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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)    

ý

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2011

OR

o

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                to              

COMMISSION FILE NUMBER 001-32363

ADVANCE AMERICA, CASH ADVANCE CENTERS, INC.
(Exact name of registrant as specified in its charter)

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

135 North Church Street

 

 
Spartanburg, South Carolina
(Address of principal executive offices)
  29306
(Zip Code)

Registrant's telephone number, including area code: 864-515-5600

         Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class   Name of Each Exchange on which Registered
Common Stock, par value $.01 per share   New York Stock Exchange

         Securities registered pursuant to Section 12(g) of the Act: None

         Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o    No ý

         Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o    No ý

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

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

         Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

         Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

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

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

         As of June 30, 2011, the aggregate market value of voting stock (based upon the last reported sales price on the New York Stock Exchange) held by nonaffiliates of the registrant was $381,195,481.

         At March 12, 2012, there were 62,657,274 shares of the registrant's Common Stock, par value $.01 per share, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

         Certain information required by Part III of this report is incorporated herein by reference from the registrant's proxy statement for the registrant's Annual Meeting of Stockholders or will be provided in an amendment to this Form 10-K containing the applicable disclosure within 120 days after the end of the fiscal year covered by this report.

   


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ADVANCE AMERICA, CASH ADVANCE CENTERS, INC.
Form 10-K
For the year ended December 31, 2011

PART I

           

Item 1.

 

Business

    4  

Item 1A.

 

Risk Factors

    20  

Item 1B.

 

Unresolved Staff Comments

    33  

Item 2.

 

Properties

    33  

Item 3.

 

Legal Proceedings

    33  

Item 4.

 

Mine Safety Disclosures

    38  

PART II

           

Item 5.

 

Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

    39  

Item 6.

 

Selected Financial Data

    41  

Item 7.

 

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

    43  

Item 7A.

 

Quantitative and Qualitative Disclosures About Market Risk

    75  

Item 8.

 

Financial Statements and Supplementary Data

    76  

Item 9.

 

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

    123  

Item 9A.

 

Controls and Procedures

    123  

Item 9B.

 

Other Information

    124  

PART III

           

Item 10.

 

Directors, Executive Officers and Corporate Governance

    125  

Item 11.

 

Executive Compensation

    127  

Item 12.

 

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

    127  

Item 13.

 

Certain Relationships and Related Transactions, and Director Independence

    127  

Item 14.

 

Principal Accountant Fees and Services

    127  

PART IV

           

Item 15.

 

Exhibits and Financial Statement Schedules

    127  

SIGNATURES

   
133
 

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FORWARD-LOOKING STATEMENTS

        The matters discussed in this Annual Report on Form 10-K that are forward-looking statements are based on current management expectations that involve substantial risks and uncertainties, which could cause actual results to differ materially from the results expressed in, or implied by, these forward- looking statements. These statements can be identified by the fact that they do not relate 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 in conjunction with a discussion of future operating or financial performance. You should read statements that contain these words carefully, because they discuss our future expectations, contain projections of our future results of operations or of our financial position, or state other "forward-looking" information.

        The factors listed in "Item 1A. Risk Factors," as well as any cautionary language in this Annual Report, provide examples of risks, uncertainties, and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. Although we believe that our expectations are based on reasonable assumptions, actual results may differ materially from those in the forward-looking statements as a result of various factors, including, but not limited to, those described in "Item 1A. Risk Factors."

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

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PART I

ITEM 1.    BUSINESS.

Significant Recent Development

        On February 15, 2012, we announced that we had entered into a definitive merger agreement pursuant to which we would be acquired by a subsidiary of Grupo Elektra, S.A. de C.V. ("Grupo Elektra"). Under the terms of the merger agreement, our stockholders will receive $10.50 in cash per share of our common stock.

        The merger agreement permits our board of directors to initiate, solicit, facilitate, encourage, and enter into negotiations with respect to alternative acquisition proposals for our company through March 31, 2012, and to continue with those activities through April 15, 2012 with any third parties that have submitted an acquisition proposal, on or before March 31, 2012, that our board determines in good faith constitutes, or is reasonably likely to lead to, a superior proposal for the acquisition of our company. Our board of directors, with the assistance of its advisors, will actively solicit alternative proposals during this period. There can be no assurance that this process will result in a proposal for our company that is superior to the proposal under the existing merger agreement.

        If there is no superior proposal, we expect the merger transaction with the subsidiary of Grupo Elektra to close in the first half of calendar 2012, subject to customary approvals and closing conditions, including (i) the absence of any law or order that enjoins or otherwise prohibits the consummation of the merger or any other transaction contemplated by the merger agreement; (ii) the absence of any change in laws that would result in a certain agreed upon reduction of our center gross profit; and (iii) receipt of certain other regulatory approvals and/or operating permits and the absence of withdrawal of certain operating permits. Completion of the proposed merger also requires approval by the holders of a majority of the shares of our outstanding common stock. The proposed merger is not subject to a financing condition.

        For additional information about the proposed transaction, see "Item 8. Financial Statements and Supplementary Data—Note. 20 Subsequent Events."

Overview

        We are the largest non-bank provider of cash advance services in the United States, as measured by the number of centers operated. As of December 31, 2011, we operated 2,541 centers in 29 states in the United States, 33 centers in the United Kingdom, and 10 centers in Canada, and had 13 limited licensees in the United Kingdom. Cash advances are typically small-denomination, short-term, unsecured advances that are due on the customer's next payday. We do not franchise any of our centers in the United States or Canada.

        We offer various types of short-term credit products and services depending on applicable legislative and regulatory restrictions. For example, in Texas, we offer fee-based credit services to assist customers in obtaining an extension of consumer credit through a third-party lender. We service installment loans directly to customers in Illinois, Colorado, South Carolina, Tennessee, and Wisconsin, and second mortgage loans in Ohio. We also offer certain complementary products and services. For example, we sell prepaid debit cards in most of our centers as an agent of a bank regulated by the U.S. Office of the Comptroller of the Currency ("OCC"). We also sell money orders and provide money transfer services as an agent of a registered money transmitter. In the future, we may further expand our product and service offerings.

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        We focus primarily on providing cash advance services to middle-income working individuals. The table below shows selected demographics of the customers we serve:

 
  Customers(1)   U.S. Census 2010  

Average age (years)

    42     39  

Median household income

  $ 54,373   $ 50,046  

Percentage homeowners

    48 %   65 %

Percentage with high school degrees

    94 %   85 %

(1)
Based on approximately 385,000 of our randomly selected customers across all states that performed a transaction between November 1, 2010 and October 31, 2011.

        Our goal is to attract customers by offering straightforward, convenient access to short-term funding, while providing high-quality, professional customer service. We believe that our products and services represent a competitive, alternative source of liquidity to the customer relative to other short term credit products, such as overdraft privileges or bounced check protection, late bill payments, checks returned for insufficient funds, and short-term collateralized loans.

        Our centers, which we design to have the appearance of mainstream financial institutions, are typically located in middle-income shopping areas with high retail activity. As of December 31, 2011, we operated 2,163 centers under the "Advance America" brand and 122 centers under the "National Cash Advance" brand. With the acquisition of the assets of the Valued Services retail storefront consumer finance business of CompuCredit Holding Corporation (the"Valued Services Acquisition"), we now operate 114 centers under the "Check Advance" brand, 89 centers under the "First American Cash Advance" brand, one center under the "First American Cash Loans" brand, 80 centers under the "First American Loans" brand, six centers under the "Purpose Financial" brand and nine centers under the "Purpose Money" brand.

        The following table presents key operating data for our business:

 
  Year Ended December 31,  
 
  2009   2010   2011  

Number of centers open at end of period

    2,587     2,352     2,584  

Number of customers served—all credit products (thousands)

    1,316     1,310     1,347  

Number of cash advances originated (thousands)(1)

    10,860     10,027     10,561  

Aggregate principal amount of cash advances originated (thousands)(1)

  $ 3,922,195   $ 3,710,133   $ 3,965,225  

Average amount of each cash advance originated(1)

  $ 361   $ 370   $ 375  

Average charge to customers for providing and processing a cash advance(1)

  $ 53   $ 55   $ 55  

Average duration of a cash advance (days)(1)(2)

    17.6     18.0     18.2  

Average number of lines of credit outstanding during the period (thousands)(3)

    24     12     1  

Average amount of aggregate principal on lines of credit outstanding during the period (thousands)(3)

  $ 10,945   $ 3,753   $ 255  

Average principal amount on each line of credit outstanding during the period(3)

  $ 410   $ 251   $ 89  

Number of installment loans originated (thousands)(4)

    35     61     79  

Aggregate principal amount of installment loans originated (thousands)(4)

  $ 15,992   $ 27,375   $ 35,484  

Average principal amount of each installment loan originated(4)

  $ 453   $ 446   $ 448  

(1)
Excludes lines of credit and installment loans.

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(2)
Excludes the effect of extended payment plans.

(3)
In Virginia, we began offering lines of credit in November 2008, ceased offering new lines of credit to customers in February 2010, and stopped providing advances on existing lines of credit in September 2010.

(4)
The installment loan activity for 2009 reflects loans we originated as the lender in Illinois only. For 2010, the installment loan activity reflects loans we originated as the lender in Illinois and Colorado. For 2011, the installment loan activity reflects loans we originated as the lender in Illinois, Colorado, South Carolina, Tennessee, and Wisconsin.

Our Industry

        The cash advance services industry is part of the broader consumer finance industry. In contrast to more traditional consumer credit options, cash advance services typically involve providing customers small-denomination, short-term, and unsecured cash advances. We believe our industry developed in the early 1990s in response to changes in the availability of short-term consumer credit alternatives from traditional banking institutions. The high charges associated with having insufficient funds in one's bank account, as well as overdraft fees and other late fees charged by financial institutions and merchants, helped create customer demand for cash advance services. We believe customers value cash advance services as a simple, quick, and confidential way to meet short-term cash needs between paydays while avoiding the potentially higher costs and negative credit consequences of other alternatives.

        Because of the relatively low cost of entry and the regulatory safe harbor that many state statutes provide for cash advance services, our industry experienced significant growth during the late 1990s and early 2000s. However, due to market saturation and to federal and state legislative and regulatory challenges, we believe the number of centers in the cash advance services industry has largely stopped growing in the United States. Additionally, traditional banking institutions, other consumer credit providers, and retailers have introduced products and services that are designed to compete more directly with cash advance services.

Competitive Strengths

        Market Leader with Economies of Scale.    With 2,541 centers located in 29 states as of December 31, 2011, we are the largest non-bank provider of cash advance services in the United States, as measured by the number of centers operated, with approximately twice as many centers as the next largest non-bank provider of cash advance services. We believe our size provides us with a leadership position in the industry, allows us to leverage our brand name, and enables us to benefit from economies of scale and to enter favorable relationships with landlords, strategic vendors, and other suppliers. We have centralized most center support functions, including marketing and advertising, accounting and finance, treasury management, human resources, regulatory compliance, information technology support, and customer support systems.

        Continued Focus on Government Affairs.    We have experience with the legislative and regulatory environment in all of the states in which we operate as well as at the federal level. We are a founding member of the Community Financial Services Association of America ("CFSA"), an industry trade group composed of our company and more than 70 other companies engaged in the cash advance services industry. Our internal government affairs team, together with the CFSA, seeks to encourage favorable legislation that permits us to operate favorably within a balanced regulatory framework. Cash advance legislation we supported was adopted by three states in 2011, and two states in each of 2010 and 2009. Our approach is to continue to work with policymakers and grassroots organizations to provide a predictable and favorable legislative environment for the cash advance services industry.

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        Center-Level Controls.    We believe that our management information systems, our cash management systems, and our internal compliance systems are critical to our success. We use both proprietary and third-party point-of-sale systems to record transactions on a daily basis. We analyze this information at our centers and at our headquarters. We also use a third-party cash reconciliation software system to balance and monitor cash receipts and disbursements.

        Customer Satisfaction.    We believe our customers value our safe and convenient locations and the courtesy with which they are treated by our employees. Our cash advance services are cost-competitive and easy to understand. We post our rates and fees on the walls of our stores and our customer documents fully outline the terms of the transaction. The advance process is simple, reliable, and transparent for our customers. We believe our customer service distinguishes us from our competitors and that our customers are more likely than those of other cash advance providers to repay advances in a timely manner, recommend us to friends and family, and return to us the next time the need arises for a cash advance. Periodically, we survey our customers to measure their satisfaction with Advance America. In our most recent survey in October 2010, over 91% of our surveyed customers rated our customer service as good or excellent and 93% said they would consider Advance America in the future.

        Geographical Diversification of Our Centers.    With centers located in 29 states as of December 31, 2011, we believe we have developed a significant presence throughout the United States. This geographic diversification helps mitigate the risk and possible financial impact of unfavorable legislative changes or the economic environment of a particular region and allows us to take advantage of competitive opportunities in those markets. For the year ended December 31, 2011, Florida, California, and Texas, which accounted for approximately 12.9%, 12.1%, and 12%, respectively, of our total revenues, were the only states that accounted for more than 10% of our total revenues.

Business Strategy

        Maintain Position as the Market Leader.    A principal component of our strategy is being a leading provider of cash advance services in each market where we operate. We believe that by continuing to offer the convenience of multiple locations, as well as exceptional customer service, we will maintain a high level of customer satisfaction. In general, we believe there are few opportunities for new markets in the United States and we have reduced new center openings accordingly. In the United States, we opened 19 centers in 2010 and 12 centers in 2011. The acquisition of CompuCredit's retail operations in October 2011 helped grow our business with the addition of approximately 300 retail stores. We currently expect to open approximately 25 centers during 2012. We may also consider future opportunities to acquire cash advance companies or businesses in select markets.

        Improve Profitability of Existing Centers.    As the competitive environment has shifted away from new center openings, we are now focusing on opportunities to improve the profitability of our existing centers, including by selectively consolidating centers. We believe we can combine certain centers that are near each other and maintain the majority of the customers and revenues of both centers while reducing operating costs. From time to time, we may also acquire new customers from competitors who are exiting certain markets where we operate so that we can increase the average number of customers per center. By selectively consolidating centers and increasing the average number of customers served per center, we hope to reduce operating costs and increase center gross profit.

        Continue to Drive Center Operating Performance.    We strive to have all of our centers match the operating performance of the best centers in their market. To do this, our employees are evaluated and compensated, in part, based on their achievement of operational and regulatory compliance goals, which we adjust each year to account for the continued improvement in our business. The three key metrics we reward are: (1) maintaining a high level of compliance with applicable laws and regulations; (2) meeting stated target volume objectives; and (3) meeting loss targets. We believe that by focusing

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on these specific goals and tying them to employee compensation, we can improve operating performance in all our centers.

        Support Improvement of the Legislative and Regulatory Environment.    As of December 31, 2011, 34 states had specific laws that permitted cash advances or related services, 29 of which we believe offer a regulatory framework that balances consumer interests while allowing profitable cash advance operations. We remain committed to working with policymakers and grassroots organizations to facilitate the implementation of a balanced, viable, and predictable regulatory framework that protects the interests of the customers we serve while allowing us to operate profitably.

        Further Expand Our Product and Service Offerings.    While our primary focus continues to be on cash advance services, we continue to explore complementary product and service offerings to take advantage of our brand name and national footprint. Over the last several years, we began to offer prepaid debit cards and money transfer services as an agent for third-party vendors. We also offer gold buying and tax services. We believe these products increase customer satisfaction and revenue.

        Expand Distribution Channels.    During 2008, we began accepting online cash advance applications through Advance America websites, where customers may either (1) apply for cash advances from us and come to a center to complete their transactions or (2) apply for cash advances from third-party lenders that will be deposited directly to their bank account.

Our Services

    Cash Advance Services

        Our primary business is offering cash advance services, which include cash advances and installment loans. However, we also offer certain complementary products and services.

        In most states where we operate, we originate cash advance services under the authority of state-specific enabling statutes that allow for services ranging from single cash advances to installments with closed-end terms. The particular cash advance services may change in response to changes in state law and federal law. Additionally, where permitted by applicable law, we may service customers for a third-party lender. For example, we operate as a credit services organization ("CSO") and a credit access business ("CAB") in Texas, where we offer a fee-based credit services package to assist customers in trying to obtain an extension of consumer credit through a third-party lender. Under the terms of the agreement with this lender, we process customer applications and are contractually obligated for all losses.

        The permitted size of a cash advance varies by jurisdiction and ranges from $50 to $5,000. However, our typical cash advance ranges from $50 to $1,000. The finance charges on cash advance services we currently offer also vary by jurisdiction and range up to 22% of the amount of the cash advance.

        We may charge and collect fees for returned checks, late fees, and other fees as permitted by applicable law. Fees for returned checks or electronic debits that are declined for non-sufficient funds ("NSF") vary by state and range up to $30, and late fees vary by state and range up to $50. For each of the years ended December 31, 2011 and 2010, total NSF fees collected were approximately $2.9 million and total late fees collected were approximately $1 million and $0.9 million, respectively. In Texas and online, the third-party lender charges NSF fees and late fees in accordance with applicable law.

        A customer may obtain a cash advance in one of three ways: (1) by visiting one of our centers in person, completing an application, and receiving a cash advance from us; (2) by visiting our website, beginning the application process online, and then visiting one of our centers in person to complete the application and receive a cash advance from us; or (3) by visiting our website, completing an

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application online with a third-party lender, and receiving a cash advance from the third-party lender, which is directly deposited into the customer's bank account.

        Each new customer must provide us with certain personal information such as his or her name, address, phone number, proof of identification, employment information or source of income, bank account, and references. This information is entered into our information system and, where applicable, that of the third-party lender. The customer's identification, proof of income and/or employment and proof of bank account are verified. We determine whether to approve a cash advance and the size of a cash advance based primarily on a customer's income. We do not perform credit checks through consumer reporting agencies. In 2011, we implemented a proprietary eligibility assessment model ("EAM") using fraud attributes in conjunction with our customer application information to make underwriting decisions with respect to our first-time customers and to reduce our loan fraud rate. This approach helps to insure compliance with the Fair Lending and Equal Credit Opportunity rules. The model is used extensively throughout our cash advance center network, but not currently used for online advances where the applicable third-party lender determines their own underwriting decisions.

        After the required documents presented by the customer have been reviewed for completeness and accuracy, copied for record-keeping purposes, and the cash advance has been approved, the customer enters into an agreement governing the terms of the cash advance. The customer then provides a personal check or an Automated Clearing House ("ACH") authorization, which enables electronic payment from the customer's account, to cover the amount of the cash advance and charges for applicable fees and interest of the balance due under the agreement. The customer then makes an appointment to return on a specified due date, typically his or her next payday, to repay the cash advance and applicable charges. However, some customers are not required to provide a personal check or ACH authorization and payment cycles may vary depending upon state law and type of service. At the specified due date, the customer is required to make a payment, usually a payment of the total cash advance and applicable fees and interest. Payment is usually made in person, in cash at the center where the cash advance was initiated or issued unless the cash advance was completed on the internet, in which case the customer makes payment by ACH authorization.

        Upon payment in full, a customer's check may be returned and/or their ACH authorization deemed to be revoked. If the customer does not repay the outstanding cash advance in full on or before the due date, we will seek to collect the amount of the cash advance and any applicable fees, including any applicable late and NSF fees due, and may deposit the customer's personal check or initiate the electronic payment from the customer's bank account.

    Other Products

        We offer alternative products and services to our customers where permissible under applicable law. For instance, in Ohio, we currently offer check-cashing services at state authorized rates. We may also offer the products or services of a third party that we market, process, and/or service at our centers pursuant to an agreement with the third party. For instance, we currently offer pre-paid debit cards and money orders, money transmission, bill payment services, and income tax return preparation and processing services. Our Advance America branded pre-paid Visa debit card is issued by a bank regulated by the OCC. The card allows a cardholder to load cash onto the card and use the card wherever VISA debit cards are accepted. We are compensated under an agreement with the bank based on a number of factors related to the bank's revenue from cardholder purchases and subsequent activity, such as charges for loads, ATM withdrawals, account maintenance/plan charges, and point of sale purchases. We sell money orders and provide money transfer services and bill payment services as an agent of a licensed third-party money transmitter. We are compensated by the money transmitter based upon the number and value of money transfers, money orders, and bill payments made at our centers. In over half of our centers, pursuant to an agreement, we act as an agent of a third party which uses its software to process and prepare income tax returns. We earn a percentage of the return

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preparation and electronic filing fees charged by the third party, and a commission on the refund anticipation loans that are made by the third party.

        During the fourth quarter of 2011, we launched our gold buying product in Florida, Ohio, and Texas. We use in-store testing equipment to evaluate the purity and weight of the gold items presented. A broker is utilized to re-evaluate the gold purchased and sell the items to refiners. We also acquired centers offering gold purchasing services in Alabama, Kentucky, Ohio, Oklahoma, Tennessee, and Wisconsin, through the Valued Services Acquisition.

    Approval Process

        Although there are numerous differences under the various state-level enabling regulations, the application and approval process, underwriting criteria, delivery method, repayment and collection practices, customer and market characteristics, and underlying economics of our principal products and services generally are substantially similar in most states.

        In order for a new customer to be approved for a cash advance, he or she is required to have a bank account and a regular source of income. To obtain a cash advance, a customer typically:

    completes an application and presents the required documentation, usually proof of identification, a pay stub or other evidence of income, and a bank statement;

    enters into an agreement governing the terms of the cash advance, including the customer's agreement to repay the amount advanced in full on or before a specified due date (usually the customer's next payday), and our agreement to defer the presentment or deposit of the customer's check or ACH authorization until the due date;

    writes a personal check or provides an ACH authorization to cover the amount advanced plus charges for applicable fees and/or interest; and

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

        In jurisdictions where we provide cash advances, we determine whether to approve the cash advance to our customers. In 2011, we implemented our proprietary EAM, which uses a statistical-based approach to assess eligibility. We require proof of identification, bank account, and income source, as described above, and we primarily consider the customer's income in determining the amount of the cash advance. When a third-party lender provides the cash advance, such as in Texas and online, the applicable third-party lender decides whether to approve a cash advance and establishes all of the underwriting criteria and terms, conditions, and features of the customer agreements.

    Payment Plans

        In most states, a customer may qualify for an extended payment plan ("Payment Plan"). Generally, the terms of our Payment Plans conform to the CFSA Best Practices for extended payment plans. Certain states have specified their own terms and eligibility requirements for Payment Plans. Typically, a customer may enter into a Payment Plan for no additional fee once every twelve months and the Payment Plan will call for scheduled payments that coincide with the customer's next four paydays. In some states, a customer may enter into a Payment Plan more frequently. We do not engage in collection efforts while a customer is enrolled in a Payment Plan. If a customer misses a scheduled payment under a Payment Plan, we may resume our normal collection procedures. We do not offer a Payment Plan for installment loans or lines of credit. The third-party lender in Texas does not offer a Payment Plan for advances to its customers. The third-party internet lender offers Payment Plans as required by state law.

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        Certain states also provide for credit counseling plans. If a customer informs us that he or she has entered into a credit counseling plan, we work with the credit counselor and the customer to create a modified Payment Plan.

    Collection Procedures

        Repayment terms vary depending upon state law, the type of cash advance service offered, and whether the cash advance was completed online or in one of our centers. Generally, as part of the closing process, we explain the customer's repayment obligations and establish the expectation that the customer will pay us in cash on or before the due date in accordance with their agreement with us. The day before the due date, we generally call the customer to confirm their payment due date.

        If a customer does not pay the amount due, our center management has the discretion to either commence past-due collection efforts, which typically may proceed for up to 14 days in most states, or deposit the customer's personal check or debit their bank account in accordance with their ACH authorization. If center management decides to commence past-due collection efforts, employees typically contact the customer by telephone to obtain a payment or a promise to pay and, in cases where we hold a check, attempt to exchange the customer's check for a cashier's check, if funds are available.

        If, at the end of this past-due collection period or Payment Plan, the center has been unable to collect the amount due, the customer's check is deposited or their ACH authorization is processed. Additional collection efforts are not required if the customer's deposited check or ACH debit clears. If the customer's check or ACH debit does not clear and is returned because of non-sufficient funds in the customer's account or because of a closed account or a stop-payment order, we initiate additional collection efforts. These additional collection efforts are carried out by center employees and typically include contacting the customer by telephone to obtain payment or a promise to pay and attempting to exchange the customer's check for a cashier's check, if funds become available. We also send out a series of collection letters, which are automatically distributed from a central location based on a set of pre-determined criteria.

    Seasonality

        Our business is seasonal due to the impact of fluctuating demand for cash advance services and fluctuating collection rates throughout the year. Demand has historically been higher in the third and fourth quarters of each year, corresponding to the back-to-school and holiday seasons, and lowest in the first quarter of each year, corresponding to our customers' receipt of income tax refunds.

    Credit Facility

        We depend on borrowings under our credit facility to fund our products and services and our other liquidity needs. Our day-to-day balances under our credit facility, as well as our cash balances, vary because of seasonal and day-to-day requirements resulting from loan originations and cash collections on existing loans. Our borrowings under our credit facility will also increase as the demand for cash advances increases during our peak periods such as the back-to-school and holiday seasons. Conversely, our borrowings typically decrease during the tax refund season when cash receipts from customers peak and customer demand for new cash advances decreases.

