e10vq

DOLLAR FINANCIAL CORP.

Date: May 10, 2010

*By:
Name:

/s/ Randy Underwood

Randy Underwood

Executive Vice President and Chief Financial Officer (principal financial and chief accounting officer)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)


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

For the quarterly period ended March 31, 2010


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

For the transition period from to

Commission File Number 000-50866

DOLLAR FINANCIAL CORP.

(Exact Name of Registrant as Specified in Its Charter)


Delaware		23-2636866
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

1436 LANCASTER AVENUE,
BERWYN, PENNSYLVANIA 19312
(Address of Principal Executive Offices) (Zip Code)

610-296-3400
(Registrant’s Telephone Number, Including Area Code)

None
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check þ 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 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, non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer, accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act: (Check one):


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

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

As of April 30, 2010, 24,332,319 shares of the registrant’s common stock, par value $0.001 per share, were outstanding.

PART 1. FINANCIAL INFORMATION

Item 1. Financial Statements

DOLLAR FINANCIAL CORP.

INTERIM CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)


	June 30,			March 31,
	2009			2010
	(restated)				(unaudited)
ASSETS
Current Assets
Cash and cash equivalents	$	209,602		$	370,977
Loans receivable, net:
Loans receivable		126,826			136,790
Less: Allowance for loan losses		(12,132	)		(17,349	)

Loans receivable, net		114,694			119,441
Loans in default, net of an allowance of $17,000 and $15,153		6,436			5,867
Other receivables		7,299			20,887
Prepaid expenses and other current assets		22,794			24,222
Current deferred tax asset, net of valuation allowance of $4,816 and $4,816		39			1,403

Total current assets		360,864			542,797
Deferred tax asset, net of valuation allowance of $84,972 and $79,976		27,062			29,402
Property and equipment, net of accumulated depreciation of $99,803 and $115,969		58,614			63,114
Goodwill and other intangibles		454,347			593,609
Debt issuance costs, net of accumulated amortization of $6,815 and $7,986		9,869			20,133
Other		10,709			15,935

Total Assets	$	921,465		$	1,264,990

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable	$	36,298		$	36,907
Income taxes payable		14,834			9,329
Accrued expenses and other liabilities		70,588			140,941
Debt due within one year		5,880			14,401
Current deferred tax liability		71			310

Total current liabilities		127,671			201,888
Fair value of derivatives		10,223			63,165
Long-term deferred tax liability		18,876			22,570
Long-term debt		530,425			735,928
Other non-current liabilities		25,192			22,931
Stockholders’ equity:
Common stock, $.001 par value: 55,500,000 shares authorized; 24,102,985 shares and 24,332,319 shares issued and outstanding at June 30, 2009 and March 31, 2010, respectively		24			24
Additional paid-in capital		311,301			329,906
Accumulated deficit		(110,581	)		(110,419	)
Accumulated other comprehensive income		8,018			(1,246	)

Total Dollar Financial Corp. stockholders’ equity		208,762			218,265
Non-controlling interest		316			243

Total stockholders’ equity		209,078			218,508

Total Liabilities and Stockholders’ Equity	$	921,465		$	1,264,990

See notes to interim unaudited consolidated financial statements

DOLLAR FINANCIAL CORP.

INTERIM UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)


	Three Months Ended						Nine Months Ended
	March 31,						March 31,
	2009			2010			2009			2010
	(restated)						(restated)
Revenues:
Check cashing	$	37,263		$	37,236		$	127,419		$	113,575
Fees from consumer lending		57,654			78,062			203,261			238,250
Money transfer fees		5,957			6,609			20,351			20,523
Pawn service fees and sales		3,164			4,814			10,466			13,302
Other		14,126			30,627			41,916			66,247

Total revenues		118,164			157,348			403,413			451,897

Operating expenses:
Salaries and benefits		34,429			39,882			111,507			114,341
Provision for loan losses		10,242			10,220			40,392			34,578
Occupancy		9,863			10,974			31,503			32,659
Depreciation		3,057			3,424			9,819			10,869
Returned checks, net and cash shortages		2,866			2,288			13,228			7,182
Maintenance and repairs		2,848			3,097			9,068			8,792
Advertising		1,451			3,884			6,659			11,998
Bank charges and armored carrier service		3,174			3,477			9,937			10,400
Other		9,639			16,142			32,621			40,612

Total operating expenses		77,569			93,388			264,734			271,431

Operating margin		40,595			63,960			138,679			180,466

Corporate and other expenses:
Corporate expenses		15,452			22,068			52,566			65,368
Other depreciation and amortization		925			2,490			2,903			4,652
Interest expense, net		10,346			21,946			32,560			46,412
Loss on extinguishment of debt		—			718			—			9,531
Unrealized foreign exchange gain		—			(15,681	)		—			(11,769	)
Loss on derivatives not designated as hedges		—			18,634			—			21,909
Provision for litigation settlements		45			26,627			554			27,894
Loss on store closings		644			1,507			6,137			3,157
Other (income) expense, net		(877	)		261			(6,546	)		1,685

Income (loss) before income taxes		14,060			(14,610	)		50,505			11,627
Income tax provision (benefit)		8,361			(2,332	)		23,970			11,538

Net income (loss)		5,699		$	(12,278	)	$	26,535		$	89
Less: Net loss attributable to non-controlling interests		—			(37	)		—			(73	)

Net income (loss) attributable to Dollar Financial Corp.	$	5,699		$	(12,241	)	$	26,535		$	162


Net income per share:
Basic	$	0.24		$	(0.51	)	$	1.10		$	0.01
Diluted	$	0.24		$	(0.51	)	$	1.10		$	0.01
Weighted average shares outstanding:
Basic		23,951,974			24,151,536			24,024,628			24,064,118
Diluted		24,007,851			24,151,536			24,114,896			24,767,284

See notes to interim unaudited consolidated financial statements.

DOLLAR FINANCIAL CORP.

INTERIM UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except share data)


															Accumulated
	Common Stock					Additional			Accumulated						Other			Total
	Outstanding					Paid-in			Income			Non-Controlling			Comprehensive			Stockholders’
	Shares			Amount		Capital			(Deficit)			Interest			Income (loss)			Equity
Balance, June 30, 2009 (audited)		24,102,985		$	24	$	311,301		$	(110,581	)	$	316		$	8,018		$	209,078

Comprehensive income:
Foreign currency translation																(10,751	)		(10,751	)
Cash flow hedges																1,487			1,487
Net income										162									162

Total comprehensive income																			(9,102	)
Restricted stock grants		191,706
Stock options exercised		85,508					1,417												1,417
Vested portion of granted restricted stock and restricted stock units							2,373												2,373
Retirement of common stock		(47,880	)				—
Other stock compensation		—					2,284												2,284
Net income attributable to non-controlling interest							—						(73	)					(73	)
Debt Discount							32,911												32,911
Retirement of Debt Discount							(20,380	)											(20,380	)


Balance, March 31, 2010 (unaudited)		24,332,319		$	24	$	329,906		$	(110,419	)	$	243		$	(1,246	)	$	218,508

See notes to interim unaudited consolidated financial statements.

DOLLAR FINANCIAL CORP.

INTERIM UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)


	Nine Months Ended
	March 31,
	2009			2010
	(restated)
Cash flows from operating activities:
Net income	$	26,535		$	162
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		14,869			17,971
Loss on extinguishment of debt		—			9,531
Change in fair value of derivatives not designated as hedges		—			17,054
Provision for loan losses		40,392			34,578
Non-cash stock compensation		5,045			4,657
Non-controlling interest		—			(73	)
Loss on disposal of fixed assets		1,963			314
Unrealized foreign exchange gain		—			(12,000	)
Deferred tax provision (benefit)		3,793			(2,436	)
Accretion of debt discount and deferred issuance costs		6,649			9,403
Change in assets and liabilities (net of effect of acquisitions):
Increase in loans and other receivables		(33,672	)		(46,912	)
Increase in prepaid expenses and other		(3,635	)		(1,458	)
(Decrease) increase in accounts payable, accrued expenses and other liabilities		(14,380	)		48,326

Net cash provided by operating activities		47,559			79,117
Cash flows from investing activities:
Acquisitions, net of cash acquired		(2,382	)		(123,829	)
Additions to property and equipment		(11,013	)		(18,303	)

Net cash used in investing activities		(13,395	)		(142,132	)
Cash flows from financing activities:
Proceeds from offering 10.375% Senior Notes due 2016		—			596,388
Proceeds from the exercise of stock options		3,305			1,417
Purchase of company stock		(7,492	)		—
Repayment of term loan notes		—			(351,114	)
Other debt payments		(2,653	)		(6,992	)
Payment of convertible debt		—			(32,032	)
Net (decrease) increase in revolving credit facilities		(3,753	)		14,200
Payment of debt issuance and other costs		(128	)		(19,681	)

Net cash (used in) provided by financing activities		(10,721	)		202,186
Effect of exchange rate changes on cash and cash equivalents		(41,590	)		22,204

Net (decrease) increase in cash and cash equivalents		(18,147	)		161,375
Cash and cash equivalents at beginning of period		209,714			209,602

Cash and cash equivalents at end of period	$	191,567		$	370,977

See notes to interim unaudited consolidated financial statements.

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited interim consolidated financial statements are of Dollar Financial Corp. (“DFC”) and its wholly owned and majority owned subsidiaries (collectively the “Company”). DFC is the parent company of Dollar Financial Group, Inc. (“OPCO”) and its wholly owned subsidiaries. The activities of DFC consist primarily of its investment in OPCO. The Company’s unaudited interim consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the Company’s audited consolidated financial statements in DFC’s annual report on Form 10-K (File No. 000-50866) for the fiscal year ended June 30, 2009 filed with the Securities and Exchange Commission on September 3, 2009, as amended in its entirety as set forth in Exhibit 99.1 to DFC’s Current Report on Form 8-K filed with the Securities and Exchange Commission on March 19, 2010 to reflect (i) the retrospective application of ASC 470-20 and ASC 810-10 (which was originally reflected in the amended financial statements filed as Exhibit 99.5 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 20, 2009) and (ii) the inclusion of Notes 23 and 24 thereto to provide condensed consolidating financial information in accordance with Rule 3-10(d) of Regulation S-X and to provide information with respect to events occurring after December 31, 2009). In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results of interim periods are not necessarily indicative of the results that may be expected for a full fiscal year.

Dollar Financial Corp. is a Delaware corporation incorporated in April 1990 as DFC Holdings, Inc. The Company principally operates a store network through OPCO and its wholly owned and majority owned subsidiaries. Through its subsidiaries, the Company primarily provides retail financial services to the general public through a network of 1,178 locations (of which 1,054 are company owned) operating primarily under the names Money Mart^®, The Money Shop, Loan Mart^®, Insta-Cheques^® and The Check Cashing Store in the United States, Canada, the United Kingdom and the Republic of Ireland. This network includes 1,170 locations (including 1,054 company-owned) in the United States, Canada, the United Kingdom and the Republic of Ireland offering financial services including check cashing, single-payment consumer loans, sale of money orders, money transfer services, pawn service fees, gold buying and various other related services. Also, included in this network is the Company’s Poland operation acquired in June 2009 which provides financial services to the general public through in-home servicing. Furthermore, this network includes a U.K. Internet-based consumer lending business as well as a merchant cash advance business in the United Kingdom that primarily provides working capital to small retail businesses by providing cash advances against a future receivable calculated as a percentage of future credit card sales.

Through Dealers’ Financial Services, LLC and its wholly owned subsidiary, Dealers’ Financial Services Reinsurance Ltd. (together, “DFS”), the Company provides services to enlisted military personnel seeking to purchase new and used vehicles. DFS markets its services through its branded fee-based Military Installment Loan and Education Services, or “MILES”, program. DFS provides services to enlisted military personnel who make applications for auto loans to purchase new and used vehicles that are funded and serviced under an exclusive agreement with a major third-party national bank based in the United States. Additionally, DFS provides ancillary services such as service contracts and guaranteed asset protection, or GAP, insurance, along with consultations regarding new and used automotive purchasing, budgeting, credit and ownership training. DFS’ revenue primarily comes from fees which are paid by the third-party national bank and fees from the sale of ancillary products such as warranty service contracts and GAP insurance coverage. DFS operates through an established network of arrangements with approximately 600 new and used car dealerships (both franchised and independent), according to underwriting protocols specified by the third-party national bank.

The Company’s common shares are traded on the NASDAQ Global Select Market under the symbol “DLLR”.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. On an ongoing basis, management evaluates its estimates and judgments, including those related to revenue recognition, loss reserves, valuation allowance for income taxes and impairment assessment of goodwill and other intangible assets and litigation reserves. Management bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates.

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies (continued)

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company. All significant intercompany accounts and transactions have been eliminated in consolidation.

Reclassifications

Certain prior year amounts have been reclassified to conform to current year presentation. These reclassifications have no effect on net income or stockholders’ equity.

Fair Value of Financial Instruments

The fair value of the Company’s Canadian Term Loan Facility and U.K. Term Loan Facility (each as defined in Note 5 below) is calculated as the sum of the present value of all contractual cash flows. The fair value of the 2.875% Senior Convertible Notes due 2027 issued by DFC (the “2027 Notes”), the 3.00% Senior Convertible Notes due 2028 (“the 2028 Notes”) and the 10 3/8% Senior Notes due 2016 issued by the Company’s Canadian subsidiary National Money Mart Company (the “2016 Notes”) are based on broker quotations. The Company’s financial instruments consist of cash and cash equivalents, loan and other consumer lending receivables, which are short-term in nature and their fair value approximates their carrying value.

The total fair value of the 2027 Notes and the 2028 Notes were approximately $41.7 million and $157.7 million, respectively, at March 31, 2010. These fair values relate to the face value of the 2027 Notes and the 2028 Notes and not the carrying value recorded on the Company’s balance sheet. The fair value of the 2016 Notes was approximately $650.7 million at March 31, 2010. The total fair value of the Canadian Term Facility was approximately $14.0 million at March 31, 2010. The total fair value of the U.K. Term Facility was $4.1 million at March 31, 2010.

Earnings per Share

Basic earnings per share are computed by dividing net income by the weighted average number of common shares outstanding. Diluted earnings per share are computed by dividing net income by the weighted average number of common shares outstanding, after adjusting for the dilutive effect of stock options. The following table presents the reconciliation of the numerator and denominator used in the calculation of basic and diluted earnings per share (in thousands):


	Three Months Ended					Nine Months Ended
	March 31,					March 31,
	2009		2010			2009		2010
Net income (loss) attributable to Dollar Financial Corp	$	5,699	$	(12,241	)	$	26,535	$	162
Reconciliation of denominator:
Weighted average of common shares outstanding — basic (1)		23,952		24,152			24,025		24,064
Effect of dilutive stock options — (2)		—		—			14		407
Effect of unvested restricted stock and restricted stock unit grants (2)		56		—			76		296

Weighted average of common shares outstanding — diluted		24,008		24,152			24,115		24,767


⁽¹⁾		Excludes 114 and 101 shares of unvested restricted stock which are included in total outstanding common shares as of March 31, 2009 and 2010, respectively. The dilutive effect of restricted stock is included in the calculation of diluted earnings per share using the treasury stock method.

⁽²⁾		The effect of dilutive stock options was determined under the treasury stock method. Due to the net loss for the three months ended March 31, 2010, the effect of the dilutive options and unvested shares of restricted stock and restricted stock unit grants were considered to be anti-dilutive, and therefore were not included in the calculation of diluted earnings per share.

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies (continued)

Stock Based Employee Compensation

The Company’s 2005 Stock Incentive Plan (the “2005 Plan”) states that 1,718,695 shares of its common stock may be awarded to employees or consultants of the Company. The awards, at the discretion of the Company’s Board of Directors, may be issued as nonqualified stock options, incentive stock options or restricted stock awards. The number of shares issued under the 2005 Plan is subject to adjustment as specified in the 2005 Plan provisions. No options may be granted under the 2005 Plan after January 24, 2015.

On November 15, 2007, the stockholders adopted the Company’s 2007 Equity Incentive Plan (the “2007 Plan”). The 2007 Plan provides for the grant of stock options, stock appreciation rights, stock awards, restricted stock unit awards and performance awards (collectively, the “Awards”) to officers, employees, non-employee members of the Board, independent consultants and contractors of the Company and any parent or subsidiary of the Company. The maximum aggregate number of shares of the Company’s common stock that may be issued pursuant to Awards granted under the 2007 Plan is 2,500,000; provided, however, that no more than 1,250,000 shares may be awarded as restricted stock or restricted stock unit awards. The shares that may be issued under the 2007 Plan may be authorized, but unissued or reacquired shares of common stock. No grantee may receive an Award relating to more than 500,000 shares in the aggregate per fiscal year under the 2007 Plan.

Stock options and stock appreciation rights granted under the aforementioned plans have an exercise price equal to the closing price of the Company’s common stock on the date of grant. To date no stock appreciation rights have been granted.

Compensation expense related to share-based compensation included in the statement of operations for the three months ended March 31, 2009 and 2010 was $1.1 million and $1.2 million, respectively, net of related tax effects and $2.9 million and $3.7 million, respectively, net of related tax effects for the nine months ended March 31, 2009 and 2010.

The weighted average fair value of each employee option grant was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions used for grants in the periods presented:


	Three Months Ended						Nine Months Ended
	March 31,						March 31,
	2009			2010			2009			2010
Expected volatility		52.2	%		53.6	%		49.6	%		54.8	%
Expected life (years)		6.0			6.0			5.8			5.9
Risk-free interest rate		2.38	%		3.07	%		2.51	%		3.22	%
Expected dividends	None			None			None			None
Weighted average fair value	$	3.40		$	11.34		$	3.71		$	9.62

A summary of the status of stock option activity for the nine months ended March 31, 2010 follows:


						Weighted
				Weighted		Average
				Average		Remaining		Aggregate
				Exercise		Contractual		Intrinsic Value
	Options			Price		Term (years)		($ in millions)
Options outstanding at June 30, 2009 (911,623 shares exercisable)		1,575,184		$	14.56		7.8	$	3.0
Granted		274,029		$	17.70
Exercised		(85,508	)	$	16.57
Forfeited and expired		(23,960	)	$	16.10

Options outstanding at March 31, 2010		1,739,745		$	14.94		7.4	$	16.2


Exercisable at March 31, 2010		1,110,446		$	15.61		6.6	$	9.7

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies (continued)

Stock Based Employee Compensation (continued)

The aggregate intrinsic value in the above table reflects the total pre-tax intrinsic value (the difference between the Company’s closing stock price on the last trading day of the period and the exercise price of the options, multiplied by the number of in-the-money stock options) that would have been received by the option holders had all option holders exercised their options on March 31, 2010. The intrinsic value of the Company’s stock options changes based on the closing price of the Company’s stock. The total intrinsic value of options exercised for the three and nine months ended March 31, 2010 was $0.6 million and $0.7 million, respectively, and was zero and $1.5 million for the three and nine months ended March 31, 2009. As of March 31, 2010, the total unrecognized compensation cost over a weighted-average period of 2.1 years, related to stock options, is expected to be $2.4 million. Cash received from stock options exercised for the three and nine months ended March 31, 2010 was $1.3 million and $1.4 million, respectively. Cash received from stock options exercised for the three and nine months ended March 31, 2009 was zero and $3.3 million, respectively.

Restricted stock awards granted under the 2005 Plan and 2007 Plan become vested (i) upon the Company attaining certain annual pre-tax earnings targets (“performance-based”) and (ii) after a designated period of time (“time-based”), which is generally three years. Compensation expense is recorded ratably over the requisite service period based upon an estimate of the likelihood of achieving the performance goals. Compensation expense related to restricted stock awards is measured based on the fair value using the closing market price of the Company’s common stock on the date of the grant.

Information concerning unvested restricted stock awards is as follows:


				Weighted
				Average
	Restricted			Grant-Date
	Stock Awards			Fair-Value
Outstanding at June 30, 2009		105,458		$	11.03
Granted		31,899		$	22.86
Vested		(36,795	)	$	11.83

Outstanding at March 31, 2010		100,562		$	14.49

Restricted stock unit awards (“RSUs”) granted under the 2005 Plan and 2007 Plan become vested after a designated period of time (“time-based”), which is generally on a quarterly basis over three years. Compensation expense is recorded ratably over the requisite service period. Compensation expense related to RSUs is measured based on the fair value using the closing market price of the Company’s common stock on the date of the grant.

Information concerning unvested restricted stock unit awards is as follows:


				Weighted
	Restricted			Average
	Stock Unit			Grant-Date
	Awards			Fair-Value
Outstanding at June 30, 2009		413,926		$	11.25
Granted		256,259		$	17.22
Vested		(226,706	)	$	13.33
Forfeited		(14,841	)	$	16.91

Outstanding at March 31, 2010		428,638		$	13.53

As of March 31, 2010, there was $7.3 million of total unrecognized compensation cost related to unvested restricted share-based compensation arrangements granted under the plans. That cost is expected to be recognized over a weighted average period of 1.6 years. The total fair value of shares vested during the three and nine months ended March 31, 2010 was $0.7 million and $3.5 million, respectively.

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies (continued)

Recent Accounting Pronouncements

In December 2007, the Financial Accounting Standards Board (the “FASB”) issued Accounting Codification Statement (“ASC”) 805-10 (formerly SFAS 141R), Business Combinations. This Statement applies to all transactions or other events in which an entity obtains control of one or more businesses, including those combinations achieved without the transfer of consideration. This Statement retains the fundamental requirements that the acquisition method of accounting be used for all business combinations. This Statement expands the scope to include all business combinations and requires an acquirer to recognize the assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree at their fair values as of the acquisition date. Additionally, the Statement changes the way entities account for business combinations achieved in stages by requiring the identifiable assets and liabilities to be measured at their full fair values. The Company adopted the provisions of this Statement on July 1, 2009.

In December 2007, the FASB issued ASC 810-10 (formerly SFAS 160), Non-controlling Interests in Consolidated Financial Statements. This Statement establishes accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a non-controlling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. Additionally, this Statement requires that consolidated net income include the amounts attributable to both the parent and the non-controlling interest. The Company adopted the provisions of this Statement on July 1, 2009. As a result of the adoption of this standard, the Company restated all periods presented to retroactively give effect to this change.

In May 2008, the FASB issued ASC 470-20 (formerly FSP APB 14-1), Accounting for Convertible Debt Instruments That May Be Settled Upon Conversion (Including Partial Cash Settlement). The Statement requires the initial proceeds from convertible debt that may be settled in cash to be bifurcated between a liability component and an equity component. The objective of the guidance is to require the liability and equity components of convertible debt to be separately accounted for in a manner such that the interest expense recorded on the convertible debt would not equal the contractual rate of interest on the convertible debt but instead would be recorded at a rate that would reflect the issuer’s conventional debt borrowing rate. This is accomplished through the creation of a discount on the debt that would be accreted using the effective interest method as additional non-cash interest expense over the period the debt is expected to remain outstanding. The Statement was adopted by the Company on July 1, 2009 and was applied retroactively to all periods presented. The adoption impacted the accounting for the 2027 Notes and, after their issuance in December 2009 the 2028 Notes resulting in additional interest expense of approximately $7.8 million and $8.6 million in fiscal years 2008 and 2009, respectively and additional interest expense of $2.2 million and $6.4 million for the three months and nine months ended March 31, 2009, respectively. Also, the adoption of the Statement reduced the Company’s debt balance by recording a debt discount of approximately $55.8 million, with an offsetting increase to additional paid in capital. Such amount will be amortized over the remaining expected life of the debt.

In April 2009, the FASB issued ASC 825-10 (formerly FSP SFAS 107-b) Disclosures about Fair Value of Financial Instruments. The Statement requires disclosures about fair value of financial instruments in interim financial statements as well as in annual financial statements. The Company adopted the provisions of the Statement for the first quarter of fiscal 2010.

In June, 2009, the FASB issued ASC 105-10 (formerly SFAS 168) Accounting Standards Codification™ and the Hierarchy of Generally Accepted Accounting Principles. The Statement establishes the FASB Accounting Standards Codification™ as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with US GAAP. The Statement is effective for financial statements issued for interim and annual periods ending after September 15, 2009, for most entities. On the effective date, all non-SEC accounting and reporting standards will be superseded. The Company has adopted this Statement for the quarterly period ended September 30, 2009, as required, and adoption has not had a material impact on the Company’s consolidated financial statements.

On January 21, 2010, the FASB issued ASU 2010-06, Improving Disclosures about Fair Value Measurements. The standard amends ASC Topic 820, Fair Value Measurements and Disclosures to require additional disclosures related to transfers between levels in the hierarchy of fair value measurement. The standard does not change how fair values are measured. The standard is effective for interim and annual reporting periods beginning after December 15, 2009. The Company has adopted this Statement for the quarterly period ended March 31, 2010, as required, and adoption is has not had a material impact on the Company’s consolidated financial statements.

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

2. Acquisitions

The following acquisitions have been accounted for under the purchase method of accounting.

On October 17, 2008, the Company entered in a series of purchase agreements to acquire substantially all of the assets of six franchised stores from a franchisee of the Company’s wholly owned United Kingdom subsidiary. The aggregate purchase price for the acquisitions was approximately $3.3 million in cash. The Company used excess cash to fund the acquisition. The Company allocated a portion of the purchase price to identifiable intangible assets, reacquired franchise rights, in the amount of $2.6 million and other assets in the amount of $0.7 million. There was no excess purchase price over the preliminary fair value of identifiable assets acquired.

On April 21, 2009, the Company entered into a purchase agreement to acquire all of the shares of Express Finance Limited, a U.K. Internet-based consumer lending business. The aggregate purchase price for the acquisition was approximately $7.0 million in cash. In addition, the agreement provides for an earnings-related contingent consideration amount based on the results for the two years following the date of acquisition. No amounts have been recorded for this contingent consideration. The Company used excess cash to fund the acquisition. The Company allocated approximately $0.8 million to net assets acquired, including $2.8 million in net loans receivable. The excess purchase price over the preliminary fair value of the identifiable assets acquired was $6.2 million and was recorded as goodwill.

On June 29, 2009, the Company entered into a purchase agreement to acquire substantially all of the assets of two pawn shops located in Scotland from Robert Biggar Limited. The aggregate purchase price for the acquisition was approximately $8.0 million in cash. The Company used excess cash to fund the acquisition. The Company allocated approximately $3.4 million to net assets acquired. The excess purchase price over the preliminary fair value of the identifiable assets acquired was $4.6 million and was recorded as goodwill.

On June 30, 2009, the Company entered into a purchase agreement to acquire 76% of the shares of Optima, S.A., a consumer lending business in Poland. The aggregate purchase price for the acquisition was approximately $5.8 million in cash and the assumption of approximately $6.3 million in debt. The holders of the assumed debt are current shareholders of Optima. In addition, the agreement provides for an earnings-related contingent consideration amount based on the cumulative three year period following the date of acquisition. No amounts have been recorded for this contingent consideration. The Company used excess cash to fund the acquisition. The Company allocated approximately $0.7 million to net liabilities acquired, including $5.4 million in net loans receivable. The excess purchase price over the preliminary fair value of the identifiable assets acquired was $6.8 million and was recorded as goodwill.

During fiscal 2009, the Company completed various smaller acquisitions in the United States and the United Kingdom that resulted in an aggregate increase in goodwill of $1.5 million, calculated as the excess purchase price over the preliminary fair value of the identifiable assets acquired.

On October 3, 2009, the Company entered into a purchase agreement to acquire all the shares of Merchant Cash Express Limited, a U.K. entity which primarily provides working capital needs to small retail businesses by providing cash advances against a percentage of future credit card sales. The aggregate purchase price for the acquisition was approximately $4.6 million. The Company used excess cash to fund the acquisition. The Company allocated approximately $2.6 million to net assets acquired. The excess purchase price over the preliminary fair value of the identifiable assets acquired as $2.0 million and recorded as goodwill.

