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TABLE OF CONTENTS
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

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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, 2010

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: 864-342-5600

         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 o    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, 2010, 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 $222,837,687.

         At March 2, 2011, there were 62,292,117 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 to be held on May 17, 2011.


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ADVANCE AMERICA, CASH ADVANCE CENTERS, INC.
Form 10-K
For the year ended December 31, 2010

PART I

   

Item 1.

 

Business

  4

Item 1A.

 

Risk Factors

  19

Item 1B.

 

Unresolved Staff Comments

  31

Item 2.

 

Properties

  31

Item 3.

 

Legal Proceedings

  32

Item 4.

 

(Removed and Reserved)

  37

PART II

   

Item 5.

 

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

  38

Item 6.

 

Selected Financial Data

  40

Item 7.

 

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

  44

Item 7A.

 

Quantitative and Qualitative Disclosures About Market Risk

  76

Item 8.

 

Financial Statements and Supplementary Data

  77

Item 9.

 

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

  120

Item 9A.

 

Controls and Procedures

  120

Item 9B.

 

Other Information

  121

PART III

   

Item 10.

 

Directors, Executive Officers and Corporate Governance

  122

Item 11.

 

Executive Compensation

  123

Item 12.

 

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

  123

Item 13.

 

Certain Relationships and Related Transactions, and Director Independence

  123

Item 14.

 

Principal Accountant Fees and Services

  123

PART IV

   

Item 15.

 

Exhibits and Financial Statement Schedules

  123

SIGNATURES

 
128

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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.

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, 2010, we operated 2,313 centers in 30 states in the United States, 21 centers in the United Kingdom, and 18 centers in Canada, and had 62 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 and do not provide pawn lending, title lending, or similar services.

        We offer various types of short-term credit products and services depending on applicable legislative and regulatory restrictions. For example, in Texas, we offer a fee-based credit services package to assist customers in trying to improve their credit and in obtaining an extension of consumer credit through a third-party lender. We offer installment loans directly to customers in Illinois and Colorado, 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 Thrift Supervision ("OTS"). 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.

        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 2000  

Average age (years)

    47     36  

Median household income

  $ 48,964   $ 41,994  

Percentage homeowners(2)

    61 %   66 %

Percentage with high school degrees

    90 %   81 %

(1)
Based on 200,000 of our randomly selected customers across all states that performed a transaction between January 1, 2010 and November 30, 2010.

(2)
Percentage homeowners include homeowners and probable homeowners.

        Our goal is to attract customers by offering straightforward, rapid access to short-term funding, while providing high-quality, professional customer service. We believe that our products and services represent a competitive source of liquidity to the customer relative to other alternatives, which typically include 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, 2010, we operated 2,231 centers under the "Advance America" brand and 121 centers under the "National Cash Advance" brand.

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        The following table presents key operating data for our business:

 
  Year Ended December 31,  
 
  2008   2009   2010  

Number of centers open at end of period

    2,797     2,587     2,352  

Number of customers served—all credit products (thousands)

    1,419     1,316     1,310  

Number of cash advances originated (thousands)(1)

    11,762     10,860     10,027  

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

  $ 4,296,493   $ 3,922,195   $ 3,710,133  

Average amount of each cash advance originated(1)

  $ 366   $ 361   $ 370  

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

  $ 55   $ 53   $ 55  

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

    16.8     17.6     18.0  

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

    10     24     12  

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

  $ 6,946   $ 10,945   $ 3,753  

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

  $ 672   $ 410   $ 251  

Number of installment loans originated (thousands)(4)

    32     35     61  

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

  $ 14,841   $ 15,992   $ 27,375  

Average principal amount of each installment loan originated(4)

  $ 462   $ 453   $ 446  

(1)
Excludes lines of credit and installment loans.

(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 2008 and 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.

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, the number of centers in the cash advance services industry has largely stopped growing in

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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 2,313 centers located in 30 states as of December 31, 2010, 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 100 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 profitably within a balanced regulatory framework. Cash advance legislation we supported was adopted by two states in 2010 and 2009, and five states in 2008. 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.

        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 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% say they will consider Advance America in the future.

        Geographical Diversification of Our Centers.    With centers located in 30 states as of December 31, 2010, we believe we have developed a significant presence throughout the United States. We also operate centers in Canada and the United Kingdom. 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, 2010, Florida, California, and Texas, which accounted for approximately 12.6%, 12.4%, and 11.8%, respectively, of our total revenues, were the only states that accounted for more than 10% of our total revenues.

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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 five centers in 2009 and 19 centers in 2010. We currently expect to open approximately 35 centers during 2011. We may also consider 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 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 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, 2010, 34 states had specific laws that permitted cash advances or related services, 30 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 will continue to be on cash advance services, we also 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 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. We expect this distribution channel to attract new customers.

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.

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        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") in Texas, where we offer a fee-based credit services package to assist customers in trying to improve their credit and in obtaining 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 annual participation fees, fees for returned checks, late fees, and other fees as permitted by applicable law. Currently, none of the cash advance services we offer include annual participation fees. 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, 2010 and 2009, total NSF fees collected were approximately $2.9 million and $3.2 million, respectively, and total late fees collected were approximately $0.9 million and $0.8 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 application online and receiving a cash advance from a third-party lender that 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. In the future, we may consider other criteria in evaluating cash advances. If a third-party lender provides the advance, such as in Texas and online, the applicable third-party lender decides whether to approve the cash advance and establishes all of the underwriting criteria and terms, conditions, and features of the customer agreements.

        After the documents presented by the customer have been copied and reviewed for completeness and accuracy 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 plus charges for applicable fees and/or interest and/or the balance due under the agreement and makes an appointment to return on a specified due date, typically his or her next payday, to repay the cash advance plus the applicable charges. However, in some states, customers are not required to provide us with a personal check or ACH authorization and payment cycles may vary depending upon state law and service type. At the specified due date, the customer is required to make the applicable payment, usually payment in full of the cash advance plus applicable fees and interest. Payment is usually made in person, in cash at the

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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, the customer's check is returned and/or his or her ACH authorization is deemed to be revoked. If the customer does not repay the outstanding amount in full on or before the due date, we will seek to collect from the customer the outstanding amount and any applicable fees, including 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, and bill payment services. Our Advance America branded pre-paid Visa debit card is issued by a bank regulated by the OTS. 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 purchases and subsequent cardholder activity, such as charges for loads, ATM withdrawals, account maintenance/plan charges, and point of sale purchases. In the third and fourth quarters of 2007, we began selling money orders and providing 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 by our centers.

    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. 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. We are currently testing a new customized predictive scoring model that considers other criteria in evaluating first time customers' probability of repaying a cash advance. The model is

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designed to decline customers who are statistically unlikely to repay a cash advance. The full implementation of this model is expected to result in a decrease in cash advances written, a decrease in loan losses, and an overall increase in net revenue. 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 lenders offer 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.

    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.

        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 or third party collection agencies 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.

        In the case of cash advances in the form of lines of credit, if a customer fails to make payment when due in accordance with the terms of their agreement with us, center management may close the

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line of credit, accelerate the maturity date, and take the steps outlined above or work with the customer to bring his or her payments current. If we close the line of credit and accelerate the maturity date, we stop charging interest on the outstanding amount and begin collection efforts as described above.

    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 revolving credit facility to fund our products and services and our other liquidity needs. Our day-to-day balances under our revolving credit facility, as well as our cash balances, vary because of seasonal and day-to-day requirements resulting from making and collecting cash advances. Our borrowings under our revolving 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
  2008   2009   2010  

Alabama

    144     142     139  

Arizona(1)

    53     48      

California

    290     282     278  

Colorado(2)

    68     62     31  

Delaware

    16     16     14  

Florida

    257     241     241  

Idaho

    10     7     6  

Illinois

    80     65     62  

Indiana

    113     100     95  

Iowa

    35     34     34  

Kansas

    59     53     53  

Kentucky

    44     44     44  

Louisiana

    85     84     82  

Michigan

    152     151     153  

Mississippi

    61     61     61  

Missouri

    91     86     83  

Montana(3)

    5     2      

Nebraska

    24     22     20  

Nevada

    14     13     11  

New Hampshire(4)

    24          

North Dakota

    8     6     2  

Ohio(5)

    244     181     174  

Oklahoma

    68     67     67  

Rhode Island

    21     21     20  

South Carolina

    138     140     129  

South Dakota

    12     11     11  

Tennessee

    63     62     61  

Texas

    252     244     244  

Utah

    6     6     3  

Virginia(6)

    151     139     82  

Washington(7)

    102     91     46  

Wisconsin

    67     62     56  

Wyoming

    10     10     11  
               
 

Total United States

    2,767     2,553     2,313  

Canada

    10     13     18  

United Kingdom

    20     21     21  
               
 

Total

    2,797     2,587     2,352  
               

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

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

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

(4)
We closed all of our centers in New Hampshire during 2009.

(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 centers in Washington during 2010.

    Revenues and Long-Lived Assets

        Our domestic and international revenues and long-lived assets for the three years ended December 31, 2008, 2009, and 2010 are as follows (in thousands):

 
  Domestic   International  
 
  2008   2009   2010   2008   2009   2010  

Revenues

  $ 673,567   $ 644,496   $ 593,379   $ 2,869   $ 3,180   $ 6,855  

Long-lived assets

  $ 171,525   $ 155,823   $ 148,819   $ 5,991   $ 7,011   $ 6,158  

    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 in each center, 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 2010, Stephens, Inc. estimated that there were approximately 20,600 outlets (including our own centers) in the United States, down 7.6% from the prior year. Our network of 2,313 centers in the United States as of December 31, 2010 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 550 locations

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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. This includes 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 automated teller machine network than our center network. This also includes 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 drives, voter registration programs, and other events.

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

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, the documentation for which is hosted on a third-party vendor website. Our back-up data tapes are housed

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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 our headquarters' equipment.

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 $1.3 million (0.22% of total revenues) in 2010, $1.7 million (0.27% of total revenues) in 2009, and $2.1 million (0.31% of total revenues) in 2008.

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 1,000 centers and includes centers in more than one state. We currently have three 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 18 to 153 centers organized into three 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 three zones in North America currently include 22 regions and 175 divisions. Within the United Kingdom we have a single zone and two 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 5,839 employees, including approximately 5,398 center employees, 171 divisional directors, 19 regional directors, three state directors, four zone directors, and 244 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

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trademarks of ours on their websites to advertise their financial services. We believe infringements and misappropriations will continue to occur in the future.

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) 342-5600. 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. In July 2010, Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act"), which authorizes the Bureau of Consumer Financial Protection ("BCFP") to regulate a variety of consumer finance transactions. 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.