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Center Operations

    Centers

        We operate the largest non-bank network of cash advance centers in the United States. The following table illustrates the composition of our center network by geographic area as of the specified dates:

 
  As of December 31,  
State
  2009   2010   2011  

Alabama

    142     139     151  

Arizona(1)

    48          

California

    282     278     274  

Colorado(2)

    62     31     44  

Delaware

    16     14     15  

Florida

    241     241     243  

Idaho

    7     6     5  

Illinois

    65     62     60  

Indiana

    100     95     94  

Iowa

    34     34     36  

Kansas

    53     53     51  

Kentucky

    44     44     83  

Louisiana

    84     82     82  

Michigan

    151     153     153  

Mississippi

    61     61     83  

Missouri

    86     83     82  

Montana(3)

    2          

Nebraska

    22     20     20  

Nevada

    13     11     11  

North Dakota(4)

    6     2      

Ohio(5)

    181     174     261  

Oklahoma

    67     67     82  

Rhode Island

    21     20     20  

South Carolina

    140     129     158  

South Dakota

    11     11     11  

Tennessee

    62     61     83  

Texas

    244     244     239  

Utah

    6     3     3  

Virginia(6)

    139     82     78  

Washington(7)

    91     46     14  

Wisconsin

    62     56     94  

Wyoming

    10     11     11  
               

Total United States

    2,553     2,313     2,541  

Canada

    13     18     10  

United Kingdom

    21     21     33  
               

Total

    2,587     2,352     2,584  
               

Effective October 2011, as a result of the Valued Services Acquisition, we acquired 13 centers in Alabama, 13 centers in Colorado, 42 centers in Kentucky, 23 centers in Mississippi, 87 centers in Ohio, 15 centers in Oklahoma, 41 centers in South Carolina, 22 centers in Tennessee, and 43 centers in Wisconsin.

(1)
We closed all of our centers in Arizona during 2010.

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(2)
We closed or consolidated 31 centers in Colorado during 2010.

(3)
We closed all of our centers in Montana during the fourth quarter of 2010.

(4)
We closed all of our centers in North Dakota during the second quarter of 2011.

(5)
We closed or consolidated 63 centers in 2009 and 7 centers in 2010 in Ohio.

(6)
We closed or consolidated 57 centers in Virginia during 2010.

(7)
We closed or consolidated 45 and 32 centers in Washington during 2010 and 2011, respectively.

    Internal Compliance Audit

        We have a staff of internal regulatory auditors based throughout the United States whose function is to monitor compliance by our centers with applicable federal and state laws and regulations, the CFSA Best Practices, and our internal policies and procedures. The auditors conduct periodic audits of our centers. They typically spend one to two days to complete each audit, although the time may vary if a more extensive investigation is needed. The auditors typically review customer files, reports, held checks, cash controls, and compliance with state specific legal requirements and disclosures. Upon completion of an audit, the auditor will conduct an exit interview with the center personnel and/or the divisional director and discuss issues found during the review. As part of the internal audit program, reports for management regarding audit results are prepared to help identify compliance issues that need to be addressed and areas for further training.

Competition

        We believe our principal competitors for short-term credit customers in the United States are merchants who accept late payments and banks and credit unions that provide overdraft services and bounced check protection for their account holders. We believe the credit provided and fees generated by the cash advance service industry are small in comparison to the overall short-term credit market. The cash advance services industry provides services that are designed to be simple, affordable, and convenient alternatives to merchant late fees, penalties, and overdraft service fees.

        Within the cash advance services industry, we believe that the principal competitive factors are customer service, location, convenience, speed, and confidentiality. Historically, cash advance services have been highly competitive due to relatively low barriers to entry and the regulatory safe harbor that many state statutes provided. We believe the industry has begun to mature and that the number of competitors is contracting. However, we believe that competition remains high even as our industry matures and consolidates.

        The cash advance services industry is highly fragmented. In April 2011, Stephens, Inc. estimated that there were approximately 19,500 outlets (including our own centers) in the United States, down 0.1% from the prior year. Our network of 2,541 centers in the United States as of December 31, 2011 represents the largest network of such centers in the United States. We believe that our two largest cash advance company competitors, Check 'n Go and Check into Cash, have approximately 1,000 and 1,100 cash advance centers, respectively. We also believe that QC Holdings, Inc. has over 500 locations in the United States. The remaining competitors are primarily smaller chains and single-unit operators. We also compete with businesses offering cash advances and short-term loans over the internet as well as by phone, many of whom operate outside of the state regulatory framework.

        In addition to businesses that provide cash advance services as their core product line, there are other companies that offer cash advance services as an ancillary financial product to their customers. These include banks and credit unions, which provide cash advance services to their customers as an alternative or in addition to overdraft services, some of which have a much larger branch and

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automated teller machine network than our center network. These also include companies with the primary business of cashing checks, selling money orders, providing pawn lending, title lending, money transfer services, or offering similar financial services. These competitors include Dollar Financial Corp., ACE Cash Express, Inc., and Cash America International, Inc.

Marketing and Advertising

        The goal of our marketing strategy is to maximize revenues by attracting new customers and cross-selling all of our products and services to existing customers. We use the results of data analysis from our customer database to target prospects who have characteristics similar to the customers we serve.

        Our mass media advertising (primarily through television, direct mail, radio, internet, and the yellow pages) increases awareness, acceptance, and, ultimately, the use of our products and services. We utilize marketing promotions at our centers with high-impact, consumer-relevant, point-of-purchase materials such as brochures, flyers, and posters. Local marketing also includes attendance at, or sponsorship of, community events such as food and toy drives, and other events.

        Our advertising expenditures fluctuate from quarter to quarter based on our perception of market opportunities and customer needs.

        In 2011, we launched "You Might Be Surprised," a national campaign that extends our brand and explains our product and industry through stories shared by our customers.

Information Systems

        We use both proprietary and third-party point-of-sale systems to record transactions in our centers. The point-of-sale systems are also used at our headquarters to develop information for management. We also use a third-party cash reconciliation software system to reconcile bank accounts and monitor cash receipts and disbursements.

        The point-of-sale systems are designed to facilitate customer service and speed the dissemination of information for cash reconciliation purposes. These systems record and monitor the details of every transaction, reduce the risk of transaction errors, and provide automated, integrated transactions that are designed to ensure standardization and compliance with applicable state and federal regulations.

        Transaction data gathered by our point-of-sale system is integrated into our management information system, general ledger, and cash reconciliation software. Third-party point-of-sale systems are not fully integrated at present. Our point-of-sale systems and cash reconciliation software allow us to:

    monitor daily revenue, deposits, and disbursements on a company, state, and center basis;

    monitor and manage daily exception reports, which record cash shortages, late deposits, unusual disbursements, and other items;

    determine, on a daily basis, the amount of cash needed at each center, enabling centralized treasury personnel to maintain an optimum amount of cash in each location; and

    facilitate compliance with regulatory requirements and company policies and procedures.

        We maintain and test a disaster recovery plan for our critical networked systems. Our back-up data tapes are housed by a third party at an off-site location. We also own back-up computer equipment and real-time data storage that is housed at an off-site facility to provide us with access to needed systems in the event of an emergency that disables equipment at our headquarters.

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Security

        Security and loss prevention play a critical role in the daily operations of our centers. Each center is provided with 24-hour third-party monitoring. Physical security provided to each center includes digital safes, wired hold-up alarm buttons, and secure locking systems. Additionally, most of our centers are equipped with 24-hour security cameras.

        Because our business requires us to maintain a significant supply of cash in each of our centers, we are subject to the risk of cash shortages resulting from employee and third-party theft and errors. Cash shortages from employee and third-party theft and errors were approximately $1 million (0.16% of total revenues) in 2011, $1.3 million (0.22% of total revenues) in 2010, and $1.7 million (0.27% of total revenues) in 2009.

Human Resources

        Our North American operations are divided into zones, regions, and divisions, which we believe allows for a more effective management process. A zone has approximately 500 to 750 centers and includes centers in more than one state. We currently have four North American zones, each with a zone director responsible for the operations, administration, staffing, and general supervision of the centers in his or her zone. Regions include 10 to 153 centers organized into two to 11 divisions and are supervised by regional directors who report to a zone director. Divisions include four to 20 centers and are supervised by divisional directors who report to a regional director. Determination of region and division alignment is usually based upon geographic considerations and is periodically revised as centers are opened, closed, or consolidated. Our four zones in North America currently include 24 regions and 193 divisions. Within the United Kingdom we have a single zone and four regions.

        A typical center is staffed with a manager and an assistant manager. Managers are responsible for the daily operations of the center. As volume increases, additional personnel, called customer service representatives, are added. Our policy is to add a customer service representative once a center has approximately 350 advances outstanding at one time. Thereafter, one additional customer service representative is added for every 100 to 150 additional outstanding advances at a particular center.

Employees

        We currently have approximately 6,465 employees, including approximately 5,964 center employees, 196 divisional directors, 24 regional directors, four zone directors, and 276 corporate employees and support personnel.

        We consider our employee relations to be satisfactory. Our employees are not covered by a collective-bargaining agreement and we have never experienced any organized work stoppage, strike, or labor dispute.

Intellectual Property and Other Proprietary Rights

        We use a number of trademarks, logos, and slogans in our business. Unauthorized use of our intellectual property by third parties may damage our brand and our reputation and could result in a loss of customers. It may be possible for third parties to obtain and use our intellectual property without our authorization. Third parties have in the past infringed or misappropriated our intellectual property or similar proprietary rights. For example, competitors of ours have used our name and other trademarks of ours on their websites to advertise their financial services. We believe infringements and misappropriations will continue to occur in the future.

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Other

        Advance America, Cash Advance Centers, Inc. is a Delaware corporation that was incorporated on August 11, 1997. Our principal executive offices are located at 135 North Church Street, Spartanburg, South Carolina 29306. Our telephone number at that location is (864) 515-5600. We maintain an internet website at http://www.advanceamerica.net. We make available free of charge on our website our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the U.S. Securities and Exchange Commission (the "SEC"). Information on our website is not incorporated by reference into this Annual Report. The SEC also maintains a website that contains reports, proxy and information statements, and other information regarding us at www.sec.gov. In addition, any materials we file with the SEC may be read and copied at the SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330.

Government Regulation

        Our products and services are subject to extensive local, state, federal, and foreign regulation. The regulation of our industry is intended primarily for the protection of consumers rather than investors in our common stock or our creditors and is constantly changing as new regulations are introduced and existing regulations are repealed, amended, and modified. This evolving regulatory landscape creates various uncertainties and risks for the operation of our business, any of which could have a material adverse effect on our business, prospects, results of operations, and financial condition. See "Item 1A. Risk Factors" and "Item 3. Legal Proceedings."

Federal Regulation

        Various anti-cash advance legislation has been proposed or introduced in the U.S. Congress. Congressional members continue to receive pressure from consumer advocates and other industry opposition groups to adopt such legislation. In 2008 and 2009, bills were introduced in Congress that would have placed a federal cap of 36% on the effective annual percentage rate ("APR") on all consumer loan transactions. Another bill would have placed a 15-cents-per-dollar borrowed ($.15/$1.00) cap on fees for cash advances, banned rollovers (payment of a fee to extend the term of a cash advance or other short-term financing), and required us to offer an extended payment plan that would severely restrict our cash advance product. Any federal legislative or regulatory action that severely restricts or prohibits cash advance and similar services, if enacted, could have a material adverse impact on our business. Any federal law that would effectively limit our APR to 36% would likely eliminate our ability to continue our current operations.

        In July 2010, Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act"), which authorized the creation of the Consumer Financial Protection Bureau ("CFPB") to regulate a variety of consumer finance transactions. The CFPB has regulatory, supervisory, and enforcement powers over non-bank providers of consumer financial products and services, like us. The CFPB has explicit supervisory authority to: (i) examine and require registration of providers of consumer financial products and services, including providers of consumer loans such as us; (ii) adopt rules describing specified acts and practices as being "unfair," "deceptive," or "abusive," and hence unlawful; and (iii) impose recordkeeping obligations. We do not currently know the nature and extent of the rules the CFPB will consider for consumer loan products and services such as those offered by us or the timeframe in which the CFPB may consider such rules.

        The CFPB has indicated that it intends to systematically gather data to obtain a complete understanding of the consumer loan market and its impact on consumers, and the CFPB has also

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released its Short-Term, Small-Dollar Lending Procedures, which, in conjunction with the CFPB's supervision and examination manual is the field guide CFPB examiners will use when examining small-dollar lenders such as Advance America. The CFPB's examination authority permits CFPB examiners to inspect our books and records and ask questions about our business. The CFPB's examination procedures include specific modules for examining marketing activities, loan application and origination activities, payment processing activities, sustained use by consumers, collection activities, defaults, consumer reporting and third-party relationships. We have incurred, and will continue to incur, additional expenses in an effort to monitor and comply with CFPB regulations. Although the CFPB does not have the authority to regulate fees or interest rates, it is possible that the CFPB could propose and adopt rules that would make short-term consumer lending products and services materially less profitable or even impractical to offer, which could force us to modify or terminate certain of our product offerings in the United States. The CFPB also could adopt rules imposing new and potentially burdensome requirements and limitations with respect to other consumer loan products and services. Any such rules may have a material adverse effect on our business, results of operations, and financial condition or could make the continuance of all or part of our current U.S. business impractical or unprofitable.

        In addition to the Dodd-Frank Act's grant of regulatory and supervisory powers to the CFPB, the Dodd-Frank Act gives the CFPB authority to pursue administrative proceedings or litigation for violations of federal consumer financial laws (including the CFPB's own rules). In these proceedings, the CFPB can obtain cease and desist orders (which can include orders for restitution or rescission of contracts, as well as other kinds of affirmative relief) and monetary penalties ranging from $5,000 per day for ordinary violations of federal consumer financial laws to $25,000 per day for reckless violations and $1 million per day for knowing violations. Also, where a company has violated Title X of the Dodd-Frank Act or CFPB regulations implemented under Title X of the Dodd-Frank Act, the Dodd-Frank Act empowers state attorneys general and state regulators to bring civil actions for the kind of cease and desist orders available to the CFPB. If the CFPB or one or more state officials believe that we have violated any of the applicable laws or regulations, they could exercise their enforcement powers in ways that could have a material adverse effect on our business, results of operations, and financial condition.

        Our products and services are subject to a variety of other federal laws and regulations, such as the Truth-in-Lending Act ("TILA"), the Equal Credit Opportunity Act ("ECOA"), the Fair Credit Reporting Act ("FCRA"), the Fair Debt Collection Practices Act ("FDCPA"), the Gramm-Leach-Bliley Act ("GLBA"), the Bank Secrecy Act, the Money Laundering Control Act of 1986, the Money Laundering Suppression Act of 1994, and the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act (the "PATRIOT Act"), and the regulations promulgated under each. Among other things, these laws require disclosure of the principal terms of each transaction to every customer, prohibit misleading advertising, protect against discriminatory lending practices, and proscribe unfair credit practices. TILA and Regulation Z, adopted under TILA, require disclosure of, among other things, the pertinent elements of consumer credit transactions, including the dollar amount of the finance charge and the charge expressed in terms of an annual percentage rate.

        Our marketing efforts and the representations we make about our advances also are subject to federal and state unfair and deceptive practices statutes. The Federal Trade Commission ("FTC") enforces the Federal Trade Commission Act and the state attorneys general and private plaintiffs enforce the analogous state statutes.

State Regulation

        Our business is regulated under a variety of enabling state statutes, including payday loan, deferred presentment, check-cashing, money transmission, small loan, CSO, and CAB state laws, all of which are

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subject to change and which may impose significant costs or limitations on the way we conduct or expand our business. As of December 31, 2011, we operated in 29 states because we believe it is attractive to operate in those states due to specific legislation that enables us to offer economically viable products. We currently do not conduct business in the remaining states or in the District of Columbia because we do not believe it is economically attractive to operate in those jurisdictions due to specific legislative restrictions, such as interest rate ceilings, an unattractive population density, or unattractive location characteristics. However, we may open centers in any of these states or the District of Columbia if we believe doing so may become economically attractive because of a change in any of these variables. Despite the lack of specific laws, other laws may permit us to offer products and services in these states.

        The scope of state regulation, including the fees and terms of our products and services, varies from state to state. Most states with laws that specifically regulate our products and services establish allowable fees and/or interest and other charges to consumers. In addition, many states regulate the maximum amount, maturity, and renewal or extension of cash advances or loans. The terms of our products and services vary from state to state in order to comply with the laws and regulations of the states in which we operate.

        The states with laws that specifically regulate our products and services typically limit the principal amount of a cash advance or loan and set maximum fees and interest rates that customers may be charged. Some states also limit a customer's ability to renew a cash advance and require various disclosures to consumers. State statutes often specify minimum and maximum maturity dates for cash advances and, in some cases, specify mandatory cooling-off periods between transactions. Our collection activities regarding past due amounts are subject to consumer protection laws and state regulations relating to debt collection practices. In addition, some states restrict the advertising content of our marketing materials.

        During the last few years, legislation that prohibits or severely restricts our products and services has been introduced or adopted in a number of states and at the federal level, and we expect that trend to continue for the foreseeable future. Legislation was adopted in New Hampshire in 2008 that effectively prohibits us from 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 January 2012, new enabling legislation was adopted in New Hampshire but was subsequently vetoed by New Hampshire's governor. Also in January 2012, a bill went into law in Mississippi, which, among other things, modifies certain aspects of our cash advance product in that state and extends the statute's sunset provision through 2016. In Montana, a bill became effective on January 1, 2011, which resulted in us discontinuing our operations in that state. In Colorado, new legislation enacted in August 2010 permits a multiple installment loan product that has significantly reduced our profits in Colorado. Further, legislation permitting cash advances in Arizona expired on July 2, 2010, and, as a result, we ceased operating in Arizona. In response to and in anticipation of law changes like these, we are regularly refining our cash advance services and developing new products and services or operations to address recent or anticipated legislative and regulatory changes. Some of these legislative and regulatory changes may require us to cease operations, while other changes may result in less significant short-term or long-term changes, interruption in revenues, and lower operating margins. We generally cannot estimate what effect, if any, operational changes we make in response to legislative and regulatory changes may have on our financial results until we are able to develop legal and financially viable alternative products and services.

        Statutes authorizing our products and services typically provide the state agencies that regulate banks and financial institutions with significant regulatory powers to administer and enforce the law. In most states, we are required to apply for a license, file periodic written reports regarding business operations, and undergo comprehensive state examinations to ensure that we comply with applicable laws. Under statutory authority, state regulators have broad discretionary power and may impose new

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licensing requirements, interpret or enforce existing regulatory requirements in different ways, or issue new administrative rules, even if not contained in state statutes, that effect the way we conduct business and may force us to terminate or modify our operations in particular states. Regulators may also impose rules that are generally adverse to our industry.

        In some cases, we rely on the interpretations of state attorneys general or the staff of state regulatory bodies with respect to the laws and regulations of their respective jurisdictions. These interpretations generally are not binding legal authority and may be subject to challenge in administrative or judicial proceedings. Additionally, as the staff of state regulatory bodies change, it is possible that the interpretations of applicable laws and regulations also may change and negatively affect our business.

        Additionally, state attorneys general and banking regulators scrutinize our products and services and may take actions that could require us to modify, suspend, or cease operations in their respective states. For example, in March 2008, the Arkansas Attorney General demanded that our Arkansas subsidiary immediately cease offering deferred presentment transactions. As a result, we closed all of our centers in Arkansas in October 2008. Similarly, as a result of an adverse ruling in July 2007 in a case brought by the Pennsylvania Department of Banking, we closed all of our centers in Pennsylvania. See "Item 3. Legal Proceedings." Other actions could be taken against us or our industry in the future by other state attorneys general and banking regulators that require us to suspend or cease operations in such jurisdictions or that have a negative effect on our business.

        State-specific legislative or regulatory action can reduce our revenues and/or margins in a state, cause us to temporarily operate at a loss in a state, or even cause us to cease or suspend our operations in a state. From time to time, we may also choose to operate in a state even if legislation or regulations cause us to operate at a loss in that state.

Local Regulation

        In addition to state and federal laws and regulations, our business is subject to various local rules and regulations such as local zoning and occupancy regulations. These local rules and regulations are subject to change and vary widely from state to state and city to city.

Foreign Regulation

        In the United Kingdom, consumer lending is governed by the Consumer Credit Act of 1974, which was amended by the Consumer Credit Act of 2006, and related rules and regulations supplemented by guidance. Most recently the legislative regime changed in February 2011 with the implementation of a series of regulations to implement the European Consumer Credit Directive. Our subsidiaries in the United Kingdom must maintain licenses from the Office of Fair Trading, which is responsible for regulating consumer credit and competition, for policy and for consumer protection. The United Kingdom also has rules regarding the presentation, form, and content of loan agreements and pre-contract information including statutory warnings and the layout of financial information and post-contractual requirements including debt collection notices. In addition, all consumer credit lenders are subject to detailed rules governing data protection and anti-money laundering that require checks to be undertaken on customers to verify their identity. In Canada, the Canadian Parliament amended the federal usury law to transfer jurisdiction and the development of laws and regulation of our industry to the respective provinces. To date, eight provinces have proposed substantive regulation of our industry. In general, the proposed regulations require lenders to be licensed, set maximum fees, and regulate collection practices. However, the proposed regulations may undergo significant additional revisions.

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Environmental, Health and Safety Matters

        We are subject to general provisions of federal laws and regulations to ensure a safe and healthful work environment for employees. In addition, we comply with those state laws that require a written health and safety program or other mandated safety requirements. To reduce the possibility of physical injury or property damage resulting from robberies, our loss prevention department has established operational procedures, conducts periodic safety training and awareness programs for employees, hires security guards as needed, and regularly monitors the marketplace for new technology or methods of improving workplace safety.

        Other than standard cleaning and gold testing products, we do not use chemicals or other agents governed by federal, state, or local environmental laws in conducting business operations. Based upon these measures, we believe that our centers are in substantial compliance with all applicable environmental, health and safety requirements.

ITEM 1A.    RISK FACTORS.

Risks Related to Our Proposed Merger with a Subsidiary of Grupo Elektra

If we fail to satisfy the conditions to consummation of the proposed merger, you may not receive the offering price and we may have to pay a termination fee to a subsidiary of Grupo Elektra.

        On February 15, 2012, our Board of Directors announced that we had entered into a merger agreement with a subsidiary of Grupo Elektra in which Grupo Elektra has agreed to acquire control of all of our outstanding shares for $10.50 per share. If we or the subsidiaries of Grupo Elektra fail to satisfy the conditions to consummation of our pending merger, you may not be entitled to receive the merger consideration of $10.50 per share and the market price of our common stock may decline significantly. In certain circumstances, we may be required to pay a termination fee. The merger agreement provides that, upon termination related to a change by our board of directors of its recommendation that our stockholders approve the merger, our entry into a definitive agreement with respect to an acquisition proposal, or under certain other specified circumstances, we would be required to pay a termination fee. If the merger agreement is terminated in order to enter into a definitive agreement with respect to an acquisition proposal initially received by us during the solicitation period, we will be required to pay to a subsidiary of Grupo Elektra the amount of $10 million, plus its documented out-of-pocket costs and expenses up to $5 million. If the termination fee becomes payable under certain other circumstances, we will be required pay to a subsidiary of Grupo Elektra the amount of $22.5 million, plus its documented out-of-pocket costs and expenses up to $5 million.

        Moreover, the announcement of the merger may have a material adverse effect on our customer relationships, operating results, and business generally, including our ability to retain key employees.

A series of purported class action lawsuits filed against us, members of our board of directors, our chief financial officer, and Grupo Elektra could interfere with or impede our ability to consummate the merger and may affect our business, results of operations, and financial condition.

        Since the announcement of our pending merger on February 15, 2012, a series of five purported class action lawsuits have been filed against us, the members of our board, our chief financial officer, and Grupo Elektra and certain of its affiliates. The complaints allege that the individual defendants have breached their fiduciary duties by failing to maximize the value of the Company to its stockholders and that all defendants have aided and abetted the alleged breaches of fiduciary duty by the individual defendants, and seek declaratory and injunctive relief. Although we intend to defend each of the purported class actions vigorously and believe they are without merit, these lawsuits could interfere with or impede our ability to consummate the merger and we could be forced to incur

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significant legal costs that could have a material adverse effect on our business, results of operations, and financial condition.

If our proposed merger with a subsidiary of Grupo Elektra is approved by our stockholders, our common stock will no longer be traded on the New York Stock Exchange and you will not be able to participate in our growth or any synergies resulting from the merger.

        If our proposed merger with a subsidiary of Grupo Elektra is approved by our stockholders at an upcoming special meeting, then:

    we will become a wholly-owned subsidiary of Grupo Elektra;

    you will no longer participate in our growth and will not participate in any synergies resulting from the merger; and

    we will no longer be a public company, and our common stock will no longer be traded on the New York Stock Exchange.

Risks Related to Our Business and Industry

Our industry is regulated under federal law and is subject to federal and state unfair and deceptive practices statutes. Our failure to comply with these regulations and statutes could have a material adverse effect on our business, prospects, results of operations, and financial condition.

        Although states have historically provided the primary regulatory framework under which we offer advances, certain federal laws also affect our business. See "Item 1. Business—Federal Regulation." We must comply with the Federal Truth-in-Lending Act and Regulation Z adopted under that Act, the Equal Credit Opportunity Act, the Fair Debt Collection Practices Act, the Fair and Accurate Credit Transaction Act, the Fair Credit Reporting Act and the Gramm-Leach-Bliley Act. We are also subject to the Dodd-Frank Act, which subjects us to supervision by the CFPB, the Bank Secrecy Act, the Money Laundering Control Act of 1986, the Money Laundering Suppression Act of 1994, and the PATRIOT Act. Any failure to comply with any of these federal laws and regulations could have a material adverse effect on our business, prospects, results of operations, and financial condition.

        In addition, our marketing efforts and statements we make about our products and services are subject to federal and state unfair and deceptive practices statutes. The Federal Trade Commission enforces the Federal Trade Commission Act and the state attorneys general and private plaintiffs enforce analogous state statutes. If we are found to have violated any of these statutes, it could have a material adverse effect on our business, prospects, results of operations, and financial condition.

The Consumer Finance Protection Bureau has not yet issued regulations governing the cash advance industry, which regulations, when issued, could have a material adverse effect on our business.

