e10vq

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 September 30, 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 (State or Other Jurisdiction of Incorporation or Organization)		23-2636866 (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 (Do not check if a smaller reporting company)		Smaller reporting company o

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

As of October 31, 2010, 24,404,088 shares of the registrant’s common stock, par value $0.001 per share, were outstanding.

DOLLAR FINANCIAL CORP.
INDEX


	Page No.
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Interim Consolidated Balance Sheets as of June 30, 2010 and September 30, 2010 (unaudited)		3

Interim Unaudited Consolidated Statements of Operations for the Three Months Ended September 30, 2009 and 2010		4

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

Interim Unaudited Consolidated Statements of Cash Flows for the Three Months Ended September 30, 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		37

Item 3. Quantitative and Qualitative Disclosures About Market Risk		52

Item 4. Controls and Procedures		54

PART II. OTHER INFORMATION

Item 1. Legal Proceedings		54

Item 1A. Risk Factors		54

Item 6. Exhibits		55

Signature		56

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

PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements

DOLLAR FINANCIAL CORP.
INTERIM CONSOLIDATED BALANCE SHEETS
(In millions, except share and per share amounts)


	June 30,			September 30,
	2010			2010
				(unaudited)
ASSETS
Current Assets
Cash and cash equivalents	$	291.3		$	286.3
Loans receivable, net:
Loans receivable		156.5			172.0
Less: Allowance for loan losses		(18.2	)		(20.9	)

Loans receivable, net		138.3			151.1
Loans in default, net of an allowance of $14.4 and $16.9		7.3			8.5
Other receivables		17.2			17.4
Prepaid expenses and other current assets		25.8			31.6
Current deferred tax asset, net of valuation allowance of $4.9 and $4.9		1.0			1.0

Total current assets		480.9			495.9
Deferred tax asset, net of valuation allowance of $80.2 and $80.9		22.6			22.6
Property and equipment, net of accumulated depreciation of $117.2 and $123.8		67.5			73.7
Goodwill and other intangibles		609.0			619.6
Debt issuance costs, net of accumulated amortization of $3.5 and $4.5		18.7			18.3
Other		15.9			17.8

Total Assets	$	1,214.6		$	1,247.9

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable	$	44.8		$	34.3
Income taxes payable		6.2			3.8
Accrued expenses and other liabilities		92.6			96.2
Debt due within one year		3.3			18.0
Current deferred tax liability		0.3			0.4

Total current liabilities		147.2			152.7
Fair value of derivatives		47.4			58.4
Long-term deferred tax liability		24.0			25.9
Long-term debt		725.3			727.4
Other non-current liabilities		52.4			42.8
Stockholders’ equity:
Common stock, $.001 par value: 55,500,000 shares authorized; 24,359,459 shares and 24,404,088 shares issued and outstanding at June 30, 2010 and September 30, 2010, respectively		—			—
Additional paid-in capital		331.1			332.5
Accumulated deficit		(115.5	)		(103.3	)
Accumulated other comprehensive income		2.7			11.6

Total Dollar Financial Corp. stockholders’ equity		218.3			240.8
Non-controlling interest		—			(0.1	)

Total stockholders’ equity		218.3			240.7

Total Liabilities and Stockholders’ Equity	$	1,214.6		$	1,247.9

See notes to interim unaudited consolidated financial statements

DOLLAR FINANCIAL CORP.
INTERIM UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except share and per share amounts)


	Three Months Ended
	September 30,
	2009		2010
Revenues:
Check cashing	$	37.8	$	35.3
Fees from consumer lending		77.4		92.0
Money transfer fees		6.8		7.2
Pawn service fees and sales		3.8		6.3
Other		19.7		33.4

Total revenues		145.5		174.2

Operating expenses:
Salaries and benefits		36.7		40.7
Provision for loan losses		11.7		14.0
Occupancy		10.8		11.6
Depreciation		3.4		3.6
Returned checks, net and cash shortages		2.3		1.9
Maintenance and repairs		2.8		3.3
Advertising		3.4		5.8
Bank charges and armored carrier service		3.5		3.8
Other		15.0		21.2

Total operating expenses		89.6		105.9

Operating margin		55.9		68.3

Corporate and other expenses:
Corporate expenses		20.4		25.4
Other depreciation and amortization		1.1		2.7
Interest expense, net		11.6		21.6
Unrealized foreign exchange loss (gain)		7.8		(14.6	)
Loss on derivatives not designated as hedges		—		13.8
Provision for litigation settlements		1.3		0.2
Loss on store closings		0.3		0.2
Other expense, net		—		0.8

Income before income taxes		13.4		18.2
Income tax provision		8.0		6.1

Net income		5.4		12.1
Less: Net income (loss) attributable to non-controlling interests		0.1		(0.1	)

Net income attributable to Dollar Financial Corp.	$	5.3	$	12.2


Net income per share attributable to Dollar Financial Corp:
Basic	$	0.22	$	0.50
Diluted	$	0.22	$	0.49
Weighted average shares outstanding:
Basic		23,998,357		24,266,967
Diluted		24,480,544		24,853,047

See notes to interim unaudited consolidated financial statements.

DOLLAR FINANCIAL CORP.
INTERIM UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)


	Three Months Ended
	September 30,
	2009			2010
Cash flows from operating activities:
Net income	$	5.4		$	12.1
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		5.4			7.2
Change in fair value of derivatives not designated as hedges		—			9.5
Provision for loan losses		11.7			14.0
Non-cash stock compensation		1.4			1.2
Loss on disposal of fixed assets		0.2			0.3
Unrealized foreign exchange loss (gain)		7.8			(14.6	)
Deferred tax provision		3.9			2.1
Accretion of debt discount and deferred issuance costs		2.4			3.6
Change in assets and liabilities (net of effect of acquisitions):
(Increase) decrease in loans and other receivables		(14.7	)		(21.1	)
(Increase) decrease in prepaid expenses and other		0.6			(6.8	)
Increase (decrease) in accounts payable, accrued expenses and other liabilities		(5.3	)		(25.9	)

Net cash provided by (used in) operating activities		18.8			(18.4	)
Cash flows from investing activities:
Acquisition adjustments		—			(0.4	)
Additions to property and equipment		(5.5	)		(9.4	)

Net cash used in investing activities		(5.5	)		(9.8	)
Cash flows from financing activities:
Proceeds from the exercise of stock options		—			0.2
Other debt payments		(8.0	)		—
Net increase in revolving credit facilities		—			14.3
Payment of debt issuance and other costs		(0.1	)		(0.1	)

Net cash (used in) provided by financing activities		(8.1	)		14.4
Effect of exchange rate changes on cash and cash equivalents		11.9			8.8

Net increase (decrease) in cash and cash equivalents		17.1			(5.0	)
Cash and cash equivalents at beginning of period		209.6			291.3

Cash and cash equivalents at end of period	$	226.7		$	286.3

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, 2010 filed with the Securities and Exchange Commission on August 31, 2010. 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 DFG Holdings, Inc. The Company operates a store network through OPCO. The Company, through its subsidiaries, provides retail financial services to the general public through a network of 1,193 locations (of which 1,067 are company owned) operating principally as Money Mart^®, The Money Shop, Loan Mart^®, Insta-Cheques^® and The Check Cashing Store in 17 states, Canada, the United Kingdom and the Republic of Ireland. This network includes 1,187 locations (including 1,067 company-owned) in 15 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, foreign currency exchange and various other related services. The Company also provides financial services to the general public in Poland through in-home servicing under the trade name “Optima”. The Company’s network also includes a U.K. and Canadian Internet-based consumer lending business as well as a U.K. based merchant cash advance business 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 receipts.

Through Dealers’ Financial Services, LLC and its wholly owned subsidiary, Dealers’ Financial Services Reinsurance Ltd. (together, “DFS”), the Company provides fee based services to enlisted military personnel seeking to purchase new and used vehicles who make applications for auto loans that are funded and serviced under an exclusive agreement with a major third-party national bank based in the United States.

The Company’s common stock trades 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, litigation reserves and impairment assessment of goodwill and other intangible assets. 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.

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 2.875% Senior Convertible Notes due 2027 issued by Dollar Financial Corp. (the “2027 Notes”), the 3.00% Senior Convertible Notes due 2028 (the “2028 Notes”) and the 10.375% Senior Notes due 2016 issued by the Company’s

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Canadian subsidiary, National Money Mart Company (the “2016 Notes”), are based on broker quotations.

The total fair value of the 2027 and the 2028 Notes were approximately $40.0 million and $110.9 million, respectively at June 30, 2010. The total fair value of the 2027 Notes and the 2028 Notes were approximately $41.3 million and $117.7 million, respectively, at September 30, 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 $609.0 million and $637.5 million at June 30, 2010 and September 30, 2010, respectively.

The Company’s other financial instruments consist of cash and cash equivalents and derivatives, loan and other consumer lending receivables, which are short-term in nature and their fair value approximates their carrying value net of allowance for loan loss.

Earnings per Share

Basic earnings per share are computed by dividing net income/loss by the weighted average number of shares of common stock outstanding. Diluted earnings per share are computed by dividing net income/loss by the weighted average number of shares of common stock 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 millions):


	Three Months Ended
	September 30,
	2009		2010
Net income attributable to Dollar Financial Corp	$	5.3	$	12.2
Reconciliation of denominator:
Weighted average of common shares outstanding — basic (1)		24.0		24.3
Effect of dilutive stock options — (2)		0.2		0.4
Effect of unvested restricted stock and restricted stock unit grants (2)		0.3		0.2

Weighted average of common shares outstanding — diluted		24.5		24.9


⁽¹⁾		Excludes 0.1 and 0.1 shares of unvested restricted stock which are included in total outstanding shares of common stock as of September 30, 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.

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

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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 September 30, 2009 and 2010 was $1.2 million and $1.3 million, respectively, net of related tax.

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
	September 30,
	2009			2010
Expected volatility		55.0	%		52.9	%
Expected life (years)		6.0			5.8
Risk-free interest rate		3.30	%		2.03	%
Expected dividends	None			None
Weighted average fair value	$	8.72		$	9.89

A summary of the status of stock option activity for the three months ended September 30, 2010 follows:


						Weighted
				Weighted		Average
				Average		Remaining		Aggregate
				Exercise		Contractual		Intrinsic Value
	Options			Price		Term (years)		($ in millions)
Options outstanding at June 30, 2010 (1,199,015 shares exercisable)		1,938,723		$	15.33		7.5	$	9.9
Granted		4,159		$	19.62
Exercised		(17,114	)	$	10.10
Forfeited and expired		(30,768	)	$	12.78

Options outstanding at September 30, 2010		1,895,000		$	15.43		7.2	$	11.3


Exercisable at September 30, 2010		1,242,081		$	15.57		6.4	$	7.3

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 September 30, 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 months ended September 30, 2010 was $0.1 million, and was $0.1 million for the three months ended September 30, 2009. As of September 30, 2010, the total unrecognized compensation cost over a weighted-average period of 2.3 years, related to stock options, is expected to be $2.9 million. Cash received from stock options exercised for the three months ended September 30, 2010 was $0.2 million and for the three months ended September 30, 2009 was zero.

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.

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Information concerning unvested restricted stock awards is as follows:


			Weighted
			Average
	Restricted		Grant-Date
	Stock Awards		Fair-Value
Outstanding at June 30, 2010		100,562	$	14.49
Granted		—	$	—
Vested		—	$	—
Forfeited		—	$	—

Outstanding at September 30, 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, 2010		605,978		$	14.97
Granted		4,869		$	19.43
Vested		(44,231	)	$	17.33
Forfeited		(18,696	)	$	15.97

Outstanding at September 30, 2010		547,920		$	14.78

As of September 30, 2010, there was $9.6 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 1.5 years. The total fair value of shares vested during the three months ended September 30, 2010 was $0.8 million.

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 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

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

periods presented. The adoption impacted the accounting for the 2027 Notes and, after their issuance in December 2009, the 2028 Notes, resulting in additional non-cash interest expense of approximately $2.0 million and $2.4 million for the three months ended September 30, 2009 and 2010, 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 accreted over the remaining expected life of the debt.

In June, 2009, the FASB issued ASC 105-10 (formerly SFAS 168), Accounting Standards Codification^tm 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 adopted this Statement for the quarterly period ended September 30, 2009, as required.

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 adopted this Statement for the quarterly period ended March 31, 2010, as required, and adoption has not had a material impact on the Company’s consolidated financial statements.

2. Acquisitions

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

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 receipts. 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 was $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 major third-party national bank. 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. Of the total estimated purchase price, an estimate of $5.7 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. The Company anticipates that the entire amount of the goodwill recorded in connection with the acquisition of DFS will be deductible for income tax purposes.

