations in the United Kingdomare conducted in accordance with applicable English law. The Company’soperations in Canada are conducted in accordance with applicable Canadianfederal and provincial law.

 

**Revenue Recognition**

 

Revenues can becharacterized as fees and/or interest depending on the Company’s businessoperations and product offerings under enabling regulations. Revenue isrecognized on a constant-yield basis ratably over the term of each advance. TheCompany has also entered into a long-term services contract for which theCompany receives advance payments. These advance payments are recorded asdeferred revenue and recognized as revenue over the life of the contractsubject to certain terms and conditions.

 

**Concentration of Risk**

 

For the threemonths ended March 31, 2008 and 2009, total revenues within the Company’sfive largest states (measured by total revenues) accounted for approximately49% and 51%, respectively, of the Company’s total revenues.

 

**Income Taxes**

 

Income taxes areaccounted for under the asset and liability method. Deferred tax assets andliabilities are recognized for the future tax consequences attributable todifferences between the financial statement carrying value of existing assetsand liabilities and their respective tax bases and for operating loss and taxcredit carryforwards. Deferred tax assets and liabilities are measured usingenacted tax rates expected to apply to taxable income in the years in which therelated temporary differences are expected to 

 

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be recovered or settled.The effect on deferred tax assets and liabilities of a change in tax rates isrecognized in the period that includes the enactment date.

 

**Earnings Per Share**

 

Basic earnings pershare is computed by dividing net income by the weighted average number ofcommon shares outstanding for the period excluding unvested restricted stock.Diluted earnings per share is computed by dividing net income by the weightedaverage number of common shares outstanding for the period, after adjusting forthe dilutive effect of unvested restricted stock and outstanding stock options.At March 31, 2008 and 2009, 298,890 and 219,851, respectively, unvestedshares of restricted stock were not included in the computation of dilutedearnings per share because the effect of including them would be anti-dilutive.At March 31, 2008 and 2009, options to purchase 1,630,000 and 1,567,500shares of common stock, respectively, that were outstanding at those dates werenot included in the computation of diluted earnings per share because theeffect of including them would be anti-dilutive.

 

The followingtable presents the reconciliation of the denominator used in the calculation ofbasic and diluted earnings per share for the three months ended March 31,2008 and 2009 (in thousands):

 
| ** **                                                         | ** ** | **2008** | ** ** | **2009** | ** ** |
|--------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Reconciliation  of denominator:                                    |       |     |       |     |       |
| Weighted average  number of common shares outstanding—basic   |       | 70,665   |       | 60,858   |       |
| Effect of  dilutive unvested restricted stock                      |       | —   |       | 287      |       |
| Effect of  dilutive outstanding stock options                      |       | —   |       | 89       |       |
| Weighted average  number of common shares outstanding—diluted |       | 70,665   |       | 61,234   |       |

 

**RecentlyIssued Accounting Pronouncements**

 

In September 2006,the Financial Accounting Standards Board (“FASB”) issued Statement of FinancialAccounting Standards No. 157 (“SFAS 157”), “Fair Value Measurements,”which defines fair value, establishes guidelines for measuring fair value andexpands disclosures regarding fair value measurements. SFAS 157 does notrequire any new fair value measurements but rather eliminates inconsistenciesin guidance found in various prior accounting pronouncements. SFAS 157 waseffective for fiscal years beginning after November 15, 2007. The adoptionof SFAS 157 did not have a material impact on the Company’s financialposition or results of operations.

 

In February 2007,the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assetsand Financial Liabilities” (“SFAS 159”). SFAS 159 permits entities tochoose, at specified election dates, to measure eligible items at fair value(the “fair value option”) and requires an entity to report unrealized gains andlosses on items for which the fair value option has been elected in earnings ateach subsequent reporting date. Upfront costs and fees related to items forwhich the fair value option is elected shall be recognized in earnings asincurred and not deferred. SFAS 159 was effective for fiscal years beginningafter November 15, 2007. The adoption of SFAS 159 did not have amaterial impact on the Company’s financial position or results of operations.

 

In December 2007,the FASB issued SFAS No. 141(R) (revised 2007), “Business Combinations” (“SFAS 141(R)”).SFAS 141(R) modifies the accounting for business combinations andrequires, with limited exceptions, the acquirer in a business combination torecognize 100 percent of the assets acquired, liabilities assumed and anynon-controlling interest in the acquiree at the acquisition-date fair value. Inaddition, SFAS 141(R) requires the expensing of acquisition-relatedtransaction and restructuring costs and requires that certain contingent assetsand liabilities acquired, as well as contingent consideration, be recognized atfair value. SFAS 141(R) also modifies the accounting for certainacquired income tax assets and liabilities. SFAS 141(R) is effectivefor new acquisitions consummated on or after January 1, 2009. 

 

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The adoption of SFAS 141(R)did not have a material impact on the Company’s financial position or resultsof operations.

 

In December 2007,the FASB issued SFAS No. 160 (“SFAS 160”), “Noncontrolling Interestsin Consolidated Financial Statements, an amendment of ARB No. 51,” whichestablishes accounting and reporting standards for the noncontrolling interestin a subsidiary and for the deconsolidation of a subsidiary. SFAS 160clarifies that a noncontrolling interest in a subsidiary, which is sometimesreferred to as minority interest, is an ownership interest in the consolidatedentity that should be reported as a component of equity in the consolidatedfinancial statements. Among other requirements, SFAS 160 requiresconsolidated net income to be reported at amounts that include the amountsattributable to both the parent and the noncontrolling interest. It alsorequires disclosure, on the face of the consolidated income statement, of theamounts of consolidated net income attributable to the parent and to thenoncontrolling interest. SFAS 160 is effective for fiscal years beginningafter December 15, 2008. The adoption of SFAS 160 did not have a materialimpact on the Company’s financial position or results of operations.

 

In December 2008,the FASB issued Staff Position No. FAS 140-4 and FIN 46(R)-8, “Disclosuresby Public Entities about Transfers of Financial Assets and Interests inVariable Interest Entities” (“FSP FAS 140-4 and FIN 46(R)-8”). ThisStaff Position amends FASB Statement No. 140 “Accounting for Transfers andServing of Financial Assets and Extinguishments of Liabilities” to requirepublic entities to provide additional disclosures about transfers of financialassets. It also amends FASB Interpretation No. 46 “Consolidation ofVariable Interest Entities” as revised to require public entities to provideadditional disclosures about their involvement with Variable Interest Entities(“VIEs”). FSP 140-4 and FIN 46(R)-8 were effective for the Company’sfiscal year ended December 31, 2008. The Company has adopted thedisclosure requirements of FSP FAS 140-4 and FIN 46(R)-8 neither ofwhich had a material impact on the Company’s financial position or results ofoperations.

 

In April 2009,the FASB issued FSP FAS 107-1 and APB 28-1, Interim Disclosures about FairValue of Financial Instruments (“FSP FAS 107-1 and APB 28-1”).  FSP FAS107-1 and APB 28-1 amends the disclosure requirements in SFAS No. 107,Disclosures about Fair Value of Financial Instruments (“SFAS 107”), and APBOpinion No. 28, Interim Financial Reporting, to require disclosures aboutthe fair value of financial instruments, including disclosure of the method andsignificant assumptions used to estimate the fair value of financialinstruments, in interim financial statements as well as in annual financialstatements.   The Company has adopted thedisclosure requirements of FSP FAS 107-1 and APB 28-1 neither of which had amaterial impact on the Company’s financial position or results of operations.

 

**2. Advances and Fees Receivable, Net**

 

Advances and feesreceivable, net, consisted of the following (in thousands):

 

| ** **                         | ** ** | **December 31,  2008** | ** ** | **March 31,  2009** | ** ** |
|------------------------------------|------------|-----------------------------|------------|--------------------------|------------|
| Advances  receivable               |       | $                           | 215,577    |                     | $          | 170,777 |   |
| Fees and  interest receivable      |       | 33,633                      |       | 30,978                   |       |
| Returned items  receivable         |       | 42,996                      |       | 32,432                   |       |
| Other                              |       | 3,751                       |       | 4,138                    |       |
| Allowance for  doubtful accounts   |       | (59,441                     | )          | (53,254                  | )          |
| Unearned  revenues                 |       | (16,401                     | )          | (12,262                  | )          |
| Advances and  fees receivable, net |       | $                           | 220,115    |                     | $          | 172,809 |   |

 

Included in advances,fees and interest receivables are amounts that may be past due that do not havebank presentment authorizations.

 

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**3.Allowance for Doubtful Accounts and Accrual for Third-Party Lender Losses**

 

Changes in theallowance for doubtful accounts for the three months ended March 31, 2008and 2009 were as follows (in thousands):

 

| ** **                       | ** ** | **2008** | ** ** | **2009** | ** ** |
|----------------------------------|------------|----------|------------|----------|------------|
| Beginning  balance               |       | $        | 61,306     |     | $          | 59,441 |   |
| Provision for  doubtful accounts |       | 21,874   |       | 21,898   |       |
| Charge-offs                      |       | (43,674  | )          | (36,544  | )          |
| Recoveries                       |       | 10,371   |       | 8,459    |       |
| Ending balance                   |       | $        | 49,877     |     | $          | 53,254 |   |

 

Changes in theaccrual for third-party lender losses for the three months ended March 31,2008 and 2009 were as follows (in thousands):

 

| ** **                       | ** ** | **2008** | ** ** | **2009** | ** ** |
|----------------------------------|------------|----------|------------|----------|------------|
| Beginning  balance               |       | $        | 4,587      |     | $          | 3,960 |   |
| Provision for  doubtful accounts |       | (1,094   | )          | (800     | )          |
| Ending balance                   |       | $        | 3,493      |     | $          | 3,160 |   |

 

The total changesin the allowance for doubtful accounts and the accrual for third-party lenderlosses for the three months ended March 31, 2008 and 2009 were as follows(in thousands):

 

| ** **                       | ** ** | **2008** | ** ** | **2009** | ** ** |
|----------------------------------|------------|----------|------------|----------|------------|
| Beginning  balance               |       | $        | 65,893     |     | $          | 63,401 |   |
| Provision for  doubtful accounts |       | 20,780   |       | 21,098   |       |
| Charge-offs                      |       | (43,674  | )          | (36,544  | )          |
| Recoveries                       |       | 10,371   |       | 8,459    |       |
| Ending balance                   |       | $        | 53,370     |     | $          | 56,414 |   |

 

**4.Accrued Liabilities**

 

Accruedliabilities consisted of the following (in thousands):

 

| ** **                           | ** ** | **December 31,  2008** | ** ** | **March 31,  2009** | ** ** |
|--------------------------------------|------------|-----------------------------|------------|--------------------------|------------|
| Employee  compensation               |       | $                           | 13,533     |                     | $          | 7,955 |   |
| Workers’  compensation          |       | 4,851                       |       | 4,665                    |       |
| Lease smoothing                      |       | 3,011                       |       | 2,799                    |       |
| Advertising                          |       | 584                         |       | 531                      |       |
| Construction in  progress            |       | 99                          |       | 60                       |       |
| Center closing  costs                |       | 871                         |       | 1,087                    |       |
| Accounting and  tax                  |       | 1,158                       |       | 750                      |       |
| Property, sales  and franchise taxes |       | 558                         |       | 506                      |       |
| Legal                                |       | 1,128                       |       | 869                      |       |
| Severance                            |       | 374                         |       | 650                      |       |
| Deferred revenue                     |       | 1,830                       |       | 1,814                    |       |
| Legal  settlements                   |       | 2,600                       |       | 1,551                    |       |
| Other                                |       | 3,320                       |       | 2,461                    |       |
| Total                                |       | $                           | 33,917     |                     | $          | 25,698 |   |

 

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**5. Commitments and Contingencies**

 

The Company is involved in a number of active lawsuits, includinglawsuits arising out of actions taken by state regulatory authorities, and isinvolved in various other legal proceedings with state and federalregulators.  Unless otherwise statedbelow, the Company is vigorously defending against these actions.  The amount of losses and/or the probabilityof an unfavorable outcome, if any, cannot be reasonably estimated for theselegal proceedings unless otherwise stated below.

 

**Legal Proceedings**

 

*Brenda McGinnis v. Advance AmericaServicing of Arkansas, Inc. et al.*

 

On February 27,2007, Brenda McGinnis filed a putative class action in the Circuit Court ofClark County, Arkansas alleging violations of the Arkansas usury law, theArkansas Deceptive Trade Practices Act and a 2001 class action settlementagreement entered into by the Company’s prior subsidiary in Arkansas. Thecomplaint alleges that the Company’s current subsidiary made usurious loansunder the Arkansas Check Cashers Act and seeks compensatory damages in an amountequal to twice the interest paid on the deferred presentment transactions madefrom 2001 to present (which would total approximately $21.4 million fordeferred presentment transactions made during that time or approximately$87 million in damages for all transactions originated processed, andserviced during that time) as well as a declaration that the contracts arevoid, enforcement of the 2001 class action settlement agreement, attorneys’fees and costs. The trial court has denied the Company’s motion to compelarbitration and the class was certified in April 2008. The Company’sappeals of both decisions were denied. The plaintiff has filed a motion forsummary judgment which the Company has opposed. The Company expects a ruling onthis motion sometime in the latter half of 2009.

 

*Magee and Johnson v. Advance AmericaServicing of Arkansas, Inc.*

 

On October 13,2008, Gary Neil Magee and Charlotte Johnson filed a putative class action inthe Circuit Court of Clark County, Arkansas alleging that the Company’sArkansas subsidiary violated the Arkansas usury law and the Arkansas DeceptiveTrade Practices Act. The complaint alleges that the fees charged by the Company’ssubsidiary to cash checks were interest on consumer loans and usurious understate law. The parties seek compensatory damages in an amount equal to twicethe combined interest plus unrelated check cashing fees on the loans from April 2008to October 2008, and a declaration that the transactions are void, plusattorneys’ fees and costs. The Court has granted the Company’s motion to compelarbitration on an individual basis.

 

*Kerri Stone v. Advance America, CashAdvance Centers, Inc. et al.*

 

On July 18,2008, Kerri Stone, filed a putative class action complaint in the Supreme Courtof California against the Company and its California subsidiary allegingviolations of the California Deferred Deposit Transaction Law, the CaliforniaUnfair Competition Law and the California Consumer Legal Remedies Act. The casehas been removed to the U.S. District Court for the Southern District ofCalifornia. The putative class action complaint seeks trebling of compensatorydamages, disgorgement of profits, attorney’s fees, punitive damages, and anorder enjoining enforcement of class action waiver clauses in cash advancecontracts. The Court has denied the Company’s motion to dismiss the Plaintiff’scomplaint.  The Company has filed motionsfor reconsideration of and the right to appeal the Court’s decision.

 

*Betts and Reuter v. McKenzie CheckAdvance of Florida, LLC et al.*

 

The Company andthe Company’s subsidiary McKenzie Check Advance of Florida, LLC (“McKenzie”)are defendants in a putative class action lawsuit commenced by formercustomers, Wendy Betts and Donna Reuter on January 11, 2001, and a thirdnamed class representative, Tiffany Kelly, in the Circuit Court of Palm BeachCounty, Florida. This putative class action alleges that McKenzie, by andthrough the actions of certain officers, directors and employees, engaged inunfair and deceptive trade 

 

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practices and violatedFlorida’s criminal usury statute, the Florida Consumer Finance Act and theFlorida Racketeer Influenced and Corrupt Organizations Act. The suit seeksunspecified damages, and the named defendants could be required to refund feesand/or interest collected, refund the principal amount of cash advances, paymultiple damages and pay other monetary penalties. Ms. Reuter’s claim hasbeen held to be subject to binding arbitration, which the Company expects to proceedin parallel with this case. However, the trial court has denied the defendants’motion to compel arbitration of Ms. Kelly’s claims, the substituted namedplaintiff, and the resulting appeal has been dismissed by the Florida court ofappeals. The Company has sought review of the arbitration issue by the FloridaSupreme Court. All proceedings at the trial court level are effectively stayedpending exhaustion of the defendants’ appellate rights.