        In July 2010, the United States Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act. This legislation authorized the creation of CFPB with broad regulatory powers over banks and non-depository companies that offer consumer financial services, including cash advances and other consumer credit products. Under this new legislation, the CFPB has the authority to examine companies that offer consumer financial services, and the exclusive authority to enforce federal consumer financial laws. The CFPB also has rulemaking authority with respect to several federal consumer financial protection laws, including many of the statutes listed above. Although we cannot currently predict how, when, or if the CFPB will impose additional regulations that could affect us, the CFPB may promulgate regulations that would effect the consumer credit products that we offer and have a material adverse effect on our business, prospects, results of operations, and financial condition. Failure to comply with applicable regulations could subject us to regulatory enforcement action that could result in civil, monetary, or other penalties and could have a material adverse effect on our business, prospects, results of operations, and financial condition.

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A federal law that imposes a cap on our fees and interest would likely eliminate our ability to continue our current operations.

        Various anti-cash advance legislation has been proposed or introduced in the U.S. Congress. Federal and state legislators continue to receive pressure from consumer advocates and other industry opposition groups to adopt such legislation. In 2008 and 2009, bills were introduced in the U.S. Congress that would have placed a cap of 36% on the effective annual percentage rate ("APR") on all consumer loan transactions. Another bill would have placed a 15-cents-per-dollar borrowed ($0.15/$1.00) cap on fees for cash advances and would have implemented other consumer protections. Other bills have been introduced that would have limited to six the number of cash advances a customer would be permitted to receive in any 12-month period. Any federal legislation or regulation that places restrictions on cash advances and similar services could have a material adverse effect on our business, prospects, results of operations, and financial condition. Any federal law that would impose a 36% APR limit or prohibit or severely restrict cash advance services would likely eliminate our ability to continue our current operations.

Our industry is highly regulated under state law. Changes in state laws and regulations, or our failure to comply with existing laws and regulations, could have a material adverse effect on our business, prospects, results of operations, and financial condition.

        Our business is regulated under a variety of enabling state statutes, including cash advance, deferred presentment, check cashing, money transmission, small loan, and CSO/CAB laws, all of which are subject to change and which may impose significant costs, limitations or prohibitions on the way we conduct or expand our business. In some states, referenda initiatives have been proposed that allow voters to limit or prohibit our ability to conduct our business in a profitable manner. As of December 31, 2011, we operated in 29 states. Currently, we do not conduct business in the remaining states or in the District of Columbia because we do not believe it is economically attractive to operate in these jurisdictions due to specific legislative restrictions, such as interest rate ceilings, an unattractive population density, or unattractive location characteristics. However, we may open centers in any of these states or the District of Columbia if we believe doing so may become economically attractive because of a change in any of these variables.

        In recent years, legislation has been introduced or adopted in some states that prohibits or severely restricts our products and services. Such new or modified legislation could have a material adverse effect on our results of operations. For example, in Colorado, legislation enacted in August 2010 permits a multiple installment loan product and caused us to operate at a loss in that state. Further, legislation permitting cash advances in Arizona expired on July 2, 2010, and, as a result, we ceased operations in Arizona. During the first quarter of 2010, laws that implemented a state-wide database went into effect in Kentucky, South Carolina, and Washington. A similar law in Wisconsin took effect on January 1, 2011. In Montana, a law became effective on January 1, 2011, which caused us to cease operations in that state. In January 2012, a law was enacted in Mississippi, which, among other things, modified certain aspects of our cash advance product in that state and extended the statute's sunset provision through 2016.

        Laws prohibiting cash advances and similar products and services or making them less profitable, or even unprofitable, could be passed in any other state at any time or existing enabling laws could expire or be amended, any of which could have a material adverse effect on our business, prospects, results of operations, and financial condition. For instance, an Illinois law enacted in March 2011 created a longer-term product with multiple installments, applicable fees, and a statewide database reporting requirement. We began offering products conforming to this new legislation in June 2011. Although this law has had a negative effect on our revenue and profitability in Illinois, we currently believe that operations in Illinois will remain economically viable. From time to time, we may also choose to operate in a location even if applicable legislation or regulations cause us to lose money on

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our operation in that location. For example, we currently operate at a loss in Colorado, Washington, and Wisconsin and we may decide to exit these states entirely if we determine that the laws and regulations do not permit profitable operations. Any similar actions or events could have a material adverse effect on our business, prospects, results of operations, and financial condition.

        Statutes authorizing cash advance and similar products and services typically provide the state agencies that regulate banks and financial institutions with significant regulatory powers to administer and enforce the law. In most states, we are required to apply for a license, file periodic written reports regarding business operations, and undergo comprehensive state examinations to ensure that we comply with applicable laws. Under statutory authority, state regulators have broad discretionary power and may impose new licensing requirements, interpret or enforce existing regulatory requirements in different ways or issue new administrative rules, even if not contained in state statutes, that affect the way we do business and may force us to terminate or modify our operations. They may also impose rules that are generally adverse to our industry. Any new licensing requirements or rules, or new interpretations of existing licensing requirements or rules, or our failure to comply with licensing requirements or rules could have a material adverse effect on our business, prospects, results of operations, and financial condition.

        In some cases, we rely on the interpretations of state attorneys general and the staff of state regulatory bodies with respect to the laws and regulations of their respective jurisdictions. These staff interpretations generally are not binding legal authority and may be subject to challenge in administrative or judicial proceedings. Additionally, as the staff of state regulatory bodies change, it is possible that their interpretations of applicable laws and regulations also may change to the detriment of our business. As a result, our reliance on staff interpretations could have a material adverse effect on our business, results of operations, and financial condition.

        Additionally, state attorneys general and banking regulators scrutinize cash advances and other alternative financial products and services and may take actions that require us to modify, suspend or cease operations in their respective states. For example, as a result of an adverse ruling in July 2007 in a case brought by the Pennsylvania Department of Banking, we suspended our operations and subsequently closed all of our centers in Pennsylvania. See "Item 8. Financial Statements and Supplementary Data—Note 13. Commitments and Contingencies." The closures in Pennsylvania have had an adverse effect on our results of operations and financial condition. Similar or additional actions could have a material adverse effect on our business, prospects, results of operations, and financial condition.

Our industry is subject to various local rules and regulations. Changes in these local regulations could have a material adverse effect on our business, prospects, results of operations, and financial condition.

        In addition to state and federal laws and regulations, our business can be subject to various local rules and regulations such as local zoning regulations. Any actions taken in the future by local zoning boards or other local governing bodies to require special use permits for, or impose other restrictions on providers of cash advance and similar services could have a material adverse effect on our business, results of operations, and financial condition.

Unauthorized disclosure of sensitive or confidential customer data could expose us to protracted and costly litigation and penalties and cause us to lose customers.

        To conduct our business, we are required to manage, use, and store large amounts of personally identifiable information, consisting primarily of confidential personal and financial data regarding our customers. We also depend on our IT networks and systems, and those of third parties, to process, store, and transmit this information. As a result, we are subject to numerous U.S. and foreign laws and regulations designed to protect this information, such as the European Union Directive on Data

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Protection, Canadian federal and provincial laws, and various U.S. federal and state laws governing the protection of financial or other individually identifiable information. Security breaches involving our files and infrastructure could lead to unauthorized disclosure of confidential information, as well as shutdowns or disruptions of our systems.

        If any person, including our employees or those of third-party vendors, negligently disregards or intentionally breaches our established controls with respect to such data or otherwise mismanages or misappropriates that data, we could be subject to costly litigation, monetary damages, fines, and/or criminal prosecution. Unauthorized disclosure of sensitive or confidential customer data by any person, whether through systems failure, unauthorized access to our IT systems, fraud, misappropriation, or negligence, could result in negative publicity, damage to our reputation, and a loss of customers. Any unauthorized disclosure of personally identifiable information could subject us to liability under data privacy laws and adversely affect our business prospects, results of operations, and financial condition.

Current and future litigation, regulatory proceedings, and other legal proceedings against us and our officers and directors could have a material adverse effect on our business, prospects, results of operations, and financial condition.

        Our business is subject to lawsuits, regulatory proceedings, and other legal proceedings, including government investigations, that generate adverse publicity, cause us to incur substantial expenditures, and could significantly impair our business and/or force us to cease doing business in one or more states. See "Item 3. Legal Proceedings." Our officers and directors are often also named in these lawsuits or subject to these matters. Our amended and restated certificate of incorporation, our bylaws, and indemnification agreements provide that our officers and directors are entitled to have us indemnify them for damages and advance expenses incurred in defending against these lawsuits and proceedings, including governmental enforcement investigations and proceedings. Accordingly, we may also incur significant expenditures in connection with matters involving our current or former officers and directors. Any of these lawsuits, regulatory proceedings, or other legal matters could have a material adverse effect on our business, prospects, results of operations, and financial condition.

        We, and our officers and directors, are likely to be subject to further litigation and proceedings in the future. The consequences of an adverse ruling in any current or future litigation or proceeding could cause us to have to refund fees and/or interest collected, refund the principal amount of advances, pay treble or other multiple damages, pay monetary penalties, and/or modify or terminate our operations in particular states. We also may be subject to adverse publicity as a result of litigation and investigations. Defense of any lawsuits or proceedings, even if successful, and responding to investigations requires substantial time and attention on the part of our management personnel that otherwise would be spent on other aspects of our business, and requires the expenditure of significant amounts for legal fees and other related costs. Settlement of lawsuits also may result in significant payments and modifications to our operations. Further, actions against our officers and directors may impair our ability to obtain, renew, or maintain various licenses that are necessary for us to conduct business. Any of these events could have a material adverse effect on our business, prospects, results of operations, and financial condition.

Our inability to effectively, efficiently, and profitably introduce or manage new products or alternative methods for conducting business could have a material adverse effect on our business, prospects, results of operations, and financial condition.

        In 2007, we began selling money orders and providing money transfer services. We also began offering prepaid debit cards in 2007 as an agent of a bank regulated by the OCC. In 2009, we began offering cash advances pursuant to the Ohio Second Mortgage Act. We also intend to introduce additional products and services in the future.

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        We regularly offer new or modified products and services. In 2011, we began offering installment products in five states. Also, we modified cash advances in Wisconsin in conformance with new legislation. In order to offer new or modified products and services, we need to comply with additional regulatory and licensing requirements. Each modification, new product or service, and alternative method of conducting business is subject to risk and uncertainty and requires significant investment in time and capital, including additional marketing expenses, legal costs, and other incremental start-up costs. We cannot assure that we will be able to successfully introduce any new products or services or do so in a timely or profitable manner. We also may fail to modify or test adequately our point-of-sale system, collection procedures, customer contracts, monitoring, and other operations prior to offering a new product. Any failure to offer new products or services could result in fines, suspensions, or legal actions against us and could have a material adverse effect on our business, prospects, results of operations, and financial condition. Furthermore, we cannot predict the demand or loss experience for new products or services, nor do we know if we will be able to offer these new products or services in an efficient manner or on a profitable basis. Our failure to do so, or low customer demand or high loss experience for any of these new services or products, could have a material adverse effect on our business, prospects, results of operations, and financial condition.

We currently lack product and business diversification; as a result, our revenues and earnings may be disproportionately negatively impacted by external factors and may be more susceptible to fluctuations than more diversified companies.

        Our primary business activity is offering cash advance services. If we are unable to maintain our cash advance services business and/or diversify our operations, our revenues and earnings could decline. Our current lack of product and business diversification could inhibit our opportunities for growth, reduce our revenues and profits, and make us more susceptible to earnings fluctuations than many of our competitors who are more diversified and provide other services such as pawn lending, title lending, or other similar services. External factors, such as changes in laws and regulations, new entrants, and enhanced competition, could also make it more difficult for us to operate as profitably as a more diversified company could operate. Any internal or external change in our industry could result in a decline in our revenues and earnings, which could have a material adverse effect on our business, prospects, results of operations, and financial condition.

The concentration of our revenues in certain states could adversely affect us.

        We operated centers in 29 states during the year ended December 31, 2011, and our five largest states (measured by total revenues) accounted for approximately 53.6% of our total revenues. While we believe we have a diverse geographic presence, for the near term we expect that a significant portion of our revenues will continue to be generated from certain states, largely due to the currently prevailing economic, demographic, regulatory, competitive, and other conditions in those states. For example, during 2011, California, Florida, and Texas each accounted for more than 10% of our total revenues. Changes to any of these conditions in the markets in which we operate could lead to a reduction in demand for our products and services, a decline in our revenues, or an increase in our provision for doubtful accounts that could result in a deterioration of our financial condition. For example, regulatory changes occurring in Arizona, Colorado, and Washington caused us to close or consolidate our centers in these states in the last two years. In prior years, regulatory changes in Ohio and New Hampshire, and actions by state regulators, such as those in Pennsylvania and Arkansas, have also caused us to close or consolidate centers. Regulatory changes in any one of our larger states may have a material adverse affect on our business, prospects, results of operations, and financial condition.

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Adverse economic conditions may significantly and adversely affect our business, prospects, results of operations, financial condition, and access to liquidity.

        The current global economic crisis may adversely affect our business in several ways. For example, the rise in unemployment levels will likely reduce the number of customers who qualify for our products and services, which in turn may reduce our revenues. Similarly, reduced consumer confidence and spending may decrease the demand for our products. Also, we are unable to predict how the widespread loss of jobs, housing foreclosures, and general economic uncertainty may affect our loss experience. Our methodology for establishing our provision for doubtful accounts is based in large part on our historic loss experience. If customer behavior changes as a result of current economic conditions, our provision may be inadequate. Additionally, because we rely on our credit facility to fund customer advances, conditions in the credit markets could cause our access to liquidity to be restrained or even eliminated as a result of a default by our lenders, a failure by us to comply with covenants under our credit agreement or our inability to renew, extend, or modify our existing credit facility. If we are unable to maintain access to external sources of liquidity, our ability to finance our current operations or future dividends would be impaired. Lastly, given the unprecedented nature of the current economic crisis, our business may be adversely affected in ways that we are unable to anticipate.

Competition in our industry could cause us to lose market share or reduce our interest and fees, possibly resulting in a decline in our revenues and earnings.

        The industry in which we operate has low barriers to entry and is highly fragmented and very competitive. We believe that the market may become even more competitive as the industry matures and/or consolidates. We compete primarily with services provided by traditional financial institutions, such as overdraft protection, and with other cash advance providers, small loan providers, credit unions, short-term consumer lenders, other financial service entities, and other retail businesses that offer consumer loans or other products and services that are similar to ours. We also compete with companies offering cash advances and short-term loans over the internet as well as by phone. Some of these competitors have larger local or regional customer bases, more locations, and substantially greater financial, marketing, and other resources than we have. As a result of increased competition, we could lose market share or we may need to reduce our interest and fees, possibly resulting in a decline in our revenues and earnings.

We depend to a substantial extent on borrowings under our credit facility to fund our liquidity needs, including cash dividends.

        We have an existing credit facility that allows us to borrow up to $300 million, assuming we are in compliance with a number of covenants and conditions, including, but not limited to, a senior leverage limitation of two times trailing twelve month EBITDA, as defined in the credit agreement. As of December 31, 2011, the senior leverage limitation was approximately $275.5 million. Because we may use substantially all of our available cash generated from our operations to repay borrowings on our credit facility on a current basis, we expect that a substantial portion of our liquidity needs, including any amounts to pay future quarterly cash dividends on our common stock, may be funded from borrowings under our credit facility. While we had approximately $180.1 million of unused borrowings under this facility as of December 31, 2011, the senior leverage covenant restricted our additional availability to $152.1 million. Due to the seasonal nature of our business, our borrowings are historically the lowest during the first calendar quarter and increase during the remainder of the year. If our existing sources of liquidity are insufficient to satisfy our financial needs, we may need to raise additional debt or equity in the future. If we are unable to do so, our ability to pay future dividends or finance our current operations or potential growth will likely be impaired.

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Media reports and public perception of cash advances and similar loans as being predatory or abusive could materially adversely affect our business, prospects, results of operations, and financial condition.

        Consumer advocacy groups, certain media reports, and many regulators and elected officials advocate for governmental and regulatory action to prohibit or severely restrict our products and services. The consumer groups and media reports typically focus on the cost to a consumer and characterize our products and services as predatory or abusive toward consumers. If this negative characterization of advances becomes widely accepted by consumers, demand for our products and services could significantly decrease, which could materially adversely affect our business, results of operations, and financial condition. Negative perception of our products and services could also result in increased regulatory scrutiny and litigation, encourage restrictive local zoning rules, make it more difficult to obtain government approvals necessary to open new centers and cause industry trade groups, such as the CFSA, to promote policies that cause our business to be less profitable. In addition, media coverage and public statements that assert some form of corporate wrongdoing can lower morale, make it more difficult for us to attract and retain qualified personnel and directors, divert management attention, and increase expenses. These trends could materially adversely affect our business, prospects, results of operations, and financial condition.

If we lose key management or are unable to attract and retain the talent for our business, our business, results of operations, and financial condition could suffer.

        Our future success depends to a significant degree upon the members of our senior management, particularly J. Patrick O'Shaughnessy, our President and Chief Executive Officer, and James A. Ovenden, our Executive Vice President and Chief Financial Officer. Messrs. O'Shaughnessy and Ovenden are instrumental in the operation of our business. The loss of Mr. O'Shaughnessy's or Mr. Ovenden's services could have a material adverse effect on our business, results of operations, and financial condition.

The provision for doubtful accounts may increase and net income may decrease if we are unable to collect customers' personal checks or Automated Clearing House ("ACH") authorizations.

        We may not be able to collect customers' checks or Automated Clearing House ("ACH") authorizations because of non-sufficient funds in the customers' bank accounts, closed accounts, stop-payment orders or a variety of other reasons, including laws that prevent us from doing so. For the years ended December 31, 2011 and 2010, we deposited customer checks or presented an Automated Clearing House ("ACH") authorization for approximately 6.7% and 6.5%, respectively, of all the customer checks and ACHs we received and we were unable to collect approximately 63% and 64%, respectively, of these deposited customer checks or presented ACHs. Total charge-offs, net of recoveries, for the years ended December 31, 2011 and 2010 were approximately $106.8 million and $108 million, respectively. If the number of customer checks that we deposit or ACHs that we present increases or the percentage of the customers' checks or ACHs that we charge-off increases, our provision for doubtful accounts will increase which will negatively affect earnings.

If our estimates of losses are not adequate, our provision for doubtful accounts would increase. This would result in a decline in our future earnings, which could have a material adverse effect on our business, prospects, results of operations, and financial condition.

        We maintain an allowance for doubtful accounts for estimated losses. We also maintain an accrual for third-party lender losses for loans and certain related fees that are not paid by the customers for all loans that are processed by us for the third-party lender in Texas. To estimate the appropriate allowance for doubtful accounts and accrual for third-party lender losses, we consider total amounts outstanding, historical charge-offs, our current collection patterns, and the current economic trends in the markets we serve.

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        At December 31, 2011, the total of our allowance for doubtful accounts and accrual for third-party lender losses increased to $54.9 million from $53.8 million at December 31, 2010. This amount, however, is an estimate. If our actual losses are greater than our allowance for doubtful accounts and accrual for third-party lender losses, our provision for doubtful accounts would increase. This could result in a decline in our future earnings, which could have a material adverse effect on our business, prospects, results of operations, and financial condition.

We have a significant amount of goodwill which is subject to periodic review and testing for impairment.

        A significant portion of our total assets at December 31, 2011 is comprised of goodwill. Under generally accepted accounting principles, goodwill is subject to periodic review and testing or assessments to determine if it is impaired. These tests require projections of future cash flows. Unfavorable trends in our industry and unfavorable events or disruptions to our operations can affect these projections and estimates. For example, in conjunction with our decision to exit operations in the United Kingdom, we wrote off approximately $4.3 million in goodwill during the fourth quarter of 2011. Significant impairment charges, although not affecting cash flow, could have a material adverse impact on our operating results and financial position.

The extent to which customers use extended payment plans may have a material adverse effect on our business, prospects, results of operations, and financial condition.

        We allow customers who cannot timely repay their advances to qualify for extended payment plans. The ability of a customer to defer payment increases the average duration of a cash advance, which may in turn affect our revenues, return on investment, loss experience, and provision for doubtful accounts. If more customers use extended payment plans, our results of operations and financial condition may worsen.

If we fail to integrate businesses and assets that we have acquired or may acquire in the future, we may lose customers and our liquidity, capital resources, profitability, and our stock price may be adversely affected.

        During the fourth quarter of 2011, we acquired substantially all of the assets and assumed certain contractual obligations of the Valued Services retail storefront consumer finance business of CompuCredit Holdings Corporation. We may evaluate and make additional strategic acquisitions from time to time. Acquisitions often involve a number of special risks, including the following:

    We may incur significant expenses relating to a proposed acquisition, including legal, and advisory fees and diligence expenses, which may be payable by us whether or not we complete the planned acquisition;

    Negotiation of potential acquisitions, and the resulting integration of acquired businesses, products, services, operations, technologies, and personnel, require substantial commitments of time and resources that otherwise could be devoted to other opportunities;

    We may not be able to successfully incorporate acquired assets, products, and services into our business while maintaining uniform standards, controls, procedures, and policies;

    If we fail to achieve required regulatory approvals for acquired businesses, our business and financial results, as well as the market price of our stock price, may be materially and adversely affected;

    The businesses or assets we acquire may fail to achieve the revenue and earnings we anticipated, causing us to incur additional debt to fund operations and to write down the value of the acquired assets on our financial statements;

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    We may experience difficulties in adapting the acquired accounting and internal control systems to comply with Section 404 of the Sarbanes-Oxley Act of 2002;

    Due diligence may fail to identify significant issues with the services and products we acquire;

    Because the companies and assets that we may acquire are subject to extensive regulation by federal and state regulatory bodies, our resources may be diverted in asserting and defending our legal rights and we may ultimately be liable for unforeseen liabilities;

    Acquisitions could include the issuance of dilutive equity securities or cause us to incur debt, contingent liabilities, additional amortization charges from intangible assets, asset impairment charges, or write-off charges for other indefinite-lived intangible asset; and

    Acquisitions may result in costly litigation.

        Any of these factors could have a material adverse effect on our business, prospects, results of operations, and financial condition.

We may incur substantial additional debt, which could adversely affect our business, results of operations, and financial condition by limiting our ability to obtain financing in the future and react to changes in our business.

        We may incur substantial additional debt in the future in conjunction with an acquisition or otherwise. As of December 31, 2011, we had approximately $116.8 million of total debt, $6.7 million in outstanding letters of credit issued pursuant to our credit facility, and approximately $288.6 million of stockholders' equity. The total availability under our current credit facility is $200 million (excluding our $100 million term loan), which we may borrow at any time, subject to compliance with certain covenants and conditions. Due to the seasonal nature of our business, our total debt is historically the lowest during the first calendar quarter and then increases during the remainder of the year. If we incur substantial additional debt, it could have important consequences to our business. For example, it could:

    require us to dedicate a substantial portion of our cash flow from operations to payments on our debt obligations, which will reduce our funds available for dividends, working capital, capital expenditures, the development of new or replacement products and services, or further geographic expansion;

    limit our operational flexibility through restrictive covenants that will likely limit our ability to explore certain business opportunities, dispose of assets, and take other actions;

    limit our flexibility in planning for, or reacting to, changes in our business;

    limit our ability to borrow additional funds in the future, if we need them, due to applicable financial and restrictive covenants in our debt instruments;

    make us vulnerable to interest rate increases, because a majority of our borrowings are, and will continue to be, at variable rates of interest; and

    place us at a disadvantage compared to our competitors that have proportionately less debt.

        The terms of our debt limit our ability to incur additional debt but do not prohibit us from incurring additional debt. When debt levels increase, the related risks that we now face will also increase.

        If we fail to generate sufficient cash flow from future operations to meet our debt service obligations, we may need to seek refinancing of all or a portion of our indebtedness or obtain additional financing in order to meet our obligations with respect to our indebtedness. We cannot

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assure you that we will be able to refinance any of our indebtedness or obtain additional financing on satisfactory terms or at all.

We depend on loans and cash management services from banks to operate our business.

        We depend on borrowings under our credit facility to fund our products and services, acquisitions, capital expenditures to build new centers, and other needs. If our current or potential credit banks decide not to lend money to companies in our industry, we could face higher borrowing costs, limitations on our ability to maintain or expand our business as well as possible cash shortages, any of which could have a material adverse effect on our business, prospects, results of operations, and financial condition. Certain banks have notified us and other companies in the cash advance and check-cashing industries that they will no longer maintain bank accounts for these companies due to reputational risks and increased compliance costs of servicing money services businesses and other cash intensive industries. If one of our larger depository banks requests that we close our bank accounts or puts other restrictions on how we use their services, we could face higher costs of managing our cash and limitations on our ability to maintain or expand our business, both of which could have a material adverse effect on our business, prospects, results of operations, and financial condition.

        We use an electronic check conversion process to electronically present most of our past due checks to the customers' bank accounts. This process uses either the Automated Clearing House ("ACH") or the VISA Point-of-Sale ("VISA POS") network. We depend on our banks to settle our ACH transactions and on VISA and certain participating financial institutions to operate the VISA POS system. If our banks decide to no longer process our ACH transactions due to increased credit risk or other reasons, or if a financial institution were to exit the VISA POS payment network or if VISA stopped supporting this network, our ability to collect on past due accounts could be adversely affected and our cost of collections could increase.

We rely on a limited number of third-party lenders in connection with offering certain of our cash advance services.

        In Texas, where we operate as a CSO and CAB, and with respect to our online business, we facilitate loans made to our customers by unrelated third-party lenders. There are a limited number of lenders that make these types of cash advances and we compete with others in our industry for their services. If we lose the services of our current third-party lenders, or these lenders lose their ability or become unwilling to make cash advances, and we are unable to find replacement third-party lenders, we may be forced to modify or discontinue our operations as a CSO or CAB in Texas and our online business, which could have a material adverse effect on our results of operations and financial condition.

