UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

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

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

For the transition period from            to

DOLLAR FINANCIAL CORP.

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

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

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

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

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

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

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

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

As of April 29, 2011, 43,455,054 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 March 31, 2011 (unaudited)			3
Interim Unaudited Consolidated Statements of Operations for the Three and Nine Months Ended March 31, 2010 and 2011			4
Interim Consolidated Statements of Stockholders’ Equity as of and from June 30, 2010 to March 31, 2011 (unaudited)			5
Interim Unaudited Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2010 and 2011			6
Notes to Interim Unaudited Consolidated Financial Statements			7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			45
Item 3. Quantitative and Qualitative Disclosures About Market Risk			66
Item 4. Controls and Procedures			68
PART II. OTHER INFORMATION
Item 1. Legal Proceedings			68
Item 1A. Risk Factors			68
Item 5. Other Information			69
Item 6. Exhibits			70
Signature			71
Supplemental Indenture dated December 2, 2010 between Dollar Financial U.S., Inc. and U.S. Bank National Association, as trustee
Guarantee dated December 2, 2010 executed by Dollar Financial U.S., Inc.
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, Corporate Controller and Chief Accounting Officer
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, Corporate Controller and Chief Accounting Officer
EX-4.1
EX-4.2
EX-31.1
EX-31.2
EX-31.3
EX-32.1
EX-32.2
EX-32.3

PART 1. FINANCIAL INFORMATION

Item 1. Financial Statements

DOLLAR FINANCIAL CORP.

		June 30,				March 31,
		2010				2011
						(unaudited)
ASSETS
Current Assets
Cash and cash equivalents		$	291.3			$	361.3
Consumer loans, net:
Consumer loans			111.3				131.6
Less: Allowance for consumer loan losses			(10.4	)			(13.4	)
Consumer loans, net			100.9				118.2
Pawn loans			35.5				128.5
Loans in default, net of an allowance of $21.8 and $29.1			9.3				10.7
Other receivables			17.1				29.2
Prepaid expenses and other current assets			25.8				35.3
Current deferred tax asset, net of valuation allowance of $4.9 and $4.9			1.0				—
Total current assets			480.9				683.2
Deferred tax asset, net of valuation allowance of $80.2 and $83.2			22.6				17.5
Property and equipment, net of accumulated depreciation of $117.2 and $136.8			67.5				88.7
Goodwill and other intangibles			609.0				728.2
Debt issuance costs, net of accumulated amortization of $3.5 and $6.5			18.7				21.4
Other			15.9				17.0
Total Assets		$	1,214.6			$	1,556.0
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable		$	44.8			$	34.8
Income taxes payable			6.2				7.2
Accrued expenses and other liabilities			92.6				120.5
Debt due within one year			3.3				158.6
Current deferred tax liability			0.3				—
Total current liabilities			147.2				321.1
Fair value of derivatives			47.4				73.1
Long-term deferred tax liability			24.0				30.8
Long-term debt			725.3				796.2
Other non-current liabilities			52.4				58.0
Stockholders’ equity:
Common stock, $.001 par value: 100,000,000 shares authorized; 36,539,663 shares and 36,758,141 shares issued and outstanding at June 30, 2010 and March 31, 2011, respectively			—				—
Additional paid-in capital			331.1				335.3
Accumulated deficit			(115.5	)			(67.5	)
Accumulated other comprehensive income			2.7				9.5
Total Dollar Financial Corp. stockholders’ equity			218.3				277.3
Non-controlling interest			—				(0.5	)
Total stockholders’ equity			218.3				276.8
Total Liabilities and Stockholders’ Equity		$	1,214.6			$	1,556.0

See notes to interim unaudited consolidated financial statements

DOLLAR FINANCIAL CORP.

		Three Months Ended								Nine Months Ended
		March 31,								March 31,
		2010				2011				2010				2011
Revenues:
Consumer lending		$	78.1			$	100.7			$	238.3			$	292.0
Check cashing			37.2				36.7				113.6				108.7
Money transfer fees			6.6				7.4				20.5				22.5
Pawn service fees and sales			4.8				16.6				13.3				30.1
Gold sales			13.0				12.3				32.0				34.7
Other			23.6				24.1				51.8				66.5
Total revenues			163.3				197.8				469.5				554.5
Operating expenses:
Salaries and benefits			39.9				46.2				114.3				129.7
Provision for loan losses			10.2				18.5				34.6				48.9
Occupancy			11.0				13.3				32.7				36.9
Purchased gold costs			9.3				7.5				22.6				22.4
Depreciation			3.4				4.3				10.9				11.8
Returned checks, net and cash shortages			2.3				2.3				7.2				6.2
Maintenance and repairs			3.1				4.1				8.8				10.6
Advertising			3.9				5.4				12.0				17.1
Bank charges and armored carrier service			3.5				4.1				10.4				11.8
Other			12.7				15.0				35.5				43.7
Total operating expenses			99.3				120.7				289.0				339.1
Operating margin			64.0				77.1				180.5				215.4
Corporate and other expenses:
Corporate expenses			22.1				25.2				65.4				74.6
Other depreciation and amortization			2.5				3.1				4.7				8.6
Interest expense, net			21.9				23.0				46.4				66.5
Loss on extinguishment of debt			0.7				—				9.5				—
Unrealized foreign exchange gain			(15.7	)			(10.1	)			(11.8	)			(42.5	)
Loss on derivatives not designated as hedges			18.6				9.6				21.9				34.2
Provision for (proceeds from) litigation settlements			26.6				0.1				27.9				(3.8	)
Loss on store closings			1.6				0.1				3.2				0.6
Other expense, net			0.3				0.8				1.7				3.4
(Loss) income before income taxes			(14.6	)			25.3				11.6				73.8
Income tax (benefit) provision			(2.3	)			9.7				11.5				26.3
Net (loss) income			(12.3	)			15.6			$	0.1			$	47.5
Less: Net loss attributable to non-controlling interests			(0.1	)			(0.1	)			(0.1	)			(0.5	)
Net (loss) income attributable to Dollar Financial Corp.		$	(12.2	)		$	15.7			$	0.2			$	48.0
Net (loss) income per share attributable to Dollar Financial Corp.:
Basic		$	(0.34	)		$	0.43			$	—			$	1.31
Diluted		$	(0.34	)		$	0.41			$	—			$	1.26
Weighted average shares outstanding:
Basic			36,227,304				36,619,929				36,096,177				36,499,154
Diluted			36,227,304				38,710,798				37,150,926				38,001,489

See notes to interim unaudited consolidated financial statements.

DOLLAR FINANCIAL CORP.

																						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)			36,539,466			$	—			$	331.1			$	(115.5	)		$	—			$	2.7			$	218.3
Comprehensive income:
Foreign currency translation																							3.2				3.2
Cash flow hedges																							3.6				3.6
Net income attributable to Dollar Financial Corp.															48.0												48.0
Total comprehensive income																											54.8
Restricted stock grants			312,361
Stock options exercised			49,176				—				0.3																0.3
Vested portion of granted restricted stock and restricted stock units											1.7																1.7
Retirement of common stock			(142,862	)
Other stock compensation											2.2																2.2
Net loss attributable to non-controlling interest																			(0.5	)							(0.5	)
Balance, March 31, 2011(unaudited)			36,758,141			$	—			$	335.3			$	(67.5	)		$	(0.5	)		$	9.5			$	276.8

See notes to interim unaudited consolidated financial statements.

