UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2007

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

For the transition period from                      to                     

(Exact name of registrant as specified in its charter)

Texas		75-2018239
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)
1600 West 7th Street
Fort Worth, Texas		76102
(Address of principal executive offices)		(Zip Code)

(817) 335-1100
(Registrant’s telephone number, including area code)
NONE
(Former name, former address and former fiscal year, if changed since last report)

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

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ      Accelerated filer o       Non-accelerated filer o

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

APPLICABLE ONLY TO CORPORATE ISSUERS:

     29,698,332 common shares, $.10 par value, were outstanding as of April 13, 2007

 

 

CASH AMERICA INTERNATIONAL, INC.

		Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets – March 31, 2007, 2006 and December 31, 2006			1
Consolidated Statements of Income – Three Months Ended March 31, 2007 and 2006			2
Consolidated Statements of Stockholders’ Equity – March 31, 2007 and 2006			3
Consolidated Statements of Comprehensive Income – Three Months Ended March 31, 2007 and 2006			3
Consolidated Statements of Cash Flows – Three Months Ended March 31, 2007 and 2006			4
Notes to Consolidated Financial Statements			5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			14
Item 3. Quantitative and Qualitative Disclosures About Market Risk			29
Item 4. Controls and Procedures			30
PART II. OTHER INFORMATION
Item 1. Legal Proceedings			30
Item 1A. Risk Factors			30
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			31
Item 5. Other Information			31
Item 6. Exhibits			32
SIGNATURE			33
Amendment No. 2 to Asset Purchase Agreement
Form of 2007 Restricted Stock Unit Award Agreement
Certification of Chief Executive Officer
Certification of Chief Financial Officer
Certification of CEO Pursuant to Section 906
Certification of CFO Pursuant to Section 906

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES

		March 31,								December 31,
		2007				2006				2006
		(Unaudited)
Assets
Current assets:
Cash and cash equivalents		$	25,728			$	16,667			$	25,723
Pawn loans			112,009				103,031				127,384
Cash advances, net			67,384				29,704				79,975
Merchandise held for disposition, net			80,798				65,594				87,060
Finance and service charges receivable			22,338				19,140				25,377
Other receivables and prepaid expenses			19,058				15,533				16,128
Deferred tax assets			17,609				9,142				16,324
Total current assets			344,924				258,811				377,971
Property and equipment, net			124,752				97,173				119,261
Goodwill			238,836				175,596				238,499
Intangible assets, net			26,564				22,754				27,477
Other assets			12,810				11,234				13,036
Total assets		$	747,886			$	565,568			$	776,244
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued expenses		$	57,169			$	34,246			$	91,217
Customer deposits			8,358				7,295				7,464
Income taxes currently payable			12,000				6,324				2,691
Current portion of long-term debt			16,786				16,786				16,786
Total current liabilities			94,313				64,651				118,158
Deferred tax liabilities			13,483				10,853				12,770
Other liabilities			1,573				1,606				1,625
Long-term debt			181,330				92,270				202,963
Total liabilities			290,699				169,380				335,516
Stockholders’ equity:
Common stock, $.10 par value per share, 80,000,000 shares authorized, 30,235,164 shares issued			3,024				3,024				3,024
Additional paid-in capital			161,858				157,750				161,683
Retained earnings			306,157				244,630				287,962
Accumulated other comprehensive income			9				34				20
Notes receivable secured by common stock			(18	)			(382	)			(18	)
Treasury shares, at cost (592,192 shares, 706,799 shares and 565,840 shares at March 31, 2007 and 2006, and December 31, 2006, respectively)			(13,843	)			(8,868	)			(11,943	)
Total stockholders’ equity			457,187				396,188				440,728
Total liabilities and stockholders’ equity		$	747,886			$	565,568			$	776,244

See notes to consolidated financial statements.

CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES

		Three Months Ended
		March 31,
		2007				2006
		(Unaudited)
Revenue
Finance and service charges		$	38,431			$	35,055
Proceeds from disposition of merchandise			100,168				87,124
Cash advance fees			78,516				35,439
Check cashing fees, royalties and other			5,752				5,337
Total Revenue			222,867				162,955
Cost of Revenue
Disposed merchandise			61,925				52,742
Net Revenue			160,942				110,213
Expenses
Operations			72,367				59,273
Cash advance loss provision			32,748				4,437
Administration			14,295				13,851
Depreciation and amortization			7,534				6,353
Total Expenses			126,944				83,914
Income from Operations			33,998				26,299
Interest expense			(3,748	)			(2,436	)
Interest income			418				378
Foreign currency transaction gain			44				65
Income before Income Taxes			30,712				24,306
Provision for income taxes			11,478				8,918
Net Income		$	19,234			$	15,388
Net Income Per Share:
Basic		$	0.64			$	0.52
Diluted		$	0.63			$	0.51
Weighted average common shares outstanding:
Basic			29,873				29,514
Diluted			30,602				30,385
Dividends declared per common share		$	0.035			$	0.025

See notes to consolidated financial statements.

CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES

		March 31,
		2007								2006
		Shares				Amounts				Shares				Amounts
						(Unaudited)
Common stock
Balance at end of period			30,235,164			$	3,024				30,235,164			$	3,024
Additional paid-in capital
Balance at beginning of year							161,683								156,557
Exercise of stock options							—								(498	)
Issuance of shares under restricted stock units plan							(751	)							(353	)
Stock-based compensation							717								587
Income tax benefit from stock based compensation							209								1,457
Balance at end of period							161,858								157,750
Retained earnings
Balance at beginning of year							287,962								229,975
Net income							19,234								15,388
Dividends declared							(1,039	)							(733	)
Balance at end of period							306,157								244,630
Accumulated other comprehensive income (loss)
Balance at beginning of year							20								(5	)
Unrealized derivatives gain (loss)							(11	)							39
Balance at end of period							9								34
Notes receivable secured by common stock
Balance at beginning of year							(18	)							(2,488	)
Payments on notes receivable							—								2,106
Balance at end of period							(18	)							(382	)
Treasury shares, at cost
Balance at beginning of year			(565,840	)			(11,943	)			(999,347	)			(12,347	)
Purchases of treasury shares			(60,850	)			(2,651	)			(1,007	)			(133	)
Exercise of stock options			—				—				264,813				3,259
Issuance of shares under restricted stock units plan			34,498				751				28,742				353
Balance at end of period			(592,192	)			(13,843	)			(706,799	)			(8,868	)
Total Stockholders’ Equity						$	457,187							$	396,188

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)

		Three Months Ended
		March 31,
		2007				2006
		(Unaudited)
Net income		$	19,234			$	15,388
Other comprehensive income (loss):
Interest rate cap valuation adjustments			(12	)			60
Less: Applicable income taxes			1				21
Other comprehensive (loss) income, net			(11	)			39
Total Comprehensive Income		$	19,223			$	15,427

See notes to consolidated financial statements.

CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES

		Three Months Ended
		March 31,
		2007				2006
		(Unaudited)
Cash Flows from Operating Activities
Net income		$	19,234			$	15,388
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			7,534				6,353
Cash advance loss provision			32,748				4,437
Stock-based compensation			717				587
Foreign currency transaction gain			(44	)			(65	)
Changes in operating assets and liabilities -
Merchandise held for disposition			3,435				3,034
Finance and service charges receivable			2,295				2,503
Other receivables and prepaid expenses			(2,382	)			(2,069	)
Accounts payable and accrued expenses			361				(2,835	)
Customer deposits, net			894				959
Current income taxes			9,518				6,332
Excess income tax benefit from stock-based compensation			(209	)			(1,457	)
Deferred income taxes, net			(571	)			1,620
Net cash provided by operating activities			73,530				34,787
Cash Flows from Investing Activities
Pawn loans made			(92,261	)			(84,693	)
Pawn loans repaid			62,751				60,216
Principal recovered through dispositions of forfeited loans			48,231				41,833
Cash advances made, assigned or purchased			(252,913	)			(138,350	)
Cash advances repaid			233,636				145,077
Acquisitions, net of cash acquired			(35,640	)			(1,729	)
Purchases of property and equipment			(11,933	)			(7,841	)
Net cash (used) provided by investing activities			(48,129	)			14,513
Cash Flows from Financing Activities
Net repayments under bank lines of credit			(17,347	)			(52,653	)
Payments on notes payable			(4,286	)			(4,286	)
Loan costs paid			(282	)			(4	)
Proceeds from exercise of stock options			—				2,761
Excess income tax benefit from stock-based compensation			209				1,457
Repayments of notes receivable secured by common stock			—				2,106
Treasury shares purchased			(2,651	)			(133	)
Dividends paid			(1,039	)			(733	)
Net cash used by financing activities			(25,396	)			(51,485	)
Net increase (decrease) in cash and cash equivalents			5				(2,185	)
Cash and cash equivalents at beginning of year			25,723				18,852
Cash and cash equivalents at end of period		$	25,728			$	16,667
Supplemental Disclosures
Non-cash investing and financing activities –
Pawn loans forfeited and transferred to merchandise held for disposition		$	45,289			$	37,440
Pawn loans renewed		$	17,911			$	19,234
Cash advances renewed		$	66,875			$	3,935

See notes to consolidated financial statements.

CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES

1. Significant Accounting Policies

Basis of Presentation

     The consolidated financial statements include the accounts of Cash America International, Inc. and its majority-owned subsidiaries (the “Company”). All significant intercompany accounts and transactions have been eliminated in consolidation.

     The financial statements as of March 31, 2007 and 2006 and for the three-month periods then ended, are unaudited but, in management’s opinion, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for such interim periods. Operating results for the three months are not necessarily indicative of the results that may be expected for the full fiscal year.

     Certain amounts in the consolidated financial statements for the three months ended March 31, 2006 have been reclassified to conform to the presentation format adopted in 2007. These reclassifications have no effect on the net income previously reported.

     These financial statements and related notes should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2006 Annual Report to Stockholders.

Revenue Recognition

Pawn Lending • Pawn loans are made on the pledge of tangible personal property. The Company accrues finance and service charges revenue only on those pawn loans that the Company deems collectible based on historical loan redemption statistics. Pawn loans written during each calendar month are aggregated and tracked for performance. The gathering of this empirical data allows the Company to analyze the characteristics of its outstanding pawn loan portfolio and estimate the probability of collection of finance and service charges. For loans not repaid, the carrying value of the forfeited collateral (“merchandise held for disposition”) is stated at the lower of cost (cash amount loaned) or market. Revenue is recognized at the time that merchandise is sold. Interim customer payments for layaway sales are recorded as customer deposits and subsequently recognized as revenue during the period in which the final payment is received.

Cash Advances • Cash advances provide customers with cash in exchange for a promissory note or other repayment agreement supported, in most cases, by that customer’s personal check or authorization to debit that customer’s account via an Automated Clearing House (“ACH”) transaction for the aggregate amount of the payment due. To repay the cash advance, a customer may pay cash, or, as applicable, allow the check to be presented for collection, or allow the customer’s checking account to be debited through an ACH for the amount due. The Company accrues fees and interest on cash advances on a constant yield basis ratably over the period of the cash advance, pursuant to its terms. (Although cash advance transactions may take the form of loans or deferred check deposit transactions, the transactions are referred to throughout this report as “cash advances” for convenience.)

CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

     The Company provides a cash advance product in some markets under a credit services organization program, whereby the Company assists in arranging loans for customers from independent third-party lenders. The Company also guarantees the customer’s payment obligations in the event of default if the customer is approved for and accepts the loan. The borrower pays fees to the Company under the credit services organization program (“CSO fees”) for performing services on the borrower’s behalf, including credit services, and for agreeing to guaranty the borrower’s payment obligations to the lender. As a result of providing the guaranty, the CSO fees are deferred and amortized over the term of the loan and recorded as cash advance fees in the accompanying consolidated statements of income. The contingent loss on the guaranteed loans is accrued and recorded as a liability. See Note 4.

Check Cashing Fees, Royalties and Other • The Company records fees derived from its owned check cashing locations and many of its lending locations in the period in which the service is provided. Royalties derived from franchise locations are recorded on an accrual basis. Other revenues derived from other financial services such as money order commissions, prepaid debit card fees, etc. are recognized when earned.

Allowance for Losses on Cash Advances

     In order to manage the portfolio of cash advances effectively, the Company utilizes a variety of underwriting criteria, monitors the performance of the portfolio, and maintains either an allowance or accrual for losses.