 

*Reuter and Betts v. Advance America,Cash Advance Centers of Florida, Inc. et al.*

 

A second Floridalawsuit was filed on August 24, 2004 in the Circuit Court of Palm BeachCounty by former customers Gerald Betts and Ms. Reuter against theCompany, the Company’s Florida subsidiary, Advance America, Cash Advance Centersof Florida, Inc., and certain officers and directors. The allegations,relief sought and the Company’s defenses in this lawsuit are nearly identicalto those alleged in the first *Betts andReuter* lawsuit described above. The proceedings at the trial courtlevel are stayed pending the outcome of the Company’s appeal of the trial court’sdenial of certain defendants’ motion to dismiss for lack of personaljurisdiction.  The Company expects the Courtto rule on this motion in the latter half of 2009.

 

*King and Strong v. Advance America,Cash Advance Centers of Georgia, Inc. et al.*

 

On August 6,2004, Tahisha King and James E. Strong, who were customers of BankWest, thelending bank for which the Company previously marketed, processed and servicedcash advances in Georgia, filed a putative class action lawsuit in the StateCourt of Cobb County, Georgia against the Company, William M. Webster IV, theCompany’s Chairman, and other unnamed officers, directors, owners and “stakeholders,”alleging various causes of action including that the Georgia subsidiary madeillegal cash advance loans in Georgia in violation of Georgia’s usury law, theGeorgia Industrial Loan Act and Georgia’s Racketeer Influenced and CorruptOrganizations Act. The complaint alleges that BankWest was not the “true lender”and that the Company was the “de facto” lender. The complaint seekscompensatory damages, attorneys’ fees, punitive damages and the trebling of anycompensatory damages.

 

On February 9,2009, the parties signed a settlement agreement for the purpose of resolvingall claims in connection with the class action. If the court approves thesettlement agreement, the Company will pay a minimum of approximately$2.0 million from which (1) a settlement pool will be established tocover payment of claims, individually varying from $30 to $90, and (2) paymentof all costs and fees, including attorney’s fees, related to the litigation andsettlement administration of the class action will be made. If claims made pluscosts exceed approximately $2.0 million, the Company will be required topay additional funds into the settlement pool up to an aggregate cap ofapproximately $3.7 million. All named defendants will be released from allclaims in connection with originating, marketing or servicing loans in Georgia.

 

*Glasscock v. Advance America, CashAdvance Centers of Georgia, Inc. et al.*

 

The Company’sGeorgia subsidiary is involved in another case in Georgia that, although not aclass action lawsuit, contains essentially the same allegations as the *King and Strong* case described above. On March 10,2003, Angela Glasscock, a customer of BankWest, filed an adversary proceedingin the U.S. Bankruptcy Court for the Southern District of Georgia alleging thatthe Company’s Georgia subsidiary was making cash advances in Georgia inviolation of the Georgia Industrial Loan Act. BankWest intervened into the caseand subsequently both the subsidiary and BankWest filed a motion for summaryjudgment, which was granted in September 2005. In April 2007, on appeal,the United States District Court overturned the U.S. Bankruptcy Court’s grantof summary judgment. The parties have agreed to settle this case for animmaterial amount if the *King*settlement discussed above receives court approval and the settlement willbecome effective upon final court approval of the *King* settlement.

 

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*Trejov. Advance America, Cash Advance Centers of Illinois, Inc.*

 

On March 4, 2009,Martha Trejo filed a putative class action lawsuit in the Circuit Court of CookCounty against the Company’s Illinois subsidiary.  The complaint alleges that the Illinoissubsidiary’s practices violate the Illinois Payday Reform Act, the IllinoisInterest Act, the Illinois Consumer Installment Loan Act, and the Illinois WageAssignment Act.  The complaint seeks certification of a class ofindividuals for the alleged violations as well as a declaration that all loansmade to class members are unenforceable, injunctive relief, and monetarydamages in an unspecified amount.  The Company removed the case to UnitedStates District Court for the Northern District of Illinois and filed a motionto dismiss or, in the alternative, to compel arbitration.

 

*Hooper and Vaughn v. AdvanceAmerica, Cash Advance Centers of Missouri, Inc.*

 

On March 10,2008, Trishia Hooper and Josephine Vaughn filed a putative class action lawsuitin the United States District Court for the Western District of Missouriagainst our Missouri subsidiary, Advance America, Cash Advance Centers ofMissouri, Inc. The action alleges that the arbitration clause and classaction waiver in the Company’s subsidiary’s loan agreement is unconscionable,that the Company’s subsidiary’s practices violate the Missouri statutesgoverning unfair and deceptive trade practices, interest rates, loan renewals,debt reduction, and consideration of borrower’s ability to repay. The lawsuitseeks certification as a class action, unspecified monetary damages, and adeclaratory judgment that the arbitration clause and class action waiver isunconscionable, and injunctive relief. The trial court denied the Company’smotion to compel arbitration and the Company is appealing the denial of thatmotion.

 

*Kucan et al. v. Advance America,Cash Advance Centers of North Carolina, Inc. et al.*

 

On July 27,2004, John Kucan, Welsie Torrence and Terry Coates, each of whom was a customerof Republic Bank & Trust Company (“Republic”), the lending bank forwhom the Company previously marketed, processed and serviced cash advances inNorth Carolina, filed a putative class action lawsuit in the General Court ofJustice for the Superior Court Division for New Hanover County, North Carolinaagainst the Company and Mr. William M. Webster IV, Chairman of the Company’sBoard of Directors and prior Chief Executive Officer, alleging, among otherthings, that the relationship between the Company’s North Carolina subsidiaryand Republic was a “rent a charter” relationship and therefore Republic was notthe “true lender” on the cash advances it offered. The lawsuit also claims thatthe cash advances were made, administered and collected in violation ofnumerous North Carolina consumer protection laws. The lawsuit seeks aninjunction barring the subsidiary from continuing to do business in NorthCarolina, the return of the principal amount of the cash advances made to theplaintiff class since August 2001, the return of any interest or feesassociated with those advances, treble damages, attorneys’ fees and otherunspecified costs. Litigation regarding the Company’s arbitration rights isproceeding before the trial court and the Company expects a decision on theissue of arbitration in the third quarter of 2009.

 

*North Carolina Commissioner of BanksOrder*

 

On February 1,2005, the Commissioner of Banks of North Carolina initiated a contested caseagainst the Company’s North Carolina subsidiary for alleged violations of theNorth Carolina Consumer Finance Act. In December 2005, the Commissioner ofBanks ordered that the Company’s North Carolina subsidiary immediately ceaseand desist operating. In accordance with the Commissioner of Banks’ order, theCompany’s North Carolina subsidiary ceased all business operations on December 22,2005. The Company appealed the Commissioner’s order.  The case has been stayed until the thirdquarter of 2009, at which time the Company’s appeal will be heard by the Court.

 

*Pennsylvania Department of Bankingv. NCAS of Delaware, LLC*

 

On September 27,2006, the Pennsylvania Department of Banking filed a lawsuit in theCommonwealth Court of Pennsylvania alleging that the Company’s Delawaresubsidiary was providing lines of credit to borrowers in Pennsylvania without alicense required under Pennsylvania’s financial licensing law and charginginterest and fees in excess of the amounts permitted by Pennsylvania’s usury 

 

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law. In July 2007,the court determined that certain aspects of the Company’s Choice Line ofCredit required the Company to be licensed under Pennsylvania’s ConsumerDiscount Company Act (“CDCA”) and enjoined the Company from continuing itslending activities in Pennsylvania for so long as the CDCA violations continuedand from collecting monthly participation fees. The Company appealed to thePennsylvania Supreme Court and, in May 2008, the Pennsylvania SupremeCourt upheld the lower court’s ruling. The Pennsylvania Department of Bankingamended its complaint to add the Pennsylvania Attorney General as a plaintiffand the Company as a defendant. The amended complaint also seeks to perfect aclaim for alleged violations of the state’s usury law by seeking unspecifieddamages, including disgorgement of profits earned in Pennsylvania, trebleactual damages, and restitution, which could total approximately$135 million, plus civil penalties of $1,000 for each violation of thePennsylvania Consumer Protection Law and of an additional $2,000 for violationsagainst customers over the age of 60, and attorneys fees and costs. The matteris proceeding before the trial court. The Company has filed a motion to dismissthe amended complaint and will continue to vigorously defend against thelawsuit.

 

*Sharlene Johnson, Helena Love andBonny Bleacher v. Advance America, Cash Advance Centers, Inc. et al.*

 

On August 1,2007, Sharlene Johnson, Helena Love and Bonny Bleacher filed a putative classaction lawsuit in the United States District Court, Eastern District ofPennsylvania against the Company and two of its subsidiaries alleging that theyprovided lines of credit to borrowers in Pennsylvania without a licenserequired under Pennsylvania law and with interest and fees in excess of theamounts permitted by Pennsylvania law. The complaint seeks, among other things,a declaratory judgment that the monthly participation fee charged to customerswith a line of credit is illegal, an injunction prohibiting the collection ofthe monthly participation fee and the payment by the Company of damages equalto three times the monthly participation fees paid by customers since June 2006,which could total approximately $135 million in damages plus attorneys’fees and costs. In January 2008, the trial court entered an ordercompelling the purported class representatives to arbitrate their claims on anindividual basis, unless determined otherwise by the arbiter. Both partiesappealed this order and, in July 2008, the Court of Appeals ordered theparties to engage in mediation. The parties are currently engaged incourt-ordered mediation, and the appeals in the matter are stayed, pending theoutcome of that mediation.

 

*Raymond King and Sandra Coates v.Advance America, Cash Advance Centers of Pennsylvania, LLC*

 

On January 18,2007, Raymond King and Sandra Coates, who were customers of BankWest, thelending bank for which the Company previously marketed, processed and servicedcash advances in Pennsylvania, filed a putative class action lawsuit in theUnited States District Court, Eastern District of Pennsylvania alleging variouscauses of action, including that the Pennsylvania subsidiary made illegal cashadvance loans in Pennsylvania in violation of Pennsylvania’s usury law, thePennsylvania Consumer Discount Company Act, the Pennsylvania Unfair TradePractices and Consumer Protection Law, the Pennsylvania Fair Credit ExtensionUniformity Act and the Pennsylvania Credit Services Act. The complaint allegesthat BankWest was not the “true lender” and that the Company’s Pennsylvaniasubsidiary was the “lender in fact.” The complaint seeks compensatory damages,attorneys’ fees, punitive damages and the trebling of any compensatory damages.In January 2008, the trial court entered an order compelling the purportedclass representatives to arbitrate their claims on an individual basis, unlessdetermined otherwise by the arbiter. The parties engaged in court-orderedmediation, which was not successful, and the appeals on the issue of compelledarbitration will proceed.

 

*Clerk v. NCAS of Delaware, LLC, d/b/a Advance America, CashAdvance Centers of Pennsylvania, Inc., et al*

 

On April 21, 2009,Yulon Clerk, a former customer, filed a putative class action lawsuit in thePhiladelphia County Court of Common Pleas against the Company’s subsidiaries,Advance America, Cash Advance Centers of Pennsylvania, Inc., and NCAS ofDelaware, LLC.  The complaint alleges that the practices of the Company’ssubsidiaries violated the Pennsylvania Consumer Discount Protection Act, thePennsylvania Loan Interest Protection Law, and Pennsylvania Consumer ProtectionLaws.  The complaint seeks certification of a class of individuals for thealleged violations, a declaration that all loans made to 

 

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class members areunenforceable, injunctive relief, and monetary damages. The complaint repeatsallegations asserted in other putative class actions filed in Pennsylvania thathave been stayed in favor of mandatory individual arbitrations.

 

*Class ActionsAgainst South Carolina Subsidiary*

 

Eight separateputative class actions have been filed in South Carolina against the Company’ssubsidiary, Advance America, Cash Advance Centers of South Carolina, Inc.,and several other unaffiliated defendants. John and Rebecca Morgan filed acomplaint on August 27, 2007 in the Horry County Court of Common Pleas;Margaret Horne filed a complaint on September 6, 2007 in the SpartanburgCounty Court of Common Pleas; Tawan Smalls filed a complaint on September 10,2007 in the Charleston County Court of Commons Pleas; Chadric and Lisa Wileyfiled a complaint on September 27, 2007 in the Richland County Court ofCommon Pleas; Mildred Weaver filed a complaint on September 27, 2007 inthe Darlington County Court of Common Pleas; Lisa Johnson and Gilbert Herbertfiled a complaint on October 2, 2007 in the Georgetown County Court ofCommon Pleas; Kimberly Kinney filed a complaint on October 12, 2007 in theMarion County Court of Common Pleas; and Carl G. Ferrell filed a complaint on October 30,2008. The allegations and relief sought are similar in each case. Plaintiffsallege that the Company’s South Carolina subsidiary violated the South CarolinaDeferred Presentment Services Act and the Consumer Protection Code by failingto perform a credit check and evaluate a customer’s ability to repay theadvance. Each complaint seeks an injunction to prohibit the Company fromcontinuing its operations, the return of fees and interest, actual damages,punitive damages and attorneys’ fees and costs. Each of the lawsuits had beenremoved to United States District Court for the District of South Carolina,which subsequently remanded all of the class actions to state court. TheCompany appealed these rulings and the appellate court has remanded all of thecases to state court. The Company has joined ongoing litigation in the SouthCarolina state court system pursuant to an order of the South Carolina SupremeCourt consolidating all cases brought against the industry.

 

*Francisco J. Gonzalez v. AdvanceAmerica, Cash Advance Centers of Texas, Inc.*

 

On September 12,2007, Francisco Gonzalez filed a collective action lawsuit against the Company’sTexas subsidiary, Advance America, Cash Advance Centers of Texas, Inc., inthe United States District Court for the Southern District of Texas allegingviolations of the Fair Labor Standards Act and Texas PayDay Act. The complaintalleges the Company’s subsidiary in Texas failed to pay overtime wages to itsemployees. The complaint seeks compensatory and liquidated damages, attorneys’fees, interest and costs. A class of employees limited to the Houston, Texasarea has been certified to conduct this litigation. The Company sought anappeal of the class certification issue, which was denied, leading to theconditional certification of a class. The parties are litigating the matter onthe merits.

 

*Ohio Legislation*

 

On November 24,2008, the State of Ohio capped interest rates on cash advance loans and limitedthe number of cash advances a customer may take in any one year. As a result ofthis legislation, the Company began offering small loans pursuant to the OhioSmall Loan Act and check-cashing services. The small loan product generatesless revenue than the Company’s former cash advance product and, as a result,the Company has begun to close some of its centers in Ohio.

 

During the quarterended March 31, 2009, the Company closed 10 centers in Ohio and scheduledapproximately 50 additional Ohio centers for closing during the remainder of2009.  The estimated cost to close theseapproximately 60 centers, including an impairment charge of approximately $0.9million, is approximately $1.9 million to $3.4 million, of which approximately$1.0 million was recorded in the first quarter of 2009. If the Company’sfinancial performance in Ohio does not improve, the Company may choose to closeadditional Ohio centers in the future.

 

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If it is noteconomically viable to continue operations in Ohio and we decide to close ourremaining Ohio centers, our estimated range of closing costs, includingseverance, center tear-down costs, lease termination costs and the write-downof fixed assets would be approximately $5.0 million to $12.9 million.The collectability of advances and fees receivable in Ohio would most likely beimpaired. As of March 31, 2009, the net receivable balance in Ohio wasapproximately $15.8 million. At this time the Company is not able todetermine the amount of goodwill impairment, if any, that would result from thecessation of operations in Ohio.