        Our products and services are subject to a variety of federal laws and regulations, such as the Dodd-Frank Act, 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

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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, and credit services organization state laws, all of which are subject to change and which may impose significant costs or limitations on the way we conduct or expand our business. As of December 31, 2010, we operated in 30 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 Virginia, a 2009 law prompted us to change our cash advance product and to offer an open-ended line of credit product. However, a subsequent Virginia Corporation Commission ruling and additional legislation limited our ability to offer and service the open-ended line of credit product in Virginia. As a result, we discontinued originations of new lines of credit and draws on existing lines of credit and we have consolidated a number of our centers in Virginia. We may determine that further consolidation of centers in Virginia is appropriate if the cash advance product we now offer in Virginia is not sufficiently profitable. In the State of Washington, on January 1, 2010, a new law placed a number of restrictions on our cash

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advance product including limiting the number of cash advances a customer may take to eight in any one year. As a result, we expect our revenues and profits in Washington will be significantly reduced. If we are unable to operate profitably in Washington, we may cease operating in that state. New laws in each of South Carolina, Kentucky, and Wisconsin implement a statewide database to monitor the number and/or dollar amount of advances made to customers. New Colorado legislation permits a multiple installment loan that we expect will significantly lower our revenues and profits in Colorado. Further, legislation permitting cash advances in Arizona expired on July 2, 2010, and as a result, we ceased operating in Arizona. The Mississippi legislature passed legislation during the first quarter of 2011 which, if signed by the governor, would modify certain aspects of our cash advance product in that state and extend the statute's sunset provision through 2016. This legislation would become effective on January 1, 2012. 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 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 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 the interpretations of applicable laws and regulations also may change and negatively affect our business.

        Additionally, state attorneys general and banking regulators are scrutinizing our products and services and taking 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 our industry in the future by other state attorneys general and banking regulators requiring us to suspend or cease operations in such jurisdictions and 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.

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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 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. 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, including statutory warnings and the layout of financial information. 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.

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 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 Business and Industry

    Our industry is regulated under federal law and 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. Additionally, we are subject to 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 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.

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        In July 2010, the United States Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act. This legislation authorizes the creation of a Bureau of Consumer Financial Protection (the "BCFP") 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 BCFP has the authority to examine companies that offer consumer financial protection services, and the exclusive authority to enforce federal consumer financial laws. The BCFP will also have 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 BCFP will impose additional regulations that could affect us, the BCFP may promulgate regulations that would impact 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.

        In addition, our marketing efforts and the representations 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.

    A federal law that imposes a national 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. 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 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 twelve-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 national 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 credit services organization 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. As of December 31, 2010, we operated in 30 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.

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        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 new or modified legislation could have a material adverse impact on our results of operations. For example, in the first quarter of 2010, bills 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 response to legislation in Virginia, we developed an open-ended line of credit product and made changes to our cash advance product. However, a subsequent Virginia Corporation Commission ruling limits our ability to offer the open-ended line of credit product in Virginia effective March 1, 2010. As a result, we have decided to consolidate a number of our centers in Virginia, and the cash advance product we now offer in Virginia may not be as profitable for us as the cash advance product we offered there prior to this ruling. As a result of legislation in New Hampshire that became effective in January 2009, we concluded that operating in that state was no longer economically viable and closed all of our New Hampshire centers in 2009. As a result of new legislation passed in Colorado in 2010, we closed 31 of our 62 centers in that state. In addition, some states, such as Arizona and Mississippi, have sunset provisions in their cash advance laws that require renewal of the laws by state legislatures at periodic intervals. When Arizona's cash advance law was not renewed on June 30, 2010, we closed all of our centers in that state. If no further action is taken, Mississippi's cash advance law will expire in 2012.

        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, in November 2008, a new Ohio law became effective that capped interest rates on cash advances and limited the number of advances a customer may take in any one year. In response to this legislation, we now offer a small loan product that is not as profitable as our former cash advance product, which 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 in particular states. 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 failure to follow 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 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 are scrutinizing cash advances and other alternative financial products and services and taking 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

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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 12. Commitments and Contingencies." The closures in Pennsylvania have had an adverse effect on our results of operations and financial condition. Also, in March 2008, the Attorney General of Arkansas distributed letters to 60 companies operating under the Check Cashers Act. The letter demanded that we cease and desist offering deferred presentment transactions within the State of Arkansas. As a result, we agreed to close all of our centers in Arkansas in October 2008 and the Arkansas Attorney General agreed not to bring suit against us. 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.

        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 our operations in that location. For example, we currently operate at a loss in Canada. Any similar actions or events could have a material adverse effect on our business, prospects, results of operations, and financial condition.

    Unauthorized disclosure of sensitive or confidential customer data could expose us to protracted and costly litigation, 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 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.

    Our foreign operations are subject to additional laws and regulations. Our inability to operate in the United Kingdom or Canada in compliance with applicable laws and regulations could have a material adverse effect on our business, prospects, results of operations, and financial condition.

        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. 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-making, and for consumer protection. The

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United Kingdom also has strict rules regarding the presentation, form, and content of loan agreements, including statutory warnings and the layout of financial information. Our non-compliance with these rules could render a loan agreement unenforceable. Our inability to obtain and maintain the required licenses or to comply with the applicable rules or regulations in the United Kingdom could limit our expansion opportunities and/or could result in a material adverse effect on our business, results of operations, and financial condition.

        In Canada, the Canadian Parliament amended the federal usury law in 2007 to transfer jurisdiction and the development of laws and regulation of our industry to the respective provinces. To date, four 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. Our expansion in Canada may be limited due to this uncertain regulatory landscape. We are currently operating at a loss in Canada in anticipation of expanding operations after regulations are adopted. Further, our inability to comply with new regulations may have a material adverse effect on 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 in connection with their responses to a pending investigation, and defending against any related enforcement proceedings, by the U.S. Securities and Exchange Commission into alleged tipping of material nonpublic information and improper trading in our securities. 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.

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    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 U.S. Office of Thrift Supervision. In 2008, we began offering open-ended lines of credit to customers in Virginia and small loans to customers in Ohio. 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. For example, we modified our product in the State of Washington in response to new legislation effective in 2010.

        We regularly offer new or modified products and services. 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. Due to our lack of experience in offering alternative products and services, 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, nor can we ensure compliance with applicable regulations. Any such noncompliance 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 32 states during the year ended December 31, 2010, and our five largest states (measured by total revenues) accounted for approximately 51% 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 2010, 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,

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regulatory changes occurring in Arizona and Colorado caused us to close or consolidate our centers in these states in the latter half of 2010. 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.

    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 revolving credit facility to fund our liquidity needs, including cash dividends.

        We have an existing revolving credit facility that allows us to borrow up to $270.0 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, 2010, the senior leverage limitation was approximately $188.0 million. Because we typically use substantially all of our available cash generated from our operations to repay borrowings on our revolving credit facility on a current basis, we have limited cash balances and we expect that a substantial portion of our liquidity needs, including any amounts to pay future quarterly cash dividends on our common stock, will be funded primarily from borrowings under our revolving credit facility. While we had approximately $149.5 million of unused borrowings under this facility as of December 31, 2010, the senior leverage covenant restricted our additional availability to $62.4 million. Due to the seasonal nature of our business, our borrowings are historically the lowest during the first calendar

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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.

    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.

    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, 2010 and 2009, we deposited customer checks or presented an Automated Clearing House ("ACH") authorization for approximately 6.5% and 5.9%, respectively, of all the customer checks and ACHs we received and we were unable to collect approximately 64% and 70%, respectively, of these deposited customer checks or presented ACHs. Total charge-offs, net of recoveries, for the years ended December 31, 2010 and 2009 were approximately $108.0 million and $130.4 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 and our net income will decrease.

    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.

        At December 31, 2010, the total of our allowance for doubtful accounts and accrual for third-party lender losses decreased to $53.8 million from $57.6 million at December 31, 2009. 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

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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, 2010 is comprised of goodwill. Under generally accepted accounting principles, goodwill is subject to periodic review and testing 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. 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.

    The expansion of our operations into Canada and the United Kingdom may contribute materially to increased costs and negatively affect our business, prospects, results of operations, and financial condition.

        We have devoted significant management time and financial resources to expanding our operations outside of the United States. Our international operations have increased the complexity of our organization and the administrative, operating, and legal cost of operating our business. Penetrating new markets will likely require additional marketing expenses and incremental start-up costs. We may decide to reduce fees, or even temporarily operate centers at a loss, in order to build brand recognition and establish a foothold in these new markets. For example, in Canada, we have opened 18 centers that are currently not profitable in anticipation of more favorable provincial legislation. Ultimately, the expansion of our international operations may prove to be unprofitable. Additionally, as a foreign business we are subject to local regulations, tariffs, and labor controls to which our domestic businesses are not subject. Our financial results also may be negatively affected by tax rates in the United Kingdom and Canada or as a result of withholding requirements and tax treaties with those countries. Moreover, if political, regulatory or economic conditions deteriorate in the United Kingdom and Canada, our ability to expand and maintain our international operations could be impaired or the costs of doing so could increase, either of which could further erode our business, prospects, results of operations, and financial condition. Ultimately, it remains unclear if we will be able to operate on a profitable basis outside the United States.

    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. As of December 31, 2010, our total debt was approximately $116.3 million, including $8.5 million in outstanding letters of credit issued pursuant to our credit facility, and our stockholders' equity was approximately $235.0 million. The total availability under our current credit facility is $270.0 million, 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

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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 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 revolving credit facility to fund our products and services, 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 request that we close our bank accounts or put 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.

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    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 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 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.

        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 $1.3 million (0.22% of total revenues) in 2010, $1.7 million (0.27% of total revenues) in 2009, and $2.1 million (0.31% of total revenues) in 2008. 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.

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    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;

    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 new 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.

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    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, 2010, the annual turnover among our center managers was approximately 27.6% and among our other center employees was approximately 55.9%. Approximately 28.7% 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 1.1 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 revolving 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 revolving credit facility). Our Board of Directors may at any time modify or revoke our dividend policy.

    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.

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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, 2010.

        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 $4.1 million at December 31, 2010. 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. The carrying amount of our corporate headquarters (land, land improvements, and building) was approximately $4.6 million and $4.4 million at December 31, 2009 and 2010, 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 those 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 or 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 these actions and will, when management believes appropriate in consideration of ongoing litigation expenses and other factors, evaluate reasonable settlement opportunities. The amount of losses and/or the probability of an unfavorable outcome, 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, 2010.

    Brenda McGinnis v. Advance America Servicing of Arkansas, Inc. et al.