Our business is seasonal in nature, which causes our revenues, collection rates, and earnings to fluctuate.

        Our business is seasonal due to the impact of fluctuating demand for our products and services and fluctuating collection rates throughout the year. Demand has historically been highest in the third and fourth quarters of each year, corresponding to the back-to-school and holiday seasons, and lowest in the first quarter of each year, corresponding to our customers' receipt of income tax refunds. Typically, our provision for doubtful accounts and allowance for doubtful accounts are lowest as a percentage of revenues in the first quarter of each year, corresponding to our customers' receipt of income tax refunds, and increase as a percentage of revenues for the remainder of each year. This seasonality requires us to manage our cash flows over the course of the year. If our revenues or collections were to fall substantially below what we would normally expect during certain periods, our ability to service our debt, pay dividends on our common stock, and meet our other liquidity requirements may be adversely affected, which could have a material adverse effect on our business, prospects, results of operations, and financial condition.

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        In addition, our quarterly results have fluctuated in the past and are likely to continue to fluctuate in the future because of the seasonal nature of our business. Therefore, our quarterly revenues and results of operations are difficult to forecast, which in turn could cause our quarterly results to not meet the expectations of securities analysts or investors. Our failure to meet expectations could cause a material drop in the market price of our common stock.

Because we maintain a significant supply of cash in our centers, we may be subject to cash shortages due to employee and third-party theft and errors. We also may be subject to liability as a result of crimes at our centers.

        Because our business requires us to maintain a significant supply of cash in each of our centers, we are subject to the risk of cash shortages resulting from employee and third-party theft and errors. Although we have implemented various programs to reduce these risks, maintain insurance coverage for theft, and provide security for our employees and facilities, we cannot assure you that employee and third-party theft and errors will not occur. Cash shortages from employee and third-party theft and errors were approximately $1 million (0.16% of total revenues) in 2011, $1.3 million (0.22% of total revenues) in 2010, and $1.7 million (0.27% of total revenues) in 2009. The extent of these cash shortages could increase as we expand the nature and scope of our products and services. Theft and errors could lead to cash shortages and could adversely affect our business, prospects, results of operations, and financial condition. It is also possible that crimes such as armed robberies may be committed at our centers. We could experience liability or adverse publicity arising from such crimes. For example, we may be liable if an employee, customer, or bystander suffers bodily injury, emotional distress, or death. Any such event may have a material adverse effect on our business, prospects, results of operations, and financial condition.

Any disruption in the availability of our information systems could adversely affect operations at our centers.

        We rely upon our information systems to manage and operate our centers and business. Each center is part of an information network that is designed to permit us to maintain adequate cash inventory, reconcile cash balances on a daily basis, and report revenues and expenses to our headquarters. Our back-up systems and security measures could fail to prevent a disruption in our information systems. Any disruption in our information systems could adversely affect our business, prospects, results of operations, and financial condition.

Our centralized headquarters functions are susceptible to disruption by catastrophic events, which could have a material adverse effect on our business, prospects, results of operations, and financial condition.

        Our headquarters building is located in Spartanburg, South Carolina. Our information systems and administrative and management processes are primarily provided to our zone and regional management and to our centers from this centralized location, and they could be disrupted if a catastrophic event, such as a tornado, power outage, or act of terror, destroyed or severely damaged our headquarters. Any of these catastrophic events could have a material adverse effect on our business, prospects, results of operations, and financial condition.

Our ability to maintain or expand our business may be adversely affected.

        Our ability to maintain or expand our business depends on a number of factors, some of which are beyond our control, including:

    the prevailing laws and regulatory environment of each jurisdiction in which we operate or seek to operate, which are subject to change at any time;

    our ability to obtain and maintain any regulatory approvals, government permits, or licenses that may be required;

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    our ability to identify, implement, and manage new products and services that are compatible with our business;

    the degree of competition in existing markets;

    our ability to maintain current customers and attract new customers;

    our ability to compete for expansion opportunities in suitable locations;

    our ability to recruit, train, and retain qualified personnel;

    our ability to adapt our infrastructure and systems to accommodate new or replacement products and services; and

    our ability to maintain adequate financing for our expansion plans.

        We cannot assure you that our systems, procedures, controls, and existing personnel will be adequate to support new or replacement products and services. Our international operations increase the complexity of our organization, our administrative costs, and the regulatory risks we face and, therefore, could destabilize our business, prospects, results of operations, and financial condition. Our results of operations depend substantially on the ability of our officers and key employees to manage changing business conditions and unpredictable regulations and to implement and improve our technical, administrative, financial control, and reporting systems. In addition, we cannot assure you that we will be able to implement our business strategy profitably in geographic areas or product lines we do not currently serve.

Regular turnover among our managers and employees at our centers makes it more difficult for us to operate our centers and increases our costs of operations, which could have an adverse effect on our business, prospects, results of operations, and financial condition.

        As of December 31, 2011, the annual turnover among our center managers was approximately 26.1% and among our other center employees was approximately 53.2%. Approximately 35.1% of combined turnover occurs in the first six months following the hire date of our center managers and employees. This turnover increases our cost of operations and makes it more difficult to operate our centers. The average tenure of our center managers is 4.4 years and for our other center employees is 1.8 years. If we are unable to retain our employees in the future, our business, prospects, results of operations, and financial condition could be adversely affected.

Risks Related to Our Common Stock

Dividends on our common stock may be reduced or discontinued.

        We are not required to pay any dividends. Any determination to pay dividends, and the amounts of any dividends, is at the sole discretion of our Board of Directors and will depend on a number of factors, including: regulatory and other restrictions on the ability of our operating subsidiaries to distribute cash to us; our net income, results of operations, and cash flows and our other cash needs; our financial position and capital requirements; general business conditions and the outlook for our company; general stock market conditions, including our stock price and our perception of the value of a regular dividend to our stockholders; and any legal, tax, regulatory, and other factors our Board of Directors deems relevant. Also, our credit facility restricts our ability to pay dividends depending on the absence of any default or event of default, our net income, the ratio of our consolidated senior funded debt to our consolidated EBITDA, our consolidated fixed charge coverage ratio, and the maintenance of our net worth covenant (which terms and ratios are determined under our credit facility). Our Board of Directors may at any time modify or revoke our dividend policy.

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We can redeem your common stock if you are or if you become a disqualified person.

        Federal and state laws and regulations applicable to providers of cash advance services or other financial products or services that we may introduce in the future may now or in the future restrict direct or indirect ownership or control of providers of such products or services by disqualified persons (such as convicted felons). Our certificate of incorporation provides that we may redeem shares of your common stock to the extent deemed necessary or advisable, in the sole judgment of our Board of Directors, to prevent the loss of, or to secure the reinstatement or renewal of, any license or permit from any governmental agency that is conditioned upon some or all of the holders of our common stock possessing prescribed qualifications or not possessing prescribed disqualifications. The redemption price will be the average closing sale price per share of our common stock during the 20-trading-day period ending on the second business day preceding the redemption date fixed by our Board of Directors. At the discretion of our Board of Directors, the redemption price may be paid in cash, debt, or equity securities or a combination of cash and debt or equity securities.

ITEM 1B.    UNRESOLVED STAFF COMMENTS.

        None.

ITEM 2.    PROPERTIES.

        Our average center size is approximately 1,500 square feet. We try to locate our centers in highly visible, accessible locations. Our centers, which we design to have the appearance of a mainstream financial institution, are typically located in middle-income shopping areas with high retail activity. Other tenants in these shopping areas typically include grocery stores, discount retailers, and national quick service restaurants. All of our centers are leased, with typical lease terms of three years with an option to renew at the end of the lease term. Our leases usually require that we pay all maintenance costs, insurance costs, and property taxes.

        See "Item 1. Business—Center Operations—Centers" for a listing of the number of centers we operated in various jurisdictions as of December 31, 2011.

        We own our corporate headquarters in Spartanburg, South Carolina. Our headquarters building, which is approximately 75,000 square feet, and related land are subject to a mortgage payable to a lender, the principal amount of which was approximately $3.6 million at December 31, 2011. The mortgage is payable in monthly installments of approximately $66,400, including principal and interest, and bears interest at a fixed rate of 7.30% over its 15 year term. The mortgage matures on June 10, 2017 and includes a substantial prepayment penalty. The carrying amount of our corporate headquarters (land, land improvements, and building) was approximately $4.4 million and $4.2 million at December 31, 2010 and 2011, respectively.

        We believe that our facilities, equipment, furniture and fixtures, and aircraft are in good condition and well maintained, and that our offices are sufficient to meet our present needs.

ITEM 3.    LEGAL PROCEEDINGS.

        We are involved in a number of active lawsuits, including lawsuits filed by private litigants and matters arising out of actions taken by state regulatory authorities. We are also involved in various other legal proceedings with state and federal regulators. In addition, we are obligated to advance expenses to, and, in certain circumstances, indemnify for damages incurred, by certain of our current and former officers and directors in responding to inquiries or defending against claims or proceedings that have arisen by reason of the fact that such person is or was an officer or director of the Company. Under certain circumstances, we may also be obligated to defend and indemnify other parties against whom claims have been asserted. Unless otherwise stated below, we are vigorously defending against

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these actions and will, when management believes appropriate in consideration of ongoing litigation expenses and other factors, evaluate reasonable settlement opportunities. The probability of an unfavorable outcome and/or the amount of losses, if any, cannot be reasonably estimated for these legal proceedings unless otherwise stated below. Accordingly, except as otherwise specified below, no accrual has been recorded for any of these matters as of December 31, 2011.

    Kerri Stone v. Advance America, Cash Advance Centers, Inc. et al.

        On July 16, 2008, Kerri Stone filed a putative class action complaint in the Superior Court of California in San Diego against us and our California subsidiary. Defendants removed the case to the United States District Court for the Southern District of California. The amended class complaint alleged violations of the California Deferred Deposit Transaction Law and the California Unfair Competition Law and sought an order requiring defendants to disgorge and/or make restitution of all revenue and loan principal, pay three times the amount of damages the class members actually incurred, reasonable attorneys' fees and costs of suit, and punitive damages. In December 2011, the District Court denied Plaintiff's motion for class certification but allowed plaintiffs to maintain the action individually. Plaintiff subsequently filed a motion to add three individual plaintiffs, which motion is still pending. We anticipate that the case will proceed to trial as to the individually named plaintiffs in late 2012 or early 2013.

    Betts and Reuter v. McKenzie Check Advance of Florida, LLC et al.

        Our subsidiary, McKenzie Check Advance of Florida, LLC ("McKenzie"), along with certain of our former directors, are defendants in a putative class action lawsuit commenced by former customers Wendy Betts and Donna Reuter, on January 11, 2001, and a third named class representative, Tiffany Kelly, in the Circuit Court of Palm Beach County, Florida. This putative class action alleges that McKenzie, by and through the actions of certain officers, directors, and employees, engaged in unfair and deceptive trade practices and violated Florida's criminal usury statute, the Florida Consumer Finance Act, and the Florida Racketeer Influenced and Corrupt Organizations Act. The suit seeks unspecified damages, and the named defendants could be required to refund fees and/or interest collected, refund the principal amount of cash advances, pay multiple damages, and pay other monetary penalties. Ms. Reuter's claim has been held to be subject to binding arbitration. However, the trial court has denied the defendants' motion to compel arbitration of Ms. Kelly's claims. The appellate court affirmed the trial court's decision, but certified a "Question of Great Public Importance" to the Florida Supreme Court. The Florida Supreme Court accepted the Company's appeal and stayed the appellate court's mandate pending the outcome of their review of the appellate court's decision. Oral argument before the Florid Supreme Court is scheduled for the second quarter of 2012 and we anticipate a final decision regarding the enforceability of the arbitration clause before the end of 2012.

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

        A second Florida lawsuit was filed on August 24, 2004, in the Circuit Court of Palm Beach County by former customers Gerald Betts and Ms. Reuter against us, our Florida subsidiary, Advance America, Cash Advance Centers of Florida, Inc., and certain officers, directors and former directors. The allegations, relief sought, and our defenses in this lawsuit are nearly identical to those alleged in the first Betts and Reuter lawsuit described above. The case is currently stayed, pending a decision from the Florida Supreme Court in Pendergast v. Sprint Nextel Corp., a separate case to which we are not a party, involving arbitration issues similar to those present in our case.

    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 customer of Republic Bank & Trust Company ("Republic"), the lending bank for whom we previously marketed,

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processed, and serviced cash advances in North Carolina, filed a putative class action lawsuit in the General Court of Justice for the Superior Court Division for New Hanover County, North Carolina against us and Mr. William M. Webster IV, Chairman of our Board of Directors and our former Chief Executive Officer, alleging, among other things, that the relationship between our North Carolina subsidiary and Republic was a "rent a charter" relationship and therefore Republic was not the "true lender" of the cash advances it offered. The lawsuit also claimed that the cash advances were made, administered and collected in violation of numerous North Carolina consumer protection laws. The lawsuit sought an injunction barring the subsidiary from continuing to do business in North Carolina, the return of the principal amount of the cash advances made to the plaintiff class since August 2001, along with three times the interest and/or fees associated with those advances, which could have, under certain circumstances, totaled approximately $220 million, plus attorneys' fees and other unspecified costs.

        On September 17, 2010, we and the class representatives entered into a settlement agreement. The settlement agreement did not include any admission of wrongdoing. Pursuant to the terms of the settlement agreement, the case was dismissed; we and all other defendants were released from any and all claims and liability. We established a settlement pool of approximately $18.75 million for payments and/or credits to settle the claims of certain customers of our North Carolina subsidiary and payment of all attorneys' fees, class action administration fees, and any and all other fees and expenses related to the litigation. We took a charge against earnings in the third quarter of 2010 of approximately $16.3 million to cover the estimated net costs of settlement less insurance proceeds. The trial court entered an order granting final approval of this settlement on January 31, 2011. In January 2012, we made a final payment of $3.25 million, for which we took a charge against earnings in the third quarter of 2010. We consider this matter closed.

    North Carolina Commissioner of Banks Order

        On February 1, 2005, the Commissioner of Banks of North Carolina initiated a contested case against our North Carolina subsidiary for alleged violations of the North Carolina Consumer Finance Act. In December 2005, the Commissioner of Banks ordered that our North Carolina subsidiary immediately cease and desist operating. In accordance with the Commissioner of Banks' order, our North Carolina subsidiary ceased all business operations on December 22, 2005. We appealed the Commissioner's order to the Superior Court of North Carolina, which denied the appeal. Our appeal of this decision to the North Carolina Court of Appeals was stayed pending resolution of the Kucan case. Following the settlement of the Kucan, we dismissed our appeal in April 2011. We consider this matter closed.

    Pennsylvania Department of Banking v. NCAS of Delaware, LLC

        On September 27, 2006, the Pennsylvania Department of Banking filed a lawsuit in the Commonwealth Court of Pennsylvania alleging that our Delaware operating subsidiary, NCAS of Delaware, LLC, was providing lines of credit to borrowers in Pennsylvania without a license required under Pennsylvania's financial licensing law and charging interest and fees in excess of the amounts permitted by Pennsylvania's usury law. In July 2007, the court determined that certain aspects of our Choice- Line of Credit required our subsidiary to be licensed under Pennsylvania's Consumer Discount Company Act ("CDCA") and enjoined our subsidiary from: a) continuing its lending activities in Pennsylvania for so long as the CDCA violations continued; and b) from collecting monthly participation fees on the Choice Line of Credit. Our subsidiary appealed to the Pennsylvania Supreme Court and, in May 2008, the Pennsylvania Supreme Court upheld the lower court's ruling. The Pennsylvania Department of Banking subsequently amended its complaint to add the Pennsylvania Attorney General as a plaintiff, to name us as a defendant, and to seek damages, fines, and penalties under Pennsylvania's CDCA, usury laws, and consumer protection laws. In April 2010, the Pennsylvania

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Commonwealth Court dismissed the alleged CDCA and usury allegations and partially dismissed the alleged consumer protection law violations. The remaining alleged consumer protection law claims will proceed before the trial court. These remaining claims could, under certain circumstances, total approximately $45 million in damages, plus civil penalties of $1,000 for each violation of the Pennsylvania Consumer Protection Law and an additional $2,000 for violations against customers over the age of 60, and attorneys' fees and costs. The parties are currently engaged in discovery.

    Sharlene Johnson, Helena Love and Bonny Bleacher v. Advance America, Cash Advance
    Centers, Inc. et al.

        On August 1, 2007, Sharlene Johnson, Helena Love, and Bonny Bleacher filed a putative class action lawsuit in the United States District Court, Eastern District of Pennsylvania against us and two of our subsidiaries alleging that we provided lines of credit to borrowers in Pennsylvania without a license required under Pennsylvania law and with interest and fees in excess of the amounts permitted by Pennsylvania law. The complaint seeks, among other things, a declaratory judgment that the monthly participation fee charged to customers with a line of credit is illegal, an injunction prohibiting the collection of the monthly participation fee, and payment of damages equal to 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. By order dated August 18, 2011, as amended by memorandum order dated August 31, 2011, the trial court compelled the class representatives to arbitrate for immediate appeal their claims on an individual basis and stayed the litigation. The trial court denied plaintiff's motion to certify the August 18, 2011 order. The plaintiff's have not filed for arbitration.

    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 Inc., the lending bank for which we previously marketed, processed, and serviced cash advances in Pennsylvania, filed a putative class action lawsuit in the United States District Court, Eastern District of Pennsylvania alleging various causes of action, including that our Pennsylvania subsidiary made illegal cash advance loans in Pennsylvania in violation of Pennsylvania's usury law, the Pennsylvania Consumer Discount Company Act, the Pennsylvania Unfair Trade Practices and Consumer Protection Law, the Pennsylvania Fair Credit Extension Uniformity Act, and the Pennsylvania Credit Services Act. The complaint alleges that BankWest Inc. was not the "true lender" and that our Pennsylvania subsidiary was the "lender in fact." The complaint seeks compensatory damages, attorneys' fees, punitive damages, and the trebling of any compensatory damages. By order dated August 18, 2011 and a subsequent memorandum dated August 31, 2011, the trial court entered an order staying the litigation and compelling the class representatives to arbitrate their claims on an individual basis. The plaintiffs subsequently agreed to settle the case for a de minimis amount. We consider this matter closed.

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

        On April 21, 2009, Yulon Clerk filed a putative class action lawsuit in the Court of Common Pleas of Philadelphia County, Pennsylvania, against our subsidiaries Advance America, Cash Advance Centers of Pennsylvania, Inc. and NCAS of Delaware, LLC, as well as BankWest, Inc., whose defense we are handling pursuant to an indemnification agreement, and other unrelated lenders and banks. The complaint alleged that the practices of our subsidiaries and BankWest, Inc. violated the Pennsylvania Consumer Discount Protection Act, the Pennsylvania Loan Interest Protection Law, and various Pennsylvania Consumer Protection Laws. The complaint sought, among other things, certification of a class of individuals for the alleged violations, a declaration that all loans made to class members are unenforceable, injunctive relief, and monetary damages. The complaint repeated allegations asserted in other putative class actions filed in Pennsylvania that have been stayed in favor of mandatory individual arbitrations. We removed the case to the United States District Court for the Eastern District of

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Pennsylvania and filed a motion to compel arbitration and stay the underlying action's proceedings. In August 2009, the District Court issued an order severing the claims against the individual defendants. On September 21, 2009, plaintiffs filed three separate complaints seeking the same relief as the April 21, 2009 complaint against Advance America, Cash Advance Centers of Pennsylvania, Inc., NCAS of Delaware, LLC, and BankWest, Inc. The case against our Pennsylvania subsidiary was subsequently dismissed by consent of the parties on November 11, 2009. We settled this case for a de minimis amount and the underlying litigation was dismissed with prejudice. We consider this matter closed.

    Stockholder Litigation Related to the Merger

        On February 17, 2012, a purported class action was filed in the Delaware Court of Chancery styled Joel Rosenfeld v. Advance America, Cash Advance Centers, Inc., et al., C.A. No. 7255. The Rosenfeld complaint named as defendants the Company, the members of our board, our Chief Financial Officer, Grupo Elektra S.A. de C.V., Eagle U.S. Sub Inc., and Eagle U.S. Merger Sub Inc. The complaint alleges that as a result of the merger agreement whereby Eagle U.S. Merger Sub Inc. will merge with and into the Company, the individual defendants have breached their fiduciary duties by failing to maximize the value of the Company to our stockholders. The complaint also alleges that all defendants have aided and abetted the alleged breaches of fiduciary duty by the individual defendants. The complaint seeks unspecified monetary damages and declaratory and injunctive relief.

        Also on February 17, 2012, a purported class action was filed in the South Carolina Court of Common Pleas in Spartanburg County styled Brad Feik v. Advance America, Cash Advance Centers, Inc., et al., Civil Case No. 2012-CP-42-00807. The Feik complaint named as defendants the Company, the members of our board, Eagle U.S. Sub Inc., and Eagle U.S. Merger Sub Inc. The complaint alleges that as a result of the merger agreement whereby Eagle U.S. Merger Sub Inc. will merge with and into the Company, the individual defendants have breached their fiduciary duties by failing to maximize the value of the Company to our stockholders. The complaint also alleges that Eagle U.S. Sub Inc. and Eagle U.S. Merger Sub Inc. aided and abetted the alleged breaches of fiduciary duty by the individual defendants. The complaint seeks unspecified monetary damages and declaratory and injunctive relief.

        On February 24, 2012, a purported class action was filed in the Delaware Court of Chancery styled Juan Fernandez v. Advance America, Cash Advance Centers, Inc., et al., C.A. No. 7277. The Fernandez complaint named as defendants the Company, the members of our board, our Chief Financial Officer, Eagle U.S. Sub Inc., and Eagle U.S. Merger Sub Inc. The complaint alleges that as a result of the merger agreement whereby Eagle U.S. Merger Sub Inc. will merge with and into the Company, the individual defendants have breached their fiduciary duties by failing to sufficiently inform themselves of the Company's value and by failing to maximize the value of the Company to our stockholders. The complaint also alleges that Eagle U.S. Sub Inc. has aided and abetted the alleged breaches of fiduciary duty by the individual defendants. The complaint seeks unspecified monetary damages and declaratory and injunctive relief.

        On February 28, 2012, a purported class action was filed in the Delaware Court of Chancery styled Louisiana Municipal Police Employees' Retirement System v. Advance America, Cash Advance Centers, Inc., et al., C.A. No. 7290. The LMPERS complaint named as defendants the Company, the members of our board, Grupo Elektra S.A. de C.V., Eagle U.S. Sub Inc., and Eagle U.S. Merger Sub Inc. The complaint alleges that as a result of the merger agreement whereby Eagle U.S. Merger Sub Inc. will merge with and into the Company, the individual defendants have breached their fiduciary duties by failing to maximize the value of the Company to our stockholders. The complaint also alleges that Grupo Elektra S.A. de C.V., Eagle U.S. Sub Inc. and Eagle U.S. Merger Sub Inc. aided and abetted the alleged breaches of fiduciary duty by the individual defendants. The complaint seeks unspecified monetary damages and declaratory and injunctive relief.

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        Also on February 28, 2012, a purported class action was filed in the Delaware Court of Chancery styled Kenneth Flier v. Advance America, Cash Advance Centers, Inc., et al., C.A. No. 7290. The Flier complaint named as defendants the Company, the members of our board, Eagle U.S. Sub Inc., and Eagle U.S. Merger Sub Inc. The complaint alleges that as a result of the merger agreement whereby Eagle U.S. Merger Sub Inc. will merge with and into the Company, the individual defendants have breached their fiduciary duties by failing to maximize the value of the Company to our stockholders. The complaint also alleges that Eagle U.S. Sub Inc. and Eagle U.S. Merger Sub Inc. aided and abetted the alleged breaches of fiduciary duty by the individual defendants. The complaint seeks unspecified monetary damages and declaratory and injunctive relief.

        On March 1, 2012, a proposed order of consolidation was filed with the Delaware Court of Chancery, seeking to consolidate the four cases filed in that Court. On March 7, 2012, the Delaware Court of Chancery granted the order of consolidation which provides, among other things, that the four cases will be consolidated under the caption In re Advance America, Cash Advance Centers, Inc. Shareholders Litigation, Consolidated C.A. No. 7255.

        On March 8, 2012, a complaint was filed in the South Carolina Court of Common Pleas in Spartanburg County styled Manuel Cavazos and Alan Wiernik v. Advance America, Cash Advance Centers, Inc. et al., Civil Case No. 2012-CP-42-1088. The Cavazos complaint named as defendants the Company, the members of our board, our Chief Financial Officer, Grupo Elektra S.A. de C.V., Eagle U.S. Sub Inc. and Eagle U.S. Merger Sub Inc. The complaint alleges that as a result of the merger agreement whereby Eagle U.S. Merger Sub Inc. will merge with and into the Company, the individual defendants have breached their fiduciary duties by failing to maximize the value of the Company to our stockholders. The complaint also alleges that the Company and Grupo Elektra S.A. de C.V. aided and abetted the alleged breaches of fiduciary duty by the individual defendants. The complaint seeks declaratory and injunctive relief.

    Other Matters

        We are also involved in other litigation, arbitrations, and administrative proceedings that are incidental to our business, including, without limitation, regulatory enforcement matters, individual consumer claims, contractual disputes, employee claims for workers' compensation, wrongful termination, harassment, discrimination, payment of wages due, and customer claims relating to collection practices and violations of state and federal consumer protection laws.

SEC Investigation

        As previously disclosed in a Current Report on Form 8-K filed on July 29, 2009, and in subsequent quarterly and annual reports, Kenneth E. Compton, our former President and Chief Executive Officer and a current director, received a "Wells Notice" from the SEC in July 2009 relating to alleged violations of Section 17(a) of the Securities Act of 1933, Section (b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. On May 26, 2011, the Company was informed that the SEC had delivered a letter to Mr. Compton, dated May 23, 2011, informing him that the SEC did not intend to take any action. We did not receive a Wells Notice and do not believe we were ever a subject of this investigation. We consider this matter closed.

