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

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

Commission File Number 1-9733

(Exact name of registrant as specified in its charter)

Texas (State or other jurisdiction of Incorporation or organization)		75-2018239 (I.R.S. Employer Identification No.)

1600 West 7th Street Fort Worth, Texas (Address of principal executive offices)		76102 (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 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 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 þ		Accelerated filer o		Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company o

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

APPLICABLE ONLY TO CORPORATE ISSUERS:

29,542,599 of the Registrants’ common shares, $.10 par value, were issued and outstanding as of April 15, 2010.

 

 

CASH AMERICA INTERNATIONAL, INC.

INDEX TO FORM 10-Q

		Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets – March 31, 2010 and 2009 and December 31, 2009			1
Consolidated Statements of Income – Three Months Ended March 31, 2010 and 2009			2
Consolidated Statements of Equity – March 31, 2010 and 2009			3
Consolidated Statements of Comprehensive Income – Three Months Ended March 31, 2010 and 2009			4
Consolidated Statements of Cash Flows – Three Months Ended March 31, 2010 and 2009			5
Notes to Consolidated Financial Statements			6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			26
Item 3. Quantitative and Qualitative Disclosures About Market Risk			51
Item 4. Controls and Procedures			52
PART II. OTHER INFORMATION
Item 1. Legal Proceedings			52
Item 1A. Risk Factors			52
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			53
Item 3. Defaults upon Senior Securities			53
Item 4. (Removed and Reserved)			53
Item 5. Other Information			53
Item 6. Exhibits			54
SIGNATURE			55
EX-10.2
EX-10.3
EX-31.1
EX-31.2
EX-32.1
EX-32.2

CAUTIONARY NOTE CONCERNING FACTORS THAT MAY AFFECT FUTURE RESULTS

     This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. You should not place undue reliance on these statements. These forward-looking statements give current expectations or forecasts of future events and reflect the views and assumptions of senior management of Cash America International, Inc. (the “Company”) with respect to the business, financial condition and prospects of the Company. When used in this report, terms such as “believes,” “estimates,” “should,” “could,” “would,” “plans,” “expects,” “anticipates,” “may,” “forecast,” “project” and similar expressions or variations as they relate to the Company or its management are intended to identify forward-looking statements. Forward-looking statements address matters that involve risks and uncertainties that are beyond the ability of the Company to control and, in some cases, predict. Accordingly, there are or will be important factors that could cause our actual results to differ materially from those indicated in these statements. Key factors that could cause the Company’s actual financial results, performance or condition to differ from the expectations expressed or implied in such forward-looking statements include, but are not limited to, the following:

	•		changes in pawn, consumer credit, tax and other laws and government rules and regulations applicable to the Company’s business,
	•		changes in demand for the Company’s services,
	•		the continued acceptance of the internet channel by the Company’s cash advance customers,
	•		the actions of third-parties who offer products and services to or for the Company,
	•		fluctuations in the price of gold,
	•		changes in competition,
	•		the ability of the Company to open new operating units in accordance with its plans,
	•		changes in economic conditions,
	•		real estate market fluctuations,
	•		interest rate fluctuations,
	•		changes in foreign currency exchange rates,
	•		changes in the capital markets,
	•		the ability to successfully integrate newly acquired businesses into the Company’s operations,
	•		the loss of services of any of the Company’s executive officers,
	•		the effect of any current or future litigation proceedings on the Company,
	•		acts of God, war or terrorism, pandemics and other events,
	•		the effect of any of such changes on the Company’s business or the markets in which the Company operates, and
	•		other risks and uncertainties described in this report or from time to time in the Company’s filings with the Securities and Exchange Commission (the “SEC”).

     The foregoing list of factors is not exhaustive and new factors may emerge or changes to these factors may occur that would impact the Company’s business. Additional information regarding these and other factors may be contained in the Company’s filings with the SEC, especially on Forms 10-K, 10-Q and 8-K. If one or more events related to these or other risks or uncertainties materialize, or if management’s underlying assumptions prove to be incorrect, actual results may differ materially from what the Company anticipates. The Company disclaims any intention or obligation to update or revise any forward-looking statements to reflect events or circumstances occurring after the date of this report. All forward-looking statements are expressly qualified in their entirety by the foregoing cautionary statements.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements
CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)

		March 31,								December 31,
		2010				2009				2009
		(Unaudited)
Assets
Current assets:
Cash and cash equivalents		$	40,286			$	25,676			$	46,004
Pawn loans			158,347				148,147				188,312
Cash advances, net			99,021				75,880				108,789
Merchandise held for disposition, net			97,870				99,799				113,824
Pawn finance and service charges receivable			30,597				28,709				36,544
Prepaid expenses and other assets			39,592				18,745				32,129
Deferred tax assets			20,386				19,301				21,536
Total current assets			486,099				416,257				547,138
Property and equipment, net			192,592				186,622				193,737
Goodwill			509,004				489,779				493,492
Intangible assets, net			27,187				31,456				27,793
Other assets			7,442				5,498				7,495
Total assets		$	1,222,324			$	1,129,612			$	1,269,655
Liabilities and Equity
Current liabilities:
Accounts payable and accrued expenses		$	71,408			$	69,288			$	87,368
Accrued supplemental acquisition payment			11,365				7,700				2,291
Customer deposits			9,731				10,133				8,837
Income taxes currently payable			14,673				3,687				8,699
Current portion of long-term debt			25,493				18,714				25,493
Total current liabilities			132,670				109,522				132,688
Deferred tax liabilities			44,877				31,042				42,590
Noncurrent income tax payable			2,191				2,968				2,009
Other liabilities			7,148				3,942				5,479
Long-term debt			313,794				380,902				403,690
Total liabilities		$	500,680			$	528,376			$	586,456
Equity:
Cash America International, Inc. equity:
Common stock, $0.10 par value per share, 80,000,000 shares authorized, 30,235,164 shares issued			3,024				3,024				3,024
Additional paid-in capital			163,796				158,216				166,761
Retained earnings			563,803				463,131				532,805
Accumulated other comprehensive income (loss)			5,807				(6,107	)			1,181
Treasury shares, at cost (725,531 shares, 753,207 shares and 933,082 shares at March 31, 2010 and 2009, and at December 31, 2009, respectively			(21,429	)			(21,919	)			(26,836	)
Total Cash America International, Inc. stockholders’ equity			715,001				596,345				676,935
Noncontrolling interest			6,643				4,891				6,264
Total equity			721,644				601,236				683,199
Total liabilities and equity		$	1,222,324			$	1,129,612			$	1,269,655

See notes to consolidated financial statements.

CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)

		Three Months Ended
		March 31,
		2010				2009
		(Unaudited)
Revenue
Finance and service charges		$	58,281			$	52,959
Proceeds from disposition of merchandise			141,883				129,760
Cash advance fees			108,442				80,308
Check cashing fees, royalties and other			4,456				5,072
Total Revenue			313,062				268,099
Cost of Revenue
Disposed merchandise			89,945				82,502
Net Revenue			223,117				185,597
Expenses
Operations			96,378				85,522
Cash advance loss provision			33,893				24,774
Administration			25,689				21,481
Depreciation and amortization			10,718				10,341
Total Expenses			166,678				142,118
Income from Operations			56,439				43,479
Interest expense			(5,457	)			(5,069	)
Interest income			8				15
Foreign currency transaction gain (loss)			(137	)			(136	)
Income before Income Taxes			50,853				38,289
Provision for income taxes			18,802				14,063
Net Income			32,051				24,226
Less: Net income attributable to the noncontrolling interest			(18	)			(315	)
Net Income Attributable to Cash America International, Inc.		$	32,033			$	23,911
Earnings Per Share:
Net Income attributable to Cash America International, Inc. common stockholders:
Basic		$	1.08			$	0.80
Diluted		$	1.01			$	0.79
Weighted average common shares outstanding:
Basic			29,687				29,770
Diluted			31,735				30,419
Dividends declared per common share		$	0.035			$	0.035

See notes to consolidated financial statements.

CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY
(in thousands, except per share data)

		March 31,
		2010								2009
		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							166,761								160,007
Shares issued under stock based plans							(5,969	)							(2,288	)
Stock-based compensation expense							911								748
Income tax benefit (provision) from stock based compensation							2,093								(251	)
Balance at end of period							163,796								158,216
Retained earnings
Balance at beginning of year							532,805								440,252
Net income attributable to Cash America International, Inc.							32,033								23,911
Dividends paid							(1,035	)							(1,032	)
Balance at end of period							563,803								463,131
Accumulated other comprehensive (loss) income
Balance at beginning of year							1,181								(3,964	)
Unrealized derivatives loss, net of tax							(107	)							(15	)
Foreign currency translation gain (loss), net of taxes							4,058								(2,128	)
Marketable securities unrealized gain, net of tax							675								—
Balance at end of period							5,807								(6,107	)
Treasury shares, at cost
Balance at beginning of year			(933,082	)			(26,836	)			(818,772	)			(24,278	)
Purchases of treasury shares			(62,597	)			(2,450	)			(14,110	)			(43	)
Shares issued under stock based plans			270,148				7,857				79,675				2,402
Balance at end of period			(725,531	)			(21,429	)			(753,207	)			(21,919	)
Total Cash America International, Inc. stockholders’ equity							715,001								596,345
Noncontrolling interests
Balance at beginning of year							6,264								4,694
Income attributable to noncontrolling interests							18								315
Foreign currency translation gain (loss), net of taxes							361								(118	)
Balance at end of period							6,643								4,891
Total equity						$	721,644							$	601,236

See notes to consolidated financial statements.

CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)

		Three Months Ended
		March 31,
		2010				2009
				(Unaudited)
Net income		$	32,051			$	24,226
Other comprehensive gain (loss), net of tax:
Unrealized derivatives loss(1)			(107	)			(15	)
Foreign currency translation gain (loss) (2)			4,419				(2,246	)
Marketable securities unrealized gain(3)			675				—
Total other comprehensive gain (loss), net of tax			4,987				(2,261	)
Comprehensive income		$	37,038			$	21,965
Less: Net income attributable to the noncontrolling interest			(18	)			(315	)
Foreign currency translation (gain) loss, net of tax, attributable to the noncontrolling interest			(361	)			118
Comprehensive income attributable to the noncontrolling interest			(379	)			(197	)
Comprehensive Income attributable to Cash America International, Inc.		$	36,659			$	21,768

See notes to consolidated financial statements.

CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

		Three Months Ended
		March 31,
		2010				2009
		(Unaudited)
Cash Flows from Operating Activities
Net Income		$	32,051			$	24,226
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			10,718				10,341
Amortization of discount on convertible debt			815				—
Cash advance loss provision			33,893				24,774
Stock-based compensation			911				748
Deferred income taxes, net			3,907				6,141
Other			138				601
Changes in operating assets and liabilities
Merchandise held for disposition			(796	)			(794	)
Pawn finance and service charges receivable			6,169				4,304
Finance and service charges on cash advances			(741	)			(174	)
Prepaid expenses and other assets			(508	)			(3,768	)
Accounts payable and accrued expenses			(14,178	)			(7,636	)
Excess income tax benefit from stock-based compensation			(2,093	)			—
Current income taxes			8,207				6,086
Other operating assets and liabilities			879				1,327
Net cash provided by operating activities			79,372				66,176
Cash Flows from Investing Activities
Pawn loans made			(134,083	)			(133,788	)
Pawn loans repaid			110,081				98,036
Principal recovered through dispositions of forfeited pawn loans			72,757				66,414
Cash advances made or purchased			(357,499	)			(294,848	)
Cash advances repaid			333,465				277,605
Acquisitions, net of cash acquired			(3,913	)			(34,777	)
Purchases of property and equipment			(7,906	)			(9,946	)
Investments in marketable securities			(5,652	)			—
Proceeds from property insurance			142				150
Net cash provided by (used in) investing activities			7,392				(31,154	)
Cash Flows from Financing Activities
Net repayments under bank lines of credit			(112,498	)			(38,537	)
Issuance of long-term debt			25,000				—
Net proceeds from re-issuance of treasury shares			1,889				114
Loan costs paid			(245	)			(29	)
Payments on notes payable and other obligations			(3,040	)			(1	)
Excess income tax benefit from stock-based compensation			2,093				—
Treasury shares purchased			(2,450	)			(43	)
Dividends paid			(1,035	)			(1,032	)
Net cash used in financing activities			(90,286	)			(39,528	)
Effect of exchange rates on cash			(2,196	)			177
Net decrease in cash and cash equivalents			(5,718	)			(4,329	)
Cash and cash equivalents at beginning of year			46,004				30,005
Cash and cash equivalents at end of period		$	40,286			$	25,676
Supplemental Disclosures
Non-cash investing and financing activities
Pawn loans forfeited and transferred to merchandise held for disposition		$	55,736			$	55,926
Pawn loans renewed		$	27,698			$	26,528
Cash advances renewed		$	88,794			$	75,720

See notes to consolidated financial statements.

CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Significant Accounting Policies

Basis of Presentation

     The consolidated financial statements include all of 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, 2010 and 2009 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 statement of the results for such interim periods. Operating results for the three-month period 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, 2009 have been reclassified to conform to the presentation format adopted in 2010. These reclassifications have no effect on the net income previously reported.

     The Company has a contractual relationship with a third-party entity, Huminal, S.A. de C.V., a Mexican sociedad anónima de capital variable (“Huminal”), to compensate and maintain the labor force of its Mexico pawn operations, of which the Company is a majority owner due to the December 16, 2008 acquisition (the “Prenda Fácil acquisition”) by the Company of 80% of the outstanding stock of Creazione Estilo, S.A. de C.V., SOFOM, E.N.R., a Mexican sociedad anónima de capital variable, sociedad financiera de objeto múltiple, entidad no regulada (“Creazione”), operating under the name “Prenda Fácil” (referred to as “Prenda Fácil”). The Company has no ownership interest in Huminal; however, Prenda Fácil qualifies as the primary beneficiary of Huminal in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“Codification” or “ASC”) 810-10-50, Variable Interest Entities. Therefore the results and balances are allocated to net income attributable to noncontrolling interests.

     These financial statements and related notes should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.

Foreign Currency Translations

     The functional currencies for the Company’s subsidiaries that serve residents of the United Kingdom, Australia, Canada and Mexico are the British pound, the Australian dollar, the Canadian dollar and the Mexican peso, respectively. The assets and liabilities of these subsidiaries are translated into U.S. dollars at the exchange rates in effect at each balance sheet date, and the resulting adjustments are accumulated in other comprehensive income (loss) as a separate component of equity. Revenue and expenses are translated at the monthly average exchange rates occurring during each year.

Revenue Recognition

Pawn Lending • The Company offers pawn loans through its pawn lending locations, through most of its cash advance storefront locations and through its unconsolidated franchised pawn lending locations. Pawn loans are made on the pledge of tangible personal property. In the Company’s U.S. pawn business, it accrues finance and service charges revenue only on those pawn loans that it deems collectible based on historical loan redemption statistics. Pawn loans written during each calendar month are aggregated and tracked for performance. The gathering of this empirical data allows the Company to analyze the characteristics of its

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

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 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.

     In the Company’s foreign pawn loan business, service charges are accrued ratably over the four week term of the loan for loans not redeemed prior to maturity. Following the expiration of the grace period, which is generally three weeks, the collateral underlying unredeemed loans is sold with the proceeds applied against the outstanding loan balance and accrued service charges and fees. Accrued interest on loans that have passed the maturity date and the expiration of the grace period is fully reserved to the extent that the underlying collateral has not been sold. If the proceeds from the sale are less than the outstanding loan balance, a loss is recorded for the difference at the time the collateral is sold. If the proceeds exceed the outstanding loan balance, the Company recognizes as revenue the accrued service charges and other fees and expenses incurred in relation to the non-payment and sale of the loan collateral on behalf of the customer. In the event there are proceeds greater than the accrued service charges and all fees and expenses, the excess amount is available to the customer if a claim is made within six months, after which any unclaimed excess amount is recognized as revenue. The collateral underlying unredeemed loans is not owned by the Company; therefore, the carrying value for loans past the maturity date is held in “Other receivables and prepaid expenses” on the Company’s consolidated balance sheets until sold.

