UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

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

		For the quarterly period ended December 31, 2010

OR

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

Commission File Number 000-50866

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 February 7, 2011, 36,696,611 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 December 31, 2010 (unaudited)			3
Interim Unaudited Consolidated Statements of Operations for the Three and Six Months Ended December 31, 2009 and 2010			4
Interim Consolidated Statements of Stockholders’ Equity as of June 30, 2010 and December 31, 2010 (unaudited)			5
Interim Unaudited Consolidated Statements of Cash Flows for the Six Months Ended December 31, 2009 and 2010			6
Notes to Interim Unaudited Consolidated Financial Statements			7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			44
Item 3. Quantitative and Qualitative Disclosures About Market Risk			65
Item 4. Controls and Procedures			67
PART II. OTHER INFORMATION
Item 1. Legal Proceedings			67
Item 1A. Risk Factors			67
Item 6. Exhibits			68
Signature			69
EXHIBIT 3.1
EXHIBIT 4.1
EXHIBIT 4.2
EXHIBIT 10.3
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 31.3
EXHIBIT 32.1
EXHIBIT 32.2
EXHIBIT 32.3

Amended and Restated Certificate of Incorporation of Dollar Financial Corp., as amended

Supplemental Indenture dated December 2, 2010 between DFG Acquisition Services, Inc., Military Financial Services, LLC, Dealers Financial Services, LLC and U.S. Bank National Association, as trustee

Guarantee dated December 2, 2010 executed by DFG Acquisition Services, Inc., Military Financial Services, LLC, Dealers Financial Services, LLC

Share Purchase Agreement dated December 31, 2010 among Dollar Financial U.K. Limited, Dollar Financial Corp., CCRT International Holdings B.V. and CompuCredit Holdings Corporation

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

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

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

Section 1350 Certification of Chief Executive Officer

Section 1350 Certification of Executive Vice President and Chief Financial Officer

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

PART 1. FINANCIAL INFORMATION

Item 1.		Financial Statements

DOLLAR FINANCIAL CORP.

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

		June 30,				December 31,
		2010				2010
						(unaudited)
ASSETS
Current Assets
Cash and cash equivalents		$	291.3			$	170.4
Consumer loans, net:
Consumer loans			111.3				133.4
Less: Allowance for consumer loan losses			(10.4	)			(11.4	)
Consumer loans, net			100.9				122.0
Pawn loans			35.5				113.4
Loans in default, net of an allowance of $21.8 and $27.0			9.3				12.0
Other receivables			17.1				36.0
Prepaid expenses and other current assets			25.8				31.7
Current deferred tax asset, net of valuation allowance of $4.9 and $4.9			1.0				—
Total current assets			480.9				485.5
Deferred tax asset, net of valuation allowance of $80.2 and $81.6			22.6				19.2
Property and equipment, net of accumulated depreciation of $117.2 and $129.3			67.5				81.5
Goodwill and other intangibles			609.0				716.8
Debt issuance costs, net of accumulated amortization of $3.5 and $5.5			18.7				18.1
Other			15.9				18.6
Total Assets		$	1,214.6			$	1,339.7
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable		$	44.8			$	32.7
Income taxes payable			6.2				6.8
Accrued expenses and other liabilities			92.6				90.8
Debt due within one year			3.3				7.8
Current deferred tax liability			0.3				—
Total current liabilities			147.2				138.1
Fair value of derivatives			47.4				66.8
Long-term deferred tax liability			24.0				29.2
Long-term debt			725.3				787.2
Other non-current liabilities			52.4				66.5
Stockholders’ equity:
Common stock, $.001 par value: 100,000,000 shares authorized; 36,539,663 shares and 36,692,933 shares issued and outstanding at June 30, 2010 and December 31, 2010, respectively			—				—
Additional paid-in capital			331.1				334.6
Accumulated deficit			(115.5	)			(83.2	)
Accumulated other comprehensive income			2.7				0.9
Total Dollar Financial Corp. stockholders’ equity			218.3				252.3
Non-controlling interest			—				(0.4	)
Total stockholders’ equity			218.3				251.9
Total Liabilities and Stockholders’ Equity		$	1,214.6			$	1,339.7

See notes to interim unaudited consolidated financial statements

DOLLAR FINANCIAL CORP.