On December 23, 2009, the Company consummated the acquisition of all the shares of Military Financial Services LLC, including its wholly-owned subsidiary Dealers’ Financial Services, LLC, which provides fee-based services for military personal who obtain auto loans in the United States made by a third party national bank. The acquisition was effected pursuant to the terms of a share purchase agreement dated October 28, 2009. The aggregate purchase price for the acquisition was $123.3 million. In connection with the acquisition, the Company also incurred transaction costs of approximately $1.9 million. The total purchase price of the acquisition, including transactions costs, was $125.2 million.

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

2. Acquisitions (continued)

Under the purchase method of accounting, the total estimated purchase price is allocated to DFS’ net tangible and intangible assets based on their current estimated fair values. Based on management’s preliminary valuation of the fair value of tangible and intangible assets acquired and liabilities assumed, which are based on estimates and assumptions that are subject to change, the preliminary purchase price is allocated as follows (in thousands):


Cash	$	4,464
Other receivables		1,471
Other assets		2,883
Prepaid expenses and other current assets		1,990
Property and equipment		559
Accounts payable		(690	)
Accrued expenses and other liabilities		(1,896	)
Other non-current liabilities		(2,974	)

Net tangible assets acquired		5,807
Definite-lived intangible assets acquired		28,679
Indefinite-lived intangible assets acquired		35,354
Goodwill		53,508


Total estimated purchase price	$	123,348

Prior to the end of the measurement period for finalizing the purchase price allocation, if information becomes available which would indicate adjustments are required to the purchase price allocation, such adjustments will be included in the purchase price allocation retrospectively.

Of the total estimated purchase price, an estimate of $5.8 million has been allocated to net tangible assets acquired, $28.7 million has been allocated to definite-lived intangible assets acquired and $35.4 million has been allocated to indefinite-lived intangible assets. The remaining purchase price has been allocated to goodwill. We anticipate that the entire amount of the goodwill recorded in connection with the acquisition of DFS will be deductible for income tax purposes.

The fair value of identifiable intangible assets is determined primarily using the “income method,” which starts with a forecast of all the expected future net cash flows. Some of the more significant assumptions inherent in the development of intangible asset values, from the perspective of the market participant, include: the amount and timing of the projected future cash flows (including revenue, cost of sales, operating expenses and working capital/contributory asset charges); the discount rate selected to measure the risks inherent in the future cash flows; and the assessment of the asset’s life cycle and the competitive trends impacting the asset, as well as other factors. The components of the estimated fair value of the acquired identifiable intangible assets are as follows:


			Estimated
			Useful
	Estimated Fair		Lives
	Value		(Years)
Third-party bank financing contract	$	15,177		5
Service warranty provider contract		7,038		5
Auto dealer relationships		4,253		5
GAP insurance provider contract		1,449		3
Payment processing contract		416		5
Non-compete contracts		346		2
Tradename/Program		35,354	Indefinite

	$	64,033

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

2. Acquisitions (continued)

During fiscal 2010, the Company completed various smaller acquisitions in United Kingdom that resulted in an aggregate increase in goodwill of $0.2 million, calculated as the excess purchase price over the preliminary fair value of the identifiable assets acquired. Also in fiscal 2010, $0.3 million, $2.3 million and $0.3 million of purchase accounting adjustments were made to the Robert Biggar Limited, Optima, S.A. and Express Finance Limited acquisitions, respectively.

One of the core strategies of the Company is to capitalize on its competitive strengths and enhance its leading marketing positions. One of the key elements in the Company’s strategy is the intention to grow our network through acquisitions. The Company believes that acquisitions will provide it with increased market penetration or in some cases the opportunity to enter new platforms and geographies. The purchase price of each acquisition is primarily based on a multiple of historical earnings. The Company’s standard business model, and that of the industry’s, is one that does not rely heavily on tangible assets and therefore, it is common to have majority of the purchase price allocated to goodwill, or in some cases, intangibles.

The following reflects the change in goodwill during the periods presented (in millions):


Balance at June 30, 2009	$	406.5
Acquisitions:
Military Financial Services, LLC		53.5
Merchant Cash Express Limited		2.0
Various small acquisitions		0.2
Purchase accounting adjustments:
Robert Biggar Limited		0.3
Optima, S.A.		2.3
Express Finance Limited		0.3
Foreign currency adjustment		12.7

Balance at March 31, 2010	$	477.8

The following pro forma information for the three and nine months ended March 31, 2010 presents the results of operations as if the acquisitions had occurred as of the beginning of the period presented. The pro forma operating results include the results of these acquisitions for the indicated periods and reflect the increased interest expense on acquisition debt and the income tax impact as of the respective purchase dates of the Express Finance, Robert Biggar, Optima, MCE and DFS acquisitions. Pro forma results of operations are not necessarily indicative of the results of operations that would have occurred had the purchase been made on the date above or the results which may occur in the future.


	Pro Forma Results
	Three months ended					Nine months ended
	March 31,					March 31,
	2009		2010			2009		2010
	(Unaudited in thousands except					(Unaudited in thousands except
	per share amounts)					per share amounts)
Revenue	$	128,233	$	157,348		$	433,350	$	465,466
Net income (loss) attributable to Dollar Financial Corp	$	8,897	$	(12,241	)	$	38,103	$	6,550
Net income (loss) per common share — basic	$	0.37	$	(0.51	)	$	1.59	$	0.27
Net income (loss) per common share — diluted	$	0.37	$	(0.51	)	$	1.58	$	0.26

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

3. Goodwill and Other Intangibles

The changes in the carrying amount of goodwill by reportable segment for the nine months ended March 31, 2010 are as follows (in thousands):


	United		Dealers’ Financial				United
	States (1)		Services		Canada		Kingdom			Total
Balance at June 30, 2009	$	210,335	$	—	$	124,453	$	71,766		$	406,554
Acquisitions and purchase accounting adjustments		2,328		53,508		—		2,744			58,580
Foreign currency translation adjustments		440		—		17,997		(5,728	)		12,709

Balance at March 31, 2010	$	213,103	$	53,508	$	142,450	$	68,782		$	477,843


(1)		United States segment also includes operations in Poland

The following table reflects the components of intangible assets (in thousands):


	June 30,		March 31,
	2009		2010
	Gross		Gross
	Carrying		Carrying
	Amount		Amount
Non-amortized intangible assets:
Goodwill	$	406,554	$	477,843
Reacquired franchise rights		47,793		53,377
DFS MILES Program		—		35,354

	$	454,347	$	566,574


Amortizable intangible assets:
Various contracts	$	—	$	27,035


Total intangible assets	$	454,347	$	593,609

Goodwill is the excess of cost over the fair value of the net assets of the business acquired. Intangible assets consist of reacquired franchise rights, which are deemed to have an indefinite useful life and are not amortized.

Goodwill is tested for impairment annually as of June 30, or whenever events or changes in business circumstances indicate that an asset might be impaired. As of June 30, 2009, there was no impairment of goodwill. However, if market conditions were to deteriorate or there is significant regulatory action that negatively affects our business, there can be no assurance that future goodwill impairment tests will not result in a charge to earnings.

Identified intangibles with indefinite lives are tested for impairment annually as of December 31, or whenever events or changes in business circumstances indicate that an asset may be impaired. If the estimated fair value is less than the carrying amount of the intangible assets with indefinite lives, then an impairment charge would be recognized to reduce the asset to its estimated fair value. As of December 31, 2009, there was no impairment of reacquired franchise rights. There can be no assurance that future impairment tests will not result in a charge to earnings.

The fair value of the Company’s goodwill and indefinite-lived intangible assets are estimated based upon a present value technique using discounted future cash flows. The Company uses management business plans and projections as the basis for expected future cash flows. Assumptions in estimating future cash flows are subject to a high degree of judgment. The Company makes every effort to forecast its future cash flows as accurately as possible at the time the forecast is developed. However, changes in assumptions and estimates may affect the implied fair value of goodwill and indefinite-lived intangible assets and could result in an additional impairment charge in future periods.

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

4. Contingent Liabilities

Due to the uncertainty surrounding the litigation process, except for those matters for which an accrual is described below, the Company is unable to reasonably estimate the range of loss, if any, at this time in connection with the legal proceedings discussed below. Although the outcome of many of these matters is currently not determinable, the Company believes that it has meritorious defenses and that the ultimate cost to resolve these matters will not have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows. In addition to the legal proceedings discussed below, the Company is involved in routine litigation and administrative proceedings arising in the ordinary course of business.

The Company assesses the materiality of litigation by reviewing a range of qualitative and quantitative factors. These factors include the size of the potential claims, the merits of the Company’s defenses and the likelihood of plaintiffs’ success on the merits, the regulatory environment that could impact such claims and the potential impact of the litigation on our business. The Company evaluates the likelihood of an unfavorable outcome of the legal or regulatory proceedings to which it is a party in accordance with the “Contingencies” Topic of the FASB Codification. This assessment is subjective based on the status of the legal proceedings and is based on consultation with in-house and external legal counsel. The actual outcomes of these proceedings may differ from the Company’s assessments.

Canadian Legal Proceedings

Ontario Class Action

On August 19, 2003, a former customer in Ontario, Canada, Margaret Smith commenced an action against OPCO and the Company’s Canadian subsidiary, National Money Mart Company (“Money Mart”), on behalf of a purported class of Ontario borrowers who, Smith claimed, were subjected to usurious charges in payday-loan transactions (the “Ontario Litigation”). The action alleged violations of a Canadian federal law proscribing usury and sought restitution and damages, including punitive damages, and injunctive relief prohibiting further alleged usurious charges. Effective March 3, 2010, the Ontario Superior Court of Justice approved the settlement of the Ontario Litigation, and the settlement became final upon the expiration of a 30-day appeal period.

British Columbia Class Action

On January 29, 2003, a former customer, Kurt MacKinnon, commenced an action against Money Mart and 26 other Canadian lenders on behalf of a purported class of British Columbia residents who, MacKinnon claims, were overcharged in payday-loan transactions. The action alleges violations of laws proscribing usury and unconscionable trade practices and seeks restitution and damages, including punitive damages, in an unknown amount (the “British Columbia Litigation”).

On March 4, 2010, the parties announced an agreement to settle, and on May 6, 2010 executed a definitive agreement setting forth the terms of the settlement of, the British Columbia Litigation. Court approval of the settlement is required. A hearing regarding the settlement agreement has been scheduled by the court for May 17, 2010. There can be no assurance that the settlement of the British Columbia Litigation will receive final court approval.

New Brunswick, Newfoundland and Nova Scotia Class Actions

Purported class actions similar in nature to the Ontario Litigation and the British Columbia Litigation have been commenced against Money Mart in New Brunswick, Nova Scotia and Newfoundland (collectively, the “Maritimes Litigation”). OPCO is named as a defendant in the Nova Scotia and Newfoundland actions. On March 31, 2010, the parties reached an agreement to settle all of the Maritimes Litigation. Court approval of the settlement is required. A hearing regarding the agreement to settle the Maritimes Litigation has been scheduled for May 26, 2010. There can be no assurance that the settlement of the Maritimes Litigation will receive final

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

4. Contingent Liabilities (continued)

Canadian Legal Proceedings (continued)

approval by the court.

Purported Alberta Class Actions

On November 6, 2003, Gareth Young, a former customer, commenced a purported class action (the “Young Litigation”) against Money Mart, OPCO and two other defendants in the Court of Queen’s Bench of Alberta, Canada on behalf of a class of consumers who obtained short-term loans from Money Mart and the other co-defendants in Alberta, alleging, among other things, that the charge to borrowers in connection with such loans is usurious. The action seeks restitution and damages, including punitive damages. In 2004, Money Mart served Mr. Young a demand for arbitration. Although OPCO is named as a co-defendant in the case, OPCO has not been served a statement of claim in the matter.

On March 5, 2006, a former customer, H. Craig Day, commenced an action against OPCO, Money Mart and several of the Company’s franchisees in the Court of Queen’s Bench of Alberta, Canada on behalf of a putative class of consumers who obtained short-term loans from Money Mart in Alberta (the “Day Litigation” and, together with the Young Litigation, the “Alberta Litigation”). The allegations, putative class and relief sought in the Day Litigation action are substantially the same as those in the Young Litigation, but relate to a claim period that commences before and ends after the claim period in the Young Litigation and excludes the claim period described in the Young Litigation; the Day Litigation it also relates to claims arising after December 2005, the date of the purported settlement of the Young Litigation described above.

In December 2006, the Young Litigation was transferred to plaintiff’s solicitors in the Day Litigation. Both of the actions comprising the Alberta Litigation were subsequently transferred back to the plaintiff’s original solicitors in the Young Litigation.

In July 2007, a demand for arbitration was delivered to Mr. Day on behalf of OPCO, Money Mart and a number of Money Mart’s franchisees.

In April 2010, plaintiffs’ solicitors indicated that they wished to proceed with the claims in the Alberta Litigation. Money Mart and the franchisees responded by advising they will be proceeding with motions to enforce the arbitration clause and to stay the actions. These motions are tentatively scheduled to be heard in July 2010.

Neither of the actions comprising the Alberta Litigation has been certified to date as a class action. The Company intends to defend these actions vigorously.

Purported Manitoba Class Action

On April 26, 2004, an action was filed against Money Mart in Manitoba on behalf of a purported class of consumers who obtained short-term loans from Money Mart alleging, among other things, that the charge to borrowers in connection with such loans is usurious. The action has not been certified to date as a class action. If the action proceeds, Money Mart intends to seek a stay of the action on the grounds that the plaintiff entered into an arbitration and mediation agreement with Money Mart with respect to the matters which are the subject of this action. The Company intends to defend this action vigorously.

Provisions for Settlement of Canadian Actions

During the nine months ended March 31, 2010, Money Mart recorded a charge of $22.4 million in relation to the pending settlements of the British Columbia Litigation and the Maritimes Litigation and for the potential settlement of the other pending and purported Canadian class action proceedings described above. During the fiscal year ended June 30, 2009, Money Mart recorded a charge of $57.4 million in relation to then pending settlement of the Ontario Litigation and for the potential settlement of the other pending and purported Canadian class action proceedings described above. As of March 31, 2010, an aggregate of approximately $78.9 million, is included in the Company’s accrued expenses relating to the Canadian proceedings described above. Of those expenses, approximately $37.3 million is expected to be non-cash. Although we believe that we have meritorious defenses to the claims in the pending and purported class proceedings described above and intend vigorously to defend against such claims, the ultimate cost of resolution of such claims may substantially exceed the amount accrued at March 31, 2010 and additional accruals may be required in the future.

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

4. Contingent Liabilities (continued)

Canadian Legal Proceedings (continued)

Other Canadian Litigation

On April 26, 2006 and August 3, 2006, two former employees, Peggy White and Kelly Arseneau, commenced companion actions against Money Mart and OPCO. The actions, which are pending in the Superior Court of Ontario, allege negligence on the part of the defendants in security training procedures and breach of fiduciary duty to employees in violation of applicable statutes. The companion lawsuits seek combined damages of C$5.0 million plus interest and costs. These claims have been submitted to the Company’s insurance carriers. The Company intends to defend these actions vigorously.

California Legal Proceedings

On September 11, 2006, Caren Bufil commenced a lawsuit against OPCO. Bufil sought and obtained class certification of the action alleging that OPCO failed to provide non-management employees with meal and rest breaks required under California law. The suit sought an unspecified amount of damages and other relief. In September 2009, the parties agreed to settle the action. Final court approval of the settlement was granted on March 11, 2010, which became final on May 10, 2010 upon the expiration of the appeal period. The Company has recorded an aggregate charge of approximately $1.5 million with respect to the Bufil settlement, including a charge of approximately $0.3 million recorded in the fiscal quarter ended March 31, 2010.

On April 26, 2007, the San Francisco City Attorney (the “City Attorney”) filed a complaint in the name of the People of the State of California alleging that OPCO’s subsidiaries engaged in unlawful and deceptive business practices in violation of California Business and Professions Code Section 17200 by either themselves making installment loans under the guise of marketing and servicing for co-defendant First Bank of Delaware (the “Bank”) or by brokering installment loans made by the Bank in California in violation of the prohibition on usury contained in the California Constitution and the California Finance Lenders Law and that they have otherwise violated the California Finance Lenders Law and the California Deferred Deposit Transaction Law. The complaint seeks broad injunctive relief as well as civil penalties. On January 5, 2009, the City Attorney filed an amended complaint, restating the claims in the original complaint, adding OPCO as a defendant and adding a claim that short-term deferred deposit loans made by the Bank, which were marketed and serviced by OPCO and/or its subsidiaries, violated the California Deferred Deposit Transaction law. OPCO and its subsidiaries have denied the allegations of the amended complaint. Discovery is proceeding in state court and no trial date has been set. At this time, it is too early to determine the likelihood of an unfavorable outcome or the ultimate liability, if any, resulting from this case.

We The People Legal Proceedings

The business model of the Company’s We The People business (“WTP”) for its legal document processing services business has been being challenged in certain courts, as described below. The entity from which the Company bought the assets of its WTP business, We The People Forms and Service Centers USA, Inc. (the “Former WTP”), certain of its franchisees, the owners of the Former WTP, Ira and Linda Distenfield, and/or WTP are defendants in various lawsuits.

It is the Company’s opinion that many of the WTP related litigation matters described below relate to actions undertaken by Ira and Linda Distenfield and the Former WTP during the period of time when they owned or managed We The People Forms and Service Centers USA, Inc.; this period of time was prior to the acquisition of the assets of the Former WTP by the Company. However, in many of these actions, the Company and WTP have been included as defendants in these cases as well. At this time, it is too early to determine the likelihood of an unfavorable outcome or the ultimate liability, if any, of any of the aforementioned matters against WTP or the Company or any other Company litigation as well.

In January 2009, the Company learned that Ira and Linda Distenfield had filed a joint voluntary petition under Chapter 7 of the U.S. Bankruptcy Code. In addition to delaying the ultimate resolution of many of the foregoing matters, the economic effect of this filing and, in particular, its effect on the Company’s ability to seek contribution from its co-defendants in connection with any of the foregoing matters, cannot presently be estimated.

On February 19, 2010, We The People USA, Inc. and its wholly owned subsidiary, We The People, LLC, filed a voluntary petition for relief under Chapter 11 of Title 11 of the U.S. Bankruptcy Code (the “WTP Bankruptcy Proceedings”) in U.S. Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”).

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

4. Contingent Liabilities (continued)

We The People Legal Proceedings (continued)

The principal litigation for the Company’s WTP business unit is as follows:

Customer Litigation

In September 2007, Jacqueline Fitzgibbons, a former customer of a WTP store, commenced a lawsuit against WTP and OPCO and others in California Superior Court for Alameda County. The suit alleges on behalf of a class of consumers and senior citizens that, from 2003 to 2007, WTP violated California law by advertising and selling living trusts and wills to certain California residents. The plaintiff is seeking, on behalf of the purported class, prohibition of WTP’s alleged unlawful business practices, disgorgement of all monies and profits obtained from unlawful business practices, general and special damages, attorneys’ fees and costs of the suit, and statutory and treble damages pursuant to various California business, elder abuse, and consumer protection codes. In January 2009, an individual named Robert Blau replaced Fitzgibbons as lead plaintiff. A motion to certify the class was heard and the court granted class certification of the claim that WTP’s business model violates certain unfair competition laws in California. A trial was scheduled to commence in May 2010. However, on April 8, 2010, the parties reached an agreement to settle the case with a settlement fund to be funded by OPCO. During the fiscal quarter ended March 31, 2010, the Company recorded a charge of $4.0 million in relation to the pending settlement. The settlement agreement is subject to the approval of both the Bankruptcy Court and the trial court. Hearings regarding the agreement to settle the case have been scheduled by the Bankruptcy Court for May 25, 2010 and by the trial court for May 26, 2010. There is no assurance, however, that the settlement will receive such final court approvals. Although we believe that we have meritorious defenses to the claims in this action and intend to continue, if necessary, to vigorously defend against such claims, the ultimate cost of resolution of such claims, either through settlements or pursuant to litigation, may substantially exceed the amount accrued at March 31, 2010, and additional accruals may be required in the future.

In January 2009, former WTP customers, Philip Jones and Carol Martin, on behalf of a punitive class of Missouri customers, filed a lawsuit in St. Louis County, Missouri against OPCO, We The People USA, Inc. and a St. Louis based WTP franchisee alleging that, from 2002 to the present, defendants violated Missouri law by engaging in: i) an unauthorized law business; (ii) the unauthorized practice of law; and (iii) unlawful merchandising practices in the sale of its legal documents. The plaintiffs are seeking, on behalf of the purported class, prohibition of the defendants’ unlawful business practices, disgorgement of all monies and profits obtained from unlawful business practices, attorney’s fees, and statutory and treble damages pursuant to various Missouri consumer protection codes. As a result of the WTP Bankruptcy Proceedings, all matters relating to the case have been stayed by the Bankruptcy Court. The Company intends to defend these allegations and believes that the plaintiffs’ claims and allegations of class status are without merit.

Franchisee Litigation

In May 2007, WTP franchisee Roseann Pennisi and her company, We The People of Westchester Square, New York, Inc., sued WTP, OPCO, Ira and Linda Distenfield and the Former WTP in the Supreme Court of the State of New York, Bronx County. The complaint alleges a number of claims against the Distenfields and the Former WTP. The plaintiffs initially sought over $9.0 million in damages, but following a successful motion by WTP to compel arbitration of the plaintiffs’ claims, the plaintiffs subsequently filed a request to arbitrate with relief requested in the amount of $0.6 million. As a result of the WTP Bankruptcy Proceedings, all matters relating to the case have been stayed by the Bankruptcy Court. The Company believes the material allegations in the complaint with respect to OPCO and WTP are without merit and intends to defend the matter vigorously.

On January 14, 2009, a demand for arbitration was made on behalf of Thomas Greene and Rebecca M. Greene, We The People franchisees, against We The People USA, Inc. and We The People LLC alleging violations by WTP of certain state and federal franchise laws and demanding $0.4 million for losses relating to those violations. As a result of the WTP Bankruptcy Proceedings, all matters relating to this action have been stayed by the Bankruptcy Court. In April 2010, Thomas and Rebecca Greene filed a complaint against OPCO in United States District Court for the District of Utah. The Greenes allege that pursuant to an alleged guarantee in certain franchise disclosure documents, OPCO is liable for damages and attorneys’ fees due to WTP’s failure to comply with various Utah consumer, franchise and business opportunity disclosure regulations. OPCO filed a motion to dismiss that is currently pending before the court. The Company believes that the allegations in the Greene actions are without merit and intends to defend the matters vigorously.

In June 2009, a demand for arbitration was filed by WTP franchisee, Frank Murphy, Jr., against We The People USA, Inc., and We The People LLC. The demand alleges violations by WTP of certain obligations under the franchise agreement and seeks $1.0 million for losses relating to these violations. As a result of the WTP Bankruptcy Proceedings, all matters relating to the action have been stayed by the Bankruptcy Court. WTP believes the allegations are without merit and intends to defend the matter vigorously.

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

4. Contingent Liabilities (continued)

We The People Legal Proceedings (continued)

Regulatory Matters

In May 2007, WTP met with the New York State Attorney General’s Office, Consumer Affairs Division, which had been investigating the WTP operation in the New York City area. The Attorney General’s Office alleged that WTP engaged in unfair business practices, including deceptive advertising that harmed New York consumers. The Attorney General’s Office demanded that WTP enter into an Agreed Order of Discontinuance (“AOD”) and that WTP pay a fine of approximately $0.3 million, plus investigation costs. WTP denied the allegations and requested that the Attorney General’s Office hold the former New York City WTP owners liable for the alleged misconduct. The discussions of the AOD have been dormant for an extended period of time.

5. Debt

The Company had debt obligations at June 30, 2009 and March 31, 2010 as follows (in thousands):


	June 30,			March 31,
	2009			2010
Revolving credit facility	$	—		$	14,200
National Money Mart Company 10.375% Senior Notes due 2016		—			600,000
Issuance discount on 10.375% Senior Notes due 2016		—			(3,612	)
Dollar Financial Corp. 2.875% Senior Convertible Notes due 2027		161,315			37,766
Dollar Financial Corp. 3.000% Senior Convertible Notes due 2028		—			83,485
Term loans due October 2012		368,722			1,594
Term loans due December 2014		—			16,896
Other		6,268			—

Total debt		536,305			750,329
Less: current portion of debt		(5,880	)		(14,401	)

Long-term debt	$	530,425		$	735,928

Senior Notes

On December 23, 2009, the Company’s wholly owned indirect subsidiary, National Money Mart Company, issued pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), $600.0 million aggregate principal amount of its 10.375% Senior Notes due 2016 (the “2016 Notes”). The 2016 Notes were issued pursuant to an indenture, dated as of December 23, 2009, among National Money Mart Company, as issuer, and DFC and certain of DFC’s direct and indirect wholly owned U.S. and Canadian subsidiaries, as guarantors, and U.S. Bank National Association, as trustee. The 2016 Notes bear interest at the rate of 10.375% per year, payable on June 15 and December 15 of each year, commencing on June 15, 2010. The 2016 Notes will mature on December 15, 2016. Upon the occurrence of certain change of control transactions, National Money Mart Company will be required to make an offer to repurchase the 2016 Notes at 101% of the principal amount thereof, plus any accrued and unpaid interest to the repurchase date, unless certain conditions are met. After December 15, 2013, National Money Mart Company will have the right to redeem the 2016 Notes, in whole at any time or in part from time to time, (i) at a redemption price of 105.188% of the principal amount thereof if the redemption occurs prior to December 15, 2014, (ii) at a redemption price of 102.594% of the principal amount thereof if the redemption occurs before December 15, 2015, and (iii) at a redemption price of 100% of the principal amount thereof if the redemption occurs after December 15, 2015.

Convertible Notes

Senior Convertible Notes due 2027

On June 27, 2007, Dollar Financial Corp. issued $200.0 million aggregate principal amount of its 2.875% Senior Convertible Notes due 2027 (the “2027 Notes”) in a private offering for resale to qualified institutional buyers pursuant to Rule 144A under the Securities Act. The Company received proceeds of approximately $193.5 million from the issuance, net of underwriting fees of approximately $6.5 million. Underwriting fees are included in issuance costs on the Company’s balance sheet and

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

5. Debt (continued)

are amortized to interest expense using the effective interest rate method over 5.5 years from the date of issuance. The 2027 Notes were issued under an indenture between DFC and U.S. Bank National Association, as trustee, dated as of June 27, 2007 (the “2027 Indenture”).

In February 2010, DFC repurchased $35.2 million aggregate principal amount of the 2027 Notes in privately negotiated transactions with three of the holders of the 2027 Notes. The purchase price paid by DFC in the transactions was 91% of the stated principal amount of the repurchased 2027 Notes for an aggregate price of $32.0 million. As a result of these repurchase transactions and the privately negotiated exchange transactions described below that were completed in December 2009, $44.8 million aggregate principal amount of 2027 notes remains outstanding as of March 31, 2010.

The 2027 Notes are general unsecured obligations of DFC and rank equally in right of payment with all of DFC’s other existing and future obligations that are unsecured and unsubordinated. The 2027 Notes bear interest at the rate of 2.875% per year, payable in cash in arrears on June 30 and December 31 of each year beginning on December 31, 2007. The 2027 Notes mature on June 30, 2027, unless earlier converted, redeemed or repurchased by the Company. Holders of the 2027 Notes may require DFC to repurchase in cash some or all of the 2027 Notes at any time before the 2027 Notes’ maturity following a “fundamental change” (as defined in the 2027 Indenture).

The 2027 Indenture includes a “net share settlement” provision that allows DFC, upon redemption or conversion, to settle the principal amount of the 2027 Notes in cash and the additional conversion value, if any, in shares of DFC’s common stock. Holders of the 2027 Notes may convert their 2027 Notes based at an initial conversion rate of 25.7759 shares per $1,000 principal amount of 2027 Notes, subject to adjustment, prior to stated maturity under the following circumstances:

	•		during any calendar quarter commencing after September 30, 2007, if the closing sale price of DFC’s common stock is greater than or equal to 130% of the applicable conversion price for at least 20 trading days in the period of 30 consecutive trading days ending on the last day of the preceding calendar quarter;

	•		during the five day period following any five consecutive trading day period in which the trading price of the 2027 Notes for each day of such period was less than 98.0% of the product of the closing sale price per share of DFC’s common stock on such day and the conversion rate in effect for the 2027 Notes on each such day;

	•		if the 2027 Notes are called for redemption; and

	•		upon the occurrence of specified corporate transactions as described in the 2027 Indenture.

