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Executives

Jamie Fulmer – Investor Relations

J. Patrick O'Shaughnessy – President, Chief Executive Officer and Director

James A. Ovenden – Executive Vice President and Chief Financial Officer

Analysts

David Burtzlaff – Stephens, Inc.

John Hecht – JMP Securities

Paul Purcell – Continental Advisors

Advance America, Cash Advance Centers, Inc. (AEA) Q2 2011 Earnings Call July 29, 2011 8:00 AM ET

Operator

Good day, everyone, and welcome to the Advance America, Cash Advance Centers’ Second Quarter Earnings Results Conference Call. As a reminder, this conference is being recorded.

At this time for opening remarks and introductions, I'd like to turn the call over to Jamie Fulmer. Please go ahead, sir.

Jamie Fulmer

Good morning. Before we begin, let me remind you that during this call, our comments will include certain forward-looking statements. All comments on this call other than those relating to our historical information on our current conditions will be forward-looking statements.

For example, any statements regarding our future expenditures and financial performance, our plans for product expansion, our business strategy, perspective demand for our products or expected legislative or regulatory developments that may affect the cash advance services industry are forward-looking statements.

Please note that these forward-looking statements reflect our opinions only as of the day of this presentation and we undertake no obligation to revise or publicly release the results of any revisions to these forward-looking statements in light of new information or future events.

In this regard, please keep in mind that our actual future results could differ materially from our expectations and are subject to risks, uncertainties and other factors many of which are not within our control or may not be predicted.

For a more detailed discussion of some of these factors, please refer to the Risk Factor section of our Annual Report on Form 10-K for the year ended December 31, 2010, a copy of which is available from the SEC upon request from us or by going to our website at www.advanceamerica.net.

Now, I'd like to turn the call over to our Chief Executive Officer, Pat Shaughnessy.

J. Patrick O’Shaughnessy

Good morning and welcome to our second quarter 2011 earnings call. Also joining me today is Jim Ovenden, our company’s Chief Financial Officer. Yesterday we were pleased to report the results of the quarter ended June 30, 2011. Before we discuss the financial results in detail, I would like to briefly update you on a few developments since our last call.

Yesterday, our Board of Directors approved Advance America's 27th consecutive dividend since becoming a public company. This dividend of $6.25 per share is payable on September 2 to stockholders of record as of August 23, 2011.

I’d now like to briefly discuss recent legislative and regulatory developments concerning our industry at both the state and the federal level.

Let me begin at the state level where legislative sessions have ended in most states across the country. In fact, as of today, legislatures remain in session in only six states. The legislative season has been a productive one as state governments continue to carefully examine the regulatory landscape as it relates to financial services including access to short-term credit, and developed rules that are designed to both protect and meet the needs of consumers.

Most notably, new laws were passed in Texas, Wisconsin, and Mississippi. We were supportive of these changes and believe that they are all consistent with our efforts to both regulatory of frameworks that enable the provision of affordable, simply, reliable, and perhaps most important transparent financial services in each of the states where we operate.

As a company with a large national footprint, this activity at the state level is crucial to how we operate our business. As we have pointed out on a number of occasions, the products offered by Advance America are highly regulated by state and federal officials across the country. Specifically, state laws typically limit the principal amount of an advance, they set maximum fees available, limit a customer’s ability to renewal an advance and require the form and substance of disclosure.

Overall, we believe many of the measures approved by lawmakers this year provide our customers with meaningful projections, while also acknowledging our continued need to obtain affordable short-term credit.

At the federal level, efforts to form the new Consumer Financial Protection Bureau continue to generate a great deal of attention from lawmakers and the media. It has been widely reported that July 21, 2011, was the official start date for the Bureau. As of that date, the Bureau has now assumed new authorities provided by the Dodd-Frank Act. Certain authorities will transfer from other agencies to the Bureau, including oversight of several laws with which we currently comply, including the Truth in Lending Act, the Equal Credit Opportunity Act, the Graham-Leach-Bliley Act, and the Fair Credit Reporting Act among others.

Even though the Bureau officially began its work last Thursday, its staff has been laying the initial groundwork for months. As they work to fulfill their statutory mandates, Bureau staff is actively meeting with financial services industry representatives, advocacy group, members of Congress, and other interested parties in an effort to include a diversity of perspective in its research and rule making.