        On February 27, 2007, Brenda McGinnis filed a putative class action in the Circuit Court of Clark County, Arkansas alleging violations of the Arkansas usury law, the Arkansas Deceptive Trade Practices Act, and a 2001 class action settlement agreement entered into by our prior subsidiary in Arkansas. The complaint alleged that our subsidiary made usurious loans under the Arkansas Check Cashers Act and sought compensatory damages in an amount equal to twice the interest paid on the deferred presentment transactions made from 2001 to present (which could total approximately $21.4 million for deferred presentment transactions made during that time, or approximately $87.0 million in damages for all transactions originated, processed, and serviced during that time) as well as a declaration that the contracts are void, enforcement of the 2001 class action settlement agreement, attorneys' fees, and costs.

        On September 23, 2009, we entered into a settlement agreement with the class representatives in connection with the litigation. Pursuant to the terms of the settlement agreement which was approved by the court, the case has been dismissed and we have been released from any and all claims and liability in connection with deferred presentment transactions entered into in Arkansas pursuant to the Arkansas Check Casher's Act. The settlement agreement did not include an admission of wrongdoing or liability.

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        We took a charge against earnings during the year ended December 31, 2009 of approximately $5.7 million to cover the estimated costs of settlement. We do not expect to incur any additional charges related to this case.

    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 complaint alleges violations of the California Deferred Deposit Transaction Law and the California Unfair Competition Law and seeks 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 attorney's fees and costs of suit, and punitive damages. The complaint also seeks certain injunctive relief. We anticipate that the case will proceed to trial during 2011.

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

        We and our subsidiary, McKenzie Check Advance of Florida, LLC ("McKenzie"), 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, which we expect to proceed in parallel with this case. However, the trial court has denied the defendants' motion to compel arbitration of Ms. Kelly's claims. The Florida Appellate Court affirmed the trial court's decision, but certified a "Question of Great Public Importance" to the Florida Supreme Court regarding their decision and we intend to appeal this decision to the Florida Supreme Court.

    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 and our Florida subsidiary, Advance America, Cash Advance Centers of Florida, Inc., and certain officers and 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., which is a separate case, to which we are not a party, involving arbitration issues.

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

        On March 10, 2008, Trishia Hooper and Josephine Vaughn filed a putative class action lawsuit in the United States District Court for the Western District of Missouri against our subsidiary Advance America, Cash Advance Centers of Missouri, Inc. The action alleged that the arbitration clause and class action waiver in our subsidiary's customer loan agreements were unconscionable, that our subsidiary's practices violated the Missouri statutes governing unfair and deceptive trade practices, interest rates, loan renewals, debt reduction, and consideration of borrower's ability to repay. The lawsuit sought certification as a class action, unspecified monetary damages, and a declaratory judgment that the arbitration clause and class action waiver was unconscionable and injunctive relief. On May 27, 2010, we and the class representatives entered into a settlement agreement. The settlement agreement

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did not include an admission of wrongdoing or liability. Pursuant to the terms of the settlement agreement, which the court approved on November 4, 2010, 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 $2.0 million for payments and/or credits to settle the claims of certain customers of our Missouri subsidiary and payment of all attorneys' fees, class action administration fees, and other fees and expenses related to the litigation, and our subsidiary offered discounts on the repayment of certain defaulted loans and on fees to certain lass members for future loans. We took a charge against earnings in the second quarter of 2010 of approximately $2.0 million to cover the estimated costs of settlement. We do not expect to incur any additional charges related to this 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, 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 or liability and is subject to court approval and certain other conditions before it becomes final and the lawsuit is concluded. Pursuant to the terms of the settlement agreement, the case will be dismissed, we and all other defendants will be released from any and all claims and liability, we will establish 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. We do not expect to incur any additional charges related to this case.

    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. We will dismiss our appeal if there are no appeals of the final order in the Kucan case. We do not expect to incur any additional charges related to this case.

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    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 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 us from continuing our lending activities in Pennsylvania for so long as the CDCA violations continued and from collecting monthly participation fees. We 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 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 engaged in discovery and we will continue to defend vigorously against these claims.

    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. In January 2008, the trial court entered an order compelling the purported class representatives to arbitrate their claims on an individual basis, unless determined otherwise by the arbiter. All parties appealed that order. On February 28, 2011, in a non-precedential opinion, the U.S. Third Circuit Court of Appeals vacated the trial court's order and remanded the case to the trial court for further proceedings on the validity of the class action waivers. The parties to the litigation will await further instruction from the trial court as to the reinstitution of proceedings before that court.

    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

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damages, and the trebling of any compensatory damages. In January 2008, the trial court entered an order compelling the purported class representatives to arbitrate their claims on an individual basis, unless determined otherwise by the arbiter. In April 2010, the United States Supreme Court issued its opinion in Stolt-Nielsen. On February 28, 2011, in a non-precedential opinion, the U.S. Third Circuit Court of Appeals vacated the trial court's order and remanded the case to the trial court for further proceedings on the validity of the class action waivers. The parties to the litigation will await further instruction from the trial court as to the reinstitution of proceedings before that court.

    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 Pennsylvania Consumer Protection Laws. The complaint seeks 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 repeats 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 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. Motions to stay and to compel individual arbitration have been filed in the other cases. The cases against NCAS of Delaware and Bankwest, Inc. are now proceeding before the trial court.

    Class Actions Against South Carolina Subsidiary

        Eight separate putative class actions were filed in South Carolina against our subsidiary, Advance America, Cash Advance Centers of South Carolina, Inc., and several other unaffiliated defendants. John and Rebecca Morgan filed a complaint on August 27, 2007 in the Horry County Court of Common Pleas; Margaret Horne filed a complaint on September 6, 2007 in the Spartanburg County Court of Common Pleas; Tawan Smalls filed a complaint on September 10, 2007 in the Charleston County Court of Commons Pleas; Chadric and Lisa Wiley filed a complaint on September 27, 2007 in the Richland County Court of Common Pleas; Mildred Weaver filed a complaint on September 27, 2007 in the Darlington County Court of Common Pleas; Lisa Johnson and Gilbert Herbert filed a complaint on October 2, 2007 in the Georgetown County Court of Common Pleas; Kimberly Kinney filed a complaint on October 12, 2007 in the Marion County Court of Common Pleas; and Carl G. Ferrell filed a complaint on October 30, 2008 in the Richland County Court of Common Pleas (collectively, the "South Carolina Claimants"). The allegations and relief sought are similar in each case. Plaintiffs allege that our South Carolina subsidiary violated the South Carolina Deferred Presentment Services Act and the Consumer Protection Code by failing to perform a credit check and evaluate a customer's ability to repay the advance. Each complaint seeks an injunction to prohibit us from continuing our operations, the return of fees and interest, unspecified actual damages, punitive damages, and attorneys' fees and costs. Each of the lawsuits was joined to ongoing litigation in the South Carolina state court system pursuant to an order of the South Carolina Supreme Court consolidating all cases brought against the industry. In December 2009, a group of industry defendants, including us, reached an agreement in principle, subject to reaching a definitive agreement and

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obtaining court approval, for the settlement and release of all claims brought by the South Carolina Claimants. On June 2, 2010, we entered into a settlement agreement, along with several other unaffiliated defendants and the class representatives. The settlement agreement did not include an admission of wrongdoing or liability on our part or our South Carolina subsidiary. Pursuant to the terms of the settlement agreement, we and our South Carolina subsidiary were released from any and all claims associated with this lawsuit. The court entered an order granting final approval of the settlement on September 20, 2010, and the order became final on October 21, 2010. This litigation has concluded and we do not expect to incur any charges in connection with the settlement beyond the charge of $0.9 million we recorded for the fourth quarter of 2009. We do not expect to incur any additional charges related to this case.

    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/or federal consumer protection laws.

SEC Investigation

        On July 22, 2009, we were informed that Kenneth E. Compton, our former President and Chief Executive Officer, received a "Wells Notice" from the United States Securities and Exchange Commission (the "SEC"). We understand that the staff intends to recommend that the SEC file a civil injunctive action against Mr. Compton alleging that he violated Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder in connection with alleged insider trading involving less than a material amount of losses avoided by third parties selling our stock during 2007. We did not receive a Wells Notice and do not believe that we are a subject of this investigation; however, we are obligated to advance expenses incurred by our current and former officers and directors in connection with this matter.

ITEM 4.    (Removed and Reserved)

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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 2009 and 2010:

 
  Sales Prices    
 
 
  Cash
Dividend
 
 
  High   Low  

2009:

                   

Quarter ended March 31, 2009

  $ 2.44   $ 0.80   $ 0.0625  

Quarter ended June 30, 2009

    5.10     1.61     0.0625  

Quarter ended September 30, 2009

    6.33     3.60     0.0625  

Quarter ended December 31, 2009

    6.70     4.56     0.0625  

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  

        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; 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 revolving 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 revolving credit facility). Our Board of Directors may at any time modify or revoke our dividend policy.

        On February 16, 2011, our Board of Directors declared a quarterly cash dividend of $0.0625 per common share, payable on March 11, 2011, to stockholders of record as of March 1, 2011.

        As of March 2, 2011, there were 121 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.

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Performance Graph

        The following graph compares the change in the cumulative value of $100 invested for the period beginning on December 31, 2005 and ending on December 31, 2010, 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.


Comparison of Cumulative Return vs.

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

         GRAPHIC

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

12/31/05

  $ 100.00   $ 100.00   $ 100.00   $ 100.00  

12/30/06

  $ 121.62   $ 113.62   $ 119.45   $ 117.43  

12/29/07

  $ 87.69   $ 117.63   $ 103.79   $ 118.00  

12/31/08

  $ 18.29   $ 72.36   $ 48.12   $ 63.20  

12/31/09

  $ 57.85   $ 89.33   $ 59.04   $ 82.69  

12/31/10

  $ 61.82   $ 100.75   $ 62.01   $ 92.25  

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Issuer Purchases of Equity Securities

        The following table sets forth information about our stock repurchases for each of the three months during the quarter ended December 31, 2010:

Period(1)
  Total Number
of Shares
Purchased(2)
  Average
Price Paid
per Share
  Total Number of
Shares Purchased as
Part of Publicly
Announced Plans
or Programs
  Approximate Dollar
Value of Shares That
May Yet Be
Purchased Under the
Plans or Programs(3)
 

October 1 to October 31

    10,454   $ 4.95          

November 1 to November 30

                 

December 1 to December 31

    1,116     5.25          
                   

Total

    11,570   $ 4.98          
                   

(1)
Based on trade date.

(2)
This column includes 11,570 shares surrendered by employees to satisfy their tax obligations with respect to the vesting of shares of restricted stock awarded pursuant to the Company's 2004 Omnibus Stock Plan.

(3)
We completed our stock repurchase program in July 2008. Except as noted above, we did not repurchase any stock during the three months ended December 31, 2010.

        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.