If a “fundamental change”, (as defined in the 2027 Indenture), occurs prior to December 31, 2014 and a holder elects to convert its 2027 Notes in connection with such transaction, DFC will pay a make-whole provision, as defined in the 2027 Indenture.

On or after December 31, 2012, but prior to December 31, 2014, DFC may redeem for cash all or part of the 2027 Notes, if during any period of 30 consecutive trading days ending not later than December 31, 2014, the closing sale price of a share of DFC’s common stock is for at least 120 trading days within such period of 30 consecutive trading days greater than or equal to 120% of the conversion price on each such day. On or after December 31, 2014, DFC may redeem for cash all or part of the 2027 Notes upon at least 30 but not more than 60 days notice before the redemption date by mail to the trustee, the paying agent and each holder of 2027 Notes. The amount of cash paid in connection with each such redemption will be 100% of the principal amount of the 2027 Notes to be redeemed, plus accrued and unpaid interest, including any additional amounts, up to but excluding the redemption date.

Holders have the right to require DFC to purchase all or a portion of the 2027 Notes on each of December 31, 2012, December 31, 2014, June 30, 2017 and June 30, 2022 for a purchase price payable in cash equal to 100% of the principal amount of the 2027 Notes purchased plus any accrued and unpaid interest, up to but excluding the purchase date.

If the Company undergoes a “fundamental change”, (as defined in the 2027 Indenture), before maturity of the 2027 Notes, holders will have the right, subject to certain conditions, to require DFC to repurchase for cash all or a portion of the 2027 Notes at a repurchase

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

5. Debt (continued)

price equal to 100% of the principal amount of the 2027 Notes being repurchased, plus accrued and unpaid interest, including any additional amounts, up to but excluding the date of repurchase.

Senior Convertible Notes due 2028

In December 2009, DFC entered into privately negotiated exchange agreements with certain holders of its 2027 Notes, pursuant to which such holders exchanged an aggregate of $120.0 million aggregate principal amount of the 2027 Notes for an equal aggregate principal amount of 3.0% Senior Convertible Notes due 2028 issued by DFC (the “2028 Notes”).

The 2028 Notes are general unsecured obligations of DFC and rank equally in right of payment with all of DFC’s other existing and future obligations that are unsecured and unsubordinated. The 2028 Notes accrue interest at a rate of 3.00% per annum, payable in cash in arrears on April 1 and October 1 of each year beginning on April 1, 2010. The maturity date of the new 2028 Notes is April 1, 2028. The 2028 Notes were issued under an indenture between DFC and U.S. Bank National Association, as trustee, dated as of December 21, 2009 (the “2028 Indenture”).

The 2028 Indenture includes a “net share settlement” provision that allows DFC, upon redemption or conversion, to settle the principal amount of the 2028 Notes in cash and the additional conversion value, if any, in shares of DFC’s common stock. Holders of the 2028 Notes may convert their 2028 Notes based at an initial conversion rate of 34.5352 shares per $1,000 principal amount of 2028 Notes, subject to adjustment, prior to stated maturity under the following circumstances:

	•		during any calendar quarter commencing after December 31, 2009, if the closing sale price of DFC’s common stock is greater than or equal to 130% of the applicable conversion price for at least 20 trading days in the period of 30 consecutive trading days ending on the last day of the preceding calendar quarter;

	•		during the five day period following any five consecutive trading day period in which the trading price of the 2028 Notes for each day of such period was less than 98.0% of the product of the closing sale price per share of DFC’s common stock on such day and the conversion rate in effect for the 2028 Notes on each such day;

	•		if the 2028 Notes are called for redemption; and at any time on or after December 31, 2026; or

	•		upon the occurrence of specified corporate transactions as described in the 2028 Indenture.

If a “fundamental change” (as defined in the 2028 Indenture), occurs prior to December 31, 2014 and a holder elects to convert its 2028 Notes in connection with such transaction, DFC will pay a make-whole provision, as defined in the 2028 Indenture.

On or after April 5, 2015, the Company may redeem for cash all or part of the 2028 Notes upon at least 30 but not more than 60 days notice before the redemption date by mail to the trustee, the paying agent and each holder of 2028 Notes. The amount of cash paid in connection with each such redemption will be 100% of the principal amount of the 2028 Notes to be redeemed, plus accrued and unpaid interest, including any additional amounts, up to but excluding the redemption date.

Holders of the 2028 Notes have the right to require DFC to purchase all or a portion of the 2028 Notes on each of April 1, 2015, April 1, 2018 and April 1, 2023 for a purchase price payable in cash equal to 100% of the principal amount of the 2028 Notes to be purchased plus any accrued and unpaid interest, up to but excluding the date of purchase.

If the Company undergoes a “fundamental change” (as defined in the 2028 Indenture), before the maturity of the 2028 Notes, the holders will have the right, subject to certain conditions, to require the Company to repurchase for cash all or a portion of their 2028 Notes at a repurchase price equal to 100% of the principal amount of the 2028 Notes being repurchased, plus accrued and unpaid interest, up to but excluding the date of repurchase.

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Treatment of Convertible Notes

5. Debt (continued)

The Company has considered the guidance in the Debt topic of the FASB Codification, and has determined that the 2027 Notes and the 2028 Notes (collectively, the “Convertible Notes”) do not contain a beneficial conversion feature, as the fair value of DFC’s common stock on the date of issuance was less than the initial conversion price.

Upon conversion, DFC will have the option to either deliver:

	1.		cash equal to the lesser of the aggregate principal amount of the Convertible Notes to be converted ($1,000 per note) or the total conversion value; and shares of DFC’s common stock in respect of the remainder, if any, of the conversion value over the principal amount of the Convertible Notes; or

	2.		shares of DFC’s common stock to the holders, calculated at the initial conversion price which is subject to any of the conversion price adjustments discussed above.

The Company has made a policy election to settle the principal amount of the Convertible Notes in cash. As such, in accordance with the Earnings Per Share topic of the FASB Codification, the Convertible Notes will be excluded from the Company’s calculation of diluted earnings per share.

Credit Facility

On October 30, 2006, the Company entered into a $475.0 million credit facility (“2006 Credit Agreement”). The 2006 Credit Agreement is comprised of the following: (i) a senior secured revolving credit facility in an aggregate amount of $75.0 million (the “U.S. Revolving Facility”) with OPCO as the borrower; (ii) a senior secured term loan facility with an aggregate amount of $295.0 million (the “Canadian Term Facility”) with National Money Mart Company, a wholly-owned Canadian indirect subsidiary of OPCO, as the borrower; (iii) a senior secured term loan facility with Dollar Financial U.K. Limited, a wholly-owned U.K. indirect subsidiary of OPCO, as the borrower, in an aggregate amount of $80.0 million (consisting of a $40.0 million tranche of term loans and another tranche of term loans equivalent to $40.0 million denominated in Euros) (the “UK Term Facility”); and (iv) a senior secured revolving credit facility in an aggregate amount of C$28.5 million (the “Canadian Revolving Facility”) with National Money Mart Company as the borrower.

Under the 2006 Credit Agreement the U.S. Revolving Facility and the Canadian Revolving Facility had an interest rate of LIBOR plus 300 basis points and CDOR plus 300 basis points, respectively, subject to reduction as the Company reduced its leverage. The Canadian Term Facility consisted of $295.0 million at an interest rate of LIBOR plus 275 basis points. Under the 2006 Credit Agreement, the U.K. Term Facility consisted of a $40.0 million tranche at an interest rate of LIBOR plus 300 basis points and a tranche denominated in Euros equivalent to $40.0 million at an interest rate of Euribor plus 300 basis points.

In the third quarter of fiscal 2008, the Company’s United Kingdom subsidiary entered into an overdraft facility (“U.K. Revolving Facility”) which provides for a commitment of up to GBP 5.0 million. Amounts outstanding under the U.K. Revolver Facility bear interest at a rate of the bank base rate (currently 0.5%) plus 2.0%.

On December 23, 2009, the Company and its lenders amended and restated the terms of the 2006 Credit Agreement (the “Amended and Restated Credit Agreement”). Pursuant to the Amended and Restated Credit Agreement, lenders representing approximately 90% of the revolving credit facilities and approximately 91% of the term loans agreed to the extension of the maturity of the revolving credit facilities and term loans to December 2014 (subject to the condition, which was satisfied in February 2010, that prior to October 30, 2012, the aggregate principal amount of the 2027 Notes is reduced to an amount less than or equal to $50 million). Pursuant to the Amended and Restated Credit Agreement, outstanding amounts under the revolving credit facilities and term loans owed to lenders which consented to the extended maturity date will receive an annual interest spread of 500 basis points with a minimum 2.0% LIBOR (or LIBOR equivalent) floor and, in the case of the revolving facilities, based on a leverage based pricing grid. The portion of revolving credit facilities and term loans that have not consented to the extended maturity receive an annual interest spread of 375 basis points with a minimum 2.0% LIBOR (or LIBOR equivalent) floor and, in the case of the revolving facilities, based on a leverage based pricing grid.

The Company used approximately $350.0 million of the net proceeds from its December 2009 offering of $600.0 million aggregate principal amount of the 2016 Notes to repay substantially all of its outstanding obligations under the term loan portions of the Amended and Restated Credit Agreement.

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

5. Debt (continued)

At March 31, 2010, $14.2 million was outstanding under the U.S. Revolving Facility and no amounts were outstanding under either the Canadian Revolving Facility or the U.K. Revolving Facility. At March 31, 2010, the outstanding amount of the Canadian Term Facility was $14.3 million and the outstanding amount of the U.K. Term Facility consisted of $2.0 million and EUR 1.6 million.

The obligations under the U.S. Revolving Facility are guaranteed by the Company and certain direct and indirect domestic subsidiaries of the Company. The obligations under the Canadian Term Facility, the Canadian Revolving Facility and the U.K. Term Facility are guaranteed by the Company and substantially all of its domestic and foreign direct and indirect subsidiaries. The obligations of the respective borrowers and guarantors under the facilities are secured by substantially all of the assets of such borrowers and guarantors.

The Amended and Restated Credit Agreement contains certain financial and other restrictive covenants, which, among other things, requires the Company to achieve certain financial ratios, limit capital expenditures, restrict payment of dividends and obtain certain approvals if the Company wants to increase borrowings. As of March 31, 2010, the Company was in compliance with all covenants.

Interest expense, net was $10.3 million and $21.9 million for the three months ended March 31, 2009 and 2010, respectively. For the nine months ended March 31, 2009 and 2010, interest expense, net was $32.6 million and $46.4 million, respectively.

6. Capital Stock

On July 21, 2008, the Company announced that its Board of Directors had approved a stock repurchase plan, authorizing the Company to repurchase in the aggregate up to $7.5 million of its outstanding common stock. The Company was permitted to repurchase shares in open market purchases or through privately negotiated transactions as permitted under Securities Exchange Act of 1934 Rule 10b-18. By October 13, 2008, the Company had repurchased 535,799 shares of its common stock at a cost of approximately $7.5 million, thus completing its stock repurchase plan.

7. Fair Value Measurements

The Fair Value Measurements and Disclosures Topic of the FASB Codification specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs include quoted prices for similar assets and liabilities in active markets and inputs other than quoted prices that are observable for the asset or liability. Level 3 inputs are unobservable inputs for the asset or liability and include situations where there is little, if any, market activity for the asset or liability. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value in its entirety requires judgment and considers factors specific to the asset or liability.

Currently, the Company uses foreign currency options and cross currency interest rate swaps to manage its interest rate and foreign currency risk. The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity and uses observable market-based inputs, including interest rate curves, foreign exchange rates and implied volatilities. The Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees. Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of March 31, 2010, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the Company has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

7. Fair Value Measurements (continued)

The table below presents the Company’s assets and liabilities measured at fair value on a recurring basis as of March 31, 2010, aggregated by the level in the fair value hierarchy within which those measurements fall.

Assets and Liabilities Measured at Fair Value on a Recurring Basis at March 31, 2010
( in thousands)


	Quoted Prices in		Significant
	Active Markets		Other		Significant
	for Identical		Observable		Unobservable		Balance at
	Assets and Liabilities (Level 1)		Inputs (Level 2)		Inputs (Level 3)		March 31, 2010
Assets
Derivative financial instruments	$	—	$	136	$	—	$	136

Liabilities
Derivative financial instruments	$	—	$	63,165	$	—	$	63,165

The Company does not have any fair value measurements using significant unobservable inputs (Level 3) as of March 31, 2010.

8. Loss on Extinguishment of Debt

On December 21, 2009, the Company entered into privately negotiated transactions with several holders of the 2027 Notes for the exchange of $120.0 million of the 2027 Notes for an equal amount of 2028 Notes. Pursuant to the accounting guidance related to convertible debt, those exchange transactions created a gain that was more than offset by the write-off of previously capitalized unamortized deferred debt costs associated with the offering of the 2027 Notes offered in June 2007. The net extinguishment gain was $0.2 million.

On December 23, 2009, the Company and its lenders amended and restated the 2006 Credit Agreement and the Company repaid a substantial portion of its term indebtedness thereunder. Due to the significance of the prepayment, the accounting guidance for debt extinguishment applied and therefore, all previously capitalized unamortized deferred debt costs were reclassified from the balance sheet and recorded as expense in the income statement. In addition, there was a non-cash charge related to our U.K. cross currency interest rate swaps that had been terminated in May 2009. The accumulated net loss at the time the swaps were terminated was a component of other comprehensive income and was being amortized over the remaining life of the related underlying U.K. term debt. As a result of the significant prepayment of term debt, a proportional amount of the remaining other comprehensive income was reclassified from accumulated other comprehensive income and recorded as expense in the income statement.

In February 2010, the Company repurchased $35.2 million aggregate principal amount of its 2027 Notes in privately negotiated transactions with three of the holders of the 2027 Notes. Pursuant to the accounting guidance related to convertible debt, the repurchase transactions created a loss that included the write-off of previously capitalized unamortized deferred debt costs associated with the original 2027 Notes offered in June 2007. The net extinguishment loss was $0.7 million.

The details related to all elements of the loss on extinguishment of debt are as follows (in thousands):


	Nine months ended
	March 31, 2010
	Loss/(Gain)
Write-off of previously capitalized Term Loan deferred debt issuance costs, net	$	4,960
Reclassification of other comprehensive income related to U.K. term debt repayment		3,866
Miscellaneous foreign exchange expense related to repayment term debt repayment		230
Net gain on exchange and repurchase of 2027 Notes		(1,536	)
Write-off of previously capitalized deferred debt issuance costs related to the 2027 Notes, net		2,011

Total	$	9,531

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

9. Segment Information

The Company categorizes its operations into four operating segments that have been identified giving consideration to geographic area, product mix and regulatory environment. The primary service offerings in the operating segments are check cashing, single-payment consumer loans, money transfers and other ancillary services. As a result of the mix of service offerings and diversity in the respective regulatory environments, there are differences in each operating segment’s profit margins. The Company’s operations in Poland are presently included within the United States segment as these amounts are not significant. Additionally, the United States operating segment includes all corporate headquarters expenses that have not been charged out to the operating segments in the United States, Canada and United Kingdom. This factor also contributes to the lower pre-tax results reported in this segment. Those unallocated corporate headquarters expenses are $1.4 million for the three months ended March 31, 2009 and $2.3 million for the three months ended March 31, 2010. The unallocated corporate expenses for the nine months ended March 31, 2009 and 2010 are $5.8 million and $7.0 million, respectively.

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

9. Segment Information (continued)


	(In thousands)
				Dealers’
	United			Financial					United
	States			Services		Canada			Kingdom			Total
As of and for the three months ended March 31, 2009
Total assets	$	264,700		$	—	$	421,535		$	161,055		$	847,290
Goodwill and other intangibles, net		206,022			—		153,266			57,382			416,670
Sales to unaffiliated customers:
Check cashing		15,960			—		13,608			7,695			37,263
Fees from consumer lending		17,966			—		25,851			13,837			57,654
Money transfer fees		1,431			—		3,229			1,297			5,957
Pawn service fees and sales		—			—		—			3,164			3,164
Other		3,316			—		9,254			1,556			14,126

Total sales to unaffiliated customers		38,673			—		51,942			27,549			118,164

Provision for loan losses		3,882			—		4,904			1,456			10,242
Interest expense, net		4,985			—		3,904			1,457			10,346
Depreciation and amortization		1,363			—		1,396			1,223			3,982
Provision for litigation settlements		45			—		—			—			45
Loss on store closings		277			—		327			40			644
Other income, net		—			—		309			(1,186	)		(877	)
(Loss) income before income taxes		(2,582	)		—		10,225			6,417			14,060
Income tax provision		4,245			—		2,194			1,922			8,361

As of and for the nine months ended March 31, 2009
Sales to unaffiliated customers:
Check cashing	$	44,311		$	—	$	51,497		$	31,611		$	127,419
Fees from consumer lending		62,957			—		93,054			47,250			203,261
Money transfer fees		4,550			—		11,404			4,397			20,351
Pawn service fees and sales		—			—		—			10,466			10,466
Other		10,093			—		24,459			7,364			41,916

Total sales to unaffiliated customers		121,911			—		180,414			101,088			403,413

Provision for loan losses		17,477			—		16,998			5,917			40,392
Interest expense, net		16,041			—		11,493			5,026			32,560
Depreciation and amortization		4,225			—		4,531			3,966			12,722
Provision for litigation settlements		554			—		—			—			554
Loss on store closings		3,347			—		2,744			46			6,137
Other expense (income), net		—			—		(3,898	)		(2,648	)		(6,546	)
(Loss) income before income taxes		(20,783	)		—		47,817			23,471			50,505
Income tax provision		4,219			—		13,831			5,920			23,970

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

9. Segment Information (continued)


	(In thousands)
				Dealers’
	United			Financial						United
	States			Services			Canada			Kingdom			Total
As of and for the three months ended March 31, 2010
Total assets	$	291,809		$	131,843		$	616,451		$	224,887		$	1,264,990
Goodwill and other intangibles, net		213,398			115,897			190,177			74,137			593,609
Sales to unaffiliated customers:
Check cashing		14,055			—			15,867			7,314			37,236
Fees from consumer lending		17,096			—			36,313			24,653			78,062
Money transfer fees		1,176			—			3,897			1,536			6,609
Pawn service fees and sales		—			—			—			4,814			4,814
Other		2,890			6,893			14,943			5,901			30,627

Total sales to unaffiliated customers		35,217			6,893			71,020			44,218			157,348
Provision for loan losses		2,769			—			3,546			3,905			10,220
Interest expense, net		4,272			(14	)		17,590			98			21,946
Depreciation and amortization		1,084			1,556			1,695			1,579			5,914
Loss on extinguishment of debt		718			—			—			—			718
Unrealized foreign exchange loss (gain)		80			—			(15,952	)		191			(15,681	)
Loss on derivatives not designated as hedges		—			—			18,634			—			18,634
Provision for litigation settlements		4,246			—			22,381			—			26,627
Loss on store closings		1,424			—			78			5			1,507
Other expense (income), net		1,354			(126	)		(832	)		(135	)		261
(Loss) income before income taxes		(9,554	)		3,073			(19,358	)		11,229			(14,610	)
Income tax (benefit) provision		(487	)		44			(5,084	)		3,195			(2,332	)

As of and for the nine months ended March 31, 2010
Sales to unaffiliated customers:
Check cashing	$	36,094		$	—		$	51,355		$	26,126		$	113,575
Fees from consumer lending		56,235			—			109,655			72,360			238,250
Money transfer fees		3,671			—			12,164			4,688			20,523
Pawn service fees and sales		—			—			—			13,302			13,302
Other		8,701			7,514			31,155			18,877			66,247

Total sales to unaffiliated customers		104,701			7,514			204,329			135,353			451,897
Provision for loan losses		10,563			—			11,838			12,177			34,578
Interest expense, net		13,671			(14	)		29,586			3,169			46,412
Depreciation and amortization		4,145			1,679			4,952			4,745			15,521
Loss on extinguishment of debt		1,169			—			3,642			4,720			9,531
Unrealized foreign exchange loss (gain)		135			—			(20,024	)		8,120			(11,769	)
Loss on derivatives not designated as hedges		—			—			21,909			—			21,909
Provision for litigation settlements		5,513			—			22,381			—			27,894
Loss (gain) on store closings		2,382			1			826			(52	)		3,157
Other expense (income), net		2,108			(139	)		(815	)		531			1,685
(Loss) income before income taxes		(22,511	)		3,346			10,214			20,578			11,627
Income tax provision		2,283			47			3,236			5,972			11,538

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

10. Comprehensive Income

Comprehensive income is the change in equity from transactions and other events and circumstances from non-owner sources, which includes foreign currency translation and fair value adjustments for cash flow hedges. The following shows the comprehensive income (loss) for the periods stated (in thousands):


	Three months ended						Nine months ended
	March 31,						March 31,
	2009			2010			2009			2010
Net income	$	5,699		$	(12,241	)	$	26,535		$	162

Foreign currency translation adjustment⁽¹⁾		(3,613	)		18,427			(40,507	)		(10,751	)

Fair value adjustments for cash flow hedges, net⁽²⁾⁽³⁾		5,534			809			(8,748	)		1,487

Total comprehensive income (loss)	$	7,620		$	6,995		$	(22,720	)	$	(9,102	)


⁽¹⁾		The ending balance of the foreign currency translation adjustments included in accumulated other comprehensive income on the balance sheet was a loss of $2.6 million and a gain of $10.5 million respectively as of March 31, 2009 and 2010.

⁽²⁾		Net of $2.5 million and $15 thousand of tax for the three months ended March 31, 2009 and 2010, respectively. For the nine months ended March 31, 2009 and 2010, the fair value adjustments for cash flow hedges were net of $4.0 million and $0.5 million of tax, respectively.

⁽³⁾		Net of $0.7 million and $0.1 million which were reclassified into earnings for the three months ended March 31, 2009 and 2010, respectively. For the nine months ended March 31, 2009 and 2010, the fair value adjustments for cash flow hedges which were reclassified into earnings were $1.4 million and $1.0 million, respectively.

Accumulated other comprehensive income, net of related tax, consisted of unrealized losses on terminated cross-currency interest rate swaps of $11.7 million at March 31, 2010, compared to net unrealized losses on put options designated as cash flow hedges of $20 thousand and net unrealized losses on cross-currency interest rate swaps designated as cash flow hedging transactions of $12.5 million at March 31, 2009.

11. Income Taxes

Income Tax Provision

The provision for income taxes was $11.5 million for the nine months ended March 31, 2010 compared to a provision of $24.0 million for the nine months ended March 31, 2009. The Company’s effective tax rate was 99.2% for the nine months ended March 31, 2010 and was 47.5% for the nine months ended March 31, 2009. The increase in the effective tax rate for the nine months ended March 31, 2010 as compared to the prior year was primarily a result of higher pre-tax U.S. losses due to a legal settlement provision. Currently the Company does not receive a tax benefit for its U.S. pre-tax losses. In addition, the legal settlement provision recorded in Canada had the result of lowering the mix of pre-tax earnings to which that business unit contributed. The effective tax rate for the nine months ended March 31, 2009 was reduced as a result of the impact of a favorable settlement granted in a competent authority tax proceeding between the United States and Canadian tax authorities related to transfer pricing matters for years 2000 through 2003 combined with an adjustment to the Company’s reserve for uncertain tax benefits related to years for which a settlement has not yet been received. The impact to the nine months ended March 31, 2009 provision for income taxes related to these two items was a tax benefit of $3.5 million. The Company’s effective tax rate differs from the federal statutory rate of 35% due to foreign taxes, permanent differences and a valuation allowance on U.S. and foreign deferred tax assets and the aforementioned changes to the Company’s reserve for uncertain tax positions. Prior to the global debt restructuring in the Company’s fiscal year ended June 30, 2007, interest expense in the U.S. resulted

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

11. Income Taxes (continued)

in U.S. tax losses, thus generating deferred tax assets. At March 31, 2010 the Company maintained deferred tax assets of $130.5 million which is offset by a valuation allowance of $84.8 million which represents an increase of $5.0 million in the period. The change for the period in the Company’s deferred tax assets and valuation allowances is presented in the table below and more fully described in the paragraphs that follow.

Change in Deferred Tax Assets and Valuation Allowances (in millions):


							Net
	Deferred			Valuation			Deferred
	Tax Asset			Allowance			Tax Asset
Balance at June 30, 2009	$	130.4		$	89.8		$	40.6
U.S. increase/(decrease)		(2.2	)		(2.2	)		–
Foreign increase/(decrease)		2.3			(2.8	)		5.1

Balance at March 31, 2010	$	130.5		$	84.8		$	45.7

The $130.5 million in deferred tax assets consists of $42.5 million related to net operating losses and other temporary differences, $57.3 million related to foreign tax credits and $30.7 million in foreign deferred tax assets. At March 31, 2010, U.S. deferred tax assets related to net operating losses and other temporary differences were reduced by a valuation allowance of $99.8 million, which reflects a decrease of $2.2 million during the period. The net operating loss carry forward at March 31, 2010 was $68.3 million compared to $106.3 million at June 30, 2009. This reduction in the Company’s net operating loss is a result of the anticipated utilization of $38.0 million of its net operating loss to partially offset the US tax resulting from the deemed dividend caused by the sale of a portion of the shares of its indirect wholly-owned U.K. subsidiary to its indirect wholly-owned Canadian subsidiary. The Company believes that its ability to utilize pre-2007 net operating losses in a given year will be limited to $9.0 million under Section 382 of the Internal Revenue Code (the “Code”) because of changes of ownership resulting from the Company’s June 2006 follow-on equity offering. In addition, any future debt or equity transactions may reduce the Company’s net operating losses or further limit its ability to utilize the net operating losses under the Code. The deferred tax asset related to excess foreign tax credits is also fully offset by a valuation allowance of $57.3 million. This represents an increase of $11.8 million for the period related to the deemed dividend discussed above. Additionally, the Company maintains foreign deferred tax assets in the amount of $30.7 million. The Company’s Canadian affiliate during fiscal 2006 had previously recorded a deferred tax asset and corresponding valuation allowance related to an unrealized foreign currency loss sustained in connection with the hedge of its term loan. During the nine months ended March 31, 2010, this valuation allowance was reversed providing a $1.4 million tax benefit in connection with the realization of a capital gain related to the repayment of a majority of the Company’s term debt in December, 2009.

As described in Note 1 to this financial statement, the Company restated its historical financial statements in connection with the adoption of ASC 470-20 (formerly FSP APB 14-1). The adoption of this standard required us to establish an initial deferred tax liability related to the Company’s 2.875% and 3.0% newly issued Senior Convertible Notes (“Notes”), which represents the tax effect of the book/tax basis difference created at adoption. The deferred tax liability will reverse as the Notes discount accretes to zero over the expected life of the Notes. The deferred tax liability associated with the Notes serves as a source of recovery of the Company’s deferred tax assets, and therefore the restatement also required the reduction of the previously recorded valuation allowance on the deferred tax asset. Because the Company historically has recorded and continues to record a valuation allowance on the tax benefits associated with its U.S. subsidiary losses, the reversal of the deferred tax liability associated with the Notes, which is recorded as a benefit in the deferred income tax provision, is offset by an increase in the valuation allowance. At March 31, 2010, the deferred tax liability associated with the Notes was $15.2 million. For purposes of balance sheet presentation, the deferred tax liability related to the Notes has been netted against the Company’s deferred tax asset. Additional deferred tax liabilities of $22.8 million, related principally to the amortization of goodwill, result in a net overall deferred tax asset of $7.9 million at March 31, 2010.

At June 30, 2009, the Company had unrecognized tax benefit reserves related to uncertain tax positions of $7.8 million, primarily related to transfer pricing matters which, if recognized, would decrease the effective tax rate. At March 31, 2010, the Company had $9.9 million of unrecognized tax benefits primarily related to transfer pricing matters, which if recognized, would decrease its effective tax rate.