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

		Three Months Ended								Six Months Ended
		December 31,								December 31,
		2009				2010				2009				2010
Revenues:
Consumer lending		$	82.7			$	99.3			$	160.2			$	191.3
Check cashing			38.5				36.8				76.3				72.0
Money transfer fees			7.1				7.9				13.9				15.1
Pawn service fees and sales			4.7				7.3				8.5				13.5
Gold sales			13.2				11.3				19.0				22.4
Other			14.5				19.9				28.3				42.4
Total revenues			160.7				182.5				306.2				356.7
Operating expenses:
Salaries and benefits			37.7				42.8				74.5				83.5
Provision for loan losses			12.7				16.5				24.4				30.4
Occupancy			10.8				12.0				21.7				23.6
Purchased gold costs			9.2				7.2				13.4				14.9
Depreciation			4.1				3.9				7.4				7.5
Returned checks, net and cash shortages			2.6				2.0				4.9				3.9
Maintenance and repairs			2.9				3.2				5.7				6.5
Advertising			4.7				5.9				8.1				11.7
Bank charges and armored carrier service			3.5				3.9				6.9				7.7
Other			11.9				15.2				22.7				28.7
Total operating expenses			100.1				112.6				189.7				218.4
Operating margin			60.6				69.9				116.5				138.3
Corporate and other expenses:
Corporate expenses			22.9				23.9				43.3				49.4
Other depreciation and amortization			1.1				2.8				2.2				5.5
Interest expense, net			12.8				21.9				24.5				43.5
Loss on extinguishment of debt			8.8				—				8.8				—
Unrealized foreign exchange (gain) loss			(3.9	)			(17.8	)			3.9				(32.4	)
Loss on derivatives not designated as hedges			3.3				10.8				3.3				24.6
(Proceeds from) provision for litigation settlements			—				(4.1	)			1.3				(3.9	)
Loss on store closings			1.3				0.1				1.6				0.5
Other expense, net			1.4				2.0				1.3				2.6
Income before income taxes			12.9				30.3				26.3				48.5
Income tax provision			5.9				10.5				13.9				16.6
Net income			7.0				19.8			$	12.4			$	31.9
Less: Net loss attributable to non-controlling interests			(0.1	)			(0.2	)			—				(0.4	)
Net income attributable to Dollar Financial Corp.		$	7.1			$	20.0			$	12.4			$	32.3
Net income per share attributable to Dollar Financial Corp:
Basic		$	0.20			$	0.55			$	0.34			$	0.89
Diluted		$	0.19			$	0.53			$	0.34			$	0.86
Weighted average shares outstanding:
Basic			36,069,838				36,480,854				36,033,687				36,440,652
Diluted			37,274,813				37,896,788				36,986,001				37,628,431

See notes to interim unaudited consolidated financial statements.

DOLLAR FINANCIAL CORP.

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

																						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)			36,539,663			$	—			$	331.1			$	(115.5	)		$	—			$	2.7			$	218.3
Comprehensive income:
Foreign currency translation																							(4.3	)			(4.3	)
Cash flow hedges																							2.5				2.5
Net income attributable to Dollar Financial Corp.															32.3												32.3
Total comprehensive income																											30.5
Restricted stock vested			240,092
Stock options exercised			29,541				—				0.2																0.2
Vested portion of granted restricted stock and restricted stock units											1.9																1.9
Retirement of common stock			(116,363	)
Other stock compensation											1.4																1.4
Net loss attributable to non-controlling interest																			(0.4	)							(0.4	)
Balance, December 31, 2010 (unaudited)			36,692,933			$	—			$	334.6			$	(83.2	)		$	(0.4	)		$	0.9			$	251.9

See notes to interim unaudited consolidated financial statements.

DOLLAR FINANCIAL CORP.

INTERIM UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)