 

*Other Matters*

 

The Company isalso involved in other litigation and administrative proceedings that areincidental to its business, including, without limitation, individual consumerclaims, contractual disputes, employee claims for workers’ compensation,wrongful termination, harassment, discrimination, payment of wages due andcustomer claims relating to collection practices and violations of state and/orfederal consumer protection laws.

 

**Other Commitments andContingencies**

 

At March 31,2009, the Company had approximately $7.9 million in unfunded commitments tolend to customers in Virginia under the line of credit product.

 

**6. Capital Stock and Stock-BasedCompensation Plans**

 

In July 2008,the Company completed the repurchase of its common stock under its stockrepurchase program that the Company’s Board of Directors approved on May 4,2005 and twice extended, once on August 16, 2006 and again on February 13,2008, for a total of $225.0 million in authorized repurchases. During the threemonths ended March 31, 2008 and 2009, the Company repurchased 4,759,322and 3,272 shares of its common stock, respectively, at a cost of approximately$36.8 million and $5,200, respectively. For the three months ended March 31,2008 and 2009, these amounts included 3,272 shares of common stock that weresurrendered by employees to satisfy their tax obligations with respect to thevesting of shares of restricted stock awarded pursuant to the Company’s 2004Omnibus Stock Plan.

 

In 2004, theCompany adopted Statement of Financial Accounting Standards No. 123(Revised), Share-Based Payment (“SFAS 123(R)”). Accordingly, the Companymeasures the cost of its stock-based employee compensation at fair value on thegrant date and recognizes such cost in the financial statements on astraight-line basis over the requisite service period of the awards, which isgenerally the vesting period.

 

The Company’s 2004Omnibus Stock Plan provides for the granting of restricted stock, stock optionsand other stock awards to certain directors, officers and other key employeesof the Company. Additionally, during 2005, the Company granted stock optionsand shares of restricted stock to its President and Chief Executive Officerunder a Nonqualified Stock Option Agreement and a Restricted Stock Agreement,respectively. Both of these agreements are separate from the Company’s 2004Omnibus Stock Plan.

 

Restricted stockgrants under the Company’s stock-based compensation plans generally vest inequal annual installments over three, five or eight years from the date ofgrant. Stock option grants under the Company’s stock-based compensation plansare generally exercisable in equal annual installments over three, five oreight years from the date of grant and generally expire ten years after thedate of grant.

 

The grant datefair value of all shares of restricted stock was based on the market value ofthe Company’s common stock on the dates of grant. These amounts are beingexpensed ratably over each award’s respective vesting period.

 

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All stock optionswere granted with an exercise price equal to the market value of the Company’scommon stock on the dates of grant. The Company estimated the fair value ofstock options on the date of grant using the Black-Scholes option pricing modelusing the following assumptions:

 

·                  *Expected term*—The expected term represents the periodduring which the Company’s stock options are expected to be outstanding. TheCompany based its determination of the expected term by giving consideration tothe contractual terms of the stock option awards, vesting schedules,expectations of future employee behavior and published academic researchregarding exercise behavior.  For theoptions granted in the first quarter of 2009, the Company assumed that theoptions would be exercised on their exercise date because the high dividendrate on the grant date relative to the strike price would make immediateexercise the likely behavior.

 

·                  *Expected volatility*—The expected volatility represents theamount by which the price of the underlying shares has fluctuated or isexpected to fluctuate during the expected term. The Company based its estimatedvolatility on its historical stock price volatility and the stock pricevolatility of other public companies in its industry, which the Companybelieves is representative of its expected future volatility over the expectedterm of its options.

 

·                  *Expected dividends*—The Company used its historic dividendyield as an estimate for its expected dividend yield as of the 2008 stockoption grant date. The Company assumed this dividend yield was continuous overthe life of the option in its Black-Scholes option pricing model.  For the 2009 stock option grants, the Companyused its current dividend rate of $0.0625 per share per quarter and assumeddiscreet quarterly dividend dates consistent with past practices over the lifeof the options.

 

·                  *Risk-free rate*—The Company used risk-free interestrates for periods within the expected terms of the options based on the U.S.Treasury yield curve in effect at each option grant date.

 

To estimate eachstock option’s weighted average fair value on the grant dates, the followingweighted average assumptions were used in the Black-Scholes option pricingmodel for all stock options granted during the three months ended March 31,2008 and 2009:

 

| ** **                  | ** ** | **2008** | ** ** | **2009** | ** ** |
|-----------------------------|------------|----------|------------|----------|------------|
| Expected term  (years)      |       | 5.42     |       | 2.00     |       |
| Expected volatility         |       | 48       | %          | 66       | %          |
| Expected  dividends (yield) |       | 4.1      | %          | 21.9     | %          |
| Risk-free rate              |       | 2.93     | %          | 1.03     | %          |

 

The weightedaverage grant date fair values of options granted during the three months endedMarch 31, 2008 and 2009 were $2.70 per option and $0.12 per option, respectively,and are being expensed ratably over each award’s respective vesting period.

 

The followingtable provides certain information with respect to stock options outstandingand exercisable at March 31, 2009 under the Company’s stock-based compensationplans:

 

| ** **                                           | ** ** | **Outstanding** | ** **         | **Exercisable** | ** ** |
|------------------------------------------------------|------------|-----------------|--------------------|-----------------|------------|
| Number of stock  options                             |       | 2,107,000       |               | 615,332         |       |
| Range of  exercise prices                            |       | $               | 1.14 – $14.70 |            | $          | 8.48 – $14.70 |   |
| Weighted average  exercise price                     |       | $               | 9.10               |            | $          | 12.51 |   |
| Aggregate  intrinsic value (in thousands)            |       | $               | —             |            | $          | — |   |
| Weighted average  remaining contractual term (years) |       | 8.0             |               | 7.0             |       |

 

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A summary of theCompany’s authorized and available shares, activity for the three months ended March 31,2009, and the weighted average stock option exercise prices under itsstock-based compensation plans follows:

 
| ** **                 | ** ** | ** **     | ** ** | **Outstanding**       | ** ** | ** **         | ** ** | **Weighted Average**     | ** ** |
|----------------------------|------------|----------------|------------|-----------------------|------------|--------------------|------------|--------------------------|------------|
| ** **                 | ** ** | **Authorized** | ** ** | **Restricted  Stock** | ** ** | **Stock  Options** | ** ** | **Available  For Grant** | ** ** | **Stock Option  Exercise Price** | ** ** |
| At  December 31, 2008 |       | 5,200,000      |       | 549,988               |       | 1,582,500          |       | 3,067,512                |       | $ | 11.81 |   |
| Authorized                 |       | —         |       | —                |       | —             |       | —                   |       | — |   |
| Granted                    |       | —         |       | 564,500               |       | 539,500            |       | (1,104,000               | )          | 1.14 |   |
| Exercised                  |       | —         |       | —                |       | —             |       | —                   |       | — |   |
| Canceled                   |       | —         |       | (3,334                | )          | (15,000            | )          | 18,334                   |       | 8.60 |   |
| At  March 31, 2009    |       | 5,200,000      |       | 1,111,154             |       | 2,107,000          |       | 1,981,846                |       | $ | 9.10 |   |

 

A summary of theCompany’s restricted stock activity for the three months ended March 31,2009 and the weighted average grant date fair values follows:

 

| ** **                           | ** ** | **Shares** | ** ** | **Weighted  Average  Fair Value** | ** ** |
|--------------------------------------|------------|------------|------------|-----------------------------------|------------|
| Nonvested at  December 31, 2008 |       | 241,363    |       | $                                 | 10.30      |   |
| Granted                              |       | 564,500    |       | 1.14                              |       |
| Vested                               |       | (18,177    | )          | 11.89                             |       |
| Forfeited                            |       | (3,334     | )          | 14.76                             |       |
| Nonvested at  March 31, 2009    |       | 784,352    |       | $                                 | 3.68       |   |

 

The total grantdate fair value of restricted shares vested during the three months ended March 31,2008 and 2009 was approximately $0.1 million and $0.2 million,respectively, and the total market value of these shares on the dates vestedwas approximately $0.1 million and $26,000, respectively.

 

A summary of thestock-based compensation cost included in general and administrative expensesin the accompanying consolidated statements of income for the three monthsended March 31, 2008 and 2009 follows (in thousands):

 

| ** **                              | ** ** | **2008** | ** ** | **2009** | ** ** |
|-----------------------------------------|------------|----------|------------|----------|------------|
| Restricted stock                        |       | $        | 216        |     | $          | 197 |   |
| Stock options                           |       | 323      |       | 313      |       |
| Total  stock-based compensation expense |       | $        | 539        |     | $          | 510 |   |

 

As of March 31,2009, the total compensation cost not yet recognized related to nonvested stockawards under the Company’s plans is approximately $6.4 million. The weightedaverage period over which this expense is expected to be recognized isapproximately 3.7 years.

 

**7. Transactions with VariableInterest Entities**

 

The Companyconducts business in Texas through a wholly owned subsidiary registered as aCredit Services Organization (“CSO”) under Texas law. In connection withoperating as a CSO, the Company entered into a credit services organizationagreement (“CSO Agreement”) with an unaffiliated third-party lender in 2007.The agreement governs the terms by which the Company refers customers in Texasto that lender, on a non-exclusive basis, for a possible extension of credit.The Company processes loan applications and commits to reimburse the lender forany loans or related fees that are not collected from those customers.

 

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The Company hasdetermined that the lender is a variable interest entity (“VIE”) but that theCompany is not the primary beneficiary of this VIE. Therefore, the Company hasnot consolidated the lender as of and for the three months ended March 31,2008 and 2009.

 

Under the terms ofthe Company’s agreement with its third-party lender, the Company is contractuallyobligated to reimburse the lender for the full amount of the loans and certainrelated fees that are not collected from the customers. As of March 31,2008 and 2009, the third-party lender’s outstanding advances and interestreceivable (which were not recorded on the Company’s balance sheet) totaledapproximately $15.8 million and $14.4 million, respectively which is theamount the Company would be obligated to pay the third-party lender if theseamounts were to become uncollectible. Additionally, if these advances were tobecome uncollectible, the Company would also be required to pay the third-partylender all related NSF fees and late fees on these advances.

 

Because of theCompany’s economic exposure for losses related to the third-party lender’sadvances and interest receivable, the Company has established an accrual forthird-party lender losses to reflect the Company’s estimated probable lossesrelated to uncollectible third-party lender advances. The accrual forthird-party lender losses that was reported in the Company’s balance sheet at March 31,2008 and 2009 was approximately $3.5 million and $3.2 million,respectively, and was established on a basis similar to the allowance fordoubtful accounts.

 

**8. Related Party Transactions**

 

In January 2009,the Company entered into a one-year consulting arrangement with Mr. TonyS. Colletti, a member of the Board of Directors, for his support of governmentrelations initiatives on the Company’s behalf in Illinois and Washington,D.C.  Included in general andadministrative expenses, for the three months ended March 31, 2009, arepayments of approximately $51,000 related to this consulting arrangement.  In addition, in connection with hisappointment to the Board of Directors in February 2009, Mr. Collettiwas granted 15,000 shares of restricted stock with a fair market value of$16,650 and a three year vesting period. During the three months ended March 31, 2009, approximately $1,000is included in general and administrative expense related to the amortizationof this restricted stock grant.

 

Included in centerexpenses are expenses for center leases with related parties of approximately$5,000 and zero for the three months ended March 31, 2008 and 2009,respectively. Included in general and administrative expenses are expenses withrelated parties, relating primarily to aircraft operating expenses, legalexpenses, and operating leases for office and warehouse space, of $87,000 and$57,000 for the three months ended March 31, 2008 and 2009, respectively.

 

Under a time-sharearrangement, the Company’s current Chairman and former Chairman have used theCompany’s aircraft for private purposes in exchange for the Company’s use of anidentical aircraft owned by the Company’s former Chairman and formerly owned, inpart, by the Company’s current Chairman. Included in accounts receivable at March 31,2009 is a $4,000 net receivable related to this arrangement.

 

**9. Revolving Credit Facility andLong-Term Debt**

 

In March 2008,the Company amended and restated its prior revolving credit facility with asyndicate of banks. This credit facility now provides the Company with a$270.0 million revolving line of credit, which amount includes the abilityto issue up to $25.0 million in letters of credit. This revolving credit facilitymatures on March 24, 2013. The Company has the option to increase therevolving credit facility by an additional $95.0 million, subject tocompliance with the credit agreement’s covenants and conditions and uponreceipt of sufficient commitments from lenders in the lending syndicate.

 

The creditfacility is collateralized by substantially all of the Company’s assets andcontains various financial covenants that require, among other things, themaintenance of a minimum net worth and certain leverage and fixed chargecoverage ratios and also restricts the encumbrance of assets and the 

 

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creation of indebtedness.A breach of a covenant or an event of default could prohibit the Company fromaccessing otherwise available borrowings, or could cause all amountsoutstanding under the revolving credit facility to become due and payable. TheCompany was in compliance with all financial covenants at March 31, 2009.

 

In general, theCompany’s borrowings under the revolving credit facility bear interest, at theCompany’s option, at a base rate plus an applicable margin or a LIBOR-basedrate plus an applicable margin. The base rate equals the greater of: (i) theprime rate set by Bank of America; and (ii) the sum of the federal fundsrate plus 0.50%. The applicable margin is determined each quarter by a pricinggrid based on the Company’s total leverage ratio of consolidated debt toconsolidated EBITDA. The base rate applicable margin ranges from 1.50% to 2.25%based upon the Company’s total leverage ratio. The LIBOR-based applicablemargin ranges from 2.50% to 3.25% based upon the Company’s total leverageratio. As of March 31, 2009, the applicable margin for the prime-basedrate was 1.75% and the applicable margin for the LIBOR-based rate was 2.75%.

 

As of March 31, 2009,the Company had $137.8 million outstanding on the revolving portion of thecredit facility and $1.0 million of unutilized letters of creditoutstanding. Borrowings under the revolving credit facility are subject tocompliance with certain covenants and conditions.

 

In connection withthis amended and restated credit facility, the Company incurred approximately$1.6 million in loan origination costs during the year ended December 31,2008 that were capitalized in other assets and are being amortized over theremaining term of the credit facility.

 

In October 2008,our United Kingdom operations entered into an overdraft facility. The maximumborrowings under this facility are GBP 400,000, which is equivalent toapproximately $569,000 at March 31, 2009. The interest rate on anyborrowings under this overdraft facility is the Bank of England base rate plus1.75%. This facility is repayable upon demand by the lender. The Company didnot have an outstanding balance on this facility at March 31, 2009.

 

The carrying valueof the credit facility approximated its fair value at December 31, 2008 andMarch 31, 2009.

 

The Company ownsits headquarters building and related land subject to a mortgage loan theprincipal amount of which was approximately $5.0 million and $4.9 millionat December 31, 2008 and March 31, 2009, respectively. The mortgage loanis payable to an insurance company and is collateralized by our corporateheadquarters building and related land. The mortgage loan is payable in180 monthly installments of approximately $66,400, including principal andinterest, and bears interest at a fixed rate of 7.30% over its term. Themortgage loan matures on June 10, 2017. The carrying amount of ourcorporate headquarters (land, land improvements and building) was approximately$4.7 million at December 31, 2008 and March 31, 2009.

 

The fair marketvalue of our long-term debt is estimated using a discounted cash flow analysisand was approximately $5.8 million at December 31, 2008 and March 31,2009.