     The Company maintains either an allowance or accrual for losses on cash advances (including fees and interest) at a level estimated to be adequate to absorb credit losses inherent in the outstanding combined Company and third-party lender portfolio (the portion owned by independent third-party lenders). The allowance for losses on Company-owned cash advances offsets the outstanding cash advance amounts in the consolidated balance sheets. Active third-party lender-originated cash advances are not included in the consolidated balance sheets. An accrual for contingent losses on third-party lender-owned cash advances that are guaranteed by the Company is maintained and included in “Accounts payable and accrued expenses” in the consolidated balance sheets.

     Cash advances written during each calendar month are aggregated and tracked to develop a performance history. The Company stratifies the outstanding combined portfolio by age, delinquency, and stage of collection when assessing the adequacy of the allowance for losses. Historical collection performance adjusted for recent portfolio performance trends is utilized to develop expected loss rates to establish either the allowance or accrual. Increases in either the allowance or accrual are created by recording a cash advance loss provision in the consolidated statements of income. The Company charges off all cash advances once they have been in default for 60 days or sooner if deemed uncollectible. Recoveries on losses previously charged to the allowance are credited to the allowance when collected.

     Periodically, the Company’s online distribution channel sells selected cash advances which have been previously written off. Proceeds from these sales are recorded as recoveries on losses previously charged to the allowance for losses.

Income Taxes

     Beginning January 1, 2007, the Company has accounted for uncertainty in income taxes recognized in the financial statements in accordance with Financial Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes”(“FIN 48”). FIN 48 requires that a more-likely-than-not threshold be met before the benefit of a tax position may be recognized in the financial statements and prescribes how such benefit should be measured. It also provides guidance on derecognition, classification,

CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

interest and penalties, accounting in interim periods, disclosure and transition. It requires that the new standard be applied to the balances of assets and liabilities as of the beginning of the period of adoption and that a corresponding adjustment be made to the opening balance of retained earnings. See Note 2.

Recent Accounting Pronouncements

     In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value to be the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and emphasizes that fair value is a market-based measurement, not an entity-specific measurement. It establishes a fair value hierarchy and expands disclosures about fair value measurements in both interim and annual periods. SFAS 157 will be effective for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The Company does not expect SFAS 157 to have a material effect on the Company’s consolidated financial position or results of operations but anticipates additional disclosures when it becomes effective.

     In February 2007, FASB issued Statement of Financial Accounting Standards No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 permits entities to choose, at specified election dates, to measure eligible items at fair value (the “fair value option”) and requires an entity to report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. Upfront costs and fees related to items for which the fair value option is elected shall be recognized in earnings as incurred and not deferred. SFAS 159 will be effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact of adopting SFAS 159.

2. Income Taxes

     The Company adopted the provisions of FIN 48 on January 1, 2007. As of the date of adoption, the Company had no unrecognized tax benefits and thus had accrued no interest or penalties on such benefits. At adoption, the Company did not anticipate a significant increase in unrecognized tax benefits during the subsequent 12 months. As of January 1, 2007, the Company’s 2003 through 2006 tax years were open to examination by the Internal Revenue Service and major state taxing jurisdictions. There were no material changes in these items during the current quarter.

     While the Company typically does not incur significant interest or penalties on income tax liabilities, it is the Company’s policy to classify such amounts as interest expense and administrative expense, respectively. The Company did not change its policy on classification of interest and penalties upon adoption of FIN 48.

3. Acquisitions

     Pursuant to its business strategy of expanding its reach into new markets with new customers and new financial services, on September 15, 2006, the Company, through its wholly-owned subsidiary Cash America Net Holdings, LLC, purchased substantially all of the assets of The Check Giant LLC (“TCG”.) TCG offered short-term cash advances exclusively over the internet under the name “CashNetUSA.” The Company paid an initial purchase price of approximately $35.9 million in cash and transaction costs of approximately $2.9 million, and has continued to use the CashNetUSA trade name in connection with its online operations.

     The Company also agreed to pay up to five supplemental earn-out payments during the two-year period after the closing. The amount of each supplemental payment will be based on a multiple of earnings

CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

attributable to CashNetUSA’s business for the twelve months preceding the date of determining each scheduled supplemental payment. Each supplemental payment will be reduced by amounts previously paid. The supplemental payments are to be paid in cash within 45 days of the payment measurement date. The Company may, at its option, pay up to 25% of each supplemental payment in shares of its common stock based on an average share price as of the measurement date. Substantially all of these supplemental payments will be accounted for as goodwill. The first supplemental payment of approximately $33.8 million, which was paid in February 2007 in cash, was based on the trailing twelve months earnings of CashNetUSA through December 31, 2006 and reflects adjustments for amounts previously paid. Another supplemental payment was scheduled based on the trailing twelve months earnings of CashNetUSA as of March 31, 2007. Management has not included an accrual for this payment because the defined multiple of earnings reduced the amount payable at March 31, 2007 to a figure below the cumulative amount paid through December 31, 2006. Pursuant to the terms of the purchase agreement with CashNetUSA, the March 31 and September 30, 2007 measurement dates are calculated at 5.5 times trailing twelve month earnings.

     During the quarter ended March 31, 2007, the Company also acquired a pawnshop and made payment on a shop over which it acquired management control in December 2006 with aggregate cash payments of $931,000.

4.

Cash Advances, Allowance for Losses and Accruals for Losses on Third-Party Lender-Owned Cash Advances

     The Company offers cash advance products through its cash advance locations, most of its pawnshops and over the internet through CashNetUSA. The cash advance products are generally offered as single payment cash advance loans. These cash advance loans typically have terms of 7 to 45 days and are generally payable on the customer’s next payday. The Company originates cash advances in some of its locations and arranges for customers to obtain cash advances from independent third-party lenders in other locations. In a cash advance transaction, a customer executes a promissory note or other repayment agreement typically supported by that customer’s personal check or authorization to debit the customer’s checking account via an ACH transaction. Customers may repay the amount due with cash, by allowing their check to be presented for collection, or by allowing their checking account to be debited via an ACH transaction.

     The Company provides services in connection with single payment cash advances originated by independent third-party lenders, whereby the Company acts as a credit services organization on behalf of consumers in accordance with applicable state laws (the “CSO program”). Such program includes arranging loans with independent third-party lenders, assisting in the preparation of loan applications and loan documents, and accepting loan payments at the location where the loans were arranged. To assist the customer in obtaining a loan through the CSO program, the Company also, as part of the credit services it provides to the customer, guarantees, on behalf of the customer, the customer’s payment obligations to the third-party lender under the loan. A customer who obtains a loan through the CSO program pays the Company a fee for the credit services, including the guaranty, and enters into a contract with the Company governing the credit services arrangement. Losses on cash advances acquired by the Company as a result of its guaranty obligations are the responsibility of the Company. As of March 31, 2007, the CSO program was offered in Texas and Florida. The Company discontinued the CSO program in Michigan in February 2007, and now offers only cash advances underwritten by the Company to customers in that state.