As we have stated previously, Advance America fully intends to be a constructive participant in this process. Amid the broad regulatory discussions in Washington, we must be continually mindful of where the rubber meets the road.

Millions of Americans continue to seek viable avenues for overcoming financial shortfalls in avoiding related punitive consequences. Late payment fees, damage to credit scores, a loss of critical services such as utilities and healthcare.

Moreover as demand for varied credit services grow, the traditional line between what are often refer to is, mainstream and alternative offerings have blurred or disappeared altogether. Consumers consider many credit offerings to be comparable because they can function in similar ways regardless of whether the provider is a bank, a credit union or a retail lender. But these services often have very different cost structures, terms and disclosures. Bureau officials have made it clear they will seek to establish a level regulatory playing field between these different types of financial service providers in order to ensure fair competition and comparable protections for consumers across all credit products.

We at Advance America wholeheartedly agree with this approach and believe that consumers thrive in a competitive regulated and transparent financial services market. Ensuring regulatory parity among credit providers is essential for such an environment to exist. Comparable short-term credit options including small dollar loans, banking credit union overdraft programs, as well as cash advances should be governed by similar regulations.

In particular, this frameworks include uniform disclosure requirements to make sure consumers are equipped with all the information they need to compare the costs and benefits of these services. Such an approach will provide equitable treatment from lenders without limiting consumer choice. The need for affordable credit among many Americans is clearly not abating. Business leaders and public officials alike have worked together to ensure that debt marketplace can meet this demand by offering consumers a variety of simple, transparent and effectively regulated options.

As we had discussed in the past, we spent a lot of time and energy on our efforts to ensure that investors, legislators, regulators and those in the media better understand our products, how they are marketed, and why millions of American consumers value and have a critical need for small dollar short-term loan products.

We do this because it seems as if every day there is a fresh example of how huge the gap has become between the perceptions that are based on the lack of factual information that critics of our industry seek to promote. And the distinct reality experienced by our customers, the actual people who use our products and services.

To help bridge that gap and dispel some of the myths about the services we offer, Advance America recently launched that you might me surprised campaign. Through this program we seek to educate and engage American consumers about their short-term borrowing options and the many different credit services that might meet their financial needs.

Also for those who think they already understand our services and customers, they clearly do not, you might be surprised, it’s a great way to show who our customers really are and to hear their personal voices by allowing them to share their actual stories.

For those who have to wake up each day and go to work for Advance America, we are extremely proud of the high level of regard our customers have for us. The great appreciation they have for the services that we provide and the comfort and peace of mind they feel because we are there for them when they need us.

Our customers virtually all of them have a banking relationship, choose from a variety of credit options offered by any number of financial services providers. Ultimately, their decisions are based on value, service, reliability and convenience. They turn to Advance America because our service does suit their needs.

As one customer in the You Might Be Surprised campaign told us, the reality of it is that you are not always going to have what you need. And so sometimes as working adult, you know that you have a responsibility to provide for your family. And if it requires you needing to get that help, then that’s an alternative sometimes you have to take. You don’t always want to ask your family to borrow money, you don’t always want to go to a friend, you ultimately want to have a second option.

A recent report from the National Bureau of Economic Research validated this customer’s situation. This report found that nearly half of American survey, said they could not come up with $2000 from any source over the course of 30 days if faced with an unexpected expense, such as a car repair or medical bill.

These findings were not unique to low income populations, roughly 38% of households with an annual income of over $100,000, said they would not be able to cope with such an expense.

When our customers find themselves with a financial need as those described in the NBER report whether it is an unpaid bill, an unexpected car repair, medical emergency, or if they are simply looking for a way to avoid late fees, they make fully informed and deliberate decisions when they choose our service.

In fact our customer research has found that almost all of our customers make their choice with a clear understanding of the rate fees in terms of their loan transaction. Like any company, we have a marketing strategy designed to grow our business and the results are positive. However, it is what we do, once the customer comes into our location that I am most proud of. Our researchers found that 97% of customers, who visit an Advance America Center, rate our service as good or better. Nearly two-thirds rated it as excellent.

Advance America cares deeply about our customers' best interest, and the You Might Be Surprised campaign and other company programs allow us to get feedback from our customers about their financial needs and to continually provide high quality services that they’ve learned to expect from us.

Our strong culture of customer service and compliance is what ultimately drives our business and is the heart of our success. I'm confident that if we remain true to our commitment to our customers and to our core business principles, our company’s strong performance will continue well into the future.