Cash Advances • The Company offers cash advance products through its cash advance storefront locations, its internet channel, and many of its pawn lending locations. In addition, the Company arranges for customers to obtain cash advances from independent third-party lenders in other locations. Cash advance fees include revenue from the cash advance portfolio owned by the Company and fees paid to the Company for arranging or processing cash advance line of credit products from independent third-party lenders for customers through the CSO program (as described below) and the Company’s card services business. Cash advance fees associated with the Company’s card services business (as described below) include revenue from the Company’s participation interest in receivables originated by the third-party lender, as well as processing and other miscellaneous fee income. Although cash advance transactions may take the form of loans, deferred check deposit transactions, credit services transactions, or the processing of, and the participation in receivables originated by, a third-party lender’s line of credit product, the transactions are referred to throughout this discussion as “cash advances” for convenience.

     Cash advances provide customers with cash, typically 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 electronic Automated Clearing House (“ACH”) transaction for the aggregate amount of the payment due. The customer may repay the cash advance in cash or by allowing the check to be presented for collection by manual deposit or through an electronic debit 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.

     The Company provides a cash advance product in some markets by acting as a credit services organization on behalf of consumers in accordance with applicable state laws (the “CSO program”). Under the CSO program, the Company provides consumers with certain credit services, such as arranging loans with independent third-party lenders, assisting in the preparation of loan applications and loan documents and accepting loan payments. The Company also guarantees (the “CSO guarantees”) the customer’s payment obligations in the event of default if the customer is approved for and accepts the loan. A customer who obtains a loan through the CSO program pays the Company a fee for these credit services (“CSO fees”).

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

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, which approximates the fair value of the liability. As of March 31, 2010, $167.5 million of combined gross cash advances were outstanding, including $42.7 million of active cash advances owned by third-party lenders that is not included in the Company’s consolidated balance sheets. Of this amount, $41.0 million was guaranteed by the Company.

     The Company also offers an internet longer-term installment loan product that typically has an average term of four months. The Company records revenue from this product as cash advance fees under similar methods as its traditional cash advance product as described above.

     In connection with the Company’s card services business, the Company provides loan processing services for a third-party bank issued line of credit on certain stored-value debit cards the bank issues (“Processing Program”). The Company also acquires a participation interest in the receivables originated by the bank in connection with the Processing Program and other similar processing programs utilized by the bank. The Company records revenue from its participation interest in the receivables, as well as processing and other miscellaneous fee income originated from its card services business as cash advance fees recognized ratably over the loan period.

Check Cashing Fees, Royalties and Other • The Company offers check cashing services through its unconsolidated franchised and Company-owned check cashing locations and in many of its pawn lending and cash advance locations. The Company records check cashing fees derived from both check cashing locations it owns and many of its pawn lending and cash advance storefront locations in the period in which the check cashing service is provided. It records royalties derived from franchise locations on an accrual basis. Revenue derived from other financial services such as money order commissions, prepaid debit card fees, etc. is recognized when earned.

Allowance for Losses on Cash Advances

     See Note 3 for a discussion of the Company’s allowance for losses on cash advances.

Goodwill and Other Intangible Assets

     In accordance with ASC 350-20-35, Goodwill — Subsequent Measurement and ASC 350-30-35, Intangibles — Goodwill and Other — Subsequent Measurement, the Company performs an impairment review of goodwill and intangible assets with an indefinite life at least annually. This review is performed for each reporting unit as of June 30. The Company completed its June 2009 test and determined that there was no evidence of impairment of goodwill or other indefinite lived intangible assets.

     The Company amortizes intangible assets with an estimable life on the basis of their expected periods of benefit, generally three to ten years. The costs of start-up activities and organization costs are charged to expense as incurred.

     All of the amounts of goodwill recorded in the Company’s acquisitions, except for the acquisition of Prenda Fácil, are expected to be deductible for tax purposes.

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

Recent Accounting Pronouncements

     In January 2010, FASB issued ASC Update No. 2010-06, Fair Value Measurements and Disclosures (“ASU 2010-06”), which updates ASC 820-10-20, Fair Value Measurements and Disclosures. ASU 2010-06 requires new disclosures for fair value measurements and provides clarification for existing disclosure requirements. More specifically, ASU 2010-06 will require (a) an entity to disclose separately the amounts of significant transfers in and out of Level 1 and 2 fair value measurements from one measurement date to another and to describe the reasons for the transfers; and (b) information about purchases, sales, issuances and settlements to be presented separately (i.e., the activity must be presented on a gross basis rather than net) in the reconciliation for fair value measurements using significant unobservable inputs (Level 3 inputs). ASU 2010-06 clarifies existing disclosure requirements for the level of disaggregation used for classes of assets and liabilities measured at fair value and requires disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring Level 2 and Level 3 fair value measurements. The Company adopted ASU 2010-06 as of January 1, 2010. The adoption did not have a material effect on the Company’s financial position or results of operations.

     In December 2009, FASB issued ASC Update No. 2009-17, Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities (“ASU 2009-17”), which updates ASC 810-10, Consolidations. ASU 2009-17 clarifies the definition of a variable interest entity and updates the definition of the primary beneficiary of a variable interest entity. The Company adopted ASU 2009-17 as of January 1, 2010, and the adoption of ASU 2009-17 did not have a material effect on the Company’s financial position or results of operations.

2. Acquisitions

Prenda Fácil

     Pursuant to its business strategy of expanding its reach into new markets with new customers and new financial services, the Company, through its wholly-owned subsidiary, Cash America of Mexico, Inc., completed the Prenda Fácil acquisition in December 2008. The Company paid an aggregate initial consideration of $90.5 million, net of cash acquired, of which $82.6 million was paid in cash, including acquisition costs of approximately $3.6 million. The remainder of the initial consideration was paid in the form of 391,236 shares of the Company’s common stock with a fair value of $7.9 million as of the closing date. The Company also agreed to pay a supplemental earn-out payment in an amount based on a five times multiple of the consolidated earnings of Creazione’s business as specifically defined in the Stock Purchase Agreement (generally Creazione’s earnings before interest, income taxes, depreciation and amortization expenses) for the twelve-month period ending June 30, 2011, reduced by amounts previously paid. If the calculation of the supplemental payment produces an amount that is zero or less, there would be no supplemental payment. This supplemental payment is expected to be paid in cash on or before August 15, 2011, and will be accounted for as goodwill. The Company paid post-closing acquisition costs of $0.3 million, resulting in a total of $82.9 million paid in cash for the acquisition, net of cash acquired. The activities of Creazione are included in the results of the Company’s pawn lending segment.

Primary Innovations, LLC

     Pursuant to its business strategy of expanding its reach into new markets, the Company, through its wholly-owned subsidiary, Primary Cash Holdings, LLC (now known as Primary Innovations, LLC, or “Primary Innovations”), on July 23, 2008, purchased substantially all the assets of Primary Business Services, Inc., Primary Finance, Inc., Primary Processing, Inc. and Primary Members Insurance Services, Inc.