On April 13, 2010, the Company entered into a purchase agreement to acquire all the shares of Suttons & Robertsons (S&R), which operates three high-end pawn shops in the U.K. The aggregate purchase price for the acquisition was approximately $25.8 million. The Company used excess cash to fund the acquisition. The Company allocated approximately $5.9 million to net assets acquired. The excess purchase price over the preliminary fair value of the identifiable assets acquired was $19.9 million and recorded as goodwill.

During fiscal 2010, the Company completed various smaller acquisitions in United Kingdom that resulted in an aggregate increase in goodwill of $0.7 million, calculated as the excess purchase price over the preliminary fair value of the identifiable assets acquired. Also in fiscal 2010, $0.3 million, $2.2 million and $6.3 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, intangible assets.

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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


Balance at June 30, 2010	$	496.8
Purchase accounting adjustments:
Military Financial Services, LLC		0.1
Foreign currency translation adjustment		10.0

Balance at September 30, 2010	$	506.9

The following pro forma information for the periods ended September 30, 2009 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 MCE, DFS and S&R 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
	September 30, 2009
	(Unaudited in millions
	except per share amounts)
Revenue	$	154.5
Net income attributable to Dollar Financial Corp	$	8.5
Net income per common share — basic	$	0.36
Net income per common share — diluted	$	0.35

3. Goodwill and Other Intangibles

The changes in the carrying amount of goodwill by reportable segment for the three months ended September 30, 2010 are as follows (in millions):


	United States		Dealers’ Financial				United
	Retail		Services		Canada		Kingdom		Other		Total
Balance at June 30, 2010	$	205.7	$	53.5	$	136.4	$	94.6	$	6.6	$	496.8
Acquisitions and purchase accounting adjustments		—		0.1		—		—		—		0.1
Foreign currency translation adjustments		—		—		4.1		5.0		0.9		10.0

Balance at September 30, 2010	$	205.7	$	53.6	$	140.5	$	99.6	$	7.5	$	506.9

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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


	Gross Carrying Amount
	June 30,			September 30,
	2010			2010
Non-amortizing intangible assets:
Goodwill	$	496.8		$	506.9
Reacquired franchise rights		51.3			53.3
DFS MILES Program		35.4			35.4

	$	583.5		$	595.6


Amortizable intangible assets:
Various contracts	$	28.7		$	28.7
Accumulated Amortization:
Various contracts		(3.2	)		(4.7	)


Total intangible assets	$	609.0		$	619.6

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 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. As of June 30, 2010, there was no impairment of goodwill.

Other indefinite-lived intangible assets consist of reacquired franchise rights and DFS’ MILES program brand name, 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.

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.

Amortization expense of intangible assets was $1.5 million for the three months ended September 30, 2010.

Estimated amortization expense of intangible assets during the next five fiscal years is shown below (in millions):


Fiscal Year Ended
June 30,	Amount
2011	$	6.0
2012		5.9
2013		5.6
2014		5.4
2015		2.6

	$	25.5

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

4. Debt

The Company had debt obligations at June 30, 2010 and September 30, 2010 as follows (in millions):


				September
	June 30,			30,
	2010			2010
Revolving credit facility	$	—		$	14.3
National Money Mart Company 10.375% Senior Notes due December 15, 2016		600.0			600.0
Issuance discount on 10.375% Senior Notes due 2016		(3.3	)		(3.3	)
Dollar Financial Corp. 2.875% Senior Convertible Notes due 2027		38.3			38.9
Dollar Financial Corp. 3.000% Senior Convertible Notes due 2028		84.9			86.3
Other		8.7			9.2

Total debt		728.6			745.4

Less: current portion of debt		(3.3	)		(18.0	)

Long-term debt	$	725.3		$	727.4

Senior Notes

On December 23, 2009, the Company’s wholly owned indirect Canadian 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 December 15, 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 Dollar Financial Corp. and certain of its 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 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 Dollar Financial Corp. and U.S. Bank National Association, as trustee, dated as of June 27, 2007 (the “2027 Indenture”).

In February 2010, Dollar Financial Corp. 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 Dollar Financial Corp. 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 June 30, 2010 and September 30, 2010. The Company recognized a net loss of $0.7 million related to the repurchased Notes.

The 2027 Notes are general unsecured obligations of Dollar Financial Corp. and rank equally in right of payment with all of its 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

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

30, 2027, unless earlier converted, redeemed or repurchased by the Company. Holders of the 2027 Notes may require Dollar Financial Corp. 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 Dollar Financial Corp., 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 Dollar Financial Corp.’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 Dollar Financial Corp.’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 Dollar Financial Corp.’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; or

	•		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, Dollar Financial Corp. will pay a make-whole provision, as defined in the 2027 Indenture.

On or after December 31, 2012, but prior to December 31, 2014, Dollar Financial Corp. 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 Dollar Financial Corp.’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, Dollar Financial Corp. 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 Dollar Financial Corp. 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 a “fundamental change” (as defined in the 2027 Indenture) occurs before maturity of the 2027 Notes, holders will have the right, subject to certain conditions, to require Dollar Financial Corp. to repurchase for cash all or a portion of the 2027 Notes at a repurchase 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, Dollar Financial Corp. 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 Dollar Financial Corp. (the “2028 Notes”).

The 2028 Notes are general unsecured obligations of Dollar Financial Corp. and rank equally in right of payment with all of Dollar Financial Corp.’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 Dollar Financial Corp. and U.S. Bank National Association, as trustee, dated as of December 21, 2009 (the “2028 Indenture”).

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The 2028 Indenture includes a “net share settlement” provision that allows Dollar Financial Corp., 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 Dollar Financial Corp.’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 Dollar Financial Corp.’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 Dollar Financial Corp.’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, Dollar Financial Corp. 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 Dollar Financial Corp. 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 a “fundamental change” (as defined in the 2028 Indenture) occurs before the maturity of the 2028 Notes, the holders will have the right, subject to certain conditions, to require Dollar Financial Corp. 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.

Treatment of Convertible Notes

The Company has followed the guidance issued in ASC 470-20, which clarifies the accounting for convertible debt instruments that may be settled in cash (including partial cash settlement) upon conversion. This accounting standard requires issuers of convertible debt that can be settled in cash to separately account for (i.e., bifurcate) a portion of the debt associated with the conversion feature and reclassify this portion to stockholders’ equity. The liability portion, which represents the fair value of the debt without the conversion feature, is accreted to its face value using the effective interest method by amortizing the discount between the face amount and the fair value. The amortization is recorded as non-cash interest expense. ASC 470-20 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years, and must be applied retrospectively to all periods presented. We adopted ASC 470-20 as of July 1, 2009 and have applied it to our 2027 Notes for fiscal years 2009, 2008 and 2007, as required. The 2028 Notes issued during fiscal year 2010 are also subject to the application of the accounting standard. The Company is required to record the liability portion of the Notes at their fair value as of the date of issuance and amortize the discount into interest expense over the life of the Notes during the periods in which the Notes are outstanding. As of September 30, 2010, the remaining discount of $5.9 million on the 2027 Notes will be amortized using the effective interest method through December 31, 2012 and the remaining discount of $33.7 million on the 2028 Notes will be amortized similarly through April 1, 2015. There is no effect, however, on the Company’s cash interest payments.

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 Dollar Financial Corp.’s common stock on the date of issuance was less than the initial conversion price.

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Upon conversion, Dollar Financial Corp. 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 Dollar Financial Corp.’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 Dollar Financial Corp.’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 was 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 Dollar Financial Group, Inc. 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 the Company, as the borrower; (iii) a senior secured term loan facility with Dollar Financial U.K. Limited, a wholly-owned U.K. indirect subsidiary of the Company, 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 “U.K. Term Facility”); and (iv) a senior secured revolving credit facility in an aggregate amount of CAD28.5 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. This facility expired on June 30, 2010.

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 did not consent 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.

On June 23, 2010, the Company used excess cash to repay the remaining balance of approximately $18.3 million of the term loan portions of the Amended and Restated Credit Agreement.

At September 30, 2010, $14.3 million was outstanding under the U.S. Revolving Facility and no amounts were outstanding under the Canadian Revolving Facility.

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The obligations under the U.S. Revolving Facility, if any, are guaranteed by the Company and certain direct and indirect domestic subsidiaries of the Company. The obligations under the Canadian Revolving 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 September 30, 2010, the Company was in compliance with all covenants.

Other debt consists of GBP 5.8 million of debt assumed as part of the S&R acquisition, consisting of a GBP 0.5 million overdraft facility, a GBP 1.8 million revolving loan and a GBP 3.5 million term loan.

Interest expense, net was $11.6 million and $21.6 million for the three months ended September 30, 2009 and 2010, respectively. Included in interest expense was $2.4 million and $2.0 million of non-cash interest related to the Convertible Notes for the three months ended September 30, 2009 and 2010, respectively.

5. 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 September 30, 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 — (Continued)

The table below presents the Company’s assets and liabilities measured at fair value on a recurring basis as of September 30, 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 September 30, 2010
( in millions)


	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)		September 30, 2010
Assets
Derivative financial instruments	$	—	$	—	$	—	$	—

Liabilities
Derivative financial instruments	$	—	$	58.4	$	—	$	58.4

The Company does not have any fair value measurements using significant unobservable inputs (Level 3) as of September 30, 2010.

6. 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 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 from time to time 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 September 30, 2010, the Company did not have any outstanding foreign currency derivatives that were designated as hedges.

Cash Flow Hedges of Multiple Risks

Prior to the Company’s refinancing activities in December 2009, the Company’s foreign subsidiaries in the United Kingdom and Canada had 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

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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 interest rate risk was recorded in other comprehensive income and is subsequently reclassified into earnings in the period that 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 December 23, 2009, the Company used a portion of the net proceeds of its $600 million 10.375% Senior Notes due 2016 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 was included in Loss on Extinguishment of Debt during the three months ended December 31, 2009. 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. The cross-currency swaps continue to be outstanding, and changes in fair value to these instruments is recorded through the income statement because they were de-designated due to ineffectiveness. 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 continues to report the net loss related to the discontinued cash flow hedges that existed at the date of de-designation at its Canadian entity in accumulated other comprehensive income included in stockholders’ equity, and is subsequently reclassifying this amount into earnings over the remaining original term of the derivative, when the hedged forecasted transactions are recognized in earnings.

As of September 30, 2010, the Company had the following outstanding derivatives:


					Receive Floating		Receive Floating
Foreign Currency Derivatives	Pay Fixed Notional	Pay Fixed Strike Rate			Notional		Index
USD-CAD Cross Currency Swap	CAD182,132,438		8.75	%	$	158,400,000	3 mo. LIBOR + 2.75% per annum
USD-CAD Cross Currency Swap	CAD60,979,248		7.47	%	$	52,800,000	3 mo. LIBOR + 2.75% per annum
USD-CAD Cross Currency Swap	CAD83,188,800		7.41	%	$	72,000,000	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 September 30, 2010, the Company’s subsidiary in the United Kingdom did not have any outstanding gold options.

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The tables below present the effect of the Company’s derivative financial instruments on the Consolidated Statement of Operations for the periods ending September 30, 2010 and 2009 (in millions).

Tabular Disclosure of the Effect of Derivative Instruments on the Consolidated Statement of Operations for the Three Months Ending September 30, 2010

Location of Gain or

Amount of Gain or

(Loss) Recognized in

Amount of Gain or

Location of Gain or

Amount of Gain or

Income on Derivative

(Loss) Recognized in

(Loss) Reclassified

(Ineffective Portion

OCI on Derivative

from Accumulated

and Amount Excluded

Derivatives in Cash Flow

(Effective Portion),

OCI into Income

from Effectiveness

Hedging Relationships

net of tax

(Effective Portion)

Testing)

Cross Currency Swaps

—

Interest Expense

(1.6

)

Other income / (expense)

(13.8

)

Corporate Expenses

0.4

Total

—

(1.2

)

(13.8

)

Tabular Disclosure of the Effect of Derivative Instruments on the Consolidated Statement of Operations for the Three Months Ending September 30, 2009

Location of Gain or

Amount of Gain or

(Loss) Recognized in

Amount of Gain or

Location of Gain or

Amount of Gain or

Income on Derivative

(Loss) Recognized in

(Loss) Reclassified

(Ineffective Portion

OCI on Derivative

from Accumulated

and Amount Excluded

Derivatives in Cash Flow

(Effective Portion),

OCI into Income

from Effectiveness

Hedging Relationships

net of tax

(Effective Portion)

Testing)

Foreign Exchange Contracts

—

Foreign currency gain / (loss)

—

Other income / (expense)

—

Cross Currency Swaps

0.6

Interest Expense

(0.4

)

Other income / (expense)

—

Corporate Expenses

0.1

Total

0.6

(0.3

)

—

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 September 30, 2010, the fair value of derivatives is in a net liability position of $61.3 million. This amount includes accrued interest but excludes any adjustment for non-performance risk. As of September 30, 2010, the Company has not posted, 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 $61.3 million at September 30, 2010.