ITEM 4.    MINE SAFETY DISCLOSURES.

        None.

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PART II

ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

        Our common stock is traded on the New York Stock Exchange (the "NYSE") under the symbol "AEA." The following table sets forth the quarterly high and low sales prices of our common stock as reported by NYSE as well as the quarterly cash dividend declared per share for 2010 and 2011:

 
  Sales Prices    
 
 
  Cash
Dividend
 
 
  High   Low  

2010:

                   

Quarter ended March 31, 2010

  $ 6.65   $ 4.20   $ 0.0625  

Quarter ended June 30, 2010

    7.45     4.00     0.0625  

Quarter ended September 30, 2010

    4.18     3.26     0.0625  

Quarter ended December 31, 2010

    5.96     3.95     0.0625  

2011:

                   

Quarter ended March 31, 2011

  $ 6.57   $ 4.78   $ 0.0625  

Quarter ended June 30, 2011

    6.97     4.70     0.0625  

Quarter ended September 30, 2011

    9.32     6.96     0.0625  

Quarter ended December 31, 2011

    9.44     7.00     0.0625  

        We are not required to pay any dividends. Any determination to pay dividends, and the amounts of any dividends, will be at the sole discretion of our Board of Directors and will depend on a number of factors, including: our subsidiaries' payment of dividends to us; our net income, results of operations, and cash flows; our financial position, capital requirements, and other cash needs; general business conditions and the outlook for our company; and general stock market conditions, including our stock price and our perception of the value of a regular quarterly dividend to our stockholders in addition to any legal, tax, regulatory, and any other factors our Board of Directors deems relevant. In addition, our credit facility restricts our ability to pay dividends depending on the absence of any default or event of default, our net income, the ratio of our consolidated senior funded debt to our consolidated EBITDA, our consolidated fixed charge coverage ratio, and the maintenance of our tangible net worth covenant (which terms and ratios are determined under our credit facility).

        Our merger agreement with the subsidiaries of Grupo Elektra permits us to continue to declare and pay regularly quarterly dividends in amounts up to $0.0625 per common share while our transaction with those subsidiaries is pending. Our Board of Directors may at any time modify or revoke our dividend policy.

        On February 15, 2012, our Board of Directors declared a quarterly cash dividend of $0.0625 per common share, payable on March 9, 2012, to stockholders of record as of February 27, 2012.

        As of March 12, 2012, there were 111 stockholders of record. A substantially greater number of stockholders are "street name" or beneficial holders, whose shares are held of record by banks, brokers and other financial institutions.

Performance Graph

        The following graph compares the change in the cumulative value of $100 invested for the period beginning on December 31, 2006 and ending on December 31, 2011, in: (1) our Common Stock; (2) the Standard & Poor's 500 Index; (3) the NASDAQ Other Financial Index; and (4) the NYSE Financial Sector Index. The values of each investment are based upon the share price appreciation and reinvestment of dividends, on an annual basis.

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Comparison of Cumulative Return vs.

S&P 500, NASDAQ Other Financial, and NYSE Financial Sector Indices

CHART

 
  Advance America, Cash Advance Centers,Inc. (AEA)   Standard & Poors 500 Index (SPX)   NASDAQ Other Financial Index (IXFN)   NYSE Financial Sector Index (NYK)  

12/29/06

  $ 121.62   $ 113.62   $ 117.43   $ 119.45  

12/31/07

  $ 87.69   $ 117.63   $ 118.00   $ 103.79  

12/31/08

  $ 18.29   $ 72.36   $ 63.20   $ 48.12  

12/31/09

  $ 57.85   $ 89.33   $ 82.69   $ 59.04  

12/31/10

  $ 61.82   $ 100.75   $ 92.25   $ 62.01  

12/30/11

  $ 83.71   $ 88.66   $ 66.22   $ 42.53  

Issuer Purchases of Equity Securities

        We did not repurchase any shares of our common stock during the quarter ended December 31, 2011.

        See "Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters," for information about our equity compensation plans and about holders of our common stock.

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ITEM 6.    SELECTED FINANCIAL DATA.

        The following tables set forth our summary consolidated financial information and other financial and statistical data for the periods ended and as of the dates indicated. The financial information for the years ended December 31, 2011, 2010, and 2009, and as of December 31, 2011 and 2010, has been derived from our audited financial statements included elsewhere in this report. The financial information for the years ended December 31, 2008 and 2007, and as of December 31, 2009, 2008 and 2007 has been derived from our audited financial statements not included in this report. Certain amounts below in 2007 include the consolidation of a variable interest entity—see "Item 8. Financial Statements and Supplementary Data—Note 18. Transactions with Variable Interest Entities." The historical selected financial information may not be indicative of our future performance and should be read in conjunction with the information contained in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and related notes in "Item 8. Financial Statements and Supplementary Data."

 
  Year ended December 31,  
Consolidated Financial Information
  2007   2008   2009   2010   2011  
 
  (Dollars in thousands, except per share data
and other financial data)

 

Revenues:

                               

Fees and interest charged to customers

  $ 709,557   $ 676,436   $ 647,676   $ 600,233   $ 625,856  
                       

Center expenses:

                               

Salaries and related payroll costs

    199,416     196,951     185,599     179,617     182,465  

Provision for doubtful accounts

    140,245     135,857     124,575     104,228     107,911  

Occupancy costs

    96,847     100,315     94,370     87,457     82,790  

Center depreciation expense

    17,200     16,698     13,174     9,806     8,147  

Advertising expense

    26,770     20,304     22,232     20,898     21,371  

Other center expenses

    59,340     48,652     45,606     43,124     41,964  
                       

Total center expenses

    539,818     518,777     485,556     445,130     444,648  
                       

Center gross profit

    169,739     157,659     162,120     155,103     181,208  

Corporate and other expenses (income):

                               

General and administrative expenses

    59,410     68,568     56,526     62,527     61,317  

Legal settlements

        1,950     6,427     18,608     23  

Corporate depreciation and amortization expense

    3,162     3,033     2,714     2,306     2,999  

Interest expense

    11,059     11,188     6,241     4,858     4,561  

Interest income

    (317 )   (128 )   (238 )   (74 )   (43 )

(Gain)/loss on disposal of property and equipment

    3,189     551     (50 )   413     159  

Loss on impairment of assets

    314     486     2,987     654     6,852  
                       

Income before income taxes

    92,922     72,011     87,513     65,811     105,340  

Income tax expense

    37,831     33,540     33,310     30,048     37,717  
                       

Income before income of consolidated variable interest entity

    55,091     38,471     54,203     35,763     67,623  

Income of consolidated variable interest entity

    (706 )                
                       

Net income

  $ 54,385   $ 38,471   $ 54,203   $ 35,763   $ 67,623  
                       

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  Year ended December 31,  
Consolidated Financial Information
  2007   2008   2009   2010   2011  
 
  (Dollars in thousands, except per share data
and other financial data)

 

Per Share Data:

                               

Net income per common share:

                               

Basic

  $ 0.70   $ 0.60   $ 0.89   $ 0.59   $ 1.10  

Diluted

  $ 0.70   $ 0.60   $ 0.88   $ 0.58   $ 1.09  

Cash dividends paid per common share

  $ 0.50   $ 0.44   $ 0.25   $ 0.25   $ 0.25  

Weighted average number of shares outstanding:

                               

Basic

    77,923     64,233     60,868     61,054     61,457  

Effect of dilutive options and unvested restricted stock

    12         799     386     418  
                       

Diluted

    77,935     64,233     61,667     61,440     61,875  
                       

Balance Sheet Data (at end of period):

                               

Cash and cash equivalents

  $ 28,251   $ 16,017   $ 38,189   $ 26,948   $ 35,292  

Advances and fees receivable, net

    221,480     220,115     204,234     205,207     246,560  

Goodwill

    127,286     126,661     127,031     126,914     132,416  

Total assets

    471,698     447,010     446,151     431,652     485,924  

Total debt

    147,980     194,952     146,276     116,297     116,793  

Total stockholders' equity

    250,291     171,259     212,613     235,041     288,629  

Cash Flow Data:

                               

Cash flows provided by operating activities

  $ 184,496   $ 186,227   $ 179,251   $ 134,110   $ 181,741  

Cash flows used in investing activities

    (113,216 )   (125,674 )   (93,001 )   (99,333 )   (154,817 )

Cash flows used in financing activities

    (110,310 )   (72,164 )   (64,048 )   (45,836 )   (18,415 )

Other Financial and Statistical Data:

                               

Number of centers open at end of period

    2,832     2,797     2,587     2,352     2,584  

Number of customers served—all credit products (thousands)

    1,524     1,419     1,316     1,310     1,347  

Number of cash advances originated (thousands)(1)

    11,979     11,762     10,860     10,027     10,561  

Aggregate principal amount of cash advances originated (thousands)(1)

  $ 4,317,980   $ 4,296,493   $ 3,922,195   $ 3,710,133   $ 3,965,225  

Average amount of each cash advance originated(1)

  $ 361   $ 366   $ 361   $ 370   $ 375  

Average charge to customers for providing and processing a cash advance(1)

  $ 55   $ 55   $ 53   $ 55   $ 55  

Average duration of a cash advance (days)(1)(2)

    16.5     16.8     17.6     18.0     18.2  

Average number of lines of credit outstanding during the period (thousands)(3)

    24     10     24     12     1  

Average amount of aggregate principal on lines of credit outstanding during the period (thousands)(3)

  $ 10,377   $ 6,946   $ 10,945   $ 3,753   $ 255  

Average principal amount on each line of credit outstanding during the period(3)

  $ 429   $ 672   $ 410   $ 251   $ 89  

Number of installment loans originated (thousands)(4)

    31     32     35     61     79  

Aggregate principal amount of installment loans originated (thousands)(4)

  $ 12,997   $ 14,841   $ 15,992   $ 27,375   $ 35,484  

Average principal amount of each installment loan originated(4)

  $ 417   $ 462   $ 453   $ 446   $ 448  

(1)
Excludes lines of credit and installment loans.

(2)
Excludes the impact of extended payment plans.

(3)
We offered lines of credit in Pennsylvania from June 2006 through July 2007. In Virginia, we began offering lines of credit in November 2008, ceased offering new lines of credit to customers in February 2010, and stopped providing advances on existing lines of credit on September 30, 2010.

(4)
The installment loan activity for 2009 reflects loans we originated as the lender in Illinois only. For 2010 the installment loan activity reflects loans we originated as the lender in Illinois and Colorado. For 2011 the installment loan activity reflects loans we originated as the lender in Illinois, Colorado, South Carolina, Tennessee, and Wisconsin.

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ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

        The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes in "Item 8. Financial Statements and Supplementary Data." This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated by these forward-looking statements. Please see "Item 1A. Risk Factors" and "Forward-Looking Statements" for discussions of the uncertainties, risks, and assumptions associated with these statements.

Significant Recent Development

        On February 15, 2012, we announced that we had entered into a definitive merger agreement pursuant to which we would be acquired by a subsidiary of Grupo Elektra. Under the terms of the merger agreement, our stockholders will receive $10.50 in cash per share of our common stock.

        The merger agreement permits our board of directors to initiate, solicit, facilitate, encourage, and enter into negotiations with respect to alternative acquisition proposals for our company through March 31, 2012, and to continue with those activities through April 15, 2012 with any third parties that have submitted an acquisition proposal, on or before March 31, 2012, that our board determines in good faith constitutes, or is reasonably likely to lead to, a superior proposal for the acquisition of our company. Our board of directors, with the assistance of its advisors, will actively solicit alternative proposals during this period. There can be no assurance that this process will result in a proposal for our company that is superior to the proposal under the existing merger agreement.

        If there is no superior proposal, we expect the merger transaction with the subsidiary of Grupo Elektra to close in the first half of calendar 2012, subject to customary approvals and closing conditions, including (i) the absence of any law or order that enjoins or otherwise prohibits the consummation of the merger or any other transaction contemplated by the merger agreement; (ii) the expiration or early termination of the waiting period applicable to the merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended; (iii) the absence of any change in laws that would result in a certain agreed upon reduction of our center gross profit; and (iv) receipt of certain other regulatory approvals and/or operating permits and the absence of withdrawal of certain operating permits. Completion of the proposed merger also requires approval by the holders of a majority of the shares of our outstanding common stock. The proposed merger is not subject to a financing condition.

        For additional information about the proposed transaction, see "Item 8. Financial Statements and Supplementary Data—Note. 20 Subsequent Events."

Overview

        Headquartered in Spartanburg, South Carolina, we are the largest non-bank provider of cash advance services in the United States as measured by the number of centers operated. Our centers provide short-term, unsecured cash advances that are typically due on the customers' next payday. We earn revenue and generate cash through finance charges paid by our customers for our cash advance services. Charges vary by jurisdiction and range up to 22% of the amount of the cash advance. As of December 31, 2011, we operated 2,541 centers within 29 states in the United States, 33 centers in the United Kingdom, and 10 centers in Canada and had 13 limited licensees in the United Kingdom.

        Our objective is to increase market share and profitability. In doing so, we face challenges that require attention and resources. Our industry has been significantly affected by adverse regulatory changes. Legislation that negatively affects cash advance services, whether through preclusions, interest rate ceilings, fee reductions, mandatory extensions of term length, limits on the amount or term of our products and services, or limits on consumers' use of our products and services could materially and

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adversely affect our business. We are extremely active in monitoring and evaluating regulatory initiatives in all of the states and are closely involved with the efforts of the Community Financial Services Association of America ("CFSA"), an industry trade group composed of more than 100 companies engaged in the cash advance services industry.

        On October 10, 2011, we acquired approximately 300 retail storefront consumer finance centers from certain subsidiaries of CompuCredit Holdings Corporation (the "Valued Services Acquisition") for cash consideration totaling $46.2 million. The acquired centers are located in Alabama, Colorado, Kentucky, Ohio, Oklahoma, Mississippi, South Carolina, Tennessee, and Wisconsin. The acquired centers contributed revenues of approximately $17.7 million for the period October 10, 2011 to December 31, 2011.

        Furthermore, due to continued losses and the related administrative, operating, legal, and center operating costs, we are pursuing alternatives which would allow us to exit the United Kingdom and Canada.

    Cash Advance Services

        Our primary business is offering cash advance services, which include cash advances and installment loans. However, we also offer certain complementary products and services.

        In most states where we operate, we originate cash advance services under the authority of state-specific enabling statutes that allow for services ranging from single cash advances to installments with closed-end terms. The particular cash advance services we offer in any given location may change in response to changes in state law and federal law. Additionally, where permitted by applicable law, we may service customers for a third-party lender. In Texas, where we operate as a CSO and a CAB, we offer a fee-based credit services package to assist customers who are trying to obtain an extension of consumer credit through a third-party lender. Under the terms of our agreement with this lender, we process customer applications and are contractually obligated for all losses. The permitted size of a cash advance varies by jurisdiction and ranges from $50 to $5,000. However, our typical cash advance ranges from $50 to $1,000. The finance charges on cash advance services we currently offer also vary by jurisdiction and range up to 22% of the amount of the cash advance.

        A customer may obtain a cash advance in one of three ways: (1) by visiting one of our centers in person, completing an application, and receiving a cash advance from us; (2) by visiting our website, beginning the application process online, and then visiting one of our centers in person to complete the application and receive a cash advance; or (3) by visiting our website, completing a third-party lender's application online and receiving a cash advance from the third-party lender of which the funds are directly deposited in the customer's bank account.

        We receive revenue from online cash advances made by third-party lenders based on a percentage of the net fees, defined as advance fees less a provision for doubtful accounts and a cost of capital charge, but otherwise are not contractually obligated for losses.

        We may also charge and collect fees for returned checks, late fees, and other fees as permitted by applicable law. Fees for returned checks or electronic debits that are declined for non-sufficient funds ("NSF") vary by state and range up to $30, and late fees vary by state and range up to $50. For the years ended December 31, 2011 and 2010, total NSF fees collected were approximately $2.9 million and total late fees collected were approximately $1 million and $0.9 million, respectively. In Texas and online, the third-party lenders charge NSF fees and late fees in accordance with applicable law.

        Each new customer must provide us with certain personal information such as his or her name, address, phone number, proof of identification, employment information or source of income, bank account, and references. This information is entered into our information system and, where applicable, that of the third-party lender. The customer's identification, proof of income and/or employment and

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proof of bank account are verified. We determine whether to approve a cash advance and the size of a cash advance based primarily on a customer's income. We do not perform credit checks through consumer reporting agencies. In 2011, we implemented a proprietary eligibility assessment model ("EAM") using fraud attributes in conjunction with our customer application information to make underwriting decisions with respect to our first-time customers and to reduce our loan fraud rate. This approach helps to insure compliance with the Fair Lending and Equal Credit Opportunity rules. The model is used extensively throughout our cash advance center network, but not currently used for online advances where the applicable third-party lender determines their own underwriting decisions.

        After the required documents presented by the customer have been reviewed for completeness and accuracy, copied for record-keeping purposes, and the cash advance has been approved, the customer enters into an agreement governing the terms of the cash advance. The customer then provides a personal check or an Automated Clearing House ("ACH") authorization, which enables electronic payment from the customer's account, to cover the amount of the cash advance and charges for applicable fees and interest of the balance due under the agreement. The customer then makes an appointment to return on a specified due date, typically his or her next payday, to repay the cash advance and applicable charges. However, some customers are not required to provide a personal check or ACH authorization and payment cycles may vary depending upon state law and type of service. At the specified due date, the customer is required to make a payment, usually a payment of the total cash advance and applicable fees and interest. Payment is usually made in person, in cash at the center where the cash advance was initiated or issued unless the cash advance was completed on the internet, in which case the customer makes payment by ACH authorization.

        Upon payment in full, a customer's check may be returned and/or their ACH authorization deemed to be revoked. If the customer does not repay the outstanding cash advance in full on or before the due date, we will seek to collect the amount of the cash advance and any applicable fees, including any applicable late and NSF fees due, and may deposit the customer's personal check or initiate the electronic payment from the customer's bank account.

    Other Products

        We may also offer alternative products and services to our customers where permissible under applicable law. For instance, in Ohio we currently offer check-cashing services at state authorized rates. We may also offer the products or services of a third party that we market, process and/or service at our centers pursuant to an agreement with the third party. For example, we currently offer pre-paid debit cards, money orders, money transmission, bill payment services, and income tax return preparation and processing services. Our Advance America-branded pre-paid Visa debit card is issued by a federally chartered bank and regulated by the Office of the Comptroller of the Currency. The card allows a cardholder to load cash onto the card and use the card wherever VISA debit cards are accepted. We are compensated under an agreement with the bank based on a number of factors related to the bank's revenue from the cardholders' purchases and subsequent activity, such as charges for loads, ATM withdrawals, account maintenance/plan charges and purchases. We also sell money orders, provide money transfer services, and bill payment services as an agent of a licensed third-party money transmitter. We are compensated by the money transmitter based upon the number and value of money transfers, money orders, and bill payments made at our centers. In over half of our centers, pursuant to an agreement, we act as an agent of a third party which uses its software to process and prepare income tax returns. We earn a percentage of the return preparation and electronic filing fees charged by the third party, and a commission on the refund anticipation loans that are made by the third party.

        During the fourth quarter of 2011, we launched our gold purchasing service in Florida, Ohio, and Texas. We use in-store testing equipment to evaluate the purity and weight of the gold items presented. A broker is used to re-evaluate the gold purchased and sell the items to refiners. We also acquired

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centers offering gold purchasing services in Alabama, Kentucky, Ohio, Oklahoma, Tennessee, and Wisconsin, as part of the Valued Services Acquisition.

    Approval Process

        Although there are numerous differences under the various enabling regulations, the application and approval process, underwriting criteria, delivery method, repayment and collection practices, customer and market characteristics and underlying economics of our principal products and services generally are substantially similar in most jurisdictions.

        In order for a new customer to be approved for a cash advance, he or she is required to have a bank account and a regular source of income. To obtain a cash advance, a customer typically:

    completes an application and presents the required documentation: usually proof of identification, a pay stub or other evidence of income and a bank statement;

    enters into an agreement governing the terms of the cash advance, including the customer's agreement to repay the amount advanced in full on or before a specified due date (usually the customer's next payday), and our agreement to defer the presentment or deposit of the customer's check or Automated Clearing House ("ACH") authorization until the due date;

    writes a personal check or provides an ACH authorization to cover the amount advanced plus charges for applicable fees and/or interest; and

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

        In jurisdictions where we provide cash advances, we determine whether to approve the cash advance to our customers. We require proof of identification, bank account and income source, as described above, and we primarily consider the customer's income in determining the amount of the cash advance. The implementation of EAM in 2011 has improved our ability to identify customers with a high risk of defrauding us. When a third-party lender provides the cash advance, such as in Texas and online, the applicable third-party lender decides whether to approve a cash advance and establishes all of the underwriting criteria and terms, conditions, and features of the customer agreements.

    Payment Plans

        In most states, a customer may qualify for an extended payment plan ("Payment Plan"). Generally, the terms of our Payment Plans conform to the CFSA Best Practices for extended payment plans. Certain states have specified their own terms and eligibility requirements for Payment Plans. Typically, a customer may enter into a Payment Plan for no additional fee once every twelve months and the Payment Plan will call for scheduled payments that coincide with the customer's next four paydays. In some states, a customer may enter into a Payment Plan more frequently. We do not engage in collection efforts while a customer is enrolled in a Payment Plan. If a customer misses a scheduled payment under a Payment Plan, we may resume our normal collection procedures. We do not offer a Payment Plan for installment loans or lines of credit. The third-party lender in Texas does not offer a Payment Plan for advances to its customers. The third-party internet lender offers Payment Plans as required by state law.

        Certain states also provide for credit counseling plans. If a customer informs us that he or she has entered into a credit counseling plan, we work with the credit counselor and the customer to create a modified payment plan.

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    Collection Process

        Repayment terms vary depending upon state law, the type of cash advance service offered, and whether the cash advance was completed online or in one of our centers. Generally, as part of the closing process, we explain the customer's repayment obligations and establish the expectation that the customer will pay us in cash on or before the due date in accordance with their agreement with us. The day before the due date, we generally call the customer to confirm their payment.

        If a customer does not pay the amount due, our center management has the discretion to either commence past-due collection efforts, which typically may proceed for up to 14 days in most states, or deposit the customer's personal check or debit their bank account in accordance with their ACH authorization. If center management decides to commence past-due collection efforts, employees typically contact the customer by telephone to obtain a payment or a promise to pay and, in cases where we hold a check, attempt to exchange the customer's check for a cashier's check, if funds are available.

        If, at the end of this past-due collection period or Payment Plan, the center has been unable to collect the amount due, the customer's check is deposited or their ACH authorization is processed. Additional collection efforts are not required if the customer's deposited check or ACH debit clears. If the customer's check or ACH debit does not clear and is returned because of non-sufficient funds in the customer's account or because of a closed account or a stop-payment order, we begin additional collection efforts. These additional collection efforts are carried out by center employees and typically include contacting the customer by telephone to obtain payment or a promise to pay and attempting to exchange the customer's check for a cashier's check, if funds become available. We also send out a series of collection letters, which are automatically distributed from a central location based on a set of pre-determined criteria.

    Selected Operating Data

        The following table presents key operating data for our business:

 
  Year Ended December 31,  
 
  2009   2010   2011  

Number of centers open at end of period

    2,587     2,352     2,584  

Number of customers served—all credit products (thousands)

    1,316     1,310     1,347  

Number of cash advances originated (thousands)(1)

    10,860     10,027     10,561  

Aggregate principal amount of cash advances originated (thousands)(1)

  $ 3,922,195   $ 3,710,133   $ 3,965,225  

Average amount of each cash advance originated(1)

  $ 361   $ 370   $ 375  

Average charge to customers for providing and processing a cash advance(1)

  $ 53   $ 55   $ 55  

Average duration of a cash advance (days)(1)(2)

    17.6     18.0     18.2  

Average number of lines of credit outstanding during the period (thousands)(3)

    24     12     1  

Average amount of aggregate principal on lines of credit outstanding during the period (thousands)(3)

  $ 10,945   $ 3,753   $ 255  

Average principal amount on each line of credit outstanding during the period(3)

  $ 410   $ 251   $ 89  

Number of installment loans originated (thousands)(4)

    35     61     79  

Aggregate principal amount of installment loans originated (thousands)(4)

  $ 15,992   $ 27,375   $ 35,484  

Average principal amount of each installment loan originated(4)

  $ 453   $ 446   $ 448  

(1)
Excludes lines of credit and installment loans.

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(2)
Excludes the impact of extended payment plans.

(3)
In Virginia, we began offering lines of credit in November 2008, ceased offering new lines of credit to customers in February 2010, and stopped providing advances on existing lines of credit on September 30, 2010.

(4)
The installment loan activity for 2009 reflects loans we originated as the lender in Illinois only. For 2010 the installment loan activity reflects loans we originated as the lender in Illinois and Colorado. For 2011 the installment loan activity reflects loans we originated as the lender in Illinois, Colorado, South Carolina, Tennessee, and Wisconsin.

    Revenues and Expenses

        Our revenues consist primarily of fees and/or interest paid to us directly by our customers and gold sales. Our expenses relate primarily to the operation of our centers and purchased gold costs. Operating 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 costs related to center closings, communications, delivery, supplies, travel, bank charges, various compliance and collection costs, and costs associated with theft.