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

(collectively, “PBSI”), a group of companies in the business of, among other things, providing loan processing services for, and participating in receivables associated with, a bank issued line of credit made available by the bank on certain stored-value debit cards the bank issues. The Company paid approximately $5.6 million in cash, of which approximately $4.9 million was used to repay a loan that the Company had made to PBSI, and transaction costs of approximately $0.3 million. The Company also agreed to pay up to eight supplemental earn-out payments during the four-year period after the closing. The Company made supplemental payments of approximately $2.7 million and $2.1 million in April 2009 and February 2010, respectively. The amount of the February 2010 payment and each subsequent supplemental payment is to be based on a multiple of 3.5 times the consolidated earnings attributable to Primary Innovations’ business, as defined in the Asset Purchase Agreement, for a specified period (generally 12 months) preceding each scheduled supplemental payment measurement date, reduced by amounts previously paid. The Company expects that payments will be required at the two measurement dates in 2010 based on the current level of performance. As of March 31, 2010, the Company has accrued to “Accrued supplemental acquisition payment” approximately $11.4 million based on earnings through March 31, 2010. Substantially all of the supplemental payments associated with the earn-out will be accounted for as goodwill. The remaining supplemental payments will be calculated as described above based on measurement dates of each December 31 and June 30 through June 30, 2012, with each payment, if any, due approximately 45 days after the measurement date. The total of all payments to the sellers cannot exceed $50.0 million pursuant to the terms of the asset purchase agreement. Through February 2010, the Company has made payments totaling $4.8 million. The activities of Primary Innovations are included in the results of the Company’s cash advance segment.

Other

     During the first quarter of 2010, the Company acquired three domestic pawn lending locations for approximately $1.9 million.

3. Cash advances, Allowance for Losses and Accruals for Losses on Third-Party Lender-Owned 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 on cash advances (including fees and interest) at a level estimated to be adequate to absorb credit losses inherent in the receivables portfolio and expected losses from CSO guarantees. The allowance for losses on Company-owned cash advances offsets the outstanding cash advance amounts in the consolidated balance sheets. See Note 1 for a discussion of the Company’s cash advance products.

     With respect to CSO guarantees, if the Company collects a customer’s delinquent payment in an amount that is less than the amount the Company paid to the third-party lender pursuant to the guarantee, the Company must absorb the shortfall. If the amount collected exceeds the amount paid under the guarantee, the Company is entitled to the excess and recognizes the excess amount in income. The Company’s cash advance loss provision includes amounts estimated to be adequate to absorb credit losses from cash advances in the aggregate cash advance portfolio, including those expected to be acquired by the Company as a result of its guarantee 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. Active third-party lender-originated cash advances in which the Company does not have a participation interest are not included in the consolidated balance sheets.

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

     With respect to the Company’s card services business, losses on cash advances in which the Company has a participation interest that prove uncollectible are the responsibility of the Company. The Company’s cash advance loss provision includes amounts estimated to be adequate to absorb credit losses from these cash advances.

     The Company stratifies the outstanding combined cash advance portfolio by age, delinquency, and stage of collection when assessing the adequacy of the allowance for losses. The combined cash advance portfolio represents cash advances included in the Company’s consolidated balance sheet and third-party cash advances. It uses historical collection performance adjusted for recent portfolio performance trends to develop the expected loss rates used to establish either the allowance or accrual. Increases in either the allowance or accrual are recorded as a cash advance loss provision expense in the consolidated statements of income. The Company charges off all cash advances once they have been in default for 60 days, or sooner if deemed uncollectible. Recoveries on losses previously charged to the allowance are credited to the allowance when collected.

     The allowance deducted from the carrying value of cash advances was $25.8 million and $17.3 million at March 31, 2010 and 2009, respectively. The accrual for losses on third-party lender-owned cash advances was $2.3 million and $1.5 million at March 31, 2010 and 2009, respectively and is included in “Accounts payable and accrued liabilities” on the Company’s balance sheet.

     The components of Company-owned cash advances and receivables at March 31, 2010, and 2009, were as follows (in thousands):

		March 31,
		2010				2009
Funded by the Company
Active cash advances and fees receivable		$	78,836			$	64,362
Cash advances and fees in collection			17,558				15,075
Total Funded by the Company			96,394				79,437
Purchased by the Company from third-party lenders			28,450				13,721
Company-owned cash advances and fees receivable, gross			124,844				93,158
Less: Allowance for losses			25,823				17,278
Cash advances and fees receivable, net		$	99,021			$	75,880

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

     Changes in the allowance for losses for the Company-owned portfolio and the accrued loss for third-party lender-owned portfolios during the three months ended March 31, 2010, and 2009 were as follows (in thousands):

		Three Months Ended
		March 31,
		2010				2009
Allowance for losses for Company-owned cash advances
Balance at beginning of period		$	27,350			$	21,495
Cash advance loss provision			34,544				25,387
Charge-offs			(44,242	)			(34,926	)
Recoveries			8,171				5,322
Balance at end of period		$	25,823			$	17,278
Accrual for third-party lender-owned cash advances
Balance at beginning of period		$	2,944			$	2,135
Increase (decrease) in loss provision			(651	)			(613	)
Balance at end of period		$	2,293			$	1,522

4. Earnings Per Share Computation

     Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during the year. Diluted earnings per share is calculated by giving effect to the potential dilution that could occur if securities or other contracts to issue common shares were exercised and converted into common shares during the year. Restricted stock units issued under the Company’s equity plans are included in diluted shares upon the granting of the awards even though the vesting of shares will occur over time.

     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, 2010 and 2009 (in thousands, except per share amounts):

		Three Months Ended
		March 31,
		2010				2009
Numerator:
Net income attributable to Cash America International, Inc.		$	32,033			$	23,911
Denominator:
Total weighted average basic shares (1)			29,687				29,770
Effect of shares applicable to stock option plans			162				225
Effect of restricted stock unit compensation plans			411				424
Effect of convertible debt(2)			1,475				—
Total weighted average diluted shares			31,735				30,419
Net income — basic		$	1.08			$	0.80
Net income — diluted		$	1.01			$	0.79

(1)		Included in “Total weighted average basic shares” are vested restricted stock units of 179 and 257, as well as shares in a non-qualified savings plan of 33 and 55, respectively, for the three months ended March 31, 2010 and 2009.

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

(2)		The shares issuable related to the Company’s 2009 Convertible Notes due 2029 have been calculated using the treasury stock method. The Company intends to settle the principal portion of the convertible debt in cash; therefore, only the shares related to the conversion spread have been included in weighted average diluted shares.

     There were no anti-dilutive shares for the three months ended March 31, 2010 and 2009.

5. Long-Term Debt

     The Company’s long-term debt instruments and balances outstanding at March 31, 2010 and 2009, were as follows (in thousands):

		March 31,
		2010				2009
USD line of credit up to $300,000 due 2012		$	77,165			$	235,942
GBP line of credit up to £7,500 due 2009			—				7,174
6.21% senior unsecured notes due 2021			25,000				25,000
6.09% senior unsecured notes due 2016			35,000				35,000
6.12% senior unsecured notes due 2012			40,000				40,000
7.20% senior unsecured notes due 2009			—				8,500
7.26% senior unsecured notes due 2017			25,000				—
Variable rate senior unsecured note due 2012			34,960				38,000
$10 million term senior unsecured note due 2012			—				10,000
5.25% convertible senior unsecured notes			102,162				—
Total debt		$	339,287			$	399,616
Less current portion			25,493				18,714
Total long-term debt		$	313,794			$	380,902

     The Company’s $300.0 million domestic line of credit (the “USD Line of Credit”) matures in March 2012. Interest on the USD Line of Credit is charged, at the Company’s option, at either the London Interbank Offered Rate (“LIBOR”) plus a margin or at the agent’s base rate. The margin on the USD Line of Credit varies from 0.875% to 1.875% (1.625% at March 31, 2010), depending on the Company’s cash flow leverage ratios as defined in the amended agreement. The Company also pays a fee on the unused portion ranging from 0.25% to 0.30% (0.30% at March 31, 2010) based on the Company’s cash flow leverage ratios. The weighted average interest rate (including margin) on the USD Line of Credit at March 31, 2010 and 2009 was 1.95% and 1.96%, respectively.