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

7. Comprehensive Income

Comprehensive income encompasses all changes in stockholders’ equity (except those arising from transactions with stockholders) and includes net income (loss), foreign currency translation adjustments and fair value adjustments for cash flow hedges (see Note 6). The following shows the comprehensive income for the periods stated (in millions):


	Three months ended
	September 30,
	2009			2010
Net income	$	5.4		$	12.1
Foreign currency translation adjustment⁽¹⁾		4.3			7.7
Fair value adjustments for derivatives, net⁽²⁾		(0.5	)		—
Amortization of accumulated other comprehensive income related to ineffective cash flow hedges⁽³⁾		0.3			1.2

Comprehensive income		9.5			21.0
Net income (loss) applicable to non-controlling interests		0.1			(0.1	)

Comprehensive income attributable to Dollar Financial Corp.	$	9.4		$	21.1


⁽¹⁾		The ending balance of the foreign currency translation adjustments included in accumulated other comprehensive income on the balance sheet were gains of $24.1 million and $21.3 million as of September 30, 2009 and 2010, respectively.

⁽²⁾		Net of $0.3 million of tax for the three months ended September 30, 2009.

⁽³⁾		Net of $0.1 million and $0.3 million of tax for the three months ended September 30, 2009 and 2010, respectively.

Accumulated other comprehensive income, net of related tax, consisted of unrealized losses on terminated cross-currency interest rate swaps of $9.7 million at September 30, 2010, compared to net unrealized losses on put options designated as cash flow hedges of $8 thousand and $10.1 million of net unrealized losses on cross-currency interest rate swaps designated as cash flow hedging transactions and unrealized losses on terminated cross-currency interest rate swaps of $1.9 million at September 30, 2009.

8. Income Taxes

Income Tax Provision

The provision for income taxes was $6.1 million for the three months ended September 30, 2010 compared to a provision of $8.0 million for the three months ended September 30, 2009. The Company’s effective tax rate was 33.6% for the three months ended September 30, 2010 and was 59.9% for the three months ended September 30, 2009. The decrease in the effective tax rate for the three months ended September 30, 2010 as compared to the prior year was primarily a result of the increased profitability in the Company’s U.S. based businesses (primarily as a result of the DFS acquisition) and the taxation of the Canadian mark to market gains/losses at the lower statutory rate. 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. At September 30, 2010 the Company maintained deferred tax assets of $122.9 million which is offset by a valuation allowance of $85.8 million which represents a decrease of $0.7 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.

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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


					Net
	Deferred		Valuation		Deferred
	Tax Asset		Allowance		Tax Asset
Balance at June 30, 2010	$	122.8	$	85.0	$	37.8
Foreign increase/(decrease)		0.1		0.8		(0.7	)

Balance at September 30, 2010	$	122.9	$	85.8	$	37.1

The $122.9 million in deferred tax assets consists of $43.9 million related to net operating losses and other temporary differences, $54.4 million related to foreign tax credits and $24.6 million in foreign deferred tax assets. At September 30, 2010, U.S. deferred tax assets related to net operating losses and other temporary differences were reduced by a valuation allowance of $43.9 million, which reflects no change during the period. The net operating loss carry forward at September 30, 2010 and June 30, 2010 was $68.3 million. The Company’s ability to utilize pre-2007 net operating losses in a given year is 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 $54.4 million. Additionally, the Company maintains foreign deferred tax assets in the amount of $24.6 million which is offset by a valuation allowance of $1.0 million related to the Canadian cross-currency interest rate swaps.

Effective July 1, 2009, the Company adopted 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 September 30, 2010, the deferred tax liability associated with the Notes was $13.8 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.

At June 30, 2010, the Company had unrecognized tax benefit reserves related to uncertain tax positions of $10.3 million, primarily related to transfer pricing matters which, if recognized, would decrease the effective tax rate. At September 30, 2010, the Company had $12.1 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 2010 remain open to examination by the taxing authorities in the United States, United Kingdom and Canada.

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of September 30, 2010, the Company had approximately $1.3 million of accrued interest related to uncertain tax positions which represents a $0.4 million increase during the three months ended September 30, 2010. The provision for unrecognized tax benefits including accrued interest is included in income taxes payable.

9. Contingent Liabilities

The Company is subject to various asserted and unasserted claims during the course of business. 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, in connection with the asserted and unasserted legal actions against it. 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.

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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.

Ontario Class Action

In 2003, a former customer in Ontario, Canada, Margaret Smith, commenced an action against Dollar Financial Group, Inc. and the Company’s indirect wholly owned 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 a settlement of the Ontario Litigation, and the settlement became final upon the expiration of a 30-day appeal period.

British Columbia Class Action

In 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 (the “British Columbia Litigation”). The allegations were substantially similar to the Ontario Litigation. Effective July 19, 2010, the court approved a settlement of the British Columbia Litigation, and the settlement became final upon the expiration of a 30-day appeal period.

New Brunswick, Newfoundland and Nova Scotia Class Actions

Litigation similar in nature to the Ontario Litigation and the British Columbia Litigation was commenced against Money Mart in New Brunswick, Nova Scotia and Newfoundland (collectively, the “Maritimes Litigation”). Effective May 26, 2010, courts in those three provinces approved settlements of all of the Maritimes Litigation, and those settlements became final upon the expiration of a 30-day appeal period.

Purported Alberta Class Actions

In 2003, Gareth Young, a former customer, commenced a representative action (the “Young Litigation”) against Money Mart, Dollar Financial Group, Inc. and two other individual defendants in the Court of Queen’s Bench of Alberta, Canada on behalf of a class of consumers. The allegations are substantially similar to the Ontario and British Columbia Litigation. The action seeks restitution and damages, including punitive damages. In 2004, Money Mart served Mr. Young a demand for arbitration. In July 2010, Dollar Financial Group, Inc. and the individual defendants in the case were dismissed.

In 2006, a former customer, H. Craig Day, commenced a purported class action against Dollar Financial Group, Inc., 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 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. In 2007, a demand for arbitration was served on the Day action plaintiffs; in April 2010, plaintiffs’ indicated that they would proceed with the claims in the Alberta Litigation; Money Mart and the franchisees have filed motions to enforce the arbitration clause and to stay the actions.

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

In 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. The allegations are substantially similar to the Ontario and British Columbia Litigation. The action has not

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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

As of September 30, 2010, an aggregate of approximately CAD 55.2 million is included in the Company’s accrued liabilities relating to the Canadian class action proceedings described above. The class action proceedings settled to date have consisted of a cash component and vouchers to the class members for future services. The component of the accrual that relates to vouchers is approximately CAD 32.3 million, the majority of which is expected to be non-cash. Although we believe that we have meritorious defenses to the claims in the purported class proceedings in Alberta and Manitoba described above and intend vigorously to defend against such remaining pending claims, the ultimate cost of resolution of such claims may exceed the amount accrued at September 30, 2010 and additional accruals may be required in the future.

Other Canadian Litigation

In 2006, two former employees, Peggy White and Kelly Arseneau, commenced companion actions against Money Mart and Dollar Financial Group, Inc. 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 CAD 5.0 million plus interest and costs. The Company continues to defend these actions vigorously and believes it has meritorious defenses.

On October 1, 2010, The Cash Store Financial Services, Inc. and its subsidiaries, The Cash Store Inc. and InstaLoans Inc. (“Cash Store”), filed a complaint and motion for injunctive relief in Ontario Superior Court against Money Mart alleging trademark violations and false/misleading advertising, along with claims for CAD 60 million in damages, against Money Mart’s print, television and internet advertising which features Cash Store’s higher payday loan costs as compared to Money Mart. On October 14, 2010, Money Mart filed its opposition to Cash Store’s motion based, in part, on data gathered from Cash Store loan transactions that supported Money Mart’s advertising statements. On October 15, 2010, the Cash Store abandoned its motion to enjoin Money Mart’s advertising, and on October 21, 2010, the Court granted Money Mart’s request for reimbursement from the Cash Store of Money Marts’ attorneys’ fees incurred to defeat Cash Store’s injunction motion. Should the Cash Store elect to further pursue the claims alleged in its complaint, Money Mart is prepared to vigorously defend this matter and its advertising. 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.

California Legal Proceedings

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 certain of the Company’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. In 2009, the City Attorney filed an amended complaint, restating the claims in the original complaint, adding Dollar Financial Group, Inc. as a defendant and adding a claim that short-term deferred deposit loans made by the Bank, which were marketed and serviced by Dollar Financial Group, Inc. and/or its subsidiaries, violated the California Deferred Deposit Transaction law. Dollar Financial Group, Inc. and its subsidiaries named in the complaint have denied the allegations of the amended complaint. Discovery is proceeding 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

It is the Company’s opinion that many of the litigation matters described below regarding its We The People (“WTP”) business relate to actions undertaken prior to our acquisition of the WTP business by the entity from which the Company acquired WTP, We The People Forms and Service Centers USA, Inc. (the “Former WTP”), and the owners of the Former WTP, Ira and Linda Distenfield. However, the Company and WTP have been included as defendants in these cases 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

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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, the subsidiaries through which the Company operates the WTP business, We The People USA, Inc. and its wholly owned subsidiary, We The People LLC (collectively, the “WTP Debtors”) filed voluntary petitions 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”). On October 13, 2010, the WTP Debtors filed with the Bankruptcy Court a plan of liquidation under Chapter 11 of the bankruptcy code (the “Plan”). The Plan obtained the support of a majority of the Unsecured Creditors Committee. The deadline for votes and objections to the Plan is November 22, 2010. The WTP Debtors have scheduled a confirmation hearing on the Plan for December 15, 2010. If the Plan is approved by the Bankruptcy Court, the Company will be obligated to fund $1.8 million to the Plan in order to satisfy creditors’ claims. In exchange, most creditors will release their claims against the WTP Debtors and the Company. At this time, it is too early to determine the likelihood of Plan confirmation or an unfavorable outcome, or the ultimate liability, if any, resulting from this bankruptcy petition.

A description of the principal litigation for the Company’s WTP business unit is set forth below. During the three months ended September 30, 2010, the Company recorded an additional charge of $0.9 million related to its potential obligations under the Plan should it be approved by the Bankruptcy Court. As of September 30, 2010, an aggregate of approximately $1.8 million is included in the Company’s accrued expenses relating to WTP Bankruptcy Proceedings and the litigation pending against the WTP Debtors and the Company related to the WTP business. Although we believe that we have meritorious defenses to the claims described below and intend vigorously to defend against such remaining pending claims, the ultimate cost of resolution of such claims may exceed the amount accrued at September 30, 2010 and additional accruals may be required in the future.

Customer Litigation

In September 2007, Jacqueline Fitzgibbons, a former customer of a WTP store, commenced a lawsuit against WTP and Dollar Financial Group, Inc. and others in California Superior Court for Alameda County. In January 2009, an individual named Robert Blau replaced Fitzgibbons as lead plaintiff. 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. 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. On April 8, 2010, the parties reached an agreement to settle the case with a settlement fund to be funded by Dollar Financial Group, Inc. During the three months ended September 30, 2010, the Company reduced the reserve by $0.8 million, to $3.2 million, in relation to the pending settlement. In June 2010, the Bankruptcy Court approved the terms of the settlement in so far as the terms affected the We The People USA, Inc. and We The People LLC bankruptcy estates. On September 17, 2010, the court granted final approval of the class settlement. The deadline for filing an appeal of the settlement is November 16, 2010. There is no assurance, however, that the settlement will become final.

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 Dollar Financial Group, Inc., 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 We The People USA, Inc. and We The People LLC have been stayed by the Bankruptcy Court. The plaintiffs are, however, pursuing their claims against the Company and a WTP franchisee. 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, Dollar Financial Group, Inc., 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 Dollar Financial Group, Inc. and WTP are without merit and intends to defend the matter vigorously.

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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 Dollar Financial Group, Inc. in United States District Court for the District of Utah. The Greenes allege that pursuant to an alleged guarantee in certain franchise disclosure documents, Dollar Financial Group, Inc. is liable for damages and attorneys’ fees due to WTP’s failure to comply with various Utah consumer, franchise and business opportunity disclosure regulations. Dollar Financial Group, Inc. 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.