     If the Company collects a customer’s delinquent amount that exceeds the amount paid to the third-party lender pursuant to the terms of the guaranty, the Company is entitled to the excess and recognizes it in income when collected. Since the Company may not be successful in collection of these delinquent amounts, the Company’s cash advance loss provision includes amounts estimated to be adequate to absorb credit losses from cash advances in the aggregate cash advance portfolio, including those expected to be

CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

acquired by the Company as a result of its guaranty obligations. The estimated amounts of losses on portfolios owned by the third-party lenders are included in “Accounts payable and accrued expenses” in the consolidated balance sheets.

     Cash advances outstanding at March 31, 2007 and 2006, were as follows (in thousands):

		March 31,
		2007				2006
Funded by the Company
Active cash advances and fees receivable		$	57,077			$	24,677
Cash advances and fees in collection			21,436				4,479
Total Funded by the Company			78,513				29,156
Purchased by the Company from third-party lenders			12,012				4,089
Company-owned cash advances and fees receivable, gross			90,525				33,245
Less: Allowance for losses			23,141				3,541
Cash advances and fees receivable, net		$	67,384			$	29,704

     Changes in the allowance for losses for Company-owned portfolio and the accrued loss for third-party lender-owned portfolio during the three months ended March 31, 2007 and 2006, were as follows (in thousands):

		Three Months Ended
		March 31,
		2007				2006
Company-owned cash advances
Balance at beginning of period		$	19,513			$	6,309
Cash advance loss provision			32,648				4,706
Charge-offs			(32,511	)			(11,045	)
Recoveries			3,491				3,571
Balance at end of period		$	23,141			$	3,541
Accrual for third-party lender-owned cash advances
Balance at beginning of period		$	1,153			$	874
Increase (decrease) in loss provision			100				(269	)
Balance at end of period		$	1,253			$	605

     Cash advances assigned to the Company for collection were $18.1 million and $8.2 million, for the three months ended March 31, 2007 and 2006, respectively.

     During the quarter ended March 31, 2007, the Company’s online distribution channel sold selected cash advances which had been previously written off. These sales generated proceeds of $752,000 which were recorded as recoveries on losses previously charged to the allowance for losses.

CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5. Earnings Per Share Computation

     The following table sets forth the reconciliation of numerators and denominators for the basic and diluted earnings per share computation for the three months ended March 31, 2007 and 2006 (in thousands, except per share amounts):

		Three Months Ended
		March 31,
		2007				2006
Numerator:
Net income available to common stockholders		$	19,234			$	15,388
Denominator:
Weighted average common shares outstanding			29,664				29,365
Weighted average vested RSUs			150				85
Weighted average shares in non-qualified savings plan			59				64
Total weighted average basic shares			29,873				29,514
Effect of shares applicable to stock option plans			371				508
Effect of RSU compensation plans			358				363
Total weighted average diluted shares			30,602				30,385
Earnings per share:
Net income – Basic		$	0.64			$	0.52
Net income – Diluted		$	0.63			$	0.51

     The shares held in the Company’s non-qualified savings plan have been reclassified into the basic earnings per share computation as the distribution of those shares is not contingent upon future services. All prior periods presented have been restated to reflect this reclassification. There is no impact to the previously reported basic earnings per share.

6. Long-Term Debt

     The Company’s long-term debt instruments and balances outstanding at March 31, 2007 and 2006, were as follows (in thousands):

		March 31,
		2007				2006
Line of credit up to $250,000 due 2012		$	64,330			$	18,484
6.21% senior unsecured notes due 2021			25,000				—
6.09% senior unsecured notes due 2016			35,000				—
6.12% senior unsecured notes due 2015			40,000				40,000
7.20% senior unsecured notes due 2009			25,500				34,000
7.10% senior unsecured notes due 2008			4,286				8,572
8.14% senior unsecured notes due 2007			4,000				8,000
Total debt			198,116				109,056
Less current portion			16,786				16,786
Total long-term debt		$	181,330			$	92,270

     In March 2007, the Company amended the line of credit to extend the final maturity two years to February 2012 and modified certain terms of the credit agreement. Interest on the line of credit is charged, at the Company’s option, at either LIBOR plus a margin or at the agent’s base rate. The margin on the line of credit varies from 0.875% to 1.875% (1.125% at March 31, 2007), depending on the Company’s cash flow leverage ratios as defined in the agreement. The Company also pays a fee on the unused portion ranging from 0.25% to 0.30% (0.25% at March 31, 2007) based on the Company’s cash flow leverage ratios. The weighted average interest rate (including margin) on the line of credit at March 31, 2007 was 6.5%.

CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7. Operating Segment Information

     The Company has three reportable operating segments: pawn lending, cash advance and check cashing. The cash advance and check cashing segments are managed separately due to the different operational strategies required and, therefore, are reported as separate segments. To more accurately estimate the administrative expenses associated with each operating segment, the Company began in the second quarter of 2006 to allocate its aggregate administrative expenses on a different basis. Management believes that the current methodology creates a more balanced allocation among the segments based on the time, resources and activities associated with the Company’s administrative activities of each operating segment. In addition, check cashing fees, royalties and other income at pawn lending locations previously included in either proceeds from disposition of merchandise or netted into administration expenses are reclassified out of those line items. All prior periods in the tables below have been revised to reflect these changes. These revisions have not changed the consolidated performance of the Company for any period.