The tax years ending June 30, 2005 through 2009 remain open to examination by the taxing authorities in the United States, United Kingdom and Canada.

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

11. Income Taxes (continued)

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of March 31, 2010, the Company had approximately $0.8 million of accrued interest related to uncertain tax positions which represents a minimal increase during the nine months ended March 31, 2010. The provision for unrecognized tax benefits including accrued interest is included in income taxes payable.

12. Derivative Instruments and Hedging Activities

Risk Management Objective of Using Derivatives

The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its debt funding and by the use of derivative financial instruments. The primary risks managed by using derivative instruments are interest rate risk, foreign currency exchange risk and commodity price risk. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates, foreign exchange rates or commodity prices.

Specifically, certain of the Company’s foreign operations in the United Kingdom and Canada expose the Company to fluctuations in interest rates and foreign exchange rates. These fluctuations may impact the value of the Company’s cash receipts and payments in terms of the Company’s functional currency because the debt is denominated in a currency other than the subsidiary’s functional currency. The Company has historically entered into derivative financial instruments to protect the value or fix the amount of certain obligations in terms of its functional currency, the U.S. Dollar.

Cash Flow Hedges of Foreign Exchange Risk

Operations in the United Kingdom and Canada have exposed the Company to changes in the CAD-USD and GBP-USD foreign exchange rates. From time to time, the Company’s U.K. and Canadian subsidiaries purchase investment securities denominated in a currency other than their functional currency. The subsidiaries hedge the related foreign exchange risk typically with the use of out of the money put options because they cost less than completely averting risk using at the money put options, and the maximum loss is limited to the purchase price of the contracts.

The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges of foreign exchange risk is recorded in other comprehensive income and subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The ineffective portion of the change in fair value of the derivative, as well as amounts excluded from the assessment of hedge effectiveness, is recognized directly in earnings. As of March 31, 2010, the Company had the following outstanding foreign currency derivatives that were used to hedge its foreign exchange risks for the months of April and May:


Foreign Currency Derivatives	Notional Sold		Notional Purchased
CAD Put/USD Call Options		C$8,000,000	$	7,619,048
GBP Put/USD Call Options	GBP3,800,000		$	5,510,000

Cash Flow Hedges of Multiple Risks

Prior to the Company’s refinancing activities in December 2009, the Company had foreign subsidiaries in the United Kingdom and Canada with variable-rate borrowings denominated in currencies other than the foreign subsidiaries’ functional currencies. The foreign subsidiaries were exposed to fluctuations in both the underlying variable borrowing rate and the foreign currency of the borrowing against its functional currency. The foreign subsidiaries have historically used foreign currency derivatives including cross-currency interest rate swaps to manage their then existing exposure to fluctuations in the variable borrowing rate and the foreign exchange rate. Cross-currency interest rate swaps involve both periodically (1) exchanging fixed rate interest payments for floating rate interest receipts and (2) exchanging notional amounts which will occur at the forward exchange rates in effect upon entering into the instrument. The derivatives were designated as cash flow hedges of both interest rate and foreign exchange risks.

The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges of both interest rate risk and foreign exchange risk was recorded in other comprehensive income and is subsequently reclassified into earnings in the period that

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

12. Derivative Instruments and Hedging Activities (continued)

the hedged forecasted transaction affects earnings. To the extent that it existed, the ineffective portion of the change in fair value of the derivative was recognized directly in earnings.

On May 7, 2009, the Company executed an early settlement of its two cross-currency interest rate swaps hedging variable-rate borrowings at its foreign subsidiary in the United Kingdom. As a result, the Company discontinued hedge accounting on these cross-currency swaps on this date. In accordance with the Derivatives and Hedging Topic of the FASB Codification, the Company continued to report the net gain or loss related to the discontinued cash flow hedges in other comprehensive income included in shareholders’ equity and has been reclassifying such amounts into earnings over the remaining original term of the derivative when the hedged forecasted transactions are recognized in earnings.

On December 23, 2009, the Company used a portion of the net proceeds of its $600 million Senior Note Offering to prepay $350 million of the $368.6 million outstanding term loans in both the United Kingdom and Canada. As a result of the Company repaying the majority of its third party loans in the United Kingdom, the Company accelerated the reclassification of amounts in other comprehensive income to earnings as a result of the elimination of the third party debt paid down. The accelerated amount was a loss of $3.9 million reclassified out of other comprehensive income into earnings due to the elimination of the forecasted transactions; this amount is included in Loss on Extinguishment of Debt. Also, the Company discontinued prospectively hedge accounting on its Canadian cross-currency swaps as they no longer met the strict hedge accounting requirements of the Derivatives and Hedging Topic of the FASB Codification. However, because third party debt remained outstanding, we have concluded that the hedged transactions are still probable of occurring. Therefore, in accordance with the Derivatives and Hedging Topic of the FASB Codification, the Company will continue to report the net gain or loss related to the discontinued cash flow hedges at its Canadian entity in other comprehensive income included in shareholders’ equity and will subsequently reclassify such amounts into earnings over the remaining original term of the derivative when the hedged forecasted transactions are recognized in earnings.

As of March 31, 2010, the Company had the following outstanding derivatives:


	Pay Fixed	Pay Fixed			Receive Floating		Receive Floating
Foreign Currency Derivates	Notional	Strike Rate			Notional		Index
USD-CAD Cross Currency Swap	CAD183,081,045		8.75	%	$	159,225,000	3 mo. LIBOR + 2.75% per annum
USD-CAD Cross Currency Swap	CAD61,296,848		7.47	%	$	53,075,000	3 mo. LIBOR + 2.75% per annum
USD-CAD Cross Currency Swap	CAD83,622,075		7.47	%	$	72,375,500	3 mo. LIBOR + 2.75% per annum

Non-designated Hedges of Commodity Risk

In the normal course of business, the Company maintains inventories of gold at its pawn shops in the United Kingdom. From time to time, the Company enters into derivative financial instruments to manage the price risk associated with forecasted gold inventory levels. Derivatives not designated as hedges are not speculative and are used to manage the Company’s exposure to commodity price risk but do not meet the strict hedge accounting requirements of the Derivatives and Hedging Topic of the FASB Codification. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in earnings. As of March 31, 2010, the Company’s subsidiary in the United Kingdom had six outstanding gold options that were not designated as hedges in qualifying hedging relationships.

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

12. Derivative Instruments and Hedging Activities (continued)

The table below presents the fair values of the Company’s derivative financial instruments on the Consolidated Balance Sheet as of March 31, 2010 (in thousands).

Tabular Disclosure of Fair Values of Derivative Instruments⁽¹⁾

Asset Derivatives

Liability Derivatives

As of March 31, 2010

Balance Sheet Location

Fair Value

Balance Sheet Location

Fair Value

Derivatives not designated as hedging instruments

Cross Currency Swaps

Derivatives

63,165

Commodity options

Prepaid expenses

136

Total derivatives not designated as hedging instruments

136

63,165


(1)		The fair values of derivative instruments are presented in the above table on a gross basis. Certain of the above derivative instruments are subject to master netting arrangements and qualify for net presentation in the Consolidated Balance Sheet.

The tables below present the effect of the Company’s derivative financial instruments on the Consolidated Statement of Operations for the period ending March 31, 2010 and 2009 (in thousands).

Tabular Disclosure of the Effect of Derivative Instruments on the Consolidated Statement of Operations for the Nine Months Ending

March 31, 2010

Location of

Gain or (Loss)

Recognized in

Amount of Gain or

Income on

(Loss) Recognized

Location of Gain

Amount of Gain

Derivative

in Income on

or (Loss)

(Ineffective

Derivative

Amount of Gain or

Reclassified from

Portion and

(Ineffective Portion

(Loss) Recognized in

Accumulated OCI

Accumulated

Amount

and Amount

Derivatives in SFAS 133

OCI on Derivative

into Income

OCI into Income

Excluded from

Cash Flow Hedging

(Effective Portion),

(Effective

Effectiveness

Relationships

net of tax

Portion)

Testing)

Commodity options

Other income / (expense)

(10

)

Foreign Exchange Contracts

(34

)

Foreign currency
gain / (loss)

—

Other income / (expense)

—

Cross Currency Swaps

Interest Expense

(6,179

)

Other income / (expense)

(21,909

)

(2,673

)

Corporate Expenses

1,764

Total

(2,707

)

(4,415

)

(21,919

)

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

12. Derivative Instruments and Hedging Activities (continued)

Tabular Disclosure of the Effect of Derivative Instruments on the Consolidated Statement of Operations for the Nine Months Ending

March 31, 2009

Location of

Gain or (Loss)

Recognized in

Amount of Gain or

Income on

(Loss) Recognized

Location of Gain

Amount of Gain

Derivative

in Income on

or (Loss)

(Ineffective

Derivative

Amount of Gain or

Reclassified from

Portion and

(Ineffective Portion

(Loss) Recognized in

Accumulated OCI

Accumulated

Amount

and Amount

Derivatives in SFAS 133

OCI on Derivative

into Income

OCI into Income

Excluded from

Cash Flow Hedging

(Effective Portion),

(Effective

Effectiveness

Relationships

net of tax

Portion)

Testing)

Commodity options

—

Foreign Exchange Contracts

156

Foreign currency gain / (loss)

—

Other income / (expense)

—

Cross Currency Swaps

Interest Expense

—

Other income / (expense)

—

17,798

Corporate Expenses

—

Total

17,954

—

Credit-risk-related Contingent Features

The Company has agreements with each of its derivative counterparties that contain a provision where if the Company defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default on its derivative obligations.

The Company’s agreements with certain of its derivative counterparties also contain provisions requiring it to maintain certain minimum financial covenant ratios related to its indebtedness. Failure to comply with the covenant provisions would result in the Company being in default on any derivative instrument obligations covered by the agreement.

As of March 31, 2010, the fair value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $67.8 million. As of March 31, 2010, the Company has not, nor is it required to post, any collateral related to these agreements. If the Company breached any of these provisions it would be required to settle its obligations under the agreements at their termination value of $67.8 million at March 31, 2010.

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

13. Subsidiary Guarantor Financial Information

National Money Mart Company’s payment obligations under its 10.375% Senior Notes due 2016 are jointly and severally guaranteed (such guarantees, the “Guarantees”) on a full and unconditional basis by the Company and certain of its direct and indirect wholly owned U.S. and Canadian subsidiaries (the “Guarantors”).

The Guarantees of the notes will:

	–		be senior unsecured obligations of the applicable Guarantor;

	–		rank equal in right or payment with existing and future unsubordinated Indebtedness of the applicable Guarantor;

	–		rank senior in right of payment to all existing and future subordinated Indebtedness of the applicable Guarantor, and

	–		be effectively junior to an Indebtedness of such Guarantor, including Indebtedness under the Credit Facility, which is secured by assets of such Guarantor to the extent of the value of the assets securing such Indebtedness.

Separate financial statements of each subsidiary Guarantor have not been presented because they are not required by securities laws and management has determined that they would not be material to investors. The accompanying tables set forth the condensed consolidating balance sheets at March 31, 2010 and June 30, 2009 and the condensed consolidating statements of operations and cash flows for the three and six months ended March 31, 2010 and 2009 of Dollar Financial Corp., National Money Mart, the combined Guarantors, the combined Non-Guarantors and the consolidated Company.

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

13. Subsidiary Guarantor Financial Information (continued)

Consolidating Balance Sheets
March 31, 2010
(In thousands)


	Dollar		National		Dollar Financial
	Financial		Money Mart		Group, Inc. and		Non-
	Corp.		Company		Guarantors		Guarantors		Eliminations			Consolidated
Current Assets
Cash and cash equivalents	$	810	$	298,100	$	23,813	$	48,254	$	—		$	370,977
Loans receivable, net		—		27,223		18,311		73,907		—			119,441
Loans in default, net		—		5,088		9		770		—			5,867
Other receivables		338		11,157		1,693		7,699		—			20,887
Prepaid expenses and other current assets		—		13,186		5,214		15,592		(8,367	)		25,625

Total current assets		1,148		354,754		49,040		146,222		(8,367	)		542,797
Deferred tax asset, net of valuation allowance		—		29,327		—		75		—			29,402
Intercompany receivables		256,763		—		—		—		(256,763	)		—
Property and equipment, net		—		27,874		12,044		23,196		—			63,114
Goodwill and other intangibles		—		190,177		206,590		196,842		—			593,609
Debt issuance costs, net		1,623		15,786		2,597		127		—			20,133
Investment in subsidiaries		80,226		281,430		96,388		—		(458,044	)		—
Other		—		770		12,186		2,979		—			15,935

Total Assets	$	339,760	$	900,118	$	378,845	$	369,441	$	(723,174	)	$	1,264,990


Current Liabilities
Accounts payable	$	244	$	14,707	$	12,873	$	9,083	$	—		$	36,907
Income taxes payable		—		5,185		—		5,352		(1,208	)		9,329
Accrued expenses and other liabilities		—		100,699		32,099		14,244		(6,101	)		140,941
Debt due within one year		—		149		14,200		52		—			14,401
Current deferred tax liability		—		—		—		310		—			310

Total current liabilities		244		120,740		59,172		29,041		(7,309	)		201,888
Fair value of derivatives		—		63,165		—		—		—			63,165
Long-term deferred tax liability		—		6,792		15,726		52		—			22,570
Long-term debt		121,251		610,589		—		4,088		—			735,928
Intercompany payables		—		1,955		212,728		42,080		(256,763	)		—
Other non-current liabilities		—		10,320		9,935		2,676		—			22,931

Total liabilities		121,495		813,561		297,561		77,937		(264,072	)		1,046,482

Total Dollar Financial Corp. stockholders’ equity		218,265		86,557		81,284		291,261		(459,102	)		218,265
Non-controlling interest		—		—		—		243		—			243

Total stockholders’ equity		218,265		86,557		81,284		291,504		(459,102	)		218,508

Total Liabilities and Stockholders’ Equity	$	339,760	$	900,118	$	378,845	$	369,441	$	(723,174	)	$	1,264,990

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

13. Subsidiary Guarantor Financial Information (continued)

Consolidating Condensed Statements Of Operations
Three Months ended March 31, 2010
(In thousands)


	Dollar			National			Dollar Financial
	Financial			Money Mart			Group, Inc. and			Non-
	Corp.			Company			Guarantors			Guarantors			Eliminations			Consolidated
Revenues:
Check cashing	$	—		$	15,867		$	14,055		$	7,314		$	—		$	37,236
Fees from consumer lending		—			36,313			15,047			26,702			—			78,062
Other		—			18,840			4,047			19,163			—			42,050

Total revenues		—			71,020			33,149			53,179			—			157,348

Operating expenses:
Salaries and benefits		—			14,777			12,200			12,905			—			39,882
Provision for loan losses		—			3,546			2,062			4,612			—			10,220
Occupancy		—			4,064			3,426			3,484			—			10,974
Depreciation		—			1,370			746			1,308			—			3,424
Other		—			14,108			5,426			9,354			—			28,888

Total operating expenses		—			37,865			23,860			31,663			—			93,388

Operating margin		—			33,155			9,289			21,516			—			63,960

Corporate and other expenses:
Corporate expenses		—			5,622			12,489			3,957			—			22,068
Intercompany charges		—			4,670			(6,529	)		1,859			—			—
Other depreciation and amortization		—			325			313			1,852			—			2,490
Interest expense, net		3,619			17,590			369			368			—			21,946
Loss on extinguishment of debt		718			—			—			—			—			718
Unrealized foreign exchange loss (gain)		—			(15,952	)		67			204			—			(15,681	)
Loss on derivatives not designated as hedges		—			18,634			—			—			—			18,634
Provision for litigation settlements		—			22,381			4,246			—			—			26,627
Loss on store closings		—			78			1,129			300			—			1,507
Other expense (income), net		—			(477	)		999			(261	)		—			261

(Loss) income before income taxes		(4,337	)		(19,716	)		(3,794	)		13,237			—			(14,610	)
Income tax provision (benefit)		—			(5,084	)		(397	)		3,149			—			(2,332	)

Net (loss) income		(4,337	)		(14,632	)		(3,397	)		10,088			—			(12,278	)
Less: Net income attributable to non-controlling interests		—			—			—			(37	)		—			(37	)
Equity in net income of subsidiaries
National Money Mart Company		(14,632	)		—			—			—			14,632			—
Guarantors		(3,397	)		—			—			—			3,397			—
Non-guarantors		10,125			—			—			—			(10,125	)		—

Net (loss) income attributable to Dollar Financial Corp.	$	(12,241	)	$	(14,632	)	$	(3,397	)	$	10,125		$	7,904		$	(12,241	)

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

13. Subsidiary Guarantor Financial Information (continued)

Consolidating Condensed Statements Of Operations
Nine Months ended March 31, 2010
(In thousands)


	Dollar			National			Dollar Financial
	Financial			Money Mart			Group, Inc. and			Non-
	Corp.			Company			Guarantors			Guarantors			Eliminations			Consolidated
Revenues:
Check cashing	$	—		$	51,355		$	36,094		$	26,126		$	—		$	113,575
Fees from consumer lending		—			109,655			51,084			77,511			—			238,250
Other		—			43,319			11,792			44,961			—			100,072

Total revenues		—			204,329			98,970			148,598			—			451,897

Operating expenses:
Salaries and benefits		—			42,807			37,862			33,672			—			114,341
Provision for loan losses		—			11,838			8,887			13,853			—			34,578
Occupancy		—			11,964			10,663			10,032			—			32,659
Depreciation		—			4,005			3,037			3,827			—			10,869
Other		—			34,547			17,216			27,221			—			78,984

Total operating expenses		—			105,161			77,665			88,605			—			271,431

Operating margin		—			99,168			21,305			59,993			—			180,466

Corporate and other expenses:
Corporate expenses		—			14,953			38,877			11,538			—			65,368
Intercompany charges		—			15,552			(22,138	)		6,586			—			—
Other depreciation and amortization		—			947			1,015			2,690			—			4,652
Interest expense, net		11,773			29,586			1,481			3,572			—			46,412
Loss on extinguishment of debt		475			3,642			694			4,720			—			9,531
Unrealized foreign exchange loss (gain)		—			(20,024	)		123			8,132			—			(11,769	)
Loss on derivatives not designated as hedges		—			21,909			—			—			—			21,909
Provision for litigation settlements		—			22,381			5,513			—			—			27,894
Loss on store closings		—			826			1,441			890			—			3,157
Gain on sale of subsidiary		—			—			(140,000	)		—			140,000			—
Other expense (income), net		—			208			1,083			394			—			1,685

(Loss) income before income taxes		(12,248	)		9,188			133,216			21,471			(140,000	)		11,627
Income tax provision (benefit)		(286	)		3,236			2,336			6,252			—			11,538

Net (loss) income		(11,962	)		5,952			130,880			15,219			(140,000	)		89
Less: Net income attributable to non-controlling interests		—			—			—			(73	)		—			(73	)
Equity in net income of subsidiaries
National Money Mart Company		5,952			—			—			—			(5,952	)		—
Guarantors		130,880			—			—			—			(130,880	)		—
Non-guarantors		15,292			—			—			—			(15,292	)		—

Net income attributable to Dollar Financial Corp.	$	140,162		$	5,952		$	130,880		$	15,292		$	(292,124	)	$	162

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

13. Subsidiary Guarantor Financial Information (continued)

Consolidating Condensed Statements Of Cash Flows
Nine Months Ended March 31, 2010
(In thousands)


				National			Dollar Financial
	Dollar Financial			Money Mart			Group, Inc. and			Non-
	Corp.			Company			Guarantors			Guarantors			Eliminations			Consolidated
Cash flows from operating activities:
Net income	$	140,162		$	5,952		$	130,880		$	15,292		$	(292,124	)	$	162
Adjustments to reconcile net income to net cash provided by operating activities:

Undistributed income of subsidiaries		(152,124	)		—			—			—			152,124			—
Depreciation and amortization		565			6,220			4,511			6,675			—			17,971
Loss on extinguishment of debt		475			3,642			694			4,720			—			9,531
Change in fair value of derivative not designated as a hedge		—			17,054			—			—			—			17,054
Provision for loan losses		—			11,838			8,887			13,853			—			34,578
Non-cash stock compensation		4,657			—			—			—			—			4,657
Non-controlling interest		—			—			—			(73	)		—			(73	)
Loss on disposal of fixed assets		—			107			164			43			—			314
Unrealized foreign exchange loss(gain)		11			(20,261	)		2			8,248			—			(12,000	)
Deferred tax (benefit) provision		—			(1,185	)		3,624			(4,875	)		—			(2,436	)
Accretion of debt discount and deferred issuance costs		6,964			1,694			—			745			—			9,403
Change in assets and liabilities (net of effect of acquisitions):
Increase in loans and other receivables		(8	)		(13,695	)		(4,954	)		(28,255	)		—			(46,912	)
Decrease (increase) in prepaid expenses and other		—			6,533			(2,585	)		10,093			(15,499	)		(1,458	)
Increase (decrease) in accounts payable, accrued expenses and other liabilities		150			41,076			(4,537	)		(3,862	)		15,499			48,326

Net cash provided by operating activities		852			58,975			136,686			22,604			(140,000	)		79,117
Cash flows from investing activities:
Acquisitions, net of cash acquired		—			—			(303	)		(123,526	)		—			(123,829	)
Additions to property and equipment		—			(4,819	)		(2,599	)		(10,885	)		—			(18,303	)
Net decrease (increase) in due from affiliates		32,790			(228,661	)		(152,867	)		208,738			140,000			—

Net cash provided by (used in) investing activities		32,790			(233,480	)		(155,769	)		74,327			140,000			(142,132	)

Cash flows from financing activities:
Proceeds from 10.375% Senior Notes due 2016		—			596,388			—			—			—			596,388
Proceeds from the exercise of stock options		1,417			—			—			—			—			1,417
Repayment of term loan notes		—			(272,580	)		—			(78,534	)		—			(351,114	)
Other debt payments		—			—			—			(6,992	)		—			(6,992	)
Payment of convertible debt		(32,032	)		—			—			—			—			(32,032	)
Net increase in revolving credit facilities		—			—			14,200			—			—			14,200
Payment of debt issuance and other costs		(2,316	)		(15,579	)		(1,644	)		(142	)		—			(19,681	)

Net cash (used in) provided by financing activities		(32,931	)		308,229			12,556			(85,668	)		—			202,186
Effect of exchange rate changes on cash and cash equivalents		—			25,968			—			(3,764	)		—			22,204

Net increase (decrease) in cash and cash equivalents		711			159,692			(6,527	)		7,499			—			161,375
Cash and cash equivalents balance-beginning of period		99			138,408			30,340			40,755			—			209,602

Cash and cash equivalents balance-end of period	$	810		$	298,100		$	23,813		$	48,254		$	—		$	370,977

DOLLAR FINANCIAL CORP.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

13. Subsidiary Guarantor Financial Information (continued)

Consolidating Balance Sheets
June 30, 2009
(In thousands)


	Dollar		National		Dollar Financial
	Financial		Money Mart		Group, Inc. and		Non-
	Corp.		Company		Guarantors		Guarantors		Eliminations			Consolidated
Current Assets
Cash and cash equivalents	$	99	$	138,408	$	30,340	$	40,755	$	—		$	209,602
Loans receivable, net		—		25,191		21,863		67,640		—			114,694
Loans in default, net		—		5,415		934		87		—			6,436
Other receivables		330		4,423		1,149		1,397		—			7,299
Prepaid expenses and other current assets		—		17,606		3,626		23,001		(21,400	)		22,833

Total current assets		429		191,043		57,912		132,880		(21,400	)		360,864
Deferred tax asset, net of valuation allowance		—		20,901		—		6,161		—			27,062
Intercompany receivables		289,324		47,077		—		—		(336,401	)		—
Property and equipment, net		11		25,074		13,812		19,717		—			58,614
Goodwill and other intangibles		—		166,149		206,287		81,911		—			454,347
Debt issuance costs, net		3,039		3,935		1,882		1,013		—			9,869
Investment in subsidiaries		77,364		—		124,544		—		(201,908	)		—
Other		—		606		9,982		121		—			10,709

Total Assets	$	370,167	$	454,785	$	414,419	$	241,803	$	(559,709	)	$	921,465


Current Liabilities
Accounts payable	$	89	$	11,044	$	13,743	$	11,422	$	—		$	36,298
Income taxes payable		—		2,753		330		11,751		—			14,834
Accrued expenses and other liabilities		—		42,998		36,609		12,416		(21,435	)		70,588
Debt due within one year		—		2,950		—		2,930		—			5,880
Current deferred tax liability		—		71		—		—		—			71

Total current liabilities		89		59,816		50,682		38,519		(21,435	)		127,671
Fair value of derivatives		—		10,223		—		—		—			10,223
Long-term deferred tax liability		—		6,624		12,102		150		—			18,876
Long-term debt		161,316		283,937		—		85,172		—			530,425
Intercompany payables		—		—		267,040		69,361		(336,401	)		—
Other non-current liabilities		—		17,897		7,431		29		(165	)		25,192

Total liabilities		161,405		378,497		337,255		193,231		(358,001	)		712,387

Total Dollar Financial Corp. stockholders’ equity		208,762		76,288		77,164		48,256		(201,708	)		208,762

Non-controlling interest		—		—		—		316		—			316

Total stockholders’ equity		208,762		76,288		77,164		48,572		(201,708	)		209,078

Total Liabilities and Stockholders’ Equity	$	370,167	$	454,785	$	414,419	$	241,803	$	(559,709	)	$	921,465

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

13. Subsidiary Guarantor Financial Information (continued)

Consolidating Condensed Statements Of Operations
Three Months ended March 31, 2009
(In thousands)


	Dollar			National		Dollar Financial
	Financial			Money Mart		Group, Inc. and			Non-
	Corp.			Company		Guarantors			Guarantors			Eliminations			Consolidated
Revenues:
Check cashing	$	—		$	13,608	$	15,960		$	7,695		$	—		$	37,263
Fees from consumer lending		—			25,851		17,966			13,837			—			57,654
Other		—			12,483		4,262			6,502			—			23,247

Total revenues		—			51,942		38,188			28,034			—			118,164

Operating expenses:
Salaries and benefits		—			11,920		14,727			7,782			—			34,429
Provision for loan losses		—			4,904		3,882			1,456			—			10,242
Occupancy		—			3,355		4,037			2,471			—			9,863
Depreciation		—			1,080		1,015			962			—			3,057
Other		—			8,741		6,610			4,627			—			19,978

Total operating expenses		—			30,000		30,271			17,298			—			77,569

Operating margin		—			21,942		7,917			10,736			—			40,595

Corporate and other expenses:
Corporate expenses		—			4,075		8,661			2,716			—			15,452
Intercompany charges		—			2,787		(4,069	)		1,282			—			—
Other depreciation and amortization		—			316		302			307			—			925
Interest expense, net		3,934			3,904		1,051			1,457			—			10,346
Provision for litigation settlements		—			—		45			—			—			45
Loss on store closings		—			327		277			40			—			644
Other expense (income), net		—			545		(281	)		(1,141	)		—			(877	)

(Loss) income before income taxes		(3,934	)		9,988		1,931			6,075			—			14,060
Income tax provision					2,194		4,245			1,922			—			8,361

Net (loss) income		(3,934	)		7,794		(2,314	)		4,153			—			5,699
Equity in net income of subsidiaries
National Money Mart Company		7,794			—		—			—			(7,794	)		—
Guarantors		(2,314	)		—		—			—			2,314			—
Non-guarantors		4,153			—		—			—			(4,153	)		—

Net (loss) income attributable to Dollar Financial Corp.	$	5,699		$	7,794	$	(2,314	)	$	4,153		$	(9,633	)	$	5,699

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

13. Subsidiary Guarantor Financial Information (continued)

Consolidating Condensed Statements Of Operations
Nine Months ended March 31, 2009
(In thousands)


	Dollar			National			Dollar Financial
	Financial			Money Mart			Group, Inc. and			Non-
	Corp.			Company			Guarantors			Guarantors			Eliminations			Consolidated
Revenues:
Check cashing	$	—		$	51,497		$	44,311		$	31,611		$	—		$	127,419
Fees from consumer lending		—			93,054			62,957			47,250			—			203,261
Other		—			35,863			13,044			23,826			—			72,733