    Provision for Doubtful Accounts, Allowance for Doubtful Accounts, and Accrual for Third-Party Lender Losses

        Our provision for doubtful accounts and accrual for third-party lender losses are primarily based upon models that analyze specific portfolio statistics and also reflect, to a lesser extent, management's judgment regarding overall accuracy. The analytical models take into account several factors including the number of transactions customers complete, and charge-off and recovery rates. Additional factors, such as changes in state laws, center closings, length of time centers have been open in a state, and relative mix of new centers within a state are also evaluated to determine whether the results from the analytical models should be revised.

        The provision for doubtful accounts as a percentage of total revenues for the year ended December 31, 2011 was 17.2%, compared to 17.4% for the same period in 2010. Losses were lower during the year ended December 31, 2011 compared to the same period in 2010 due primarily to a one-time adjustment to the allowance for doubtful accounts to consider estimated recoveries, as well as, proceeds from the sale of previously written-off receivables. These decreases in the provision were almost entirely offset by higher charge-offs in certain states and an increase in the provision for doubtful accounts related to our decision to cease operations in the United Kingdom. We sold approximately $4.8 million of previously written-off receivables during 2011 compared with $0.7 million during 2010.

    Income Taxes

        The effective income tax rate as a percentage of income before income taxes was 45.7% and 35.8% for the year ended December 31, 2010 and 2011, respectively. The decrease in the effective tax rate in the current year is primarily a result of the Company's decision to exit the United Kingdom and the corresponding write-off of the loan to the UK Subsidiary of approximately $28.2 million.

    Acquisition of Valued Services Business

        On October 10, 2011, we acquired approximately 300 retail storefront consumer finance centers from certain subsidiaries of CompuCredit Holdings Corporation for cash consideration totaling $46.2 million. The acquired centers are located in Alabama, Colorado, Kentucky, Ohio, Oklahoma, Mississippi, South Carolina, Tennessee, and Wisconsin. The purchase price has been assigned to identifiable tangible assets, definite-lived intangible assets and goodwill. Of the total purchase price,

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$31.3 million has been allocated to net tangible assets acquired and $5.2 million has been allocated to definite-lived intangible assets. The remaining purchase price has been allocated as goodwill. The acquired centers contributed revenues of approximately $17.7 million for the period October 10, 2011 to December 31, 2011.

    Operations in the United Kingdom

        Our operations in the United Kingdom began in the third quarter of 2007. As of December 31, 2011, our operations in the United Kingdom have generated negative cash flow and have not reached break-even. As a result of continued losses, we are pursuing strategic alternatives, including the divesture of these operations, which would allow us to exit the United Kingdom by the end of 2012. As of December 31, 2011, management assessed the carrying value of tangible and intangible assets for necessary impairment charges. Costs of approximately $7.4 million were recognized for the period ended December 31, 2011, including a $0.8 million increase in the provision for doubtful accounts, $0.3 million increase in salaries and related payroll costs, $2 million loss on impairment of fixed assets, and $4.3 million loss on impairment of goodwill. Estimated closing costs to be recognized in 2012, including severance, center tear-down costs, and lease terminations total approximately $3 million.

        For the years ended December 31, 2009, 2010, and 2011, 0.4%, 0.7%, and 1.1%, respectively, of our total revenues were generated from our operations in the United Kingdom. The following is a summary of financial information for our operations in the United Kingdom for the years ended December 31, 2009, 2010, and 2011 (in thousands):

 
  2009   2010   2011  

Total revenues

  $ 2,622   $ 4,620   $ 6,846  

Total expenses

    5,277     7,028     20,547  
               

Income (loss) before income tax

  $ (2,655 ) $ (2,408 ) $ (13,701 )
               

    Operations in Canada

        Our expansion efforts in Canada began in the third quarter of 2007. As of December 31, 2011 operations in Canada have generated negative cash flow and have not reached break even. As a result of continued losses, we closed all of our centers in Canada in the fourth quarter of 2011 and the first quarter of 2012.

        For the twelve months ended December 31, 2011, closing costs of approximately $0.6 million are included in the income statement as an increase in other center expenses of approximately $0.2 million and a loss on impairment of assets of approximately $0.4 million. Estimated closing costs to be recognized in 2012, including severance, center tear-down costs, and lease terminations range from $0.4 million to $0.8 million.

        For the years ended December 31, 2009, 2010, and 2011, 0.1%, 0.4%, and 0.4%, respectively, of our total revenues were generated from our operations in Canada. The following is a summary of financial information for our operations in Canada for the years ended December 31, 2009, 2010, and 2011 (in thousands):

 
  2009   2010   2011  

Total revenues

  $ 605   $ 2,217   $ 2,285  

Total center expenses

    2,675     4,039     4,384  
               

Center gross profit (loss)

  $ (2,070 ) $ (1,822 ) $ (2,099 )
               

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    Changes in Legislation

        During the last few years, legislation has been introduced or adopted in some states that prohibits or severely restricts our products and services. In 2009 and 2010, bills that would severely restrict or effectively prohibit cash advances if adopted as law were introduced in eleven and eight states, respectively. Such legislation, if enacted, could have a material adverse impact on our results of operations. For example, in the first quarter of 2010, a state-wide database went into effect in Kentucky, South Carolina and Washington. A similar law in Wisconsin took effect on January 1, 2011. In January 2012, a bill went into law in Mississippi, which, among other things, modifies certain aspects of our cash advance product in that state and extends the statute's sunset provision through 2016. In Montana, a bill went into law on January 1, 2011, which caused us to cease operations in that state. In Colorado, new legislation enacted in August 2010 permits a multiple installment loan that has significantly reduced our profits in Colorado. Further, legislation permitting cash advances in Arizona expired on July 2, 2010, and as a result, we ceased operating in Arizona. We are regularly refining our cash advance services and developing new products and services or operations to address recent or anticipated legislative and regulatory changes. Some of these legislative and regulatory changes may result in our discontinuation of operations, while other changes may result in less significant short-term or long-term changes, interruptions in revenues, and lower operating margins. We generally cannot estimate what effect, if any, operational changes we make in response to legislative and regulatory changes may have on our financial results until we consider if these are legal and financially viable alternative products and services.

    Operations in Virginia

        A Virginia law that went into effect in January 2009 substantially changed the terms for cash advance services in Virginia and severely restricted viable operations for short-term lenders. We continue to offer cash advances in Virginia in conformity with the new regulations. Between November 2008 and February 2010 we also offered an open-ended line of credit product. However, a subsequent Virginia Corporation Commission ruling limited our ability to offer the open-ended lines of credit effective March 1, 2010. As a result, we ceased offering new open-ended lines of credit in February 2010 and continued to service existing lines of credit. Because of additional legislation that was passed in 2010, we stopped providing new draws on existing lines of credit on September 30, 2010.

        Legislative charters in Virginia may cause us to close or consolidate some or all of our centers in Virginia. If we close all of our remaining centers in Virginia, our estimated closing costs, including severance, center tear-down costs, lease termination costs, and the write-down of fixed assets would range from $2.1 million to $5.8 million, and the collectability of advances and fees receivable in Virginia would most likely be impaired. As of December 31, 2011, advances and fees receivable, net of allowance for doubtful accounts, in Virginia was approximately $10.3 million. We do not believe the potential cessation of operations in Virginia would result in an impairment of goodwill.

        During the year ended December 31, 2011, we closed four centers in Virginia. For the twelve months ended December 31, 2011, closing costs of approximately $0.2 million are included in the income statement as an increase in other center expenses.

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        For the years ended December 31, 2009, 2010, and 2011, 7.8%, 4.5%, and 3%, respectively, of our total revenues were generated from our operations in Virginia. The following is a summary of financial information for our operations in Virginia for those years (in thousands):

 
  2009   2010   2011  

Total revenues

  $ 50,638   $ 26,715   $ 18,482  

Total center expenses

    45,376     20,402     15,153  
               

Center gross profit (loss)

  $ 5,262   $ 6,313   $ 3,329  
               

    Operations in Washington

        A law became effective in the State of Washington on January 1, 2010 that limits the number of cash advances a customer may take in any one year, limits the cash advance amount that can be taken out at any one time, and implements a statewide database to monitor the number of cash advances. As a result, our revenue and profitability in Washington has decreased.

        During the year ended December 31, 2011, we closed 32 centers in Washington. For the twelve months ended December 31, 2011, closing costs of approximately $1.1 million are included in the income statement as an increase in other center expenses of $0.9 million and center salaries and related payroll costs of $0.2 million.

        If we close all of our remaining centers in Washington, our estimated closing costs, including severance, center tear-down costs, lease termination costs, and the write-down of fixed assets would range from $0.4 million to $1 million, and the collectability of advances and fees receivable in Washington would most likely be impaired. As of December 31, 2011, advances and fees receivable, net of allowance for doubtful accounts, in Washington was approximately $2.3 million. We do not believe the potential cessation of operations in Washington would result in an impairment of goodwill.

        For the years ended December 31, 2009, 2010, and 2011, 4.1%, 1.0%, and 0.8%, respectively, of our total revenues were generated from our operations in Washington. The following is a summary of financial information for our operations in Washington for those years (in thousands):

 
  2009   2010   2011  

Total revenues

  $ 26,637   $ 6,259   $ 4,716  

Total center expenses

    19,996     9,310     6,951  
               

Center gross profit (loss)

  $ 6,641   $ (3,051 ) $ (2,235 )
               

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    Operations in South Carolina

        A law became effective in South Carolina on January 1, 2010 that, among other things, prohibits consumers from having more than one cash advance outstanding at any time and implements a statewide database to monitor the number and dollar amount of cash advances made to customers within that state. Although this law has negatively affected our revenue and profitability in South Carolina, we currently believe operations will remain economically viable.

        For the years ended December 31, 2009, 2010, and 2011, 5.3%, 3.6%, and 4.0%, respectively, of our total revenues were generated from our operations in South Carolina. The following is a summary of financial information for our operations in South Carolina for those years (in thousands):

 
  2009   2010   2011  

Total revenues

  $ 34,582   $ 21,905   $ 25,045  

Total center expenses

    23,847     20,333     20,248  
               

Center gross profit (loss)

  $ 10,735   $ 1,572   $ 4,797  
               

    Operations in Kentucky

        A law became effective in Kentucky on April 30, 2010 that, among other things, prohibits any consumer from having more than two cash advances outstanding at any time, establishes a maximum aggregate advance amount of $500, and implements a statewide database to monitor the number and dollar amount of advances made to customers within that state. Although this law has negatively affected our revenue and profitability in Kentucky, we currently believe operations will remain economically viable.

        For the years ended December 31, 2009, 2010, and 2011, 1.2%, 1.1%, and 1.3%, respectively, of our total revenues were generated from our operations in Kentucky. The following is a summary of financial information for our operations in Kentucky for those years (in thousands):

 
  2009   2010   2011  

Total revenues

  $ 8,000   $ 6,336   $ 8,232  

Total center expenses

    6,208     5,858     6,988  
               

Center gross profit (loss)

  $ 1,792   $ 478   $ 1,244  
               

    Operations in Colorado

        A law became effective in Colorado on August 11, 2010, that expands the minimum term of cash advances to six months, allows repayment in multiple installments, and revises permitted finance, interest, and other charges. This law has negatively affected our revenue and profitability in Colorado. We may close or consolidate some or all of our centers in Colorado if management determines that it is no longer economically viable to operate all of our Colorado centers.

        If we close all of our remaining centers in Colorado, our estimated closing costs, including severance, center tear-down costs, lease termination costs, and the write-down of fixed assets would range from $0.9 million to $1.9 million, and the collectability of advances and fees receivable in Colorado would most likely be impaired. As of December 31, 2011, advances and fees receivable, net of allowance for doubtful accounts, in Colorado was approximately $6.5 million. We do not believe the potential cessation of operations in Colorado would result in an impairment of goodwill.

        For the twelve months ended December 31, 2011, closing costs of approximately $0.1 million are included in the income statement as an increase in other center expenses.

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        For the years ended December 31, 2009, 2010, and 2011, 1.9%, 1.7%, and 1.2%, respectively, of our total revenues were generated from our operations in Colorado. The following is a summary of financial information for our operations in Colorado for the years ended December 31, 2009, 2010, and 2011 (in thousands):

 
  2009   2010   2011  

Total revenues

  $ 12,531   $ 10,122   $ 7,332  

Total center expenses

    11,534     10,665     8,435  
               

Center gross profit (loss)

  $ 997   $ (543 ) $ (1,103 )
               

    Operations in Wisconsin

        A law became effective in Wisconsin on January 1, 2011, that limits the total dollar amount of cash advances a customer may have outstanding, and implements a statewide database to monitor the number of cash advances. Although this law has negatively affected on our revenue and profitability in Wisconsin, we currently believe operations will remain economically viable.

        For the years ended December 31, 2009, 2010, and 2011, 1.8%, 1.8%, and 1.2%, respectively, of our total revenues were generated from our operations in Wisconsin. The following is a summary of financial information for our operations in Wisconsin for the years ended December 31, 2009, 2010, and 2011 (in thousands):

 
  2009   2010   2011  

Total revenues

  $ 11,881   $ 10,699   $ 7,410  

Total center expenses

    10,035     9,663     10,001  
               

Center gross profit (loss)

  $ 1,846   $ 1,036   $ (2,591 )
               

    Operations in Illinois

        A law became effective in Illinois on March 2, 2011, that changed the terms of the installment loan product currently offered and negatively affected the profitability of this product. However, the new law created a longer term product with multiple installments, applicable fees, and a statewide database reporting requirement. We began offering products in conformance with the new legislation in June 2011. Although this law has had a negative effect on our revenue and profitability in Illinois, we currently believe operations will remain economically viable.

        For the years ended December 31, 2009, 2010, and 2011, 2.1%, 2.6%, and 1.6%, respectively, of our total revenues were generated from our operations in Illinois. The following is a summary of financial information for our operations in Illinois for the years ended December 31, 2009, 2010, and 2011 (in thousands):

 
  2009   2010   2011  

Total revenues

  $ 13,794   $ 15,437   $ 9,930  

Total center expenses

    11,270     10,766     9,845  
               

Center gross profit (loss)

  $ 2,524   $ 4,671   $ 85  
               

    Center Closings

        We closed 220 centers during 2009 (including 24 in New Hampshire and 63 in Ohio), 259 centers during 2010 (including 48 in Arizona), and 91 centers during 2011 (including 32 in Washington). We are also pursuing strategic alternatives which would allow us to exit the United Kingdom. As of

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December 31, 2011, costs of approximately $7.4 million were recognized related to necessary impairment, including goodwill, and closing costs. The expenses related to closing centers typically include the undepreciated costs of fixtures and signage that cannot be moved and reused at another center, costs to clean and vacate the premises, moving costs, severance payments and any lease cancellation costs. We recorded expenses related to center closures and scheduled center closings of approximately $6.7 million, $6 million, and $10.1 million in 2009, 2010, and 2011, respectively. The costs are included in the income statements for the years ended 2009, 2010, and 2011 as shown below.

 
  Year ended December 31,  
 
  2009   2010   2011  
 
  (amounts in thousands)
 

Salaries and related payroll costs

  $ 374   $ 860   $ 608  

Provision for doubtful accounts

            798  

Occupancy costs

    (219 )   (258 )   (51 )

Other center expenses

    3,183     4,343     1,740  

Loss on disposal of property and equipment

    337     358     157  

Loss on impairment of assets

    2,987     654     6,852  
               

  $ 6,662   $ 5,957   $ 10,104  
               

    Closing of Operations in Certain States

        In response to new or modified state regulations, we closed operations in Georgia in 2004, Pennsylvania and Oregon in 2007, Arkansas and New Mexico in 2008, New Hampshire in 2009, and Arizona and Montana in 2010.

        Closing of Operations in New Hampshire.    Legislation in New Hampshire became effective in 2009 that effectively prohibits the offering of cash advances in New Hampshire. As a result of this legislation, we determined that it was not economically viable for us to continue operating in New Hampshire. As a result, we closed all of our 24 centers in New Hampshire in 2009. The cost associated with closing our New Hampshire operations was approximately $1.3 million, including $0.5 million due to the write-down of receivables. Approximately $0.7 million of these expenses were recognized during 2008, including a $0.5 million increase in the provision for doubtful accounts and $0.2 million loss on impairment of assets. The remaining $0.6 million was recognized during 2009 and are included in the income statement as an increase of $0.5 million in other center expenses and $0.1 million in center salaries and related payroll costs. The cessation of our New Hampshire operations did not result in any impairment of goodwill.

        Our operations in New Hampshire resulted in losses at the center gross profit level for the year ended December 31, 2009 of approximately $996,000.

        Closing of Operations in Arizona.    A law permitting cash advances in Arizona expired June 30, 2010. We ceased operations in our remaining 47 centers in Arizona during the quarter ended September 30, 2010. For the twelve months ended December 31, 2010, closing costs of approximately $1.2 million were included in the income statement as an increase in other center expenses of $0.7 million, center salaries and related payroll costs of $0.3 million, and a loss on the impairment of assets of approximately $0.2 million. The cessation of our Arizona operations did not result in any impairment of goodwill.

        For the years ended December 31, 2009 and 2010, 2.4% and 1.2%, respectively, of our total revenues were generated from our operations in Arizona. The following is a summary of financial

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information for our operations in Arizona for the years ended December 31, 2009 and 2010 (in thousands):

 
  2009   2010  

Total revenues

  $ 15,694   $ 7,363  

Total center expenses

    10,590     6,936  
           

Center gross profit (loss)

  $ 5,104   $ 427  
           

        Closing of Operations in Montana.    Due to a law change in Montana that became effective January 1, 2011, the Company closed its two centers. The cost of closing these centers was approximately $38,000. For the twelve months ended December 31, 2010, the operations in Montana generated approximately $66,000 of center gross profit.

    New Centers

        We opened 10 centers in the year ended December 31, 2009 and 24 centers in both the years ended December 31, 2010 and 2011. Additionally, we acquired 299 centers in the Valued Services Acquisition during the fourth quarter of the year ended December 31, 2011. The capital cost of opening a new center varies depending on the size and type of center, but typically averages approximately $47,000. This capital cost includes leasehold improvements, signage, fixtures, furniture, computer equipment, and a security system. In addition, the typical center that has been operating for at least 24 months requires average working capital of approximately $95,000 to fund the center's advance portfolio.

    Principles of Consolidation

        Our consolidated financial statements include the accounts of Advance America, Cash Advance Centers, Inc. and all of our wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated.

    Seasonality

        Our business is seasonal due to the impact of fluctuating demand for advances and fluctuating collection rates throughout the year. Demand has historically been highest in the third and fourth quarters of each year, corresponding to the back-to-school and holiday seasons, and lowest in the first quarter of each year, corresponding to our customers' receipt of income tax refunds. Our provision for doubtful accounts and allowance for doubtful accounts are historically lowest as a percentage of revenues in the first quarter of each year, corresponding to customers' receipt of income tax refunds, and increase as a percentage of revenues for the remainder of each year.

Critical Accounting Policies and Use of Estimates

        The preparation of our financial statements, in conformity with generally accepted accounting principles ("GAAP") in the United States, requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. In applying the accounting principles, we must often make estimates and assumptions regarding expected outcomes or uncertainties. As might be expected, the actual results or outcomes are generally different than the estimated or assumed amounts. These differences are usually minor and are included in our consolidated financial statements as soon as they are known. Estimates, judgments, and assumptions are continually evaluated based on available information and experience. Because of the

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use of estimates inherent in the financial reporting process, actual results could differ from those estimates.

        Actual results related to the estimates and assumptions made in preparing our consolidated financial statements will emerge over periods of time, such as estimates, and assumptions underlying the determination of the allowance for doubtful accounts, accrual for third-party lender losses, legal settlements, and regulatory loss contingencies. These estimates and assumptions are monitored and periodically adjusted as circumstances warrant. These amounts may be adjusted based on higher or lower actual loss experience. Although there is greater risk with respect to the accuracy of these estimates and assumptions because of the period over which actual results may emerge, such risk is mitigated by the ability to make changes to these estimates and assumptions over the same period.

        We believe that the following critical accounting policies affect the more significant estimates and assumptions used in the preparation of our financial statements.

    Provision for Doubtful Accounts, Allowance for Doubtful Accounts, and Accrual for Third-Party Lender Losses

        We believe the most significant estimates made in the preparation of our accompanying consolidated financial statements relate to the determination of an allowance for doubtful accounts for estimated probable losses on advances we make directly to customers and an accrual for third-party lender losses for estimated probable losses on loans and certain related fees for loans that we process for the third-party lender in Texas. See "Off-Balance Sheet Arrangement with Third-Party Lender" in this section. Our advances and fees receivable, net, on our balance sheet, do not include the advances and interest receivable for loans we processed for the third-party lender in Texas because these loans are owned by the third-party lender.

        The provision for doubtful accounts as a percentage of total revenues for the year ended December 31, 2011 was 17.2%, compared to 17.4% for the same period in 2010. Losses were lower during the year ended December 31, 2011 compared to the same period in 2010 due primarily to a one-time adjustment to the allowance for doubtful accounts to consider estimated recoveries, as well as, proceeds from the sale of previously written-off receivables. These decreases in the provision were almost entirely offset by higher charge-offs in certain states and an increase in the provision for doubtful accounts related to our decision to cease operations in the United Kingdom. We sold approximately $4.8 million of previously written-off receivables during 2011 compared with $0.7 million in 2010.

        The allowance for doubtful accounts and accrual for third-party lender losses are primarily based upon financial models that analyze specific portfolio statistics and also reflect, to a lesser extent, management's judgment regarding overall accuracy. The analytical models take into account several factors including the number of transactions customers complete and charge-off and recovery rates. Additional factors such as new products, changes in state laws, 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 also evaluated to determine whether the results from the analytical models should be revised.

        We record the allowance for doubtful accounts as a reduction of advances and fees receivable, net on our balance sheet. We record the accrual for third-party lender losses as a current liability on our balance sheet. We charge the portion of advances and fees deemed to be uncollectible against the allowance for doubtful accounts and credit any subsequent recoveries (including sales of debt without recourse) to the allowance for doubtful accounts.

        Unpaid advances and the related fees and/or interest are generally charged off 60 days after the date a customer's check was returned, the ACH was rejected by the customer's bank, or the default date, unless the customer has paid at least 15% of the total of his or her loan plus all applicable fees,

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or 15% of the outstanding balance and related interest and fees for our installment loan products. Customers with unpaid advances or installment loans who file for bankruptcy are charged off upon receipt of the bankruptcy notice. Although management uses the best information available to make evaluations, future adjustments to the allowance for doubtful accounts and accrual for third-party lender losses may be necessary if conditions differ substantially from our assumptions used in assessing their adequacy.

        Our business experiences cyclicality in receivable balances from both the time of year and the day of the week. Fluctuations in receivable balances result in a corresponding impact on the allowance for doubtful accounts, accrual for third-party lender losses, and provision for doubtful accounts.

        Our receivables are traditionally lowest at the end of the first quarter, corresponding to tax refund season, and reach their highest level during the last week of December.

        In addition to the seasonal fluctuations, the receivable balances can fluctuate throughout a week, generally being at their highest levels on a Wednesday or Thursday and at their lowest levels on a Friday. In general, receivable balances decrease approximately 2% to 5% from a typical Thursday to a typical Friday. The year 2010 began and ended on a Friday. The year 2011 began and ended on a Saturday.

        To the extent historical credit experience is not indicative of future performance or other assumptions used by management do not prevail, our loss experience could differ significantly, resulting in either higher or lower future provisions for doubtful accounts. As of December 31, 2011, if the estimated rates used in calculating our allowance for doubtful accounts and third-party lender losses were 5% higher or lower, it would have increased or decreased our provision for doubtful accounts by approximately $2.6 million.

    Intangible Assets

        We assess the impairment of our long-lived and intangible assets annually, during the fourth quarter of each year, or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors that could trigger an impairment review include significant underperformance relative to historical or projected future cash flows, significant changes in the manner of use of the acquired assets or the strategy of the overall business, and significant negative industry trends. We have two reporting units, which are also our operating segments. Our North American reporting unit consists of multiple state-based operations and therefore the cessation of operations in any particular state does not imply that goodwill for the relevant reporting unit will be impaired. In 2011, the Company elected early adoption of FASB Accounting Standards Update No. 2011-08 which permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in Topic 350. Management has considered all relevant events and circumstances that affect the fair value of the reporting unit in determining whether to perform the first step of the goodwill impairment test. No events or circumstances exist which would imply the fair value of the North American reporting unit is less than its carrying value, therefore the first step is not necessary for the purpose of testing goodwill for the 2011 annual goodwill impairment test.

        Our decision to cease operations in the United Kingdom results in the recognition of $4.3 million goodwill impairment loss as of December 31, 2011. This impairment represents the excess of the carrying amount of the reporting unit's goodwill over the implied fair value of that goodwill.

        As of December 31, 2011, the carrying value of goodwill was $132.4 million which reflects an increase of $9.8 million attributable to the allocation of goodwill from the Valued Services Acquisition

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and a decrease of $4.3 million attributable to the impairment of goodwill in the United Kingdom, including foreign currency translation effects.

        We cannot predict the occurrence of certain events that might adversely affect the carrying value of our goodwill. Should the operations of the businesses with which goodwill is associated incur significant adverse changes in business, clients, adverse actions by regulators, unanticipated competition, loss of our revolving line of credit, and/or changes in technology or markets, some or all of our recorded goodwill could be impaired.

    Customer List Intangible

        Identifiable intangible assets other than goodwill include customer lists/relationships. During the quarter ended December 31, 2011, the Valued Services Acquisition purchase price was allocated to the estimated fair value of the tangible and intangible assets and liabilities acquired. A customer list intangible asset was recognized based on its fair value of approximately $5.2 million. During the quarter ended December 31, 2010, we and our third-party lender in Texas acquired a payday loan receivables portfolio. The purchase price was allocated to the estimated fair value of the tangible and intangible assets and liabilities, including a customer list of approximately $2.4 million. The customer lists are amortized over their expected useful lives, ranging from 30-36 months.