     Information concerning the operating segments is set forth below (in thousands):

		Pawn				Cash				Check
		Lending				Advance				Cashing				Consolidated
Three Months Ended March 31, 2007:
Revenue
Finance and service charges		$	38,431			$	—			$	—			$	38,431
Proceeds from disposition of merchandise			100,168				—				—				100,168
Cash advance fees			10,120				68,396				—				78,516
Check cashing fees, royalties and other			929				3,683				1,140				5,752
Total revenue			149,648				72,079				1,140				222,867
Cost of revenue – disposed merchandise			61,925				—				—				61,925
Net revenue			87,723				72,079				1,140				160,942
Expenses
Operations			47,116				24,944				307				72,367
Cash advance loss provision			2,844				29,904				—				32,748
Administration			9,321				4,697				277				14,295
Depreciation and amortization			5,007				2,426				101				7,534
Total expenses			64,288				61,971				685				126,944
Income from operations		$	23,435			$	10,108			$	455			$	33,998
As of March 31, 2007:
Total assets		$	526,088			$	214,648			$	7,150			$	747,886
Goodwill		$	142,052			$	91,474			$	5,310			$	238,836

CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

		Pawn				Cash				Check
		Lending				Advance				Cashing				Consolidated
Three Months Ended March 31, 2006:
Revenue
Finance and service charges		$	35,055			$	—			$	—			$	35,055
Proceeds from disposition of merchandise			87,124				—				—				87,124
Cash advance fees			9,648				25,791				—				35,439
Check cashing fees, royalties and other			687				3,499				1,151				5,337
Total revenue			132,514				29,290				1,151				162,955
Cost of revenue – disposed merchandise			52,742				—				—				52,742
Net revenue			79,772				29,290				1,151				110,213
Expenses
Operations			44,217				14,722				334				59,273
Cash advance loss provision			1,883				2,554				—				4,437
Administration			8,470				5,068				313				13,851
Depreciation and amortization			4,342				1,930				81				6,353
Total expenses			58,912				24,274				728				83,914
Income from operations		$	20,860			$	5,016			$	423			$	26,299
As of March 31, 2006:
Total assets		$	453,214			$	105,264			$	7,090			$	565,568
Goodwill		$	125,668			$	44,618			$	5,310			$	175,596

8. Litigation

     On August 6, 2004, James E. Strong filed a purported class action lawsuit in the State Court of Cobb County, Georgia against Georgia Cash America, Inc., Cash America International, Inc. (together with Georgia Cash America, Inc., “Cash America”), Daniel R. Feehan, and several unnamed officers, directors, owners and “stakeholders” of Cash America. The lawsuit alleges many different causes of action, among the most significant of which is that Cash America has been making illegal payday loans in Georgia in violation of Georgia’s usury law, the Georgia Industrial Loan Act and Georgia’s Racketeer Influenced and Corrupt Organizations Act. Community State Bank (“CSB”) for some time made loans to Georgia residents through Cash America’s Georgia operating locations. The complaint in this lawsuit claims that Cash America was the true lender with respect to the loans made to Georgia borrowers and that CSB’s involvement in the process was “a mere subterfuge.” Based on this claim, the suit alleges that Cash America is the “de facto” lender and is illegally operating in Georgia. The complaint seeks unspecified compensatory damages, attorney’s fees, punitive damages and the trebling of any compensatory damages. The parties are currently in dispute over the scope of the discovery requests made by the plaintiffs, and Cash America has appealed a recent State Court ruling on this issue, which included a State Court ruling striking Cash America’s arbitration defense. Oral arguments on the appeal occurred in April 2007 and Cash America is awaiting the appellate court’s decision. Cash America is also seeking enforcement of the arbitration provisions and has filed a Motion to Stay and Compel Arbitration with the State Court. The Company believes that the plaintiffs’ claims in this suit are without merit and is vigorously defending this lawsuit.

     There is also a related federal court action pending, wherein Cash America and CSB commenced a federal lawsuit in the U.S. District Court for the Northern District of Georgia seeking to compel Plaintiffs to arbitrate their claims against Cash America and CSB. The U.S. District Court dismissed the federal action for lack of subject matter jurisdiction, and Cash America and CSB appealed the dismissal of their complaint to the U.S Court of Appeals for the 11th Circuit. On April 27, 2007, the 11th Circuit issued its ruling on this appeal, reversing the U. S. District Court’s dismissal of the action and remanding the action to the district court for a determination of the issue of the enforceability of the parties’ arbitration agreements.

     The Strong litigation is still at an early stage, and neither the likelihood of an unfavorable outcome nor the ultimate liability, if any, with respect to this litigation can be determined at this time.

CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

     The Company is a defendant in certain lawsuits encountered in the ordinary course of its business. Certain of these matters are covered to an extent by insurance. In the opinion of management, the resolution of these matters will not have a material adverse effect on the Company’s financial position, results of operations or liquidity.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

GENERAL

     The Company provides specialty financial services to individuals in the United States. These services include secured non-recourse loans, commonly referred to as pawn loans, to individuals through its pawn lending operations, unsecured cash advances in selected lending locations and on behalf of independent third-party lenders in other locations, and check cashing and related financial services through many of its lending locations and through franchised and Company-owned check cashing centers. The pawn loan portfolio generates finance and service charges revenue. A related activity of the pawn lending operations is the disposition of collateral from unredeemed pawn loans. In September 2006, the Company began offering online cash advances over the internet and began arranging loans on behalf of independent third-party lenders over the internet in November 2006.

     On September 15, 2006, the Company, through its wholly-owned subsidiary Cash America Net Holdings, LLC, purchased substantially all of the assets of The Check Giant LLC (“TCG”). TCG offered short-term cash advances exclusively over the internet under the name “CashNetUSA.” The Company paid an initial purchase price of approximately $35.9 million in cash and transaction costs of approximately $2.9 million, and has continued to use the CashNetUSA trade name in connection with its online operations. The Company also agreed to pay up to five supplemental earn-out payments during the two-year period after the closing. The amount of each supplemental payment will be based on a multiple of earnings attributable to CashNetUSA’s business for the twelve months preceding the date of determining each scheduled supplemental payment. Each supplemental payment will be reduced by amounts previously paid. The supplemental payments are to be paid in cash within 45 days of the payment measurement date. The Company may, at its option, pay up to 25% of each supplemental payment in shares of its common stock based on an average share price as of the measurement date.

     The first supplemental payment of approximately $33.8 million, which was paid in February 2007 in cash, was based on the trailing twelve months earnings of CashNetUSA through December 31, 2006 and reflects adjustments for amounts previously paid. Another supplemental payment was scheduled based on the trailing twelve months earnings of CashNetUSA as of March 31, 2007. Management has not included an accrual for this payment because the defined multiple of earnings reduced the amount payable at March 31, 2007 to a figure below the cumulative amount paid through December 31, 2006. Pursuant to the terms of the purchase agreement with CashNetUSA, the March 31 and September 30, 2007 measurement dates are calculated at 5.5 times trailing twelve month earnings.