 

**10. Loss on impairment of assets**

 

During the firstquarter of 2009, the Company identified approximately 170 centers to beclosed.  The impairment charge related tothese centers was approximately $2.2 million which represents the write-down ofthe undepreciated costs of the fixed assets in these centers. The estimatedcost to close these centers, including the impairment charge of approximately$2.2 million, is approximately $5.2 million to $6.6 million, of whichapproximately $2.7 million was recognized during the first quarter of 2009.

 

The Company hasapproximately $4.0 million of goodwill in its United Kingdom operations.  As of March 31, 2009, these operations havecumulatively generated negative cash flow and have not reached break-even atthe center gross profit level.  TheCompany’s expansion efforts in the United Kingdom are approximately 18 monthsold and therefore the Company is still in the early stages of itsbuild-out.  The goodwill impairment modelprojects future positive cash flows sufficient to support the goodwill andlong-lived asset base.

 

**11. Subsequent Events**

 

On April 29,2009, the Company’s announced that its Board of Directors declared a cashdividend of $0.0625 per share of common stock, payable on June 5, 2009 toshareholders of record on May 26, 2009.

 

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**ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS.**

 

*Thefollowing discussion of our financial condition and results of operationsshould be read in conjunction with our consolidated financial statements andthe related notes in “Part I. Item 1. Financial Statements.” Thisdiscussion contains forward-looking statements that involve risks anduncertainties such as our plans, objectives, expectations and intentions. Our actualresults could differ materially from those anticipated by these forward-lookingstatements. Please see “Part II. Item 1A. Risk Factors” of thisQuarterly Report and “Forward-Looking Statements” at the end of this sectionfor further discussion of the uncertainties, risks and assumptions associatedwith these statements.*

 

**Overview**

 

Headquartered inSpartanburg, South Carolina, we are the largest provider of cash advanceservices in the United States as measured by the number of centers operated.Our centers provide short-term, unsecured cash advances that are typically dueon the customers’ next payday. As of March 31, 2009, we operated 2,709centers in 33 states in the United States, 21 centers in the United Kingdom and10 centers in Canada, and had 82 limited licensees in the United Kingdom.

 

***Cash Advance Services***

 

In most stateswhere we operate, we originate cash advance services under the authority ofdifferent state-governed enabling statutes that allow for cash advances rangingfrom single and multiple installment closed-end terms to revolving lines ofcredit with open-ended terms.  We referto these products and services collectively as cash advance services.  The particular cash advance services offeredin any given location may change from time to time depending upon changes instate and federal law.  Additionally,where permitted by applicable law, we may assume the responsibility of servingas an agent to a regulated lender.  InTexas, where we operate as a credit services organization (“CSO”), we offer afee-based credit services package to assist customers in trying to improvetheir credit and in obtaining an extension of consumer credit through athird-party lender. Under the terms of our agreement with this lender, weprocess customer applications and are contractually obligated for all losses.

 

We provide cashadvance services as specified by the laws of the jurisdictions where weoperate. Loans made by the third-party lender in Texas are governed by Texaslaw.  Online cash advances made by athird-party lender are governed by the laws of the state where the customerresides.  The permitted size of anadvance varies by jurisdiction and ranges from $50 to $5,000. However, ourtypical cash advance will range from $50 to $1,000.  The finance charges on cash advance servicescurrently offered by us also vary by jurisdiction and range up to 22% of theamount of a cash advance.

 

Additional feesthat we may collect include origination fees, annual participation fees, feesfor returned checks, late fees and other fees as permitted by applicable law.Presently, none of the cash advance services we offer include annualparticipation fees.  Origination fees onservices currently offered by us range from $15 to $30, but future cash advanceservices may have higher or lower origination fees depending on applicablestate law.  Fees for returned checks orelectronic debits that are declined for non-sufficient funds (“NSF”) vary bystate and in amounts up to $30.  InTexas, the third-party lender charges an NSF fee and a late fee on its loans inaccordance with Texas law.

 

A customer mayobtain a cash advance in one of three ways: (1) by visiting one of ourcenters in-person and completing an application; (2) by visiting ourwebsite, beginning the application process online, then visiting one of ourcenters in-person to complete the application and receive funding; or (3) byvisiting our website, completing an application online and receiving a cashadvance from a third-party lender that is directly deposited in the customer’sbank account. Each new customer must provide us with certain personalinformation such as his or her name, address, phone number, employmentinformation or source of income and references. This information is enteredinto our information system and that of the applicable lender. The customer’sidentification, proof of income and/or employment and proof of bank account areverified. In order for a new customer to be approved for a cash advance, wemust be able to

 

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verify his or heridentification and he or she is required to have a bank account and a regularsource of income, such as a job.

 

Except for cashadvances completed by third-party lenders, we determine whether to approve acash advance to our customers in every jurisdiction. The third-party lendersdecide whether to approve the loan or cash advance and establish all of theunderwriting criteria and terms, conditions and features of the customeragreement. We require proof of identification, bank account and income source,as described above, and we primarily consider the customer’s income indetermining the amount of the cash advance. We do not perform credit checksthrough consumer reporting agencies.

 

After thedocuments presented by the customer have been reviewed for completeness andaccuracy, copied for record-keeping purposes and the advance has been approved,the customer enters into an agreement governing the terms of the advance. Thecustomer then provides a personal check or an Automated Clearing House (“ACH”)authorization, which enables electronic payment from the customer’s account, tocover the amount of the cash advance plus charges for applicable fees and/orinterest and/or the balance due under the agreement, and makes an appointmentto return on a specified due date, typically his or her next payday, to repaythe advance plus the applicable charges. However, in some states, customers arenot required to provide us with a personal check or ACH authorization, andpayment cycles may vary depending upon state law and product type. At thespecified due date, the customer is required to make the applicable payment,usually payment in full of the cash advance plus fees and interest ifapplicable. Payment is usually made in person, in cash at the center where thecash advance was initiated or issued unless the cash advance was completed onthe internet, in which case the customer makes payment by ACH authorization.

 

Upon payment infull, the customer’s check is returned and/or his or her ACH authorization isdeemed to be revoked. If the customer does not repay the outstanding advance orloan in full on or before the due date, we will seek to collect from the customerthe amount of the advance or loan and any applicable fees, including late andNSF fees due, and may deposit the customer’s personal check or initiate theelectronic payment from the customer’s bank account.

 

***Other Products***

 

We may offeralternative products and services to our customers where permissible underapplicable law. For instance, in Ohio, we currently offer check cashingservices at state authorized rates. We may also offer the products or servicesof a third party that we market, process and/or service at our centers pursuantto an agreement with the third party. For example, we currently offer pre-paiddebit cards; and money orders, money transmission and bill paymentservices.  During the tax returnpreparation season, we also offer tax preparation services by a third party.

 

 Our Advance America branded pre-paid Visadebit card is issued by a federally chartered bank and regulated by the Officeof Thrift Supervision. The card allows a cardholder to load cash onto the cardand use the card wherever VISA debit cards are accepted. We are compensatedunder an agreement with the bank based on a number of factors related to thebank’s revenue from purchases and subsequent cardholder activity, such ascharges for loads, ATM withdrawals, account maintenance/plan charges andpurchases. In the third and fourth quarters of 2007, we began selling moneyorders, providing money transfer services and bill payment services as an agentof a licensed third-party money transmitter. We are compensated by the moneytransmitter based upon the number and value of money transfers, money ordersand bill payments made by our centers. Finally, in 2008, we began facilitatingthe offering of tax preparation services by a third-party tax preparationprovider. We receive a percentage of the tax preparation provider’s fees fromcustomers related solely to tax preparation services.

 

Our industry hasbeen significantly affected by increasing regulatory challenges. Legislationthat negatively impacts cash advances and similar services, whether throughpreclusions, interest rate ceilings, fee reductions, mandatory extensions ofterm length, limits on the amount or term of our products and services orlimits on consumers’ use of our products and services could materially andadversely affect our 

 

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business. We arevery active in monitoring and evaluating regulatory initiatives in all of thestates and are closely involved with the efforts of the Community FinancialServices Association of America (“CFSA”).

 

Although there arenumerous differences under the various enabling regulations, the applicationand approval process, underwriting criteria, delivery method, repayment andcollection practices, customer and market characteristics and underlyingeconomics of our principal products and services generally are substantiallysimilar in most jurisdictions.

 

***         Approval Process***

 

 In order for a new customer to be approved foran advance, he or she is required to have a bank account and a regular sourceof income, such as a job.

 

To obtain a cashadvance, a customer typically:

 

·                  completes an application and presentsthe required documentation: usually proof of identification, a pay stub orother evidence of income, and a bank statement;

 

·                  enters into an agreement governingthe terms of the cash advance, including the customer’s agreement to repay theamount advanced in full on or before a specified due date (usually the customer’snext payday), and our agreement to defer the presentment or deposit of thecustomer’s check or automated clearing house (“ACH”) authorization until thedue date;

 

·                  writes a personal check or providesan ACH authorization to cover the amount advanced plus charges for applicablefees and/or interest; and

 

·                  makes an appointment to return on thespecified due date to repay the amount advanced plus the applicable charges andto reclaim his or her check.

 

We determinewhether to approve a cash advance to our customers (except in Texas, where thethird-party lender makes this determination). We require proof ofidentification, bank account and income source, as described above, and weprimarily consider the customer’s income in determining the amount of the cashadvance. In Virginia, we require the customer to grant us a security interestin a motor vehicle to qualify for an open-ended line of credit.

 

***         Repayment and Collection Process***

 

Repayment termsvary depending upon state law, the type of cash advance services offered, andwhether the cash advance was completed online or in one of our centers.  Generally, as part of the closing process, weexplain the customer’s repayment obligations and establish the expectation thatthe customer will pay us in cash on or before the due date in accordance withtheir agreement with us.  The day beforethe due date, we generally call the customer to confirm their payment.

 

If a customer doesnot pay the amount due, then our management has the discretion to either: (1) commencepast-due collection efforts, which typically may proceed for up to 14 daysin most states, or (2) deposit the customer’s personal check or debittheir bank account in accordance with their ACH authorization. If managementdecides to commence past-due collection efforts, employees typically contactthe customer by telephone or in person to obtain a payment or a promise to payand, in cases where we hold a check, attempt to exchange the customer’s checkfor a cashier’s check, if funds are available.

 

If unable to meethis or her payment obligations, the customer may qualify for an extendedpayment plan (“Payment Plan”). In most states, the terms of our Payment Planconform to the CFSA Best Practices for extended payment plans. Certain stateshave specified their own terms and eligibility requirements for Payment Plans.Generally, a customer may enter into a Payment Plan for no additional fee onceevery twelve months and the Payment Plan will call for scheduled payments thatcoincide with the customer’s next four paydays. In some states, a customer mayenter into a Payment Plan more frequently. 

 

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We do not engage incollection efforts while a customer is enrolled in a Payment Plan. If acustomer misses a scheduled payment under a Payment Plan, we may resume normalcollection procedures. We do not offer a Payment Plan for multiple installmentloans or lines of credit. Nor does the third-party lender in Texas offer aPayment Plan for advances to its customers. The third-party internet lender offers Payment Plans as required bystate law.

 

If, at the end ofthis past-due collection period or Payment Plan, the center has been unable tocollect the amount due, the customer’s check is then deposited or their ACHauthorization is processed. Additional collection efforts are not required ifthe customer’s deposited check or our ACH debit clears. For the year ended December 31,2008, and the three months ended March 31, 2009, we deposited or presentedfor ACH authorization approximately 5.9% and 5.5% , respectively, of allcustomer checks we received and approximately 25% and 33%, respectively, ofdeposited customer checks or ACH’s cleared. If the customer’s check or the ACH debit does not clear and is returnedbecause of non-sufficient funds in the customer’s account or because of aclosed account or a stop-payment order, additional collection efforts begin.These additional collection efforts are carried out by center employees andtypically include contacting the customer by telephone or in person to obtainpayment or a promise to pay and, in cases where we hold a check, attempting toexchange the customer’s check for a cashier’s check, if funds become available.We also send out a series of collection letters, which are automaticallydistributed from a central location based on a set of pre-determined criteria.

 

In the case ofcash advances in the form of lines of credit, if a customer fails to makepayment when due in accordance with the terms of their agreement with us, thenmanagement may close the line of credit, accelerate the maturity date and takethe steps outlined above or work with the customer to bring his or her paymentscurrent.  If we close the line of creditand accelerate the maturity date, we stop charging interest on the outstandingamount and begin collection efforts as described above.

 

***Selected OperatingData***

 

The followingtable presents key operating data for our business:

 
| ** **                                                                                               | ** ** | **Three Months Ended  March 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                                                                               | ** ** | **2008**                               | ** ** | **2009** | ** ** |
| Number of  centers open at end of period                                                                 |       | 2,854                                  |       | 2,740 |   |
| Number of  customers served—all credit products (thousands)                                         |       | 831                                    |       | 741 |   |
| Number of cash  advances originated (thousands)                                                          |       | 2,781                                  |       | 2,423 |   |
| Aggregate  principal amount of cash advances originated (thousands)                                      |       | $                                      | 1,020,812  |   | $ | 874,363 |   |
| Average amount  of each cash advance originated                                                          |       | $                                      | 367        |   | $ | 361 |   |
| Average charge  to customers for providing and processing a cash advance                                 |       | $                                      | 57         |   | $ | 53 |   |
| Average duration  of a cash advance (days)                                                               |       | 16.6                                   |       | 17.4 |   |
| Average number  of lines of credit outstanding during the period (thousands) (1)                         |       | —                                 |       | 34 |   |
| Average amount  of aggregate principal on lines of credit outstanding during the period  (thousands) (1) |       | —                                 |       | $ | 19,373 |   |
| Average  principal amount on each line of credit outstanding during the period (1)                       |       | —                                 |       | $ | 571 |   |
| Number of  installment loans originated (thousands) (2)                                                  |       | 5                                      |       | 7 |   |
| Aggregate  principal amount of installment loans originated (thousands) (2)                              |       | $                                      | 2,325      |   | $ | 2,787 |   |
| Average  principal amount of each installment loan originated (2)                                        |       | $                                      | 426        |   | $ | 425 |   |

 

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(1)           Webegan offering lines of credit in Virginia in November 2008.

 

(2)           Theinstallment loan activity reflects loans we originated as the lender inIllinois.

 

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**  *Revenues and Expenses***

 

Our revenues consist of fees and/or interest paid tous directly by our customers. Our expenses relate primarily to the operation ofour centers. These expenses include salaries and related payroll costs,occupancy expense related to our leased centers, center depreciation expense,advertising expense and other center expenses that consist principally of costsrelated to center closings, communications, delivery, supplies, travel, bankcharges, various compliance and collection costs and costs associated with theft.

 

***   Provision for DoubtfulAccounts, Allowance for Doubtful Accounts and Accrual for Third-Party LenderLosses***

 

Our provision for doubtful accounts and accrual forthird-party lender losses are primarily based upon models that analyze specificportfolio statistics and also reflect, to a lesser extent, management’sjudgment regarding overall accuracy.  Theanalytical models take into account several factors including the number oftransactions customers complete, and charge-off and recovery rates.  Additional factors, such as changes in statelaws, center closings, length of time centers have been open in a state,relative mix of new centers within a state and other relevant factors, are alsoevaluated to determine whether the results from the analytical models should berevised.

 

***   Income Taxes***

 

The effective income tax rate as a percentage ofincome before income taxes was 42.3% and 41.1% for the three months ended March 31,2008 and 2009, respectively.