		Six Months Ended
		December 31,
		2009				2010
Cash flows from operating activities:
Net income		$	12.4			$	31.9
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization			11.2				14.9
Loss on extinguishment of debt			8.8				—
Change in fair value of derivatives not designated as hedges			2.9				15.6
Provision for loan losses			24.4				30.4
Non-cash stock compensation			3.5				3.2
Loss on disposal of fixed assets			0.2				0.4
Unrealized foreign exchange loss (gain)			3.7				(32.4	)
Deferred tax provision			(3.1	)			8.2
Accretion of debt discount and deferred issuance costs			5.7				7.5
Change in assets and liabilities (net of effect of acquisitions):
(Increase) in loans and other receivables			(42.6	)			(62.1	)
(Increase) in prepaid expenses and other			(0.6	)			(4.1	)
Increase (decrease) in accounts payable, accrued expenses and other liabilities			8.1				(55.9	)
Net cash provided by (used in) operating activities			34.6				(42.4	)
Cash flows from investing activities:
Acquisitions, net of cash acquired			(123.5	)			(75.1	)
Additions to property and equipment			(11.7	)			(18.1	)
Net cash used in investing activities			(135.2	)			(93.2	)
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			0.1				0.2
Repayment of term loan notes			(351.1	)			—
Other debt payments			(6.9	)			—
Payment of debt issuance and other costs			(19.1	)			(0.3	)
Net cash provided by (used in) financing activities			219.4				(0.1	)
Effect of exchange rate changes on cash and cash equivalents			17.0				14.8
Net increase (decrease) in cash and cash equivalents			135.8				(120.9	)
Cash and cash equivalents at beginning of period			209.6				291.3
Cash and cash equivalents at end of period		$	345.4			$	170.4

See notes to interim unaudited consolidated financial statements.

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

Basis of Presentation

     The accompanying unaudited interim consolidated financial statements are of Dollar Financial Corp. (“DFC”) and its wholly owned and majority owned subsidiaries (collectively, the “Company”). DFC is the parent company of Dollar Financial Group, Inc. (“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 to the general public through a network of 1,226 locations (of which 1,126 are company owned) operating principally as Money Mart^®, The Money Shop^®, Loan Mart^®, Insta-Cheques^®, MCE^®, Suttons and Robertson^®, The Check Cashing Store^®, Sefina^® and Money Now^® in 15 states, Canada, the United Kingdom, 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 the general public 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, LLC and its subsidiary DFS, the Company provides fee based services to enlisted military personnel seeking to purchase new and used vehicles who make applications for auto loans that are funded and serviced under an exclusive agreement with a major third-party national bank based in the United States.

     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 $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)

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 “Company-Funded 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 loans receivable, net. Consumer loans, net are reported net of a reserve as described below in the company-funded 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.

Company-Funded 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

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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 $44.9 million and $141.2 million, respectively, at December 31, 2010. These fair values relate to the face value of the 2027 Notes and the 2028 Notes, and not the carrying value recorded on the Company’s balance sheet. The fair value of the 2016 Notes was approximately $609.0 million and $651.0 million at June 30, 2010 and December 31, 2010, 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.

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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):

		Three Months Ended								Six Months Ended
		December 31,								December 31,
		2009				2010				2009				2010
Net income attributable to Dollar Financial Corp.		$	7.1			$	20.0			$	12.4			$	32.3
Reconciliation of denominator:
Weighted average of common shares outstanding — basic (1)			36.1				36.5				36.0				36.4
Effect of dilutive stock options — (2)			0.7				1.0				0.5				0.8
Effect of unvested restricted stock and restricted stock unit grants (2)			0.5				0.4				0.5				0.4
Weighted average of common shares outstanding — diluted			37.3				37.9				37.0				37.6

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 the 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 2.505 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 related to share-based compensation included in the statement of operations for the three months ended December 31, 2009 and 2010 was $1.3 million and $1.2 million, respectively, net of related tax and $2.5 million and $2.6 million, respectively, net of related tax effects for the six months ended December 31, 2009 and 2010, 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								Six Months Ended
		December 31,								December 31,
		2009				2010				2009				2010
Expected volatility			54.5	%			52.7	%			54.9	%			52.8	%
Expected life (years)			5.7				5.5				5.9				5.5
Risk-free interest rate			3.01	%			1.86	%			3.23	%			1.88	%
Expected dividends			None				None				None				None
Weighted average fair value		$	7.91			$	8.36			$	6.32			$	8.23

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

										Weighted
						Weighted				Average
						Average				Remaining				Aggregate
						Exercise				Contractual				Intrinsic Value
		Options				Price				Term (years)				($ in millions)
Options outstanding at June 30, 2010 (1,798,522 shares exercisable)			2,908,018			$	10.22				7.5			$	9.9
Granted			80,411			$	16.70
Exercised			(29,541	)		$	7.41
Forfeited and expired			(55,556	)		$	9.03
Options outstanding at December 31, 2010			2,903,332			$	10.45				7.0			$	25.1
Exercisable at December 31, 2010			2,134,204			$	10.36				6.4			$	12.4

     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 December 31, 2010. 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 six months ended December 31, 2009 was zero and zero, respectively and was zero and $0.2 million for the three and six months ended December 31, 2010, respectively. As of December 31, 2010, the total unrecognized compensation cost over a weighted-average period of 2.2 years, related to stock options, is expected to be $2.7 million. Cash received from stock options exercised for the three and six months ended December 31, 2009 was $0.1 million and $0.1 million, respectively. Cash received from stock options exercised for the three and six months ended December 31, 2010 was zero and $0.2 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.