     As of March 31, 2007, the Company had 925 total locations offering products and services to its customers. The Company operates in three segments: pawn lending, cash advance and check cashing.

     As of March 31, 2007, the Company’s pawn lending operations consisted of 489 pawnshops, including 477 Company-owned units and 12 unconsolidated franchised units, located in 22 states in the United States. During the fifteen months ended March 31, 2007, the Company acquired 20 operating units, established 3 locations, and combined or closed 2 locations for a net increase in owned pawn lending units of 21. In addition, it opened 4 franchise locations.

     At March 31, 2007, the Company’s cash advance operations operated 296 cash advance locations in 7 states. During the fifteen months ended March 31, 2007, the Company established 14 locations, and combined or closed 4 locations for a net increase in cash advance locations of 10. CashNetUSA serves multiple markets through its internet distribution channel and had cash advances outstanding in 30 states at March 31, 2007.

     As of March 31, 2007, in Florida and Texas, the Company provides services in connection with single payment cash advances originated by independent third-party lenders, whereby the Company acts as a

credit services organization on behalf of consumers in accordance with applicable state laws (the “CSO program”). Such program includes arranging loans with independent third-party lenders, assisting in the preparation of loan applications and loan documents, and accepting loan payments at the location where the loans were arranged. To assist the customer in obtaining a loan through the CSO program, the Company also, as part of the credit services it provides to the customer, guarantees, on behalf of the customer, the customer’s payment obligations to the third-party lender under the loan. A customer who obtains a loan through the CSO program pays the Company a fee for the credit services, including the guaranty, and enters into a contract with the Company governing the credit services arrangement. Losses on cash advances acquired by the Company as a result of its guaranty obligations are the responsibility of the Company. The Company discontinued the CSO program in Michigan in February 2007, and now offers only cash advances underwritten by the Company to customers in that state.

     As of March 31, 2007, the Company’s check cashing operations consisted of 135 franchised and 5 company-owned check cashing centers in 18 states.

RESULTS OF CONTINUING OPERATIONS

     The following table sets forth the components of the consolidated statements of income as a percentage of total revenue for the periods indicated.

		Three Months Ended
		March 31,
		2007				2006
Revenue
Finance and service charges			17.2	%			21.5	%
Proceeds from disposition of merchandise			45.0				53.5
Cash advance fees			35.2				21.7
Check cashing fees, royalties and other			2.6				3.3
Total Revenue			100.0				100.0
Cost of Revenue
Disposed merchandise			27.8				32.4
Net Revenue			72.2				67.6
Expenses
Operations			32.5				36.4
Cash advance loss provision			14.7				2.7
Administration			6.4				8.5
Depreciation and amortization			3.4				3.9
Total Expenses			57.0				51.5
Income from Operations			15.2				16.1
Interest expense			(1.6	)			(1.5	)
Interest income			0.2				0.3
Foreign currency transaction gain			—				—
Income before Income Taxes			13.8				14.9
Provision for income taxes			5.2				5.5
Net Income			8.6	%			9.4	%

     The following table sets forth certain selected consolidated financial and non-financial data as of March 31, 2007 and 2006, and for each of the three months then ended ($ in thousands unless noted otherwise).

		Three Months Ended
		March 31,
		2007				2006
PAWN LENDING OPERATIONS:
Pawn loans
Annualized yield on pawn loans			131.8	%			132.4	%
Total amount of pawn loans written and renewed		$	110,622			$	103,927
Average pawn loan balance outstanding		$	118,242			$	107,354
Average pawn loan balance per average location in operation		$	248			$	235
Ending pawn loan balance per location in operation		$	235			$	225
Average pawn loan amount at end of period (not in thousands)		$	106			$	95
Profit margin on disposition of merchandise as a percentage of proceeds from disposition of merchandise			38.2	%			39.5	%
Average annualized merchandise turnover			3.0	x			3.1	x
Average balance of merchandise held for disposition per average location in operation		$	178			$	153
Ending balance of merchandise held for disposition per location in operation		$	169			$	143
Pawnshop locations in operation –
Beginning of period, owned			475				456
Acquired			1				2
Start-ups			1				1
Combined or closed			—				(1	)
End of period, owned			477				458
Franchise locations at end of period			12				10
Total pawnshop locations at end of period			489				468
Average number of owned pawnshop locations in operation			477				457
Cash advances (a)
Pawn locations offering cash advances at end of year			426				431
Average number of pawn locations offering cash advances			425				433
Amount of cash advances written at pawn locations:
Funded by the Company		$	15,486			$	14,309
Funded by third-party lenders (b) (d)			44,985				44,704
Aggregate amount of cash advances written at pawn locations (b) (f)		$	60,471			$	59,013
Number of cash advances written at pawn locations (not in thousands):
By the Company			50,268				43,140
By third-party lenders (b) (d)			98,126				107,987
Aggregate number of cash advances written at pawn locations (b) (f)			148,394				151,127
Cash advance customer balances due at pawn locations (gross):
Owned by Company (c)		$	6,439			$	5,709
Owned by third-party lenders (b)			7,800				8,015
Aggregate cash advance customer balances due (gross) at pawn locations (b) (f)		$	14,239			$	13,724

(Continued on Next Page)

		Three Months Ended
		March 31,
		2007				2006
CASH ADVANCE OPERATIONS (e):
Amount of cash advances written:
Funded by the Company		$	286,250			$	121,581
Funded by third-party lenders (b) (d)			97,103				33,336
Aggregate amount of cash advances written (b) (f)		$	383,353			$	154,917
Number of cash advances written (not in thousands):
By the Company			758,266				344,498
By third-party lenders (b) (d)			178,100				67,505
Aggregate number of cash advances written (b) (f)			936,366				412,003
Cash advance customer balances due (gross):
Owned by Company (c)		$	84,086			$	27,571
Owned by third-party lenders (b)			17,222				6,584
Aggregate cash advance customer balances due (gross) (b) (f)		$	101,308			$	34,155
Cash advance locations in operation (excluding online lending) –
Beginning of period			295				286
Start-ups			2				3
Combined or closed			(1	)			(3	)
End of period			296				286
Average number of cash advance locations in operation			295				286
Number of states with online lending at end of period			30				—
CONSOLIDATED CASH ADVANCE PRODUCT SUMMARY (a) (b)(e):
Amount of cash advances written:
Funded by the Company		$	301,736			$	135,890
Funded by third-party lenders (b) (d)			142,088				78,040
Aggregate amount of cash advances written (b) (f)		$	443,824			$	213,930
Number of cash advances written (not in thousands):
By the Company			808,534				387,638
By third-party lenders (b) (d)			276,226				175,492
Aggregate number of cash advances written (b) (f)			1,084,760				563,130
Average amount per cash advance written (not in thousands):
Funded by the Company		$	373			$	351
Funded by third-party lenders (b) (d)			514				445
Aggregate average amount per cash advance (b) (f)		$	409			$	380
Cash advance customer balances due (gross):
Owned by Company (c)		$	90,525			$	33,280
Owned by third-party lenders (b)			25,022				14,599
Aggregate cash advance customer balances due (gross) (b) (f)		$	115,547			$	47,879
Total locations offering cash advances at end of period (excluding online lending)			722				717
Average total locations offering cash advances (excluding online lending)			720				719
Number of states with online lending at end of period			30				—