DOLLAR FINANCIAL CORP.

		Nine Months Ended
		March 31,
		2010				2011
Cash flows from operating activities:
Net income		$	0.1			$	47.5
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			18.0				23.2
Loss on extinguishment of debt			9.5				—
Change in fair value of derivatives not designated as hedges			17.1				20.5
Provision for loan losses			34.6				48.9
Non-cash stock compensation			4.7				3.8
Loss on disposal of fixed assets			0.3				0.8
Unrealized foreign exchange gain			(12.0	)			(42.5	)
Deferred tax provision			(2.4	)			11.0
Accretion of debt discount and deferred issuance costs			9.4				11.3
Change in assets and liabilities (net of effect of acquisitions):
(Increase) in loans and other receivables			(46.9	)			(76.4	)
(Increase) in prepaid expenses and other			(1.5	)			(5.3	)
Increase (decrease) in accounts payable, accrued expenses and other liabilities			48.2				(36.0	)
Net cash provided by operating activities			79.1				6.8
Cash flows from investing activities:
Acquisitions, net of cash acquired			(123.8	)			(74.1	)
Additions to property and equipment			(18.3	)			(29.5	)
Net cash used in investing activities			(142.1	)			(103.6	)
Cash flows from financing activities:
Proceeds from the issuance of 10.375% senior notes due 2016			596.4				—
Proceeds from the exercise of stock options			1.4				0.3
Repayment of term loan notes			(351.1	)			—
Other debt payments			(7.0	)			—
Payment of convertible debt			(32.0	)			—
Net increase in revolving credit facilities			14.2				154.2
Payment of debt issuance and other costs			(19.7	)			(4.3	)
Net cash provided by financing activities			202.2				150.2
Effect of exchange rate changes on cash and cash equivalents			22.2				16.6
Net increase in cash and cash equivalents			161.4				70.0
Cash and cash equivalents at beginning of period			209.6				291.3
Cash and cash equivalents at end of period		$	371.0			$	361.3

See notes to interim unaudited consolidated financial statements.

DOLLAR FINANCIAL CORP.

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. (“DFG”) and its wholly owned and majority owned subsidiaries. The activities of DFC consist primarily of its investment in DFG. 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, through its subsidiaries, provides retail financial services primarily to unbanked and underbanked consumers and small business owners through a network of 1,236 locations (of which 1,144 are company owned) operating principally as Money Mart^®, The Money Shop^®, Loan Mart^®, Insta-Cheques^®, Suttons and Robertson^®, The Check Cashing Store^®, Sefina^® and Money Now^® in Canada, the United Kingdom, the United States, Poland, the Republic of Ireland, Sweden and Finland. This network of stores offers a variety of financial services including consumer loans, check cashing, money transfer services, pawn services and various other related services. In addition, the Company provides financial services to primarily unbanked and underbanked consumers in Poland through in-home servicing under the trade name Optima^®. The Company also operates U.K. and Canadian Internet-based consumer lending businesses, 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 its Dealers’ Financial Services, (“DFS”) subsidiary, 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.

     DFC’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 GAAP 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. These reclassifications include:

	•		Reclassifying $2.0 million ($9.4 million of loans and a related allowance of $7.4 million) from Consumer Loans, net, to Loans in Default, net, in the Company’s Consolidated Balance Sheet as of June 30, 2010, to conform the presentation of our Poland business to the remainder of the Company’s operations.
	•		Reclassifying $35.5 million of pawn loans from Consumer Loans, net, to Pawn Loans in the Company’s Consolidated Balance Sheet as of June 30, 2010.

DOLLAR FINANCIAL CORP.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

•

Reclassifying $7.0 million and $14.4 million of gold sales from Other Revenue, to Gold Sales Revenue, and $7.0 million and $14.4 million of purchased gold costs from Other Operating Expense, to Purchased Gold Costs in the Company’s Consolidated Statement of Operations for the three and nine months ended March 31, 2010, respectively. For the three and nine months ended March 31, 2010, the previously reported amounts of gold sales and purchased gold costs have been revised to correct certain immaterial classification errors. Specifically charges previously netted in calculating total revenues of $6.0 million and $17.6 million, respectively, have been reclassified to operating expenses. Accordingly, this reclassification increased other revenue, total revenue, other operating expense, and total operating expense by $6.0 million and $17.6 million for the three and nine months ended March 31, 2010, respectively. This reclassification did not affect the previously reported amounts of operating margin for any period.

Revenue Recognition

     With respect to company-operated stores, revenues from the Company’s check cashing, money order sales, money transfer and other miscellaneous services reported in other revenues on its statement of operations are all recognized when the transactions are completed at the point-of-sale in the store.

     With respect to the Company’s franchised locations, the Company recognizes initial franchise fees upon fulfillment of all significant obligations to the franchisee. Royalties from franchisees are recognized as earned. The Company’s standard franchise agreement forms grant to the franchisee the right to develop and operate a store and use the associated trade names, trademarks, and service marks within the standards and guidelines established by the Company. As part of the franchise agreement, the Company provides certain pre-opening assistance and after the franchised location has opened, the Company also provides updates to the software, samples of certain advertising and promotional materials and other post-opening assistance.

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

     Secured pawn loans are offered at most of the Company’s retail financial services locations in the United Kingdom and at the Company’s pawn shops in Europe. Pawn loans are short-term in nature and are secured by the customer’s personal property (“pledge”). At the time of pledge, the loan is recorded and interest and fees, net of costs are accrued for over the life of the loan. If the loan is not repaid, the collateral is deemed forfeited and the pawned item will go up for auction. If the item is sold, proceeds are used to recover the loan value, interest accrued and fees. Excess funds received from the sale are repaid to the customer. As with the Company’s single-payment consumer loans, revenues are recognized using the interest rate method and loan origination fees, net, are recognized as an adjustment to the yield on the related loan. Since the pawn lawns are secured by the customer’s pledged item, the Company does not maintain a loan loss reserve for potential future losses.

     DFS fee income associated with originated loan contracts is recognized as revenue by the Company concurrent with the funding of loans by the lending financial institution. The Company also earns additional fee income from sales of service agreement and guaranteed asset protection (“GAP”) insurance contracts. DFS may be charged back (“chargebacks”) for service agreement and GAP fees in the event contracts are prepaid, defaulted or terminated. Service agreement and GAP contract fees are recorded at the time the contracts are sold and a reserve for future chargebacks is established based on historical operating results and the termination provisions of the applicable contracts. Service warranty and GAP contract fees, net of estimated chargebacks, are included in Other Revenues in the accompanying consolidated statements of operations.

    Consumer Loans, Net

     Unsecured short-term and longer-term installment loans that the Company originates on its own behalf are reflected on the balance sheet in consumer loans receivable, net. Consumer loans, net are reported net of a reserve as described below in “Consumer Loan Loss Reserves Policy”.