 

***   Changes in Legislation***

 

During the last few years,legislation that prohibits or severely restricts our products and services hasbeen introduced or adopted in a number of states and at the federal level, andwe expect that trend to continue in other states for the foreseeable future.Legislation was adopted in New Hampshire in 2008 that effectively prohibits usfrom offering cash advances to consumers in that state. As a result, in February 2009,we decided to close all of our centers in New Hampshire.  In April 2009,the Governor of Virginia signed a bill into law that restricts us from offeringboth our cash advance product and our open-ended line of credit product at thesame center unless the line of credit is secured by a motor vehicle.  This limitation could reduce our customerbase and lower our revenues and profits in Virginia.  In April 2009,the Washington state legislature passed a bill that places a number of restrictionson our cash advance product including limiting the number of cash advances acustomer may take to eight advances in any one year.  If the bill issigned into law by the Governor of Washington, it will become effective onJanuary 1, 2010 and our revenues and profits in Washington will besignificantly reduced.  If we are unable to operate profitably inWashington, we may cease operating in that state.  Further, legislationpermitting cash advances in Arizona and Mississippi is scheduled to expire in2010 and 2012, respectively. This legislation may not be renewed or could bemodified in a manner that effects our operations negatively. At any point intime, we are refining our cash advance services and developing new products andservices or operations to address recent or anticipated legislative andregulatory changes. Some of these legislative and regulatory changes may resultin our discontinuing operations in a state, while other changes may result inless significant short-term or long-term changes, interruptions in revenues andlower operating margins. Until and unless we are able to develop legal andfinancially-viable alternative products and services, we generally cannotestimate in advance the actual effect of operational changes we make inresponse to legislative and regulatory changes.

 

***   Operations in Ohio***

 

A new Ohio law became effective on November 24, 2008 that cappedinterest rates on cash advance loans and effectively limited the number of cashadvances a customer may take to five advances in any one year. As a result, webegan offering small loans pursuant to the Ohio Small Loan Act andcheck-cashing services. The small loan product generates less revenue than theformer cash advance product and, as a result, we may need to close all of ourcenters in Ohio. Our operations in Ohio currently are not profitable.

 

During the quarterended March 31, 2009, we closed 10 centers in Ohio and scheduledapproximately 50 additional Ohio centers for closing during the remainder of2009.  The estimated cost to close theseapproximately 60 centers, including an impairment charge of approximately $0.9million, is approximately $1.9 million to $3.4 million of which approximately$1.0 million was recorded in the first quarter of 2009. If our financialperformance in Ohio does not improve, we may choose to close additional Ohiocenters in the future.

 

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If it is noteconomically viable to continue operations in Ohio and we decide to close ourremaining Ohio centers, our estimated range of closing costs, includingseverance, center tear-down costs, lease termination costs and the write-downof fixed assets would be approximately $5.0 million to $12.9 million.The collectability of advances and fees receivable in Ohio would most likely beimpaired. As of March 31, 2009, the net receivable balance in Ohio wasapproximately $15.8 million. At this time we are not able to determine theamount of goodwill impairment, if any, that would result from the cessation ofoperations in Ohio.

 

**   *Closings***

 

During the firstquarter of 2009, we identified approximately 170 centers to be closed,including approximately 60 centers in Ohio. The impairment charge related to these centers was approximately $2.2million during the first quarter of 2009, which represents the write-down ofthe undepreciated costs of the fixed assets in these centers. The estimatedcost to close these centers, including the impairment charge of approximately$2.2 million, is approximately $5.2 million to $6.6 million of whichapproximately $2.7 million was recognized during the first quarter of 2009.

 

*Closing of Operations in New Mexico.*  Legislation in New Mexico became effective in2007 that limits fees and interest on all consumer loans and gives borrowers a130 day interest-free and fee-free extension. As a result of thislegislation, we determined that it was not economically viable to continueoperating in New Mexico. As a result, we closed our remaining nine centers inNew Mexico in August 2008. The closing costs associated with closing ouroperations in New Mexico were approximately $0.1 million. The cessation ofour New Mexico operations did not result in any impairment of goodwill.

 

The following is asummary of financial information for our operations in New Mexico for the threemonths ended March 31, 2008 and 2009 (in thousands):

 
| ** **                  | ** ** | **2008** | ** ** | **2009** | ** ** |
|-----------------------------|------------|----------|------------|----------|------------|
| Total revenues              |       | $        | 100        |     | $          | 0 |   |
| Total center  expenses      |       | 331      |       | 2        |       |
| Center gross  profit (loss) |       | $        | (231       | )        | $          | (2 | ) |

 

*Closingof Operations in Arkansas.*  In March 2008, we received a letter from the Arkansas AttorneyGeneral demanding that we stop offering deferred presentment transactions underthe Arkansas Check Cashers Act. In response, we complied with the AttorneyGeneral’s demands and began offering consumer loans at interest rates below theapplicable Arkansas usury cap. On September 16, 2008, we received a noticefrom the Arkansas State Board of Collections that the Board had determined thatconsumer lenders who accept account withdrawal authorizations would be deemedby the Board to be engaged in the business of making deferred presentmenttransactions. During this same time, we were in discussions with the ArkansasAttorney General to address certain items regarding our operations inArkansas.  The Attorney General agreedthat if we discontinued our operations in Arkansas, he would not bring suitagainst us. Although we believe we have always operated in compliance withArkansas law, we concluded that avoiding potentially costly litigation in thiscircumstance was in the best interest of our shareholders. As a result, weclosed all 30 centers in Arkansas on or before October 31, 2008. The costsassociated with closing our Arkansas operations were approximately$1.8 million, including $1.1 million due to the write-down ofreceivables. The cessation of our Arkansas operations did not result in anyimpairment of goodwill.

 

The following is asummary of financial information for our operations in Arkansas for the threemonths ended March 31, 2008 and 2009 (in thousands):

 
| ** **                  | ** ** | **2008** | ** ** | **2009** | ** ** |
|-----------------------------|------------|----------|------------|----------|------------|
| Total revenues              |       | $        | 1,529      |     | $          | 3 |   |
| Total center  expenses      |       | 1,358    |       | (94      | )          |
| Center gross  profit (loss) |       | $        | 171        |     | $          | (91 | ) |

 

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*Closingof Operations in New Hampshire.*  Legislation in New Hampshire became effectivein 2009 that effectively prohibits the offering of cash advances in NewHampshire. As a result of this legislation, we determined that it is noteconomically viable to continue operating in New Hampshire. As a result, weclosed 22 centers in New Hampshire in the first quarter of 2009 and will closethe remaining two centers during the second quarter of 2009.  The costs associated with closing our NewHampshire operations are estimated to be approximately $1.4 million,including $0.5 million due to the write-down of receivables. Approximately$0.7 million of these expenses were recognized during 2008 and$0.6 million where recognized during the first quarter of 2009.  The remaining expenses will be recognizedduring the second quarter of 2009.  Thecessation of our New Hampshire operations did not result in any impairment ofgoodwill.

 

The following is asummary of financial information for our operations in New Hampshire for thethree months ended March 31, 2008 and 2009 (in thousands):

 
| ** **                  | ** ** | **2008** | ** ** | **2009** | ** ** |
|-----------------------------|------------|----------|------------|----------|------------|
| Total revenues              |       | $        | 1,920      |     | $          | 125 |   |
| Total center  expenses      |       | 1,034    |       | 1,100    |       |
| Center gross  profit (loss) |       | $        | 886        |     | $          | (975 | ) |

 

***   Acquisition in theUnited Kingdom***

 

During the quarter ended March 31, 2008, we acquired one center inthe United Kingdom for an aggregate purchase price, includingtransaction-related costs, of approximately $0.6 million in cash and anincrease in goodwill of approximately $0.5 million.

 

**   *Centers***

 

   The following table illustrates thecomposition of our center network at December 31, 2008 and March 31,2009:

 
| **State**          | ** ** | **December 31,  2008** | ** ** | **March 31,  2009** | ** ** |
|--------------------|------------|-----------------------------|------------|--------------------------|------------|
| Alabama            |       | 144                         |       | 143                      |       |
| Arizona            |       | 53                          |       | 53                       |       |
| California         |       | 290                         |       | 290                      |       |
| Colorado           |       | 68                          |       | 66                       |       |
| Delaware           |       | 16                          |       | 16                       |       |
| Florida            |       | 257                         |       | 252                      |       |
| Idaho              |       | 10                          |       | 8                        |       |
| Illinois           |       | 80                          |       | 80                       |       |
| Indiana            |       | 113                         |       | 113                      |       |
| Iowa               |       | 35                          |       | 34                       |       |
| Kansas             |       | 59                          |       | 57                       |       |
| Kentucky           |       | 44                          |       | 44                       |       |
| Louisiana          |       | 85                          |       | 84                       |       |
| Michigan           |       | 152                         |       | 152                      |       |
| Mississippi        |       | 61                          |       | 61                       |       |
| Missouri           |       | 91                          |       | 89                       |       |
| Montana            |       | 5                           |       | 5                        |       |
| Nebraska           |       | 24                          |       | 23                       |       |
| Nevada             |       | 14                          |       | 13                       |       |
| New Hampshire  (1) |       | 24                          |       | 2                        |       |
| North Dakota       |       | 8                           |       | 8                        |       |

 

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| Ohio                 |   | 244   |   | 234   |   |
|----------------------|--------|-------|--------|-------|--------|
| Oklahoma             |   | 68    |   | 68    |   |
| Rhode Island         |   | 21    |   | 21    |   |
| South Carolina       |   | 138   |   | 138   |   |
| South Dakota         |   | 12    |   | 12    |   |
| Tennessee            |   | 63    |   | 63    |   |
| Texas                |   | 252   |   | 251   |   |
| Utah                 |   | 6     |   | 6     |   |
| Virginia             |   | 151   |   | 149   |   |
| Washington           |   | 102   |   | 97    |   |
| Wisconsin            |   | 67    |   | 67    |   |
| Wyoming              |   | 10    |   | 10    |   |
| Total United  States |   | 2,767 |   | 2,709 |   |
| Canada               |   | 10    |   | 10    |   |
| United Kingdom       |   | 20    |   | 21    |   |
| Total                |   | 2,797 |   | 2,740 |   |

 

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(1)        We plan to close our remaining centersin New Hampshire during the second quarter of 2009.

 

**   *New centers***

 

We opened 27 and four new centers during the three months ended March 31,2008 and 2009, respectively.

 

***  Closed centers***

 

We closed six and 61 centers during the three months ended March 31,2008 and 2009, respectively. During the first quarter of 2009, we identifiedapproximately 170 centers to be closed, including approximately 60 centers inOhio. The expenses related to closing centers typically include theundepreciated costs of fixtures and signage that cannot be moved and reused atanother center, moving costs, severance payments and any lease cancellationcosts. We recorded expenses related to center closures of approximately $0.9 millionand $3.4 million in the three months ended March 31, 2008 and 2009,respectively. These expenses include a loss on impairments of assets ofapproximately $0.2 million and $2.2 million in the three months ended March 31,2008 and 2009, respectively.

 

**CriticalAccounting Policies and Use of Estimates**

 

In the ordinarycourse of business, we have made a number of estimates and assumptions relatingto the reporting of our results of operations and financial condition in thepreparation of our financial statements in conformity with generally acceptedaccounting principles in the United States (“GAAP”). We evaluate theseestimates on an ongoing basis and we base these estimates on the informationcurrently available to us and on various other assumptions that we believe arereasonable under the circumstances. Actual results could vary from theseestimates under different assumptions or conditions.

 

We believe thatthe following critical accounting policies affect the more significantestimates and assumptions used in the preparation of our financial statements.

 

***   Provision forDoubtful Accounts, Allowance for Doubtful Accounts and Accrual for Third-PartyLender Losses***

 

We believe themost significant estimates made in the preparation of our accompanying consolidatedfinancial statements relate to the determination of an allowance for doubtfulaccounts for estimated probable losses on advances we make directly tocustomers and an accrual for third-party lender losses for estimated probablelosses on loans and certain related fees for loans that we process for thethird-party lender in Texas (See “Off-Balance Sheet Arrangement withThird-Party Lender” in this section). Our advances and fees receivable, net onour balance sheet do not include the advances and interest receivable for loansprocessed by us for the third-party lender in Texas because these loans areowned by the third-party lender.

 

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The allowance fordoubtful accounts and accrual for third-party lender losses are primarily basedupon models that analyze specific portfolio statistics and also reflect, to alesser extent, management’s judgment regarding overall accuracy. The analyticalmodels take into account several factors including the number of transactionscustomers complete and charge-off and recovery rates. Additional factors suchas changes in state laws, center closings, length of time centers have been openin a state, relative mix of new centers within a state and other relevantfactors are also evaluated to determine whether the results from the analyticalmodels should be revised.

 

We record theallowance for doubtful accounts as a reduction of advances and fees receivable,net on our balance sheet. We record the accrual for third-party lender lossesas a current liability on our balance sheet. We charge the portion of advancesand fees deemed to be uncollectible against the allowance for doubtful accountsand credit any subsequent recoveries (including sales of debt) to the allowancefor doubtful accounts.

 

Unpaid advancesand the related fees and/or interest are generally charged off 60 daysafter the date the check was returned by the customer’s bank for non-sufficientfunds or other reasons, unless the customer has paid at least 15% of the totalof his or her loan plus the original fee. Unpaid advances of customers who filefor bankruptcy are charged off upon receipt of the bankruptcy notice. Althoughmanagement uses the best information available to make evaluations, futureadjustments to the allowance for doubtful accounts and accrual for third-partylender losses may be necessary if conditions differ substantially from ourassumptions used in assessing their adequacy.

 

Our businessexperiences cyclicality in receivable balances from both the time of year andthe day of the week. Fluctuations in receivable balances result in acorresponding impact on the allowance for doubtful accounts, accrual for third-partylender losses and provision for doubtful accounts.

 

Our receivablesare traditionally lower at the end of the first quarter, corresponding to taxrefund season, and reach their highest level during the last week of December.

 

In addition to theseasonal fluctuations, the receivable balances can fluctuate throughout a week,generally being at their highest levels on a Wednesday or Thursday and at theirlowest levels on a Friday. In general, receivable balances decreaseapproximately 4% to 7% from a typical Thursday to a typical Friday. The firstquarter of 2008 began on a Tuesday (a relative low point in weekly receivablebalances) and ended on a Monday (a relative low point in weekly receivablebalances). The first quarter of 2009 began on a Thursday (a relative high pointin weekly receivable balances) and ended on a Tuesday (a relative low point inweekly receivable balances).

 

To the extenthistorical credit experience is not indicative of future performance or otherassumptions used by management do not prevail, our loss experience could differsignificantly, resulting in either higher or lower future provisions fordoubtful accounts. As of March 31, 2009, if average default rates were 5%higher or lower, the allowance for doubtful accounts and accrual forthird-party lender losses would change by approximately $2.8 million.

 

***  Intangible Assets***

 

As a result of ouracquisition of the National Cash Advance group of affiliated companies in October 1999,we recorded approximately $143.0 million of goodwill. During 2007 and2008, we completed six acquisitions in the United Kingdom, resulting inadditional goodwill of approximately $5.4 million. As of March 31,2009, the carrying value of goodwill was $126.6 million due to theamortization of goodwill prior to the adoption of SFAS 142 and the changein the exchange rate for our United Kingdom assets. Due to the significance ofgoodwill and the reduction of net income that would occur if goodwill wereimpaired, we assess the impairment of our long-lived and intangible assetsannually or whenever events or changes in circumstances indicate that thecarrying value may not be recoverable. Factors considered important that couldtrigger an impairment review include significant underperformance relative to historicalor projected future cash flows, significant changes in the manner of use of theacquired assets or the strategy of the overall business, and significantnegative industry trends. To identify potential 

 

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impairment, wecompare the fair value of a reporting unit with its carrying amount, includinggoodwill. If the fair value of a reporting unit does not exceed its carryingamount, we measure the amount of impairment loss by comparing the implied fairvalue of the reporting unit’s goodwill with the carrying amount of thatgoodwill. In determining the estimated future discounted cash flows, weconsider current and projected future levels of income, as well as businesstrends, prospects, market and economic conditions. Impairment tests involve theuse of judgments and estimates related to the fair market value of the businessoperations with which goodwill is associated, taking into consideration bothhistorical operating performance and anticipated financial position and futureearnings. Any impairment would lower our net income.