Total revenues		—			180,414			120,312			102,687			—			403,413

Operating expenses:
Salaries and benefits		—			39,619			45,116			26,772			—			111,507
Provision for loan losses		—			16,998			17,477			5,917			—			40,392
Occupancy		—			10,935			12,490			8,078			—			31,503
Depreciation		—			3,593			3,185			3,041			—			9,819
Other		—			27,916			23,852			19,745			—			71,513

Total operating expenses		—			99,061			102,120			63,553			—			264,734

Operating margin		—			81,353			18,192			39,134			—			138,679

Corporate and other expenses:
Corporate expenses		—			13,029			30,220			9,317			—			52,566
Intercompany charges		—			4,249			(8,662	)		4,413			—			—
Other depreciation and amortization		—			938			907			1,058			—			2,903
Interest expense, net		11,565			11,493			4,476			5,026			—			32,560
Provision for litigation settlements		—			—			554			—			—			554
Loss on store closings		—			2,744			3,347			46			—			6,137
Other expense (income), net		—			(2,879	)		(1,574	)		(2,093	)		—			(6,546	)

(Loss) income before income taxes		(11,565	)		51,779			(11,076	)		21,367			—			50,505

Income tax provision		—			13,831			4,209			5,930			—			23,970

Net (loss) income		(11,565	)		37,948			(15,285	)		15,437			—			26,535
Equity in net income of subsidiaries
National Money Mart Company		37,948			—			—			—			(37,948	)		—
Guarantors		(15,285	)		—			—			—			15,285			—
Non-guarantors		15,437			—			—			—			(15,437	)		—

Net (loss) income attributable to Dollar Financial Corp.	$	26,535		$	37,948		$	(15,285	)	$	15,437		$	(38,100	)	$	26,535

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

13. Subsidiary Guarantor Financial Information (continued)

Consolidating Condensed Statements Of Cash Flows
Nine Months Ended March 31, 2009
(In thousands)


							Dollar
				National			Financial
	Dollar			Money			Group, Inc.
	Financial			Mart			and			Non-
	Corp.			Company			Guarantors			Guarantors			Eliminations			Consolidated
Cash flows from operating activities:
Net income (loss)	$	26,535		$	37,948		$	(15,285	)	$	15,437		$	(38,100	)	$	26,535
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Undistributed income of subsidiaries		(38,100	)		—			—			—			38,100			—
Depreciation and amortization		650			5,402			4,515			4,302			—			14,869
Provision for loan losses		—			16,998			17,477			5,917			—			40,392
Non-cash stock compensation		5,045			—			—			—			—			5,045
Loss on disposal of fixed assets		—			1,110			765			88			—			1,963
Deferred tax provision (benefit)		—			313			3,659			(179	)		—			3,793
Accretion of debt discount and deferred issuance costs		6,649			—			—			—			—			6,649
Change in assets and liabilities (net of effect of acquisitions):
Increase in loans and other receivables		(9	)		(12,769	)		(10,742	)		(10,152	)		—			(33,672	)
Decrease (increase) in prepaid expenses and other		—			4,516			(3,797	)		(4,354	)		—			(3,635	)
Increase (decrease) in accounts payable, accrued expenses and other liabilities		9			(22,630	)		393			7,848			—			(14,380	)

Net cash provided by (used in) operating activities		779			30,888			(3,015	)		18,907			—			47,559
Cash flows from investing activities:
Acquisitions, net of cash acquired		—			(145	)		(444	)		(1,793	)		—			(2,382	)
Additions to property and equipment		—			(1,497	)		(2,254	)		(7,262	)		—			(11,013	)
Net decrease (increase) in due from affiliates		3,239			(10,167	)		(10,205	)		17,133			—			—

Net cash provided by (used in) investing activities		3,239			(11,809	)		(12,903	)		8,078			—			(13,395	)
Cash flows from financing activities:
Proceeds from the exercise of stock options		3,305			—			—			—			—			3,305
Purchase of company stock		(7,492	)		—			—			—			—			(7,492	)
Other debt payments		—			(2,164	)		—			(489	)		—			(2,653	)
Net decrease in revolving credit facilities		—			—			—			(3,753	)		—			(3,753	)
Payment of debt issuance and other costs		—			—			(128	)		—			—			(128	)

Net cash used in financing activities		(4,187	)		(2,164	)		(128	)		(4,242	)		—			(10,721	)
Effect of exchange rate changes on cash and cash equivalents		—			(26,312	)		—			(15,278	)		—			(41,590	)

Net (decrease) increase in cash and cash equivalents		(169	)		(9,397	)		(16,046	)		7,465			—			(18,147	)
Cash and cash equivalents balance-beginning of period		256			119,427			50,163			39,868			—			209,714

Cash and cash equivalents balance-end of period	$	87		$	110,030		$	34,117		$	47,333		$	—		$	191,567


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

The following is a discussion and analysis of the financial condition and results of operations for Dollar Financial Corp. for the three and nine months ended March 31, 2010 and 2009. References in this section to “we,” “our,” “ours,” or “us” are to Dollar Financial Corp. and its wholly owned subsidiaries, except as the context otherwise requires. References to “OPCO” are to our wholly owned operating subsidiary, Dollar Financial Group, Inc.

Executive Summary

Historically, we have derived our revenues primarily from providing check cashing services, consumer lending and other consumer financial products and services, including money orders, money transfers, foreign currency exchange, branded debit cards, pawn lending, gold buying and bill payment. For our check cashing services, we charge our customers fees that are usually equal to a percentage of the amount of the check being cashed and are deducted from the cash provided to the customer. For our consumer loans, we receive fees on the loans.

On June 30, 2008, as part of a process to rationalize our United States markets, we made a determination to close 24 of our unprofitable stores in various United States markets. In August 2008, we identified another 30 stores in the United States and 17 stores in Canada that were under-performing and which were closed or merged into a geographically proximate store. The primary cease-use date for these stores was in September 2008. Customers from these stores were transitioned to our other stores in close proximity to the stores affected. We recorded costs for severance and other retention benefits of $0.6 million and store closure costs of $4.9 million consisting primarily of lease obligations and leasehold improvement write-offs. Subsequent to the initial expense amounts recorded, we recorded $0.9 million of additional lease obligation expense for these locations. During the fourth quarter of the year ended June 30, 2009 (“fiscal 2009”), we announced the closing of an additional 60 under-performing U.S. store locations. We recorded costs for severance and other retention benefits of approximately $0.4 million and store closure related costs of approximately $3.2 million consisting primarily of lease obligations and leasehold improvement write-offs. For the nine months ended March 31, 2010, we recorded an additional $1.5 million of store closure related costs. The closure of stores in the United States and Canada did not result in any impairment of goodwill since the store closures will be accretive to cash flow.

On July 21, 2008, we announced that our Board of Directors had approved a stock repurchase plan, authorizing us to repurchase in the aggregate up to $7.5 million of our outstanding common stock and by October 13, 2008, we had repurchased 535,799 shares of our common stock at a cost of approximately $7.5 million, thus completing our stock repurchase plan.

On April 21, 2009, we completed the acquisition of an established profitable U.K. internet-based consumer lending business which was immediately accretive to earnings. The acquired company is competitively positioned in a rapidly growing market and further expands our expertise within the internet lending arena. Moreover, we believe we can export and leverage this expertise to other European countries as well as our Canadian business unit.

On June 30, 2009, we completed the acquisition of four stores in Northern Ireland. Three of the stores are located in central Belfast with the fourth store situated in the town of Lisburn, the third largest city in Northern Ireland. The acquired stores are multi-product locations offering check cashing, single payment consumer lending and pawn broking services.

On June 29, 2009, we completed the acquisition of two market-leading traditional pawn shops located in Edinburgh and Glasgow, Scotland. The two stores were established in the year 1830 and primarily deal in loans securitized by gold jewelry and fine watches, while offering traditional secured pawn lending for an array of other items. Both stores are located in prominent locations on major thoroughfares and high pedestrian traffic zones.

On June 30, 2009, we completed the acquisition of 76% of the outstanding equity of an established consumer lending business in Poland. The acquired company, Optima, S.A., founded in 1999 and headquartered in Gdansk, offers unsecured loans of generally 40 — 50 week durations with an average loan amount of $250 to $500. The loan transaction includes a convenient in-home servicing feature, whereby loan disbursement and collection activities take place in the customer’s home according to a mutually agreed upon and pre-arranged schedule. The in-home loan servicing concept is well accepted within Poland and Eastern Europe, and was initially established in the U.K. approximately 100 years ago. Customer sales and service activities are managed through an extensive network of local commission-based representatives across six provinces in northwestern Poland.

On October 3, 2009, we entered into an agreement to acquire a merchant cash advance business in the United Kingdom. The acquired company primarily targets the working capital needs of small retail businesses by providing cash advances secured against a

percentage of future credit card sales. The purchase price for the acquired company, which currently manages a receivable portfolio of approximately $3.5 million, was $4.6 million.

On December 21, 2009, we commenced the closing of an exchange offer with certain holders of our 2.875% Senior Convertible Notes due 2027, which we refer to as the 2027 Notes, pursuant to the terms of privately negotiated exchange agreements with such holders. Pursuant to the terms of the exchange agreements, the holders exchanged an aggregate of $120.0 million principal amount of the 2027 Notes held by such holders for an equal aggregate principal amount of our new 3.0% Senior Convertible Notes due 2028, which we refer to as the 2028 Notes. The 2028 Notes are senior, unsecured obligations and rank equal in right of payment to all of our other unsecured and unsubordinated indebtedness and are effectively subordinated to all of our existing and future secured debt and to the indebtedness and other liabilities of its subsidiaries.

On December 23, 2009, our Canadian subsidiary, National Money Mart Company, which we refer to as Money Mart, sold $600.0 million aggregate principal amount of its 10.375% Senior Notes due 2016, which we refer to as the 2016 Notes. The 2016 Notes were issued pursuant to an indenture, dated as of December 23, 2009, among Money Mart , as issuer, Dollar Financial Corp. and certain of our direct and indirect wholly-owned U.S. and Canadian subsidiaries, as guarantors, and U.S. Bank National Association, as trustee. The 2016 Notes bear interest at the rate of 10.375% per year.

On December 23, 2009, we acquired Military Financial Services, LLC, including its subsidiaries, Dealers’ Financial Services, LLC and Dealers’ Financial Services Reinsurance Ltd., which we collectively refer to as DFS. DFS is an established business that provides fee based services to enlisted military personnel seeking to purchase new and used vehicles. DFS markets its services through its branded Military Installment Loan and Education Services, or “MILES”, program. DFS provides services to enlisted military personnel who make applications for auto loans to purchase new and used vehicles that are funded and serviced under an exclusive agreement with a major third-party national bank based in the United States. Additionally, DFS provides ancillary services such as service contracts and guaranteed asset protection, or GAP, insurance, along with consultations regarding new and used automotive purchasing, budgeting and credit and ownership training. OPCO paid a purchase price of approximately $117.8 million plus approximately $5.5 million on account of the working capital as of the closing date.

In February 2010, we repurchased $35.2 million aggregate principal amount of 2027 Notes in privately negotiated transactions with three of the holders of the 2027 Notes. The purchase price paid by the Company in the transactions was 91% of the stated principal amount of the repurchased 2027 Notes for an aggregate price of $32.032 million. As a result of these repurchase transactions and the exchange transactions described above, $44.8 million aggregate principal amount of the 2027 Notes remains outstanding as of March 31, 2010. Furthermore, as a result of these repurchase transactions, the maturity date of the 2016 Notes is affirmed to be December 15, 2016 and the maturity date for approximately $16.9 million of the Company’s obligations under the term loan portions of its senior secured credit facility, as amended and restated on December 23, 2009, is affirmed to be December 31, 2014 (with the maturity date for the remaining $1.6 million of the Company’s obligations under the term loans remaining October 30, 2012).

Effective March 3, 2010, the Ontario Superior Court of Justice approved the settlement of the pending class action against OPCO and Money Mart in Ontario commenced behalf of a purported class of Ontario borrowers who, it was alleged, were subjected to usurious charges in payday loan transactions in violation of Canadian federal law proscribing usury.

On March 4, 2010, Money Mart and OPCO reached an agreement to settle their outstanding British Columbia class action litigation in which the plaintiffs claimed that the business model used by Money Mart resulted in the collection of fees in excess of the statutory limit for loans made since 1997. Under the terms of the British Columbia settlement, Money Mart will create a settlement fund in an amount of C$24.75 million, consisting of C$12.375 million in cash and C$12.375 million in vouchers. Fees payable to plaintiffs’ counsel will be paid from this fund. The settlement is set forth in a definitive settlement agreement executed on May 7, 2010 which is subject to final court approval. A hearing regarding the settlement has been scheduled by the court for May 17, 2010. There can be no assurance that the settlement will receive final court approval.

During the nine months ended March 31, 2010, Money Mart recorded a charge of $22.4 million in relation to the pending settlements of the class actions in British Colombia and similar cases in New Brunswick, Nova Scotia and Newfoundland for the potential settlement of the other pending or purported Canadian class action proceedings. During the fiscal year ended June 30, 2009, Money Mart recorded a charge of $57.4 million in relation to then pending settlement of the Ontario class action and for the potential settlement of the other pending or purported Canadian class action proceedings. As of March 31, 2010, an aggregate of approximately $78.9 million is included in the Company’s accrued expenses relating to the Canadian proceedings described above. Of those expenses, approximately $37.3 million is expected to be non-cash. Although we believe that we have meritorious defenses to the claims in the pending purported or potential class proceedings and intend to vigorously to defend against such claims, the ultimate cost of resolution of

such claims, either through settlements or pursuant to litigation, may substantially exceed the amount accrued at March 31, 2010, and additional accruals may be required in the future.

Our expenses primarily relate to the operations of our store network, including the provision for loan losses, salaries and benefits for our employees, occupancy expense for our leased real estate, depreciation of our assets and corporate and other expenses, including costs related to opening and closing stores.

In each foreign country in which we operate, local currency is used for both revenues and expenses. Therefore, we record the impact of foreign currency exchange rate fluctuations related to our foreign net income.

Discussion of Critical Accounting Policies

In the ordinary course of business, we have made a number of estimates and assumptions relating to the reporting of results of operations and financial condition in the preparation of our financial statements in conformity with U.S. generally accepted accounting principles. We evaluate these estimates on an ongoing basis, including those related to revenue recognition, loan loss reserves and goodwill and intangible assets. We base these estimates on the information currently available to us and on various other assumptions that we believe are reasonable under the circumstances. Actual results could vary from these estimates under different assumptions or conditions.

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

Revenue Recognition

With respect to company-operated stores, revenues from our check cashing, money order sales, money transfer, foreign currency exchange, bill payment services and other miscellaneous services reported in other revenues on our statement of operations are all recognized when the transactions are completed at the point-of-sale in the store.

For single-payment consumer loans that we make directly (company-funded loans), which have terms ranging from 1 to 45 days, revenues are recognized using the interest method. Loan origination fees are recognized as an adjustment to the yield on the related loan. Our reserve policy regarding these loans is summarized below in “Company-Funded Consumer Loan Loss Reserves Policy.”

Company-Funded Consumer Loan Loss Reserves Policy

We maintain a loan loss reserve for probable losses inherent in the outstanding loan portfolio for single-payment and other consumer loans that we make directly through our company-operated locations. To estimate the appropriate level of loan loss reserves, we consider known and relevant internal and external factors that affect loan collectability, including the amount of outstanding loans owed to us, historical loans charged off, current collection patterns and current economic trends. Our current loan loss reserve is based on our net charge-offs, typically expressed as a percentage of loan amounts originated for the last twelve months applied against the total amount of outstanding loans that we make directly. As these conditions change, we may need to make additional allowances in future periods. Despite the economic downturn in the U.S. and the foreign markets in which we operate, we have not experienced any material increase in the defaults on outstanding loans, although we have tightened lending criteria. Accordingly, we have not modified our approach to determining our loan loss reserves.

When a loan is originated, the customer receives the cash proceeds in exchange for a post-dated customer check or a written authorization to initiate a charge to the customer’s bank account on the stated maturity date of the loan. If the check or the debit to the customer’s account is returned from the bank unpaid, the loan is placed in default status and an additional reserve for this defaulted loan receivable is established and charged to store and regional expenses in the period that the loan is placed in default status. This reserve is reviewed monthly and any additional provision to the loan loss reserve as a result of historical loan performance, current collection patterns and current economic trends is charged to store and regional expenses. If the loans remain in defaulted status for 180 days, a reserve for the entire amount of the loan is recorded and the receivable and corresponding reserve is ultimately removed from the balance sheet. The receivable for defaulted single-payment loans, net of the allowance of $15.5 million at March 31, 2010 and $17.0 million at June 30, 2009, is reported on our balance sheet in loans in default, net, and was $5.9 million at March 31, 2010 and $6.4 million at June 30, 2009.

Check Cashing Returned Item Policy

We charge operating expense for losses on returned checks during the period in which such checks are returned, which generally is three to five business days after the check is cashed in our store. Recoveries on returned checks are credited to operating expense during the period in which recovery is made. This direct method for recording returned check losses and recoveries eliminates the need for an allowance for returned checks. These net losses are charged to other store and regional expenses in the consolidated statements of operations.

Goodwill and Indefinite-Lived Intangible Assets

Goodwill is the excess of cost over the fair value of the net assets of the business acquired. In accordance with the Intangibles Topic of the FASB Codification, goodwill is assigned to reporting units, which we have determined to be our reportable operating segments of the United States, Canada and the United Kingdom. We also have a corporate reporting unit which consists of costs related to corporate infrastructure, investor relations and other governance activities. Because of the limited activities of the corporate reporting unit, no goodwill has been assigned to it. Goodwill is assigned to the reporting unit that benefits from the synergies arising from each particular business combination. The determination that the operating segments are equivalent to the reporting units for goodwill allocation purposes is based upon our overall approach to managing our business along operating segment lines, and the consistency of the operations within each operating segment. Goodwill is evaluated for impairment on an annual basis on June 30 or between annual tests if events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. To accomplish this, we are required to determine the carrying value of each reporting unit by assigning the assets and liabilities, including the existing goodwill and intangible assets, to those reporting units. We are then required to determine the fair value of each reporting unit and compare it to the carrying amount of the reporting unit. To the extent the carrying amount of a reporting unit exceeds the fair value of the reporting unit; we would be required to perform a second step to the impairment test, because this is an indication that the reporting unit goodwill may be impaired. If after the second step of testing, the carrying amount of a reporting unit exceeds the fair value of the individual tangible and identifiable intangible assets, an impairment loss would be recognized in an amount equal to the excess of the implied fair value of the reporting unit’s goodwill over its carrying value.

During fiscal 2009, the overall fair value of the U.S. reporting unit declined based on the Company’s internal models; however, the fair value of the U.S. reporting unit, taken as a whole, continues to exceed its carrying value. The impact of the continued economic downturn, along with any federal or state regulatory restrictions on our short-term consumer lending products, could reduce the fair value of the U.S. goodwill below its carrying value at which time we would be required to perform the second step of the transitional impairment test, as this is an indication that the reporting unit goodwill may be impaired.

Indefinite-lived intangible assets consist of reacquired franchise rights, which are deemed to have an indefinite useful life and are not amortized. Non-amortizable intangibles with indefinite lives are tested for impairment annually as of December 31, or whenever events or changes in business circumstances indicate that an asset may be impaired. If the estimated fair value is less than the carrying amount of the intangible assets with indefinite lives, then an impairment charge would be recognized to reduce the asset to its estimated fair value.

We consider this to be one of the critical accounting estimates used in the preparation of our consolidated financial statements. We estimate the fair value of our reporting units using a discounted cash flow analysis. This analysis requires us to make various assumptions about revenues, operating margins, growth rates, and discount rates. These assumptions are based on our budgets, business plans, economic projections, anticipated future cash flows and marketplace data. Assumptions are also made for perpetual growth rates for periods beyond the period covered by our long term business plan. We perform our goodwill impairment test annually as of June 30, and our reacquired franchise rights impairment test annually as of December 31. At the date of our last evaluations, there was no impairment of goodwill or reacquired franchise rights. However, we may be required to evaluate the recoverability of goodwill and other intangible assets prior to the required annual assessment if we experience a significant disruption to our business, unexpected significant declines in our operating results, divestiture of a significant component of our business, a sustained decline in market capitalization, particularly if it falls below our book value, or a significant change to the regulatory environment in which we operate. While we believe we have made reasonable estimates and assumptions to calculate the fair value of goodwill and indefinite-lived intangible assets, it is possible that a material change could occur, including if actual experience differs from the assumptions and considerations used in our analyses. These differences could have a material adverse impact on the consolidated results of operations, and cause us to perform the second step

impairment test, which could result in a material impairment of our goodwill. We will continue to monitor our actual cash flows and other factors that may trigger a future impairment in the light of the current global recession.

Derivative Instruments and Hedging Activities

The Derivative and Hedging Topic of the FASB Codification requires companies to provide users of financial statements with an enhanced understanding of: (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. This Topic also requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about the fair value of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative instruments.

As required by the Derivative and Hedging Topic of the FASB Codification, we record all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether we have elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Derivatives may also be designated as hedges of the foreign currency exposure of a net investment in a foreign operation. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. We may enter into derivative contracts that are intended to economically hedge certain of our risks, even though hedge accounting does not apply or we elect not to apply hedge accounting.

Income Taxes

As part of the process of preparing our consolidated financial statements we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves estimating the actual current tax liability together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheet. An assessment is then made of the likelihood that the deferred tax assets will be recovered from future taxable income and to the extent we believe that recovery is not likely, we establish a valuation allowance.

The income taxes topic of the FASB Codification requires that a “more-likely-than-not” threshold be met before the benefit of a tax position may be recognized in the financial statements and prescribes how such benefit should be measured. As of March 31, 2010, this requirement did not result in any adjustment in our liability for unrecognized income tax benefits.

Constant Currency Analysis

We maintain operations primarily in the United States, Canada and the United Kingdom. Approximately 70% of our revenues are originated in currencies other than the US Dollar, principally the Canadian Dollar and British Pound Sterling. As a result, changes in our reported revenues and profits include the impacts of changes in foreign currency exchange rates. As additional information to the reader, we provide “constant currency” assessments in the following discussion and analysis to remove and/or quantify the impact of the fluctuation in foreign exchange rates and utilize constant currency results in our analysis of segment performance. Our constant currency assessment assumes foreign exchange rates in the current fiscal periods remained the same as in the prior fiscal year periods. For the three months ended March 31, 2010, the actual average exchange rates used to translate the Canadian and United Kingdom’s results were $0.9618 and $1.5587, respectively. For our constant currency reporting for the same period, the average exchange rates used to translate the Canadian and United Kingdom’s results were $0.8032 and $1.4344, respectively. For the nine months ended March 31, 2010, the actual average exchange rates used to translate the Canadian and United Kingdom’s results were $0.9400 and $1.6108, respectively. For our constant currency reporting for the same period, the average exchange rates used to translate the Canadian and United Kingdom’s results were $0.8639 and $1.6327, respectively. Note — all conversion rates are based on the US Dollar equivalent to one Canadian Dollar and one Great British Pound.

We believe that our constant currency assessments are a useful measure, indicating the actual growth and profitability of our operations. Earnings from our subsidiaries are generally not repatriated to the U.S.; therefore, we do not incur significant gains or losses on foreign currency transactions with our subsidiaries. As such, changes in foreign currency exchange rates primarily impact only reported earnings and not our actual cash flow.

Revenue Analysis


	Three Months Ended March 31,										Nine Months Ended March 31,
					(Percentage of total										(Percentage of total
	($ in thousands)				revenue)						($ in thousands)				revenue)
	2009		2010		2009			2010			2009		2010		2009			2010
Check cashing	$	37,263	$	37,236		31.5	%		23.7	%	$	127,419	$	113,575		31.6	%		25.1	%
Fees from consumer lending		57,654		78,062		48.8	%		49.6	%		203,261		238,250		50.4	%		52.7	%
Money transfer fees		5,957		6,609		5.0	%		4.2	%		20,351		20,523		5.0	%		4.5	%
Pawn service fees and sales		3,164		4,814		2.7	%		3.1	%		10,466		13,302		2.6	%		2.9	%
Other revenue		14,126		30,627		12.0	%		19.4	%		41,916		66,247		10.4	%		14.8	%

Total revenue	$	118,164	$	157,348		100.0	%		100.0	%	$	403,413	$	451,897		100.0	%		100.0	%

Three Months Ended March 31, 2010 compared to Three Months Ended March 31, 2009

Total revenues for the three months ended March 31, 2010 increased $39.2 million, or 33.2% as compared to the three months ended March 31, 2009. The impact of foreign currency accounted for approximately $15.3 million of the increase and the increase related to new store openings and acquisitions was approximately $20.5 million. On a constant currency basis and after eliminating the impact of new stores and acquisitions, total revenues increased by $3.4 million.

On an actual basis, consolidated check cashing revenue remained relatively constant from period to period. There was an increase of $3.2 million related to foreign exchange rates and increases from new stores and acquisitions of $0.6 million. On a constant currency basis and after eliminating the impact of new stores and acquisitions, check cashing revenues were down $3.9 million or 10.3% for the current three month period as compared to the prior year. Check cashing revenues from our U.S., Canadian and United Kingdom businesses declined 12.3%, 2.8%, and 19.8%, respectively (based on constant currency reporting) over the previous year’s period. The decrease in the United States was primarily a result of the closure of 60 stores during the fourth quarter of fiscal 2009 and the economic downturn. On a consolidated constant currency basis, the face amount of the average check cashed increased 2.0% from $492 in the third quarter of fiscal 2009 to $502 for this quarter while the average fee per check cashed increased by 6.7% from $17.31 in fiscal 2009’s third quarter to $18.48 for the quarter just ended. There was also a decline of 14.4% in the number of checks cashed in the current quarter as compared to the year earlier period — down from 2.2 million in the third quarter of fiscal 2009 to 1.8 million in the quarter just ended.

Consolidated fees from consumer lending were $78.1 million for the third quarter of fiscal 2010, representing an increase of 35.4% or $20.4 million compared to the prior year period. The impact of foreign currency fluctuations accounted for an increase of approximately $7.9 million and increases of approximately $10.3 million related to the impact from new stores and acquisitions. The remaining increase of $2.2 million was primarily due to increases in our Canadian and U.K. consumer lending business which increased by 17.3% and 5.0%, respectively, offset by a decrease in our U.S. business of approximately 16.4%. The decrease in our U.S. consumer lending business is the result of 60 stores being closed in the U.S. markets during the fourth quarter of fiscal 2009. Consumer lending revenues in the Company’s operations in Poland were approximately $2.1 million for the current quarter.

Pawn service fees were $4.8 million for the quarter ended March 31, 2010, representing an increase of $1.7 million or 52.2% compared to prior year period. The impact of foreign currency fluctuations accounted for an increase of approximately $0.4 million and increases of approximately $0.4 million related to the impact from new stores and acquisitions. The remaining increase of $0.9 million or 25.8% is primarily due managements’ increased emphasis on promoting and growing the U.K. pawn business.

On a constant currency basis and excluding the impacts of new stores and acquisitions, money transfer fees, franchise fees and all other revenues were up $4.2 million, or 21.0% for the quarter ended March 31, 2010 as compared to the quarter ended March 31, 2009. The increase came principally in the U.K. business and was due to the success of the foreign exchange product, the debit card business and scrap gold sales in both the United Kingdom and Canada.

Nine Months Ended March 31, 2010 compared to Nine Months Ended March 31, 2009

Total revenues for the nine months ended March 31, 2010 increased $48.5 million, or 12.0% as compared to the nine months ended March 31, 2009. The impact of foreign currency accounted for $16.0 million of the increase and the impact of new stores and acquisitions contributed $42.8 million of the increase. On a constant currency basis and excluding the impacts of new stores and acquisitions, total revenues decreased by $10.3 million or 2.6%. The decrease was the result of a $22.7 million decrease in the U.S. revenues primarily resulting from the closure of 60 under-performing store locations during the fourth quarter of fiscal 2009.