    Loans in Default

     Loans in default consist of short-term and longer-term (under one year) installment consumer loans originated by the Company which are in default status. An allowance for the defaulted loans receivable is established and is included in the loan loss provisions in the period that the loan is placed in default status. The reserve is reviewed monthly and any additional provision to the loan loss reserve as a result of historical loan performance, current and expected collection patterns and current economic trends is included with the Company’s loan loss provisions. If the loans remain in a defaulted status for an extended period of time, typically 180 days, an allowance for the entire amount of the loan is recorded and the receivable is ultimately charged off.

DOLLAR FINANCIAL CORP.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

    Consumer Loan Loss Reserves Policy

     The Company maintains a loan loss reserve for anticipated losses for consumer loans that the Company directly originates. To estimate the appropriate level of loan loss reserves, the Company considers known relevant internal and external factors that affect loan collectability, including the amount of outstanding loans owed to the Company, historical loans charged off, current collection patterns and current economic trends. The Company’s current loan loss reserve is based on its net charge-offs, typically expressed as a percentage of loan amounts originated for the last twelve months applied against the principal balance of outstanding loans that the Company makes directly. As these conditions change, the Company may need to make additional allowances in future periods.

     Generally, when a loan is originated, the customer receives the cash proceeds in exchange for a post-dated check or a written authorization to initiate a charge to the customer’s bank account on the stated maturity date of the loan. If the check or the debit to the customer’s account is returned from the bank unpaid, the loan is placed in default status and an allowance for this defaulted loan receivable is established and is included in loan loss provision expense in the period that the loan is placed in default status. This reserve is reviewed monthly and any additional provision to the loan loss reserve as a result of historical loan performance, current collection patterns and current economic trends is included in loan loss provision expense. If a loan remains in defaulted status for an extended period of time, typically 180 days, an allowance for the entire amount of the loan is recorded and the receivable is ultimately charged off. Recoveries on loans that were completely charged off are credited to the allowance when collected.

Fair Value of Financial Instruments

     The fair value of the 2.875% Senior Convertible Notes due 2027 issued by DFC (the “2027 Notes”), the 3.00% Senior Convertible Notes due 2028 issued by DFC (the “2028 Notes”) and the 10.375% Senior Notes due 2016 issued by the Company’s 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 $41.5 million and $152.2 million, respectively, at March 31, 2011. 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 $667.5 million at June 30, 2010 and March 31, 2011, respectively.

     The outstanding borrowings under credit facilities assumed as a part of the acquisition of Sefina Finance AB on December 31, 2010, are variable interest debt instruments and their fair value approximates their carrying value.

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

Common Stock and Stock Split

     At the Annual Meeting of Stockholders of the Company on November, 11, 2010, the stockholders of the Company approved an amendment to the Company’s Amended and Restated Certificate of Incorporation to increase the number of authorized shares of the Company’s common stock from 55,500,000 to 100,000,000.

     On January 10, 2011, the Company announced a three-for-two stock split on all shares of its common stock. The stock split was distributed on February 4, 2011 in the form of a stock dividend to all stockholders of record on January 20, 2011. All share and per share amounts presented in this report were retroactively adjusted for the common stock split.

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 restricted stock and restricted stock units. The following table presents the reconciliation of the numerator and denominator used in the calculation of basic and diluted earnings per share (in millions):

DOLLAR FINANCIAL CORP.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

		Three Months Ended								Nine Months Ended
		March 31,								March 31,
		2010				2011				2010				2011
Net income attributable to Dollar Financial Corp.		$	(12.2	)		$	15.7			$	0.2			$	48.0
Reconciliation of denominator:
Weighted average of common shares outstanding — basic (1)			36.2				36.6				36.1				36.5
Effect of dilutive stock options — (2)			—				1.3				0.6				1.0
Effect of unvested restricted stock and restricted stock unit grants (2)			—				0.4				0.5				0.4
Dilutive effect of convertible debt			—				0.4				—				0.1
Weighted average of common shares outstanding — diluted			36.2				38.7				37.2				38.0

Stock Based Employee Compensation

     The Dollar Financial Corp. 2005 Stock Incentive Plan (the “2005 Plan”), after giving effect for DFC’s three for two stock split for stockholders of record on January 20, 2011, states that 2,578,043 shares of DFC’s common stock may be awarded to employees or consultants of DFC. The awards may be issued at the discretion of DFC’s Board of Directors 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 Company’s stockholders adopted the Dollar Financial Corp. 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 non-employee members of DFC’s Board of Directors and officers, employees, independent consultants and contractors of DFC and any subsidiary of DFC. On November 11, 2010, DFC’s stockholders approved an amendment to the 2007 Plan. Under the terms of the amendment, the maximum aggregate number of shares of DFC’s common stock that may be issued pursuant to Awards granted under the 2007 Plan is 10,500,000, after giving effect for DFC’s three for two stock split for stockholders of record as of January 20, 2011; provided, however, that 1.67 shares will be deducted from the number of shares available for grant under the 2007 Plan for each share that underlies an Award granted under the 2007 Plan on or after November 11, 2010 for restricted stock, restricted stock units, performance awards or other Awards for which the full value of such share is transferred by DFC to the award recipient. The shares that may be issued under the 2007 Plan may be authorized, but unissued or reacquired shares of DFC’s common stock. No grantee may receive an Award relating to more than 750,000 shares in the aggregate per fiscal year under the 2007 Plan.

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

     Compensation expense, net of the related tax benefit related to share-based compensation included in the statement of operations for the three months ended March 31, 2010 and 2011 was $1.2 million and $1.3 million, respectively and $3.7 million and $3.9 million, respectively for the nine months ended March 31, 2010 and 2011, respectively.

DOLLAR FINANCIAL CORP.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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

		Three Months Ended								Nine Months Ended
		March 31,								March 31,
		2010				2011				2010				2011
Expected volatility			53.6	%			52.0	%			54.8	%			52.7	%
Expected life (years)			6.0				5.6				5.9				5.5
Risk-free interest rate			3.07	%			2.77	%			3.22	%			1.92	%
Expected dividends		None				None				None				None
Weighted average fair value		$	7.56			$	10.23			$	6.41			$	8.33

A summary of the status of stock option activity for the nine months ended March 31, 2011 follows:

										Weighted
						Weighted				Average
						Average				Remaining				Aggregate
						Exercise				Contractual				Intrinsic Value
		Options				Price				Term (years)				(in millions)
Options outstanding at June 30, 2010 (1,798,522 shares exercisable)			2,908,018			$	10.22				7.5			$	9.9
Granted			84,925			$	16.89
Exercised			(49,175	)		$	8.70
Forfeited and expired			(84,106	)		$	9.49
Options outstanding at March 31, 2011			2,859,662			$	10.47				6.7			$	29.4
Exercisable at March 31, 2011			2,201,111			$	10.43				6.2			$	22.7

     The aggregate intrinsic value in the above table reflects the total pre-tax intrinsic value (the difference between closing stock price of DFC’s common stock on the last trading day of the period and the exercise price of the options, multiplied by the number of in-the-money stock options) that would have been received by the option holders had all option holders exercised their options on March 31, 2011. The intrinsic value of DFC’s common stock options changes based on the closing price of DFC common stock. The total intrinsic value of options exercised for the three and nine months ended March 31, 2010 was $0.6 million and $0.7 million, respectively and was $0.2 million and $0.3 million for the three and nine months ended March 31, 2011, respectively. As of March 31, 2011, the total unrecognized compensation cost over a weighted-average period of 2.0 years, related to stock options, is expected to be $2.0 million. Cash received from stock options exercised for the three and nine months ended March 31, 2010 was $1.3 million and $1.4 million, respectively. Cash received from stock options exercised for the three and nine months ended March 31, 2011 was $0.2 million and $0.3 million, respectively.