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

     Information concerning unvested restricted stock awards is as follows:

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

     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			909,023			$	9.98
Granted			48,176			$	16.44
Vested			(274,846	)		$	9.97
Forfeited			(36,213	)		$	10.97
Outstanding at December 31, 2010			646,140			$	10.41

     As of December 31, 2010, there was $7.5 million of total unrecognized compensation cost related to unvested restricted share-based compensation arrangements granted under the plans. That cost is expected to be recognized over a weighted average period of 1.5 years. The total fair value of shares vested during the three and six months ended December 31, 2010 was $2.6 million and $3.4 million, respectively.

Recent Accounting Pronouncements

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

     In May 2008, the FASB issued ASC 470-20 (formerly FSP APB 14-1), Accounting for Convertible Debt Instruments That May Be Settled Upon Conversion (Including Partial Cash Settlement). The Statement requires the initial proceeds from convertible debt that may be settled in cash to be bifurcated between a liability component and an equity component. The objective of the guidance is to require the liability and equity components of convertible debt to be separately accounted for in a manner such that the interest expense recorded on the convertible debt would not equal the contractual rate of interest on the convertible debt but instead would be recorded at a rate that would reflect the issuer’s conventional debt borrowing rate. This is accomplished through the creation of a discount on the debt that would be accreted using the effective interest method as additional non-cash interest expense over the period the debt is

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

expected to remain outstanding. The Statement was adopted by the Company on July 1, 2009 and was applied retroactively to all periods presented. The adoption impacted the accounting for the 2027 Notes and, after their issuance in December 2009, the 2028 Notes, resulting in additional non-cash interest expense of approximately $2.4 million and $2.1 million for the three months ended December 31, 2009 and 2010, respectively and $4.8 million and $4.1 million for the six months ended December 31, 2009 and 2010, respectively. Also, the adoption of the Statement reduced the Company’s debt balance by recording a debt discount of approximately $55.8 million, with an offsetting increase to additional paid in capital. Such amount will be accreted over the remaining expected life of the debt.

     In June 2009, the FASB issued ASC 105-10 (formerly SFAS 168), Accounting Standards Codification^tm and the Hierarchy of Generally Accepted Accounting Principles. The Statement establishes the FASB Accounting Standards Codification as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with US GAAP. The Statement is effective for financial statements issued for interim and annual periods ending after September 15, 2009, for most entities and supersedes all non-SEC accounting and reporting standards. The Company adopted this Statement beginning in the quarterly period ended September 30, 2009, as required.

     On January 21, 2010, the FASB issued ASU 2010-06, Improving Disclosures about Fair Value Measurements. The standard amends ASC Topic 820, Fair Value Measurements and Disclosures to require additional disclosures related to transfers between levels in the hierarchy of fair value measurement. The standard does not change how fair values are measured. The standard is effective for interim and annual reporting periods beginning after December 15, 2009. The Company adopted this Statement 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 in 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.

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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 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 that have been very effective in managing risk in its 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				Consumer
		Loans,				Loans,				Pawn
		Gross				Allowance				Loans
Performing		$	133.4			$	11.4			$	113.4
Non-performing			39.0				27.0				—
		$	172.4			$	38.4			$	113.4

     The following presents the aging of the Company’s past dues loans receivable as of December 31, 2010:

Age Analysis of Past Due Loans Receivable
As of December 31, 2010
(in millions)

														Greater																Recorded
														Than 90												Total				Investment >
		1-30 days				30-59 days				60-89 days				days Past				Total Past								Financing				90 Days and
		Past Due				Past Due				Past Due				Due				Due				Current				Receivables				Accruing
Consumer Loans		$	11.1			$	6.2			$	4.9			$	23.5			$	45.7			$	126.8			$	172.4			$	1.8
Pawn Loans			—				—				—				—				—				113.4				113.4				—
Total		$	11.1			$	6.2			$	4.9			$	23.5			$	45.7			$	240.2			$	285.8			$	1.8

     The following details the Company’s loans receivable that are on nonaccrual status as of December 31, 2010:

Loans Receivable on Nonaccrual Status
As of December 31, 2010
(in millions)

Consumer Loans		$	39.0
Pawn Loans			—
Total		$	39.0

3. Acquisitions

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

     On October 3, 2009, the Company acquired all the 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 recorded was goodwill.