     At March 31, 2010 and 2009, borrowings under the Company’s USD Line of Credit consisted of three pricing tranches with maturity dates ranging from one to 30 days, respectively. However, pursuant to the credit agreement, the Company routinely refinances these borrowings within its long-term facility. Therefore, these borrowings are reported as part of the line of credit and as long-term debt. The Company had outstanding letters of credit of $15.9 million at March 31, 2010, which are considered outstanding indebtedness under the Company’s USD Line of Credit for purposes of determining available borrowings under that line of credit.

     In December 2008, the Company issued $38.0 million of senior unsecured long-term variable rate notes, due in November 2012 pursuant to a Credit Agreement dated November 21, 2008. Interest is charged, at the Company’s option, at either LIBOR plus a margin of 3.50% or at the agent’s base rate plus a margin of

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

3.50%. Beginning March 31, 2010, the notes became payable in quarterly installments of $3.0 million, and any outstanding principal will be due at maturity in November 2012. The notes may be prepaid at the Company’s option anytime after November 20, 2009 without penalty. The weighted average interest rate (including margin) on the $38.0 million term notes at March 31, 2010 and 2009 was 3.75% and 4.06%, respectively.

     On May 19, 2009, the Company completed the offering of $115.0 million aggregate principal amount of 5.25% Convertible Senior Notes due May 15, 2029 (the “2009 Convertible Notes”), which includes its offering of $100.0 million aggregate principal amount of its 2009 Convertible Notes and an additional $15.0 million aggregate principal amount of its 2009 Convertible Notes that were sold pursuant to the exercise of an over-allotment option by the initial purchasers. The 2009 Convertible Notes were sold to certain qualified institutional buyers pursuant to Rule 144A of the Securities Act of 1933, as amended. The 2009 Convertible Notes are senior unsecured obligations of the Company.

     Upon the issuance of the 2009 Convertible Notes, the Company received net proceeds of approximately $111.1 million, after deducting the estimated offering expenses payable by the Company. The Company used a portion of the net proceeds of the offering to repay existing indebtedness, including outstanding balances under its revolving credit facility. The remaining portion was used for general corporate purposes.

     The 2009 Convertible Notes bear interest at a rate of 5.25% per year, payable semi-annually on May 15 and November 15 of each year, commencing November 15, 2009. The 2009 Convertible Notes will be convertible, in certain circumstances, at an initial conversion rate of 39.2157 shares per $1,000 aggregate principal amount of 2009 Convertible Notes (which is equivalent to a conversion price of approximately $25.50 per share), subject to adjustment upon the occurrence of certain events, into either, at the Company’s election: (i) shares of common stock or (ii) cash up to their principal amount and shares of its common stock in respect of the remainder, if any, of the conversion value in excess of the principal amount. This represents a conversion premium of approximately 27.5% relative to the closing price of the Company’s common stock on May 13, 2009. The Company may not redeem the 2009 Convertible Notes prior to May 14, 2014. The Company may, at its option, redeem some or all of the 2009 Convertible Notes on or after May 15, 2014 solely for cash. Holders of the 2009 Convertible Notes will have the right to require the Company to repurchase some or all of the outstanding 2009 Convertible Notes, solely for cash, on May 15, 2014, May 15, 2019 and May 15, 2024 at a price equal to 100% of the principal amount plus any accrued and unpaid interest.

     The 2009 Convertible Notes were accounted for under ASC 470-20-65, Transition Related to FASB Staff Position APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement) (“ASC 470-20-65”). ASC 470-20-65 requires the proceeds from the issuance of convertible debt be allocated between a debt component and an equity component. The debt component is measured based on the fair value of similar debt without an equity conversion feature, and the equity component is determined as the residual of the fair value of the debt deducted from the original proceeds received. The resulting discount on the debt component is amortized over the period the convertible debt is expected to be outstanding, which is five years (May 15, 2009 to May 15, 2014), as additional non-cash interest expense. As of March 31, 2010, the principal amount of the notes was $115.0 million, the carrying amount was $102.2 million, and the unamortized discount was $12.8 million. As of March 31, 2010, the carrying amount of the equity component recorded as additional paid-in capital was $9.4 million, net of deferred taxes and equity issuance costs. The additional non-cash interest expense recognized in the Company’s consolidated statements of income was $0.8 million for the three months ended March 31, 2010. Accumulated amortization related to the 2009 Convertible Notes was $2.8 million as of March 31, 2010. As of March 31, 2010, the 2009 Convertible Notes had an effective interest rate of 8.46%.

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

     In connection with the issuance of the 2009 Convertible Notes, the Company incurred approximately $3.9 million in issuance costs, which primarily consisted of underwriting fees, legal and other professional expenses. These costs are being amortized to interest expense over five years. The unamortized balance of these costs at March 31, 2010 is included in the Company’s consolidated balance sheet.

     On January 28, 2010, the Company issued and sold $25.0 million aggregate principal amount of its 7.26% senior unsecured notes (the “2017 Notes”) due January 28, 2017 in a private placement pursuant to a note purchase agreement dated January 28, 2010 by and among the Company and certain purchasers listed therein (the “Note Purchase Agreement”). The 2017 Notes are senior unsecured obligations of the Company. The 2017 Notes are payable in five annual installments of $5.0 million beginning January 28, 2013. In addition, the Company may, at its option, prepay all or a minimum portion of no less than $1.0 million of the 2017 Notes at a price equal to the principal amount thereof plus a make-whole premium and accrued interest. The 2017 Notes are guaranteed by all of the Company’s U.S. subsidiaries. The Company used a portion of the net proceeds of the 2017 Notes to repay existing indebtedness, including outstanding balances under its USD Line of Credit. The remaining portion was used for general corporate purposes.

     See Note 10 for a discussion of the Company’s interest rate cap agreements.

     Each of the Company’s credit facility agreements and senior unsecured notes require the Company to maintain certain financial ratios. As of March 31, 2010, the Company is in compliance with all covenants or other requirements set forth in its debt agreements.

6. Operating Segment Information

     The Company has three reportable operating segments: pawn lending, cash advance and check cashing. The cash advance and check cashing segments are managed separately due to the different operational strategies required and, therefore, are reported as separate segments. For comparison purposes, all prior periods in the tables below reflect the current classification of administrative and operating expenses.

     The Company allocates corporate administrative expenses to each operating segment based on personnel expenses at each segment. With respect to the internet lending channel of the cash advance segment, certain administrative expenses are allocated between the domestic and foreign components of the channel based on the amount of loans written for each geographic location. Intercompany interest is allocated to each segment based on intercompany debt balances, including the initial investment in the subsidiary. An interest rate is calculated monthly based on the current month blended average rate on all outstanding debt.

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

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

		Pawn				Cash				Check
		Lending (1)				Advance (2)				Cashing				Consolidated
Three Months Ended March 31, 2010
Revenue
Finance and service charges		$	57,931			$	350			$	—			$	58,281
Proceeds from disposition of merchandise			137,540				4,343				—				141,883
Cash advance fees			7,022				101,420				—				108,442
Check cashing fees, royalties and other			1,016				2,616				824				4,456
Total revenue			203,509				108,729				824				313,062
Cost of revenue – disposed merchandise			87,335				2,610				—				89,945
Net revenue			116,174				106,119				824				223,117
Expenses
Operations			61,831				34,247				300				96,378
Cash advance loss provision			1,027				32,866				—				33,893
Administration			12,066				13,410				213				25,689
Depreciation and amortization			7,327				3,354				37				10,718
Total expenses			82,251				83,877				550				166,678
Income from operations		$	33,923			$	22,242			$	274			$	56,439
As of March 31, 2010
Total assets		$	735,922			$	479,864			$	6,538			$	1,222,324
Goodwill		$	210,782			$	292,912			$	5,310			$	509,004