10. Segment Information

The Company categorizes its operations into five 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, pawn loan fees and sales and other ancillary services. As a result of the mix of service offerings and diversity in the respective geographic regulatory environments, there are differences in each operating segment’s profit margins. The Company’s operations in Poland are presently included in the operating segment listed as Other, as well as all corporate headquarters expenses that have not been charged out to the operating segments in United States Retail, Canada and United Kingdom.

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(In millions)



			Dealers’
	United States		Financial					United
	Retail		Services		Canada			Kingdom			Other			Total
As of and for the three months ended September 30, 2009
Total assets	$	237.7	$	—	$	503.5		$	176.1		$	39.0		$	956.3
Goodwill and other intangibles, net		206.0		—		180.2			75.7			5.4			467.3
Sales to unaffiliated customers:
Check cashing		10.9		—		17.3			9.6			—			37.8
Fees from consumer lending		17.9		—		35.2			23.0			1.3			77.4
Money transfer fees		1.3		—		4.0			1.5			—			6.8
Pawn service fees and sales		—		—		—			3.8			—			3.8
Other		2.6		—		7.6			9.3			0.2			19.7

Total sales to unaffiliated customers		32.7		—		64.1			47.2			1.5			145.5
Provision for loan losses		3.7		—		3.8			3.7			0.5			11.7
Interest expense, net		—		—		5.3			1.6			4.7			11.6
Depreciation and amortization		0.9		—		1.6			1.6			0.4			4.5
Unrealized foreign exchange (gain) loss		—		—		(0.1	)		7.9			—			7.8
Provision for litigation settlements		—		—		—			—			1.3			1.3
Loss on store closings		0.2		—		0.2			(0.1	)		—			0.3
Income (loss) before income taxes		4.3		—		18.4			2.5			(11.8	)		13.4
Income tax provision (benefit)		5.4		—		5.8			0.9			(4.1	)		8.0

As of and for the three months ended September 30, 2010
Total assets	$	261.3	$	121.4	$	524.3		$	292.0		$	48.9		$	1,247.9
Goodwill and other intangibles, net		206.0		113.0		187.6			105.5			7.5			619.6
Sales to unaffiliated customers:
Check cashing		9.8		—		17.7			7.8			—			35.3
Fees from consumer lending		15.7		—		41.4			32.9			2.0			92.0
Money transfer fees		1.1		—		4.4			1.7			—			7.2
Pawn service fees and sales		—		—		—			6.3			—			6.3
Other		3.4		6.5		10.4			13.1			—			33.4

Total sales to unaffiliated customers		30.0		6.5		73.9			61.8			2.0			174.2
Provision for loan losses		2.0		—		4.3			7.2			0.5			14.0
Interest expense, net		—		—		17.6			0.1			3.9			21.6
Depreciation and amortization		0.7		1.6		1.7			1.8			0.5			6.3
Unrealized foreign exchange (gain) loss		—		—		(15.2	)		(0.1	)		0.7			(14.6	)
Loss on derivatives not designated as hedges		—		—		13.8			—			—			13.8
Provision for litigation settlements		—		—		0.1			—			0.1			0.2
Loss on store closings		0.1		—		—			—			0.1			0.2
Other expense (income), net		—		—		(0.5	)		0.1			1.2			0.8
Income (loss) before income taxes		6.1		2.5		8.1			12.6			(11.1	)		18.2
Income tax provision (benefit)		3.7		—		1.5			3.9			(3.0	)		6.1

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

11. 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 Dollar Financial Corp. and certain of its direct and indirect wholly owned U.S. and Canadian subsidiaries (the “Guarantors”).

The Guarantees of the 2016 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 Company’s Amended and Restated 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 September 30, 2010 and June 30, 2010 and the condensed consolidating statements of operations and cash flows for the three months ended September 30, 2010 and 2009 of Dollar Financial Corp., National Money Mart Company, the combined Guarantors, the combined Non-Guarantors and the consolidated Company.

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Consolidating Condensed Balance Sheets
September 30, 2010
(In millions)


	Dollar		National		DFG, Inc.
	Financial		Money		and		Non-
	Corp.		Mart		Guarantors		Guarantors			Eliminations			Consolidated
Current Assets
Cash and cash equivalents	$	1.1	$	215.9	$	22.5	$	46.8		$	—		$	286.3
Loans receivable, net		—		29.9		23.1		98.1			—			151.1
Loans in default, net		—		7.9		0.5		0.1			—			8.5
Other receivables		0.3		11.5		2.1		8.1			(4.6	)		17.4
Prepaid expenses and other current assets		—		8.5		4.5		19.6			—			32.6

Total current assets		1.4		273.7		52.7		172.7			(4.6	)		495.9
Deferred tax asset, net of valuation allowance		—		22.5		—		0.1			—			22.6
Intercompany receivables		258.9		40.1		—		—			(299.0	)		—
Property and equipment, net		—		28.3		14.0		31.4			—			73.7
Goodwill and other intangibles		—		187.6		206.6		225.4			—			619.6
Debt issuance costs, net		1.4		14.6		2.2		0.1			—			18.3
Investment in subsidiaries		106.8		289.9		127.1		—			(523.8	)		—
Other		—		0.6		14.2		3.0			—			17.8

Total Assets	$	368.5	$	857.3	$	416.8	$	432.7		$	(827.4	)	$	1,247.9


Current Liabilities
Accounts payable	$	0.4	$	11.0	$	12.3	$	10.6		$	—		$	34.3
Income taxes payable		—		—		0.5		7.9			(4.6	)		3.8
Accrued expenses and other liabilities		2.1		57.9		18.4		16.7			1.1			96.2
Debt due within one year		—		—		14.3		3.7			—			18.0
Current deferred tax liability		—		—		—		0.4			—			0.4

Total current liabilities		2.5		68.9		45.5		39.3			(3.5	)		152.7
Fair value of derivatives		—		58.4		—		—			—			58.4
Long-term deferred tax liability		—		6.8		18.7		0.4			—			25.9
Long-term debt		125.2		596.7		—		5.5			—			727.4
Intercompany payables		—		—		233.5		65.5			(299.0	)		—
Other non-current liabilities		—		30.0		11.1		1.7			—			42.8

Total liabilities		127.7		760.8		308.8		112.4			(302.5	)		1,007.2

Total Dollar Financial Corp. stockholders’ equity		240.8		96.5		108.0		320.4			(524.9	)		240.8
Non-controlling interest		—		—		—		(0.1	)		—			(0.1	)

Total stockholders’ equity		240.8		96.5		108.0		320.3			(524.9	)		240.7

Total Liabilities and Stockholders’ Equity	$	368.5	$	857.3	$	416.8	$	432.7		$	(827.4	)	$	1,247.9

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Consolidating Condensed Statements Of Operations
Three Months ended September 30, 2010
(In millions)


	Dollar			National			DFG, Inc.
	Financial			Money			and			Non-
	Corp.			Mart			Guarantors			Guarantors			Eliminations			Consolidated
Revenues:
Check cashing	$	—		$	17.7		$	9.8		$	7.8		$	—		$	35.3
Fees from consumer lending		—			41.4			15.7			34.9			—			92.0
Other		—			14.8			4.5			27.6			—			46.9

Total revenues		—			73.9			30.0			70.3			—			174.2


Operating expenses:
Salaries and benefits		—			15.1			11.3			14.3			—			40.7
Provision for loan losses		—			4.3			2.0			7.7			—			14.0
Occupancy		—			4.4			3.2			4.0			—			11.6
Depreciation		—			1.4			0.7			1.5			—			3.6
Other		—			11.8			5.7			18.5			—			36.0

Total operating expenses		—			37.0			22.9			46.0			—			105.9

Operating margin		—			36.9			7.1			24.3			—			68.3


Corporate and other expenses:
Corporate expenses		—			5.9			15.0			4.5			—			25.4
Intercompany charges		—			6.5			(9.8	)		3.3			—			(0.0	)
Other depreciation and amortization		—			0.3			0.5			1.9			—			2.7
Interest expense, net		3.3			17.7			0.3			0.3			—			21.6
Unrealized foreign exchange loss (gain)		—			(15.2	)		0.7			(0.1	)		—			(14.6	)
Loss on derivatives not designated as hedges		—			13.8			—			—			—			13.8
Provision for litigation settlements		—			0.1			0.1			—			—			0.2
Loss on store closings		—			—			0.2			—			—			0.2
Other expense (income), net		—			—			0.7			0.1			—			0.8

(Loss) income before income taxes		(3.3	)		7.8			(0.6	)		14.3			—			18.2
Income tax provision		—			1.5			0.6			4.0			—			6.1

Net (loss) income		(3.3	)		6.3			(1.2	)		10.3			—			12.1

Less: Net loss attributable to non-controlling interests		—			—			—			(0.1	)		—			(0.1	)
Equity in net income (loss) of subsidiaries:
National Money Mart Company		6.3			—			—			—			(6.3	)		—
Guarantors		(1.2	)		—			—			—			1.2			—
Non-guarantors		10.4			—			—			—			(10.4	)		—

Net income (loss) attributable to Dollar Financial Corp.	$	12.2		$	6.3		$	(1.2	)	$	10.4		$	(15.5	)	$	12.2

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Consolidating Condensed Statements Of Cash Flows

Three Months Ended September 30, 2010

(In millions)


	Dollar			National			DFG, Inc.
	Financial			Money			and			Non-
	Corp.			Mart			Guarantors			Guarantors			Eliminations			Consolidated
Cash flows from operating activities:
Net income (loss)	$	12.2		$	6.3		$	(1.2	)	$	10.3		$	(15.5	)	$	12.1
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Undistributed income of subsidiaries		(15.5	)		—			—			—			15.5			—
Depreciation and amortization		0.1			2.3			1.4			3.4			—			7.2
Change in fair value of derivative not designated as a hedge		—			9.5			—			—			—			9.5
Provision for loan losses		—			4.3			2.0			7.7			—			14.0
Non-cash stock compensation		1.2			—			—			—			—			1.2
Losses on disposal of fixed assets		—			—			0.3			—			—			0.3
Unrealized foreign exchange (gain) loss		—			(15.2	)		0.7			(0.1	)		—			(14.6	)
Deferred tax provision (benefit)		—			0.4			1.3			0.4			—			2.1
Accretion of debt discount and deferred issuance costs		2.0			1.6			—			—			—			3.6
Change in assets and liabilities (net of effect of acquisitions):
(Increase) decrease in loans and other receivables		—			(6.5	)		(4.4	)		(13.1	)		2.9			(21.1	)
(Increase) decrease in prepaid expenses and other		—			(0.8	)		(2.8	)		(0.3	)		(2.9	)		(6.8	)
(Decrease) increase in accounts payable, accrued expenses and other liabilities		1.3			(10.2	)		(7.5	)		(9.5	)		—			(25.9	)

Net cash provided by (used in) operating activities		1.3			(8.3	)		(10.2	)		(1.2	)		—			(18.4	)

Cash flows from investing activities:
Acquisitions, net of cash acquired		—			—			—			(0.4	)		—			(0.4	)
Additions to property and equipment		—			(1.9	)		(1.2	)		(6.3	)		—			(9.4	)
Net (increase) decrease in due from affiliates		(5.8	)		1.2			1.3			3.3			—			—

Net cash provided by (used in) investing activities		(5.8	)		(0.7	)		0.1			(3.4	)		—			(9.8	)

Cash flows from financing activities:
Proceeds from the exercise of stock options		0.2			—			—			—			—			0.2
Net increase in revolving credit facilities		—			—			14.3			—			—			14.3
Payment of debt issuance and other costs		—			(0.1	)		—			—			—			(0.1	)

Net cash provided by (used in) financing activities		0.2			(0.1	)		14.3			—			—			14.4
Effect of exchange rate changes on cash and cash equivalents		—			6.4			—			2.4			—			8.8

Net increase (decrease) in cash and cash equivalents		(4.3	)		(2.7	)		4.2			(2.2	)		—			(5.0	)
Cash and cash equivalents balance-beginning of period		5.4			218.6			18.3			49.0			—			291.3

Cash and cash equivalents balance-end of period	$	1.1		$	215.9		$	22.5		$	46.8		$	—		$	286.3

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Consolidating Condensed Balance Sheets
June 30, 2010
(In millions)