Relative to our products, consolidated check cashing revenue decreased $13.8 million or 10.9% for the nine months ended March 31, 2010 compared to the same period in the prior year. There was an increase of approximately $3.4 million related to foreign exchange rates and increases from new stores and acquisitions of $1.9 million. The remaining check cashing revenues were down $19.1 million or 15.0% for the current nine month period. Check cashing revenues from our U.S. business segment decreased 18.9%, again heavily influenced by the closure of under-performing stores during fiscal 2009 and the economic downturn. On a constant dollar basis and excluding the impacts of new stores and acquisitions, the Canadian business declined 8.0% and the U.K. business was down 21.0% for the nine months ended March 31, 2010 as compared to the same period in the prior year. On a consolidated constant currency basis, the face amount of the average check cashed decreased 0.8% to $489 for the nine months ended March 31, 2010 compared to $493 for the prior year period while the average fee per check cashed increased by 4.2% to $18.61. There was also a decline of 17.0% in the number of checks cashed for the nine months ended March 31, 2010 as compared to the nine months ended March 31, 2009 — down from 7.1 million in the prior year to 5.9 million in the current year.

Consolidated fees from consumer lending were $238.3 million for the nine months ended March 31, 2010 compared to $203.3 million for the year earlier period, an increase of $35.0 million or 17.2%. The impact of foreign currency fluctuations accounted for an increase of approximately $8.5 million and the impact of new stores and acquisitions was an increase of $26.3 million. On a constant dollar basis and excluding the impacts of new stores and acquisitions, consumer lending revenues increased by approximately $0.2 million. The U.S. consumer lending revenues were down approximately $11.9 million while both the Canadian and U.K.’s consumer lending revenues were up by $7.5 million and $4.6 million, respectively (on a constant dollar basis and excluding the impacts of new stores and acquisitions). Poland’s consumer lending revenues for the nine months ended March 31, 2010 were approximately $5.1 million.

Pawn service fees were $13.3 million for the nine ended March 31, 2010, representing an increase of $2.8 million or 27.1% compared to prior year period. The impact of foreign currency fluctuations accounted for a nominal increase and increases of approximately $1.5 million related to the impact from new stores and acquisitions. The remaining increase of $1.3 million or 12.9% is primarily due managements’ increased emphasis on promoting and growing the U.K. pawn business.

For the nine months ended March 31, 2010, money transfer fees, franchise fees and all other revenues increased by $24.5 million in reported amounts. On a constant dollar basis and excluding the impacts of new stores and acquisitions, these revenues increased by $7.2 million or 11.6% for the nine months ended March 31, 2010 as compared to the year earlier period. The increase came principally in the U.K. business and was due to the success of the foreign exchange product, the debit card business and scrap gold sales in both the United Kingdom and Canada.

Operating Expense Analysis


	Three Months Ended March 31,										Nine Months Ended March 31,
					(Percentage of total										(Percentage of total
	($ in thousands)				revenue)						($ in thousands)				revenue)
	2009		2010		2009			2010			2009		2010		2009			2010
Salaries and benefits	$	34,429	$	39,882		29.1	%		25.3	%	$	111,507	$	114,341		27.6	%		25.3	%
Provision for loan losses		10,242		10,220		8.7	%		6.5	%		40,392		34,578		10.0	%		7.7	%
Occupancy		9,863		10,974		8.3	%		7.0	%		31,503		32,659		7.8	%		7.2	%
Depreciation		3,057		3,424		2.6	%		2.2	%		9,819		10,869		2.4	%		2.4	%
Returned checks, net and cash shortages		2,866		2,288		2.4	%		1.5	%		13,228		7,182		3.3	%		1.6	%
Maintenance and repairs		2,848		3,097		2.4	%		2.0	%		9,068		8,792		2.2	%		1.9	%
Advertising		1,451		3,884		1.2	%		2.5	%		6,659		11,998		1.7	%		2.7	%
Bank Charges and armored carrier expenses		3,174		3,477		2.7	%		2.2	%		9,937		10,400		2.5	%		2.3	%
Other		9,639		16,142		8.2	%		10.2	%		32,621		40,612		8.1	%		9.0	%

Total operating expenses	$	77,569	$	93,388		65.6	%		59.4	%	$	264,734	$	271,431		65.6	%		60.1	%

Three Months Ended March 31, 2010 compared to Three Months Ended March 31, 2009

Operating expenses were $93.4 million for the three months ended March 31, 2010 compared to $77.6 million for the three months ended March 31, 2009, an increase of $15.8 million or 20.4%. The impact of foreign currency accounted for approximately $8.4 million of the increase and new stores and acquisitions made of $13.7 million of the increase. On a constant currency basis and excluding the impacts of new stores and acquisitions, store expenses decreased by $6.3 million or 8.1%. For the current year quarter, total operating expenses decreased from 65.6% of total revenue to 59.4% of total revenue year over year. After adjusting for constant currency reporting, the percentage of total operating expenses as compared to total revenue was 58.6%.

Relative to our business units, on a constant currency basis and excluding the impacts of new stores and acquisitions, operating expenses decreased by $6.8 million and $1.0 million in the United States and the United Kingdom, respectively. The decreases in these two units were the result of a focus on cost reductions in addition to the closure of approximately 60 United States stores during the fourth quarter of fiscal 2009. The adjusted operating expenses in Canada increased by approximately $1.6 million for the three months ended March 31, 2010 as compared to the prior year which is commensurate with the revenue growth in that country.

Nine Months Ended March 31, 2010 compared to Nine Months Ended March 31, 2009

Operating expenses were $271.4 million for the nine months ended March 31, 2010 compared to $264.7 million for the nine months ended March 31, 2009, an increase of $6.7 million or 2.5%. The impact of foreign currency accounted for an increase of $8.6 million. There was an increase in operating expenses related to new stores and acquisitions of approximately $30.8 million. On a constant currency basis and excluding the impacts of new stores and acquisitions, operating expenses decreased by $32.7 million. For the current year cumulative period, total operating expenses decreased to 60.1% of total revenue compared to 65.6% of total revenue for the same period in the prior year. After adjusting for constant currency reporting, the percentage of total operating expenses as compared to total revenue was 59.0%.

Relative to our business units, after excluding the impacts of foreign currency and acquisitions, operating expenses decreased in the United States, Canada and the United Kingdom by $26.0 million, $3.2 million and $3.5 million, respectively. These decreases were a result of a focus on cost reductions in addition to the closure of approximately 60 United States stores during the fourth quarter of fiscal 2009.

Corporate and Other Expense Analysis


	Three Months Ended March 31,												Nine Months Ended March 31,
							(Percentage of total												(Percentage of total
	($ in thousands)						revenue)						($ in thousands)						revenue)
	2009			2010			2009			2010			2009			2010			2009			2010
Corporate expenses	$	15,452		$	22,068			13.1	%		14.0	%	$	52,566		$	65,368			13.0	%		14.5	%
Other depreciation and amortization		925			2,490			0.8	%		1.6	%		2,903			4,652			0.7	%		1.0	%

Interest expense, net		10,346			21,946			8.8	%		13.9	%		32,560			46,412			8.1	%		10.3	%
Loss on extinguishment of debt		—			718			—	%		0.5	%		—			9,531			—	%		2.1	%
Unrealized foreign exchange gain		—			(15,681	)		—	%		(10.0)	%		—			(11,769	)		—	%		(2.6)	%
Loss on derivatives not designated as hedges		—			18,634			—	%		11.8	%		—			21,909			—	%		4.8	%
Provision for litigation settlements		45			26,627			—	%		16.9	%		554			27,894			0.1	%		6.2	%

Loss on store closings		644			1,507			0.5	%		1.0	%		6,137			3,157			1.5	%		0.7	%
Other (income) expense		(877	)		261			(0.7)	%		0.2	%		(6,546	)		1,685			(1.6)	%		0.4	%
Income tax provision (benefit)		8,361			(2,332	)		7.1	%		(1.5)	%		23,970			11,538			5.9	%		2.6	%

Three Months Ended March 31, 2010 compared to Three Months Ended March 31, 2009

Corporate Expenses

Corporate expenses were $22.1 million for the three months ended March 31, 2010 compared to $15.5 million for the same period in the prior year or an increase of $6.6 million. On a constant currency basis, corporate expenses increased by approximately $5.4 million reflecting an increased investment in our infrastructure to support global store, product and platform expansion plans as well our investment in our global business development team which is focused on acquisition strategies and execution.

Other Depreciation and Amortization

Other depreciation and amortization was $2.5 million for the three months ended March 31, 2010 compared to $0.9 million for the same period in the prior year. The increase of $1.6 million is primarily related to DFS’ amortization of identifiable intangible assets.

Extinguishment of Debt and Loss on Derivatives Not Designated as Hedges

During the three months ended March 31, 2010, there were $0.7 million of expenses related to the repurchase of $35.2 million of our 2.875% Senior Convertible Debt due 2027 that have been reported as “Extinguishment of Debt”.

Interest Expense

Interest expense, net was $21.9 million for the three months ended March 31, 2010 compared to $10.3 million for the same period in the prior year. Interest related to our newly issued $600.0 million principal 10.375% Senior Notes due 2016 accounted for $9.7 million of the increase, net of a decrease in interest expense associated with our prepayment of substantially all of our U.K. and Canadian term debt on December 23, 2009. In addition, interest expense associated with our revolving credit facility and the reduction in the amount of interest income earned by us accounted for $0.6 million of the net increase.

Non-cash interest accounted for approximately $1.6 million of the overall increase primarily due to the increase in non-cash interest related to the amortization of accumulated charges associated with the discontinuance of hedge accounting for our cross currency interest rate swaps.

•

Subsequent to the prepayment of the majority of the Canadian term debt on December 23, 2009, with the proceeds from our $600.0 million senior note offering completed in December 2009 we discontinued prospectively hedge accounting on these cross-currency swaps. In accordance with the Derivatives and Hedging Topic of the FASB Codification, we were required to continue to report the net loss related to the discontinued cash flow hedge in other comprehensive income included in shareholders’ equity and subsequently reclassify such amounts into earnings over the remaining original term of the derivative when the hedged forecasted transactions are recognized in earnings. This resulted in a $1.6 million non-cash interest charge for the quarter ended March 31, 2010. Due to the newly issued $600.0 million principal 10.375% Senior Notes due 2016 in Canada, we will continue to reclassify such amounts into earnings over the remaining original term of the derivative.

•

Subsequent to the early settlement in May 2009 of its two cross-currency interest rate swaps hedging variable-rate borrowings at our foreign subsidiary in the United Kingdom, we discontinued prospectively hedge accounting on these cross-currency swaps. In accordance with the Derivatives and Hedging Topic of the FASB Codification, we were required to continue to report the net loss related to the discontinued cash flow hedge in other comprehensive income included in shareholders’ equity and subsequently reclassify such amounts into earnings over the remaining original term of the derivative when the hedged forecasted transactions are recognized in earnings. As a result of the prepayment of substantially all of the United Kingdom’s term debt on December 23, 2009, we reclassified primarily all of the U.K.’s remaining net loss from other comprehensive income into earnings during the prior fiscal quarter ended December 31, 2009. That resulted in a charge of $3.9 million which was included in Loss on Extinguishment of Debt.

Unrealized Foreign Exchange Gain

Unrealized foreign exchange gain of $15.7 million for the three months ended March 31, 2010 is due primarily to the unrealized foreign exchange gain associated with our newly issued $600.0 million senior notes. The notes which are denominated in U.S. Dollars were issued by our indirectly wholly-owned Canadian subsidiary. As such, the impact of all prospective changes in the exchange rate between the U.S. Dollar and the Canadian Dollar will be reflected in our earnings as “unrealized foreign exchange gains and losses”.

Loss on derivatives not designated as hedges

Loss on derivatives not designated as hedges was $18.6 million for the three months ended March 31, 2010 related to the change in fair value and the net additional cash payments to the swap counter parties associated with our cross-currency interest rate swaps in Canada related to the term loans. The change in fair value related to both the changes in market interest and foreign exchange rates and amendments that were made to the swap agreements required in connection with the debt offerings completed during fiscal 2010.

Provision for Litigation Settlements

Provision for litigation settlements during the three months ended March 31, 2010 was $26.6 million primarily related to the pending settlements of the British Columbia Litigation and the Maritimes Litigation and for the potential settlement of other pending Canadian class action proceedings.

Loss on Store Closings

During the three months ended March 31, 2010, we recorded additional expense related to store closings of approximately $1.5 million, related to the planned store closures in Arizona and Washington.

Income Tax Provision

The provision for income taxes was a tax benefit of $2.3 million for the three months ended March 31, 2010 compared to a provision of $8.4 million for the three months ended March 31, 2009. Our effective tax rate was not meaningful for the three months ended March 31, 2010 and was 59.5% for the three months ended March 31, 2009. The effective tax rate for the three months ended March 31, 2009 was reduced as a result of the impact of a favorable settlement granted in a competent authority tax proceeding between the United States and Canadian tax authorities related to transfer pricing matters for years 2000 through 2003 combined with an adjustment to our reserve for uncertain tax benefits related to years for which a settlement has not yet been received. Our effective tax rate differs from the federal statutory rate of 35% due to foreign taxes, permanent differences and a valuation allowance on U.S. and foreign deferred tax assets and the aforementioned changes to our reserve for uncertain tax positions. Prior to the global debt restructuring in our fiscal year ended June 30, 2007, interest expense in the U.S. resulted in U.S. tax losses, thus generating deferred tax assets. At March 31, 2010 we maintained deferred tax assets of $130.5 million which is offset by a valuation allowance of $84.8 million which represents an increase

of $2.2 million in the quarter ended March 31, 2010. The change for the period in our deferred tax assets and valuation allowances is presented in the table below and more fully described in the paragraphs that follow.

Change in Deferred Tax Assets and Valuation Allowances (in millions):


	Deferred			Valuation			Net Deferred
	Tax Asset			Allowance			Tax Asset
Balance at December 31, 2009	$	129.4		$	82.6		$	46.8
U.S. increase/(decrease)		(0.8	)		(0.8	)		—
Foreign increase/(decrease)		1.9			3.0			(1.1	)

Balance at March 31, 2010	$	130.5		$	84.8		$	45.7

The $130.5 million in deferred tax assets consists of $42.5 million related to net operating losses and other temporary differences, $57.3 million related to foreign tax credits and $30.7 million in foreign deferred tax assets. At March 31, 2010, U.S. deferred tax assets related to net operating losses and other temporary differences were reduced by a valuation allowance of $99.8 million, which reflects a decrease of $0.8 million during the period. The net operating loss carry forward at March 31, 2010 was $68.3 million compared to $106.3 million at June 30, 2009. This reduction in our net operating loss is a result of the anticipated utilization of $38.0 million of our net operating loss to partially offset the US tax resulting from the deemed dividend caused by the sale of a portion of the shares of our indirect wholly-owned U.K. subsidiary to our indirect wholly-owned Canadian subsidiary. We believe that our ability to utilize pre-2007 net operating losses in a given year will be limited to $9.0 million under Section 382 of the Internal Revenue Code (the “Code”) because of changes of ownership resulting from our June 2006 follow-on equity offering. In addition, any future debt or equity transactions may reduce our net operating losses or further limit our ability to utilize the net operating losses under the Code. The deferred tax asset related to excess foreign tax credits is also fully offset by a valuation allowance of $57.3 million. This represents an increase of $11.8 million for the nine months ended March 31, 2010 related to the deemed dividend discussed above. This entire increase was recorded during the three month period ended December 31, 2009. Additionally, we maintain foreign deferred tax assets in the amount of $30.7 million. Our Canadian affiliate during fiscal 2006 had previously recorded a deferred tax asset and corresponding valuation allowance related to an unrealized foreign currency loss sustained in connection with the hedge of our term loan. In the quarter ended March 31, 2010, this valuation allowance was reversed providing a $1.4 million tax benefit in connection with the realization of a capital gain related to the repayment of a majority of our term debt in December, 2009.

As described in Note 1 to our interim unaudited consolidated financial statements for the period ended March 31, 2010, we restated our historical financial statements in connection with the adoption of ASC 470-20 (formerly FSP APB 14-1). The adoption of this standard required us to establish an initial deferred tax liability related to our 2.875% and 3.0% newly issued Senior Convertible Notes (“Notes”), which represents the tax effect of the book/tax basis difference created at adoption. The deferred tax liability will reverse as the Notes discount accretes to zero over the expected life of the Notes. The deferred tax liability associated with the Notes serves as a source of recovery of our deferred tax assets, and therefore the restatement also required the reduction of the previously recorded valuation allowance on the deferred tax asset. Because we historically have recorded and continue to record a valuation allowance on the tax benefits associated with our U.S. subsidiary losses, the reversal of the deferred tax liability associated with the Notes, which is recorded as a benefit in the deferred income tax provision, is offset by an increase in the valuation allowance. At March 31, 2010, the deferred tax liability associated with the Notes was $15.2 million. For purposes of balance sheet presentation, the deferred tax liability related to the Notes has been netted against our deferred tax asset. Additional deferred tax liabilities of $22.8 million, related principally to the amortization of goodwill, result in a net overall deferred tax asset of $7.9 million at March 31, 2010.

At June 30, 2009, we had unrecognized tax benefit reserves related to uncertain tax positions of $7.8 million, primarily related to transfer pricing matters which, if recognized, would decrease the effective tax rate. At March 31, 2010, we had $9.9 million of unrecognized tax benefits primarily related to transfer pricing matters, which if recognized, would decrease our effective tax rate.

The tax years ending June 30, 2005 through 2009 remain open to examination by the taxing authorities in the United States, United Kingdom and Canada.

We recognize interest and penalties related to uncertain tax positions in income tax expense. As of March 31, 2010, we had approximately $0.8 million of accrued interest related to uncertain tax positions which represents a minimal increase during the three months ended March 31, 2010. The provision for unrecognized tax benefits including accrued interest is included in income taxes payable.

Nine Months Ended March 31, 2010 compared to Nine Months Ended March 31, 2009

Corporate Expenses

Corporate expenses were $65.4 million for the nine months ended March 31, 2010 compared to $52.6 million for the same period in the prior year or an increase of $12.8 million. On a constant currency basis, corporate expenses increased by approximately $11.6 million reflecting an increased investment in our infrastructure to support global store, product and platform expansion plans as well our investment in our global business development team which is focused on acquisition strategies and execution.

Other Depreciation and Amortization

Other depreciation and amortization was $4.7 million for the nine months ended March 31, 2010 compared to $2.9 million for the same period in the prior year. The increase of $1.6 million is primarily related to DFS’ amortization of identifiable intangible assets.

Extinguishment of Debt and Loss on Derivatives Not Designated as Hedges

In connection with our refinancing activities during the nine months ended March 31, 2010, certain non-recurring expenses have been reported in the current period’s results. There were $9.5 million of expenses related to the repayment of our term loan debt and the exchange of $120.0 million and repurchase of $35.2 million of our 2.875% Senior Convertible Debt due 2027 that have been reported as “Extinguishment of Debt”. Of that amount, approximately $5.8 million related to the write-off of pre-existing deferred term debt costs that were being amortized over the life of the term debt. The other primary element of this expense was a $3.9 million non-cash charge related to our U.K. cross-currency interest rate swaps that had been terminated in May 2009. As a result of the significant prepayment of the term loan prepayment, the net loss related to the discontinued cash flow hedge that was included in other comprehensive income was reclassified to the income statement.

Interest Expense

Interest expense, net was $46.4 million for the nine months ended March 31, 2010 compared to $32.6 million for the same period in the prior year. Interest related to our newly issued $600.0 million principal 10.375% Senior Notes due 2016 accounted for $9.3 million of the increase, net of a decrease in interest expense associated with our prepayment of substantially all of our U.K. and Canadian term debt on December 23, 2009. In addition, interest expense associated with our revolving credit facility and the reduction in the amount of interest income earned by us accounted for $1.6 million of the net increase.

Non-cash interest accounted for $2.8 million of the overall increase. This increase is comprised of $0.3 million related to our convertible debt as a result of the retroactive adoption on July 1, 2009 of ASC 470-20 (formally FSP APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled Upon Conversion (Including Partial Cash Settlement). The balance of the increase in non-cash interest relates to the amortization of accumulated charges related to the discontinuance of hedge accounting for our cross currency interest rate swaps.

•

Subsequent to the prepayment of the majority of the Canadian term debt on December 23, 2009, with the proceeds from our $600.0 million senior note offering completed in December 2009 we discontinued hedge accounting on these cross-currency swaps. In accordance with the Derivatives and Hedging Topic of the FASB Codification, we were required to continue to report the net loss related to the discontinued cash flow hedge in other comprehensive income included in shareholders’ equity and subsequently reclassify such amounts into earnings over the remaining original term of the derivative when the hedged forecasted transactions are recognized in earnings. This resulted in a $1.7 million non-cash interest charge for the nine months ended March 31, 2010. Due to the newly issued $600.0 million principal 10.375% Senior Notes due 2016 in Canada, we will continue to reclassify such amounts into earnings over the remaining original term of the derivative.

•

forecasted transactions are recognized in earnings. This resulted in a $0.7 million non-cash interest charge for the nine months ended March 31, 2010. As a result of the prepayment of substantially all of the United Kingdom’s term debt on December 23, 2009, we reclassified primarily all of the U.K.’s remaining net loss from other comprehensive income into earnings during the prior fiscal quarter ended December 31, 2009. That resulted in a charge of $3.9 million which was included in Loss on Extinguishment of Debt.

Unrealized Foreign Exchange Gain

Unrealized foreign exchange gain of $11.8 million for the nine months ended March 31, 2010 is due primarily to the unrealized foreign exchange gain associated with our newly issued $600.0 million senior notes. The notes are denominated in U.S. Dollars have been issued by our indirectly wholly-owned Canadian subsidiary. As such, the impact of all prospective changes in the exchange rate between the U.S. Dollar and the Canadian Dollar will be reflected in our earnings as “unrealized foreign exchange gains and losses”.

Loss on derivatives not designated as hedges

Loss on derivatives not designated as hedges was $21.9 million for the nine months ended March 31, 2010 related to the change in fair value and the net additional cash payments to the swap counter parties associated with our cross-currency interest rate swaps in Canada related to the legacy term loans. The change in fair value related to both the changes in market interest and foreign exchange rates and amendments that were made to the swap agreements required in connection with the debt offerings completed during fiscal 2010.

Provision for Litigation Settlements

Provision for litigation settlements during the nine months ended March 31, 2010 was $27.9 million, primarily related to the pending settlements of the British Columbia Litigation and the Maritimes Litigation and for the potential settlement of other pending Canadian class action proceedings.

Loss on Store Closings

During the nine months ended March 31, 2010, we recorded additional expense related to store closings during fiscal 2009 of approximately $0.5 million. This additional expense was related to adjustment assumptions related to sub-lease potential of some of the locations and the closure of other non-performing U.S. store locations. We also incurred additional expenses of approximately $1.9 million for current period store closures. Lastly, we incurred approximately $0.7 million of expense in relation to the buy-out of certain “We the People” franchises.

Income Tax Provision

The provision for income taxes was $11.5 million for the nine months ended March 31, 2010 compared to a provision of $24.0 million for the nine months ended March 31, 2009. Our effective tax rate was 99.2% for the nine months ended March 31, 2010 and was 47.5% for the nine months ended March 31, 2009. The increase in the effective tax rate for the nine months ended March 31, 2010 as compared to the prior year was primarily a result of higher pre-tax U.S. losses due to a legal settlement provision. Currently we do not receive a tax benefit for our U.S. pre-tax losses. In addition, the legal settlement provision recorded in Canada had the result of lowering the mix of pre-tax earnings to which that business unit contributed. The effective tax rate for the nine months ended March 31, 2009 was reduced as a result of the impact of a favorable settlement granted in a competent authority tax proceeding between the United States and Canadian tax authorities related to transfer pricing matters for years 2000 through 2003 combined with an adjustment to our reserve for uncertain tax benefits related to years for which a settlement has not yet been received. The impact to the nine months ended March 31, 2009 provision for income taxes related to these two items was a tax benefit of $3.5 million. Our effective tax rate differs from the federal statutory rate of 35% due to foreign taxes, permanent differences and a valuation allowance on U.S. and foreign deferred tax assets and the aforementioned changes to our reserve for uncertain tax positions. Prior to the global debt restructuring in our fiscal year ended June 30, 2007, interest expense in the U.S. resulted in U.S. tax losses, thus generating deferred tax assets. At March 31, 2010 we maintained deferred tax assets of $130.5 million which is offset by a valuation allowance of $84.8 million which represents an increase of $5.0 million in the period. The change for the period in our deferred tax assets and valuation allowances is presented in the table below and more fully described in the paragraphs that follow.

Change in Deferred Tax Assets and Valuation Allowances (in millions):


							Net
	Deferred			Valuation			Deferred
	Tax Asset			Allowance			Tax Asset
Balance at June 30, 2009	$	130.4		$	89.8		$	40.6
U.S. increase/(decrease)		(2.2	)		(2.2	)		—
Foreign increase/(decrease)		2.3			(2.8	)		5.1

Balance at March 31, 2010	$	130.5		$	84.8		$	45.7

The $130.5 million in deferred tax assets consists of $42.5 million related to net operating losses and other temporary differences, $57.3 million related to foreign tax credits and $30.7 million in foreign deferred tax assets. At March 31, 2010, U.S. deferred tax assets related to net operating losses and other temporary differences were reduced by a valuation allowance of $99.8 million, which reflects a decrease of $2.2 million during the period. The net operating loss carry forward at March 31, 2010 was $68.3 million compared to $106.3 million at June 30, 2009. This reduction in our net operating loss is a result of the anticipated utilization of $38.0 million of our net operating loss to partially offset the US tax resulting from the deemed dividend caused by the sale of a portion of the shares of our indirect wholly-owned U.K. subsidiary to our indirect wholly-owned Canadian subsidiary. We believe that our ability to utilize pre-2007 net operating losses in a given year will be limited to $9.0 million under Section 382 of the Internal Revenue Code (the “Code”) because of changes of ownership resulting from our June 2006 follow-on equity offering. In addition, any future debt or equity transactions may reduce our net operating losses or further limit our ability to utilize the net operating losses under the Code. The deferred tax asset related to excess foreign tax credits is also fully offset by a valuation allowance of $57.3 million. This represents an increase of $11.8 million for the period related to the deemed dividend discussed above. Additionally, we maintain foreign deferred tax assets in the amount of $30.7 million. Our Canadian affiliate during fiscal 2006 had previously recorded a deferred tax asset and corresponding valuation allowance related to an unrealized foreign currency loss sustained in connection with the hedge of our term loan. During the nine months ended March 31, 2010, this valuation allowance was reversed providing a $1.4 million tax benefit in connection with the realization of a capital gain related to the repayment of a majority of our term debt in December, 2009.

The tax years ending June 30, 2005 through 2009 remain open to examination by the taxing authorities in the United States, United Kingdom and Canada.

We recognize interest and penalties related to uncertain tax positions in income tax expense. As of March 31, 2010, we had approximately $0.8 million of accrued interest related to uncertain tax positions which represents a minimal increase during the nine months ended March 31, 2010. The provision for unrecognized tax benefits including accrued interest is included in income taxes payable.

Discussion and analysis for each geographic segment

Following is a discussion and analysis of the operating results of each of our reportable segments:

The following table presents each reportable segment’s revenue and store and regional margin results:


	Three Months Ended March 31,									Nine Months Ended March 31,
							Percent/									Percent/
	($ in thousands)						Margin			($ in thousands)						Margin
	2009			2010			Change			2009			2010			Change
Revenue:
United States (1)	$	38,673		$	35,217			(8.9)	%	$	121,911		$	104,701			(14.1	)%
Operating margin		19.7	%		25.0	%	5.3		pts.		13.7	%		19.3	%	5.6		pts.
Dealers’ Financial Services	$	—		$	6,893			100.0	%	$	—		$	7,514			100.0	%
Operating margin		—	%		64.6	%	64.6		pts.		—	%		64.4	%	64.4		pts.
Canada	$	51,942		$	71,020			36.7	%	$	180,414		$	204,329			13.3	%
Operating margin		42.2	%		46.7	%	4.5		pts.		45.1	%		48.5	%	3.4		pts.
United Kingdom	$	27,549		$	44,218			60.5	%	$	101,088		$	135,353			33.9	%
Operating margin		40.0	%		39.7	%	-0.3		pts.		40.2	%		41.5	%	1.3		pts.