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, 2010, 2009, and 2008, and as of December 31, 2010 and 2009, has been derived from our audited financial statements included elsewhere in this report. The financial information for the years ended December 31, 2007 and 2006, and as of December 31, 2008, 2007 and 2006 has been derived from our audited financial statements not included in this report. Certain amounts below in 2006 and 2007 include the consolidation of a variable interest entity—see "Item 8. Financial Statements and Supplementary Data—Note 17. 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

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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
  2006   2007   2008   2009   2010  
 
  (Dollars in thousands, except per share data
and other financial data)

 

Revenues:

                               
 

Fees and interest charged to customers

  $ 659,876   $ 709,557   $ 676,436   $ 647,676   $ 600,233  
 

Marketing, processing and servicing fees(1)

    12,418                  
                       

Total revenues

    672,294     709,557     676,436     647,676     600,233  
                       

Center expenses:

                               
 

Salaries and related payroll costs

    185,938     199,416     196,951     185,599     179,617  
 

Provision for doubtful accounts

    120,855     140,245     135,857     124,575     104,228  
 

Occupancy costs

    87,276     96,847     100,315     94,370     87,457  
 

Center depreciation expense

    16,233     17,200     16,698     13,174     9,806  
 

Advertising expense

    20,375     26,770     20,304     22,232     20,898  
 

Other center expenses

    54,986     59,340     48,652     45,606     43,124  
                       

Total center expenses

    485,663     539,818     518,777     485,556     445,130  
                       

Center gross profit

    186,631     169,739     157,659     162,120     155,103  

Corporate and other expenses (income):

                               
 

General and administrative expenses

    53,363     59,410     68,568     56,526     62,527  
 

Legal settlements

            1,950     6,427     18,608  
 

Corporate depreciation and amortization expense

    3,661     3,162     3,033     2,714     2,306  
 

Interest expense

    7,129     11,059     11,188     6,241     4,858  
 

Interest income

    (538 )   (317 )   (128 )   (238 )   (74 )
 

(Gain)/loss on disposal of property and equipment

    960     3,189     551     (50 )   413  
 

Loss on impairment of assets

        314     486     2,987     654  
                       

Income before income taxes

    122,056     92,922     72,011     87,513     65,811  

Income tax expense

    48,858     37,831     33,540     33,310     30,048  
                       

Income before income of consolidated variable interest entity

    73,198     55,091     38,471     54,203     35,763  

Income of consolidated variable interest entity

    (3,047 )   (706 )            
                       

Net income

  $ 70,151   $ 54,385   $ 38,471   $ 54,203   $ 35,763  
                       

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  Year ended December 31,  
Consolidated Financial Information
  2006   2007   2008   2009   2010  
 
  (Dollars in thousands, except per share data
and other financial data)

 

Per Share Data:

                               

Net income per common share:

                               
 

Basic

  $ 0.87   $ 0.70   $ 0.60   $ 0.89   $ 0.59  
 

Diluted

  $ 0.87   $ 0.70   $ 0.60   $ 0.88   $ 0.58  

Cash dividends paid per common share

  $ 0.44   $ 0.50   $ 0.44   $ 0.25   $ 0.25  

Weighted average number of shares outstanding:

                               
 

Basic

    80,889     77,923     64,233     60,868     61,054  
 

Effect of dilutive options and unvested restricted stock

    28     12         799     386  
                       
 

Diluted

    80,917     77,935     64,233     61,667     61,440  
                       

Balance Sheet Data (at end of period):

                               

Cash and cash equivalents

  $ 67,245   $ 28,251   $ 16,017   $ 38,189   $ 26,948  

Advances and fees receivable, net

    237,725     221,480     220,115     204,234     205,207  

Goodwill

    122,627     127,286     126,661     127,031     126,914  

Total assets

    525,092     471,698     447,010     446,151     431,652  

Total debt

    111,050     147,980     194,952     146,276     116,297  

Total stockholders' equity

    299,897     250,291     171,259     212,613     235,041  

Cash Flow Data:

                               

Cash flows provided by operating activities

  $ 186,125   $ 184,496   $ 186,227   $ 182,087   $ 134,541  

Cash flows used in investing activities

    (156,216 )   (113,216 )   (125,674 )   (93,001 )   (99,333 )

Cash flows (used in) provided by financing activities

    10,077     (110,310 )   (72,164 )   (66,884 )   (46,267 )

(1)
We previously marketed, processed and serviced installment loans made by lending banks under our agency business model, which we discontinued in 2006.

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  Year ended December 31,  
Consolidated Financial Information
  2006   2007   2008   2009   2010  

Other Financial and Statistical Data:

                               

Number of centers open at end of period

    2,853     2,832     2,797     2,587     2,352  

Number of customers served—all credit products (thousands)

    1,494     1,524     1,419     1,316     1,310  

Number of cash advances originated (thousands)(1)

    11,539     11,979     11,762     10,860     10,027  

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

  $ 4,082,865   $ 4,317,980   $ 4,296,493   $ 3,922,195   $ 3,710,133  

Average amount of each cash advance originated(1)

  $ 353   $ 361   $ 366   $ 361   $ 370  

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

  $ 55   $ 55   $ 55   $ 53   $ 55  

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

    16.2     16.5     16.8     17.6     18.0  

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

    20     24     10     24     12  

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

  $ 8,963   $ 10,377   $ 6,946   $ 10,945   $ 3,753  

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

  $ 448   $ 429   $ 672   $ 410   $ 251  

Number of installment loans originated (thousands)(4)

    29     31     32     35     61  

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

  $ 13,905   $ 12,997   $ 14,841   $ 15,992   $ 27,375  

Average principal amount of each installment loan originated(4)

  $ 486   $ 417   $ 462   $ 453   $ 446  

(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)
For the year ended December 31, 2006, the installment loan activity reflects loans we originated as agent for lending banks in Arkansas and Pennsylvania and loans we originated directly as the lender in Illinois. The loans originated as an agent contained fixed payment terms and no discounts for early repayment. These originations ceased during 2006. For 2007 through 2009 the installment loan activity 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.

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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.

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. As of December 31, 2010, we operated 2,313 centers in 30 states in the United States, 21 centers in the United Kingdom, and 18 centers in Canada and had 62 limited licensees in the United Kingdom.

        Our industry has been significantly affected by increasing regulatory challenges. Legislation that negatively impacts 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 adversely affect our business. We are very 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 our company and more than 100 other companies engaged in the cash advance services industry.

    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 Credit Services Organization ("CSO"), we offer a fee-based credit services package to assist customers in trying to improve their credit and in obtaining 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 an application online and receiving a cash advance from a third-party lender that is directly deposited in the customer's bank account.

        Our customers also may obtain online cash advances made by third-party lenders that are governed by the laws of the state where the customer resides. We receive revenue from online cash advances

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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 annual participation fees, fees for returned checks, late fees, and other fees as permitted by applicable law. Currently, none of the cash advance services we offer include annual participation fees. 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, 2010 and 2009, total NSF fees collected were approximately $2.9 million and $3.2 million, respectively, and total late fees collected were approximately $0.9 million and $0.8 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 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 the future, we may consider other criteria in evaluating cash advances. 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.

        After the documents presented by the customer have been reviewed for completeness and accuracy and 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 plus charges for applicable fees and/or interest and/or the balance due under the agreement, and makes an appointment to return on a specified due date, typically his or her next payday, to repay the cash advance plus the applicable charges. However, in some states, customers are not required to provide us with 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 the applicable payment, usually payment in full of the cash advance plus 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, the customer's check is returned and/or his or her ACH authorization is 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 from the customer the amount of the cash advance and any applicable fees, including 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 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 and money orders, money transmission, and bill payment services. Our Advance America- branded pre-paid Visa debit card is issued by a federally chartered bank and regulated by the Office of Thrift Supervision. The card allows a cardholder to load cash onto the card and use the card wherever

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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 purchases and subsequent cardholder activity, such as charges for loads, ATM withdrawals, account maintenance/plan charges and purchases. We also 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.

    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. We are currently testing a new customized predictive scoring model that considers other criteria in evaluating first time customers' probability of repaying a 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 lenders offer 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 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 or third party collection agencies 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.

        In the case of cash advances in the form of lines of credit, if a customer fails to make payment when due in accordance with the terms of their agreement with us, center management may close the line of credit, accelerate the maturity date, and take the steps outlined above or work with the customer to bring his or her payments current. If we close the line of credit and accelerate the maturity date, we stop charging interest on the outstanding amount and begin collection efforts as described above.

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    Selected Operating Data

        The following table presents key operating data for our business:

 
  Year Ended December 31,  
 
  2008   2009   2010  

Number of centers open at end of period

    2,797     2,587     2,352  

Number of customers served—all credit products (thousands)

    1,419     1,316     1,310  

Number of cash advances originated (thousands)(1)

    11,762     10,860     10,027  

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

  $ 4,296,493   $ 3,922,195   $ 3,710,133  

Average amount of each cash advance originated(1)

  $ 366   $ 361   $ 370  

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

  $ 55   $ 53   $ 55  

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

    16.8     17.6     18.0  

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

    10     24     12  

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

  $ 6,946   $ 10,945   $ 3,753  

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

  $ 672   $ 410   $ 251  

Number of installment loans originated (thousands)(4)

    32     35     61  

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

  $ 14,841   $ 15,992   $ 27,375  

Average principal amount of each installment loan originated(4)

  $ 462   $ 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.

(4)
The installment loan activity reflects loans we originated as the lender in Illinois and Colorado.

    Revenues and Expenses

        Our revenues consist primarily of fees and/or interest paid to us directly by our customers. Our expenses relate primarily to the operation of our centers. These expenses include salaries and related payroll costs, occupancy expense related to our leased centers, center depreciation expense, advertising expense, and other center expenses that consist principally of 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

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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, 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 during 2009.

    Income Taxes

        The effective income tax rate as a percentage of income before income taxes was 38.1% and 45.7% for the year ended December 31, 2009 and 2010, respectively. The increase in the effective tax rate in the current year is primarily a result of a reduction in state tax expense recognized in the prior year and lower pre-tax profits, primarily as a result of legal settlement charges, along with other discrete items recognized in the current year.