	Dollar		National		DFG, Inc.
	Financial		Money		and		Non-
	Corp.		Mart		Guarantors		Guarantors		Eliminations			Consolidated
Current Assets
Cash and cash equivalents	$	5.4	$	218.6	$	18.3	$	49.0	$	—		$	291.3
Loans receivable, net		—		29.8		20.9		87.6		—			138.3
Loans in default, net		—		6.1		0.6		0.6		—			7.3
Other receivables		0.4		9.8		1.8		6.9		(1.7	)		17.2
Prepaid expenses and other current assets		—		7.5		3.6		18.6		(2.9	)		26.8

Total current assets		5.8		271.8		45.2		162.7		(4.6	)		480.9
Deferred tax asset, net of valuation allowance		—		22.5		—		0.1		—			22.6
Intercompany receivables		253.0		41.6		—		—		(294.6	)		—
Property and equipment, net		—		27.5		14.4		25.6		—			67.5
Goodwill and other intangibles		—		182.1		206.6		220.3		—			609.0
Debt issuance costs, net		1.5		14.7		2.4		0.1		—			18.7
Investment in subsidiaries		82.4		285.9		103.1		—		(471.4	)		—
Other		—		0.7		12.2		3.0		—			15.9

Total Assets	$	342.7	$	846.8	$	383.9	$	411.8	$	(770.6	)	$	1,214.6


Current Liabilities
Accounts payable	$	0.3	$	14.2	$	11.8	$	18.5	$	—		$	44.8
Income taxes payable		—		—		1.0		6.9		(1.7	)		6.2
Accrued expenses and other liabilities		0.9		50.3		27.8		15.4		(1.8	)		92.6
Debt due within one year		—		—		—		3.3		—			3.3
Current deferred tax liability		—		—		—		0.3		—			0.3

Total current liabilities		1.2		64.5		40.6		44.4		(3.5	)		147.2
Fair value of derivatives		—		47.4		—		—		—			47.4
Long-term deferred tax liability		—		6.7		17.3		—		—			24.0
Long-term debt		123.2		596.7		—		5.4		—			725.3
Intercompany payables		—		—		232.5		62.2		(294.7	)		—
Other non-current liabilities		—		40.6		10.0		1.8		—			52.4

Total liabilities		124.4		755.9		300.4		113.8		(298.2	)		996.3

Total Dollar Financial Corp. stockholders’ equity		218.3		90.9		83.5		298.0		(472.4	)		218.3

Total stockholders’ equity		218.3		90.9		83.5		298.0		(472.4	)		218.3

Total Liabilities and Stockholders’ Equity	$	342.7	$	846.8	$	383.9	$	411.8	$	(770.6	)	$	1,214.6

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Consolidating Condensed Statements Of Operations
Three Months ended September 30, 2009
(In millions)


	Dollar			National			DFG, Inc.
	Financial			Money			and			Non-
	Corp.			Mart			Guarantors			Guarantors			Eliminations			Consolidated
Revenues:
Check cashing	$	—		$	17.3		$	10.9		$	9.6		$	—		$	37.8
Fees from consumer lending		—			35.2			17.9			24.3			—			77.4
Other		—			11.6			3.9			14.8			—			30.3

Total revenues		—			64.1			32.7			48.7			—			145.5


Operating expenses:
Salaries and benefits		—			13.5			13.4			9.8			—			36.7
Provision for loan losses		—			3.8			3.7			4.2			—			11.7
Occupancy		—			3.9			3.7			3.2			—			10.8
Depreciation		—			1.3			0.9			1.2			—			3.4
Other		—			8.8			5.7			12.5			—			27.0

Total operating expenses		—			31.3			27.4			30.9			—			89.6

Operating margin		—			32.8			5.3			17.8			—			55.9


Corporate and other expenses:
Corporate expenses		—			4.4			12.2			3.8			—			20.4
Intercompany charges		—			4.5			(6.5	)		2.0			—			—
Other depreciation and amortization		—			0.3			0.4			0.4			—			1.1
Interest expense, net		4.0			5.4			0.5			1.7			—			11.6
Unrealized foreign exchange (gain) loss		—			(0.1	)		—			7.9			—			7.8
Provision for litigation settlements		—			—			1.3			—			—			1.3
Loss on store closings		—			0.2			0.2			(0.1	)		—			0.3
Other expense (income), net		—			0.3			(0.1	)		(0.2	)		—			(0.0	)

(Loss) income before income taxes		(4.0	)		17.8			(2.7	)		2.3			—			13.4
Income tax (benefit)provision		(0.3	)		5.8			1.4			1.1			—			8.0

Net (loss) income		(3.7	)		12.0			(4.1	)		1.2			—			5.4
Less: Net income attributable to non-controlling interests								—			0.1						0.1

Equity in net income (loss) of subsidiaries:
National Money Mart Company		12.0			—			—			—			(12.0	)		—
Guarantors		(4.1	)		—			—			—			4.1			—
Non-guarantors		1.1			—			—			—			(1.1	)		—

Net (loss) income attributable to Dollar Financial Corp.	$	5.3		$	12.0		$	(4.1	)	$	1.1		$	(9.0	)	$	5.3

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Consolidating Condensed Statements Of Cash Flows
Three Months Ended September 30, 2009
(In millions)


	Dollar			National			DFG, Inc.
	Financial			Money			and			Non-
	Corp.			Mart			Guarantors			Guarantors			Eliminations			Consolidated
Cash flows from operating activities:

Net income (loss)	$	5.4		$	12.0		$	(4.1	)	$	1.2		$	(9.1	)	$	5.4
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Undistributed income of subsidiaries		(9.1	)		—			—			—			9.1			—
Depreciation and amortization		0.3			1.9			1.3			1.9			—			5.4
Provision for loan losses		—			3.8			3.7			4.2			—			11.7
Non-cash stock compensation		1.4			—			—			—			—			1.4
Losses on disposal of fixed assets		—			0.1			0.1			—			—			0.2
Unrealized foreign exchange (gain) loss		—			(0.1	)		—			7.9			—			7.8
Deferred tax provision (benefit)		—			(0.4	)		1.1			3.2			—			3.9
Accretion of debt discount and deferred issuance costs		2.4			—			—			—			—			2.4
Change in assets and liabilities (net of effect of acquisitions):
(Increase) decrease in loans and other receivables		—			(0.3	)		(5.6	)		(8.9	)		0.1			(14.7	)
(Increase) decrease in prepaid expenses and other		—			3.5			(0.5	)		2.5			(4.9	)		0.6
Increase (decrease) in accounts payable, accrued expenses and other liabilities		—			6.7			(4.5	)		(12.3	)		4.8			(5.3	)

Net cash provided by (used in) operating activities		0.4			27.2			(8.5	)		(0.3	)		—			18.8

Cash flows from investing activities:
Additions to property and equipment		—			(1.7	)		(0.5	)		(3.3	)		—			(5.5	)
Net (increase) decrease in due from affiliates		(0.5	)		(9.5	)		3.5			6.5			—			—

Net cash provided by (used in) investing activities		(0.5	)		(11.2	)		3.0			3.2			—			(5.5	)

Cash flows from financing activities:
Other debt payments		—			(0.8	)		—			(7.2	)		—			(8.0	)
Payment of debt issuance and other costs		—			—			(0.1	)		—			—			(0.1	)

Net cash provided by (used in) financing activities		—			(0.8	)		(0.1	)		(7.2	)		—			(8.1	)
Effect of exchange rate changes on cash and cash equivalents		—			12.9			—			(1.0	)		—			11.9

Net increase (decrease) in cash and cash equivalents		(0.1	)		28.1			(5.6	)		(5.3	)		—			17.1
Cash and cash equivalents balance-beginning of period		0.1			138.4			30.3			40.8			—			209.6

Cash and cash equivalents balance-end of period	$	—		$	166.5		$	24.7		$	35.5		$	—		$	226.7

12. Pending Acquisition

On August 25, 2010, the Company entered into an agreement to acquire Folkia Group AS (“Folkia”), a leading Scandinavian internet lending business with headquarters in Stockholm, Sweden. Folkia, which was founded in 2006, currently originates loans through both internet and SMS text cell phone technology in four countries: Sweden, Finland, Denmark, and Estonia. The completion of the acquisition is contingent upon customary closing conditions, including local regulatory approval.

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

This Quarterly Report on Form 10-Q and the documents incorporated herein contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Those statements are therefore entitled to the protection of the safe harbor provisions of these laws. These forward-looking statements, which are usually accompanied by words such as “may,” “might,” “will,” “should,” “could,” “intends,” “estimates,” “predicts,” “potential,” “continue,” “believes,” “anticipates,” “plans,” “expects” and similar expressions, involve risks and uncertainties, and relate to, without limitation, statements about our market opportunities, anticipated improvements in operations, our plans, earnings, cash flow and expense estimates, strategies and prospects, both business and financial. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from those expressed or forecasted in, or implied by, such forward-looking statements, particularly those factors discussed in “Item 1A - Risk Factors” in our Annual Report on Form 10-K our fiscal year ended June 30, 2010.

Although we believe that the expectations reflected in these forward-looking statements are based upon reasonable assumptions, no assurance can be given that such expectations will be attained or that any deviations will not be material. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this Quarterly Report on Form 10-Q may not occur and our actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. These forward-looking statements speak only as of the date on which they are made, and, except as otherwise required by law, we disclaim any obligation or undertaking to disseminate any update or revision to any forward-looking statement contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. If we do update or modify one or more forward-looking statements, you should not conclude that we will make additional updates or modifications with respect thereto or with respect to other forward-looking statements, except as required by law.

Unless the context otherwise requires, as used in this Quarterly Report on Form 10-Q, (i) the terms “fiscal year” and “fiscal” refer to (i) the twelve-month period ended on June 30 of the specified year, (ii) references to “$,” “dollars,” “United States dollars” or “U.S. dollars” refer to the lawful currency of the United States of America, (iii) references to “CAD” refer to the lawful currency of Canada, and (iv) references to “GBP” refer to the British Pound Sterling, the lawful currency of the United Kingdom of Great Britain and Northern Ireland.

Executive Summary

Overview

We are a leading international diversified financial services company serving primarily unbanked and under-banked consumers. Through our retail storefront locations as well as by other means, such as via the Internet and door stop lending, we provide a range of consumer financial products and services in five countries; Canada, the United Kingdom, the United States, the Republic of Ireland and Poland, to customers who, for reasons of convenience and accessibility, purchase some or all of their financial services from us rather than from banks and other financial institutions. We believe that our networks of retail locations in Canada and the United Kingdom are the largest of their kind in each of those countries, and that we operate the second-largest network of its kind in the United States. As of September 30, 2010, our global retail operations consisted of 1,193 retail locations, of which 1,067 are company-owned, conducting business primarily under the names Money Mart^®, Money Shop^®, Loan Mart^®, Money Corner^®, Insta-Cheques^® and The Check Cashing Store^® in Canada, the United Kingdom, the United States and the Republic of Ireland. Through our branded Military Installment Loan and Education Services, or MILES^®, program offered by our Dealers’ Financial Services, LLC subsidiary which we acquired in December 2009, we also provide services to enlisted military personnel applying for loans to purchase new and used vehicles that are funded and serviced under an exclusive agreement with a major third-party national bank.

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, including pawn lending, we receive interest and fees on the loans.

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.

As we continue to diversify our organization, we expect the contributions to our revenue and profitability from fee-based financial processing and origination services to increase. During the first quarter of fiscal 2011, nearly 50% of our total consolidated revenue was comprised of products and services which generally carry little or no credit risk, such as check cashing, money transfers, gold purchasing, foreign exchange, secured pawn lending and fee-based income generated from the MILES program.

We manage our business as five operating segments — our financial services offerings in each of Canada, the United Kingdom, the United States and Poland, as well as our Dealers’ Financial Services, LLC subsidiary, which we operate independently of our other businesses.

Since April, 2009, we have acquired eight businesses with an aggregate purchase price of approximately $181 million. This includes our December 2009 purchase of Military Financial Services, LLC, including its subsidiaries, Dealers’ Financial Services, LLC and Dealers’ Financial Services Reinsurance Ltd., which we collectively refer to as DFS, for which we paid a purchase price of approximately $123 million.

During our fiscal 2010, we entered into settlement agreements in connection with class action litigation commenced against us in the Canadian provinces of Ontario, British Columbia, Nova Scotia, New Brunswick and Newfoundland, in each case related to alleged violations of Canadian laws regarding usury. Purported class actions against us in the provinces of Alberta and Manitoba are still ongoing. As of September 30, 2010, we have included approximately CAD 55.2 million (of which CAD 32.3 million is expected to relate to vouchers issued to class members that will not result in any cash outlay from us) in accrued expenses related to the settled actions. As a result of these settlements, and the advent of provincial regulation in Canada over the short term consumer loan industry, we intend to leverage our multi-product store platform and position as a low cost provider in the market by offering products and services at prices below many of our Canadian competitors and to enhance our current share of the Canadian market.