    Litigation Accrual

        In view of the inherent difficulty of predicting the outcome of litigation and regulatory matters, particularly where the claimants seek very large or indeterminate damages or where the matters present novel legal theories or involve a large number of parties, we cannot state with confidence what the eventual outcome of pending matters will be, what the timing of the ultimate resolution of these matters will be, or what the eventual loss or range of losses, fines, or penalties related to each pending matter may be or the extent to which such amounts may be recoverable under our insurance policies.

        In accordance with applicable accounting guidance, we establish reserves for litigation and regulatory matters when those matters present loss contingencies that are both probable and estimable. When loss contingencies are not both probable and estimable, we do not establish reserves. In the matters described in "Item 3. Legal Proceedings" loss contingencies are not both probable and estimable in the view of management, and accordingly, reserves have not been established for those matters. Based on current knowledge, management does not believe that loss contingencies, if any, arising from pending litigation and regulatory matters, including the litigation and regulatory matters described in this Annual Report on Form 10-K, will have a material adverse effect on our consolidated financial position or liquidity, but may be material to our results of operations for any particular reporting period.

    Accrued Workers' Compensation Expenses

        Accrued liabilities in our December 31, 2010 and 2011 financial statements include accruals of approximately $5.6 million and $5.3 million, respectively, for workers' compensation. The costs of both reported claims and claims incurred but not reported, up to specified deductible limits, are estimated based on historical data, projected payroll numbers and other information. We review estimates and periodically update our estimates and the resulting reserves and any necessary adjustments are reflected in earnings currently. To the extent historical claims are not indicative of future claims, there are changes in payroll numbers, workers' compensation loss development factors change, or other assumptions used by management do not prevail, our expense and related accrued liabilities could increase or decrease.

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    Income Taxes

        We use certain assumptions and estimates in determining income taxes payable or refundable for the current year, deferred income tax liabilities and assets for events recognized differently in our financial statements and income tax returns, and income tax expense. Determining these amounts requires analysis of certain transactions and interpretation of tax laws and regulations. We exercise considerable judgment in evaluating the amount and timing of recognition of the resulting income tax liabilities and assets. These judgments and estimates are re-evaluated on a continual basis as regulatory and business factors change.

        No assurance can be given that neither our tax returns nor the income tax reported on our Consolidated Financial Statements will be adjusted as a result of adverse rulings by the U.S. Tax Court, changes in the tax code, or assessments made by the Internal Revenue Service ("IRS"). We are subject to potential adverse adjustments, including but not limited to, an increase in the statutory federal or state income tax rates, the permanent nondeductibility of amounts currently considered deductible either now or in future periods, and the dependence on the generation of future taxable income, in order to ultimately realize deferred income tax assets.

    Consolidation of Variable Interest Entity

        In connection with our CSO/CAB operations in Texas, we entered into an agreement with an unaffiliated third-party lender in 2005. We determined that the third-party lender was a variable interest entity ("VIE") under Accounting Standards Codification ("ASC") 815-10-65 "Variable Interest Entities" and that we were the primary beneficiary of this VIE. As a result, we consolidated the lender for the year ended December 31, 2007. During the fourth quarter of 2007, we terminated our CSO agreement with that lender and entered into an agreement with another unaffiliated third-party lender with substantially similar terms and conditions as the agreement with the former lender. The current lender is also a VIE but we have determined that we are not the primary beneficiary of this VIE and have not consolidated the current lender as of and for the years ended December 31, 2009, 2010, and 2011. See "Item 8. Financial Statements and Supplementary Data—Note 18. Transactions with Variable Interest Entities".

    Accounting for Stock-Based Employee Compensation

        In 2004, we adopted ASC 718, "Stock Compensation". Accordingly, we measure the cost of our stock-based employee compensation at the grant date based on fair value and recognize such cost in the financial statements over each award's requisite service period. As of December 31, 2011, the total compensation expense not yet recognized related to nonvested stock awards under our stock-based employee compensation plans is approximately $3.1 million. The weighted average period over which this expense is expected to be recognized is approximately 1.9 years. See "Item 8. Financial Statements and Supplementary Data—Note 12. Stock-Based Compensation Plans" for a description of our restricted stock and stock option awards and the assumptions used to calculate the fair value of such awards, including the expected volatility assumed in valuing our stock option grants.

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    Results of Operations

    Year Ended December 31, 2010 Compared to the Year Ended December 31, 2011

        The following tables set forth our results of operations for the year ended December 31, 2010 compared to the year ended December 31, 2011:

 
  Year Ended December 31,  
 
  2010   2011   Variance Favorable/
Unfavorable)
 
 
   
  % Total
Revenues
   
  % Total
Revenues
 
 
  Dollars   Dollars   Dollars   %  
 
  (Dollars in thousands, except Center Information)
 

Total Revenues

  $ 600,233     100.0 % $ 625,856     100.0 % $ 25,623     4.3 %

Center Expenses:

                                     

Salaries and related payroll costs

    179,617     29.9 %   182,465     29.2 %   (2,848 )   (1.6 )%

Provision for doubtful accounts

    104,228     17.4 %   107,911     17.2 %   (3,683 )   (3.5 )%

Occupancy costs

    87,457     14.6 %   82,790     13.2 %   4,667     5.3 %

Center depreciation expense

    9,806     1.6 %   8,147     1.3 %   1,659     16.9 %

Advertising expense

    20,898     3.5 %   21,371     3.4 %   (473 )   (2.3 )%

Other center expenses

    43,124     7.2 %   41,964     6.7 %   1,160     2.7 %
                             

Total center expenses

    445,130     74.2 %   444,648     71.0 %   482     0.1 %
                             

Center gross profit

    155,103     25.8 %   181,208     29.0 %   26,105     16.8 %

Corporate and Other Expenses (Income):

                                     

General and administrative expenses

    62,527     10.4 %   61,317     9.8 %   1,210     1.9 %

Legal settlements

    18,608     3.1 %   23         18,585     99.9 %

Corporate depreciation and amortization expense

    2,306     0.4 %   2,999     0.5 %   (693 )   (30.1 )%

Interest expense

    4,858     0.8 %   4,561     0.7 %   297     6.1 %

Interest income

    (74 )       (43 )       (31 )   (41.9 )%

(Gain)/loss on disposal of property and equipment

    413     0.1 %   159         254     61.5 %

Loss on impairment of assets

    654     0.1 %   6,852     1.2 %   (6,198 )   (947.7 )%
                             

Total corporate and other expenses

    89,292     14.9 %   75,868     12.2 %   13,424     15.0 %
                             

Income before income taxes

    65,811     10.9 %   105,340     16.8 %   39,529     60.1 %

Income tax expense

    30,048     5.0 %   37,717     6.0 %   (7,669 )   (25.5 )%
                             

Net income

  $ 35,763     5.9 % $ 67,623     10.8 % $ 31,860     89.1 %
                             

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  Year Ended December 31,  
 
  2010   2011  

Center Information:

             

Number of centers open at beginning of period

    2,587     2,352  

Opened

    24     24  

Acquired

        299  

Closed

    (259 )   (91 )
           

Number of centers open at end of period

    2,352     2,584  
           

Weighted average number of centers open during the period

    2,474     2,357  

Number of customers served—all credit products (thousands)

    1,310     1,347  

Number of cash advances originated (thousands)(1)

    10,027     10,561  

Aggregate principal amount of cash advances originated (thousands)(1)

  $ 3,710,133   $ 3,965,225  

Average amount of each cash advance originated(1)

  $ 370   $ 375  

Average charge to customers for providing and processing a cash advance(1)

  $ 55   $ 55  

Average duration of a cash advance (days)(1)(2)

    18.0     18.2  

Average number of lines of credit outstanding during the period (thousands)(3)

    12     1  

Average amount of aggregate principal on lines of credit outstanding during the period (thousands)(3)

  $ 3,753   $ 255  

Average principal amount on each line of credit outstanding during the period(3)

  $ 251   $ 89  

Number of installment loans originated (thousands)(4)

    61     79  

Aggregate principal amount of installment loans originated (thousands)(4)

  $ 27,375   $ 35,484  

Average principal amount of each installment loan originated(4)

  $ 446   $ 448  

(1)
Excludes lines of credit and installment loans.

(2)
Excludes the impact of extended payment plans.

(3)
In Virginia, we began offering lines of credit in November 2008, ceased offering new lines of credit to customers in February 2010, and stopped providing advances on existing lines of credit on September 30, 2010.

(4)
The 2010 installment loan activity reflects loans we originated as the lender in Illinois and Colorado. The 2011 installment loan activity reflects loans we originated as the lender in Illinois, Colorado, South Carolina, Tennessee, and Wisconsin.

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  Year Ended December 31,  
 
  2010   2011   Variance
Favorable/
(Unfavorable)
 
 
   
  % Total
Revenues
   
  % Total
Revenues
 
 
  Dollars   Dollars   Dollars   %  
 
  (Dollars in thousands)
 

Per Center (based on weighted average number of centers open during the period):

                                     

Center revenues

  $ 242.6     100.0 % $ 265.5     100.0 % $ 22.9     9.4 %

Center expenses:

                                     

Salaries and related payroll costs

    72.6     29.9 %   77.4     29.2 %   (4.8 )   (6.6 )%

Provision for doubtful accounts

    42.1     17.4 %   45.8     17.2 %   (3.7 )   (8.8 )%

Occupancy costs

    35.4     14.6 %   35.1     13.2 %   0.3     0.8 %

Center depreciation expense

    4.0     1.6 %   3.5     1.3 %   0.5     12.5 %

Advertising expense

    8.4     3.5 %   9.1     3.4 %   (0.7 )   (8.3 )%

Other center expenses

    17.4     7.2 %   17.8     6.7 %   (0.4 )   (2.3 )%
                             

Total center expenses

    179.9     74.2 %   188.7     71.0 %   (8.8 )   (4.9 )%
                             

Center gross profit

  $ 62.7     25.8 % $ 76.8     29.0 % $ 14.1     22.5 %
                             

    Revenue Analysis

        Total revenues increased approximately $25.6 million in 2011. Total revenues for the 2,238 centers opened prior to January 1, 2010 and still open as of December 31, 2011 increased $26.8 million, from $571.2 million in 2010 to $598 million in 2011. Total revenues for the 47 centers opened after January 1, 2010 and still open as of December 31, 2011 increased $3.4 million, from $0.9 million in 2010 to $4.3 million in 2011. Total revenues for the remaining 350 centers that closed represented a decrease of approximately $22.5 million for 2011 compared to 2010.

    Center Expense Analysis

        Salaries and related payroll costs.    The increase in salaries and related payroll costs in 2011 was due primarily to the Valued Services Acquisition. We averaged approximately 2.00 and 2.05 full-time equivalent field employees, including district directors, per center during 2010 and 2011, respectively.

        Provision for doubtful accounts.    The provision for doubtful accounts as a percentage of total revenues for the year ended December 31, 2011 was 17.2%, compared to 17.4% for the same period in 2010. Losses were lower during the year ended December 31, 2011 compared to the same period in 2010 due primarily to a one-time adjustment to the allowance for doubtful accounts to consider estimated recoveries, as well as, proceeds from the sale of previously written-off receivables. These decreases in the provision were almost entirely offset by higher charge-offs in certain states and an increase in the provision for doubtful accounts related to our decision to cease operations in the United Kingdom. We sold approximately $4.8 million of previously written-off receivables during 2011 compared with $0.7 million in 2010.

        Occupancy costs and center depreciation expense.    The decrease in occupancy costs and center depreciation expense in 2011 was due primarily to fewer number of open centers during 2011, as compared to 2010, prior to the Valued Services Acquisition in October 2011. In addition, depreciation continues to decrease as centers age and property and equipment become fully depreciated.

        Advertising expense.    Advertising expense increased in 2011 compared to 2010 due primarily to the "You Might Be Surprised" campaign and National TV cable advertisements in 2011.

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        Other center expenses.    The decrease in other center expenses in 2011 was due primarily to a reduction in relocation and closing costs resulting from fewer closures in 2011 as compared to 2010.

    Corporate and Other Expense (Income) Analysis

        General and administrative expenses.    The decrease in general and administrative expenses in 2011 was due primarily to:

    a reduction of legal fees of approximately $4.3 million;

        This was offset primarily by increases in general and administrative expenses of:

    Valued Services Acquisition related expenses of approximately $1.2 million;

    the United Kingdom subsidiary's expenses and other related closing costs of approximately $1.7 million.

        Legal settlements.    The amounts reflected as legal settlements relate to charges during the year ended December 31, 2011 of approximately $23,000 in the settlement of Raymond King and Sandra Coates v. Advance America Cash Advance Centers of Pennsylvania, LLC. The primary reason for the decrease is due to the settlement of Kucan et al. v. Advance America, Cash Advance Centers of North Carolina, Inc. et al. in 2010.

        Interest expense.    The decrease in interest expense for the year ended December 31, 2011, as compared to 2010 was due primarily to a lower outstanding balance on the revolving credit facility, as well as, lower interest rates applicable to the credit facility.

        (Gain)/loss on disposal of property and equipment.    The favorable change in this item for the year ended December 31, 2011, as compared to 2010 was primarily due to fewer centers closing in 2011 as compared to 2010.

        Loss on impairment of assets.    Loss on impairment of assets for the year ended December 31, 2010 represents the write-down of the undepreciated costs of certain fixed assets in our centers identified for closure. For the year ended December 31, 2011, loss on impairment of assets represents the impairment of goodwill for the United Kingdom reporting unit, as well as, the write-down of the undepreciated costs of certain fixed assets in our centers identified for closure.

        Income tax expense.    The increase in income tax expense for the year ended December 31, 2011, as compared to 2010 was primarily due to higher pretax profits, net of benefits associated with decision to exit the United Kingdom and the corresponding write-off of $28.2 million intercompany note.

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    Year Ended December 31, 2009 Compared to the Year Ended December 31, 2010

        The following tables set forth our results of operations for the year ended December 31, 2009 compared to the year ended December 31, 2010:

 
  Year Ended December 31,  
 
  2009   2010   Variance Favorable/
(Unfavorable)
 
 
   
  % Total
Revenues
   
  % Total
Revenues
 
 
  Dollars   Dollars   Dollars   %  
 
  (Dollars in thousands, except Center Information)
 

Total Revenues

  $ 647,676     100.0 % $ 600,233     100.0 % $ (47,443 )   (7.3 )%

Center Expenses:

                                     

Salaries and related payroll costs

    185,599     28.7 %   179,617     29.9 %   5,982     3.2 %

Provision for doubtful accounts

    124,575     19.2 %   104,228     17.4 %   20,347     16.3 %

Occupancy costs

    94,370     14.6 %   87,457     14.6 %   6,913     7.3 %

Center depreciation expense

    13,174     2.0 %   9,806     1.6 %   3,368     25.6 %

Advertising expense

    22,232     3.4 %   20,898     3.5 %   1,334     6.0 %

Other center expenses

    45,606     7.1 %   43,124     7.2 %   2,482     5.4 %
                             

Total center expenses

    485,556     75.0 %   445,130     74.2 %   40,426     8.3 %
                             

Center gross profit

    162,120     25.0 %   155,103     25.8 %   (7,017 )   (4.3 )%

Corporate and Other Expenses (Income):

                                     

General and administrative expenses

    56,526     8.7 %   62,527     10.4 %   (6,001 )   (10.6 )%

Legal settlements

    6,427     1.0 %   18,608     3.1 %   (12,181 )   (189.5 )%

Corporate depreciation and amortization expense

    2,714     0.4 %   2,306     0.4 %   408     15.0 %

Interest expense

    6,241     1.0 %   4,858     0.8 %   1,383     22.2 %

Interest income

    (238 )       (74 )       (164 )   (68.9 )%

(Gain)/loss on disposal of property and equipment

    (50 )       413     0.1 %   (463 )   (926.0 )%

Loss on impairment of assets

    2,987     0.4 %   654     0.1 %   2,333     78.1 %
                             

Total corporate and other expenses

    74,607     11.5 %   89,292     14.9 %   (14,685 )   (19.7 )%
                             

Income before income taxes

    87,513     13.5 %   65,811     10.9 %   (21,702 )   (24.8 )%

Income tax expense

    33,310     5.1 %   30,048     5.0 %   3,262     9.8 %
                             

Net income

  $ 54,203     8.4 % $ 35,763     5.9 % $ (18,440 )   (34.0 )%
                             

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  Year Ended December 31,  
 
  2009   2010  

Center Information:

             

Number of centers open at beginning of period

    2,797     2,587  

Opened

    10     24  

Acquired

         

Closed

    (220 )   (259 )
           

Number of centers open at end of period

    2,587     2,352  
           

Weighted average number of centers open during the period

    2,698     2,474  

Number of customers served—all credit products (thousands)

    1,316     1,310  

Number of cash advances originated (thousands)(1)

    10,860     10,027  

Aggregate principal amount of cash advances originated (thousands)(1)

  $ 3,922,195   $ 3,710,133  

Average amount of each cash advance originated(1)

  $ 361   $ 370  

Average charge to customers for providing and processing a cash advance(1)

  $ 53   $ 55  

Average duration of a cash advance (days)(1)(2)

    17.6     18.0  

Average number of lines of credit outstanding during the period (thousands)(3)

    24     12  

Average amount of aggregate principal on lines of credit outstanding during the period (thousands)(3)

  $ 10,945   $ 3,753  

Average principal amount on each line of credit outstanding during the period(3)

  $ 410   $ 251  

Number of installment loans originated (thousands)(4)

    35     61  

Aggregate principal amount of installment loans originated (thousands)(4)

  $ 15,992   $ 27,375  

Average principal amount of each installment loan originated(4)

  $ 453   $ 446  

(1)
Excludes lines of credit and installment loans.

(2)
Excludes the impact of extended payment plans.

(3)
In Virginia, we began offering lines of credit in November 2008, ceased offering new lines of credit to customers in February 2010, and stopped providing advances on existing lines of credit on September 30, 2010.

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(4)
The installment loan activity for 2009 reflects loans we originated as the lender in Illinois only. For 2010 the installment loan activity reflects loans we originated as the lender in Illinois and Colorado.

 
  Year Ended December 31,  
 
  2009   2010   Variance
Favorable/
(Unfavorable)
 
 
   
  % Total
Revenues
   
  % Total
Revenues
 
 
  Dollars   Dollars   Dollars   %  
 
  (Dollars in thousands)
 

Per Center (based on weighted average number of centers open during the period):

                                     

Center revenues

  $ 240.1     100.0 % $ 242.6     100.0 % $ 2.5     1.0 %

Center expenses:

                                     

Salaries and related payroll costs

    68.8     28.7 %   72.6     29.9 %   (3.8 )   (5.5 )%

Provision for doubtful accounts

    46.2     19.2 %   42.1     17.4 %   4.1     8.9 %

Occupancy costs

    35.0     14.6 %   35.4     14.6 %   (0.4 )   (1.1 )%

Center depreciation expense

    4.9     2.0 %   4.0     1.6 %   0.9     18.4 %

Advertising expense

    8.2     3.4 %   8.4     3.5 %   (0.2 )   (2.4 )%

Other center expenses

    16.9     7.1 %   17.4     7.2 %   (0.5 )   (3.0 )%
                             

Total center expenses

    180.0     75.0 %   179.9     74.2 %   0.1     0.1 %
                             

Center gross profit

  $ 60.1     25.0 % $ 62.7     25.8 % $ 2.6     4.3 %
                             

        Revenue Analysis    

        Total revenues decreased approximately $47.4 million in 2010. Total revenues for the 2,320 centers opened prior to January 1, 2009 and still open as of December 31, 2010 decreased $4 million, from $584.3 million in 2009 to $580.3 million in 2010. Total revenues for the 32 centers opened after January 1, 2009 and still open as of December 31, 2010 increased $2 million, from $0.3 million in 2009 to $2.3 million in 2010. Total revenues for the remaining 479 centers that closed represented a decrease of approximately $45.4 million for 2010 compared to 2009.

        Center Expense Analysis    

        Salaries and related payroll costs.    The decrease in salaries and related payroll costs in 2010 was due primarily to a reduction in the number of centers open during the year ended December 31, 2010 as compared to the same period in 2009. We averaged approximately 1.94 and 2.00 full-time equivalent field employees, including district directors, per center during 2009 and 2010, respectively.

        Provision for doubtful accounts.    The provision for doubtful accounts as a percentage of total revenues for the year ended December 31, 2010 was 17.4%, compared to 19.2% for the same period in 2009. Loss reserves were lower during the year ended December 31, 2010 compared to the same period in 2009 due primarily to a reduction in the write-off rate, partially offset by reduced sales of previously written-off receivables. We sold approximately $0.7 million of previously written-off receivables during 2010 compared with $3.4 million in 2009.

        Occupancy costs and center depreciation expense.    The decrease in occupancy costs and center depreciation expense in 2010 was due primarily to a decrease in the average number of centers operating throughout 2010 as compared to 2009. In addition, depreciation continues to decrease as centers age and property and equipment become fully depreciated.

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        Advertising expense.    Advertising expense decreased in 2010 compared to 2009 due primarily to a decrease in our geographic footprint and the number of centers as compared to 2009.

        Other center expenses.    The decrease in other center expenses in 2010 was due primarily to a decrease in the number of centers opened as compared to 2009.

        Corporate and Other Expense (Income) Analysis    

        General and administrative expenses.    The increase in general and administrative expenses in 2010 was due primarily to:

    higher legal fees, net of insurance reimbursements, of approximately $2.8 million;

    an increase in salaries and expenses related to personnel of approximately $1.8 million;

    an increase in consulting expenses of approximately $0.6 million; and

    an increase in employee relocation expenses of approximately $0.5.

        Legal settlements.    The amounts reflected as legal settlements relate to the charges during the year ended December 31, 2010 of approximately $18.6 million, net of insurance reimbursements. The primary reason for the increase is due to the settlement of Kucan et al. v. Advance America, Cash Advance Centers of North Carolina, Inc. et al.

        Interest expense.    The decrease in interest expense for the year ended December 31, 2010, as compared to 2009 was due primarily to a decrease in the average outstanding balance of variable interest debt.

        (Gain)/Loss on disposal of property and equipment.    The unfavorable change in this item for the year ended December 31, 2010 compared to 2009 was primarily due to the closing and consolidation of centers in 2010.

        Loss on impairment of assets.    Loss on impairment of assets in the year ended December 31, 2010 and 2009 represents the write-down of the undepreciated costs of certain fixed assets in our centers identified for closure.

        Income tax expense.    The decrease in income tax expense for the year ended December 31, 2010 as compared to 2009 was primarily due to lower pre-tax profits, primarily as a result of legal settlements, recognized in the current year. Additionally, permanent non-deductible items remained stable for the year, but when applied to lower pre-tax income, resulted in an increase to the effective income tax rate.

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Liquidity and Capital Resources

        The following table presents a summary of cash flows for the years ended December 31, 2009, 2010, and 2011 (in thousands):

 
   
   
   
  2010 vs. 2009
Variance
  2011 vs. 2010
Variance
 
 
  2009   2010   2011   Dollars   %   Dollars   %  

Cash flows provided by (used in):

                                           

Operating activities

  $ 179,251   $ 134,110   $ 181,741   $ (45,141 )   (25.2 )% $ 47,631     35.5 %

Investing activities

    (93,001 )   (99,333 )   (154,817 )   (6,332 )   (6.8 )%   (55,484 )   (55.9 )%

Financing activities

    (64,048 )   (45,836 )   (18,415 )   18,212     28.4 %   27,421     59.8 %

Effect of exchange rate changes on cash and cash equivalents

    (30 )   (182 )   (165 )   (152 )   (506.7 )%   17     9.3 %
                                   

Net increase (decrease) in cash and cash equivalents

    22,172     (11,241 )   8,344     (33,413 )   (150.7 )%   19,585     174.2 %

Cash and cash equivalents, beginning of period

    16,017     38,189     26,948     22,172     138.4 %   (11,241 )   (29.4 )%
                                   

Cash and cash equivalents, end of period

  $ 38,189   $ 26,948   $ 35,292   $ (11,241 )   (29.4 )% $ 8,344     31.0 %
                                   

        Our principal sources of cash are from operations and from borrowings under our credit facility. See "Certain Contractual Cash Commitments—Long-Term Debt Obligations" in this section for a detailed description of our credit facility. We anticipate that our primary uses of cash will be to provide working capital, finance capital expenditures, meet debt service requirements, fund advances, finance center openings, fund acquisitions, and pay dividends on our common stock.

        We borrow under our $300 million credit facility to fund our advances and to meet our other liquidity needs. Our day-to-day balances under our credit facility, as well as our cash balances, vary because of seasonal and day-to-day requirements resulting from making and collecting advances. For example, if a month ends on a Friday (a typical payday), our borrowings and our cash balances will be high compared to a month that does not end on a Friday. This is because a substantial portion of the advances will be repaid in cash on that day but sufficient time will not yet have passed for the cash to reduce the outstanding borrowings under our credit facility. Our borrowings under our credit facility will also increase as the demand for advances increases during our peak periods such as the back-to-school and holiday seasons. Conversely, our borrowings typically decrease during the tax refund season when cash receipts from customers peak or the customer demand for new advances decreases. Advances and fees receivable, net increased approximately $41.4 million, or 20.2%, to $246.6 million at December 31, 2011, compared to $205.2 million at December 31, 2010.

        During the years ended December 31, 2010 and 2011, we repurchased 64,594 and 156,604 shares, respectively, of our common stock at a cost of $334,234 and $925,513, respectively. These shares were surrendered by employees to satisfy their tax obligations with respect to the vesting of restricted stock awarded pursuant to our 2004 Omnibus Stock Plan.