I will now turn the call over to Jim Ovenden for an overview of our financial results for the quarter ended June 30, 2011.

James A. Ovenden

Good morning. For the quarter ended June 30, 2011, our total revenues remained in line with prior quarters, decreasing to $140.7 million compared to $141.4 million for the same period in 2010. These comparisons include the results of operations in Arizona, where we ceased operations in July of 2010. Also we continue to experience performance headwinds in Colorado, Washington, and Virginia where law and regulatory changes in 2010, negatively impacted company's revenue and profitability.

In addition and as expected, we have begun to experience the negative effects of the recent state law change in Wisconsin and Illinois. Revenues in these six states were $10.7 million for the quarter ended June 30, 2011, compared to $20.2 million for the same period in 2010. Excluding results of these states from both years, revenues increased by 7.3% for the quarter ended June 30, 2011, compared to the same period in 2010. For the second quarter total revenues for centers opened prior to April 1, 2010, and still open as of June 30, 2011 increased by 3.8% compared to the same period in 2010.

If you exclude revenues from Colorado, Illinois, Virginia, Washington and Wisconsin for the quarter ended June 30, 2011, total revenues for the company’s centers opened prior to April 1, 2010 and still open as of June 30, 2011, increased 8% compared to the same period in 2010.

The provision for doubtful accounts as a percent of total revenues for the quarter ended June 30, 2011 increased to 19.4% compared to 17.7% for the same period in 2010. The provision for the second quarter of 2011 was primarily affected by two factors. First, the composition and amount of the seasonal increase in receivables, which included a larger increase in both total accounts and NSF accounts due to the delayed receipt of refunds this tax season.

And secondly, higher losses experienced by our operations in the United Kingdom. Additionally, the company does not show any previously written-off receivables during 2011, compared to the $0.1 million and $0.7 million during the second quarter and year-to-date periods in 2010 respectively.

The company opened a total of five centres during the quarter ended June 30, 2011, and the company closed or consolidated 10 centers in seven different states during the second quarter of 2011. We had approximately $0.3 million of centre closing costs during the quarter ended June 30, 2011, compared to $1.4 million in the same period of 2010.

Closing costs include severance, center tear-down costs, lease termination costs, and the write-down of fixed assets. For the second quarter of 2011, total marketing expense was $5.9 million or 4.2% of revenues compared to $6.6 million or 4.6% of revenues in the second quarter of 2010.

Centre expenses for the quarter ended June 30, 2011 were $108.6 million, compared to $110.2 million for the same period in 2010. We continue to see the positive effects of our centre consolidation efforts that were largely implemented during 2010. Centre gross profit increased 3% to $32.1 million for the second quarter of 2011, compared to $31.1 million during the same period of 2010.

General and administrative expenses for the quarter ended June 30, 2011 were $14.5 million compared to $16.6 million to the second quarter in 2010, a reduction of 12.5%. This decrease was primarily due to lower legal and professional fees.

Income before income taxes for the quarter ended June 30, 2011 increased 65.8% to $15.8 million compared to $9.6 million for the same period in the prior year. The effective income tax rate as a percentage of income before income taxes was 45.7% and 46.4% for the three-months ended June 30, 2011 and 2010 respectively.

Net income for the second quarter increased 67.9% to $8.6 billion compared to $5.1 million for the same period in 2010. Basic and diluted earnings per share were $0.14 for the quarter ended June 30, 2011, compared to basic and diluted earnings per share of $0.08 for the same period in 2010.

During the six months ended June 30, 2011, the company generated cash flow from operations of $64.9 million, a 56.8% increase over the same period in 2010. And as of June 30, we had $80.9 million borrowed under our revolving credit facility and $31 million from December 31, 2010.

With regards to some of our key operating metrics for the second quarter, the average amount of the cash advance made, which excludes installment loans in Illinois and lines of credit in Virginia, during 2011 increased to $371 compared to $368 for 2010. The average fee on all cash advances made during the second quarter was approximately $54 compared to $55 in the second quarter of 2010.

The total principal amount of cash advances originated during 2011 was approximately $914 million compared to $888 million during 2010, again excluding installment loans and lines of credit. The average duration of all cash advances completed was approximately 18.2 days for 2011 compared to 18 days for 2010. As of June 30, 2011 the company had an operating network of 2,342 centers and 55 limited licensees in 29 states in the United Kingdom and Canada.