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

     Information concerning unvested restricted stock awards is as follows:

						Weighted
						Average
		Restricted				Grant-Date
		Stock Awards				Fair-Value
Outstanding at June 30, 2010			150,843			$	9.66
Vested			(70,567	)		$	9.47
Outstanding at March 31, 2011			80,276			$	9.82

DOLLAR FINANCIAL CORP.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

     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 DFC’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			909,036			$	9.98
Granted			77,457			$	17.11
Vested			(347,844	)		$	10.42
Forfeited			(58,286	)		$	10.86
Outstanding at March 31, 2011			580,363			$	10.58

     As of March 31, 2011, there was $6.9 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 1.3 years. The total fair value of shares vested during the three and nine months ended March 31, 2011 was $0.9 million and $4.3 million, respectively.

Recent Accounting Pronouncements

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

     In July 2010, the FASB issued ASU 2010-20, Receivables — Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. ASU 2010-20 amends Topic 310 to improve the disclosures that an entity provides about the credit quality of its financing receivables and the related allowance for credit losses. As a result of these amendments, an entity is required to disaggregate by portfolio segment or class certain existing disclosures and provide new disclosures about its financing receivables and related allowance for credit losses. These provisions are effective for interim and annual reporting periods ending on or after December 15, 2010. The Company adopted ASU 2010-20 for its quarter ending December 31, 2010. ASU 2010-20 concerns disclosures only and did not have a material impact on the Company’s financial position or results of operations.

     In December 2010, the FASB issued ASU No. 2010-29, Business Combinations (Topic 805) — Disclosure of Supplementary Pro Forma Information for Business Combinations. This standard update clarifies that, when presenting comparative financial statements, SEC registrants should disclose revenue and earnings of the combined entity as though the current period business combinations had occurred as of the beginning of the comparable prior annual reporting period only. The update also expands the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. ASU 2010-29 is effective prospectively for material (either on an individual or aggregate basis) business combinations entered into in fiscal years beginning on or after December 15, 2010 with early adoption permitted. ASU 2010-29 concerns disclosures only and will not have a material impact on the Company’s financial position or results of operations. The Company plans to adopt ASU 2010-29 on July 1, 2011.

2. Financing Receivables

The Company offers a variety of short-term loan products and credit services to customers who typically cannot access other traditional sources of credit and have non-traditional loan histories. Accordingly, the Company has implemented proprietary predictive scoring models that are designed to limit the dollar amount of loans it offers to customers who statistically would likely be unable to repay their loan. The Company has instituted control mechanisms and a credit analytics function designed to manage risk in its

DOLLAR FINANCIAL CORP.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

consumer loan activities. Collection activities are also an important aspect of the Company’s operations, particularly with respect to its consumer loan products due to the relatively high incidence of unpaid balances beyond stated terms. The Company operates centralized collection centers to coordinate a consistent approach to customer service and collections in each of its markets. The Company’s risk control mechanisms include, among others, the daily monitoring of initial return rates with respect to payments made on its consumer loan portfolio. Because the Company’s revenue from its consumer lending activities is generated through a high volume of small-dollar financial transactions, its exposure to loss from a single customer transaction is minimal.

The following reflects the credit quality of the Company’s loans receivable. Generally, loans are determined to be nonperforming when they are one day past due without a payment for short term consumer loans and one hundred eighty days past due without a payment for longer-term (less than one year) installment loans:

Consumer Credit Exposure
Credit Risk Profile Based on Payment Activity
(in millions)

		Consumer Loans,				Consumer Loans,				Pawn
		Gross				Allowance				Loans
Performing		$	131.6			$	13.4			$	128.5
Non-performing			39.8				29.1				—
		$	171.4			$	42.5			$	128.5

     The following presents the aging of the Company’s past due loans receivable as of March 31, 2011:

Age Analysis of Past Due Loans Receivable
As of March 31, 2011
(in millions)

																														Recorded
																														Investment
														Greater Than 90												Total Financing				> 90 Days and
		1-30 days Past Due				30-59 days Past Due				60-89 days Past Due				days Past Due				Total Past Due				Current				Receivables				Accruing
Consumer Loans		$	10.6			$	5.7			$	5.6			$	25.0			$	46.9			$	124.5			$	171.4			$	2.0
Pawn Loans			—				—				—				—				—				128.5				128.5				—
Total		$	10.6			$	5.7			$	5.6			$	25.0			$	46.9			$	253.0			$	299.9			$	2.0

     The following details the Company’s loans receivable that are on nonaccrual status as of March 31, 2011:

Loans Receivable on Nonaccrual Status
As of March 31, 2011
(in millions)

Consumer Loans		$	39.8
Pawn Loans			—
Total		$	39.8

DOLLAR FINANCIAL CORP.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table presents changes in the allowance for consumer loans credit losses (in millions):

		Three Months Ended
		March 31, 2011
Allowance for Consumer Loan Losses:
Balance at beginning of period		$	38.4
Provision for loan losses			18.5
Charge-offs			(19.6	)
Recoveries			4.2
Effect of foreign currency translation			1.0
Balance at end of period		$	42.5

3. Acquisitions

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

     On October 3, 2009, the Company acquired all of the outstanding shares of Merchant Cash Express Limited (“MCE”), a U.K. entity which primarily provides working capital 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 was recorded as goodwill.

     On December 23, 2009, the Company acquired Dealers’ Financial Services. DFS 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 approximately $121.9 million, including approximately $1.9 million in related transaction costs. Of the aggregate purchase price, $5.7 million was allocated to net tangible assets acquired, $28.7 million was allocated to definite-lived intangible assets acquired and $35.4 million was allocated to indefinite-lived intangible assets, with the remainder of the purchase price allocated to goodwill. During fiscal 2011, the Company has recorded a net decrease of $1.4 million to goodwill that is primarily related to the resolution of a working capital purchase price dispute. The Company anticipates that the entire amount of the goodwill recorded in connection with the acquisition will be deductible for income tax purposes.

     On April 13, 2010, the Company acquired all of the outstanding shares of Suttons & Robertsons (“S&R”), which presently operates three high-end pawn shops in the United Kingdom. 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 of the purchase price to net assets acquired. The excess purchase price over the preliminary fair value of the identifiable assets acquired was $19.9 million and was recorded as goodwill.

     During fiscal 2010, the Company completed various smaller acquisitions in the 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 and $2.2 million of purchase accounting adjustments were made with respect to the Company’s Robert Biggar Limited (“Biggar”) and Optima, S.A. (“Optima”) acquisitions, respectively. Additionally in fiscal 2010, $6.3 million of purchase accounting adjustments related to contingent consideration payments were made with respect to the Company’s Express Finance Limited (“Express”) acquisition.