 

We have approximately $4.0 million of goodwill in our United Kingdomoperations. As of March 31, 2009, these operations have cumulatively generatednegative cash and have not reached break-even at the center gross profit level.Our expansion efforts in the United Kingdom are approximately 18 months old andtherefore we are still in the early stages of our build-out. Our goodwillimpairment model projects future positive cash flows sufficient to support thegoodwill and long-lived asset base. 

 

We cannot predictthe occurrence of certain events that might adversely affect the carrying valueof our goodwill. Should the operations of the businesses with which goodwill isassociated incur significant adverse changes in business, clients, adverseactions by regulators, unanticipated competition, loss of our revolving line ofcredit, and/or changes in technology or markets, some or all of our recordedgoodwill could be impaired.

 

*** Accrued Workers’ Compensation Expenses***

 

Accrued liabilities in our December 31, 2008 and March 31,2009 financial statements include accruals of approximately $4.9 millionand $4.7 million, respectively, for workers’ compensation. The costs ofboth reported claims and claims incurred but not reported, up to specifieddeductible limits, are estimated based on historical data, projected payrollnumbers and other information. We review estimates and periodically update ourestimates and the resulting reserves and any necessary adjustments arereflected in earnings currently. To the extent historical claims are notindicative of future claims, there are changes in payroll numbers or workers’compensation loss development factors change or other assumptions used bymanagement do not prevail, our expense and related accrued liabilities couldincrease or decrease.

 

***  Income Taxes***

 

We use certainassumptions and estimates in determining income taxes payable or refundable forthe current year, deferred income tax liabilities and assets for eventsrecognized differently in our financial statements and income tax returns, andincome tax expense. Determining these amounts requires analysis of certaintransactions and interpretation of tax laws and regulations. We exerciseconsiderable judgment in evaluating the amount and timing of recognition of theresulting income tax liabilities and assets. These judgments and estimates arere-evaluated on a continual basis as regulatory and business factors change.

 

No assurance canbe given that neither our tax returns nor the income tax reported on ourConsolidated Financial Statements will be adjusted as a result of adverserulings by the U.S. Tax Court, changes in the tax code, or assessments made bythe Internal Revenue Service (“IRS”). We are subject to potential adverseadjustments, including but not limited to, an increase in the statutory federalor state income tax rates, the permanent nondeductibility of amounts currentlyconsidered deductible either now or in future periods, and the dependence onthe generation of future taxable income, including capital gains, in order toultimately realize deferred income tax assets.

 

***  Accounting for Stock-Based Employee Compensation***

 

In 2004, we adopted Statement of Financial Accounting Standards No. 123(Revised), Share-Based Payment (“SFAS 123(R)”). Accordingly, we measurethe cost of our stock-based employee compensation at the grant date based onfair value and recognize such cost in the financial statements over each award’srequisite service period. As of March 31, 2009, the total compensationcost not yet recognized related to nonvested stock awards under our stock-basedemployee compensation plans is approximately $6.4 million. The weightedaverage period over which this expense is expected to be recognized isapproximately 3.7 years. See “Item 1. Financial Statements—Notes toInterim Unaudited Consolidated Financial Statements—Note 6. Capital Stockand Stock-Based Compensation Plans” for a description of

 

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our restricted stock andstock option awards and the assumptions used to calculate the fair value ofsuch awards including the expected volatility assumed in valuing our stockoption grants.

 

***  Recently Issued Accounting Pronouncements***

 

See “Item 1. Financial Statements—Notes to Interim Unaudited ConsolidatedFinancial Statements—Note 1. Summary of Significant Accounting Policies”for a description of the most recent pronouncements.

 

**Results ofOperations**

 

***       Three Months Ended March 31, 2008 Compared to Three Months Ended March 31,2009***

 

The followingtables set forth our results of operations for the three months ended March 31,2008 compared to the three months ended March 31, 2009:

 
| ** **                                  | ** ** | **Three Months Ended March 31,**                 | ** ** |
|---------------------------------------------|------------|-------------------------------------------------------|------------|
| ** **                                  | ** ** | **2008**                                              | ** ** | **2009** | ** ** | **Variance  Favorable/(Unfavorable)** | ** ** |
| ** **                                  | ** ** | **Dollars**                                           | ** ** | **% Total  Revenues** | ** ** | **Dollars** | ** ** | **% Total  Revenues** | ** ** | **Dollars** | ** ** | **%** | ** ** |
| ** **                                  | ** ** | **(Dollars in thousands, except center information)** | ** ** |
| **Total  Revenues**                         |       | $                                                     | 165,456    |   | 100.0 | % | $ | 156,393 |   | 100.0 | % | $ | (9,063 | ) | (5.5 | )% |
| **Center  Expenses:**                       |       |                                                  |       |   |   |   |   |   |   |   |   |   |   |
| Salaries and  related payroll costs         |       | 51,401                                                |       | 31.0 | % | 47,513 |   | 30.4 | % | 3,888 |   | 7.6 | % |
| Provision for  doubtful accounts            |       | 20,780                                                |       | 12.6 | % | 21,098 |   | 13.5 | % | (318 | ) | (1.5 | )% |
| Occupancy costs                             |       | 25,424                                                |       | 15.4 | % | 24,773 |   | 15.8 | % | 651 |   | 2.6 | % |
| Center  depreciation expense                |       | 4,295                                                 |       | 2.6 | % | 3,723 |   | 2.4 | % | 572 |   | 13.3 | % |
| Advertising  expense                        |       | 3,146                                                 |       | 1.9 | % | 2,181 |   | 1.4 | % | 965 |   | 30.7 | % |
| Other center  expenses                      |       | 14,595                                                |       | 8.8 | % | 12,706 |   | 8.1 | % | 1,889 |   | 12.9 | % |
| Total center  expenses                      |       | 119,641                                               |       | 72.3 | % | 111,994 |   | 71.6 | % | 7,647 |   | 6.4 | % |
| Center gross  profit                        |       | 45,815                                                |       | 27.7 | % | 44,399 |   | 28.4 | % | (1,416 | ) | (3.1 | )% |
| **Corporate  and Other Expenses (Income):** |       |                                                  |       |   |   |   |   |   |   |   |   |   |   |
| General and  administrative expenses        |       | 16,375                                                |       | 9.9 | % | 14,071 |   | 9.0 | % | 2,304 |   | 14.1 | % |
| Corporate  depreciation expense             |       | 768                                                   |       | 0.5 | % | 688 |   | 0.4 | % | 80 |   | 10.4 | % |
| Interest expense                            |       | 2,688                                                 |       | 1.6 | % | 1,699 |   | 1.1 | % | 989 |   | 36.8 | % |
| Interest income                             |       | (41                                                   | )          | — |   | (17 | ) | — |   | (24 | ) | (58.5 | )% |
| Loss on disposal  of property and equipment |       | 126                                                   |       | 0.1 | % | 33 |   | — |   | 93 |   | 73.8 | % |
| Loss on  impairment of assets               |       | 236                                                   |       | 0.1 | % | 2,209 |   | 1.4 | % | (1,973 | ) | 836.0 | % |
| Total corporate  and other expenses         |       | 20,152                                                |       | 12.2 | % | 18,683 |   | 11.9 | % | 1,469 |   | 7.3 | % |
| Income before  income taxes                 |       | 25,663                                                |       | 15.5 | % | 25,716 |   | 16.5 | % | 53 |   | 0.2 | % |
| Income tax  expense                         |       | 10,859                                                |       | 6.6 | % | 10,573 |   | 6.8 | % | 286 |   | 2.6 | % |
| Net income                                  |       | $                                                     | 14,804     |   | 8.9 | % | $ | 15,143 |   | 9.7 | % | $ | 339 |   | 2.3 | % |

 

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| ** **                                                                                               | ** ** | **Three Months Ended  March 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                                                                               | ** ** | **2008**                               | ** ** | **2009** | ** ** |
| **Center  Information:**                                                                                 |       |                                   |       |   |   |
| Number of  centers open at beginning of period                                                           |       | 2,832                                  |       | 2,797 |   |
| Opened                                                                                                   |       | 27                                     |       | 4 |   |
| Acquired                                                                                                 |       | 1                                      |       | — |   |
| Closed                                                                                                   |       | (6                                     | )          | (61 | ) |
| Number of  centers open at end of period                                                                 |       | 2,854                                  |       | 2,740 |   |
| Weighted average  number of centers open during the period                                               |       | 2,850                                  |       | 2,774 |   |
| Number of  customers served—all credit products (thousands)                                         |       | 831                                    |       | 741 |   |
| Number of cash  advances originated (thousands)                                                          |       | 2,781                                  |       | 2,423 |   |
| Aggregate  principal amount of cash advances originated (thousands)                                      |       | $                                      | 1,020,812  |   | $ | 874,363 |   |
| Average amount  of each cash advance originated                                                          |       | $                                      | 367        |   | $ | 361 |   |
| Average charge  to customers for providing and processing a cash advance                                 |       | $                                      | 57         |   | $ | 53 |   |
| Average duration  of a cash advance (days)                                                               |       | 16.6                                   |       | 17.4 |   |
| Average number  of lines of credit outstanding during the period (thousands) (1)                         |       | —                                 |       | 34 |   |
| Average amount  of aggregate principal on lines of credit outstanding during the period (thousands)  (1) |       | —                                 |       | $ | 19,373 |   |
| Average  principal amount on each line of credit outstanding during the period (1)                       |       | —                                 |       | $ | 571 |   |
| Number of  installment loans originated (thousands) (2)                                                  |       | 5                                      |       | 7 |   |
| Aggregate  principal amount of installment loans originated (thousands) (2)                              |       | $                                      | 2,325      |   | $ | 2,787 |   |
| Average  principal amount of each installment loan originated (2)                                        |       | $                                      | 426        |   | $ | 425 |   |

 

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(1)           We began offering lines of credit inVirginia in November 2008.

 

(2)           The installment loan activityreflects loans we originated as the lender in Illinois.

 
| ** **                                                                            | ** ** | **Three Months Ended March 31,** | ** ** |
|---------------------------------------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                                                            | ** ** | **2008**                              | ** ** | **2009** | ** ** | **Variance  Favorable/  (Unfavorable)** | ** ** |
| ** **                                                                            | ** ** | **Dollars**                           | ** ** | **% Total  Revenues** | ** ** | **Dollars** | ** ** | **% Total  Revenues** | ** ** | **Dollars** | ** ** | **%** | ** ** |
| ** **                                                                            | ** ** | **(Dollars in thousands)**  | ** ** |
| **Per  Center (based on weighted average number of centers open during the period):** |       |                                  |       |   |   |   |   |   |   |   |   |   |   |
| Center revenues                                                                       |       | $                                     | 58.1       |   | 100.0 | % | $ | 56.4 |   | 100.0 | % | $ | (1.7 | ) | (2.9 | )% |
| Center expenses:                                                                      |       |                                  |       |   |   |   |   |   |   |   |   |   |   |
| Salaries and  related payroll costs                                                   |       | 18.1                                  |       | 31.0 | % | 17.2 |   | 30.4 | % | 0.9 |   | 5.0 | % |
| Provision for  doubtful accounts                                                      |       | 7.3                                   |       | 12.6 | % | 7.6 |   | 13.5 | % | (0.3 | ) | (4.1 | )% |
| Occupancy costs                                                                       |       | 8.9                                   |       | 15.4 | % | 8.9 |   | 15.8 | % | — |   | — |   |
| Center  depreciation expense                                                          |       | 1.5                                   |       | 2.6 | % | 1.3 |   | 2.4 | % | 0.2 |   | 13.3 | % |
| Advertising  expense                                                                  |       | 1.1                                   |       | 1.9 | % | 0.8 |   | 1.4 | % | 0.3 |   | 27.3 | % |
| Other center  expenses                                                                |       | 5.1                                   |       | 8.8 | % | 4.6 |   | 8.1 | % | 0.5 |   | 9.8 | % |
| Total center  expenses                                                                |       | 42.0                                  |       | 72.3 | % | 40.4 |   | 71.6 | % | 1.6 |   | 3.8 | % |
| Center gross  profit                                                                  |       | $                                     | 16.1       |   | 27.7 | % | $ | 16.0 |   | 28.4 | % | $ | (0.1 | ) | (0.6 | )% |

 

***   Revenue Analysis***

 

Total revenues decreased approximately $9.1 million during thethree months ended March 31, 2009 compared to the same period in 2008.Total revenues for the 2,685 centers opened prior to January 1, 2008 andstill open as of March 31, 2009 decreased $5.7 million from$159.8 million for the three months ended March 31, 2008 to$154.1 million for the same period in 2009. Centers opened prior to January 1,

 

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2008 were at least threemonths and fifteen months old as of March 31, 2008 and 2009,respectively.  Total revenues for the 55centers opened after January 1, 2008 and still open as of March 31,2009 increased $1.3 million from $0.1 million for the three monthsended March 31, 2008 to $1.4 million for the same period in 2009.Total revenues for the remaining 147 centers that closed represented a decreaseof approximately $4.7 million for the three months ended March 31, 2009compared to the same period in 2008. Of this decrease, approximately$0.1 million, $1.5 million, and $1.8 million was due to the closureof our centers in New Mexico, Arkansas, and New Hampshire, respectively.

 

**   *Center Expense Analysis***

 

*Salariesand related payroll costs.*  The decreasein salaries and related payroll costs for the three months ended March 31,2009 compared to the same period in 2008 was due primarily to a reduction inthe number of centers open during the three months ended March 31, 2009 ascompared to the same period in 2008 as well as a decrease in salary costs percenter. We averaged approximately 2.20 and 1.97 full-time equivalent fieldemployees, including district directors, per center during the three monthsended March 31, 2008 and 2009, respectively.

 

*Provisionfor doubtful accounts.*  As a percentage of totalrevenues, the provision for doubtful accounts increased to 13.5% for the threemonths ended March 31, 2009 from 12.6% for the same period in 2008. Thisincrease was due primarily to higher losses in Virginia related to theintroduction of a new open-ended line of credit product.

 

*Occupancycosts.*  The decrease in occupancy costs for the threemonths ended March 31, 2009 compared to the same period in 2008 was dueprimarily to a decrease in the number of centers open during the three monthsended March 31, 2009 as compared to the same period in 2008.

 

* Advertising expense.* Advertising expense decreased for the three months ended March 31,2009 compared to the same period in 2008 due primarily to a decrease in directmailings related to the introduction of new products and a decrease in grandopening marketing expenses related to new centers.

 

*Othercenter expenses.*  The decrease in other center expenses for thethree months ended March 31, 2009 compared to the same period in 2008 wasdue primarily to a decrease in the number of centers open during the threemonths ended March 31, 2009 as compared to the same period in 2008 and adecrease in telephone, travel and equipment lease expenses.

 

***  Corporate and Other Expense (Income) Analysis***

 

*Generaland administrative expenses.*  The decreasein general and administrative expenses for the three months ended March 31,2009 compared to the same period in 2008 was due primarily to:

 

·                  lower expenses of approximately $1.5 million in public and governmentrelations primarily due to a reduction in trade associations dues, consultingfees and public relations expenditures;

 

·                  a decrease in legal fees primarily due to the receipt of approximately$0.8 million in insurance proceeds; and

 

·                  a decrease of approximately $0.2 million in expenses related topersonnel, accounting fees and other expenses associated with our operations inthe United Kingdom

 

partially offsetby:

 

·                  an increase of approximately $0.3 million in other professional feesrelated to consulting fees.