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

		Pawn				Cash				Check
		Lending (1)				Advance (2)				Cashing				Consolidated
Three Months Ended March 31, 2009
Revenue
Finance and service charges		$	52,954			$	5			$	—			$	52,959
Proceeds from disposition of merchandise			128,002				1,758				—				129,760
Cash advance fees			7,578				72,730				—				80,308
Check cashing fees, royalties and other			1,043				3,097				932				5,072
Total revenue			189,577				77,590				932				268,099
Cost of revenue – disposed merchandise			81,329				1,173				—				82,502
Net revenue			108,248				76,417				932				185,597
Expenses
Operations			57,596				27,591				335				85,522
Cash advance loss provision			1,222				23,552				—				24,774
Administration			11,757				9,482				242				21,481
Depreciation and amortization			7,097				3,161				83				10,341
Total expenses			77,672				63,786				660				142,118
Income from operations		$	30,576			$	12,631			$	272			$	43,479
As of March 31, 2009
Total assets		$	708,295			$	414,502			$	6,815			$	1,129,612
Goodwill		$	205,214			$	279,255			$	5,310			$	489,779

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

										Total Pawn
		Domestic				Foreign				Lending
Three Months Ended March 31, 2010
Revenue
Finance and service charges		$	50,512			$	7,419			$	57,931
Proceeds from disposition of merchandise			137,540				—				137,540
Cash advance fees			7,022				—				7,022
Check cashing fees, royalties and other			983				33				1,016
Total revenue			196,057				7,452				203,509
Cost of revenue — disposed merchandise			87,335				—				87,335
Net revenue			108,722				7,452				116,174
Expenses
Operations			58,088				3,743				61,831
Cash advance loss provision			1,027				—				1,027
Administration			10,087				1,979				12,066
Depreciation and amortization			6,184				1,143				7,327
Total expenses			75,386				6,865				82,251
Income from operations		$	33,336			$	587			$	33,923

										Total Pawn
		Domestic				Foreign				Lending
Three Months Ended March 31, 2009
Revenue
Finance and service charges		$	46,491			$	6,463			$	52,954
Proceeds from disposition of merchandise			128,002				—				128,002
Cash advance fees			7,578				—				7,578
Check cashing fees, royalties and other			974				69				1,043
Total revenue			183,045				6,532				189,577
Cost of revenue — disposed merchandise			81,329				—				81,329
Net revenue			101,716				6,532				108,248
Expenses
Operations			55,185				2,411				57,596
Cash advance loss provision			1,222				—				1,222
Administration			10,277				1,480				11,757
Depreciation and amortization			6,269				828				7,097
Total expenses			72,953				4,719				77,672
Income from operations		$	28,763			$	1,813			$	30,576

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

						Internet				Card				Total Cash
Three Months Ended March 31, 2010		Storefront				Lending				Services				Advance
Revenue
Finance and service charges		$	350			$	—			$	—			$	350
Proceeds from disposition of merchandise			4,343				—				—				4,343
Cash advance fees			20,522				73,925				6,973				101,420
Check cashing fees, royalties and other			2,300				313				3				2,616
Total revenue			27,515				74,238				6,976				108,729
Cost of revenue — disposed merchandise			2,610				—				—				2,610
Net revenue			24,905				74,238				6,976				106,119
Expenses
Operations			14,710				18,712				825				34,247
Cash advance loss provision			1,959				28,684				2,223				32,866
Administration			2,156				11,073				181				13,410
Depreciation and amortization			1,323				1,827				204				3,354
Total expenses			20,148				60,296				3,433				83,877
Income from operations		$	4,757			$	13,942			$	3,543			$	22,242

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

						Internet				Card				Total Cash
Three Months Ended March 31, 2009		Storefront				Lending				Services				Advance
Revenue
Finance and service charges		$	5			$	—			$	—			$	5
Proceeds from disposition of merchandise			1,758				—				—				1,758
Cash advance fees			19,134				51,756				1,840				72,730
Check cashing fees, royalties and other			2,887				208				2				3,097
Total revenue			23,784				51,964				1,842				77,590
Cost of revenue — disposed merchandise			1,173				—				—				1,173
Net revenue			22,611				51,964				1,842				76,417
Expenses
Operations			15,368				11,292				931				27,591
Cash advance loss provision			2,662				20,152				738				23,552
Administration			2,119				7,266				97				9,482
Depreciation and amortization			1,435				1,610				116				3,161
Total expenses			21,584				40,320				1,882				63,786
Income from operations		$	1,027			$	11,644			$	(40	)		$	12,631

The Company’s cash advance segment is composed of (a) domestic operations, consisting of cash advance storefront locations and internet lending operations, and (b) foreign operations, consisting of internet lending operations in the United Kingdom, Australia and Canada. The following table summarizes the results from each component’s contributions to the Internet Lending channel for the three months ended March 31, 2010 and 2009:

										Total Cash
										Advance
		Domestic				Foreign				Segment
Three Months Ended March 31, 2010
Revenue
Finance and service charges		$	350			$	—			$	350
Proceeds from disposition of merchandise			4,343				—				4,343
Cash advance fees			83,156				18,264				101,420
Check cashing fees, royalties and other			2,616				—				2,616
Total revenue			90,465				18,264				108,729
Cost of revenue — disposed merchandise			2,610				—				2,610
Net revenue			87,855				18,264				106,119
Expenses
Operations			28,348				5,899				34,247
Cash advance loss provision			25,372				7,494				32,866
Administration			10,163				3,247				13,410
Depreciation and amortization			3,295				59				3,354
Total expenses			67,178				16,699				83,877
Income from operations		$	20,677			$	1,565			$	22,242

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

										Total Cash
										Advance
		Domestic				Foreign				Segment
Three Months Ended March 31, 2009
Revenue
Finance and service charges		$	5			$	—			$	5
Proceeds from disposition of merchandise			1,758				—				1,758
Cash advance fees			66,974				5,756				72,730
Check cashing fees, royalties and other			3,097				—				3,097
Total revenue			71,834				5,756				77,590
Cost of revenue — disposed merchandise			1,173				—				1,173
Net revenue			70,661				5,756				76,417
Expenses
Operations			25,513				2,078				27,591
Cash advance loss provision			20,458				3,094				23,552
Administration			8,492				990				9,482
Depreciation and amortization			3,152				9				3,161
Total expenses			57,615				6,171				63,786
Income from operations		$	13,046			$	(415	)		$	12,631

7. Litigation

     On August 6, 2004, James E. Strong filed a purported class action lawsuit in the State Court of Cobb County, Georgia against Georgia Cash America, Inc., Cash America International, Inc. (together with Georgia Cash America, Inc., “Cash America”), Daniel R. Feehan, and several unnamed officers, directors, owners and “stakeholders” of Cash America. The lawsuit alleges many different causes of action, among the most significant of which is that Cash America made illegal cash advance loans in Georgia in violation of Georgia’s usury law, the Georgia Industrial Loan Act and Georgia’s Racketeer Influenced and Corrupt Organizations Act. Community State Bank (“CSB”) for some time made loans to Georgia residents through Cash America’s Georgia operating locations. The complaint in this lawsuit claims that Cash America was the true lender with respect to the loans made to Georgia borrowers and that CSB’s involvement in the process is “a mere subterfuge.” Based on this claim, the suit alleges that Cash America is the “de facto” lender and is illegally operating in Georgia. The complaint seeks unspecified compensatory damages, attorney’s fees, punitive damages and the trebling of any compensatory damages. A previous decision by the trial judge to strike Cash America’s affirmative defenses based on arbitration (without ruling on Cash America’s previously filed motion to compel arbitration) was upheld by the Georgia Court of Appeals, and on September 24, 2007, the Georgia Supreme Court declined to review the decision. The case was returned to the State Court of Cobb County, Georgia, where Cash America filed a motion requesting that the trial court rule on Cash America’s pending motion to compel arbitration and stay the State Court proceedings. The Court denied the motion to stay and ruled that the motion to compel arbitration was rendered moot after the Court struck Cash America’s affirmative defenses based on arbitration. The Georgia Supreme Court declined to review these orders and remanded the case to the State Court of Cobb County, Georgia. On November 2, 2009, the Court granted class certification, and on November 18, 2009, Cash America filed its notice of appeal of the class certification order. Cash America believes that the Plaintiffs’ claims in this suit are without merit and is vigorously defending this lawsuit.