Finally, we have decided to close an additional 30 centers in the State of Washington where changes in the law there have greatly affected our ability to operate profitably in that state. Upon this new round of closures, we will have 14 remaining centers in Washington State.

We estimate closing costs including severance, center tear down costs, lease termination costs, and the write-down of fixed assets of those centers to be approximately $0.4 million, which will be primarily recognized in the third quarter.

Now, I will turn the call back over to Patrick.

J. Patrick O’Shaughnessy

Thank you, Jim. At this point, we will conclude the presentation and turn it back over to the operator for any questions you may have.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Our first question is from David Burtzlaff of Stephens. Your question please.

David Burtzlaff – Stephens, Inc.

Good morning, guys.

J. Patrick O’Shaughnessy

Hi, David.

David Burtzlaff – Stephens, Inc.

Patrick, so I was hoping to get a little more color on the increase in loss rate; how much of that is really UK driven? And trying to understand the other portion about the higher seasonal balances, because most of those tax refunds would have been done in March?

J. Patrick O’Shaughnessy

That’s right. I will give you the big picture and if Jim wants to fill any details, but what’s hard to explain there and we talked about it a little bit in the first quarter is that the tax refunds were late, we normally have our lowest receivable balance around the end of February and it starts to climb back up through March. And this year, our lowest receivable balance was actually at the end of March.

So if you look at the change in receivable balance from March to June in 2010 versus 2011, the change in the receivable balance was larger during the second quarter of this year than last year. So the provision was also larger because of that.

At the same time, as we talked about in the first quarter call because the tax refunds were later, there was probably some of a revenue shift from the second quarter into the first quarter. And so you had higher revenues with a lower provision in the first quarter and a little bit, and relatively lower revenues with a high provision in the second quarter. Do you want to give…

James A. Ovenden

I think there are platforms that are well David. I think that you have to look at the sequential kind of balance sheet change year-over-year from March to June. This year it was larger again because of delayed tax season, there was a lower balance in March of ’11. And so again, because we have larger increase this year on flat revenues, the impact on the provision is a little bit exaggerated. In addition to that, again because of the delayed tax season from February to March our NSF balances where unusually low in March of this year. And so NSF balances returned to a more historical level in June ’11 but that increase in NSF balance is larger this year versus last year, which had a kind of an exaggerated impact on the allowance.

J. Patrick O’Shaughnessy

And I would just add to that, even though there may have been some shift between the first and second quarters, when we look at the six-month numbers, we’re ahead of our expectations just about every market.

David Burtzlaff – Stephens, Inc.

Okay. So is this more of a one-time, do you think, issue kind of spike here, I mean just the way it is? I mean it should normalize more in the third quarter?

James A. Ovenden

I would say it's not really a one-time spike; it’s little more of a normalization between first quarter and second quarter. I think if you look at year-to-date, we’ve said, it captures the picture.

J. Patrick O’Shaughnessy

That’s right.

David Burtzlaff – Stephens, Inc.

Okay. And how much of that increase is UK driven?

James A. Ovenden

I would say about or less than a third of the increase would relate to the UK component.

David Burtzlaff – Stephens, Inc.

Okay. I mean so speaking of the UK, I mean you're losing a lot of money there and you are losing money in Washington, you're making the decision to shut those stores down, why, why not shut down the UK?

J. Patrick O’Shaughnessy

The decision to shut down Washington is really there are just structural issues of the law there that we don't think we can make it profitable. We don’t have any of those same issues in the UK and we are disappointed with our performance there, but don't see any structural reasons why we can't improve it, but we do need to spend, we do need to focus on it. But we think the market there is great potential, we just have not yet been able to perform up to our expectations there.

David Burtzlaff – Stephens, Inc.

Okay. And how many stores do you have there now?

J. Patrick O’Shaughnessy

Five.

David Burtzlaff – Stephens, Inc.

Just five.

J. Patrick O’Shaughnessy

25, I'm sorry.

David Burtzlaff – Stephens, Inc.

25? Okay. And then as we look forward kind of into the third quarter, Arizona now anniversaries so the comp should be easier. My guess is we should see actual positive year-over-year revenue growth in the third quarter then as you cycle through Arizona?

J. Patrick O’Shaughnessy

That's just one of the states that continues to be negative; I think that right now through the first half we’ve been able to basically offset any of the negatives with the growth we have had in other markets. But Arizona is just one of the states, the others that will continue to have negative year-over-year comparisons.