     On December 31, 2010, the Company consummated the acquisition of Sefina Finance AB (“Sefina”), a Scandinavian pawn lending business with its headquarters in Stockholm, Sweden. Sefina provides pawn loans primarily secured by gold jewelry, diamonds and watches through 16 retail store locations in Sweden and 12 retail store locations in Finland. The total cash consideration for the acquisition is estimated to be approximately $90.6 million, of which approximately $59.1 million was cash paid at closing. Approximately $14.9 million of additional cash, excluding accrued interest, is payable to the seller in equal installments. The Company paid the first installment on March 31, 2011, and the remaining two installments are due on June 30, 2011 and September 30, 2011. Furthermore, the Company is obligated to pay the seller additional contingent consideration based on the financial performance of Sefina during each of the two successive twelve month periods following the closing of the acquisition, the aggregate amount of which the Company currently estimates to be approximately $16.6 million. All future payments have been recorded as liabilities on the balance sheet of the acquiring U.K. entity. In connection with the acquisition, the Company also incurred transaction costs of approximately $0.8 million.

DOLLAR FINANCIAL CORP.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

     Under the purchase method of accounting, the total estimated purchase price is allocated to Sefina’s net tangible and intangible assets based on their current estimated fair values. Management’s valuation of the fair value of tangible and intangible assets acquired and liabilities assumed, is based on estimates and assumptions subject to the finalization of the Company’s fair value allocation. The purchase price, subject to the finalization of the fair value allocation, is allocated as follows (in millions):

Cash		$	4.0
Pawn loans			71.5
Prepaid expenses and other current assets			3.5
Property and equipment			3.0
Other assets			0.1
Accounts payable			(0.4	)
Accrued expenses and other liabilities			(3.9	)
Debt			(61.8	)
Other non-current liabilities			(1.5	)
Net tangible assets acquired			14.5
Indefinite-lived intangible assets acquired			0.3
Goodwill			75.8
Total purchase price		$	90.6

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

     Of the total estimated purchase price for Sefina, an estimate of $14.5 million has been allocated to net tangible assets acquired and $0.3 million has been allocated to indefinite-lived intangible assets acquired. The remaining purchase price has been allocated to goodwill.

     During fiscal 2011, the Company completed the acquisitions of two Canadian franchisees with 19 stores for an aggregate purchase price of $20.5 million that resulted in an increase in goodwill of $15.0 million, calculated as the excess purchase price over the preliminary fair value of the identifiable assets acquired. The Company also purchased four stores in the United Kingdom during the nine months ended March 31, 2011 that resulted in an aggregate increase in goodwill of $0.5 million.

     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 its network through acquisitions. The Company believes that acquisitions 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 its industry, 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.

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

Balance at June 30, 2010		$	496.8
Acquisitions:
Sefina Finance AB			75.8
Canadian franchisee acquisitions			15.0
Various small acquisitions			0.5
Purchase accounting adjustments:
Military Financial Services, LLC			(1.4	)
Foreign currency translation adjustment			26.1
Balance at March 31, 2011		$	612.8

DOLLAR FINANCIAL CORP.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

     Subsequent Acquisition

     On April 1, 2011, the Company’s wholly owned U.K. subsidiary, Dollar Financial U.K. Ltd., completed its acquisition of Purpose U.K. Holdings Limited, a leading provider of online short-term loans in the United Kingdom. Purpose U.K. Holdings Limited, which operates primarily under the brand name Payday UK, provides loans through both internet and telephony-based technologies throughout the United Kingdom. The purchase price for the acquisition was $195.0 million, all of which was paid in cash at the closing with a combination of available cash and GBP 95 million ($152.5 million) borrowed by Dollar Financial UK under the Global Revolving Credit Facility.

     Pro forma Information

     The following pro forma information for the periods ended March 31, 2010 and 2011 presents the results of operations as if the acquisitions had occurred on July 1, 2009. 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, S&R, Sefina and Purpose U.K. Holdings Limited acquisitions. Pro forma results of operations are not necessarily indicative of the results of operations that would have occurred had the purchase been made on the date above or the results which may occur in the future.

						Pro Forma Results
		Three months ended								Nine months ended
		March 31,								March 31,
		2010				2011				2010				2011
		(Unaudited in millions								(Unaudited in thousands except
		except per share amounts)								per share amounts)
Revenue		$	190.9			$	227.0			$	565.7			$	653.0
Net (loss) income attributable to Dollar Financial Corp.		$	(9.7	)		$	19.5			$	14.0			$	61.9
Net (loss) income per common share — basic		$	(0.27	)		$	0.53			$	0.39			$	1.70
Net (loss) income per common share — diluted		$	(0.27	)		$	0.50			$	0.38			$	1.63

4. Goodwill and Other Intangibles

The changes in the carrying amount of goodwill by reportable segment for the nine months ended March 31, 2011 are as follows (in millions):

		United States				Dealers’ Financial
		Retail				Services				Canada				Europe				Total
Balance at June 30, 2010		$	205.7			$	53.5			$	136.4			$	101.2			$	496.8
Acquisitions and purchase accounting adjustments			—				(1.4	)			15.0				76.3				89.9
Foreign currency translation adjustments			—				—				13.1				13.0				26.1
Balance at March 31, 2011		$	205.7			$	52.1			$	164.5			$	190.5			$	612.8

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,				March 31,
		2010				2011
Non-amortizing intangible assets:
Goodwill		$	496.8			$	612.8
Reacquired franchise rights			51.3				56.3
DFS MILES Program			35.4				35.4
Tradenames			—				0.3
		$	583.5			$	704.8
Amortizable intangible assets:
Various contracts		$	28.7			$	28.7
Reacquired franchise rights			—				2.6
Accumulated Amortization:
Various contracts			(3.2	)			(7.7	)
Reacquired franchise rights			—				(0.2	)
Total intangible assets		$	609.0			$	728.2

     Goodwill is the excess of cost over the fair value of the net assets of the business acquired.

     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, DFS’ MILES program brand name and Sefina trade 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 increase in indefinite-lived reacquired franchise rights is due to changes in foreign exchange rates from June 30, 2010 to March 31, 2011. As prescribed under ASC 805, beginning with franchisee acquisitions consummated in fiscal 2010 or later, reacquired franchise rights are no longer considered indefinite-lived; rather they are amortized over the remaining contractual life of the franchise agreement.

     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 $1.7 million and $4.7 million for the three and nine months ended March 31, 2011, respectively.