(Continued on Next Page)

		Three Months Ended
		March 31,
		2007				2006
CHECK CASHING OPERATIONS (Mr. Payroll):
Centers in operation at end of period:
Company-owned locations			5				5
Franchised locations			135				135
Combined centers in operation at end of period			140				140
Revenue from Company-owned locations		$	161			$	182
Revenue from franchise royalties and other			979				969
Total revenue (c)		$	1,140			$	1,151
Face amount of checks cashed:
Company-owned locations		$	9,610			$	10,493
Franchised locations (b)			367,221				365,686
Combined face amount of check cashed (b)		$	376,831			$	376,179
Fees collected from customers:
Company-owned locations		$	161			$	182
Franchised locations (b)			5,446				5,490
Combined fees collected from customers (b)		$	5,607			$	5,672
Fees as a percentage of check cashed:
Company-owned locations			1.7	%			1.7	%
Franchised locations (b)			1.5				1.5
Combined fees as a percentage of check cashed (b)			1.5	%			1.5	%
Average check cashed (not in thousands):
Company-owned locations		$	428				439
Franchised locations (b)			494				477
Combined average check cashed (b)		$	492			$	476

CRITICAL ACCOUNTING POLICIES

     Beginning January 1, 2007, the Company has accounted for uncertainty in income taxes recognized in the financial statements in accordance with Financial Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes”(“FIN 48”). FIN 48 requires that a more-likely-than-not threshold be met before the benefit of a tax position may be recognized in the financial statements and prescribes how such benefit should be measured. It also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. It requires that the new standard be applied to the balances of assets and liabilities as of the beginning of the period of adoption and that a corresponding adjustment be made to the opening balance of retained earnings. See Note 2 of Notes to Consolidated Financial Statements.

     There have been no other changes of critical accounting policies since December 31, 2006.

RECENT ACCOUNTING PRONOUNCEMENT

     In September 2006, FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value to be the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and emphasizes that fair value is a market-based measurement, not an entity-specific measurement. It establishes a fair value hierarchy and expands disclosures about fair value measurements in both interim and annual periods. SFAS 157 will be effective for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The Company does not expect SFAS 157 to have a material effect on the Company’s consolidated financial position or results of operations but anticipates additional disclosures when it becomes effective.

     In February 2007, FASB issued Statement of Financial Accounting Standards No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 permits entities to choose, at specified election dates, to measure eligible items at fair value (the “fair value option”) and requires an entity report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. Upfront costs and fees related to items for which the fair value option is elected shall be recognized in earnings as incurred and not deferred. SFAS 159 will be effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact of adopting SFAS 159.

OVERVIEW

Components of Consolidated Net Revenue. Consolidated net revenue is total revenue reduced by the cost of merchandise sold in the period. It represents the income available to satisfy expenses and is the measure management uses to evaluate top line performance. The components of consolidated net revenue are pawn related net revenue, consisting of finance and service charges from pawn loans plus profit from the disposition of merchandise; cash advance fees and other revenue. Other revenue is comprised mostly of check cashing fees, but includes royalties and other revenue items. Growth in cash advance fees has increased the related contribution of the cash advance products to consolidated net revenue during the three months ended March 31, 2007 compared to the same period of 2006. The growth in cash advance fees is primarily attributable to higher average balances, the addition of new units and the addition of cash advances made over the internet beginning in mid-September 2006. Pawn net revenue contributed 47.7% and 63.0% of net revenue for the three months ended March 31, 2007 and 2006, respectively. The following graphs show consolidated net revenue and depict the mix of the components of net revenue for the three months ended March 31, 2007 and 2006:

                    

Contribution to Increase in Net Revenue. Increases in the components of the Company’s net revenue led to an increase in net revenue of 46.0% for the three months ended March 31, 2007 compared to the prior year. Cash advance fees, including cash advance fees generated in pawn lending locations, have increased primarily because of higher average balances owed by customers, the growth and development of newly opened cash advance locations and the addition of cash advances made over the internet. As illustrated below, these increases represented 84.9% of the Company’s overall increase in net revenue for the three months ended March 31, 2006 compared to the three months ended March 31, 2007 and 55.6% of the overall increase for the three months ended March 31, 2005 compared to the three months ended March 31, 2006. The increase in pawn-related net revenue in the aggregate, combined finance and service charges and profit from the disposition of merchandise, contributed 14.3% of the year over year increase in net revenue for the first three months of 2007 compared to 39.7% of the growth in the same period of 2006. These trends are depicted in the following graphs:

                    

Quarter Ended March 31, 2007 Compared To Quarter Ended March 31, 2006

Consolidated Net Revenue. Consolidated net revenue increased $50.7 million, or 46.0%, to $160.9 million during the three months ended March 31, 2007 (the “current quarter”) from $110.2 million during the three months ended March 31, 2006 (the “prior year quarter”). The following table sets forth net revenue by operating segment for the three months ended March 31, 2007 and 2006 ($ in thousands):

		Three Months Ended March 31,
		2007				2006				Inc./(Dec.)
Pawn lending operations		$	87,723			$	79,772			$	7,951				10.0	%
Cash advance operations			72,079				29,290				42,789				146.1
Check cashing operations			1,140				1,151				(11	)			(1.0	)
Consolidated net revenue		$	160,942			$	110,213			$	50,729				46.0	%

     Higher revenue from the Company’s cash advance product, higher finance and service charges from pawn loans and higher profit from the disposition of merchandise accounted for the increase in net revenue.