Total Revenue	$	118,164		$	157,348			33.2	%	$	403,413		$	451,897			12.0	%

Operating margin	$	40,595		$	63,960			57.6	%	$	138,679		$	180,466			30.1	%
Operating margin percent		34.4	%		40.6	%	6.2		pts.		34.4	%		39.9	%	5.5		pts.

The following table presents each reportable segment’s revenue as a percentage of total segment revenue and each reportable segment’s pre-tax income as a percentage of total segment pre-tax income:


	Three Months Ended March 31,												Nine Months Ended March 31,
							Pre-tax												Pre-tax
	Revenue						Income/(Loss)						Revenue						Income/(Loss)
	2009			2010			2009			2010			2009			2010			2009			2010

United States (1)		32.7	%		22.4	%		(18.4)	%		65.4	%		30.2	%		23.2	%		(41.2)	%		(193.2	)%
Dealers’ Financial Services		—	%		4.4	%		—	%		(21.0)	%		—	%		1.7	%		—	%		28.4	%
Canada		44.0	%		45.1	%		72.8	%		132.5	%		44.7	%		45.1	%		94.7	%		87.8	%
United Kingdom		23.3	%		28.1	%		45.6	%		(76.9)	%		25.1	%		30.0	%		46.5	%		177.0	%

Total		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%


(1)		For the three and nine months ended March 31, 2010 the results of Poland is included with the United States results.

Three Months Ended March 31, 2010 compared to Three Months Ended March 31, 2009

United States

Total U.S. revenues (excluding Poland) were $33.1 million for the three months ended March 31, 2010 compared to $38.7 million for the three months ended March 31, 2009, a decrease of 14.3%. The Company closed 60 under-performing U.S. stores during the fourth quarter of fiscal year 2009 and significantly reduced the related field management and store support functions. The closure of these locations was the primary factor in the period-over-period decrease, along with the effects of the economic downturn. From a product

perspective, this decline is primarily related to decreases of $1.9 million and $2.9 million in check cashing and consumer lending revenue, respectively. The decrease in check cashing revenue is related to decreases in both the number of checks as well as the face amount of checks that were presented in the U.S. The number of checks decreased year over year by approximately 169,000 and with a corresponding decrease in face value of approximately $83 million related to the aforementioned closure of 60 U.S. stores during the fourth quarter of fiscal 2009 and the economic downturn. The face amount of the average check increased by 2.2% and the average fee decreased from $17.13 to $16.12.

The continued high rate of unemployment through all sectors of the U.S. economy also negatively impacts consumer lending volumes. Despite the signs of economic improvement, the Company has continued to take a more cautious approach to lending in all of our segments, including the United States. U.S. funded loan originations decreased 14.5% or $18.9 million in the current year’s period as compared to the year earlier period primarily due to the closure of 60 stores in the fourth quarter of fiscal 2009. Included with the U.S. results, is approximately $2.1 million of revenues related to the Company’s operations in Poland.

Operating margins in the United States (excluding Poland’s results) increased to 26.6% for the three months ended March 31, 2010 compared to 19.7% for the same period in the prior year. The U.S. operating margins are significantly lower than the other segments. The primary drivers for this disparity are greater competition in the United States, which affects revenue per store, higher U.S. salary costs, somewhat higher occupancy costs and marginally higher loan loss provisions. As a result of the lower U.S. margins, management closed 114 underperforming stores during fiscal 2009. The Company’s U.S. strategy of closing unprofitable locations and focusing on states with more favorable and stable regulatory environments has shown positive results. Even with significantly lower U.S. revenues, the operating margins in this segment of the business increased by $1.2 million for the three months ended March 31, 2010 as compared to the three months ended March 31, 2009, or an increase of 15.8%.

The U.S. pre-tax loss (excluding Poland) was $9.2 million for the three months ended March 31, 2010 compared to a pre-tax loss of $2.6 million for the same period in the prior year. The increase in the pre-tax loss of $6.7 million is the net result of increased corporate expenses of $1.4 million, increase in litigation settlement expenses of $4.2 million, $1.2 million of expenses related to store closures, acquisition related expenses of $1.3 million offset in part by improved operating margins of $1.2 million.

Dealers’ Financial Services (“DFS”)

This entity was acquired by the Company on December 23, 2009. DFS provides fee based services to enlisted military personnel seeking to purchase new and used vehicles. DFS’s revenue comes from fees that are paid by a third-party national bank and fees from the sale of ancillary products such as service contracts and guaranteed asset protection (GAP insurance). DFS operates through an established network of arrangements with approximately 600 new and used car dealerships (both franchised and independent), according to underwriting protocols specified by the third-party national bank. DFS operating expenses consist primarily of compensation/benefits, amortization of its identifiable intangible assets, professional service fees and field management expenses. Since the DFS business model is based on receiving fees for services, it is unlike the Company’s store-based businesses and will therefore be reported as a stand-alone segment.

Canada

Total Canadian revenues were $71.0 million for the three months ended March 31, 2010, an increase of 36.7%, or $19.1 million as compared to the year earlier period. The impact of foreign currency rates accounted for $11.7 million of this increase. On a constant dollar basis, revenues increased by $7.4 million, or 14.2%. On a constant dollar basis, check cashing revenues were down $0.4 million in Canada with the effects of higher unemployment resulting in decreases in the number of checks and the total value of checks cashed — down by 9.4% and 6.8%, respectively. The average face amount per check increased by 2.9%, while the average fee per check increased by 7.5% for the three months ended March 31, 2010 as compared to the three months ended March 31, 2009. In the consumer lending area, the Company continues to leverage its position as the lowest cost provider in the industry as well as its multi-product store platform, by offering products and services at prices below its competitors in an effort to enhance its share of the Canadian market. As a result, consumer lending revenues in Canada increased by 17.3% (on a constant dollar basis) for the three months ended March 31, 2010 as compared to the year earlier period. Additionally, Canada recorded approximately $5.1 million of revenue from its recently launched gold buying initiative.

Operating expenses in Canada increased $7.9 million or 26.2% from $30.0 million in the third quarter of fiscal 2009 to $37.9 million in the current year’s fiscal period. The impacts of changes in foreign currency rates resulted in an increase of $6.2 million. The remaining increase of approximately $1.6 million is consistent with the Company’s revenue growth. On a constant currency basis, provision for loan losses, as a percentage of loan revenues, has decreased by 9.2 pts from 19.0% to 9.8%. Overall Canada’s operating margin

percentage has increased from 42.2% to 46.7%. The solid improvement in this area is the result of increased consumer lending revenues in addition to efforts to reduce costs and promote efficiencies. To date, provinces which comprise more than 90% of our Canadian company-operated store base have all announced maximum lending rates that are above our existing price structure, but generally below the pricing of many competitors. As a result, we have recently resumed our television advertising campaign in certain Canadian provinces and are beginning to witness an increase in the number of new customers conducting transactions in our Canadian stores.

The Canadian pre-tax loss was $19.4 million for the three months ended March 31, 2010 compared to pre-tax income of $10.2 million for the same period in the prior year or a decrease of $29.6 million. In addition to increased operating margins of $11.2 million and unrealized foreign exchange gain of $17.0 million, pre-tax income was negatively impacted by additional interest expense of $13.7 million, loss on derivatives not designated as hedges of $18.6 million, provision for pending litigation settlements and other pending Canadian class action proceedings of $22.4 million and increases in net corporate-related expenses of approximately $3.0 million, which is commensurate with its growth.

United Kingdom

Total U.K. revenues were $44.2 million for the three months ended March 31, 2010 compared to $27.5 million for the year earlier period, an increase of $16.7 million or 60.5%. On a constant dollar basis and excluding the impact of acquisitions, U.K. year-over-year revenues have increased by $1.7 million, or 6.1%. Consumer lending, pawn service fees and other revenues (gold scrap sales, foreign exchange products and debit cards) were up by $0.7 million, $0.8 million and $1.7 million, respectively. As in the other two business sectors, U.K. check cashing revenues were impacted by the economic slowdown and decreased by approximately $1.5 million, or 19.8% (on a constant dollar basis and excluding new stores and acquisitions).

U.K. operating expenses increased by $10.2 million, or 61.5% from $16.5 million for the three months ended March 31, 2009 as compared to $26.7 million for the current three month period. On a constant currency basis and excluding new stores and acquisitions, U.K. operating expenses decreased by $1.0 million or 6.6%. The decrease is consistent with Company’s overall cost reduction focus. There was an increase of 5.3 pts relating to the provision for loan losses as a percentage of loan revenues primarily due to the mix of lending products including the Internet-based consumer lending business acquired in April 2009. On a constant currency basis, the rate for the three months ended March 31, 2009 was 10.5% while for the current three month period, the rate increased to 15.8%. On a constant currency basis, the U.K. operating margin percentage has remained relatively consistent at 40.0% for the three months ended March 31, 2009 and the current three month period ended March 31, 2010.

The U.K. pre-tax income was $11.2 million for the three months ended March 31, 2010 compared to $6.4 million for the same period in the prior year, an increase of $4.8 million. In addition to increased operating margins of $6.5 million and a reduction of $1.4 million in interest expense, pre-tax income was negatively impacted by increased net corporate expenses of $1.3 million and unrealized foreign exchange gains of $1.3 million in the three months ended March 31, 2009. The increase in corporate expenses is commensurate with its growth.

Nine Months Ended March 31, 2010 compared to Nine Months Ended March 31, 2009

United States

Total U.S. revenues (excluding Poland) were $99.5 million for the nine months ended March 31, 2010 compared to $121.9 million for the nine months ended March 31, 2009, a decrease of $22.4 million or 18.4%. The Company closed 60 under-performing U.S. stores during the fourth quarter of fiscal year 2009 and significantly reduced the related field management and store support functions. The closure of these locations was the primary factor in the period-over-period decrease. From a product perspective, this decline is primarily related to decreases of $8.2 million and $11.9 million in check cashing and consumer lending revenue, respectively. The economic downturn contributed to the decrease in check cashing revenue, as there were decreases in both the number of checks as well as the face amount of checks that were presented in the U.S. The number of checks decreased year over year by approximately 631,000 and with a corresponding decrease in face value of approximately $297.0 million primarily related to the aforementioned closure of 114 U.S. stores during fiscal 2009 and the economic downturn. The face amount of the average check decreased by 0.4% and the average fee increased from $13.80 to $13.99.

The continued high rate of unemployment through all sectors of the U.S. economy negatively impacts consumer lending volumes. Despite the signs of economic improvement, the Company has continued to take a more cautious approach to lending in all of our segments, including the United States. U.S. funded loan originations decreased 16.5% or $76.7 million for the nine months ended

March 31, 2010 as compared to the nine months ended March 31, 2009 primarily due to the closure of 60 stores in the fourth quarter of fiscal 2009. Included with the U.S. results, is approximately $5.1 million of revenues related to the Company’s operations in Poland.

Operating margins in the United States (excluding Poland’s results) increased to 20.2% for the nine months ended March 31, 2010 compared to 13.7% for the same period in the prior year. The U.S. operating margins are significantly lower than the other segments. The primary drivers for this disparity are greater competition in the United States, which effects revenue per store, higher U.S. salary costs, somewhat higher occupancy costs and marginally higher loan loss provisions. The closure of 60 underperforming stores during the fourth quarter of fiscal 2009 is consistent with the Company’s U.S. strategy of closing unprofitable locations and focusing on states with more favorable and stable regulatory environments. This action has shown positive resulting in improved year-over-year operating margins.

The U.S. pre-tax loss (excluding Poland) was $22.2 million for the nine months ended March 31, 2010 compared to a pre-tax loss of $25.8 million for the same period in the prior year. The decrease in the pre-tax loss of $3.5 million is the net result of the operating margin increase of $3.4 million, decreased net corporate expenses of $4.8 million, reduced expenses of approximately $1.0 million related to fiscal 2009 store closure expenses and reduced interest expense of $2.8 million. These positive impacts were offset by approximately $1.2 million of one-time expenses associated with the Company’s recent refinancing activities, increased provision for litigation settlements of $5.0 million and other expenses of $2.3 million.

Dealers’ Financial Services (“DFS”)

This entity was acquired by the Company on December 23, 2009 and therefore the Company’s consolidated results for the nine months ended March 31, 2010 include ninety-eight days of DFS results. DFS provides fee based services to enlisted military personnel seeking to purchase new and used vehicles. DFS’s revenue comes from fees which are paid by a third-party national bank and fees from the sale of ancillary products such as service contracts and guaranteed asset protection (GAP insurance). DFS operates through an established network of arrangements with approximately 600 new and used car dealerships (both franchised and independent), according to underwriting protocols specified by the third-party national bank. DFS operating expenses are primarily compensation/benefits, amortization of its identifiable intangible assets, professional service fees and field management expenses. Since the DFS business model is based on receiving fees for services, it is unlike the Company’s store-based businesses and will be reported as a stand-alone segment.

Canada

Total Canadian revenues were $204.3 million for the nine months ended March 31, 2010, an increase of 13.3%, or $23.9 million as compared to the nine months ended March 31, 2009. The impact of foreign currency rates accounted for $17.1 million of this increase. On a constant dollar basis, revenues increased by $6.7 million. On a constant dollar basis, check cashing revenues were down $4.1 million in Canada with the effects of higher unemployment resulting in decreases in the number of checks and the total value of checks cashed — down by 13.3% and 13.2%, respectively. The average face amount per check increased from $493.78 for the nine months ended March 31, 2009 to $494.35 for the current nine month period, while the average fee per check increased by 6.1% for the nine months ended March 31, 2010 as compared to the nine months ended March 31, 2009. Consumer lending revenues in Canada increased by 7.6% (on a constant dollar basis) for the nine months ended March 31, 2010 as compared to the year earlier period.

Operating expenses in Canada increased $6.1 million or 6.2% from $99.1 million for the nine months ended March 31, 2009 to $105.2 million for the nine months ended March 31, 2010. The impacts of changes in foreign currency rates resulted in an increase of $9.1 million. The remaining decrease of approximately $3.1 million is primarily related to decreases in salary and benefits, provision for loan losses, returned check expenses offset by increased expenses in advertising in relation to the new regulatory environment in Canada. On a constant currency basis, provision for loan losses, as a percentage of loan revenues, has decreased by 7.5 pts from 18.3% to 10.8%. Overall Canada’s operating margin percentage has increased from 45.1% for the nine months ended March 31, 2009 to 48.7% for the nine months ended March 31, 2010. The solid improvement in this area is the result of increased consumer lending revenues in addition to efforts to reduce costs and promote efficiencies. To date, provinces which comprise more than 90% of our Canadian company-operated store base have all announced maximum lending rates that are above our existing price structure, but generally below the pricing of many competitors. As a result we have resumed our television advertising campaign in certain Canadian provinces and are beginning to witness an increase in the number of new customers conducting transactions in our Canadian stores.

The Canadian pre-tax income was $10.2 million for the nine months ended March 31, 2010 compared to pre-tax income of $52.8 million for the same period in the prior year, a decrease of $42.6 million. In addition to increased operating margins of $17.8 million and foreign exchange gain of $20.1 million, pre-tax income was negatively impacted by net corporate expenses of $13.2 million, additional interest expense of $18.1 million, $3.6 million of loss on extinguishment of debt, $21.9 million non-cash valuation loss on the

cross currency interest rate swaps and provision for pending litigation settlements and other pending Canadian class action proceedings of $22.4 million.

United Kingdom

Total U.K. revenues were $135.4 million for the nine months ended March 31, 2010 compared to $101.1 million for the year earlier period, an increase of $34.3 million or 33.9%. On a constant dollar basis and excluding the impact of acquisitions, U.K. year-over-year revenues have increased by $5.7 million, or 5.7%. Consumer lending, pawn service fees and other revenues (gold scrap sales, foreign exchange products and debit cards) were up by $4.6 million, $1.3 million and $6.4 million, respectively. As in the other two business sectors, U.K. check cashing revenues was impacted by the recession and decreased by approximately $6.6 million, or 21.0% (also on a constant dollar basis and excluding new stores and acquisitions).

U.K. operating expenses increased by $18.7 million, or 31.0% from $60.4 million for the nine months ended March 31, 2009 as compared to $79.1 million for the current nine month period. On a constant currency basis and excluding new stores and acquisitions, U.K. operating expenses decreased by $3.5 million or 5.8%. The decrease is consistent with the Company’s overall cost reduction focus. There was an increase of 4.2 pts relating to the provision for loan losses as a percentage of loan revenues primarily due to the mix of lending products including the Internet-based lending business acquired in April 2009. On a constant currency basis, the rate for the nine months ended March 31, 2009 was 12.5% while for the current nine month period, the rate increased to 16.7%. On a constant currency basis, U.K. store and regional margin percentage has improved from 40.2% for the nine months ended March 31, 2009 to 41.6% for the current three month period ended March 31, 2010 due to the strong revenue growth offset in part with a marginal increase in costs.

The U.K. pre-tax income was $20.6 million for the nine months ended March 31, 2010 compared to $23.5 million for the same period in the prior year, a decrease of $2.9 million. In addition to increased operating margins of $15.6 million and a reduction in interest expense of $1.9 million, pre-tax income was negatively impacted by expenses related to the Company’s recent refinancing efforts of $4.7 million, increased net corporate expenses of $4.4 million and unrealized foreign exchange losses of $11.0 million.

Changes in Financial Condition

On a constant currency basis, cash and cash equivalent balances and the revolving credit facilities balances fluctuate significantly as a result of seasonal, intra-month and day-to-day requirements for funding check cashing and other operating activities. For the nine months ended March 31, 2010, cash and cash equivalents increased $161.4 million which is net of a $22.2 million increase as a result of the effect of exchange rate changes on foreign cash and cash equivalents. However, as these foreign cash accounts are maintained in Canada and the U.K. in local currency, there is little, if any, actual diminution in value from changes in currency rates, and as a result, the cash balances are available to fund the daily operations of the U.K. and Canadian business units. Net cash provided by operating activities was $79.1 million for the nine months ended March 31, 2010 compared to $47.6 million for the nine months ended March 31, 2009. The increase in net cash provided by operations was primarily the result of strong operating results, the impact of foreign exchange rates on translated net income and timing differences in payments to third party vendors.

Liquidity and Capital Resources

Our principal sources of cash have been from operations, borrowings under our credit facilities and the issuance of our common stock, senior convertible notes and issuance of debt securities. The proceeds of the 2016 Notes is an additional source of cash. We anticipate that our primary uses of cash will be to provide working capital, finance capital expenditures, meet debt service requirements, fund company originated consumer loans, finance store expansion, finance acquisitions and finance the expansion of our products and services.

Net cash provided by operating activities was $79.1 million for the nine months ended March 31, 2010 compared to $47.6 million for the nine months ended March 31, 2009. The increase in net cash provided by operations was primarily the result of strong operating results, the impact of foreign exchange rates on translated net income and timing differences in payments to third party vendors.

Net cash used in investing activities was $142.1 million for the nine months ended March 31, 2010 compared to $13.4 million for the nine months ended March 31, 2009. Our investing activities primarily related to acquisitions, purchases of property and equipment for our stores and investments in technology. For the nine months ended March 31, 2010, we made capital expenditures of $18.3 million and acquisitions of $123.8 million. The actual amount of capital expenditures each year will depend in part upon the number of new stores opened or acquired and the number of stores remodeled. Our capital expenditures, excluding acquisitions, are currently anticipated to aggregate approximately $26.6 million during our fiscal year ending June 30, 2010.

Net cash provided by financing activities was $202.2 million for the nine months ended March 31, 2010 compared to net cash used by financing activities of $10.7 million for the nine months ended March 31, 2009. The cash provided by financing activities during the nine months ended March 31, 2010 was primarily a result of $596.4 million in proceeds from the 10.375% Senior Notes due 2016, in part offset by a partial repayment of $351.1 million of our term debt, $32.0 million for the repurchase of 2.875% Senior Convertible Notes due 2027 and payment of debt issuance cost of $19.7 million. The cash used by our financing activities during the nine months ended March 31, 2009 was primarily a result of a repurchase of our common stock, net paydown on our revolving credit facilities and other debt payments offset in part by proceeds from the exercise of stock options.

Credit Facilities. On December 23, 2009, we amended and restated our Credit Agreement and repaid a substantial portion of our term indebtedness thereunder. After giving effect to such amendments and prepayments, the Credit Agreement is comprised of the following: (i) a senior secured revolving credit facility in an aggregate amount of $75.0 million, which we refer to as the U.S. Revolving Facility, with DFG as the borrower; (ii) a senior secured term loan with an aggregate balance of $14.3 million at March 31, 2010, which we refer to as the Canadian Term Facility, with National Money Mart Company, a wholly owned Canadian indirect subsidiary of DFG, as the borrower; (iii) senior secured term loans with Dollar Financial U.K. Limited, a wholly-owned U.K. indirect subsidiary of DFG, as the borrower, with an aggregate balance at March 31, 2010 of $2.0 million and Euro1.6 million, respectively, which we refer to as the UK Term Facility, and (iv) a senior secured revolving credit facility in an aggregate amount of C$28.5 million, which we refer to as the Canadian Revolving Facility, with National Money Mart Company as the borrower.

The amendments to the Credit Agreement included provisions extending the maturity of the majority of each of the facilities thereunder to December 31, 2014. The effectiveness of the extensions of maturity was conditioned upon the aggregate principal amount of our outstanding 2.875% senior convertible notes due 2027 being reduced to an amount less than or equal to $50.0 million prior to October 30, 2012. This condition has now been met with the current quarter’s repurchase of $35.2 million of the outstanding 2.875% convertible notes leaving us with an outstanding balance of $44.8 million at March 31, 2010.

The Credit Agreement contains certain financial and other restrictive covenants, which among other things, require us to achieve certain financial ratios, limit capital expenditures, restrict the magnitude of payment of dividends and obtain certain approvals if we want to increase borrowings. As of March 31, 2010, we are in compliance with all covenants.

Revolving Credit Facilities. We have three revolving credit facilities: the U.S. Revolving Facility, the Canadian Revolving Facility and the United Kingdom Overdraft Facility.

United States Revolving Credit Facility. OPCO is the borrower under the U.S. Revolving Facility. A portion of the U.S. Revolving Facility ($7.5 million) terminates on October 30, 2011, and the remainder ($67.5 million) will terminate on December 31, 2014. The portion of the U.S. Revolving Facility that expires on October 30, 2011 bears an interest rate of LIBOR (but not less than 2%) plus 375 basis points, subject to reductions as we reduce our leverage. The portion that expires on December 31, 2014 bears an interest rate of LIBOR (but not less than 2%) plus 500 basis points, subject to reductions as we reduce our leverage. The facility may be subject to mandatory reduction and the revolving loans subject to mandatory prepayment (after prepayment of the term loans under the Credit Agreement), principally in an amount equal to 50% of excess cash flow (as defined in the Credit Agreement). DFG’s borrowing capacity under the U.S. Revolving Facility is limited to the lesser of the total commitment of $75.0 million or 85% of certain domestic liquid assets plus $30.0 million. Under this revolving facility, up to $30.0 million may be used in connection with letters of credit. At March 31, 2010, the borrowing capacity was $64.9 million. At March 31, 2010, there was $14.2 million of outstanding indebtedness under the U.S. Revolving Facility and $13.6 million outstanding in letters of credit issued by Wells Fargo Bank, N.A. which guarantee the performance of certain of our contractual obligations.

Canadian Revolving Credit Facility. National Money Mart Company, OPCO’s wholly owned indirect Canadian subsidiary, is the borrower under the Canadian Revolving Facility. A portion of the Canadian Revolving Facility (C$2.7 million) terminates on October 30, 2011, and the remainder (C$25.8 million) will terminate on December 31, 2014. The portion that expires on October 30, 2011 bears an interest rate of CDOR (but not less than 2%) plus 375 basis points, subject to reductions as we reduce our leverage. The portion that expires on December 31, 2014 bears an interest rate of CDOR (but not less than 2%) plus 500 basis points, subject to reductions as we reduce our leverage. The facility may be subject to mandatory reduction and the revolving loans subject to mandatory prepayment (after prepayment of the term loans under the Credit Agreement), principally in an amount equal to 50% of excess cash flow (as defined in the Credit Agreement). National Money Mart

Company’s borrowing capacity under the Canadian Revolving Facility is limited to the lesser of the total commitment of C$28.5 million or 85% of certain combined liquid assets of National Money Mart Company and Dollar Financial U.K. Limited and their respective subsidiaries. At March 31, 2010, the borrowing capacity was C$28.5 million. There was no outstanding indebtedness under the Canadian facility at March 31, 2010.

United Kingdom Overdraft Facility. In the third quarter of fiscal 2008, our U.K subsidiary entered into an overdraft facility which provides for a commitment of up to GBP 5.0 million. There was no outstanding indebtedness under the United Kingdom facility at March 31, 2010. We have the right of offset under the overdraft facility, by which we net our cash bank accounts with our lender and the balance on the overdraft facility. Amounts outstanding under the United Kingdom overdraft facility bear interest at a rate of the Bank Base Rate (0.5% at March 31, 2010) plus 2.0%. Interest accrues on the net amount of the overdraft facility and the cash balance.

Debt Due Within One Year. As of March 31, 2010, debt due within one year consisted of $14.2 million outstanding under the U.S. revolving loan and $0.2 million mandatory repayment of 1.0% per annum of the principal balance of the Canadian Term Facility and the U.K. Term Facility.

Long-Term Debt. As of March 31, 2010, long term debt consisted of $596.4 million of 10.375% Senior Notes due December 15, 2016, $37.8 million of 2.875% Convertible Notes, $83.5 million of 3.0% Convertible Notes and $18.5 million in term loans of which $1.6 million matures on October 30, 2012 and $16.9 million matures on December 31, 2014.

Through a series of privately negotiated transitions, in December 2009, we commenced the closing of an exchange offer with certain holders of our 2.875% Senior Convertible Notes due 2027 which we refer to as the 2027 Notes; pursuant to the terms of privately negotiated exchange agreements with such holders. Pursuant to the terms of the exchange agreements, the holders exchanged an aggregate of $120.0 million principal amount of the which we refer to as the 2027 Notes held by such holders for an equal aggregate principal amount of 3.0% Senior Convertible Notes due 2028, which we refer to as the 2028 Notes. The 2028 Notes were issued under an indenture between us and U.S. Bank National Association, as trustee. Holders have the right to convert the 2028 Notes into cash and, if applicable, shares of our common stock prior to the close of business on the trading day immediately preceding the maturity date upon the satisfaction of certain conditions. The initial conversion rate of the 2028 Notes is 34.5352 per $1,000 principal amount of 2028 Notes (equivalent to an initial conversion price of approximately $28.956 per share). The 2028 Notes accrue interest at a rate of 3.00% per annum. Interest on the 2028 Notes is payable in cash semi-annually in arrears on April 1 and October 1 of each year beginning on April 1, 2010. The maturity date of the 2028 Notes is April 1, 2028. On or after April 5, 2015, we have the right to redeem for cash all or part of the 2028 Notes for a payment in cash equal to 100% of the principal amount of the 2028 Notes to be redeemed, plus accrued and unpaid interest. Holders of the 2028 Notes have the right to require us to purchase all or a portion of the 2028 Notes on each of April 1, 2015, April 1, 2018 and April 1, 2023 for a purchase price payable in cash equal to 100% of the principal amount of the 2028 Notes to be purchased plus any accrued and unpaid interest. If we are subject of a change of control or similar transaction before the maturity of the 2028 Notes, the holders will have the right, subject to certain conditions, to require us to repurchase for cash all or a portion of their 2028 Notes at a repurchase price equal to 100% of the principal amount of the 2028 Notes being repurchased, plus accrued and unpaid interest. The 2028 Notes are senior, unsecured obligations and rank equal in right of payment to all of our other unsecured and unsubordinated indebtedness and are effectively subordinated to all of our existing and future secured debt and to the indebtedness and other liabilities of its subsidiaries.