David Burtzlaff – Stephens, Inc.

Right, but you cycled through a lot of the initial changes, so business should improve a little bit from the worst?

J. Patrick O’Shaughnessy

We would hope so, I think that Virginia, as you know, we’ve had sort of constant changes there. Colorado we won’t cycle through in the third quarter yet. Illinois was a change in March of this year. Wisconsin was a change in the beginning of this year, so there are some that will start to cycle through, but some that will continue to have negative impact.

David Burtzlaff – Stephens, Inc.

Okay. And then finally, the tax rate. I mean, that seems to bounce around quite a bit. What should we look at for kind of the remainder of the year?

J. Patrick O’Shaughnessy

I think that the sort of 44%, we’ve talked about in the past should – over the long run, it should bounce out about there in quarters like this where pre-tax income is seasonally low, non-deductible expenses have just a much higher impact in those quarters.

James A. Ovenden

I mean the reason it’s down year-over-year David is just we have higher pretax earnings. So the impact of the non-deductible expenses is less. And the amount of non-deductable expenses has declined as well.

David Burtzlaff – Stephens, Inc.

All right. Thank you.

Operator

Thank you. Our next question is from John Hecht of JMP Securities. Your question please.

John Hecht – JMP Securities

Good morning. Thanks, guys, for taking my question. David asked a lot of my questions and I just have a couple of follow-ups from him, plus a couple additional questions. One is just trying to finalizing on the credit. Just so I am clear, it sounds like Q1 and Q2 when you look at the six months it was a normal period that had some seasonal changes due to the tax refunds. But if I just want to be clear, is kind of the rate of NSF or the rate of charge-off, the trajectory on that in Q3 normal relative to other third quarters that we have seen?

James A. Ovenden

Yeah, we don't obviously provide forward-looking information but, in terms of the charge-off rates and our collection rates in the first six months, they are in line with historical levels.

John Hecht – JMP Securities

Okay. And then the…

James A. Ovenden

Except for the UK David.

J. Patrick O’Shaughnessy

John.

James A. Ovenden

John. I am sorry.

John Hecht – JMP Securities

Yeah. That’s okay. And then can you give us sort of your the loan balance in the UK, just to give us a sense for how large that is at this point?

J. Patrick O’Shaughnessy

Maybe I’ll let James find that for you. It's not large. And one of the things there too that when you look at it as a percent of revenue, we saw a fairly large increase in lending revenue in the UK, quarter-over-quarter. The same time we saw a fairly large decline in both gold sales and check cashing revenue. So the only product that has significant losses associated with it was more of the revenue this quarter or two, but I will let Jim give you the balance.

James A. Ovenden

John, at the end of the quarter the loan balance of the outstanding advances net of the allowance is about $3.2 million.

John Hecht – JMP Securities

And understanding you don't provide guidance, but can you tell us you plan to do a bad

debt sale in the near future? Or is that not something you want to provide to us?

J. Patrick O’Shaughnessy

We don't have any contemplated at this point, but we evaluate those periodically just based on what the pricing is versus what we think what we can collect on our own.

John Hecht – JMP Securities

Okay. Then, Pat, I wonder if you could tell us what the 8% drive – the same-store sales growth in the states that haven't been impacted was 8%; it's pretty strong. I am wondering what’s driving that. Is it new customers? Is it higher average loan balances? Is it some of the ongoing influence from the customer lists you bought from a rent-to-own business?

J. Patrick O’Shaughnessy

If you look at the average loan balances, they are up a little bit, but that’s more than offset by lower fees, so I guess the sort of fee per transaction hasn’t really changed much at all, it’s really just customer growth in those markets.

John Hecht – JMP Securities

And can you tell us maybe some of the stronger markets where you are seeing the new customer activity accelerate and maybe give us a sense for what you think is driving that? Is that you stealing market share; is that a new customer entering the overall market for you to look at?

J. Patrick O’Shaughnessy

Our new customer’s growth has been relatively flat year-over-year, but we define new customers as you recall as being people that have never done a transaction with us ever. So we see a lot of people who’re former customers that are coming back. And I do think in some markets we are getting share, there is certainly markets where we’ve seen a lot of competitors close as you’re probably well aware of it and I think that helps to drive share in those markets.