     On December 23, 2009, the Company acquired of all the shares of Military Financial Services LLC (“MFS”). Through its wholly-

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

owned subsidiary Dealers’ Financial Services, LLC, MFS 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 the shares of Suttons & Robertsons (“S&R”), which presently operates three high-end pawn shops in the U.K. The aggregate purchase price for the acquisition was approximately $25.8 million. The Company used excess cash to fund the acquisition. The Company allocated approximately $5.9 million 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 United Kingdom that resulted in an aggregate increase in goodwill of $0.7 million, calculated as the excess purchase price over the preliminary fair value of the identifiable assets acquired. Also in fiscal 2010, $0.3 million, $2.2 million and $6.3 million of purchase accounting adjustments were made to with respect to the Company’s Robert Biggar Limited (“Biggar”), Optima, S.A. (“Optima”) and Express Finance Limited (“Express”) acquisitions, respectively.

     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 $91.2 million, of which approximately $59.1 million was cash paid at closing. Additionally, approximately $14.9 million of additional cash payable in equal installments on each of March 31, 2011, 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 12 month periods following the closing of the acquisition, the aggregate amount of which the Company currently estimates to be approximately $17.2 million. All future payments have been recorded as liabilities on the balance sheet of the acquiring U.K. entity. In connection with the acquisition, through December 31, 2010 the Company also incurred transaction costs of approximately $0.8 million.

     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. Because the acquisition occurred at the end of the quarter, 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 our fair value allocation is allocated as follows (in millions):

Cash		$	4.0
Pawn loans			71.5
Prepaid expenses and other current assets			3.6
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			14.6
Indefinite-lived intangible assets acquired			0.4
Goodwill			76.2
Total purchase price		$	91.2

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

     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 $14.6 million has been allocated to net tangible assets acquired and $0.4 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 completed the acquisition of one U.K. store during the current period for a nominal amount.

     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			76.2
Various small acquisitions			15.2
Purchase accounting adjustments:
Military Financial Services, LLC			(1.4	)
Foreign currency translation adjustment			14.2
Balance at December 31, 2010		$	601.0

     The following pro forma information for the periods ended December 31, 2009 and 2010 presents the results of operations as if the acquisitions had occurred as of the beginning of the period presented. The pro forma operating results include the results of these acquisitions for the indicated periods and reflect the increased interest expense on acquisition debt and the income tax impact as of the respective purchase dates of the MCE, MFS, S&R and Sefina 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								Six months ended
		December 31,								December 31,
		2009				2010				2009				2010
		(Unaudited in millions except								(Unaudited in thousands except
		per share amounts)								per share amounts)
Revenue		$	175.2			$	190.5			$	337.1			$	372.6
Net income attributable to Dollar Financial Corp.		$	10.3			$	21.6			$	14.2			$	35.6
Net income per common share — basic		$	0.29			$	0.59			$	0.39			$	0.98
Net income per common share — diluted		$	0.28			$	0.57			$	0.38			$	0.95

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

4. Goodwill and Other Intangibles

The changes in the carrying amount of goodwill by reportable segment for the six months ended December 31, 2010 are as follows (in millions):

		United States				Dealers’ Financial
		Retail				Services				Canada				Europe				Other				Total
Balance at June 30, 2010		$	205.7			$	53.5			$	136.4			$	94.6			$	6.6			$	496.8
Acquisitions and purchase accounting adjustments			—				(1.4	)			15.0				76.4				—				90.0
Foreign currency translation adjustments			—				—				9.3				4.1				0.8				14.2
Balance at December 31, 2010		$	205.7			$	52.1			$	160.7			$	175.1			$	7.4			$	601.0

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

		Gross Carrying Amount
		June 30,				December 31,
		2010				2010
Non-amortizing intangible assets:
Goodwill		$	496.8			$	601.0
Reacquired franchise rights			51.3				55.0
DFS MILES Program			35.4				35.4
Tradenames			—				0.4
		$	583.5			$	691.8
Amortizable intangible assets:
Various contracts		$	28.7			$	28.7
Reacquired franchise rights			—				2.6
Accumulated Amortization:
Various contracts			(3.2	)			(6.2	)
Reacquired franchise rights			—				(0.1	)
Total intangible assets		$	609.0			$	716.8

     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. 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

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

impairment charge in future periods.