DOLLAR FINANCIAL CORP.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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

Fiscal Year Ended
June 30,			Amount
2011			$	6.4
2012				6.5
2013				6.2
2014				5.9
2015				3.1
			$	28.1

5. Debt

     The Company had debt obligations at June 30, 2010 and March 31, 2011 as follows (in millions):

		June 30,				March 31,
		2010				2011
Revolving credit facility		$	—			$	152.5
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	)			(3.1	)
Dollar Financial Corp. 2.875% Senior Convertible Notes due 2027			38.3				40.1
Dollar Financial Corp. 3.000% Senior Convertible Notes due 2028			84.9				89.3
Scandinavian credit facilities			—				67.1
Other			8.7				8.9
Total debt			728.6				954.8
Less: current portion of debt			(3.3	)			(158.6	)
Long-term debt		$	725.3			$	796.2

Senior Notes

     On December 23, 2009, the Company’s wholly owned indirect Canadian subsidiary, National Money Mart Company (“NMM”), issued $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 NMM, 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, NMM 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. At any time prior to December 15, 2012, NMM may redeem up to 35% of the aggregate principal amount of the 2016 Notes at a redemption price of 110.375% of the principal amount of the 2016 Notes redeemed if; (1) such redemption is made with the proceeds of one or more public equity offerings by DFC; (2) at least $390 million in aggregate principal amount of the 2016 Notes remain outstanding immediately after the occurrence of such redemption; and (3) the redemption occurs within 90 days of such public equity offering by DFC. After December 15, 2013, NMM 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, DFC issued $200.0 million aggregate principal amount of its 2.875% Senior Convertible Notes due 2027 (the “2027 Notes”). The 2027 Notes were issued under an indenture between DFC and U.S. Bank National Association, as trustee, dated as of June 27, 2007 (the “2027 Indenture”).

DOLLAR FINANCIAL CORP.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

     In February 2010, DFC repurchased $35.2 million aggregate principal amount of the 2027 Notes in privately negotiated transactions with three of the holders of the 2027 Notes. The purchase price paid by DFC in the transactions was 91% of the stated principal amount of the repurchased 2027 Notes, for an aggregate price of $32.0 million. As a result of these repurchase transactions and the privately negotiated exchange transactions described below that were completed in December 2009, $44.8 million aggregate principal amount of 2027 Notes remains outstanding as of June 30, 2010 and March 31, 2011. The Company recognized a net loss of $0.7 million during fiscal 2010 related to the repurchased Notes.

     The 2027 Notes are general unsecured obligations of DFC 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 30, 2027, unless earlier converted, redeemed or repurchased by the Company. Holders of the 2027 Notes may require DFC to repurchase in cash some or all of the 2027 Notes at any time before the 2027 Notes’ maturity following a “fundamental change” (as defined in the 2027 Indenture).

     The 2027 Indenture includes a “net share settlement” provision that allows DFC, upon redemption or conversion, to settle the principal amount of the 2027 Notes in cash and the additional conversion value, if any, in shares of DFC’s common stock. Holders of the 2027 Notes may convert their 2027 Notes based at an initial conversion rate of 38.6641 shares per $1,000 principal amount of 2027 Notes, subject to adjustment, prior to stated maturity under the following circumstances:

	•		during any calendar quarter commencing after September 30, 2007, if the closing sale price of DFC’s common stock is greater than or equal to 130% of the applicable conversion price for at least 20 trading days in the period of 30 consecutive trading days ending on the last day of the preceding calendar quarter;
	•		during the five day period following any five consecutive trading day period in which the trading price of the 2027 Notes for each day of such period was less than 98.0% of the product of the closing sale price per share of DFC’s common stock on such day and the conversion rate in effect for the 2027 Notes on each such day;
	•		if the 2027 Notes are called for redemption; 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, DFC will pay a make-whole provision, as defined in the 2027 Indenture.

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

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

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

     The 2028 Notes are general unsecured obligations of DFC and rank equally in right of payment with all of DFC’s other existing and future obligations that are unsecured and unsubordinated. The 2028 Notes accrue interest at a rate of 3.00% per annum, payable in cash

DOLLAR FINANCIAL CORP.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

in arrears on April 1 and October 1 of each year beginning on April 1, 2010. The maturity date of the new 2028 Notes is April 1, 2028. The 2028 Notes were issued under an indenture between DFC and U.S. Bank National Association, as trustee, dated as of December 21, 2009 (the “2028 Indenture”).

     The 2028 Indenture includes a “net share settlement” provision that allows DFC, upon redemption or conversion, to settle the principal amount of the 2028 Notes in cash and the additional conversion value, if any, in shares of DFC’s common stock. Holders of the 2028 Notes may convert their 2028 Notes based at an initial conversion rate of 51.8032 shares per $1,000 principal amount of 2028 Notes, subject to adjustment, prior to stated maturity under the following circumstances:

	•		during any calendar quarter commencing after December 31, 2009, if the closing sale price of DFC’s common stock is greater than or equal to 130% of the applicable conversion price for at least 20 trading days in the period of 30 consecutive trading days ending on the last day of the preceding calendar quarter;
	•		during the five day period following any five consecutive trading day period in which the trading price of the 2028 Notes for each day of such period was less than 98.0% of the product of the closing sale price per share of DFC’s common stock on such day and the conversion rate in effect for the 2028 Notes on each such day;
	•		if the 2028 Notes are called for redemption; and at any time on or after December 31, 2026; or
	•		upon the occurrence of specified corporate transactions as described in the 2028 Indenture.

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

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

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

     If 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 DFC 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 follows 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 2027 Notes and the 2028 Notes (collectively, the “Convertible Notes”) at their fair value as of the date of issuance and amortize the discount into interest expense over the life of the Convertible Notes during the periods in which the Notes are outstanding. As of March 31, 2011, the remaining discount of $4.7 million on the 2027 Notes will be amortized using the effective interest method through December 31, 2012, and the remaining discount of $30.7 million on the 2028 Notes similarly will be amortized 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 Convertible Notes do not contain a beneficial conversion feature, as the fair value of DFC’s common stock on the date of issuance was less than the initial conversion price.

DOLLAR FINANCIAL CORP.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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

1.

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

2.

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

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

Credit Facility

     Global Revolving Credit Facility

     On March 3, 2011, the Company replaced its existing credit facility with a new senior secured credit facility with a syndicate of lenders, the administrative agent for which is Wells Fargo Bank, National Association. The new facility consists of a $200.0 million global revolving credit facility (the “Global Revolving Credit Facility”), with the potential to further increase the Company’s available borrowings under the facility to $250.0 million. Availability under the Global Revolving Credit Facility is based on a borrowing base comprised of cash and consumer receivables in the Company’s U.S and Canadian operations, and its U.K.-based retail and Payday Express online operations, and its U.K.-based pawn loan receivables. There is a sublimit for borrowings in the United States based on the lesser of the U.S. borrowing base under the Global Revolving Credit Facility or $75 million.

     Borrowings under the Global Revolving Credit Facility may be denominated in United States Dollars, British Pounds Sterling, Euros or Canadian Dollars, as well as any other currency as may be approved by the lenders. Interest on borrowings under the Global Revolving Credit Facility is derived from a pricing grid based on the Company’s consolidated leverage ratio, which currently allows borrowing at an interest rate equal to the applicable London Inter-Bank Offered Rate (LIBOR) or Canadian Dollar Offer Rate (based on the currency of borrowing) plus 400 basis points, or in the case of borrowings in U.S. Dollars only, at the alternate base rate, which is the greater of the prime rate and the federal funds rate plus 1/2 of 1%, plus 300 basis points. The Global Revolving Credit Facility will mature on March 1, 2015.