In February 2010, we repurchased $35.2 million aggregate principal amount of our 2027 Notes in privately negotiated transactions with three of the holders of the 2027 Notes. The purchase price paid was 91% of the stated principal amount of the repurchased 2027 Notes for an aggregate price of $32.0 million.

On December 23, 2009, National Money Mart Company sold pursuant to Rule 144A under the Securities Act of 1933, as amended, $600 million aggregate principal amount of its 10 3/8% Senior Notes due 2016, which we refer to as the “2016 Notes”. The 2016 Notes were issued pursuant to an indenture, dated as of December 23, 2009, among National Money Mart Company, as issuer, and us and certain of our direct and indirect wholly owned U.S. and Canadian subsidiaries, as guarantors, and U.S. Bank National Association, as trustee. The 2016 Notes bear interest at the rate of 10.375% per year. National Money Mart Company will pay interest on the 2016 Notes on June 15 and December 15 of each year, commencing on June 15, 2010. The 2016 Notes will mature on December 15, 2016. Upon the occurrence of certain change of control transactions, National Money Mart Company will be required to make an offer to repurchase the 2016 Notes at 101% of the principal amount thereof, plus any accrued and unpaid interest to the repurchase date, unless certain conditions are met. After December 15, 2013, National Money Mart Company will have the right to redeem the 2016 Notes, in whole at any time or in part from time to time, (i) at a redemption price of 105.188% of the principal amount thereof if the redemption occurs

prior to December 15, 2014, (ii) at a redemption price of 102.594% of the principal amount thereof if the redemption occurs before December 15, 2015, and (iii) at a redemption price of 100% of the principal amount thereof if the redemption occurs after December 15, 2015. In connection with the offering, National Money Mart Company agreed to file with the Securities and Exchange Commission a registration statement under the Securities Act with respect to an offer to exchange the 2016 Notes for new 10 3/8% senior notes due 2016 of National Money Mart Company, with terms substantially similar to the 2016 Notes, no later than 90 days after the issuance of the 2016 Notes.

Operating Leases. Operating leases are scheduled payments on existing store and other administrative leases. These leases typically have initial terms of five years and may contain provisions for renewal options, additional rental charges based on revenue and payment of real estate taxes and common area charges.

We entered into the commitments described above and other contractual obligations in the ordinary course of business as a source of funds for asset growth and asset/liability management and to meet required capital needs. Our principal future obligations and commitments as of March 31, 2010, excluding periodic interest payments, include the following (in thousands):


			Less than		1-3		4-5		After 5
	Total		1 Year		Years		Years		Years

Revolving credit facilities	$	14,200	$	14,200	$	—	$	—	$	—
Long-term debt:
10.375% Senior Notes due 2016		600,000		—		—		—		600,000
2.875% Senior Convertible Notes due 2027		44,800		—		—		—		44,800
3.0% Senior Convertible Notes due 2028		120,000		—		—		—		120,000
Term loans due 2012		1,593		17		1,576		—		—
Term loans due 2014		16,897		184		350		16,363		—
Operating lease obligations		145,663		35,525		52,339		31,001		26,798

Total contractual cash obligations	$	943,153	$	49,926	$	54,265	$	47,364	$	791,598

We believe that, based on current levels of operations and anticipated improvements in operating results, cash flows from operations and borrowings available under our credit facilities will allow us to fund our liquidity and capital expenditure requirements for the foreseeable future, build de novo stores and effectuate various acquisitions and make payment of interest and principal on our indebtedness. This belief is based upon our historical growth rate and the anticipated benefits we expect from operating efficiencies. We also expect operating expenses to increase, although the rate of increase is expected to be less than the rate of revenue growth for existing stores. Furthermore, we do not believe that additional acquisitions or expansion are necessary to cover our fixed expenses, including debt service.

Balance Sheet Variations

March 31, 2010 compared to June 30, 2009.

The Company’s cash balances increased from $209.6 million at June 30, 2009 compared to $371.0 million at March 31, 2010 primarily as the result of approximately $105 million of excess cash generated from the Company’s refinancing activities during December 2009.

Loans receivable, net increased by $4.7 million to $119.4 million at March 31, 2010 from $114.7 million at June 30, 2009. Loans receivable, gross increased by $10.0 million and the related allowance for loan losses increased by $5.3 million. The U.K., Canadian and Poland business units showed increases in their loan receivable balances of $6.3 million, 1.6 million and $5.3 million, respectively. The U.S. business had a decrease of $3.3 million. In constant dollars, the allowance for loan losses increased by $4.5 million and increased to 12.1% of the outstanding principal balance at March 31, 2010 as compared to 9.6% at June 30, 2009. The following factors impacted this area:

•

Continued improvements in U.S. collections and our actions, taken in an effort to decrease our risk exposure by reducing the amount that we are willing to loan to certain customer segments. The historical loss rates (expressed as a percentage of loan amounts originated for the last twelve months applied against the principal balance of outstanding loans) have continued to

			decline. The ratio of the allowance for loan losses related to U.S. short-term consumer loans decreased by 32.4% from 4.6% at June 30, 2009 compared to 3.1% at March 31, 2010.

	•		In constant dollars, the Canadian ratio of allowance for loan losses has increased from 3.3% at June 30, 2009 to 3.6% at March 31, 2010. The primary factor driving this increase relates to an increase to reserves associated with an installment loan product that is being discontinued. The Loans receivable, net continue to show improvement with the loan loss reserve as a percentage of outstanding principle dropping from 2.9% at June 30, 2009 to 2.2% at March 31, 2010.

	•		In constant dollars, the U.K.’s allowance for loan losses remained relatively constant at approximately 8.5% of outstanding principal at June 30, 2009 and March 31, 2010.

Other receivables increased by $13.6 million from $7.3 million at June 30, 2009 to $20.9 million at March 31, 2010. The Company’s acquisitions accounted for $6.1 million of the increase and $7.5 million of the increase related to the timing of settlements with certain Canadian vendors associated with our money order business. The remaining increase was primarily related to foreign currency translation impacts.

Goodwill and other intangibles increased $139.3 million, from $454.3 million at June 30, 2009 to $593.6 million at March 31, 2010 due to $126.6 million of additional goodwill and intangibles associated with acquisitions during the current fiscal year and foreign currency translation impacts of approximately $12.7 million.

Debt issuance costs, net of accumulated amortization increased from $9.9 million at June 30, 2009 to $20.1 million at March 31, 2010 in connection with the Company’s refinancing activities in December 2009.

Accrued expenses and other liabilities increased $70.3 million from $70.6 million at June 30, 2009 to $140.9 million at March 31, 2010 due primarily to approximately $42.7 million increase in litigation accruals, the reclassification of $8.6 million from long-term to current related to a payment in connection with the Ontario class action settlement that is anticipated to be made in July of 2010, increases in accrued payroll of $9.7 million and increases in accrued interest expense of $16.8 million on the Company’s new senior notes. Foreign currency translation adjustments also accounted for approximately $13.0 million of the increase.

The fair value of derivatives increased from a liability position of $10.2 million at June 30, 2009 to a liability of $63.2 million as of March 31, 2010 a change of $53.0 million. The change in the fair value of these cross-currency interest rate swaps are a result of the change in the foreign currency exchange rates and interest rates related to the tranche of 2006 Canadian term loans.

Long-term debt increased by $205.5 million from $530.4 million at June 30, 2009 to $735.9 million at March 31, 2010 as the result of the Company’s refinancing activities in December 2009.

Seasonality and Quarterly Fluctuations

Our business is seasonal due to the impact of several tax-related services, including cashing tax refund checks, making electronic tax filings and processing applications of refund anticipation loans. Historically, we have generally experienced our highest revenues and earnings during our third fiscal quarter ending March 31, when revenues from these tax-related services peak. Due to the seasonality of our business, results of operations for any fiscal quarter are not necessarily indicative of the results of operations that may be achieved for the full fiscal year. In addition, quarterly results of operations depend significantly upon the timing and amount of revenues and expenses associated with the addition of new stores.

Impact of Recent Accounting Pronouncement

There are no material recently issued accounting pronouncements that we have not yet adopted.

Cautionary Statement for Purposes of the “Safe Harbor” Provisions of the Private Securities Litigation Reform Act of 1995

This report includes forward-looking statements regarding, among other things, anticipated improvements in operations, our plans, earnings, cash flow and expense estimates, strategies and prospects, both business and financial. All statements other than statements of current or historical fact contained in this prospectus are forward-looking statements. The words “believe,’’ “expect,’’ “anticipate,’’ “should,’’ “plan,’’ “will,’’ “may,’’ “intend,’’ “estimate,’’ “potential,’’ “continue’’ and similar expressions, as they relate to us, are intended to identify forward-looking statements.

We have based these forward-looking statements largely on our current expectations and projections about future events, financial trends, litigation and industry regulations that we believe may affect our financial condition, results of operations, business strategy and financial needs. They can be affected by inaccurate assumptions, including, without limitation, with respect to risks, uncertainties, anticipated operating efficiencies, the general economic conditions in the markets in which we operate, new business prospects and the rate of expense increases. In light of these risks, uncertainties and assumptions, the forward-looking statements in this report may not occur and actual results could differ materially from those anticipated or implied in the forward-looking statements. When you consider these forward-looking statements, you should keep in mind the risk factors in our annual report on Form 10-K for the year ended June 30, 2009 and on our quarterly report on Form 10-Q for the fiscal quarter ended December 31, 2009, as well as the other cautionary statements in those filings and our other filings with the SEC and this quarterly report on Form 10-Q. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

DOLLAR FINANCIAL CORP.
SUPPLEMENTAL STATISTICAL DATA


	March 31,
	2009		2010
Company Operating Data:
Stores in operation:
Company-owned		1,078		1,054
Franchised stores and check cashing merchants		186		124

Total		1,264		1,178


	Three Months Ended					Nine Months Ended
	March 31,					March 31,
	2009		2010			2009		2010
Check Cashing Data:
Face amount of checks cashed (in millions)	$	1,059	$	1,004	(1)	$	3,514	$	2,992	(1)
Face amount of average check	$	492	$	545	(2)	$	493	$	506	(2)
Average fee per check	$	17.31	$	20.21	(3)	$	17.87	$	19.19	(3)
Number of checks cashed (in thousands)		2,152		1,842			7,132		5,917


	Three Months Ended						Nine Months Ended
	March 31,						March 31,
	2009			2010			2009			2010
Check Cashing Collections Data (in thousands):
Face amount of returned checks	$	9,512		$	6,960		$	42,912		$	24,925

Collections		(7,700	)		(6,014	)		(32,087	)		(19,894	)

Net write-offs	$	1,812		$	946		$	10,825		$	5,031


Collections as a percentage of returned checks		81.0	%		86.4	%		74.8	%		79.8	%
Net write-offs as a percentage of check cashing revenues		4.9	%		2.5	%		8.5	%		4.4	%
Net write-offs as a percentage of the face amount of checks cashed		0.17	%		0.09	%		0.31	%		0.17	%


(1)		Net of a $79 and $98 increase as a result of the impact of exchange rates for the three and nine months ended March 31, 2010, respectively.

(2)		Net of a $43 and $17 increase as a result of the impact of exchange rates for the three and nine months ended March 31, 2010, respectively.

(3)		Net of a $1.73 and $0.58 increase as a result of the impact of exchange rates for the three and nine months ended March 31, 2010, respectively.

The following chart presents a summary of our consumer lending operations, including loan originations, which includes loan extensions and revenues for the following periods (in thousands):


	Three Months Ended						Nine Months Ended
	March 31th,						March 31,
	2009			2010			2009			2010
U.S. company-funded consumer loan originations	$	128,647		$	111,840		$	456,094		$	387,062

Canadian company-funded consumer loan originations		165,470			184,205	(1)		591,054			592,366	(1)

U.K. company-funded consumer loan originations		82,891			103,587	(2)		285,095			324,493	(2)


Total company-funded consumer loan originations	$	377,008		$	399,632		$	1,332,243		$	1,303,921


U.S. Servicing revenues	$	433		$	—		$	1,550		$	—
U.S. company-funded consumer loan revenues		17,533			15,047			61,407			51,085
Canadian company-funded consumer loan revenues		25,851			36,270			93,054			109,592
U.K. company-funded consumer loan revenues		14,734			20,567			54,043			61,681

Total consumer lending revenues, net	$	58,551		$	71,884		$	210,054		$	222,358


Gross charge-offs of company-funded consumer loans	$	38,324		$	33,856		$	146,582		$	113,742

Recoveries of company-funded consumer loans		(25,073	)		(24,667	)		(106,244	)		(86,993	)

Net charge-offs on company-funded consumer loans	$	13,251		$	9,189		$	40,338		$	26,749


Gross charge-offs of company-funded consumer loans as a percentage of total company-funded consumer loan originations		10.2	%		8.5	%		11.0	%		8.7	%

Recoveries of company-funded consumer loans as a percentage of total company-funded consumer loan originations		6.7	%		6.2	%		8.0	%		6.6	%

Net charge-offs on company-funded consumer loans as a percentage of total company-funded consumer loan originations		3.5	%		2.3	%		3.0	%		2.1	%


(1)		Net of a $30.2 million and $46.2 million increase as a result of the impact of exchange rates for the three and nine months ended March 31, 2010, respectively.

(2)		Net of a $8.3 million increase and $3.9 million decrease as a result of the impact of exchange rates for the three and nine months March 31, 2010, respectively.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Generally

In the operations of our subsidiaries and the reporting of our consolidated financial results, we are affected by changes in interest rates and currency exchange rates. The principal risks of loss arising from adverse changes in market rates and prices to which we and our subsidiaries are exposed relate to:

	•		interest rates on revolving credit facilities; and

	•		foreign exchange rates generating translation gains and losses.

We and our subsidiaries have no market risk sensitive instruments entered into for trading purposes, as defined by U.S. generally accepted accounting principles or GAAP. Information contained in this section relates only to instruments entered into for purposes other than trading.

Interest Rate Risk

Our outstanding indebtedness, and related interest rate risk, is managed centrally by our finance department by implementing the financing strategies approved by our Board of Directors. Our revolving credit facilities carry variable rates of interest. With the repayment of a significant portion of its term credit facilities during December 2009 with the proceeds of a fixed rate bond issuance without termination of its Canadian cross currency swaps hedging the debt, the Company is exposed to adverse changes in interest rates that will likely have an impact on our consolidated statement of financial position. See the section entitled “Cross Currency Interest Rate Swaps”.

Foreign Currency Exchange Rate Risk

Put Options

Operations in the United Kingdom and Canada have exposed us to shifts in currency valuations. From time to time, we may elect to purchase put options in order to protect certain earnings in the United Kingdom and Canada against the translational impact of foreign currency fluctuations. Out of the money put options may be purchased because they cost less than completely averting risk, and the maximum downside is limited to the difference between the strike price and exchange rate at the date of purchase and the price of the contracts. At March 31, 2010, we held put options with an aggregate notional value of C$8.0 million and GBP 3.8 million to protect certain currency exposure in Canada and the United Kingdom through May, 2010. We use purchased options designated as cash flow hedges to protect against certain of the foreign currency exchange rate risks inherent in our forecasted earnings denominated in currencies other than the U.S. dollar. These cash flow hedges have a duration of less than 12 months. For derivative instruments that are designated and qualify as cash flow hedges, the effective portions of the gain or loss on the derivative instrument are initially recorded in accumulated other comprehensive income as a separate component of stockholders’ equity and subsequently reclassified into earnings in the period during which the hedged transaction is recognized in earnings. The ineffective portion of the gain or loss is reported in other expense (income), net on the statement of operations. For options designated as hedges, hedge effectiveness is measured by comparing the cumulative change in the hedge contract with the cumulative change in the hedged item, both of which are based on forward rates. As of March 31, 2010, no amounts were excluded from the assessment of hedge effectiveness. There was no ineffectiveness from these cash flow hedges for fiscal 2009.

Canadian operations (exclusive of the unrealized foreign exchange gain of $20.0 million, loss on extinguishment of debt of $3.6 million, litigation expense of $22.4 million, loss on derivatives not designated as hedges of $21.9 million and the loss on store closings of $0.8 million) accounted for approximately 62.5% of consolidated pre-tax earnings for the nine months ended March 31, 2010 and 97.1% of consolidated pre-tax earnings (exclusive of loss on store closings of $2.7 million) for the nine months ended March 31, 2009. U.K. operations (exclusive of the loss on extinguishment of debt of $4.7 million and unrealized foreign exchange losses of $8.1 million) accounted for approximately 53.5% of consolidated pre-tax earnings for the nine months ended March 31, 2010 and 41.1% of consolidated pre-tax earnings for the nine months ended March 31, 2009. U.S. operations (exclusive of the loss on extinguishment of debt of $1.2 million, litigation expense of $5.5 million and losses on store closings of $2.4 million) accounted for approximately (15.5)% of consolidated pre-tax earnings for the nine months ended March 31, 2010 and (38.2)% of consolidated pre-tax earnings (exclusive of litigation expense of $0.5 million and losses on store closings of $3.3 million) for the nine months ended March 31, 2009. As currency exchange rates change, translation of the financial results of the Canadian and U.K. operations into U.S. dollars will be impacted. Changes in exchange rates have resulted in cumulative translation adjustments increasing our net assets by $10.5 million. These gains and losses are included in other comprehensive income.

We estimate that a 10.0% change in foreign exchange rates by itself would have impacted reported pre-tax earnings from continuing operations (exclusive in the nine months ended March 31, 2010 of losses on extinguishment of debt of $8.4 million, unrealized foreign exchange gains of $11.9 million, losses on derivatives not designated as hedges of $21.9 million, litigation expense of $22.4 million and losses on store closings of $0.8 million) by approximately $7.2 million for the nine months ended March 31, 2010 and $7.9 million (exclusive of litigation expense of $0.6 million and losses on store closings of $3.3 million) for the nine months ended March 31, 2009. This impact represents 11.6% of our consolidated foreign pre-tax earnings for the nine months ended March 31, 2010 and 13.8% of our consolidated foreign pre-tax earnings for the nine months ended March 31, 2009.

Cross-Currency Interest Rate Swaps

In December 2006, we entered into cross-currency interest rate swaps to hedge against the changes in cash flows of our U.K. and Canadian term loans denominated in a currency other than our foreign subsidiaries’ functional currency.

In December 2006, our U.K. subsidiary, Dollar Financial U.K. Limited, entered into a cross-currency interest rate swap with a notional amount of GBP 21.3 million that was set to mature in October 2012. Under the terms of this swap, Dollar Financial U.K. Limited paid GBP at a rate of 8.45% per annum and Dollar Financial U.K. Limited received a rate of the three-month EURIBOR plus 3.00% per annum on EUR 31.5 million. In December 2006, Dollar Financial U.K. Limited also entered into a cross-currency interest rate swap with a notional amount of GBP 20.4 million that was set to mature in October 2012. Under the terms of this cross-currency interest rate swap, we paid GBP at a rate of 8.36% per annum and we received a rate of the three-month LIBOR plus 3.00% per annum on US$40.0 million.

On May 7, 2009, our U.K. subsidiary, terminated its two cross-currency interest rate swaps hedging variable-rate borrowings. As a result, we discontinued prospectively hedge accounting on these cross-currency swaps. In accordance with the provisions of FASB Codification Topic Derivatives and Hedging, we will continue to report the net gain or loss related to the discontinued cash flow hedge in other comprehensive income and will subsequently reclassify such amounts into earnings over the remaining original term of the derivative when the hedged forecasted transactions are recognized in earnings.

In December 2006, our Canadian subsidiary, National Money Mart Company, entered into cross-currency interest rate swaps with aggregate notional amounts of C$339.9 million that mature in October 2012. Under the terms of the swaps, National Money Mart Company pays Canadian dollars at a blended rate of 7.12% per annum and National Money Mart Company receives a rate of the three-month LIBOR plus 2.75% per annum on $295.0 million.

On December 23, 2009, the Company used a portion of the net proceeds of its $600 million Senior Note Offering to prepay $350 million of the $368.6 million outstanding term loans. As a result, the Company discontinued prospectively hedge accounting on its Canadian cross-currency swaps. In accordance with the provisions of FASB Codification Topic Derivatives and Hedging, we will continue to report the net gain or loss related to the discontinued cash flow hedge in other comprehensive income and will subsequently reclassify such amounts into earnings over the remaining original term of the derivative when the hedged forecasted transactions are recognized in earnings.

On a quarterly basis, the cross-currency interest rate swap agreements call for the exchange of 0.25% of the original notional amounts after giving effect to the $350 million prepayment. Upon maturity, these cross-currency interest rate swap agreements call for the exchange of the remaining notional amounts. Prior to December 23, 2009 these derivative contracts were designated as cash flow hedges for accounting purposes. Because these derivatives were designated as cash flow hedges, we recorded the effective portion of the after-tax gain or loss in other comprehensive income, which is subsequently reclassified to earnings in the same period that the hedged transactions affect earnings. Subsequent to December 23, 2009, the swaps are no longer designated as hedges therefore we record foreign exchange re-measurement gains and losses related to the term loans and also record the changes in fair value of the cross-currency swaps each period in corporate expenses in our consolidated statements of operations. The aggregate fair market value of the cross-currency interest rate swaps at March 31, 2010 is a liability of $63.2 million and is included in fair value of derivatives on the balance sheet. During the three and nine months ended March 31, 2010, we recorded $18.6 million and $21.9 million, respectively in earnings related to the ineffective portion of these cash flow hedges.

On January 14, 2010, we entered into an amendment to the ISDA Master Agreement governing the outstanding cross-currency interest rate swap relating to a notional amount of C$184.0 million to which National Money Mart Company is a party to hedge its variable-rate Canadian term loans denominated in U.S. dollars. The amendment eliminates

financial covenants and allows the underlying swap to remain outstanding (with a similar collateral package in place) in the event that we elect to terminate our secured credit facility prior to the maturity of the swap in October 2012. On February 8, 2010, we entered into an amendment to the ISDA Master Agreement governing the outstanding cross-currency interest rate swap relating to a notional amount of C$145.7 million to which National Money Mart Company is a party to hedge its variable-rate Canadian term loans denominated in U.S. dollars. The amendment includes financial covenants identical to those in the Company’s amended credit facility and allows the underlying swap to remain outstanding (with a similar collateral package in place) in the event that we elect to terminate our secured credit facility prior to the maturity of the swap in October 2012. We agreed to pay a higher rate on the interest rate swaps in order to secure these amendments, the impact of which is included in our March 31, 2010 financial statements.

Item 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, our management conducted an evaluation, with the participation of our Chief Executive Officer, Chief Financial Officer and Senior Vice President, Finance and Corporate Controller, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)). Based on this evaluation, our Chief Executive Officer, Chief Financial Officer and Senior Vice President, Finance and Corporate Controller have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to management, including our Chief Executive Officer, Chief Financial Officer and Senior Vice President, Finance and Corporate Controller, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting during our fiscal quarter ended March 31, 2010 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

The information required by this Item is incorporated by reference herein to the section in Part I, Item 1 “Note 4. Contingent Liabilities” of this Quarterly Report on Form 10-Q.

In a Current Report on Form 8-K filed with the Securities and Exchange Commission on March 8, 2010, we disclosed that, on March 4, 2010, National Money Mart Company (“Money Mart”) and Dollar Financial Group, Inc. (“DFG”), each a wholly-owned subsidiary of the Company, reached an agreement to settle their outstanding British Columbia class action litigation (the “British Columbia Litigation”) pursuant to which the plaintiffs claimed that the business model used by Money Mart in British Columbia resulted in the collection of fees in excess of the statutory limit for the payday loans made since 1997. On May 6, 2010, Money Mart and DFG entered into a definitive settlement agreement with the plaintiffs in the British Columbia Litigation (the “Settlement Agreement”).

The Settlement Agreement requires court approval to become effective, and there can be no assurance that the Settlement Agreement will receive such approval. A court hearing to review and approve the Settlement Agreement is scheduled for May 17, 2010. The settlement does not reflect any admission of wrongdoing by the Company, Money Mart, DFG or any of their subsidiaries or affiliates. Under the summary terms of the Settlement Agreement, Money Mart will create a settlement fund in an amount of C$24.75 million, consisting of C$12.375 million in cash and C$12.375 million in vouchers. Fees payable to plaintiffs’ counsel will be paid from this fund. The remaining amount of the fund will be available to class members who make claims, with Money Mart receiving a credit for any unpaid debts incurred through November 1, 2009 and owed by claimants to Money Mart. Money Mart will release all debts incurred through November 1, 2009 by class members who do not make a claim, up to the total check cashing fees paid by those class members through that date. The vouchers will be in paper form, will not be transferable, will be subject to cash redemption for six months after their three-year life, and will be available to be applied during the three years, generally in C$5.00 increments, to product transactions on most of Money Mart’s products. Any amounts remaining in the settlement fund after the redemption period will be returned to Money Mart.

The above summary of the material terms of the Settlement Agreement is qualified in its entirety by reference to the complete text of the Settlement Agreement filed with this Quarterly Report on Form 10-Q as Exhibit 10.1 and is in its entirety incorporated by reference into this Part II, Item 1 of this Quarterly Report on Form 10-Q.

Item 1A. Risk Factors

There have been no material changes to the risk factors discussed in Part I, “Item 1A. Risk Factors,” in our Annual Report on Form 10-K for the year ended June 30, 2009 (“Form 10-K”), as amended by the risk factors discussed in Part II, “Item 1A. Risk Factors” in our subsequent quarterly reports on Form 10-Q for the periods ended September 30, 2009 and December 31, 2009 (collectively, the “Forms 10-Q”). You should carefully consider the risks described in our Form 10-K and Forms 10-Q, which could materially affect our business, financial condition or future results. The risks described in our Form 10-K and Forms 10-Q are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, and/or operating results. If any of the risks actually occur, our business, financial condition, and/or results of operations could be negatively affected.

Item 6. Exhibits


Exhibit No.		Description of Document
10.1		Settlement Agreement effective as of March 4, 2010 and executed as of May 6, 2010 by and among Kurt MacKinnon and Louise Parsons, as plaintiffs, and National Money Mart Company and Dollar Financial Group, Inc., as defendants

31.1		Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer

31.2		Rule 13a-14(a)/15d-14(a) Certification of Executive Vice President and Chief Financial Officer

31.3		Rule 13a-14(a)/15d-14(a) Certification of Senior Vice President of Finance and Corporate Controller

32.1		Section 1350 Certification of Chief Executive Officer

32.2		Section 1350 Certification of Executive Vice President and Chief Financial Officer

32.3		Section 1350 Certification of Senior Vice President of Finance and Corporate Controller


	Page No.
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Interim Consolidated Balance Sheets as of June 30, 2009 and March 31, 2010 (unaudited)		3

Interim Unaudited Consolidated Statements of Operations for the Three and Nine Months Ended 2009 and 2010		4

Interim Consolidated Statements of Stockholders’ Equity as of June 30, 2009 and March 31, 2010 (unaudited)		5

Interim Unaudited Consolidated Statements of Cash Flows for the Nine Months Ended 2009 and 2010		6

Notes to Interim Unaudited Consolidated Financial Statements		7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		45

Item 3. Quantitative and Qualitative Disclosures About Market Risk		71

Item 4. Controls and Procedures		73

PART II. OTHER INFORMATION

Item 1. Legal Proceedings		74

Item 6. Exhibits		75

Signature		76

Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer

Rule 13(a)-14(a)/15d-14a Certification of Executive Vice President and Chief Financial Officer

Rule 13a-14(a)/15d-14(a) Certification of Senior Vice President of Finance and Corporate Controller

Section 1350 Certification of Chief Executive Officer

Section 1350 Certification of Executive Vice President and Chief Financial Officer

Section 1350 Certification of Senior Vice President of Finance and Corporate Controller
EX-10.1
EX-31.1
EX-31.2
EX-31.3
EX-32.1
EX-32.2
EX-32.3


*		The signatory hereto is the principal financial and chief accounting officer and has been duly authorized to sign on behalf of the registrant.