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

     Cash America and CSB also commenced a federal lawsuit in the U.S. District Court for the Northern District of Georgia seeking to compel Plaintiffs to arbitrate their claims against Cash America and CSB. The U.S. District Court dismissed the federal action for lack of subject matter jurisdiction, and Cash America and CSB appealed the dismissal of their complaint to the U.S. Court of Appeals for the 11^th Circuit. The 11^th Circuit issued a panel decision on April 27, 2007 reversing the district court’s dismissal of the action and remanding the action to the district court for a determination of the issue of the enforceability of the parties’ arbitration agreements. Plaintiff requested the 11^th Circuit to review this decision en banc and this request was granted. The en banc rehearing took place on February 26, 2008. The 11^th Circuit stayed consideration of this matter pending the resolution of the United States Supreme Court case, Vaden v. Discover Bank. In March 2009, the United States Supreme Court determined, in Vaden v. Discover Bank, that the federal courts were able to compel arbitration of a state court action if the underlying issues involved a federal question. Following the United States Supreme Court ruling in Vaden v. Discover Bank, the 11^th Circuit en banc court, without ruling on the case, remanded the case to the 11^th Circuit panel for further consideration in light of the decision in Vaden. The 11^th Circuit panel requested the parties provide additional briefing following the decision in Vaden, which has been completed, and the parties are awaiting the court’s decision. 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.

     On July 26, 2008, the Pennsylvania Department of Banking issued a notice announcing a “change in policy,” effective February 1, 2009. The notice concluded that out-of-state lenders such as the Company were lending “in” Pennsylvania. Accordingly, the notice purported to subject such lenders to the licensing requirements of the CDCA, which sets the maximum permissible interest at a level well below the interest rate the Company charges on its internet cash advance loans. On January 8, 2009, the Company brought suit against the Pennsylvania Department of Banking in the Pennsylvania Commonwealth Court, arguing that the notice was invalid because it was adopted in violation of applicable procedural requirements and because it conflicted with the plain language of the CDCA. As a part of these proceedings, the Pennsylvania Department of Banking filed a counterclaim against the Company seeking a declaratory judgment that the Company’s internet lending activities to Pennsylvania consumers are not authorized by Pennsylvania law, however, the Pennsylvania Department of Banking represented that it had “no intent to pursue a retroactive financial remedy” against the Company or any similarly situated lender for loans made prior to the date of the decision by the Commonwealth Court. After a hearing on the Company’s initial request for a preliminary injunction, the judge expressed the view that the matter should be heard by all the judges of the Commonwealth Court. A hearing on the merits of the Company’s claim against the Pennsylvania Department of Banking was held before the entire Commonwealth Court on April 1, 2009. On July 10, 2009, the Commonwealth Court issued its decision in favor of the Pennsylvania Department of Banking, and in response thereto, the Company ceased originating new loans in Pennsylvania. On July 15, 2009, the Company filed an appeal of this decision with the Pennsylvania Supreme Court, and a hearing date has been set for May 11, 2010. The Company does not expect a decision on the appeal until late 2010 or early 2011.

     On March 5, 2009, Peter Alfeche filed a purported class action lawsuit in the United States District Court for the Eastern District of Pennsylvania against Cash America International, Inc., Cash America Net of Nevada, LLC (“CashNet Nevada”), Cash America Net of Pennsylvania, LLC and Cash America of PA, LLC, d/b/a CashNetUSA.com (collectively, “CashNetUSA”). The lawsuit alleges, among other things, that CashNetUSA’s internet cash advance lending activities in Pennsylvania were illegal and not in accordance with the Pennsylvania Loan Interest Protection Law or the licensing requirements of the CDCA. The lawsuit also seeks declaratory judgment that several of CashNetUSA’s contractual provisions, including choice of law and arbitration provisions, are not authorized by Pennsylvania law. The complaint seeks unspecified compensatory damages, attorney’s fees and the trebling of any compensatory damages. CashNetUSA filed a motion to enforce the arbitration provision located in the agreements governing the lending activities, and a hearing on the motion was held on July 1, 2009. The Court has not yet ruled on this motion. The Alfeche litigation is still at an early stage, and neither the likelihood of an unfavorable outcome nor the ultimate

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

liability, if any, with respect to this litigation can be determined at this time. CashNetUSA believes that the Plaintiffs’ claims in this suit are without merit and will vigorously defend this lawsuit.

     On April 21, 2009, Yulon Clerk filed a purported class action lawsuit in the Court of Common Pleas of Philadelphia County, Pennsylvania, against CashNet Nevada and several other unrelated third-party lenders. The lawsuit alleges, among other things, that the defendants’ lending activities in Pennsylvania, including CashNet Nevada’s internet cash advance lending activities in Pennsylvania, were illegal and in violation of various Pennsylvania laws, including the Loan Interest Protection Law, the CDCA and the Unfair Trade Practices and Consumer Protection Laws. The complaint seeks payment of potential fines, unspecified damages, attorney’s fees and the trebling of certain damages. The defendants removed the case to the United States District Court for the Eastern District of Pennsylvania where the lawsuit now resides. The case was subsequently reassigned to the same judge presiding in the Alfeche litigation. On August 26, 2009, the Court severed the claims against the other defendants originally named in the litigation. CashNet Nevada filed a motion with the federal court to enforce the arbitration provision located in the agreements governing the lending activities on May 4, 2009, and the Court has not yet ruled on this motion. The Clerk 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. CashNet Nevada believes that the Plaintiffs’ claims in this suit are without merit and will vigorously defend this lawsuit.

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

8. Fair Values of Financial Instruments

     The carrying amounts and estimated fair values of financial instruments at March 31, 2010 and 2009 were as follows (in thousands):

		Balance at March 31,
		2010								2009
		Carrying				Estimated				Carrying				Estimated
		Value				Fair Value				Value				Fair Value
Financial assets:
Cash and cash equivalents		$	40,286			$	40,286			$	25,676			$	25,676
Pawn loans			158,347				158,347				148,147				148,147
Cash advances, net			99,021				99,021				75,880				75,880
Interest rate contracts			42				42				136				136
Marketable securities			6,691				6,691				—				—
Financial liabilities:
Bank lines of credit			77,165				75,617				243,116				239,291
Senior unsecured notes			159,960				154,431				156,500				157,118
2009 Convertible Notes			102,162				196,794				—				—

     Cash and cash equivalents bear interest at market rates and have maturities of less than 90 days. Pawn loans have relatively short maturity periods depending on local regulations, generally 90 days or less. Cash advance loans generally have a loan term of seven to 45 days. Since cash and cash equivalents, pawn loans and cash advance loans have maturities of less than 90 days, their fair value approximates their carrying

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

value. Finance and service charge rates are determined by regulations and bear no valuation relationship to the capital markets’ interest rate movements. Generally, pawn loans may only be resold to a licensed pawnbroker.

     The fair values of the Company’s long-term debt instruments are estimated based on market values for debt issues with similar characteristics or rates currently available for debt with similar terms. The Company’s senior unsecured notes have a lower fair market value than the carrying value due to the difference in yield when compared to recent issuances of similar senior unsecured notes. The 2009 Convertible notes have a higher fair value than carrying value due to the Company’s stock price as of March 31, 2010 exceeding the applicable conversion price for the 2009 Convertible Notes, thereby increasing the value of the instrument for bondholders.

9. Fair Value Measurements

     In accordance with ASC 820-10, Fair Value Measurements and Disclosures, the Company’s assets and liabilities, which are carried at fair value, are classified in one of the following three categories:

Level 1: Quoted market prices in active markets for identical assets or liabilities.

Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data.

Level 3: Unobservable inputs that are not corroborated by market data.