    Changes in Legislation

        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. For example, in July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into law. Among other items, this act created the Bureau of Consumer Financial Protection, which will have authority to regulate companies that provide consumer financial services. At the state level, legislation has been adopted that has caused us to modify operations and, in some cases, close all operations in a state. For example, 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 Virginia, a 2009 law prompted us to change our cash advance product and to offer an open-ended line of credit product. However, a subsequent Virginia Corporation Commission ruling and additional legislation limited our ability to offer and service the open-ended line of credit product in Virginia. As a result, we discontinued originations of new lines of credit and draws on existing lines of credit and we have consolidated a number of our centers in Virginia. We may determine that further consolidation of centers in Virginia is appropriate if the cash advance product we now offer in Virginia is not sufficiently profitable. In the State of Washington, on January 1, 2010, a new law placed a number of restrictions on our cash advance product including limiting the number of cash advances a customer may take to eight in any one year. As a result, our revenues and profits in Washington have been significantly reduced. If we are unable to operate profitably in Washington, we may cease operating in that state. New laws in each of South Carolina, Kentucky, and Wisconsin implement a statewide database to monitor the number and/or dollar amount of advances made to customers. New Colorado legislation permits a multiple installment loan that we expect will significantly lower our revenues and profits in Colorado. Further, legislation permitting cash advances in Arizona expired on July 2, 2010, and as a result, we ceased operating in Arizona. The Mississippi legislature passed legislation during the first quarter of 2011 which, if signed into law, would modify certain aspects of our cash advance product in that state and extend the statute's sunset provision through 2016. This legislation would become effective on January 1, 2012. 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

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on our financial results until we are able to develop legal and financially viable alternative products and services.

    Operations in Ohio

        In November 2008, the State of Ohio capped interest rates on cash advance loans and limited the number of cash advances a customer may take in any one year. As a result of this legislation, we began offering small loans pursuant to the Ohio Small Loan Act and check-cashing services. The small loan product and check-cashing services generate less revenue than our former cash advance product and, as a result, we have consolidated some of our centers in Ohio. In the third quarter of 2009, we stopped offering small loans and began to offer cash advances pursuant to the Ohio Second Mortgage Act as a registered second mortgage lender. A rule issued by the Ohio Division of Financial Institutions in the first quarter of 2010, and temporarily stayed by the Ohio courts pending the outcome of certain litigation between that state and unrelated third parties, would, if enforced, restrict certain activities by licensed check cashers and could have a further negative effect on our operations in Ohio.

        During the year ended December 31, 2010, we closed seven centers in Ohio. The cost to close these centers was approximately $0.2 million recognized in the year ended December 31, 2010. For the year ended December 31, 2010, these amounts are included in the income statement as an increase in other center expenses of $0.2 million.

        For the years ended December 31, 2008, 2009, and 2010, 8.1%, 5.8%, and 7.3%, respectively, of our total revenues were generated from our operations in Ohio. The following is a summary of financial information for our operations in Ohio for those years (in thousands):

 
  2008   2009   2010  

Total revenues

  $ 54,881   $ 37,878   $ 44,104  

Total center expenses

    45,335     36,252     34,734  
               

Center gross profit (loss)

  $ 9,546   $ 1,626   $ 9,370  
               

    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, and between November 2008 and February 2010 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.

        During the year ended December 31, 2010, we closed 57 centers in Virginia. For the twelve months ended December 31, 2010, 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.

        The elimination of the open-ended line of credit product 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, 2010, the net advances and fees receivable balance in Virginia was approximately $10.4 million. At this time, we are not able to determine the amount of goodwill impairment, if any, that could result from the cessation of operations in Virginia.

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        For the years ended December 31, 2008, 2009, and 2010, 7.5%, 7.8%, and 4.5%, 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):

 
  2008   2009   2010  

Total revenues

  $ 50,607   $ 50,638   $ 26,715  

Total center expenses

    34,401     45,376     20,402  
               

Center gross profit (loss)

  $ 16,206   $ 5,262   $ 6,313  
               

    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, 2010, we closed 45 centers in Washington. For the twelve months ended December 31, 2010, closing costs of approximately $1.2 million are included in the income statement as an increase in other center expenses of $0.9 million, a loss on disposal of property and equipment of $0.1 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 $0.9 million to $3.7 million, and the collectability of advances and fees receivable in Washington would most likely be impaired. As of December 31, 2010, the net advances and fees receivable balance in Washington was approximately $4.3 million. At this time we are not able to determine the amount of goodwill impairment, if any, that could result from the cessation of our operations in Washington.

        For the years ended December 31, 2008, 2009, and 2010, 4.0%, 4.1%, and 1.0%, 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):

 
  2008   2009   2010  

Total revenues

  $ 27,205   $ 26,637   $ 6,259  

Total center expenses

    23,153     19,996     9,310  
               

Center gross profit (loss)

  $ 4,052   $ 6,641   $ (3,051 )
               

    Operations in South Carolina

        A new law in South Carolina became effective 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.

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        For the years ended December 31, 2008, 2009, and 2010, 5.1%, 5.3%, and 3.6%, 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):

 
  2008   2009   2010  

Total revenues

  $ 34,817   $ 34,582   $ 21,905  

Total center expenses

    25,881     23,847     20,333  
               

Center gross profit (loss)

  $ 8,936   $ 10,735   $ 1,572  
               

    Operations in Kentucky

        A new law in Kentucky became effective 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 cash 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, 2008, 2009, and 2010, 1.2%, 1.2%, and 1.1%, 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 the years ended December 31, 2008, 2009, and 2010 (in thousands):

 
  2008   2009   2010  

Total revenues

  $ 8,254   $ 8,000   $ 6,336  

Total center expenses

    6,169     6,208     5,858  
               

Center gross profit (loss)

  $ 2,085   $ 1,792   $ 478  
               

    Operations in Colorado

        A new law in Colorado became effective 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.

        During the year ended December 31, 2010, we closed 31 centers in Colorado. For the twelve months ended December 31, 2010, closing costs of approximately $0.9 million are included in the income statement as an increase in other center expenses of approximately $0.6 million, center salaries and related payroll costs of approximately $0.1 million, and a loss on impairment of assets of approximately $0.2 million.

        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 $0.7 million to $2.1 million, and the collectability of advances and fees receivable in Colorado would most likely be impaired. As of December 31, 2010, advances and fees receivable, net of allowance for doubtful accounts, in Colorado was approximately $4.8 million. At this time we are not able to determine the amount of goodwill impairment, if any, that could result from the cessation of our operations in Colorado.

        For the years ended December 31, 2008, 2009, and 2010, 1.7%, 1.9%, and 1.7%, respectively, of our total revenues were generated from our operations in Colorado. The following is a summary of

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financial information for our operations in Colorado for the years ended December 31, 2008, 2009, and 2010 (in thousands):

 
  2008   2009   2010  

Total revenues

  $ 11,685   $ 12,531   $ 10,122  

Total center expenses

    12,097     11,534     10,665  
               

Center gross profit (loss)

  $ (412 ) $ 997   $ (543 )
               

    Center Closings

        We closed 86 centers during 2008 (including 30 in Arkansas and 10 in New Mexico), 220 centers during 2009 (including 24 in New Hampshire and 63 in Ohio), and 259 centers during 2010 (including 48 in Arizona). The expenses related to closing centers typically include the undepreciated costs of fixtures and signage that cannot be moved and reused at another center, moving costs, severance payments and any lease cancellation costs. We recorded expenses related to center closures and scheduled center closings of approximately $4.3 million, $6.7 million, and $6.0 million in 2008, 2009, and 2010, respectively. The costs are included in the income statements for the years ended 2008, 2009, and 2010 as shown below.

 
  Year ended December 31,  
 
  2008   2009   2010  
 
  (amounts in thousands)
 

Salaries and related payroll costs

  $ 562   $ 374   $ 860  

Provision for doubtful accounts

    1,592          

Occupancy costs

    (77 )   (219 )   (258 )

Other center expenses

    1,290     3,183     4,343  

Loss on disposal of property and equipment

    403     337     358  

Loss on impairment of assets

    486     2,987     654  
               

  $ 4,256   $ 6,662   $ 5,957  
               

    Closing of Operations in Certain States

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

        Closing of Operations in Arkansas.    In March 2008, we received a letter from the Arkansas Attorney General demanding that we stop offering deferred presentment transactions under the Arkansas Check Cashers Act. In response, we complied with the Attorney General's demands and began offering consumer loans at interest rates below the applicable Arkansas usury cap. In September 2008, we received a notice from the Arkansas State Board of Collections that the Board had determined that consumer lenders who accept account withdrawal authorizations would be deemed by the Board to be engaged in the business of making deferred presentment transactions. During this same time, we were in discussions with the Arkansas Attorney General to address certain items regarding our operations in Arkansas. The Attorney General agreed that if we discontinued our operations in Arkansas, he would not bring suit against us. Although we believe we have always operated in compliance with Arkansas law, we concluded that avoiding potentially costly litigation in this circumstance was in the best interest of our stockholders. As a result, we closed all 30 of our centers in Arkansas on or before October 31, 2008. The costs associated with closing our Arkansas operations were approximately $1.8 million, including $1.1 million due to the write-down of receivables. These costs are included in the 2008 income statement as increases of $1.1 million in the provision for

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doubtful accounts, $0.4 million in other center expenses, $0.2 million in center salaries and related payroll costs, and $0.1 million in loss on disposal of property and equipment. The cessation of our Arkansas operations did not result in any impairment of goodwill.

        The following is a summary of financial information for our operations in Arkansas for the years ended December 31, 2008, 2009, and 2010 (in thousands):

 
  2008   2009   2010  

Total revenues

  $ 3,864   $   $ 4  

Total center expenses

    6,881     129     1  
               

Center gross profit (loss)

  $ (3,017 ) $ (129 ) $ 3  
               

        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.

        The following is a summary of financial information for our operations in New Hampshire for the years ended December 31, 2008, 2009, and 2010 (in thousands):

 
  2008   2009   2010  

Total revenues

  $ 8,124   $ 130   $  

Total center expenses

    4,710     1,126     49  
               

Center gross profit (loss)

  $ 3,414   $ (996 ) $ (49 )
               

        Closing of Operations in Arizona.    An existing 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 are 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, 2008, 2009, and 2010, 2.4%, 2.4%, and 1.2%, respectively, of our total revenues were generated from our operations in Arizona. The following is a summary of financial information for our operations in Arizona for the years ended December 31, 2008, 2009, and 2010 (in thousands):

 
  2008   2009   2010  

Total revenues

  $ 16,267   $ 15,694   $ 7,363  

Total center expenses

    11,863     10,590     6,936  
               

Center gross profit (loss)

  $ 4,404   $ 5,104   $ 427  
               

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

    Acquisitions in the United Kingdom

        During the year ended December 31, 2008, we acquired two centers in the United Kingdom for an aggregate purchase price, including transaction-related costs, of approximately $0.8 million in cash and an increase in goodwill of approximately $0.7 million.

        During the year ended December 31, 2007, we completed four acquisitions in the United Kingdom consisting of a total of 12 centers and 85 limited licensees for an aggregate purchase price, including transaction-related costs, of approximately $5.5 million in cash and an increase in goodwill of approximately $4.7 million.

    New Centers

        We opened 49, 10, and 24 centers in the years ended December 31, 2008, 2009 and 2010, respectively. 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.