 

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*Losson disposal of property and equipment and loss on impairment of assets.* The increase in these expenses for the three months ended March 31,2009 is due to our having closed or identified for closure approximately 190centers in the first quarter of 2009 as compared to approximately 20 centersfor the same period in 2008.

 

*Interestexpense.*  The decrease in interest expense for the threemonths ended March 31, 2009 compared to the same period in 2008 wasprimarily due to a decrease in the average interest rates offset partially byan increase in the average outstanding balance of our revolving creditfacility.

 

*IncomeTax Expense.*  The decrease in income tax expense for thethree months ended March 31, 2009 as compared to the same period in 2008was primarily due to a decrease in effective state income tax rates.

 

**Liquidityand Capital Resources**

 

The followingtable presents a summary of cash flows for the three months ended March 31,2008 and 2009 (dollars in thousands):

 
| ** **                                                    | ** ** | ** ** | ** ** | ** ** | ** ** | **Variance** | ** ** |
|---------------------------------------------------------------|------------|------------|------------|------------|------------|--------------|------------|
| ** **                                                    | ** ** | **2008**   | ** ** | **2009**   | ** ** | **Dollars**  | ** ** | **%** | ** ** |
| Cash flows  provided by (used in):                            |       |       |       |       |       |         |       |   |   |
| Operating  activities                                         |       | $          | 35,848     |       | $          | 30,731       |       | $ | (5,117 | ) | (14.3 | )% |
| Investing  activities                                         |       | 15,681     |       | 25,860     |       | 10,179       |       | 64.9 | % |
| Financing  activities                                         |       | (63,222    | )          | (58,793    | )          | 4,429        |       | 7.0 | % |
| Effect of  exchange rate changes on cash and cash equivalents |       | (23        | )          | (52        | )          | (29          | )          | (126.1 | )% |
| Net decrease in  cash and cash equivalents                    |       | (11,716    | )          | (2,254     | )          | 9,462        |       | 80.8 | % |
| Cash and cash  equivalents, beginning of period               |       | 28,251     |       | 16,017     |       | (12,234      | )          | (43.3 | )% |
| Cash and cash  equivalents, end of period                     |       | $          | 16,535     |       | $          | 13,763       |       | $ | (2,772 | ) | (16.8 | )% |

 

Our principalsources of cash are from operations and from borrowings under our revolvingcredit facility. See “Certain Contractual Cash Commitments—Long-Term DebtObligations” in this section for a detailed description of our revolving creditfacility. We anticipate that our primary uses of cash will be to provideworking capital, finance capital expenditures, meet debt service requirements,fund advances, finance center growth, fund acquisitions, and pay dividends onour common stock.

 

We borrow underour revolving credit facility to fund our advances and to meet our otherliquidity needs. Our day-to-day balances under our revolving credit facility,as well as our cash balances, vary because of seasonal and day-to-dayrequirements resulting from making and collecting advances. For example, if amonth ends on a Friday (a typical payday), our borrowings and our cash balanceswill be high compared to a month that does not end on a Friday. This is becausea substantial portion of the advances will be repaid in cash on that day butsufficient time will not yet have passed for the cash to reduce the outstandingborrowings under our revolving credit facility. Our borrowings under ourrevolving credit facility will also increase as the demand for advancesincreases during our peak periods such as the back-to-school and holidayseasons. Conversely, our borrowings typically decrease during the tax refundseason when cash receipts from customers peak or the customer demand for newadvances decreases. Advances and fees receivable, net decreased approximately$7.5 million, or 4.1%, to $172.8 million at March 31, 2009compared to $180.3 million at March 31, 2008. Advances and feesreceivable, net decreased approximately $47.3 million, or 21.5%, to$172.8 million at March 31, 2009 compared to $220.1 million at December 31,2008 due primarily to tax refund season.

 

In July 2008,we completed our stock repurchase program that our Board of Directors approvedon May 4, 2005 and twice extended, once on August 16, 2006 and again onFebruary 13, 2008, for a total of $225.0 million in authorizedrepurchases.

 

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During the threemonths ended March 31, 2008 and 2009, we repurchased 4,759,322 and 3,272shares of our common stock, respectively, at a cost of approximately $36.8million and $5,200, respectively. For the three months ended March 31,2008 and 2009, these amounts include 3,272 shares of common stock, which weresurrendered by employees to satisfy their tax obligations with respect to thevesting of shares of restricted stock awarded pursuant to our 2004 OmnibusStock Plan.

 

Although our revolving credit facility places restrictions on ourcapital expenditures and acquisitions, we believe that these restrictions donot prohibit us from pursuing our strategy or limit our current level ofoperations. Cash that is restricted due to certain states’ regulatory liquidityrequirements is not included in cash and cash equivalents. Instead, therestricted cash is shown on our consolidated balance sheet as a non-currentasset under the line item “Restricted cash.” Historically, these restrictions have not had, nor do we expect them tohave, an impact on our ability to meet our liquidity needs for operations.  However, our ability to make dividends to ourstockholders and repurchases of our common stock has been, and in the futuremay be, restricted under our revolving credit facility.

 

***  Cash Flows from Operating Activities***

 

Net cash providedby operating activities decreased approximately 14.3% to $30.7 million forthe three months ended March 31, 2009 compared to the same period ended March 31,2008.  The decrease in operating cashflows was attributable to the decrease in operating assets and liabilities ofapproximately $4.5 million and the net decrease of $0.9 million in non-cashexpense items.  This was partially offsetby an increase in net income of $0.3 million.

 

***  Cash Flows from Investing Activities***

 

Net cash providedby investing activities increased approximately 64.9% to $25.9 million forthe three months ended March 31, 2009 compared to the same period ended March 31,2008. The increase was primarily related to decreases in advances receivable of$11.4 million, purchases of property and equipment of $2.1 million and acquisitionsof $0.5 million.  This was partiallyoffset by an increase in restricted cash of $3.8 million.

 

***  Cash Flows from Financing Activities***

 

Net cash used infinancing activities decreased 7.0% to $58.8 million for the three monthsended March 31, 2009 compared to the same period ended March 31,2008. During the three months ended March 31, 2009, the Company had netrepayments under the revolving credit facility of approximately$52.2 million and paid $3.8 million in dividends.

 

**CapitalExpenditures**

 

For the threemonths ended March 31, 2008 and 2009, we spent $3.2 million and$1.1 million, respectively, on capital expenditures. Capital expendituresincluded expenditures for: (1) new centers opened; (2) centerremodels; and (3) computer equipment replacements in our centers and atour corporate headquarters.

 

**Off-BalanceSheet Arrangement with Third-Party Lender**

 

In Texas, where weoperate as a CSO, we offer a fee-based credit services package to assistcustomers in trying to improve their credit and in obtaining an extension ofconsumer credit through a third-party lender. Under the terms of our agreementwith this lender, we process customer applications and are contractuallyobligated to reimburse the lender for the full amount of the loans and certainrelated fees that are not collected from the customers. As of March 31,2008 and 2009, the third-party lender’s 

 

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outstandingadvances and interest receivable (which were not recorded on our balance sheet)totaled approximately $15.8 million and $14.4 million, respectively. Weare obligated to pay the third-party lender to the extent these amounts becomeuncollectible. Additionally, if these advances become uncollectible, we arealso required to pay the third-party lender all related NSF fees and late feeson these advances.

 

Because of oureconomic exposure for losses related to the third-party lender’s advances andinterest receivable, we have established an accrual for third-party lenderlosses to reflect our estimated probable losses related to uncollectiblethird-party lender advances. The accrual for third-party lender losses that wasreported in our balance sheet at March 31, 2008 and 2009 was approximately$3.5 million and $3.2 million, respectively, and was established on a basissimilar to the allowance for doubtful accounts. If actual losses on thethird-party lender’s advances are materially greater than our accrual forthird-party lender losses, our business, results of operations and financialcondition could be adversely affected. See “Item 1. FinancialStatements—Notes to Interim Unaudited Consolidated FinancialStatements—Note 7. Transactions with Variable Interest Entities.”

 

**CertainContractual Cash Commitments**

 

Our principalfuture contractual obligations and commitments as of March 31, 2009,including periodic interest payments, included the following (dollars inthousands):

 
| ** **                       | ** ** | ** ** | ** ** | **Payment due by December 31,** | ** ** |
|----------------------------------|------------|------------|------------|--------------------------------------|------------|
| **Contractual Cash Obligations** | ** ** | **Total**  | ** ** | **2009**                             | ** ** | **2010 and  2011** | ** ** | **2012 and  2013** | ** ** | **2014 and  thereafter** | ** ** |
| Long-term debt  obligations:     |       |       |       |                                 |       |   |   |   |   |   |   |
| Revolving credit  facility       |       | $          | 137,774    |                                 | $          | — |   | $ | — |   | 137,774 |   | $ | — |   |
| Mortgage payable                 |       | 6,572      |       | 597                                  |       | 1,593 |   | 1,593 |   | 2,789 |   |
| Note payable                     |       | 69         |       | 69                                   |       | — |   | — |   | — |   |
| Operating lease  obligations (1) |       | 141,954    |       | 47,220                               |       | 76,160 |   | 17,021 |   | 1,553 |   |
| Purchase  obligations            |       | 60         |       | 60                                   |       | — |   | — |   | — |   |
|                             |       |       |       |                                 |       |   |   |   |   |   |   |
| Total                            |       | $          | 286,429    |                                 | $          | 47,946 |   | $ | 77,753 |   | $ | 156,388 |   | $ | 4,342 |   |
|                                  |            |            |            |                                      |            |  |  |  |  |  |  |  |  |  |  |  |

 

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(1)   Includes leases for centers, aircrafthangar space, security equipment and fax/copier equipment.

 

***Long-Term Debt Obligations***

 

*RevolvingCredit Facility.*  In March 2008, we entered into anamendment and restatement of our prior credit facility with a syndicate ofbanks. As amended and restated, our revolving credit facility now provides uswith a $270.0 million revolving line of credit, including the ability toissue up to $25.0 million in letters of credit. Our revolving creditfacility matures on March 24, 2013. We have the option to increase therevolving credit facility by an additional $95.0 million upon receipt ofsufficient commitments from lenders in the lending syndicate and other eligiblelenders as defined in the credit agreement. Any portion of our revolving creditfacility that is repaid may be borrowed again subject to any limitations basedon financial covenants. In July 2008, we amended our credit facility tomodify the consolidated net worth test to reduce the requirement by the cost ofrepurchases of common stock made after January 1, 2008.

 

As of March 31,2009 we had $137.8 million outstanding on the revolving portion of ourcredit facility and approximately $1.0 million of unutilized letters ofcredit outstanding, leaving approximately $131.2 million available forfuture borrowings under this credit facility, subject to additional limitationsbased on certain financial covenants. As of March 31, 2009, the seniorleverage covenant restricted our availability to approximately $69.0 million.

 

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In general, ourborrowings under our revolving credit facility bear interest, at our option, ata base rate plus an applicable margin or a LIBOR-based rate plus an applicablemargin. The base rate equals the greater of: (i) the prime rate set byBank of America, the administrative agent under the revolving credit facility;and (ii) the sum of the federal funds rate plus 0.50%. The applicablemargin is determined each quarter by a pricing grid based on our total leverageratio of consolidated debt to consolidated earnings before interest, taxes,depreciation, and amortization (“EBITDA”) as defined in the credit agreement.The base rate applicable margin ranges from 1.50% to 2.25% based upon our totalleverage ratio. The LIBOR-based applicable margin ranges from 2.50% to 3.25%based upon our total leverage ratio. As of March 31, 2009, the applicablemargin for the prime-based rate was 1.75% and the applicable margin for theLIBOR-based rate was 2.75%.

 

The applicablerate is chosen when we request a draw down under the revolving credit facilityand is based on the forecasted working capital requirements and the requirednotice period for each type of borrowing. LIBOR-based rates can be selected forone-, two-, three- or six-month terms. In the case of a base rate loan, we mustnotify the bank on the requested date of any required borrowing and in the caseof a LIBOR-based loan, we must notify the bank three business days prior to thedate of the requested borrowing. Base rate loans are variable, and the rates onthose loans are changed whenever the underlying rate changes. LIBOR-based loansbear interest for the term of the loan at the rate set at the time of borrowingfor that loan.

 

Our obligationsunder the revolving credit facility are guaranteed by each of our domesticsubsidiaries. Our borrowings under the revolving credit facility arecollateralized by substantially all of our assets and the assets of oursubsidiaries. In addition, our borrowings under the revolving credit facilityare secured by a pledge of all of the capital stock, or similar equityinterests, of our domestic subsidiaries and 65% of the voting capital stock, orsimilar equity interests, of our foreign subsidiaries. Our revolving creditfacility contains various financial covenants that require, among other things,the maintenance of minimum net worth, maximum leverage and senior leverage,minimum fixed charge coverage and maximum charge-off ratios. The maximumleverage allowed under the revolving credit facility is three and one halftimes trailing twelve month EBITDA as defined in the credit agreement. Themaximum senior leverage allowed under the revolving credit facility is twotimes trailing twelve month EBITDA as defined in the credit agreement. Ourtrailing 12-month EBITDA, as defined in the credit agreement, as of March 31,2009 was approximately $103.4 million. The revolving credit facilitycontains customary covenants, including covenants that restrict our ability to,among other things (i) incur liens, (ii) incur certain indebtedness(including guarantees or other contingent obligations), (iii) engage inmergers and consolidations, (iv) engage in sales, transfers, and otherdispositions of property and assets (including sale-leaseback transactions), (v) makeloans, acquisitions, joint ventures, and other investments, (vi) makedividends and other distributions to, and redemptions and repurchases from,equity holders, (vii) prepay, redeem, or repurchase certain debt, (viii) makechanges in the nature of our business, (ix) amend our organizationaldocuments, or amend or otherwise modify certain of our debt documents, (x) changeour fiscal quarter and fiscal year ends, (xi) enter into transactions withour affiliates, and (xii) issue certain equity interests. The revolvingcredit facility contains customary events of default, including events ofdefault resulting from (i) our failure to pay principal when due orinterest, fees, or other amounts after three or more business days, (ii) covenantdefaults, (iii) our material breach of any representation or warranty, (iv) crossdefaults to any other indebtedness in excess of $1.0 million in theaggregate, (v) bankruptcy, insolvency, or other similar proceedings, (vi) ourinability to pay debts, (vii) monetary judgment defaults in excess of$1.0 million in the aggregate, (viii) customary ERISA defaults, (ix) actualor asserted invalidity of any material provision of the loan documentation orimpairment of a material portion of the collateral, and (x) a change ofcontrol. A breach of a covenant or an event of default could cause all amountsoutstanding under the revolving credit facility to become due and payable. Wewere in compliance with all financial covenants at March 31, 2009. See “Liquidityand Capital Resources” in this section for a description of how we utilize therevolving credit facility to meet our liquidity needs.

 

We borrow underour revolving credit facility to fund our advances and our other liquidityneeds. Our day-to-day balances under our revolving credit facility, as well asour cash balances, vary because of seasonal and day-to-day requirementsresulting from making and collecting advances. For example, if a month ends ona Friday (a typical payday), our borrowings and our cash balances will be highcompared to 

 

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a month that doesnot end on a Friday. This is because a substantial portion of the advances willbe repaid in cash on that day but sufficient time will not yet have passed forthe cash to reduce the outstanding borrowings under our revolving creditfacility. Our borrowings under our revolving credit facility will also increaseas the demand for advances increases during our peak periods such as theback-to-school and holiday seasons. Conversely, our borrowings typicallydecrease during the tax refund season when cash receipts from customers peak orthe customer demand for new advances decreases.