     The Company’s financial assets that are measured at fair value on a recurring basis as of March 31, 2010 and 2009 are as follows (in thousands):

		March 31,				Fair Value Measurements Using
		2010				Level 1				Level 2				Level 3
Financial assets:
Interest rate contracts		$	42			$	—			$	42			$	—
Nonqualified savings plan assets		6,372					6,372				—				—
Marketable equity securities		6,691					6,691				—				—
Total		$	13,105			$	13,063			$	42			$	—

		March 31,				Fair Value Measurements Using
		2009				Level 1				Level 2				Level 3
Financial assets:
Interest rate contracts		$	136			$	—			$	136			$	—
Nonqualified savings plan assets			5,717				5,717				—				—
Total		$	5,853			$	5,717			$	136			$	—

     The Company measures the value of its interest rate cap under Level 2 inputs as defined by ASC 820-10. The Company relies on a mark to market valuation based on yield curves using observable market interest rates for the interest rate cap. The fair value of the nonqualified savings plan assets and marketable securities are measured under a Level 1 input. These assets are publicly traded equity securities for which market prices are readily observable.

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

10. Derivative Instruments

     The Company periodically uses derivative financial instruments, such as interest rate cap agreements, for the purpose of managing interest rate exposures that exist from ongoing business operations. For derivatives designated as cash flow hedges, the effective portions of changes in the estimated fair value of the derivative are reported in other comprehensive income and are subsequently reclassified into earnings when the hedged item affects earnings. The change in the estimated fair value of the ineffective portion of the hedge, if any, will be recorded as income or expense. The estimated fair values of the interest rate cap agreements are included in “Other receivables and prepaid expenses” of the accompanying consolidated balance sheets.

     On December 3, 2008, the Company entered into an interest rate cap agreement with a notional amount of $15.0 million to hedge the Company’s outstanding floating rate line of credit for a term of 36 months at a fixed rate of 3.25%. On March 27, 2009, the Company entered into an interest rate cap agreement with a notional amount of $15.0 million to hedge the Company’s outstanding floating rate line of credit for a term of 36 months at a fixed rate of 3.25%. These interest rate cap agreements have been determined to be perfectly effective cash flow hedges, pursuant to ASC 815-20-25, Derivatives and Hedging – Recognition (“ASC 815”) at inception and on an ongoing basis.

     The Company periodically uses forward currency exchange contracts and foreign debt instruments to minimize risk of foreign currency exchange rate fluctuations. During the three months ended March 31, 2010, the Company hedged an average amount of MXN 116.9 million to manage its advances denominated in Mexican pesos to its Mexico based pawn operations. Using the average exchange rate for the quarter, these hedged transactions represented $8.8 million. As of March 31, 2010, the total amount hedged through forward contracts was MXN 91.9 million, with an equivalent value of $7.3 million. Any gain or loss resulting from these forward contracts is recorded as income or loss and is included in “Foreign currency transaction gain (loss)” in the Company’s consolidated statements of income. For the three months ended March 31, 2010, the Company recorded losses of $0.7 million related to these forward contracts. The Company does not currently manage its exposure to risk from foreign currency exchange rate fluctuations through the use of foreign exchange forward contracts in the currencies of the United Kingdom, Australia or Canada. As the Company’s foreign operations continue to grow, management will continue to evaluate and implement foreign exchange rate risk management strategies.

				Amount of Gain or (Loss)								Amount of Gain or
				Net of Tax, Recognized in								(Loss) Net of Tax,
				Other Comprehensive								Recognized in Income
				Income on Derivative								on Derivative
				(Effective Portion)								(Ineffective Portion)
				Three months ended								Three months ended
Derivatives designated as hedges under ASC 815				March 31,								March 31,
Cash Flow Hedging
Relationships		Balance Sheet Location		2010				2009				2010				2009
Interest rate contracts		Other receivables and prepaid expenses		$	(107	)		$	(15	)		$	—			$	—
Total				$	(107	)		$	(15	)		$	—			$	—

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

GENERAL

          Cash America International, Inc. (the “Company”) provides specialty financial services to individuals through its Company-owned and franchised lending locations and check cashing centers and via the internet. These services include secured non-recourse loans, commonly referred to as pawn loans, short-term unsecured cash advances, installment loans, credit services, check cashing and related financial services. Finance and service charges revenue are generated from the Company’s pawn loan portfolio. A related activity of the pawn lending operations is the disposition of collateral from unredeemed pawn loans and the liquidation of a smaller volume of merchandise purchased directly from third-parties or from customers. Cash advance fees are generated from the Company’s cash advance products, from credit service fees generated from customers for loans arranged with independent third-party lenders through a credit services organization (the “CSO program”) and from the Company’s card services business through which the Company provides loan processing services for a third-party bank issued line of credit on certain stored-value debit cards that the bank issues and purchases a participation interest in certain line of credit receivables originated by the bank. Check cashing fees are generated from check cashing and other financial services.

          As of March 31, 2010, the Company had 1,048 total locations offering specialty financial services to its customers in the United States and Mexico. As of March 31, 2010, the Company also offered specialty financial services over the internet in the United States, United Kingdom, Australia and Canada. The Company operates in three segments: pawn lending, cash advance and check cashing.

          As of March 31, 2010, the Company’s pawn lending operating segment offered pawn loans through 686 total pawn lending locations, including 677 consolidated Company-owned units and nine unconsolidated franchised units, consisting of:

	•		502 stores that operate in 22 states in the United States under the names “Cash America Pawn” and “SuperPawn,” and
	•		184 stores that operate in 21 jurisdictions in central and southern Mexico under the name “Prenda Fácil” (referred to as “Prenda Fácil”), of which the Company is a majority owner due to the December 16, 2008 acquisition (the “Prenda Fácil acquisition”) by the Company of 80% of the outstanding stock of Creazione Estilo, S.A. de C.V., SOFOM, E.N.R., a Mexican sociedad anónima de capital variable, sociedad financiera de objeto múltiple, entidad no regulada.

          During the three months ended March 31, 2010, the Company acquired three pawn lending locations, established 10 locations, and combined or closed three locations for a net increase in Company-owned pawn lending locations of 10.

          As of March 31, 2010, the Company’s cash advance operating segment consisted of:

	•		238 cash advance storefront locations in six states in the United States operating under the names “Cash America Payday Advance” and “Cashland;”
	•		the Company’s internet channel, which offered short-term cash advances over the internet to customers in 33 states in the United States at http://www.cashnetusa.com, in the United Kingdom at http://www.quickquid.co.uk, in Australia at http://www.dollarsdirect.com.au and in Canada at http://www.dollarsdirect.ca; and
	•		the Company’s card services business, which processed line of credit advances on behalf of a third-party lender and had a participation interest in line of credit receivables that were processed for the lender by

     the Company or other third-parties and that were outstanding in all 50 states and four other U.S. jurisdictions.

     During the three months ended March 31, 2010, the Company closed or combined eight cash advance storefront locations.

     As of March 31, 2010, the Company’s check cashing operating segment consisted of 119 unconsolidated franchised and five consolidated Company-owned check cashing locations operating in 16 states in the United States under the name “Mr. Payroll.” For the three-month period ended March 31, 2010, the Company established three check cashing locations and combined or closed five locations for a net decrease in check cashing locations of two.

     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,
		2010				2009
Revenue
Finance and service charges			18.6	%			19.8	%
Proceeds from disposition of merchandise			45.3				48.4
Cash advance fees			34.6				30.0
Check cashing fees, royalties and other			1.5				1.8
Total Revenue			100.0				100.0
Cost of Revenue
Disposed merchandise			28.7				30.8
Net Revenue			71.3				69.2
Expenses
Operations			30.8				31.9
Cash advance loss provision			10.8				9.2
Administration			8.2				8.0
Depreciation and amortization			3.4				3.9
Total Expenses			53.2				53.0
Income from Operations			18.1				16.2
Interest expense			(1.8	)			(1.8	)
Interest income			—				—
Foreign currency transaction gain			(0.1	)			(0.1	)
Income before Income Taxes			16.2				14.3
Provision for income taxes			6.0				5.3
Net Income			10.2				9.0
Less: Net income attributable to the noncontrolling interest			—				(0.1	)
Net Income Attributable to Cash America International, Inc.			10.2	%			8.9	%