Recent Events

On August 25, 2010, we entered into an agreement to acquire Folkia Group AS, a leading Scandinavian internet lending business with headquarters in Stockholm, Sweden (“Folkia”). Folkia, which was founded in 2006, currently originates loans through both internet and SMS text cell phone technology in four countries: Sweden, Finland, Denmark and Estonia. The completion of the acquisition is contingent upon customary closing conditions, including local regulatory approval.

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.

Management believes there have been no significant changes during the three months ended September 30, 2010, to the items that we disclose as our critical accounting policies in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2010.

Results of Operations

The percentages presented in the following table are based on each respective fiscal year’s total consolidated revenues:


	Three Months Ended September 30,
	2009						2010
				(Dollars in thousands)
Total revenues:
Check cashing	$	37,802			26.0	%	$	35,264		20.2	%
Fees from consumer lending		77,442			53.2	%		91,997		52.8	%
Money transfer fees		6,823			4.7	%		7,246		4.2	%
Pawn service fees and sales		3,833			2.6	%		6,262		3.6	%
Other		19,629			13.5	%		33,447		19.2	%

Total consolidated revenues		145,529			100.0	%		174,216		100.0	%


Operating expenses:
Salaries and benefits		36,736			25.2	%		40,650		23.3	%
Provision for loan losses		11,696			8.0	%		13,967		8.0	%
Occupancy		10,847			7.5	%		11,567		6.6	%
Depreciation		3,374			2.3	%		3,601		2.1	%
Other		26,980			18.6	%		36,106		20.8	%

Total operating expenses		89,633			61.6	%		105,891		60.8	%

Operating margin		55,896			38.4	%		68,325		39.2	%

Corporate expenses		20,351			14.0	%		25,426		14.6	%
Other depreciation and amortization		1,052			0.7	%		2,699		1.5	%
Interest expense, net		11,624			8.0	%		21,574		12.4	%
Unrealized foreign exchange (gain) loss		7,827			5.4	%		(14,612	)	(8.4)	%
Loss (gain) on derivatives not designated as hedges		(9	)		(0.0)	%		13,821		7.9	%
Provision for litigation settlements		1,267			0.9	%		197		0.1	%
Loss on store closings		318			0.2	%		170		0.1	%
Other (income) expense, net		169			—	%		878		0.6	%

Income before income taxes		13,297			9.2	%		18,172		10.4	%
Income tax provision		7,966			5.5	%		6,105		3.5	%

Net income		5,331			3.7	%		12,067		6.9	%

Less: Net loss (income) attributable to non-controlling interests		58			—	%		(157	)	(0.1)	%

Net income attributable to Dollar Financial Corp.	$	5,273			3.6	%	$	12,224		7.0	%

Net income per share attributable to Dollar Financial Corp.:
Basic	$	0.22					$	0.50
Diluted	$	0.22					$	0.49

Constant Currency Analysis

We maintain operations primarily in the United States, Canada and United Kingdom. Approximately 80% of our revenues are originated in currencies other than the U.S. 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 September 30, 2010, the actual average exchange rates used to translate the Canadian and United

Kingdom’s results were 0.9625 and 1.5513, respectively. For constant currency reporting purposes, the average exchange rates used to translate the Canadian and United Kingdom’s results for the three months ended September 30, 2010 were 0.9114 and 1.6399, respectively. All conversion rates are based on the U.S. 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 not generally repatriated to the United States; therefore, we do not incur significant economic gains or losses on foreign currency transactions with our subsidiaries. To the extent funds are transmitted between countries, we may be subject to realized foreign exchange gains or losses. To the extent liabilities are paid or assets are received in a currency other than the local currency, we would incur realized transactional foreign exchange gains or losses. Cash accounts are maintained in Canada and the U.K. in local currency, and as a result, there is little, if any diminution in value from the changes in currency rates. Therefore, cash balances are available on a local currency basis to fund the daily operations of the Canadian and U.K. business units.

Three Months Ended September 30, 2010 compared to Three Months Ended September 30, 2009

Revenues

Total revenues for the three months ended September 30, 2010 increased $28.7 million, or 19.7%, as compared to the three months ended September 30, 2009. The impact of foreign currency accounted for $0.3 million of the increase and the impact of new stores and acquisitions contributed $14.0 million of the increase. On a constant currency basis and excluding the impacts of new stores and acquisitions, total revenues increased by $14.4 million or 9.9%. The increase was primarily the result of a $10.8 million and $5.7 million increase in U.K. and Canada revenues, respectively, primarily related to consumer lending, partially offset by a $2.7 million decrease in the U.S. revenues primarily related to the closure of 31 under-performing store locations since the first quarter of fiscal 2010.

Consolidated check cashing revenue decreased $2.5 million or 6.7% for the three months ended September 30, 2010 compared to the prior year. There was an increase of approximately $0.5 million related to foreign exchange rates and increases from new stores and acquisitions of $0.5 million. The remaining check cashing revenues were down $3.5 million or 9.3% for the three months ended September 30, 2010. Check cashing revenues from our U.S. Retail business segment decreased 10.5%, again heavily influenced by the closure of stores since the first quarter of fiscal 2010. On a constant currency basis and excluding the impacts of new stores and acquisitions, the Canadian check cashing revenues declined 3.3% and the U.K. check cashing revenues were down 18.7% for the three months ended September 30, 2010 as compared to the prior year, reflecting the continuing global economic downturn. Further, studies by the Federal Reserve Board and others suggest that payments made by electronic means may be displacing a portion of the paper checks traditionally cashed by our customers. On a consolidated constant currency basis, the face amount of the average check cashed increased 0.5% to $487 for the three months ended September 30, 2010 compared to $484 for the prior year period, while the average fee per check cashed increased by 1.3% to $18.85. There was also a decline of 9.2% in the number of checks cashed for the three months ended September 30, 2010 as compared to the three months ended September 30, 2009 — down from 2.0 million in the prior year to 1.8 million in the current year.

Consolidated fees from consumer lending were $92.0 million for the three months ended September 30, 2010 compared to $77.4 million for the year earlier period, an increase of $14.6 million or 18.8%. The impact of foreign currency fluctuations accounted for an increase of approximately $0.3 million and the impact of new stores and acquisitions was an increase of $1.2 million. On a constant currency basis and excluding the impacts of new stores and acquisitions, consumer lending revenues increased by approximately $13.1 million. The U.S. Retail consumer lending revenues were down approximately $2.2 million while the Canadian and U.K.’s consumer lending revenues were up by $4.0 million and $10.6 million, respectively (on a constant currency basis and excluding the impacts of new stores and acquisitions). Consumer lending revenues in the “Other” segment, which is almost entirely comprised of the results from our Polish lending operations, for the three months ended September 30, 2010 were approximately $2.0 million, compared to revenues of $1.3 million for the three months ended September 30, 2009.

Pawn service fees were $6.3 million for the three months ended September 30, 2010, representing an increase of $2.4 million or 63.4% compared to prior year period. The impact of foreign currency fluctuations accounted for a nominal decrease of $0.4 million and increases of approximately $1.5 million related to the impact from new stores and acquisitions. The remaining increase of $1.2 million or 32.5% is primarily due to management’s increased emphasis on promoting and growing the U.K. pawn business.

For the three months ended September 30, 2010, money transfer fees, scrap gold sales and all other revenues increased by $14.2 million. On a constant currency basis and excluding the impacts of new stores and acquisitions, these revenues increased by $3.5 million, or 13.4%, for the three months ended September 30, 2010 as compared to the prior year. The increase was primarily due to the success of the foreign exchange product, the debit card business and scrap gold sales in the United Kingdom and Canada.

Operating Expenses

Operating expenses were $105.9 million for the three months ended September 30, 2010 compared to $89.6 million for the three months ended September 30, 2009, an increase of $16.3 million or 18.2%. The impact of foreign currency accounted for a decrease of $0.4 million. There was an increase in the current year’s operating expenses related to new stores and acquisitions of approximately $9.4 million. On a constant currency basis and excluding the impacts of new stores and acquisitions, operating expenses increased by $7.3 million as compared to the prior year. For the three months ended September 30, 2010, total operating expenses decreased to 60.8% of total revenue compared to 61.6% of total revenue in the prior year. After adjusting for constant currency reporting and excluding the impacts of new stores and acquisitions, the percentage of total operating expenses as compared to total revenue was 60.6%.

The consolidated loan loss provision, expressed as a percentage of gross consumer lending revenue, was 15.2% for the three months ended September 30, 2010 compared to 15.1% for the three months ended September 30, 2009. The consolidated loan loss provision rates continue to run below historical rates as a result of our continued conservative approach to extending consumer credit in the midst of the weakened economy, as well as the benefit from the implementation of proprietary credit scoring models for the Company’s large array of global loan products.

Relative to our primary business units, after excluding the impacts of foreign currency and acquisitions, operating expenses increased in Canada and the United Kingdom by $3.6 million and $7.7 million, respectively and decreased in U.S Retail by $4.5 million. The increase in operating expenses for both Canada and the U.K. reflects increased advertising costs and the growth of the gold purchase product business, and an increase in the provision for loan losses in the U.K. reflecting the growth in internet consumer lending. The decrease in U.S. Retail was a result of the closure of 31 store locations since the first quarter of fiscal 2010.

Corporate Expenses

Corporate expenses were $25.4 million for the three months ended September 30, 2010 compared to $20.4 million for the three months ended September 30, 2009, or an increase of $5.0 million. The increase is consistent with the Company’s increased investment in our global 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 and business development strategies and execution.

Other Depreciation and Amortization

Other depreciation and amortization was $2.7 million for the three months ended September 30, 2010 compared to $1.1 million for the three months ended September 30, 2009. The increase of $1.6 million is primarily related to DFS’ amortization of identifiable intangible assets.

Interest Expense

Interest expense, net was $21.6 million for the three months ended September 30, 2010 compared to $11.6 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 repayment of all of our U.K. and Canadian term debt. Included in the interest expense for the three months ended September 30, 2010 is approximately $4.5 million of non-cash interest expense related to the amortization of accumulated charges related to the discontinuance of hedge accounting for our cross currency interest rate swaps, the non-cash interest expense associated with our convertible debt and the amortization of various deferred issuance costs. This non-cash interest expense was approximately $3.5 million for the three months ended September 30, 2009, an increase of approximately $1.0 million. This increase came almost entirely from the expense related to the 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 because we no longer achieved the requirements of hedge accounting. However, in accordance with the Derivatives and Hedging Topic of the FASB Codification, we continued to report the net loss related to the discontinued cash flow hedge in other accumulated comprehensive income 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 $1.5 million non-cash interest charge for the three months ended September 30, 2010 as compared to a charge of approximately $0.4 million for the three months ended September 30, 2009. 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.

Unrealized Foreign Exchange Gain/Loss

Unrealized foreign exchange gain of $14.6 million for the three months ended September 30, 2010 is due primarily to the unrealized foreign exchange gains associated with our newly issued $600 million senior notes. This debt was issued by our indirectly wholly-owned Canadian subsidiary and is denominated in a currency other than the reporting currency of that entity. Near the end of fiscal 2010, we retired the remaining term debt related to the 2006 Credit Agreement, as amended, leaving only the Canadian subsidiary’s $600 million in senior notes outstanding. 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”. The unrealized foreign exchange loss of $7.8 million recorded for the three months ended September 30, 2009 was related to the term debt outstanding under the 2006 Credit Agreement, as amended, and intercompany balances.

Loss on derivatives not designated as hedges

Loss on derivatives not designated as hedges was $13.8 million for the three months ended September 30, 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 relates to the legacy term loans. The change in fair value related to both the changes in market interest and foreign exchange rates.

Provision for Litigation Settlements

Provision for litigation settlements during the three months ended September 30, 2010 was $0.2 million. During the three months ended September 30, 2009, we recorded $1.3 million of litigation settlement provisions.

Loss on Store Closings

During the three months ended September 30, 2010, we incurred expenses of approximately $0.2 million for current period store closures. During the three months ended September 30, 2009, we recorded additional expense related to stores closed during fiscal 2009 of approximately $0.3 million. This additional expense was related to continuing occupancy costs and store closure related expenses as well as the buy-out of certain terminated leases.