        Of the 268 North American centers we opened in 2007, 2008, and 2009, 188 centers remain open as of December 31, 2010. Of these, 177 have reached the point where, for at least one month, the center generated sufficient revenues to cover the center's expenses exclusive of corporate overhead (the "Breakeven Point"). The amount of time that it takes for a center to reach this Breakeven Point is affected by a number of factors including, but not limited to, the time of the year the center opens, the seasonal nature of the business and the regulatory environment of the state in which the center is opened. It is not uncommon for a center that has reached the Breakeven Point to temporarily drop below that point and then again exceed the Breakeven Point. Given the relatively fixed nature of most center expenses, the main determinant of the Breakeven Point for a given center is the number of advances outstanding.

        On average, the 177 centers reached the Breakeven Point between their eleventh and fourteenth month of operations and had, on average, approximately 104 advances outstanding at that time. Cumulative operating losses to break even for these centers averaged approximately $79,000 per center. We have experienced a general trend of an increase in the time it takes a center to reach the Breakeven Point and, consequently, an increase in the cumulative operating losses to break even.

        The remaining 11 centers opened in 2007, 2008, and 2009 and still open have yet to reach the Breakeven Point. These 11 centers are, on average, approximately 36 months old at December 31, 2010. At December 31, 2010, a seasonally high point in advances outstanding, these centers had, on average, approximately 85 advances outstanding. Cumulative operating losses to date for these centers averaged approximately $208,000 per center.

    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.

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    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 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 processed by us 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, 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.

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        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, or 15% of the outstanding balance and related interest and fees for our line of credit and installment loan products. Unpaid advances, installment loans, or lines of credit customers 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 2009 began and ended on a Thursday. The year 2010 began and ended on a Friday.

        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, 2010, 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

        As a result of our acquisition of the National Cash Advance group of affiliated companies in October 1999, we recorded approximately $143.0 million of goodwill. During 2007 and 2008, we completed six acquisitions in the United Kingdom, resulting in additional goodwill of approximately $5.4 million. As of December 31, 2010, the carrying value of goodwill was $126.9 million due to the amortization of goodwill prior to the adoption of ASC 350-20-35, "Goodwill—Subsequent Measurement", and the change in the exchange rate for our United Kingdom assets. Due to the significance of goodwill and the reduction of net income that would occur if goodwill were impaired, we assess the impairment of our long-lived and intangible assets annually, during the fourth quarter of

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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. A reporting unit is an operating segment, or under certain circumstances, a component of an operating segment that constitutes a business. Our reporting units consist 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. When estimated future cash flows are less than the carrying value of the net assets and related goodwill, an impairment test is performed to measure and recognize the amount of the impairment loss, if any. Impairment losses, which are limited to the carrying value of goodwill, represent the excess of the carrying amount of a reporting unit's goodwill over the implied fair value of that goodwill. In determining the estimated future discounted cash flows, we consider current and projected future levels of income, as well as business trends, prospects, and market and economic conditions. Impairment tests involve the use of judgments and estimates related to the fair market value of the business operations with which goodwill is associated, taking into consideration both historical operating performance and anticipated financial position and future earnings. We believe that the estimates of future cash flows and fair value are reasonable. Changes in estimates of those cash flows and fair value, however, could affect the evaluation, and any impairment would lower our net income.

        As of December 31, 2010, the United Kingdom operations have cumulatively and for the last twelve months generated negative cash flow and have not reached break-even. Our expansion efforts in the United Kingdom began in the third quarter of 2007. Our goodwill impairment model projects future positive cash flows sufficient to support the goodwill and long-lived asset base in our United Kingdom operations. If the United Kingdom operations continue to generate negative cash flow and do not break-even an impairment charge related to its goodwill is possible.

        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

        During the quarter ended December 31, 2010, we and our third-party lender in Texas acquired a payday loan receivables portfolio of approximately $11.3 million. At closing, we and our third-party lender paid the seller and the seller's third-party lender approximately $5.3 million and $1.9 million, respectively for approximately $9.4 million and $1.9 million of the total portfolio, respectively. In addition, we agreed to a contingent payment to be satisfied during the first quarter of 2011. At December 31, 2010, we recorded a liability related to the contingency of approximately $1.1 million. For the quarter and year ended December 31, 2010, we recorded approximately $0.4 million in revenue related to the servicing and collection of these receivables.

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    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, 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 some of 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, 2009 and 2010 financial statements include accruals of approximately $5.0 million and $5.6 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.

    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, including capital gains, in order to ultimately realize deferred income tax assets.

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    Consolidation of Variable Interest Entity

        In connection with our CSO 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, 2008, 2009, and 2010. See "Item 8. Financial Statements and Supplementary Data—Note 17. Transactions with Variable Interest Entities" for the effect of consolidating the former lender on our results of operations and financial condition.

    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, 2010, the total compensation expense not yet recognized related to nonvested stock awards under our stock-based employee compensation plans is approximately $5.1 million. The weighted average period over which this expense is expected to be recognized is approximately 2.4 years. See "Item 8. Financial Statements and Supplementary Data—Note 11. 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, 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.

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

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  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 $4.0 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 $2.0 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.

        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 as compared to 2009.

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    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 relocation expenses of approximately $0.5 million.

        Legal settlements.    The amounts reflected as legal settlements relate to 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 for 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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    Year Ended December 31, 2008 Compared to the Year Ended December 31, 2009

        The following tables set forth our results of operations for the year ended December 31, 2008 compared to the year ended December 31, 2009:

 
  Year Ended December 31,
 
  2008   2009   Variance
Favorable/
(Unfavorable)
 
   
  % Total
Revenues
   
  % Total
Revenues
 
  Dollars   Dollars   Dollars   %
 
  (Dollars in thousands, except center information)

Total Revenues

  $ 676,436     100.0 % $ 647,676     100.0 % $ (28,760 ) (4.3)%

Center Expenses:

                                 
 

Salaries and related payroll costs

    196,951     29.1 %   185,599     28.7 %   11,352   5.8%
 

Provision for doubtful accounts

    135,857     20.1 %   124,575     19.2 %   11,282   8.3%
 

Occupancy costs

    100,315     14.8 %   94,370     14.6 %   5,945   5.9%
 

Center depreciation expense

    16,698     2.5 %   13,174     2.0 %   3,524   21.1%
 

Advertising expense

    20,304     3.0 %   22,232     3.4 %   (1,928 ) (9.5)%
 

Other center expenses

    48,652     7.2 %   45,606     7.1 %   3,046   6.3%
                         
   

Total center expenses

    518,777     76.7 %   485,556     75.0 %   33,221   6.4%
                         
     

Center gross profit

    157,659     23.3 %   162,120     25.0 %   4,461   2.8%

Corporate and Other Expenses (Income):

                                 

General and administrative expenses

    68,568     10.1 %   56,526     8.7 %   12,042   17.6%

Legal settlements

    1,950     0.3 %   6,427     1.0 %   (4,477 ) (229.6)%

Corporate depreciation expense

    3,033     0.4 %   2,714     0.4 %   319   10.5%

Interest expense

    11,188     1.7 %   6,241     1.0 %   4,947   44.2%

Interest income

    (128 )       (238 )       110   85.9%

Loss on disposal of property and equipment

    551     0.1 %   (50 )       601   109.1%

Loss on impairment of assets

    486         2,987     0.4 %   (2,501 ) (514.6)%
                         
 

Total corporate and other expenses

    85,648     12.6 %   74,607     11.5 %   11,041   12.9%
                         

Income before income taxes

    72,011     10.7 %   87,513     13.5 %   15,502   21.5%

Income tax expense

    33,540     5.0 %   33,310     5.1 %   230   0.7%
                         
 

Net income

  $ 38,471     5.7 % $ 54,203     8.4 % $ 15,732   40.9%
                         

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  Year Ended December 31,  
 
  2008   2009  

Center Information:

             

Number of centers open at beginning of period

    2,832     2,797  
 

Opened

    49     10  
 

Acquired

    2      
 

Closed

    (86 )   (220 )
           

Number of centers open at end of period

    2,797     2,587  
           

Weighted average number of centers open during the period

    2,848     2,698  

Number of customers served—all credit products (thousands)

    1,419     1,316  

Number of cash advances originated (thousands)(1)

    11,762     10,860  

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

  $ 4,296,493   $ 3,922,195  

Average amount of each cash advance originated(1)

  $ 366   $ 361  

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

  $ 55   $ 53  

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

    16.8     17.6  

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

    10     24  

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

  $ 6,946   $ 10,945  

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

  $ 672   $ 410  

Number of installment loans originated (thousands)(4)

    32     35  

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

  $ 14,841   $ 15,992  

Average principal amount of each installment loan originated(4)

  $ 462   $ 453  

(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 installment loan activity reflects loans we originated as the lender in Illinois.

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  Year Ended December 31,
 
  2008   2009   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

  $ 237.5     100.0 % $ 240.1     100.0 % $ 2.6   1.1%

Center expenses:

                                 
 

Salaries and related payroll costs

    69.2     29.1 %   68.8     28.7 %   0.4   0.6%
 

Provision for doubtful accounts

    47.7     20.1 %   46.2     19.2 %   1.5   3.1%
 

Occupancy costs

    35.2     14.8 %   35.0     14.6 %   0.2   0.6%
 

Center depreciation expense

    5.9     2.5 %   4.9     2.0 %   1.0   16.9%
 

Advertising expense

    7.1     3.0 %   8.2     3.4 %   (1.1 ) (15.5)%
 

Other center expenses

    17.1     7.2 %   16.9     7.1 %   0.2   1.2%
                         
   

Total center expenses

    182.2     76.7 %   180.0     75.0 %   2.2   1.2%
                         

Center gross profit

  $ 55.3     23.3 % $ 60.1     25.0 % $ 4.8   8.7%
                         

    Revenue Analysis

        Total revenues decreased approximately $28.8 million in 2009. Total revenues for the 2,527 centers opened prior to January 1, 2008 and still open as of December 31, 2009 decreased $5.0 million, from $635.0 million in 2008 to $630.0 million in 2009. Total revenues for the 60 centers opened after January 1, 2008 and still open as of December 31, 2009 increased $5.3 million, from $2.3 million in 2008 to $7.6 million in 2009. Total revenues for the remaining 306 centers that closed represented a decrease of approximately $29.1 million for 2009 compared to 2008. Of this decrease, approximately $0.2 million, $3.9 million, and $8.0 million were due to the closure of our centers in New Mexico, Arkansas, and New Hampshire respectively.

        Changes in legislation have had a significant impact on our revenues in Ohio. In Ohio, our revenue decreased by $17.1 million, or 31.2%, for the year ended December 31, 2009, as compared to 2008.