     The Global Revolving Credit Facility allows for borrowings by DFG, NMM, Dollar Financial U.K. Limited, an indirect U.K. subsidiary of DFC, and Instant Cash Loans Limited, a direct U.K. subsidiary of Dollar Financial U.K. Limited. Borrowings by DFG under the Global Revolving Credit Facility are guaranteed by DFC and certain direct and indirect domestic U.S. subsidiaries of DFC. Borrowings by non-U.S. borrowers under the Global Revolving Credit Facility are guaranteed by DFC and DFG and substantially all of their domestic U.S. subsidiaries, by NMM and substantially all of the Company’s other direct and indirect Canadian subsidiaries, and by Dollar Financial U.K. Limited and Instant Cash Loans Limited and substantially all of the U.K. subsidiaries of Instant Cash Loans Limited. The obligations of the respective borrowers and guarantors under the Global Revolving Credit Facility are secured by substantially all the assets of such borrowers and guarantors.

     As of March 31, 2011, there was $152.5 million outstanding (denominated as GBP 95 million) under the Global Revolving Credit Facility, all of which was borrowed to fund the Company’s acquisition of Purpose UK Holdings Limited which was completed on April 1, 2011.

     Prior Credit Facility

     On October 30, 2006, the Company entered into a $475.0 million credit facility (“2006 Credit Agreement”). The 2006 Credit Agreement consisted of the following: (i) a senior secured revolving credit facility in an aggregate amount of $75.0 million (the “U.S. Revolving Facility”) with DFG as the borrower; (ii) a senior secured term loan facility with an aggregate amount of $295.0 million (the “Canadian Term Facility”) with NMM as the borrower; (iii) a senior secured term loan facility with Dollar Financial U.K. Limited 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 CAD 28.5 million (the “Canadian Revolving Facility”) with NMM as the borrower.

     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

DOLLAR FINANCIAL CORP.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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 be reduced to an amount less than or equal to $50 million).

     Outstanding amounts under the Amended and Restated Credit Agreement that were owed to lenders which consented to the extended maturity date received 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 loans, based on a leverage based pricing grid. Lenders under the 2006 Credit Agreement that that did not consent to the extended maturity in 2009 received 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 loans, based on a leverage based pricing grid.

     Prior to the Amended and Restated 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.

     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 Canadian Term Facility and the U.K. Term Facility. On June 23, 2010, the Company used excess cash to repay the remaining balance of approximately $18.3 million of the Canadian Term Facility and the U.K. Term Facility. The Company repaid the outstanding balances under the Amended and Restated Credit Agreement immediately prior to its termination on March 3, 2011 in connection with the execution of the Company’s new senior secured credit facility relating to the Global Revolving Credit Facility.

Scandinavian Credit Facilities

     As a result of the recent acquisition of Sefina, the Company assumed borrowings under Sefina’s existing credit facilities. The loans are secured primarily by the value of Sefina’s pawn pledge stock. The borrowings consist of a working capital facility consisting of two loans of SEK 185 million and SEK 55 million ($38.0 million at March 31, 2011). These loans are due July 2013 and December 2015, respectively, at an interest rate of the lender’s borrowing rate plus 160 basis points (4.13% at March 31, 2011). Also with the same Scandinavian bank, the Company assumed an overdraft facility due December 31, 2011 with a commitment of up to SEK 85 million. As of March 31, 2010, SEK 36.1 million ($5.7 million) was outstanding at the lender’s borrowing rate plus 170 basis points (4.23% at March 31, 2011). The Company also assumed a Euro overdraft facility with another Scandinavian bank maturing in April 2012 with a commitment of up to EUR 17.5 million, of which EUR 16.5 million ($23.4 million) was outstanding as of March 31, 2011 at a rate of Euribor plus 250 basis points (3.68% at March 31, 2011).

Other Debt

     Other debt consists of $8.9 million of debt assumed as part of the S&R acquisition, consisting of a $0.4 million overdraft facility, a $2.9 million revolving loan and a $5.6 million term loan.

     Interest expense, net was $21.9 million and $23.0 million for the three months ended March 31, 2010 and 2011, respectively. For the nine months ended March 31, 2010 and 2011, interest expense, net was $46.4 million and $66.5 million, respectively. Included in interest expense was $2.1 million and $2.1 million of accreted interest for which no cash payment was currently due related to the Convertible Notes for the three months ended March 31, 2010 and 2011, respectively. For the nine months ended March 31, 2010 and 2011, accreted interest for which no cash payment was currently due related to the Convertible Notes for the nine months ended March 31, 2010 and 2011 was $7.0 million and $6.2 million, respectively.

6. Fair Value Measurements

     The Fair Value Measurements and Disclosures Topic of the FASB Codification establishes a fair value hierarchy that distinguishes between observable and unobservable market participant assumptions. 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

DOLLAR FINANCIAL CORP.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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 and gold options to manage its exposure to variability in gold prices. 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, gold forward curves and implied volatilities. The Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees. Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of March 31, 2011, 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.

     During fiscal 2011, the Company recorded a liability for contingent consideration of $16.6 million arising from the acquisition of Sefina which is payable over two years. The fair value of the contingent consideration was determined at the acquisition date using a probability weighted income approach based on the net present value of estimated payments and is re-measured in each reporting period. The contingent consideration was classified within Level 3 as management assumptions for the valuation included discount rates and estimated probabilities of achievement of pre-tax income levels which are unobservable in the market. Changes in fair value of the contingent consideration due to time value are recorded in other income, net. As of March 31, 2011, the balance of the contingent consideration was $17.7 million and the assumptions for the valuation did not materially change.

     The table below presents the Company’s assets and liabilities measured at fair value on a recurring basis as of March 31, 2011, aggregated by the level in the fair value hierarchy within which those measurements fall.

Assets and Liabilities Measured at Fair Value on a Recurring Basis at March 31, 2011
(in millions)

		Quoted Prices in
		Active Markets				Significant
		for Identical Assets				Other				Significant
		and Liabilities				Observable				Unobservable				Balance at
		(Level 1)				Inputs (Level 2)				Inputs (Level 3)				March 31, 2011
Assets
Derivative financial instruments		$	—			$	—			$	—			$	—
Liabilities
Derivative financial instruments		$	—			$	73.1			$	—			$	73.1
Contingent consideration — Sefina acquistion		$	—			$	—			$	17.7			$	17.7

DOLLAR FINANCIAL CORP.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

     The following table reconciles the change in the Level 3 liabilities for the nine months ended March 31, 2011 (in millions):

		Fair Value
		Measurements Using
		Significant
		Unobservable Inputs
		Level 3
Balances as of June 30, 2010		$	—
Contingent Consideration -— Sefina acquisition			16.6
Unrealized foreign exchange loss on contingent consideration			1.1
Balance as of March 31, 2011		$	17.7

7. 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.

     Certain parts of the Company’s operations in Canada and Europe expose the Company to fluctuations in foreign exchange rates. The Company’s goal is to reduce its exposure to such foreign exchange risks on its foreign currency cash flows and fair value fluctuations on recognized foreign currency denominated assets, liabilities and unrecognized firm commitments to acceptable levels primarily through the use of foreign exchange-related derivative financial instruments. From time to time, the Company enters 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.

     The Company maintains gold inventory in quantities expected to be sold in a reasonable period of time in the normal course of business. The Company generally enters into agreements for forward delivery. The prices paid in the forward delivery contracts are generally variable within a capped or collared price range. Forward derivative contracts on gold are entered into to manage the price risk associated with forecasted sales of gold inventory in the Company’s pawn shops in the United Kingdom.