John Hecht – JMP Securities

And do you have the sense for what that number is; the new customers, maybe the six-month new customers this year versus last year and/or the reactivated customers? Is there any way to quantify that?

James A. Ovenden

The new customers as we said is pretty much flat year-over-year, and we don’t distinguish between sort of reactivated and they really would depend on – to call someone reactivated on how many days inactive they were and I can probably figure that out, but I don’t have it.

John Hecht – JMP Securities

And can you give us an update on that customer acquisition. The customer list acquisition you did? The retention rate, any of the metrics you are looking at there?

James A. Ovenden

John, I will tell you, for the second quarter of our 8% same store revenue growth, about 20% of that growth rate related to kind of customers acquired in the last acquisition. So it’s a little bit less than $2 million.

John Hecht – JMP Securities

Okay, that’s great. Thanks for the color.

Operator

Thank you. Our next question is from Paul Purcell with Continental Advisors. Your question, please.

Paul Purcell – Continental Advisors

Good morning. Thank you for taking my questions.

James A. Ovenden

Good morning, Paul.

Paul Purcell – Continental Advisors

I guess could we just go back and maybe go at the UK a different direction? What strategically are you trying to get done there?

J. Patrick O’Shaughnessy

To me it’s, I look at it as just a potential market expansion for us, we’ve been obviously we are very small there, but view it as a good market. I think we’ve got, we just had trouble meeting our expectations there. We bought in there as a check cashier, with the idea of bringing payday on and as we brought payday on we have really lost most of check cashing business over there. So we just haven't found the right balance to make it profitable, but we will continue to evaluate it.

Paul Purcell – Continental Advisors

So refresh my memory, I think it has been about five years since the entry into the UK market?

J. Patrick O’Shaughnessy

I think about four right now.

Paul Purcell – Continental Advisors

And so how do you manage the UK? What kind of executive leadership have you dedicated to trying to get that going? What has the turnover been like with that personnel?

J. Patrick O’Shaughnessy

I think the executive management; it was set up really as a separate subsidiary. The executive management in the country was all hired in the country and at the top level, we’ve had the same people running it since the beginning.

Paul Purcell – Continental Advisors

Okay. Yeah, we’ve had no positive earnings or contribution from that ever?

J. Patrick O’Shaughnessy

No.

Paul Purcell – Continental Advisors

What was the total negative contribution last quarter?

J. Patrick O’Shaughnessy

We don’t get into the details of any specific market but…

Paul Purcell – Continental Advisors

Well, you do when there is regulatory changes, so maybe I might ask that you put the UK in the Q now so that shareholders can see exactly what the odyssey across the pond is costing and if it has gotten there, unless there is going to be a much larger investment to try to get that to where it matters. 25 stores and $3.2 million, to your point, it's tiny, it doesn't matter, but yet it's costing us a fair amount of money.

J. Patrick O’Shaughnessy

I don't disagree, it's small, but it’s not profitable and how long we continue to work on something that’s small and non-profitable is a question we discuss?

Paul Purcell – Continental Advisors

And on a balance of $3.2 million, I am guessing that is US not pounds, a third of the provision increase year-over-year that is more than a $0.5 million if my math is anywhere close. So that is kind of hard to believe as well. But maybe my math is no good as I am just doing it on the fly on the call. I mean that seems unbelievable.

J. Patrick O’Shaughnessy

It’s very large but the size of the payday portfolio has increased fairly dramatically too, particularly relative to the other sources of revenue, the traditional check cashing that we did over there.

Paul Purcell – Continental Advisors

Okay. And how much – I guess, we will have to keep it – do you have the loss in Washington for the quarter? Where you right around breakeven like you were in the first quarter or did you drop back into the – I know on the first-quarter call you were talking about provisioning having an effect on Washington looking more like breakeven.

J. Patrick O’Shaughnessy

Right. In the first quarter, as you recall the center gross loss was about 800,000, but again that is when we provisioned very low. Our cash losses were much higher than that. And for the six months the loss was about $1.1.

Paul Purcell – Continental Advisors

Okay. So it actually got better in the second quarter –

(Multiple speakers)

James A. Ovenden

...wound down that portfolio with a plan to exit.

Paul Purcell – Continental Advisors

Okay. You mentioned a structural issue in Washington. Is there something structurally that getting to 14 stores is going to allow you to operate in a more consolidated fashion and make money, or should we expect that those 14 stores are going to be shut down the line? And if so, why not just shut them now?