    Center Expense Analysis

        Salaries and related payroll costs.    The decrease in salaries and related payroll costs in 2009 was due primarily to a reduction in the number of centers open during the year ended December 31, 2009 as compared to the same period in 2008. We averaged approximately 2.00 and 1.94 full-time equivalent field employees, including district directors, per center during 2008 and 2009, respectively.

        Provision for doubtful accounts.    As a percentage of total revenues, the provision for doubtful accounts decreased to 19.2% for the year ended December 31, 2009 from 20.1% in 2008. This decrease is due to an increase in non-lending revenues, improved ACH collections, and an increase in the sale of receivables during the year ended December 31, 2009. During the years ended December 31, 2008 and 2009, we received proceeds from the sale of receivables in the amount of $0.6 million and $3.4 million, respectively. During the year ended December 31, 2008, the provision included a charge related to the suspension of operations in Arkansas and New Hampshire of approximately $1.1 million and $0.5 million, respectively.

        Occupancy costs and center depreciation expense.    The decrease in occupancy costs and center depreciation expense in 2009 was due primarily to a decrease in the average number of centers

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operating throughout 2009 as compared to 2008. In addition, depreciation continues to decrease as centers age and property and equipment become fully depreciated.

        Advertising expense.    Advertising expense increased in 2009 compared to 2008 due primarily to an increase in direct marketing advertising.

        Other center expenses.    The decrease in other center expenses in 2009 was due primarily to a decrease in the number of centers opened as compared to 2008. This was partially offset by an increase in center closing cost related to the closing of 220 centers in 2009 as compared to 86 centers in 2008.

    Corporate and Other Expense (Income) Analysis

        General and administrative expenses.    The decrease in general and administrative expenses in 2009 was due primarily to:

    lower expenses of approximately $9.5 million in public and government relations primarily due to a reduction in trade association dues, consulting fees, and public relation expenditures;

    lower expenses of approximately $1.6 million related to personnel, consulting, and other costs associated with new product development and management;

    lower expenses of approximately $1.0 million related to our field operations; and

    lower expenses of approximately $0.6 million related to our personnel, accounting fees, and other expenses associated with our operations in the United Kingdom;

        The decrease was partially offset by:

    an increase in information technology expenses of approximately $0.9 million related to consulting fees; and

    an increase in professional fees of approximately $0.4 million incurred in connection with the recovery of income taxes recognized in prior periods.

        In addition, we received approximately $1.4 million in insurance proceeds related to the reimbursement of legal expenses recognized in prior periods that reduced legal expenses during the year ended December 31, 2009. This was offset by higher legal expenses during the period.

        Legal settlements.    The amounts reflected as legal settlements relate to the charges during the year ended December 31, 2009 of approximately $5.7 million for the settlement of the McGinnis class-action litigation in Arkansas, approximately $0.9 million for the proposed settlement in the consolidated class-action litigation in South Carolina, and approximately $0.4 million for the settlement of the King and Strong class-action litigation in Georgia. Offsetting these amounts are approximately $0.6 million in insurance reimbursements related to the King and Strong class-action litigation in Georgia. For the year ended December 31, 2008, the amount relates to charges accrued of approximately $1.95 million for the settlement of the King and Strong class-action litigation in Georgia.

        Interest expense.    The decrease in interest expense for the year ended December 31, 2009, as compared to 2008 was due to a decrease in the average interest rates and the average outstanding balance during the period.

        (Gain)/Loss on disposal of property and equipment.    The favorable change in this item for the year ended December 31, 2009 compared to 2008 was primarily due to insurance proceeds of approximately $0.5 million being recognized during the period.

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        Loss on impairment of assets.    Loss on impairment of assets in the year ended December 31, 2009 and 2008 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, 2009 as compared to 2008 was primarily due to a reduction in state taxes as a result of claims filed for recovery of income taxes recognized in prior years, and to significantly reduce nondeductible lobbying expenditures and other discrete items.

Liquidity and Capital Resources

        The following table presents a summary of cash flows for the years ended December 31, 2008, 2009, and 2010 (in thousands):

 
   
   
   
  2009 vs. 2008
Variance
  2010 vs. 2009
Variance
 
  2008   2009   2010   Dollars   %   Dollars   %

Cash flows provided by (used in):

                                     
 

Operating activities

  $ 186,227   $ 182,087   $ 134,541   $ (4,140 ) (2.2)%   $ (47,546 ) (26.1)%
 

Investing activities

    (125,674 )   (93,001 )   (99,333 )   32,673   26.0%     (6,332 ) (6.8)%
 

Financing activities

    (72,164 )   (66,884 )   (46,267 )   5,280   7.3%     20,617   30.8%
 

Effect of exchange rate changes on cash and cash equivalents

    (623 )   (30 )   (182 )   593   95.2%     (152 ) (506.7)%
                             

Net increase (decrease) in cash and cash equivalents

    (12,234 )   22,172     (11,241 )   34,406   281.2%     (33,413 ) (150.7)%

Cash and cash equivalents, beginning of period

    28,251     16,017     38,189     (12,234 ) (43.3)%     22,172   138.4%
                             

Cash and cash equivalents, end of period

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

        Our principal sources of cash are from operations and from borrowings under our revolving credit facility. See "Certain Contractual Cash Commitments—Long-Term Debt Obligations" in this section for a detailed description of our revolving 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 $270.0 million revolving credit facility to fund our advances and to meet our other liquidity needs. Our day-to-day balances under our revolving 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 revolving credit facility. Our borrowings under our revolving 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

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$1.0 million, or 0.5%, to $205.2 million at December 31, 2010, compared to $204.2 million at December 31, 2009.

        During the years ended December 31, 2009 and 2010, we repurchased 16,960 and 64,594 shares, respectively, of our common stock at a cost of approximately $76,700 and $334,234, respectively. During the years ended December 31, 2010 and 2009, these amounts include 64,594 and 16,960 shares of our common stock, respectively, that 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. Based on the average of the high and low stock price on the dates of surrender, the shares surrendered in 2009 and 2010 had an aggregate value of approximately $76,700 and $334,234, respectively.

        Although our revolving 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. 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 revolving credit facility.

    Cash Flows from Operating Activities

        Net cash provided by operating activities in 2010 as compared to 2009 decreased approximately 26.1% to $134.5 million. The decrease in operating cash flows was attributable to a decrease of approximately $20.0 million in non-cash expense items, an increase over prior year of legal settlement charges of approximately $12.2 million, and a greater net increase of approximately $9.1 million in operating assets and liabilities. The decrease in non-cash expenses was primarily due to a decrease in the allowance for doubtful accounts of approximately $20.3 million, which was partially offset by an increase in loss on disposal of property, plant, and equipment of approximately $0.4 million.

        Net cash provided by operating activities in 2009 as compared to 2008 decreased approximately 2.2% to $182.1 million. The decrease in operating cash flows was attributable to the net change of $21.1 million in non-cash expense items. This was partially offset by an increase in net income of $15.7 million and an increase in operating assets and liabilities of $1.2 million. The decrease in non-cash expenses was primarily due to a decrease in the allowance for doubtful accounts of $11.2 million, a change in deferred income taxes of approximately $7.5 million, and a decrease in depreciation expense of $3.8 million, which was partially offset by an increase in loss on impairment of assets of approximately $2.5 million. The increase in operating assets and liabilities is primarily due to a decrease in deferred revenue of approximately $6.9 million and a decrease in accrued liabilities of approximately $4.9 million, partially offset by an increase in accounts payable of approximately $4.0 million.

    Cash Flows from Investing Activities

        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.

        Net cash used in investing activities in 2009 as compared to 2008 decreased approximately 26.0% to $93.0 million. The decrease was primarily related to decreases in advances receivable of $27.4 million and a decrease in purchases of property and equipment of approximately $4.9 million.

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    Cash Flows from Financing Activities

        Net cash used in financing activities in 2010 as compared to 2009 decreased 30.8% to $46.3 million. During the year ended December 31, 2010, net payments on indebtedness, including the revolving credit facility, decreased by approximately $18.7 million to $30.0 million, and the change in book overdrafts decreased by approximately $2.4 million. Dividend payments were approximately $15.4 million and $15.3 million in 2010 and 2009, respectively.

        Net cash used in financing activities in 2009 as compared to 2008 decreased 7.3% to $66.9 million. In 2009, we had net repayments on indebtedness, including the revolving credit facility, of approximately $48.7 million compared to 2008 net borrowings on indebtedness of approximately $47.0 million. Dividend payments were approximately $15.3 million and $28.3 million in 2009 and 2008, respectively, and purchases of treasury stock were approximately $0.1 million and $89.0 million in 2009 and 2008, respectively.

Capital Expenditures

        For the years ended December 31, 2008, 2009, and 2010, we spent $9.7 million, $4.8 million, and $6.1 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 CSO, we offer a fee-based credit services package to assist customers in trying to improve their credit and in obtaining 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, 2009 and 2010, the third-party lender's outstanding advances and interest receivable (which were not recorded on our balance sheet) totaled approximately $19.7 million and $22.8 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, 2009 and 2010 was approximately $4.5 million and $5.4 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 17. Transactions with Variable Interest Entities."

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Certain Contractual Cash Commitments

        Our principal future contractual obligations and commitments as of December 31, 2010, including periodic interest payments, included the following (in thousands):

 
   
  Payment due by December 31,  
Contractual Cash Obligations
  Total   2011   2012   2013   2014   2015   2016 and
thereafter
 

Long-term debt obligations:

                                           
 

Revolving credit facility

  $ 111,930   $   $   $ 111,930   $   $   $  
 

Mortgage payable

    4,113     513     552     594     638     687     1,129  
 

Note payable

    254     254                      

Interest payable on long-term debt obligations

    1,068     286     245     203     158     110     66  

Operating lease obligations(1)

    113,966     53,781     36,639     18,482     3,556     955     553  

Purchase obligations

    9,805     8,800     996     9              
                               
 

Total

  $ 241,136   $ 63,634   $ 38,432   $ 131,218   $ 4,352   $ 1,752   $ 1,748  
                               

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

    Long-Term Debt Obligations

        In March 2008, we entered into an amendment and restatement of our prior credit facility with a syndicate of banks. As amended and restated, our revolving credit facility now provides us with a $270.0 million revolving line of credit, including the ability to issue up to $25.0 million in letters of credit. Our revolving credit facility matures on March 24, 2013. We have the option to increase the revolving credit facility by an additional $95.0 million upon receipt of sufficient commitments from lenders in the lending syndicate and other eligible lenders as defined in the credit agreement. Any portion of our revolving credit facility that is repaid may be borrowed again subject to any limitations based on financial covenants. In July 2008, we amended our credit facility to modify the consolidated net worth test to reduce the requirement by the cost of repurchases of common stock made after January 1, 2008.