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 March 31, 2011, 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 term loan 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

DOLLAR FINANCIAL CORP.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

borrowing against its functional currency. To hedge these risks, the Company had entered into cross-currency interest rate swaps. These derivatives were originally designated as cash flow hedges of both interest rate and foreign exchange risks. On December 23, 2009, the Company used a portion of the net proceeds of its $600 million offering of 10.375% Senior Notes due 2016 to prepay $350 million of the $368.6 million outstanding term loans in both the United Kingdom and Canada. Simultaneously, the Company discontinued hedge accounting prospectively on its outstanding cross currency swaps as they no longer met the strict hedge accounting requirements of the Derivatives and Hedging Topic of the FASB Codification.

     As a result of the Company repaying the majority of its term loans in the United Kingdom, the Company terminated its UK cross-currency swaps and accelerated the reclassification of amounts in other comprehensive income to earnings as a missed forecasted transaction as the hedged transactions were no longer probable to occur. The accelerated amount was a loss of $3.9 million and was included in Loss on Extinguishment of Debt during the three months ended December 31, 2009. The Company continues to report a net loss related to the discontinued cash flow hedges in accumulated other comprehensive income included in stockholders’ equity, and is subsequently reclassifying this amount into earnings (interest expense) over the remaining original term of the derivative, when the hedged forecasted transactions are recognized in earnings.

     The Canadian cross-currency swaps continue to be outstanding with prospective changes in fair value of these instruments being recorded directly through the income statement. The Company continues to report the net loss related to the discontinued cash flow hedges in accumulated other comprehensive income included in stockholders’ equity, and is subsequently reclassifying this amount into earnings (interest expense) over the remaining original term of the derivative, when the hedged forecasted transactions are recognized in earnings.

     As of March 31, 2011, the Company had the following outstanding derivatives:

Pay Fixed Strike

Receive Floating

Receive Floating

Foreign Currency Derivatives

Pay Fixed Notional

Rate

Notional

Index

USD-CAD Cross Currency Swap

CAD 181,183,832

8.75%

$

157,575,000

3 mo. LIBOR + 2.75% per annum

USD-CAD Cross Currency Swap

CAD   60,661,648

7.47%

$

52,525,000

3 mo. LIBOR + 2.75% per annum

USD-CAD Cross Currency Swap

CAD   82,755,525

7.41%

$

71,625,000

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 March 31, 2011, the Company’s subsidiary in the United Kingdom had one outstanding gold collar with a notional amount of 1,500 ounces of gold bullion.

The table below presents the fair values of the Company’s derivative financial instruments on the consolidated balance sheet as of June 30, 2010 and March 31, 2011 (in millions).

DOLLAR FINANCIAL CORP.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Tabular Disclosure of Fair Values of Derivative Instruments

Asset Derivatives

Liability Derivatives

As of June 30, 2010

As of June 30, 2010

Balance Sheet Location

Fair Value

Balance Sheet Location

Fair Value

Derivatives not designated as hedging instruments:

Cross Currency Swaps

Derivatives

$

—

Derivatives

$

47.4

Total derivatives not designated as hedging instruments

$

—

$

47.4

Asset Derivatives

Liability Derivatives

As of March 31, 2011

As of March 31, 2011

Balance Sheet Location

Fair Value

Balance Sheet Location

Fair Value

Derivatives not designated as hedging instruments:

Commodity Options

Derivatives

$

—

Derivatives

$

—

Cross Currency Swaps

Derivatives

—

Derivatives

73.1

Total derivatives not designated as hedging instruments

$

—

$

73.1

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 nine month periods ending March 31, 2010 and 2011 (in millions).

Tabular Disclosure of the Effect of Derivative Instruments on the Consolidated Statement of Operations for the Nine Months Ending March 31, 2010

Location of Gain or

Amount of Gain or

(Loss) Recognized in

(Loss) Recognized in

Amount of Gain or

Location of Gain or

Amount of Gain or

Income on Derivative

Income on Derivative

(Loss) Recognized in

(Loss) Reclassified

(Loss) Reclassified

(Ineffective Portion

(Ineffective Portion

OCI on Derivative

from Accumulated

from Accumulated

and Amount Excluded

and Amount Excluded

Derivatives in Cash Flow

(Effective Portion),

OCI into Income

OCI into Income

from Effectiveness

from Effectiveness

Hedging Relationships

net of tax

(Effective Portion)

(Effective Portion)

Testing)

Testing)

Commodity Options

$

—

$

—

Other income / (expense)

$

—

Foreign Exchange Contracts

—

Foreign currency gain / (loss)

—

Other income / (expense)

—

Cross Currency Swaps

(2.7

)

Extinguishment of Debt

(3.9

)

Other income / (expense)

(21.9

)

Interest Expense

(2.3

)

Tax Benefit

1.8

Total

$

(2.7

)

$

(4.4

)

$

(21.9

)

Tabular Disclosure of the Effect of Derivative Instruments on the Consolidated Statement of Operations for the Nine Months Ending March 31, 2011

Location of Gain or

Amount of Gain or

(Loss) Recognized in

(Loss) Recognized in

Amount of Gain or

Location of Gain or

Amount of Gain or

Income on Derivative

Income on Derivative

(Loss) Recognized in

(Loss) Reclassified

(Loss) Reclassified

(Ineffective Portion

(Ineffective Portion

OCI on Derivative

from Accumulated

from Accumulated

and Amount Excluded

and Amount Excluded

Derivatives in Cash Flow

(Effective Portion),

OCI into Income

OCI into Income

from Effectiveness

from Effectiveness

Hedging Relationships

net of tax

(Effective Portion)

(Effective Portion)

Testing)

Testing)

Commodity Options

$

—

$

—

Other income / (expense)

$

—

Cross Currency Swaps

$

—

Interest Expense

$

(4.8

)

Loss on derivatives not designated as hedges

$

(34.2

)

Tax Benefit

1.3

Total

$

—

$

(3.5

)

$

(34.2

)

Credit-risk-related Contingent Features

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

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

     As of March 31, 2011, the fair value of derivatives is in a net liability position of $74.3 million. This amount includes accrued interest but excludes any adjustment for non-performance risk. As of March 31, 2011, 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 its termination value of $74.3 million at March 31, 2011.

DOLLAR FINANCIAL CORP.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

8. 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 7). The following shows the comprehensive income for the periods stated (in millions):

		Three months ended								Nine months ended
		March 31,								March 31,
		2010				2011				2010				2011
Net income		$	(12.3	)		$	15.6			$	0.1			$	47.5
Foreign currency translation adjustment(1)			(18.8	)			7.5				(11.1	)			3.2
Fair value adjustments for derivatives, net(2)			—				—				(2.7	)			—
Amortization of accumulated other comprehensive income related to dedesignated cash flow hedges (3)			1.1				1.1				4.5				3.6
Comprehensive income			(30.0	)			24.2				(9.2	)			54.3
Net income (loss) applicable to non-controlling interests			(0.1	)			(0.1	)			(0.1	)			(0.5	)
Comprehensive income attributable to Dollar Financial Corp.		$	(29.9	)		$	24.3			$	(9.1	)		$	54.8