 

*UnitedKingdom Overdraft Facility.* In October 2008, our United Kingdom operationsentered into an overdraft facility. The maximum available borrowings under thefacility are GBP 400,000, which is equivalent to approximately $569,000 at March 31,2009. The interest rate on any borrowings under this facility is the Bank ofEngland base rate plus 1.75%. The facility is repayable upon demand by thelender. We had no outstanding borrowings on this facility at March 31,2009.

 

*MortgagePayable.*  Our corporate headquarters building andrelated land are subject to a mortgage loan, the principal amount of which wasapproximately $5.0 million and $4.9 million at December 31, 2008 and March 31,2009, respectively. The mortgage loan is payable to an insurance company and iscollateralized by our corporate headquarters building and related land. Themortgage loan is payable in 180 monthly installments of approximately$66,400, including principal and interest, and bears interest at a fixed rateof 7.30% over its term. The mortgage loan matures on June 10, 2017. Thecarrying amount of our corporate headquarters (land, land improvements andbuilding) was approximately $4.7 million at December 31, 2008 and March 31,2009.

 

   ***Operating Lease Obligations***

 

We lease all of our centers from third-party lessors under operatingleases. These leases typically have initial terms of three to five years andmay contain provisions for renewal options, additional rental charges based onrevenue and payment of real estate taxes, and common area charges. In addition,we lease aircraft hangar space and certain security and office equipment. Thelessor under the aircraft hangar space lease is a company controlled by oraffiliated with Mr. George D. Johnson, Jr., our former Chairman and amajor stockholder. See “Item 1. Financial Statements—Notes to InterimUnaudited Consolidated Financial Statements—Note 8. Related PartyTransactions.”

 

***  Purchase Obligations***

 

We enter into agreements with vendors to purchase furniture, fixturesand other items used to open new centers. These purchase commitments typicallyextend for a period of two to three months after the opening of a new center.As of March 31, 2009, our purchase obligations totaled approximately$0.1 million.

 

**Critical Estimates, Uncertaintiesor Assessments in the Financial Statements**

 

The preparation ofour financial statements in conformity with GAAP requires us to make estimatesand assumptions that affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the date of the financialstatements and the reported amounts of revenues and expenses during thereporting period. In applying the accounting principles, we must often makeindividual estimates and assumptions regarding expected outcomes oruncertainties. As might be expected, the actual results or outcomes aregenerally different than the estimated or assumed amounts. These differencesare usually minor and are included in our consolidated financial statements assoon as they are known. Estimates, judgments and assumptions are continuallyevaluated based on available information and experience. Because of the use ofestimates inherent in the financial reporting process, actual results coulddiffer from those estimates.

 

Actual resultsrelated to the estimates and assumptions made in preparing our consolidatedfinancial statements will emerge over periods of time, such as estimates andassumptions underlying the determination of allowance for doubtful accounts andaccrual for third-party lender losses. These estimates 

 

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and assumptionsare monitored and periodically adjusted as circumstances warrant. These amountsmay be adjusted based on higher or lower actual loss experience. Although thereis greater risk with respect to the accuracy of these estimates and assumptionsbecause of the period over which actual results may emerge, such risk ismitigated by the ability to make changes to these estimates and assumptionsover the same period.

 

We test ourgoodwill for impairment annually as of September 30, or if there is asignificant change in the business environment. In addition, we performed anupdated goodwill impairment test as of December 31, 2008 as a result of achange in our reporting units. Estimated cash flows and related goodwill aregrouped at the reporting unit level. A reporting unit is an operating segment,or under certain circumstances, a component of an operating segment thatconstitutes a business. When estimated future cash flows are less than thecarrying value of the net assets and related goodwill, an impairment test isperformed to measure and recognize the amount of the impairment loss, if any.Impairment losses, which are limited to the carrying value of goodwill,represent the excess of the carrying amount of a reporting unit’s goodwill overthe implied fair value of that goodwill. In determining the estimated futurediscounted cash flows, we consider current and projected future levels ofincome, as well as business trends, prospects, market and economic conditions.Impairment tests involve the use of judgments and estimates related to the fairmarket value of the business operations with which goodwill is associated,taking into consideration both historical operating performance and anticipatedfinancial position and future earnings. We believe that the estimates of futurecash flows and fair value are reasonable. Changes in estimates of those cashflows and fair value, however, could affect the evaluation.

 

**Impact ofInflation**

 

We believe ourresults of operations are not dependent upon the levels of inflation.

 

**Forward-LookingStatements**

 

This QuarterlyReport on Form 10-Q includes forward-looking statements.  All statements other than historicalinformation or statements of current condition contained in this Annual Report,including statements regarding our future financial performance, our businessstrategy and expected developments in our industry, are forward-lookingstatements. The words “expect,” “intend,” “plan,” “believe,” “project,” “anticipate,”“may,” “will,” “should,” “would,” “could,” “estimate,” “continue” and similarexpressions are intended to identify forward-looking statements.

 

We have basedthese forward-looking statements on management’s current views andexpectations.  Although we believe thatthe current views and expectations reflected in these forward-lookingstatements are reasonable, those views and expectations, and the relatedstatements, are inherently subject to risks, uncertainties and other factors,many of which are not under our control and may not even be predictable.  These risks, uncertainties and other factorscould cause actual results, performance or achievements to differ materiallyfrom any future results, performance or achievements expressed or implied bythe forward-looking statements.  Theserisks, uncertainties and factors include, but are not limited to:

 

·                  the extent to which federal, state, local and foreign governmentalregulation of cash advance services, consumer lending and related financialproducts and services limits or prohibits the operation of our business;

 

·                  our ability to continue to generate sufficient cash flow to satisfy ourliquidity needs and future cash dividends;

 

·                  our ability to find additional growth opportunities or to identify andsuccessfully implement new product and service offerings;

 

·                  current and future litigation and regulatory proceedings against us;

 

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·                  the possible impairment of goodwill;

 

·                  the effect of the current adverse economic conditions on our revenuesand loss rates;

 

·                  the fragmentation of our industry and competition from various othersources providing similar financial products, or other alternative sources ofcredit, to consumers;

 

·                  the adequacy of our allowance for doubtful accounts, accrual forthird-party lender losses and estimates of losses;

 

·                  the availability of adequate financing;

 

·                  our ability to continue to meet the listing standards of the New YorkStock Exchange;

 

·                  the effect of extended repayment plans on our revenues, lossexperience, provision for doubtful accounts and results of operations;

 

·                  our ability to operate on a profitable basis in Canada and the UnitedKingdom;

 

·                  our relationship with the banks that are party to our revolving creditfacility and that provide certain services that are needed to operate ourbusiness;

 

·                  theft and employee errors; and

 

·                  the other matters set forth under “Part I. Item 1A. RiskFactors”  in our Annual Report on Form 10-Kfor the year ended December 31, 2008.

 

Allforward-looking statements in this Quarterly Report are based on informationavailable to us as of the date of this Quarterly Report. Except as requiredunder federal securities laws and the rules and regulations of the U.S.Securities and Exchange Commission, we do not have any intention, and do notundertake, to update any forward-looking statements to reflect events orcircumstances arising after the date of this Quarterly Report, whether as aresult of new information, future events or otherwise. As a result of theserisks and uncertainties, readers are cautioned not to place undue reliance onthe forward-looking statements included in this Quarterly Report or that may bemade elsewhere from time to time by, or on behalf of, us. All forward-lookingstatements attributable to us are expressly qualified by these cautionarystatements.

 

**ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURESABOUT MARKET RISK.**

 

We have nomarket-risk-sensitive instruments entered into for trading purposes, as definedby GAAP.

 

**   *Interest Rate Risk***

 

We are exposed tointerest rate risk on our revolving credit facility. Our variable interestexpense is sensitive to changes in the general level of interest rates. We mayfrom time to time enter into interest rate swaps, collars or similarinstruments with the objective of reducing our volatility in borrowing costs.We do not use derivative financial instruments for speculative or tradingpurposes. We had no derivative financial instruments outstanding as of December 31,2008 or March 31, 2009. The weighted average interest rate on our$189.8 million of variable interest debt as of December 31, 2008 wasapproximately 4.17%. The weighted average interest rate on our $137.8 millionof variable interest debt as of March 31, 2009 was approximately 3.33%.

 

We had totalinterest expense of $2.7 million and $1.7 million for the threemonths ended March 31, 2008 and 2009, respectively. The estimated changein interest expense from a hypothetical 200 

 

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basis-point changein applicable variable interest rates would have been approximately$0.6 million and $0.8 million for the three months ended March 31,2008 and 2009, respectively.

 

***  Foreign Currency Exchange Rate Risk***

 

The expansion ofour operations to the United Kingdom and Canada in 2007 has exposed us toshifts in currency valuations. We may from time to time elect to purchasefinancial instruments as hedges against foreign exchange rate risks with theobjective of protecting our results of operations in the United Kingdom andCanada against foreign currency fluctuations. We had no such financialinstruments outstanding as of December 31, 2008 or March 31, 2009.

 

As currencyexchange rates change, translation of the financial results of our UnitedKingdom and Canadian operations into United States dollars will be impacted.Changes in exchange rates have resulted in cumulative translation adjustmentswhich decreased our net assets by approximately $2.6 million and $2.8 millionas of December 31, 2008 and March 31, 2009, respectively. Thesecumulative translation adjustments are included in accumulated othercomprehensive loss as a separate component of stockholders’ equity. Due to theimmateriality of our current operations in the United Kingdom and Canada, a changein foreign currency exchange rates is not expected to have a significant impacton our consolidated financial position, results of operations or cash flows.

 

**ITEM 4.  CONTROLS AND PROCEDURES.**

 

Under thesupervision and with the participation of our management, including our ChiefExecutive Officer and Chief Financial Officer, we have evaluated theeffectiveness of the design and operation of our disclosure controls andprocedures, as defined in Rules 13a-15(e) and 15d-15(e) underthe Securities Exchange Act of 1934, as amended, and our internal control overfinancial reporting, as of the end of the period covered by this Report. Basedupon that evaluation, our Chief Executive Officer and Chief Financial Officerconcluded that those disclosure controls and procedures are effective. Therewere no changes in our internal control over financial reporting during thequarter ended March 31, 2009, that have materially affected, or arereasonably likely to materially affect, our internal control over financial reporting.

 

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**PART II. OTHER INFORMATION**

 

**ITEM 1.  LEGAL PROCEEDINGS.**

 

See “Part I.Item 1. Financial Statements—Notes to Interim Unaudited ConsolidatedFinancial Statements—Note 5. Commitments and Contingencies,” which isincorporated herein by reference.

 

**ITEM 1A.  RISK FACTORS.**

 

Our operations andfinancial results are subject to various risks and uncertainties that couldadversely affect our business, results of operations, financial condition,future results and the trading price of our common stock. In addition to theother information set forth in this Quarterly Report, you should carefullyconsider the factors described in “Part I. Item 1A. Risk Factors.” of ourAnnual Report on Form 10-K for the year ended December 31, 2008,which could materially affect our business, results of operations, financialcondition, future results and the trading price of our common stock.

 

**ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USEOF PROCEEDS.**

 

The followingtable sets forth information about our stock repurchases for the three monthsended March 31, 2009:

 
| **Period (1)**                       | ** ** | **Total Number of   Shares Purchased  (2)** | ** ** | **Average  Price Paid  per Share** | ** ** | **Total Number of Shares  Purchased as Part of  Publicly Announced  Plans or Programs** | ** ** | **Approximate Dollar Value of   Shares that May Yet Be  Purchased Under the Plans  or Programs (3)** | ** ** |
|--------------------------------------|------------|---------------------------------------------|------------|------------------------------------|------------|----------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------|------------|
| January 1  to January 31   |       | 1,115                                       |       | $                                  | 1.96       |                                                                                         | —     |                                                                                                      | —     |   |
| February 1  to February 28 |       | 1,488                                       |       | 1.24                               |       | —                                                                                       |       | —                                                                                                    |       |
| March 1 to  March 31       |       | 669                                         |       | 1.82                               |       | —                                                                                       |       | —                                                                                                    |       |
| Total                                |       | 3,272                                       |       | $                                  | 1.60       |                                                                                         | —     |                                                                                                      | —     |   |

 

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(1)           Based on trade date.

 

(2)           This column includes 3,272 sharessurrendered by employees to satisfy their tax obligations with respect to thevesting of shares of restricted stock awarded pursuant to the Company’s 2004Omnibus Stock Plan.

 

(3)           In July 2008, we completed our stockrepurchase program, which was initially adopted on May 4, 2005 and subsequentlyextended on August 16, 2006 and on February 13, 2008. Except as noted above, wedid not repurchase any stock during the three months ended March 31, 2009.

 

**ITEM 6.  EXHIBITS.**

 
| **Exhibit** | ** ** | **Description**                                                                                                                                                                                                   |
|-------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.1        |       | Professional Services  Agreement between Advance America, Cash Advance Centers, Inc. and Tony  S. Colletti d/b/a Colletti & Associates dated February 19,  2009.                               |
| 31(i)(A)    |       | Certification of  Principal Executive Officer pursuant to Rules 13a-14(a) and  15d-14(a) under the Securities Exchange Act of 1934, as amended.                                                    |
| 31(i)(B)    |       | Certification of  Principal Financial Officer pursuant to Rules 13a-14(a) and  15d-14(a) under the Securities Exchange Act of 1934, as amended.                                                    |
| 32.1        |       | Certification of Chief  Executive Officer of Advance America, Cash Advance Centers, Inc.  pursuant to 18 U.S.C. Section 1350 (adopted pursuant to Section 906  of the Sarbanes-Oxley Act of 2002). |
| 32.2        |       | Certification of Chief  Financial Officer of Advance America, Cash Advance Centers, Inc.  pursuant to 18 U.S.C. Section 1350 (adopted pursuant to Section 906  of the Sarbanes-Oxley Act of 2002). |

 

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**SIGNATURES**

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 
|              | ADVANCE AMERICA, CASH ADVANCE |
|-------------------|-------------------------------|
|              | CENTERS, INC.            |
|              |                          |
| May 11, 2009 | By:                           | /s/ J. PATRICK O’SHAUGHNESSY |
|              |                          |   |
|              |                          | J. Patrick O’Shaughnessy |
| * *          | * *                      | *Executive Vice President and* |
| * *          | * *                      | *Chief Financial Officer* |
| * *          | * *                      | *(Duly authorized officer and* |
| * *          | * *                      | *principal financial officer)* |

 

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**INDEX TOEXHIBITS**

 
| **Exhibit Number** | ** ** | **Description**                                                                                                                                                                                                   |
|-------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.1                    |       | Professional Services  Agreement between Advance America, Cash Advance Centers, Inc. and Tony  S. Colletti d/b/a Colletti & Associates dated February 19,  2009.                               |
| 31(i)(A)                |       | Certification of  Principal Executive Officer pursuant to Rules 13a-14(a) and  15d-14(a) under the Securities Exchange Act of 1934, as amended.                                                    |
| 31(i)(B)                |       | Certification of  Principal Financial Officer pursuant to Rules 13a-14(a) and  15d-14(a) under the Securities Exchange Act of 1934, as amended.                                                    |
| 32.1                    |       | Certification of Chief  Executive Officer of Advance America, Cash Advance Centers, Inc.  pursuant to 18 U.S.C. Section 1350 (adopted pursuant to Section 906  of the Sarbanes-Oxley Act of 2002). |
| 32.2                    |       | Certification of Chief  Financial Officer of Advance America, Cash Advance Centers, Inc.  pursuant to 18 U.S.C. Section 1350 (adopted pursuant to Section 906  of the Sarbanes-Oxley Act of 2002). |

 

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