        As of December 31, 2010, we had approximately $112.0 million outstanding on the revolving portion of our credit facility and approximately $8.5 million of commitments under outstanding letters of credit, leaving approximately $149.5 million available for future borrowings under this credit facility, subject to additional limitations based on certain financial covenants. As of December 31, 2010, the senior leverage covenant restricted that additional availability to approximately $62.4 million.

        In general, our borrowings under our revolving credit facility 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, the administrative agent under the revolving credit facility; and (ii) the sum of the federal funds rate plus 0.50%. The applicable margin is determined each quarter by a pricing grid based on our total leverage ratio of consolidated debt to consolidated earnings before interest, taxes, depreciation, and amortization ("EBITDA") as defined in the credit agreement. The base rate applicable margin ranges from 1.50% to 2.25% based upon our total leverage ratio. The LIBOR-based applicable margin ranges from 2.50% to 3.25% based upon our total leverage ratio. As of December 31, 2010, the applicable margin for the prime-based rate was 1.75% and the applicable margin for the LIBOR-based rate was 2.75%.

        The applicable rate is chosen when we request a draw down under the revolving credit facility and is based on the forecasted working capital requirements and the required notice period for each type of

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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 revolving credit facility are guaranteed by each of our domestic subsidiaries. Our borrowings under the revolving credit facility are collateralized by substantially all of our assets and the assets of our subsidiaries. In addition, our borrowings under the revolving credit facility are secured by a pledge of all of the capital stock, or similar equity interests, of our domestic subsidiaries and 65% of the voting capital stock, or similar equity interests, of our foreign subsidiaries. Our revolving credit facility contains various financial covenants that require, among other things, the maintenance of minimum net worth, maximum leverage and senior leverage, minimum fixed charge coverage and maximum charge-off ratios. The maximum leverage allowed under the revolving credit facility is three and one half times trailing twelve month EBITDA, as defined in the credit agreement. The maximum senior leverage allowed under the revolving credit facility is two times trailing twelve month EBITDA as defined in the credit agreement. Our trailing twelve month EBITDA, as defined in the credit agreement, and including pro forma adjustments for acquisitions, as of December 31, 2010 was approximately $94.0 million. The charge-off ratio, as defined in the revolving credit facility, 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, 2010, our charge off ratio was 3.37% and was calculated based on average monthly charge-offs of $9.0 million and average transaction receivables of $267.2 million, and we had charge-offs of $33.2 million during the three months ended December 31, 2010. We could have charged off an additional $36.3 million for the three months ended December 31, 2010 within the limits of this covenant. The revolving credit facility 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 revolving credit facility 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 $1.0 million in the aggregate, (v) bankruptcy, insolvency, or other similar proceedings, (vi) our inability to pay debts, (vii) monetary judgment defaults in excess of $1.0 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 revolving credit facility to become immediately due and payable. We were in compliance with all financial covenants at December 31, 2010. See "Liquidity and Capital Resources" in this section for a description of how we utilize the revolving credit facility to meet our liquidity needs.

        We borrow under our revolving credit facility to fund our advances and our other liquidity needs. Our day-to-day balances under our revolving 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

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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 revolving credit facility. Our borrowings under our revolving 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.

        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 $4.6 million and $4.1 million at December 31, 2009 and 2010, 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. The carrying amount of our corporate headquarters (land, land improvements, and building) was approximately $4.6 million and $4.4 million at December 31, 2009 and 2010, 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. In addition, on July 13, 2009, the Company entered into a one-year Aircraft Dry Lease Agreement with Carabo Capital, LLC, an entity of which the Company's current Chairman is a member. Under the Aircraft Dry Lease, the Company may use Carabo's aircraft from time to time in exchange for one dollar, standard usage expenses, and the Company's fulfillment of its obligations under the Aircraft Dry Lease. See "Item 8. Financial Statements and Supplementary Data—Note 14. 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, 2010, our purchase obligations totaled approximately $9.8 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:

    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 law that imposes a national cap on our fees and interest or prohibits or severely restricts cash advance services would likely eliminate our ability to continue our current operations;

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

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

    our ability to find growth opportunities and to identify and successfully implement new product and service offerings;

    the effect of the current adverse economic conditions on our revenues and loss rates;

    our ability to prevent unauthorized disclosures of sensitive or confidential customer data;

    the possible impairment of goodwill;

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

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

    the availability of adequate financing;

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

    our ability to operate on a profitable basis in Canada and the United Kingdom;

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

    theft and employee errors; and

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    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, 2009 and 2010. The weighted average interest rate on our $141.1 million of variable interest debt as of December 31, 2009 was approximately 3.13%. The weighted average interest rate on our $112.0 million of variable interest debt as of December 31, 2010 was approximately 3.36%.

        We had total interest expense of $11.2 million, $6.2 million, and $4.9 million for the years ended December 31, 2008, 2009, and 2010, respectively. The estimated change in interest expense from a hypothetical 200 basis-point change in applicable variable interest rates would have been approximately $3.4 million in 2008, $3.0 million in 2009, and $2.0 million in 2010.

    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, 2009 and 2010.

        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, 2009 and 2010 by approximately $1.9 million and $2.2 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, 2010 and December 31, 2009, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2010 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, 2010, 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     , 2011

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Advance America, Cash Advance Centers, Inc.

Consolidated Balance Sheets

December 31, 2009 and December 31, 2010

(in thousands, except per share data)

 
  2009   2010  

Assets

             

Current assets

             
 

Cash and cash equivalents

  $ 38,189   $ 26,948  
 

Advances and fees receivable, net

    204,234     205,207  
 

Deferred income taxes

    19,145     18,615  
 

Other current assets

    17,383     19,869  
           
   

Total current assets

    278,951     270,639  

Restricted cash

    4,366     3,752  

Property and equipment, net

    31,839     25,054  

Goodwill

    127,031     126,914  

Customer lists and relationships, net

        2,282  

Other assets

    3,964     3,011  
           
   

Total assets

  $ 446,151   $ 431,652  
           

Liabilities and Stockholders' Equity

             

Current liabilities

             
 

Accounts payable

  $ 13,562   $ 12,554  
 

Accrued liabilities

    31,432     37,939  
 

Income taxes payable

    11,400     42  
 

Accrual for third-party lender losses

    4,528     5,420  
 

Current portion of long-term debt

    851     767  
           
   

Total current liabilities

    61,773     56,722  

Revolving credit facility

    141,058     111,930  

Long-term debt

    4,367     3,600  

Deferred income taxes

    23,349     23,148  

Deferred revenue

    2,717     890  

Other liabilities

    274     321  
           
   

Total liabilities

    233,538     196,611  
           

Commitments and contingencies (Note 12)

             

Stockholders' equity

             
 

Preferred stock, par value $.01 per share, 25,000 shares authorized; no shares issued and outstanding

         
 

Common stock, par value $.01 per share, 250,000 shares authorized; 96,821 shares issued and 61,614 and 62,148 outstanding as of December 31, 2009 and 2010, respectively

    968     968  

Paid in capital

    290,146     290,753  

Retained earnings

    182,765     203,001  

Accumulated other comprehensive loss

    (1,934 )   (1,885 )

Common stock in treasury (35,207 and 34,673 shares at cost at December 31, 2009 and 2010, respectively)

    (259,332 )   (257,796 )
           
   

Total stockholders' equity

    212,613     235,041  
           
   

Total liabilities and stockholders' equity

  $ 446,151   $ 431,652  
           

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, 2008, 2009, and 2010

(in thousands, except per share data)

 
  2008   2009   2010  

Total revenues

  $ 676,436   $ 647,676   $ 600,233  
               

Center Expenses:

                   
 

Salaries and related payroll costs

    196,951     185,599     179,617  
 

Provision for doubtful accounts

    135,857     124,575     104,228  
 

Occupancy costs

    100,315     94,370     87,457  
 

Center depreciation expense

    16,698     13,174     9,806  
 

Advertising expense

    20,304     22,232     20,898  
 

Other center expenses

    48,652     45,606     43,124  
               
   

Total center expenses

    518,777     485,556     445,130  
               
     

Center gross profit

    157,659     162,120     155,103  

Corporate and Other Expenses (Income):

                   

General and administrative expenses

    68,291     55,363     61,892  

General and administrative expenses with related parties

    277     1,163     635  

Legal settlements

    1,950     6,427     18,608  

Corporate depreciation and amortization expense

    3,033     2,714     2,306  

Interest expense

    11,188     6,241     4,858  

Interest income

    (128 )   (238 )   (74 )

(Gain)/loss on disposal of property and equipment

    551     (50 )   413  

Loss on impairment of assets

    486     2,987     654  
               
   

Income before income taxes

    72,011     87,513     65,811  

Income tax expense

    33,540     33,310     30,048  
               
   

Net income

  $ 38,471   $ 54,203   $ 35,763  
               

Net income per common share:

                   
   

Basic

  $ 0.60   $ 0.89   $ 0.59  
   

Diluted

  $ 0.60   $ 0.88   $ 0.58  

Dividends declared per common share

  $ 0.44   $ 0.25   $ 0.25  

Weighted average number of shares outstanding:

                   
   

Basic

    64,233     60,868     61,054  
   

Diluted

    64,233     61,667     61,440  

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, 2008, 2009, and 2010

(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, 2007

    96,821   $ 968   $ 286,999   $ 133,789   $ (75 )   (23,874 ) $ (171,390 ) $ 250,291  

Comprehensive income:

                                                 
 

Net income

                38,471                 38,471  
 

Foreign currency translation

                    (2,510 )           (2,510 )
                                   

Total comprehensive income

                                              35,961  

Dividends paid ($0.44 per share)

                (28,251 )               (28,251 )

Dividends payable

                (48 )               (48 )

Purchases of treasury stock

                        (11,922 )   (88,962 )   (88,962 )

Issuance of restricted stock

                        42          

Forfeitures of restricted stock

                                 

Vesting of restricted stock issued from treasury stock

            (490 )               490      

Amortization of restricted stock

            862                     862  

Stock option expense

            1,309                     1,309  

Issuance of common stock to director in lieu of cash

            (45 )           20     142     97  
                                   

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 ($0.25 per share)

                (15,296 )               (15,296 )

Dividends payable

                (103 )               (103 )

Purchases of treasury stock

                        (17 )   (76 )   (76 )

Issuance of restricted stock

                        570          

Vesting of restricted stock issued from treasury stock

            (433 )               433      

Forfeitures of restricted stock

                        (30 )        

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      

Vesting of restricted stock issued from treasury stock

            (1,763 )               1,763      

Forfeitures of restricted stock

                        (42 )        

Amortization of restricted stock

            1,633                     1,633  

Stock option expense

            975