     The components of consolidated net revenue are finance and service charges from pawn loans, which increased $3.3 million; profit from the disposition of merchandise, which increased $3.9 million; cash advance fees generated both from pawn and cash advance locations and from the Company’s online distribution channel, which increased $43.1 million; and combined segment revenue from check cashing fees, royalties and other, which increased $415,000.

Finance and Service Charges. Finance and service charges from pawn loans increased $3.3 million, or 9.6%, from $35.1 million in the prior year quarter to $38.4 million in the current quarter. The increase is primarily due to higher loan balances attributable to the increased amount of pawn loans written through existing and new locations added during 2006. An increase in the average balance of pawn loans outstanding contributed $3.5 million of the increase which was partially offset by a $179,000 decrease resulting from the lower annualized yield of the pawn loan portfolio which is a function of the blend in permitted rates for fees and service charges on pawn loans in all operating locations of the Company and slightly lower redemption rates. Finance and service charges from same stores (stores that have been open for at least twelve months) increased 6.0%, or $2.1 million, in the current quarter compared to the prior year quarter.

     The average balances of pawn loans outstanding at March 31, 2007 were $10.9 million, or 10.1% higher than at March 31, 2006. The increase in the average balance of pawn loans outstanding was driven by a 12.6% increase in the average amount per loan that was partially offset by a 2.2% decrease in the average number of pawn loans outstanding during the current quarter. Management believes this decrease could be related to the fact that higher advance rates on loans secured by gold collateral, such as jewelry, can allow customers to reduce the number of loans needed to achieve their needs.

     Pawn loan balances at March 31, 2007 were $112.0 million, which was 8.7% higher than at March 31, 2006. Annualized loan yield was 131.8% in the current quarter, compared to 132.4% in the prior year quarter. Same store pawn loan balances at March 31, 2007 were $5.8 million, or 5.6%, higher than at March 31, 2006.

Profit from Disposition of Merchandise. Profit from disposition of merchandise represents the proceeds received from disposition of merchandise in excess of the cost of disposed merchandise. The following table summarizes the proceeds from disposition of merchandise and the related profit for the current quarter compared to the prior year quarter ($ in thousands):

		Three Months Ended March 31,
		2007												2006
		Merch-				Refined								Merch-				Refined
		andise				Gold				Total				andise				Gold				Total
Proceeds from dispositions		$	75,007			$	25,161			$	100,168			$	70,688			$	16,436			$	87,124
Profit on disposition		$	30,252			$	7,991			$	38,243			$	28,930			$	5,452			$	34,382
Profit margin			40.3	%			31.8	%			38.2	%			40.9	%			33.2	%			39.5	%
Percentage of total profit			79.1	%			20.9	%			100.0	%			84.1	%			15.9	%			100.0	%

     While the total proceeds from disposition of merchandise and refined gold increased $13.0 million, or 15.0%, the total profit from the disposition of merchandise and refined gold increased $3.9 million, or 11.2%, primarily due to higher levels of retail sales offset by lower gross profit margin on the disposition of refined gold. Overall gross profit margin decreased from 39.5% in the prior year quarter to 38.2% in the current quarter as the relative percentage of lower profit margin refined gold sales was higher than the prior year quarter which diluted overall margins slightly. In addition, excluding the effect of the disposition of refined gold, the profit margin on the disposition of merchandise (including jewelry sales) was 40.3% and 40.9% for the current quarter and the prior year quarter, respectively. The profit margin on the disposition of refined gold decreased to 31.8% in the current quarter compared to 33.2% in the prior year quarter primarily due to the increase in cost per ounce. The increase in gross profit dollars generated is attributable to the increase in sales proceeds due to the higher volume of gold sold and an increase in the prevailing market prices of gold which caused the hedge-adjusted selling price per ounce to increase 25% compared to the prior year quarter. Proceeds from disposition of merchandise, excluding refined gold, increased $4.3 million, or 6.1%, in the current quarter compared to the prior year quarter. The higher level of retail sales activity was supported by higher levels of merchandise available for disposition entering the current quarter and by the net addition of 19 pawn locations since March 31, 2006. The consolidated merchandise turnover rate was 3.0 times during the current quarter and 3.1 times during the prior year quarter. Management

expects that profit margin on the disposition of merchandise in the near term will likely remain at or slightly below current levels mainly due to higher inventory levels and an increase in the percentage mix of refined gold sales, which typically have lower gross profit margins.

     The table below summarizes the age of merchandise held for disposition before valuation allowance of $1.9 million at March 31, 2007 and $1.8 million at March 31, 2006 ($ in thousands).

		2007								2006
		Amount				%				Amount				%
Merchandise held for 1 year or less –
Jewelry		$	50,742				61.4	%		$	39,029				57.9	%
Other merchandise			23,813				28.8				21,047				31.2
			74,555				90.2				60,076				89.1
Merchandise held for more than 1 year –
Jewelry			5,067				6.1				4,633				6.9
Other merchandise			3,046				3.7				2,685				4.0
			8,113				9.8				7,318				10.9
Total merchandise held for disposition		$	82,668				100.0	%		$	67,394				100.0	%

Cash Advance Fees. Cash advance fees increased $43.1 million, or 121.6%, to $78.5 million in the current quarter from $35.4 million in the prior year quarter. The increase was primarily due to the addition of online distribution channel and to a lesser extent the growth and development of new cash advance units. As of March 31, 2007, the cash advance products were available in 722 lending locations, including 426 pawnshops, 296 cash advance locations and through the online distribution channel. 329 of these lending locations and, in two states, the Company’s online distribution channel, arrange for customers to obtain cash advance products from independent third-party lenders for a fee. Cash advance fees from same stores increased $2.6 million, or 7.6%, to $37.0 million in the current quarter as compared to $34.4 million in the prior year quarter. Cash advance fees include revenue from the cash advance portfolio owned by the Company and fees paid to the Company for arranging for cash advance products from independent third-party lenders for customers. (Although cash advance transactions may take the form of loans or deferred check deposit transactions, the transactions are referred to throughout this discussion as “cash advances” for convenience.)

     The following table sets forth cash advance fees by operating segment for the three months ended March 31, 2007 and 2006 ($ in thousands):

		Three Months Ended March 31,
		2007				2006				Increase
Pawn lending operations		$	10,120			$	9,648			$	472				4.9	%
Cash advance operations			68,396				25,791				42,605				165.2
Consolidated cash advance fees		$	78,516			$	35,439			$	43,077				121.6	%