Income Tax Provision

The provision for income taxes was $6.1 million for the three months ended September 30, 2010 compared to a provision of $8.0 million for the three months ended September 30, 2009. Our effective tax rate was 33.6% for the three months ended September 30, 2010 and was 59.9% for the three months ended September 30, 2009. The decrease in the effective tax rate for the three months ended September 30, 2010 as compared to the prior year was primarily a result of the increased profitability in our U.S. based businesses (primarily as a result of the DFS acquisition) and the taxation of the Canadian mark to market gains at the lower statutory rate. 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. At September 30, 2010 we maintained deferred tax assets of $122.9 million which is offset by a valuation allowance of $85.8 million which represents a decrease of $0.7 million in the three months ended September 30, 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):


					Net
	Deferred		Valuation		Deferred
	Tax Asset		Allowance		Tax Asset
Balance at June 30, 2010	$	122.8	$	85.0	$	37.8
Foreign increase/(decrease)		0.1		0.8		(0.7	)

Balance at September 30, 2010	$	122.9	$	85.8	$	37.1

The $122.9 million in deferred tax assets consists of $43.9 million related to net operating losses and other temporary differences, $54.4 million related to foreign tax credits and $24.6 million in foreign deferred tax assets. At September 30, 2010, U.S. deferred tax assets related to net operating losses and other temporary differences were reduced by a valuation allowance of $43.9 million, which reflects no change during the period. The net operating loss carry forward at September 30, 2010 and June 30, 2010 was $68.3 million. 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 $54.4 million. Additionally, we maintain foreign deferred tax assets in the amount of $24.6 million which is offset by a valuation allowance on $1.0 million related to the Canadian cross-currency interest rate swaps.

Effective July 1, 2009 we adopted ASC 470-20. 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 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 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 September 30, 2010, the deferred tax liability associated with the Notes was $13.8 million. For purposes of balance sheet presentation, the deferred tax liability related to the Notes has been netted against our deferred tax asset.

At June 30, 2010, we had unrecognized tax benefit reserves related to uncertain tax positions of $10.3 million, primarily related to transfer pricing matters which, if recognized, would decrease the effective tax rate. At September 30, 2010, we had $12.1 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 2010 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 September 30, 2010, we had approximately $1.3 million of accrued interest related to uncertain tax positions which represents a $0.4 million increase during the three months ended September 30, 2010. The provision for unrecognized tax benefits including accrued interest is included in income taxes payable.

Review of Reportable Segments

The segment discussions that follow describe the significant factors contributing to the changes in results for each segment.


	(Dollars in thousands)						%
	Three Months Ended						Inc/Dec -
	September 30,						Margin
	2009			2010			Change
United States Retail revenues:
Check Cashing	$	10,906		$	9,760			-10.5	%
Fees from consumer lending		17,858			15,686			-12.2	%
Money transfer fees		1,276			1,130			-11.4	%
Other		2,613			3,385			29.5	%

Total United States Retail revenues	$	32,653		$	29,961			-8.2	%
Operating margin		15.9	%		23.4	%	7.5 pts.

Total DFS revenues (Included in Other)	$	—		$	6,504			100.0	%
Operating margin		—			61.9	%	61.9 pts.

Canada revenues:
Check Cashing	$	17,338		$	17,754			2.4	%
Fees from consumer lending		35,216			41,429			17.6	%
Money transfer fees		4,048			4,429			9.4	%
Pawn service fees and sales		—			2			100.0	%
Other		7,520			10,313			37.1	%

Total Canada revenues	$	64,122		$	73,927			15.3	%
Operating margin		51.2	%		49.9	%	(1.3 pts.)

United Kingdom revenues:
Check Cashing	$	9,557		$	7,750			-18.9	%
Fees from consumer lending		23,070			32,878			42.5	%
Money transfer fees		1,499			1,687			12.5	%
Pawn service fees and sales		3,833			6,259			63.3	%
Other		9,253			13,211			42.8	%

Total United Kingdom revenues	$	47,212		$	61,785			30.9	%
Operating margin		38.5	%		33.8	%	(4.7 pts.)

Other revenues:
Fees from consumer lending	$	1,297		$	2,004			54.5	%
Other		245			35			-85.7	%

Total Other revenues	$	1,542		$	2,039			32.2	%
Operating margin		-22.0	%		-22.5	%	(0.5 pts.)

Total revenue	$	145,529		$	174,216			19.7	%

Operating margin	$	55,896		$	68,325			22.2	%

Operating margin %		*38.4*	%		*39.2*	%	*0.8 pts.*

The following table represents 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:


	Revenue						Pre-Tax Income
	Three Months Ended						Three Months Ended
	September 30,						September 30,
	2009			2010			2009			2010
United States Retail		22.4	%		17.2	%		22.0	%		39.2	%
DFS		—			3.7	%		—			14.3	%
Canada		44.1	%		42.4	%		81.1	%(1)		39.1	%(3)
United Kingdom		32.4	%		35.5	%		46.6	%(2)		71.1	%(4)
Other		1.1	%		1.2	%		(49.7	)%		(63.7	)%

		100.0	%		100.0	%		100.0	%		100.0	%


(1)		Excludes $0.1 million of unrealized foreign exchange gain.

(2)		Excludes $7.9 million of unrealized foreign exchange loss.

(3)		Excludes $15.2 million of unrealized foreign exchange gain and $13.8 million of loss on derivatives.

(4)		Excludes $0.1 million of unrealized foreign exchange gain.

United States Retail

Total U.S. Retail revenues were $30.0 million for the three months ended September 30, 2010 compared to $32.7 million for the three months ended September 30, 2009, a decrease of $2.7 million or 8.2%. The Company has closed 31 under-performing store locations in the United States since the first quarter of fiscal 2010. 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 $1.1 million and $2.2 million in check cashing and consumer lending revenue, respectively. The continued economic downturn and store closures 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 United States. The number of checks decreased year over year by approximately 117 thousand with a corresponding decrease in face value of approximately $49.5 million. The face amount of the average check cashed by the Company decreased by 0.3%, and the average fee per transaction increased from $12.47 to $12.89.

The continued high rate of unemployment through all sectors of the U.S. economy negatively impacts consumer lending volumes. Despite the initial signs of economic improvement, the Company has continued to take a more cautious approach to lending in all of our segments, including United States Retail. U.S. Retail funded loan originations decreased 9.2% or $12.5 million, for the three months ended September 30, 2010 as compared to the three months ended September 30, 2009, primarily due to the closure of 31 U.S. stores since the first quarter of fiscal 2010.

Operating margins in United States Retail increased to 23.4% for the three months ended September 30, 2010, compared to 15.9% for the prior year. The U.S. Retail 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 31 underperforming stores since the first quarter of fiscal 2010 is consistent with the Company’s U.S. Retail strategy of closing unprofitable locations and focusing on states with more favorable and stable regulatory environments. This action has shown to be positive, resulting in improved year-over-year operating margins.

U.S. Retail pre-tax profit was $6.1 million for the three months ended September 30, 2010 compared to $4.3 million for the prior year. The improvement was the result of $1.8 million in increased operating profits.

Dealers’ Financial Services (“DFS”)

We acquired Dealers’ Financial Services, LLC 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 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 650 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 is reported as a stand-alone segment.

DFS contributed $6.5 million of incremental revenue for the three months ended September 30, 2010. We further enhanced our internet and local media advertising campaign programs during the quarter, to increase product awareness amongst the enlisted personnel at the military bases we serve.

Canada

Total Canadian revenues were $73.9 million for the three months ended September 30, 2010, an increase of 15.3%, or $9.8 million as compared to the three months ended September 30, 2009. The impact of foreign currency rates accounted for $3.9 million of this increase. On a constant currency basis, revenues increased by $5.9 million. On a constant currency basis, check cashing revenues were down $0.5 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 3.5% and 3.0%, respectively. The average face amount per check increased by 0.5% from $526.35 for the three months ended September 30, 2009 to $529.25 for the current year, while the average fee per check increased by 0.5% for the three months ended September 30, 2010 as compared to the three months ended September 30, 2009. Consumer lending revenues in Canada increased by $4.0 million or 11.2% (on a constant currency basis) for the three months ended September 30, 2010 as compared to the prior year, reflecting operations under the new post-regulatory platform and the early benefit of our renewed television advertising campaign in that market.

Operating expenses in Canada increased $5.8 million or 18.5% from $31.3 million for the three months ended September 30, 2009 to $37.1 million for the three months ended September 30, 2010. The impacts of changes in foreign currency rates resulted in an increase of $2.0 million. The constant currency increase of approximately $3.8 million is primarily related increased advertising expenses in relation to the new regulatory environment in Canada, an increase in expenses related to our gold purchase product and a slight increase in salaries and benefits costs. On a constant currency basis, provision for loan losses, as a percentage of loan revenues decreased by 0.5 pts from 10.7% to 10.2%. Overall Canada’s operating margin percentage decreased from 51.2% for the three months ended September 30, 2009 to 49.9% for the three months ended September 30, 2010. The decrease in this area is primarily the result of increased advertising costs related to our renewed television advertising campaigns in the Canadian market.

The Canadian pre-tax income was $8.1 million for the three months ended September 30, 2010 compared to pre-tax income of $18.4 million for the prior year, a decrease of $10.3 million. On a constant currency basis, pre-tax income was $7.6 million or a decrease of approximately $10.8 million. On a constant currency basis, the positive impacts of increased operating margins of $2.1 million and a foreign exchange gain of $14.0 million related to the Company’s senior notes were offset by increased net corporate expenses of $3.0 million, additional interest expense of $11.3 million, and a non-cash valuation loss of $12.9 million on the cross currency interest rate swaps.

United Kingdom

Total U.K. revenues were $61.8 million for the three months ended September 30, 2010 compared to $47.2 million for the year earlier period, an increase of $14.6 million or 30.9%. On a constant currency basis and excluding the impact of new stores and acquisitions, U.K. year-over-year revenues have increased by $10.8 million, or 22.9%. Consumer lending, pawn service fees and other revenues (gold scrap sales, foreign exchange products and debit cards) were up by $10.6 million, $1.2 million and $0.8 million, respectively. The growth in consumer lending revenue reflects strong performance from the internet lending business and also the continued robust performance of the store-based business. As in the U.S. Retail and Canadian business segments, U.K. check cashing revenues was impacted by the economic downturn and the gradual migration away from paper checks and decreased by approximately $1.8 million, or 18.7% (also on a constant currency basis and excluding new stores and acquisitions).

U.K. operating expenses increased by $11.9 million, or 40.9% from $29.0 million for the three months ended September 30, 2009 as compared to $40.9 million for the current three month period. On a constant currency basis and excluding new stores and acquisitions, U.K. operating expenses increased by $7.7 million or 26.4%. There was an increase of 5.8 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 three months ended September 30, 2009 was 16.1% while for the current year, the rate increased to 21.9%. On a constant currency basis, the U.K. operating margin percentage has decreased from 38.5% for the three months ended September 30, 2009 to 33.8% for the current year primarily due to the increase in the provision for loan losses noted above.

The U.K. pre-tax income was $12.6 million for the three months ended September 30, 2010 compared to $2.5 million for the prior year, an increase of $10.1 million — on a constant currency basis, the increase was $10.8 million. In addition to increased operating margins of $3.9 million, and a reduction in interest expense of $1.5 million, pre-tax income was negatively impacted by increased net corporate expenses of $2.3 million. The three months ended September 30, 2009 also included a $7.9 million loss related to unrealized foreign exchange loss related to the U.K. term loans which were substantially repaid in December 2009.

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 three months ended September 30, 2010, cash and cash equivalents decreased $5.0 million, which is net of a $8.8 million decrease 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 on a local currency basis to fund the daily operations of the U.K. and Canadian business units.

Loans receivable, net increased by $12.8 million to $151.1 million at September 30, 2010 from $138.3 million at June 30, 2010. Loans receivable, gross increased by $15.5 million and the related allowance for loan losses increased by $2.7 million. The U.K., Canadian and Poland business units showed increases in their loan receivable balances of $9.1 million, $0.5 million and $4.3 million, respectively. On a constant currency basis, the loans receivable balances in the U.K. and Poland increased by $4.3 million and $1.5 million, respectively, while the Canadian balances decreased by $0.4 million. The increases in the U.K. receivable balances were spread reasonably evenly over the legacy loan product, the pawn business and the Internet loan business. The U.S. Retail business had an increase of $1.5 million. In constant dollars, the allowance for loan losses increased by $0.7 million and remained constant at 11.6% of the outstanding principal balance at September 30, 2010 and June 30, 2010. 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 from 4.1% at June 30, 2010 to 3.2% at September 30, 2010.

•

In constant currency, the Canadian ratio of allowance for loan losses as a percentage of loans outstanding has decreased from 2.7% at June 30, 2010 to 2.4% at September 30, 2010.