        Although our credit facility places restrictions on our capital expenditures and acquisitions, we believe that these restrictions do not currently prohibit us from pursuing our strategy or limit our current level of operations. Cash that is restricted due to certain states' regulatory liquidity requirements is not included in cash and cash equivalents. Instead, the restricted cash is shown on our consolidated balance sheet as a non-current asset under the line item "Restricted cash". Historically, these restrictions have not had an impact on our ability to meet our liquidity needs for operations.

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However, our ability to make dividends to our stockholders and repurchases of our common stock has been, and in the future may be restricted under our credit facility.

    Cash Flows from Operating Activities

        Net cash provided by operating activities in 2011 as compared to 2010 increased approximately 35.5% to $181.7 million. Significant net income growth is the primary driver for the increase.

        Net cash provided by operating activities in 2010 as compared to 2009 decreased approximately 25.2% to $134.1 million. The decrease in operating cash flows was attributable to a decline in earnings and the timing of income tax payments.

    Cash Flows from Investing Activities

        Net cash used in investing activities in 2011 as compared to 2010 increased approximately 55.9% to $154.8 million. The increase was largely attributable to the Company's $44.8 million (net of cash acquired) Valued Services Acquisition, as well as, increased advances and fees receivable associated with higher revenues.

        Net cash used in investing activities in 2010 as compared to 2009 increased approximately 6.8% to $99.3 million. The increase was primarily related to increases in advances receivable of approximately $2.6 million, the purchase of customer lists and relationships of approximately $2.4 million, and property and equipment purchases of approximately $1.3 million.

    Cash Flows from Financing Activities

        Net cash used in financing activities in 2011 as compared to 2010 decreased 59.8% to $18.4 million. Despite strong cash flows from operations, the Company's increase in investing activities reduced amounts available to pay off indebtedness. Dividend payments were approximately $15.7 million and $15.4 million in 2011 and 2010, respectively.

        Net cash used in financing activities in 2010 as compared to 2009 decreased 28.4% to $45.8 million. During the year ended December 31, 2010, net payments on indebtedness, including the revolving credit facility, decreased by approximately $18.7 million to $30 million. The reduction in net payments on indebtedness was attributable to lower cash flows from operations and increased cash flows used in investing activities. Dividend payments were approximately $15.4 million and $15.3 million in 2010 and 2009, respectively.

    Non-GAAP Financial Information

        Our management places emphasis on earnings before interest expense, income-based taxes, depreciation, and amortization ("EBITDA"). EBITDA, when viewed with our GAAP results, provides useful information about operating performance and period-over-period growth. Additionally, management believes that EBITDA is commonly used by investors to assess a company's leverage capacity, liquidity, and financial performance. EBITDA, a non-GAAP measure, should not be considered as an alternative to net income or any other liquidity measure derived in accordance with GAAP. Our presentation of EBITDA should not be construed to imply that our future results will be unaffected by unusual or nonrecurring items.

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        The following table summarizes our EBITDA margin for the year ended December 31, 2010 and 2011 (in thousands):

 
  Year Ended
December 31,
 
 
  2010   2011  

Total revenue

  $ 600,233   $ 625,856  

Earnings before interest, taxes, depreciation, and amortization

    85,315     123,373  
           

EBITDA as a percent of revenue

    14.2 %   19.7 %
           

    Reconciliation of EBITDA to Net Income:

 
  Year Ended
December 31,
 
 
  2010   2011  

Net income

  $ 35,763   $ 67,623  

Adjustments:

             

Income taxes

    30,048     37,717  

Depreciation and amortization

    14,720     13,515  

Interest expense, net

    4,784     4,518  
           

Earnings before interest, taxes, depreciation, and amortization

  $ 85,315   $ 123,373  
           

Capital Expenditures

        For the years ended December 31, 2009, 2010, and 2011, we incurred $4.8 million, $6.1 million, and $9.1 million, respectively, on capital expenditures. Capital expenditures included expenditures for new centers opened, center remodels, and computer equipment replacements in our centers and at our corporate headquarters.

Off-Balance Sheet Arrangement with Third-Party Lender

        In Texas, where we operate as a CAB, we offer a fee-based credit services package to assist customers in trying to obtain an extension of consumer credit through a third-party lender. Under the terms of our agreement with this lender, we process customer applications and are contractually obligated to reimburse the lender for the full amount of the loans and certain related fees that are not collected from the customers. As of December 31, 2010 and 2011, the third-party lender's outstanding advances and interest receivable (which were not recorded on our balance sheet) totaled approximately $22.8 million and $21.7 million, respectively, which is the amount we would be obligated to pay the third-party lender if these amounts were to become uncollectible. Additionally, if these advances were to become uncollectible, we would also be required to pay the third-party lender all related NSF fees and late fees on these advances.

        Because of our economic exposure for losses related to the third-party lender's advances and interest receivable, we have established an accrual for third-party lender losses to reflect our estimated probable losses related to uncollectible third-party lender advances. The accrual for third-party lender losses that was reported on our balance sheet at December 31, 2010 and 2011 was approximately $5.4 million and $5.1 million, respectively, and was established on a basis similar to the allowance for doubtful accounts. If actual losses on the third-party lender's advances are materially greater than our accrual for third-party lender losses, our business, results of operations, and financial condition could be adversely affected. See "Item 8. Financial Statements and Supplementary Data—Note 18. Transactions with Variable Interest Entities."

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Certain Contractual Cash Commitments

        Our principal future contractual obligations and commitments as of December 31, 2011, including periodic interest payments, included the following (in thousands):

 
   
  Payment due by December 31,  
Contractual Cash Obligations
  Total   2012   2013   2014   2015   2016   2017 and
thereafter
 

Long-term debt obligations:

                                           

Credit facility

  $ 113,193   $ 12,000   $ 12,000   $ 12,000   $ 12,000   $ 65,193   $  

Mortgage payable

    3,600     552     594     638     687     739     390  

Interest payable on long-term debt obligations

    782     245     203     158     110     58     8  

Operating lease obligations(1)

    107,206     53,426     33,979     14,996     3,199     1,184     422  

Purchase obligations

    9,853     8,496     500     313     272     272      
                               

Total

  $ 234,634   $ 74,719   $ 47,276   $ 28,105   $ 16,268   $ 67,446   $ 820  
                               

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

    Long-Term Debt Obligations

        In December 2011, we entered into a new Credit Agreement (the "New Credit Agreement"), with a syndicate of banks. The New Credit Agreement replaces the Company's existing Amended and Restated Credit Agreement dated March 24, 2008 (the "Prior Credit Agreement"). The New Credit Agreement provides us with a $200 million revolving line of credit, including the ability to issue up to $25 million in letters of credit, and a $100 million term loan. The New Credit Agreement may be amended to increase the revolving line of credit and/or term loan by an additional $100 million upon receipt of sufficient commitments from existing or new lenders. Any portion of the revolving line of credit that is repaid may be borrowed again subject to any limitations based on financial covenants. We are required to make principal payments on the term loan in an amount of $1 million per month commencing with the calendar month ending January 31, 2012. Both the revolving line of credit and the term loan mature on December 5, 2016.

        As of December 31, 2011, we had approximately $13.2 million outstanding on the revolving portion of our credit facility and approximately $6.7 million of commitments under outstanding letters of credit, leaving approximately $180.1 million available for future borrowings under the revolving line of credit, subject to additional limitations based on certain financial covenants. As of December 31, 2011, the senior leverage covenant restricted that additional availability to approximately $152.1 million. As of December 31, 2011, the principal amount of the term loan outstanding was $100 million.

        In general, our borrowings under our New Credit Agreement bear interest, at our option, at a base rate plus an applicable margin or a LIBOR-based rate plus an applicable margin. The base rate equals the greater of: (i) the prime rate set by Bank of America (ii) the sum of the federal funds rate plus 0.50%; and (iii) the Eurodollar rate plus 1%. The base rate applicable margin ranges from 1% to 1.75% based upon our total leverage ratio. The LIBOR-based applicable margin ranges from 2% to 2.75% based upon our total leverage ratio. As of December 31, 2011, the applicable margin for the prime-based rate was 1.25% and the applicable margin for the LIBOR-based rate was 2.25%.

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        The applicable rate is chosen when we request a draw down or a renewal of an outstanding loan under the New Credit Agreement and is based on the forecasted working capital requirements and the required notice period for each type of borrowing. LIBOR-based rates can be selected for one-, two-, three-, or six-month terms. In the case of a base rate loan, we must notify the bank on the requested date of any required borrowing and in the case of a LIBOR-based loan, we must notify the bank three business days prior to the date of the requested borrowing. Base rate loans are variable, and the rates on those loans are changed whenever the underlying rate changes. LIBOR-based loans bear interest for the term of the loan at the rate set at the time of borrowing for that loan.

        Our obligations under the New Credit Agreement are guaranteed by certain domestic subsidiaries. Our borrowings under the New Credit Agreement are collateralized by substantially all of our assets and the assets of certain subsidiaries. In addition, our borrowings under the New Credit Agreement are secured by a pledge of all of the capital stock, or similar equity interests, of certain domestic subsidiaries and 65% of the voting capital stock, or similar equity interests, of certain foreign subsidiaries. Our New Credit Agreement contains various financial covenants that require, among other things, the maintenance of minimum tangible net worth, maximum leverage and senior leverage, minimum fixed charge coverage and maximum charge-off ratios. The maximum leverage allowed is three and one half times trailing twelve month EBITDA, as defined in the New Credit Agreement. The maximum senior leverage allowed under the credit facility is two times trailing twelve month EBITDA as defined in the credit agreement. Our trailing twelve month EBITDA, as defined in the New Credit Agreement, and including pro forma adjustments for acquisitions, as of December 31, 2011 was approximately $137.8 million. The New Credit Agreement amends the definition of EBITDA under the Prior Credit Agreement to include the addition of non-cash charges, such as goodwill impairment, deferred financing charges, losses associated with the disposal of fixed assets, and the subtraction of non-cash gains on the disposal of fixed assets. The charge-off ratio, as defined in the New Credit Agreement, limits the average of actual charge-offs incurred during each fiscal month to a maximum of 4.50% of the average amount of adjusted transaction receivables outstanding at the end of each fiscal month during the prior twelve consecutive months. At December 31, 2011, our charge off ratio was 3.2% and was calculated based on average monthly charge-offs of $9.3 million and average transaction receivables of $287.1 million, and we had charge-offs of $34.6 million during the three months ended December 31, 2011. We could have charged off an additional $43.3 million for the three months ended December 31, 2011 within the limits of this covenant. The New Credit Agreement contains 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 in mergers and consolidations, (iv) engage in sales, transfers, and other dispositions of property and assets (including sale-leaseback transactions), (v) make loans, acquisitions, joint ventures, and other investments, (vi) make dividends and other distributions to, and redemptions and repurchases from, equity holders, (vii) prepay, redeem, or repurchase certain debt, (viii) make changes in the nature of our business, (ix) amend our organizational documents, or amend or otherwise modify certain of our debt documents, (x) change our fiscal quarter and fiscal year ends, (xi) enter into transactions with our affiliates, and (xii) issue certain equity interests. The New Credit Agreement contains customary events of default, including events of default resulting from (i) our failure to pay principal when due or interest, fees, or other amounts after three or more business days, (ii) covenant defaults, (iii) our material breach of any representation or warranty, (iv) cross defaults to any other indebtedness in excess of $5 million in the aggregate, (v) bankruptcy, insolvency, or other similar proceedings, (vi) our inability to pay debts, (vii) monetary judgment defaults in excess of $5 million in the aggregate, (viii) customary ERISA defaults, (ix) actual or asserted invalidity of any material provision of the loan documentation or impairment of a material portion of the collateral, and (x) a change of control. A breach of a covenant or an event of default could cause all amounts outstanding under the credit facility to become immediately due and payable. We were in compliance with all financial covenants at December 31, 2011. See "Liquidity and Capital Resources" in this section for a description of how we utilize the credit facility to meet our liquidity needs.

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        We borrow under the New Credit Agreement to fund our advances and our other liquidity needs. Our day-to-day balances under our revolving line of credit, as well as our cash balances, vary because of seasonal and day-to-day requirements resulting from making and collecting advances. For example, if a month ends on a Friday (a typical payday), our borrowings and our cash balances will be high compared to a month that does not end on a Friday. This is because a substantial portion of the advances will be repaid in cash on that day but sufficient time will not yet have passed for the cash to reduce the outstanding borrowings under our line of credit. Our borrowings under our revolving line of credit will also increase as the demand for advances increases during our peak periods such as the back-to-school and holiday seasons. Conversely, our borrowings typically decrease during the tax refund season when cash receipts from customers peak or the customer demand for new advances decreases.

        United Kingdom Overdraft Facility.    In October 2008, our United Kingdom operations entered into an overdraft facility. The maximum available borrowings under the facility were GBP 400,000, which was equivalent to approximately $637,000 at December 31, 2009. The interest rate on any borrowings under this facility was the Bank of England base rate plus 1.75%. This facility expired and was not renewed during the fourth quarter of 2009.

        Mortgage Payable.    Our corporate headquarters building and related land are subject to a mortgage, the principal amount of which was approximately $4.1 million and $3.6 million at December 31, 2010 and 2011, respectively. The mortgage is payable to an insurance company and is collateralized by our corporate headquarters building and related land. The mortgage is payable in monthly installments of approximately $66,400, including principal and interest, and bears interest at a fixed rate of 7.30% over its 15 year term. The mortgage matures on June 10, 2017 and includes a substantial prepayment penalty. The carrying amount of our corporate headquarters (land, land improvements, and building) was approximately $4.4 million and $4.2 million at December 31, 2010 and 2011, respectively.

    Operating Lease Obligations

        We lease all of our centers from third-party lessors under operating leases. These leases typically have initial terms of three to five years and may contain provisions for renewal options, additional rental charges based on revenue, and payment of real estate taxes and common area charges. In addition, we lease aircraft hangar space, warehouse space, and certain security and office equipment. The lessor under the aircraft hangar space lease is a company controlled by or affiliated with Mr. George D. Johnson, Jr., our former Chairman and a significant stockholder. See "Item 8. Financial Statements and Supplementary Data—Note 15. Related Party Transactions."

    Purchase Obligations

        We enter into agreements with vendors to purchase furniture, fixtures, and other items used to open new centers and for marketing agreements. These purchase commitments typically extend for a period of two to three months after the opening of a new center, up to one year for marketing agreements, and three to four years for telephone and internet service agreements. As of December 31, 2011, our purchase obligations totaled approximately $9.9 million.

Impact of Inflation

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

Impact of New Accounting Pronouncements

        See "Item 8. Financial Statements and Supplementary Data. Note 1. Description of Business and Significant Accounting Policies." of the Consolidated Financial Statements for the impact of new accounting pronouncements.

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FORWARD-LOOKING STATEMENTS

        This Annual Report on Form 10-K includes forward-looking statements. All statements other than historical information or statements of current condition contained in this Annual Report, including statements regarding our future financial performance, our business strategy, and expected developments in our industry, are forward-looking statements. The words "expect," "intend," "plan," "believe," "project," "anticipate," "may," "will," "should," "would," "could," "estimate," "continue," and similar expressions are intended to identify forward-looking statements.

        We have based these forward-looking statements on management's current views and expectations. Although we believe that the current views and expectations reflected in these forward-looking statements are reasonable, those views and expectations, and the related statements, 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 factors could cause the actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by the forward-looking statements. These risks, uncertainties, and factors include, but are not limited to:

    our ability to satisfy the closing conditions and consummate our proposed acquisition by Grupo Elektra;

    the extent to which class action lawsuits filed against us with respect to our acquisition by Grupo Elektra interfere with our ability to consummate that transaction;

    the extent to which regulations written and implemented by the newly created Federal Bureau of Consumer Financial Protection, and other federal, state, local, and foreign governmental regulation of cash advance services, consumer lending, and related financial products and services limit or prohibit the operation of our business;

    the extent to which a federal, state law that imposes a cap on our fees and interest or prohibits or severely restricts cash advance services would likely eliminate our ability to continue our current operations;

    our ability to prevent unauthorized disclosures of sensitive or confidential customer data, which could result in costly litigation, financial penalties and loss of customers;

    current and future litigation and regulatory proceedings against us and our officers and directors;

    our ability to find growth opportunities and to identify and successfully implement new product and service offerings in a manner that will reduce our dependence on cash advance services and on revenues from certain key states;

    the effect of the current adverse economic conditions on our revenues and loss rates and our ability to continue to generate sufficient cash flow to satisfy our liquidity needs and future cash dividends;

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

    the availability of adequate financing;

    the extent to which media reports may have an adverse effect on public perception of the cash advance industry as being predatory or abusive;

    the loss of our key executives, particularly our Chief Executive Officer and Chief Financial Officer;

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

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    the possible impairment of goodwill;

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

    risks related to acquisitions, particularly the failure to integrate businesses and assets that we have acquired or may acquire in the future;

    our relationship with the banks that are party to our credit facility and that provide certain services that are needed to operate our business;

    theft and employee errors; and

    the other matters set forth under "Item 1A. Risk Factors" above.

        We expressly disclaim any obligation to update or revise any of these forward-looking statements, whether because of future events, new information, a change in our views or expectations, or otherwise. We make no prediction or statement about the performance of our shares of common stock.

        You are cautioned not to rely unduly on any forward-looking statements. These risks and uncertainties are discussed in more detail elsewhere in this Annual Report, including under "Item 1A. Risk Factors," "Item 1. Business," and this Item 7.

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

        We have no market-risk-sensitive instruments entered into for trading purposes, as defined by GAAP.

    Interest Rate Risk

        We are exposed to interest rate risk on our revolving credit facility. Our variable interest expense is sensitive to changes in the general level of interest rates. We may from time to time enter into interest rate swaps, collars, or similar instruments with the objective of reducing our volatility in borrowing costs. We do not use derivative financial instruments for speculative or trading purposes. We had no derivative financial instruments outstanding as of December 31, 2010 and 2011. The weighted average interest rate on our $112 million of variable interest debt as of December 31, 2010 was approximately 3.36%. The weighted average interest rate on our $113.2 million of variable interest debt as of December 31, 2011 was approximately 2.59%.

        We had total interest expense of $6.2 million, $4.9 million, and $4.6 million for the years ended December 31, 2009, 2010, and 2011, respectively. The estimated change in interest expense from a hypothetical 200 basis-point change in applicable variable interest rates would have been approximately $3 million in 2009, $2 million in 2010, and $1.8 million in 2011.

    Foreign Currency Exchange Rate Risk

        The expansion of our operations to the United Kingdom and Canada in 2007 has exposed us to shifts in currency valuations. We may, from time to time, elect to purchase financial instruments as hedges against foreign exchange rate risks with the objective of protecting our results of operations in the United Kingdom and Canada against foreign currency fluctuations. We had no such financial instruments outstanding as of December 31, 2010 and 2011.

        As currency exchange rates change, translation of the financial results of our United Kingdom and Canadian operations into United States dollars will be impacted. Changes in exchange rates have resulted in cumulative translation adjustments decreasing our net assets at December 31, 2010 and 2011 by approximately $2.2 million and $2.4 million, respectively. These cumulative translation adjustments are included in accumulated other comprehensive loss as a separate component of stockholders' equity. Due to the immateriality of our operations in the United Kingdom and Canada, a change in foreign currency exchange rates is not expected to have a significant impact on our consolidated financial position, results of operations or cash flows.

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ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Index to Consolidated Financial Statements

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Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of
Advance America, Cash Advance Centers, Inc.

        In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, of stockholders' equity and of cash flows present fairly, in all material respects, the financial position of Advance America, Cash Advance Centers, Inc. and its subsidiaries at December 31, 2011 and December 31, 2010, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2011 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2011, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these financial statements and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

        A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

        Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

PricewaterhouseCoopers LLP
Charlotte, North Carolina
March 15, 2012

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Advance America, Cash Advance Centers, Inc.

Consolidated Balance Sheets

December 31, 2010 and December 31, 2011

(in thousands, except per share data)

 
  2010   2011  

Assets

             

Current assets

             

Cash and cash equivalents

  $ 26,948   $ 35,292  

Advances and fees receivable, net

    205,207     246,560  

Deferred income taxes

    18,615     22,527  

Other current assets

    19,869     14,397  
           

Total current assets

    270,639     318,776  

Restricted cash

    3,752     2,774  

Property and equipment, net

    25,054     21,712  

Goodwill

    126,914     132,416  

Customer lists and relationships, net

    2,282     5,980  

Other assets

    3,011     4,266  
           

Total assets

  $ 431,652   $ 485,924  
           

Liabilities and Stockholders' Equity

             

Current liabilities

             

Accounts payable

  $ 12,554   $ 15,771  

Accrued liabilities

    37,939     29,653  

Income taxes payable

    42     5,165  

Accrual for third-party lender losses

    5,420     5,092  

Current portion of long-term debt

    767     12,552  
           

Total current liabilities

    56,722     68,233  

Credit facility

    111,930     101,193  

Long-term debt

    3,600     3,048  

Deferred income taxes

    23,148     24,678  

Deferred revenue

    890      

Other liabilities

    321     143  
           

Total liabilities

    196,611     197,295  
           

Commitments and contingencies (Note 13)

             

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 62,148 and 62,435 outstanding as of December 31, 2010 and 2011, respectively

    968     968  

Paid in capital

    290,753     288,647  

Retained earnings

    203,001     255,106  

Accumulated other comprehensive loss

    (1,885 )   (1,547 )

Common stock in treasury (34,673 and 34,386 shares at cost at December 31, 2010 and 2011, respectively)

    (257,796 )   (254,545 )
           

Total stockholders' equity

    235,041     288,629  
           

Total liabilities and stockholders' equity

  $ 431,652   $ 485,924  
           

   

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

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Advance America, Cash Advance Centers, Inc.

Consolidated Statements of Income

Years Ended December 31, 2009, 2010, and 2011

(in thousands, except per share data)

 
  2009   2010   2011  

Total revenues

  $ 647,676   $ 600,233   $ 625,856  
               

Center Expenses:

                   

Salaries and related payroll costs

    185,599     179,617     182,465  

Provision for doubtful accounts

    124,575     104,228     107,911  

Occupancy costs

    94,370     87,457     82,790  

Center depreciation expense

    13,174     9,806     8,147  

Advertising expense

    22,232     20,898     21,371  

Other center expenses

    45,606     43,124     41,964  
               

Total center expenses

    485,556     445,130     444,648  
               

Center gross profit

    162,120     155,103     181,208  

Corporate and Other Expenses (Income):

                   

General and administrative expenses

    55,363     61,892     61,108  

General and administrative expenses with related parties

    1,163     635     209  

Legal settlements

    6,427     18,608     23  

Corporate depreciation and amortization expense

    2,714     2,306     2,999  

Interest expense

    6,241     4,858     4,561  

Interest income

    (238 )   (74 )   (43 )

(Gain)/loss on disposal of property and equipment

    (50 )   413     159  

Loss on impairment of assets

    2,987     654     6,852  
               

Income before income taxes

    87,513     65,811     105,340  

Income tax expense

    33,310     30,048     37,717  
               

Net income

  $ 54,203   $ 35,763   $ 67,623  
               

Net income per common share:

                   

Basic

  $ 0.89   $ 0.59   $ 1.10  

Diluted

  $ 0.88   $ 0.58   $ 1.09  

Dividends declared per common share

  $ 0.25   $ 0.25   $ 0.25  

Weighted average number of shares outstanding:

                   

Basic

    60,868     61,054     61,457  

Diluted

    61,667     61,440     61,875  

   

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

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Advance America, Cash Advance Centers, Inc.

Consolidated Statements of Stockholders' Equity

Years Ended December 31, 2009, 2010, and 2011

(in thousands, except per share data)

 
  Common Stock    
   
   
  Common Stock In
Treasury
   
 
 
   
   
  Accumulated
Other
Comprehensive
Loss
   
 
 
   
  Par
Value
  Paid In
Capital
  Retained
Earnings
   
 
 
  Shares   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

                54,203                 54,203  

Foreign currency translation

                    651             651  
                                   

Total comprehensive income

                                              54,854  

Dividends paid ($0.44 per share)

                (15,296 )               (15,296 )

Dividends payable

                (103 )               (103 )

Purchases of treasury stock

                        (17 )   (76 )   (76 )

Issuance of restricted stock

                        570          

Forfeitures of restricted stock

                        (30 )        

Vesting of restricted stock issued from treasury stock

            (433 )               433      

Amortization of restricted stock

            759                     759  

Stock option expense

            1,209                     1,209  

Issuance of common stock to director in lieu of cash

            (24 )           4     31     7  
                                   

Balances, December 31, 2009

    96,821     968     290,146     182,765     (1,934 )   (35,207 )   (259,332 )   212,613  

Comprehensive income:

                                                 

Net income

                35,763                 35,763  

Foreign currency translation

                    (298 )           (298 )

Other comprehensive income

                    347             347  
                                   

Total comprehensive income

                                              35,812  

Dividends paid ($0.25 per share)

                (15,392 )               (15,392 )

Dividends payable

                (135 )               (135 )

Purchases of treasury stock

                        (64 )   (465 )   (465 )

Issuance of restricted stock

                        595          

Exercise of stock options

            (238 )           45     238      

Forfeitures of restricted stock

                        (42 )        

Vesting of restricted stock issued from treasury stock

            (1,763 )               1,763      

Amortization of restricted stock

            1,633                     1,633  

Stock option expense

            975                     975  

Issuance of common stock to director in lieu of cash

                                 
                                   

Balances, December 31, 2010

    96,821     968     290,753     203,001     (1,885 )   (34,673 )   (257,796 )   235,041  

Comprehensive income:

                                                 

Net income

                67,623                 67,623  

Foreign currency translation

                    (150 )           (150 )

Other comprehensive income

                    488             488  
                                   

Total comprehensive income

                                              67,961  

Dividends declared ($0.25 per share)

                (15,597 )               (15,597 )

Dividends forfeited

                79                 79  

Purchases of treasury stock

                        (156 )   (1,224 )   (1,224 )