J. Patrick O’Shaughnessy

We hope that at the level of volume we can maintain in those stores, we can be breakeven in the State of Washington.

Paul Purcell – Continental Advisors

Okay. I guess, if the hope is to – it’s the hope, right, which would be the very best outcome to get to breakeven, why keep them open? Why take that risk?

J. Patrick O’Shaughnessy

Just the option for the legislative – the rules there to improve.

Paul Purcell – Continental Advisors

Okay. Was there anything that you saw in the first wave of consolidation in terms of being able to move more customer volumes into fewer locations that give you hope that in that process you are going to be able to even get better than breakeven? Or is breakeven – that this the best, 14 stores the best we can do is breakeven with this law?

J. Patrick O’Shaughnessy

That is what our plan suggests is that this will enable us to get to breakeven in that state. So that it’s not costing us anything to wait for an option where the law could be approved to better benefit consumers.

Paul Purcell – Continental Advisors

Okay. And given that the fourth quarter is kind of your busiest seasonal quarter, one would hope that with these changes being made right now we would hope to see the full effect of the changes by the fourth quarter of this year.

J. Patrick O’Shaughnessy

Yes, it will.

Paul Purcell – Continental Advisors

Okay. With that said, I know you’ve got a law change in Wisconsin that is definitely going to impact volumes up until March of next year, but the bulk of what you have faced for the last 12 months, I think in fairness, is South Carolina, Kentucky, Washington, and Arizona. And I think with June 30 those four states should be behind in terms of the drag we have seen. Is that fair or is there something? Illinois – I see as not – it shouldn't affect you materially to the degree of Wisconsin or certainly Washington or South Carolina. Is there something in those changes that I am missing?

J. Patrick O’Shaughnessy

Well, I think there is always when there is a real change, there is some effect of the customers as they try to sort it out and competitors move to different products. So what really showing as negatives in Illinois year-over-year – although the law change went in the database only went in very recently, so I don't think we’d seen the full effect of the negative potential there, yet. But there clearly Wisconsin is more difficult for us I think today than Illinois. And then Virginia and Colorado will continue to be problems for at least the next quarter.

Paul Purcell – Continental Advisors

What did they do in Virginia in the back half of last year?

J. Patrick O’Shaughnessy

The back half last year basically, first eight weeks, if you recall, the original law changed and then they subsequently changed the ability to issue lines of credit. And then in October of last year we were required to cease offering lines of credit at all.

Paul Purcell – Continental Advisors

And then just – could we get your point of view on uses of capital? I mean, obviously looking at that operating cash flow number you guys are generating tremendous amounts of cash flow. What are your thoughts on deploying that? Is it going to be to pay the revolver fully off over the next six to nine months here as you enter the seasonal paydown next spring, or are there active discussions around boosting the dividend and/or buying back stock or acquisitions for that matter?

J. Patrick O’Shaughnessy

We look at all of the above, potential acquisition opportunities, changing the dividend, repurchasing stocks, those are all things we discuss as active uses of our capital.

Paul Purcell – Continental Advisors

Could you prioritize those if you could? Where do you think your highest and best use is right now or where does the Board think?

J. Patrick O’Shaughnessy

I think that, where we think we can get growth and higher returns for our shareholders would be the highest priority. We are kind of moving down from there, what’s the most efficient and accretive use of our capital.

Paul Purcell – Continental Advisors

Well, you and I have discussed it. I don't see a lot trading cheaper than you guys, so I don't know where you can get higher returns than buying the stock back in. But that is just an opinion of one.

J. Patrick O’Shaughnessy

I appreciate it. We will keep working for higher and better returns.

Paul Purcell – Continental Advisors

Okay. Well, it was a good quarter and congrats on the further enhancement of the center profitability and consolidation effort. I think you have made great strides there, Patrick.

J. Patrick O’Shaughnessy

Thank you. I appreciate it.

Paul Purcell – Continental Advisors

Okay.

Operator

Thank you. I am showing no further questions in queue at this time. I would now like to turn the conference back over to Patrick O'Shaughnessy for any further remarks.

J. Patrick O’Shaughnessy

Thank you very much for your participation in today’s call. And we will look forward to speaking with you again when we announce results for the third quarter of 2011.

Operator

Ladies and gentlemen, thank you for your participation. That concludes the conference. You may disconnect, and have a wonderful day.

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