•

In constant currency, the U.K.’s allowance for loan losses remained relatively constant at approximately 7.6% of outstanding principal at June 30, 2010 and September 30, 2010.

•

The impact of a larger loan portfolio in Poland, which carries a higher loan loss reserve percentage than our single payment CTP portfolio, continues to increase the overall loan loss reserve as a percentage of gross loans receivable.

Liquidity and Capital Resources

Our principal sources of cash have been from operations, borrowings under our credit facilities and issuance of debt securities. 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 used in operating activities was $18.4 million for the three months ended September 30, 2010, compared to net cash provided by operating activities of $18.8 million for the three months ended September 30, 2009. The decrease in net cash provided by (used in) operations was primarily the result of payments related to settled Canadian class action litigation, as well as an increase in loans receivable.

Net cash used in investing activities was $9.8 million for the three months ended September 30, 2010, compared to $5.5 million for the three months ended September 30, 2009. Our investing activities primarily related to acquisitions, purchases of property and equipment for our stores and investments in technology. The actual amount of capital expenditures each year depends 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 $35.0 to $40.0 million during our fiscal year ending June 30, 2011.

Net cash provided by financing activities was $14.4 million for the three months ended September 30, 2010, compared to net cash used in financing activities of $8.1 million for the three months ended September 30, 2009. The cash provided by financing activities during the three months ended September 30, 2010 was primarily a result of a net drawdown on our revolving credit facilities of $14.3 million and the proceeds from stock option exercises. The cash used in financing activities during the three months ended September 30, 2009 was primarily a result of $8.0 million in debt payments.

Senior Secured Credit Facility

On December 23, 2009, we amended and restated our senior credit facility and repaid a substantial portion of our term indebtedness thereunder. Subsequently, in June 2010, we repaid all of the remaining outstanding legacy term indebtedness under our credit facility. Our revolving credit facility contains certain financial and other restrictive covenants, which among other things, requires us to achieve certain financial ratios, limits capital expenditures, restricts the magnitude of payment of dividends and requires us to obtain certain approvals if we want to increase borrowings. As of September 30, 2010, we are in compliance with all such covenants.

After giving effect to such amendments and prepayments, our senior credit facility is comprised of a $75.0 million revolving loan facility to which Dollar Financial Group, Inc, our U.S. subsidiary, would be the borrower, which we refer to as the U.S. Revolving Loan, and a CAD 28.5 million revolving loan facility, to which National Money Mart Company, our Canadian operating subsidiary, would be the borrower, which we refer to as the Canadian Revolving Loan.

A portion of the U.S. Revolving Loan ($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 Loan 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 U.S. Revolving Loan may be subject to mandatory reduction and to mandatory prepayment, principally in an amount equal to 50% of excess cash flow (as defined in the credit agreement). Our borrowing capacity under the U.S. Revolving Loan is limited to the lesser of the total commitment of $75.0 million or 85% of certain domestic liquid assets plus $30.0 million. Up to $30.0 million may be used in connection with letters of credit. At September 30, 2010, our borrowing capacity under the U.S. Revolving Loan was $71.5 million. There was $14.3 million outstanding under the U.S. Revolving Loan as of September 30, 2010 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.

A portion of the Canadian Revolving Loan (CAD 2.7 million) terminates on October 30, 2011, and the remainder (CAD 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 mandatory prepayment, principally in an amount equal to 50% of excess cash flow (as defined in the credit agreement). Our borrowing capacity under the Canadian Revolving Loan is limited to the lesser of the total commitment of CAD 28.5 million or 85% of certain combined liquid assets of our Canadian and United Kingdom subsidiaries, National Money Mart Company and Dollar Financial U.K. Limited, and their respective subsidiaries. At September 30, 2010, the borrowing capacity was CAD 28.5 million. There was no outstanding indebtedness under the Canadian Revolving Loan at September 30, 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. This facility expired on June 30, 2010.

Long-Term Debt

As of September 30, 2010, our long term debt consisted of $596.7 million of 10.375% senior notes due 2016, which we refer to as the 2016 notes, issued by our Canadian subsidiary, National Money Mart Company, $38.9 million of our 2.875% convertible notes due 2027, which we refer to as the 2027 notes, $86.3 million of our 3.00% convertible notes due 2028, which we refer to as the 2028 notes, and $5.5 million of term loans owed by the recently acquired pawn business by our U.K. subsidiary in the fourth quarter of fiscal 2010.

Through a series of privately negotiated transactions with certain holders of our 2027 notes in December 2009, pursuant to which such 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 2028 notes. Holders have the right to convert the 2028 notes into cash and, if applicable, shares of our common stock 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 and mature on April 1, 2028.

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, our Canadian subsidiary, National Money Mart Company, sold pursuant to Rule 144A under the Securities Act of 1933, as amended, $600 million aggregate principal amount of the 2016 notes. The 2016 notes will mature on December 15, 2016.

Future Obligations

Our future obligations include minimum lease payments under operating leases, principal repayments on our debt obligations and obligations under Canadian class action agreements payable in cash. 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 September 30, 2010, excluding periodic interest payments, include the following (in millions):


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

Revolving credit facilities	$	17.2	$	17.2	$	—	$	—	$	—
Long-term debt:
10.375% Senior Notes due 2016		600.0		—		—		—		600.0
2.875% Senior Convertible Notes due 2027		44.8		—		—		—		44.8
3.0% Senior Convertible Notes due 2028		120.0		—		—		—		120.0
Other Notes Payable		6.3		0.8		5.5		—		—
Obligations under Canadian Class Action Settlement Agreements Payable in Cash		16.7		16.7		—		—		—
Operating lease obligations		221.2		59.5		92.3		36.4		33.0

Total contractual cash obligations	$	1,026.2	$	94.2	$	97.8	$	36.4	$	797.8

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.

Seasonality

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 Inflation

We do not believe that inflation has a material impact on our earnings from operations.

DOLLAR FINACIAL CORP.
SUPPLEMENTAL SATISTICAL DATA

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 millions):


	Three Months Ended
	September 30th,
	2009			2010
U.S. company-funded consumer loan originations	$	135.8		$	123.3
Canadian company-funded consumer loan originations		199.2			212.3	(1)
U.K. company-funded consumer loan originations		119.5			152.0	(2)
Poland company-funded consumer loan originations.		1.4			3.8	(3)

Total company-funded consumer loan originations	$	455.9		$	491.4


U.S. company-funded consumer loan revenues	$	17.9		$	15.7
Canadian company-funded consumer loan revenues		35.2			41.4
U.K. company-funded consumer loan revenues		23.0			32.9
Poland company-funded consumer loan revenues		1.3			2.0

Total consumer lending revenues, net	$	77.4		$	92.0


Gross charge-offs of company-funded consumer loans	$	43.9		$	48.7
Recoveries of company-funded consumer loans		(33.8	)		(39.1	)

Net charge-offs on company-funded consumer loans	$	10.1		$	9.6


Gross charge-offs of company-funded consumer loans as a percentage of total company-funded consumer loan originations		9.6	%		9.9	%
Recoveries of company-funded consumer loans as a percentage of total company-funded consumer loan originations		7.4	%		7.9	%
Net charge-offs on company-funded consumer loans as a percentage of total company-funded consumer loan originations		2.2	%		2.0	%


(1)		Net of a $11.1 million decrease as a result of the impact of exchange rates for the three months ended September 30, 2010.

(2)		Net of a $8.7 million increase as a result of the impact of exchange rates for the three months September 30, 2010.

(3)		Net of a $0.1 million increase as a result of the impact of exchange rates for the three months September 30, 2010.

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 translation 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 its legacy variable rate term credit facilities during fiscal 2010 with the proceeds of a fixed rate bond issuance without termination of its Canadian cross currency swaps hedging the debt, we are exposed to adverse changes in interest rates through the swap that will likely have an impact on our future 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 September 30, 2010, we did not hold any put options. At times throughout the year we used 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 September 30, 2010, no amounts were excluded from the assessment of hedge effectiveness. There was no ineffectiveness from these cash flow hedges for the three months ended September 30, 2010.

Canadian operations (exclusive of unrealized foreign exchange translation gains of $15.2 million, litigation expense of $0.1 million and the loss on derivatives not designated as hedges of $13.8 million) accounted for approximately 38.5% of consolidated pre-tax earnings, adjusted for the items referred to above, for the three months ended September 30, 2010 and 80.9% of consolidated pre-tax earnings (exclusive of unrealized foreign exchange translation gains of $0.1 million, and loss on store closings of $0.2 million) for the three months ended September 30, 2009. U.K. operations (exclusive of unrealized foreign exchange translation gains of $0.1 million) accounted for approximately 69.9% of consolidated pre-tax earnings for the three months ended September 30, 2010 and 45.7% of consolidated pre-tax earnings (exclusive of unrealized foreign exchange translation losses of $7.9 million and gains on store closings of $0.1 million) for the three months ended September 30, 2009. Poland and other operations accounted for approximately (3.6)% of consolidated pre-tax earnings for the three months ended September 30, 2010 and 0.1% of consolidated pre-tax earnings (exclusive of unrealized foreign exchange translation gains of $0.01 million) for the three months ended September 30, 2009. U.S. operations (exclusive of unrealized foreign exchange translation losses of $0.7 million, litigation expense of $0.1 million and losses on store closings of $0.3 million) accounted for approximately (4.8)% of consolidated pre-tax earnings for the three months ended September 30,

2010 and (26.7)% of consolidated pre-tax earnings (exclusive of unrealized foreign exchange translation losses of $0.02 million, litigation expense of $1.3 million and losses on store closings of $0.2 million) for the three months ended September 30, 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 $21.3 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 of unrealized foreign exchange translation gains of $15.3 million, losses on derivatives not designated as hedges of $13.8 million and litigation expense of $0.1 million) by approximately $1.9 million for the three months ended September 30, 2010 and $2.9 million (exclusive of the unrealized foreign exchange translation losses of $7.8 million and losses on store closings of $0.1 million) for the three months ended September 30, 2009. This impact represents 10.5% of our consolidated foreign pre-tax earnings for the three months ended September 30, 2010 and 12.7% of our consolidated foreign pre-tax earnings for the three months ended September 30, 2009. It should also be noted that a 10% change in the Canadian exchange rate would additionally impact reported pre-tax earnings from continuing operations by approximately $24.1 million for the three months ended September 30, 2010 related to the translational effect of net Canadian liabilities denominated in a currency other than the Canadian Dollar.

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 legacy 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, we used a portion of the net proceeds of our $600 million Senior Note Offering to prepay $350 million of the $368.6 million outstanding term loans. As a result, we 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 without 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 loss/gain on derivatives not designated as hedges in our consolidated statements of operations. The aggregate fair market value of the cross-currency interest rate swaps at September 30, 2010 is a liability of $58.4 million and is included in fair value of derivatives on the balance sheet. During the three months ended September 30, 2010 we recorded a $13.8 million charge in the statement of operations related to the ineffective portion of these cash flow hedges.

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 the fiscal quarter ended September 30, 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 Part 1 “Note 9. Contingent Liabilities” 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 1, “Item 1A. Risk Factors,” in our Annual Report on Form 10-K for the year ended June 30, 2010 (“Form 10-K”). You should carefully consider the risks described in our Form 10-K, which could materially affect our business, financial condition or future results. The risks described in our Form 10-K 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.


	DOLLAR FINANCIAL CORP.
Date: November 8, 2010	*By:	/s/ Randy Underwood
		Name:	Randy Underwood
		Title:	Executive Vice President and Chief Financial Officer (principal financial and chief accounting officer)


														Accumulated
	Common Stock					Additional		Accumulated						Other		Total
	Outstanding					Paid-in		Income			Non-Controlling			Comprehensive		Stockholders’
	Shares			Amount		Capital		(Deficit)			Interest			Income		Equity
Balance, June 30, 2010 (audited)		24,359,459		$	—	$	331.1	$	(115.5	)	$	—		$	2.7	$	218.3

Comprehensive income:
Foreign currency translation															7.7		7.7
Cash flow hedges															1.2		1.2
Net income attributable to Dollar Financial Corp.									12.2								12.2

Total comprehensive income																	21.1
Restricted stock grants		43,556
Stock options exercised		17,114					0.2										0.2
Vested portion of granted restricted stock and restricted stock units							0.4										0.4
Retirement of common stock		(16,041	)
Other stock compensation							0.8										0.8
Net loss attributable to non-controlling interest												(0.1	)				(0.1	)

Balance, September 30, 2010		24,404,088		$	—	$	332.5	$	(103.3	)	$	(0.1	)	$	11.6	$	240.7

(unaudited)


Exhibit No.		Description of Document

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


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