     Amortization expense of intangible assets was $1.5 million and $3.0 million for the three and six months ended December 31, 2010, respectively.

     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					6.1
2014					5.9
2015					3.0
				$	27.9

5. Debt

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

		June 30,				December 31,
		2010				2010
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	)			(3.2	)
Dollar Financial Corp. 2.875% Senior Convertible Notes due 2027			38.3				39.5
Dollar Financial Corp. 3.000% Senior Convertible Notes due 2028			84.9				87.8
Scandinavian credit facilities			—				61.8
Other			8.7				9.1
Total debt			728.6				795.0
Less: current portion of debt			(3.3	)			(7.8	)
Long-term debt		$	725.3			$	787.2

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. 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 on or 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 Company received proceeds of approximately $193.5 million from the issuance, net of underwriting fees of

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

approximately $6.5 million. Underwriting fees are included in issuance costs on the Company’s balance sheet and are amortized to interest expense using the effective interest rate method over 5.5 years from the date of issuance. The 2027 Notes were issued under an indenture between DFC and U.S. Bank National Association, as trustee, dated as of June 27, 2007 (the “2027 Indenture”).

     In February 2010, DFC repurchased $35.2 million aggregate principal amount of the 2027 Notes in privately negotiated transactions with three of the holders of the 2027 Notes. The purchase price paid by DFC in the transactions was 91% of the stated principal amount of the repurchased 2027 Notes, for an aggregate price of $32.0 million. As a result of these repurchase transactions and the privately negotiated exchange transactions described below that were completed in December 2009, $44.8 million aggregate principal amount of 2027 Notes remains outstanding as of June 30, 2010 and December 31, 2010. 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 38.6643 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.

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

     Senior Convertible Notes due 2028

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

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

     The 2028 Indenture includes a “net share settlement” provision that allows DFC, upon redemption or conversion, to settle the principal amount of the 2028 Notes in cash and the additional conversion value, if any, in shares of DFC’s common stock. Holders of the 2028 Notes may convert their 2028 Notes based at an initial conversion rate of 51.8035 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

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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 December 31, 2010, the remaining discount of $5.3 million on the 2027 Notes will be amortized using the effective interest method through December 31, 2012 and the remaining discount of $32.2 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.

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

	1.		cash equal to the lesser of the aggregate principal amount of the Convertible Notes to be converted ($1,000 per note) or the total conversion value; and shares of DFC’s common stock in respect of the remainder, if any, of the conversion value over the principal amount of the Convertible Notes; or
	2.		shares of DFC’s common stock to the holders, calculated at the initial conversion price which is subject to any of the conversion price adjustments discussed above.

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

Credit Facility

     On October 30, 2006, the Company entered into a $475.0 million credit facility (“2006 Credit Agreement”). The 2006 Credit Agreement was comprised of the following: (i) a senior secured revolving credit facility in an aggregate amount of $75.0 million (the “U.S. Revolving Facility”) with 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, a wholly-owned U.K. indirect subsidiary of the Company, as the borrower, in an aggregate amount of $80.0 million (consisting of a $40.0 million tranche of term loans and another tranche of term loans equivalent to $40.0 million denominated in Euros) (the “U.K. Term Facility”); and (iv) a senior secured revolving credit facility in an aggregate amount of CAD28.5 million (the “Canadian Revolving Facility”) with NMM as the borrower.

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

     In the third quarter of fiscal 2008, the Company’s U.K. subsidiary entered into an overdraft facility (“U.K. Revolving Facility”) which provides for a commitment of up to GBP 5.0 million. This facility expired on June 30, 2010.

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

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

     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.

     At December 31, 2010, no amounts were outstanding under the U.S. Revolving Facility or the Canadian Revolving Facility.

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

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

Scandinavian Credit Facilities

     As a result of the recent acquisition of Sefina, the Company assumed $61.8 million of borrowings under Sefina’s credit facilities as of December 31, 2010. 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. These loans are due July 2013 and December 2015, respectively, at an interest rate of the lender’s borrowing rate plus 160 basis points. 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 December 31, 2010, SEK 28.3 million was outstanding at the lender’s borrowing rate plus 170 basis points. 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 16.4 million was outstanding as of December 31, 2010 at a rate of Euribor plus 250 basis points.

     Other debt consists of $9.1 million of debt assumed as part of the S&R acquisition, consisting of a $0.8 million overdraft facility, a $2.8 million revolving loan and a $5.5 million term loan.

     Interest expense, net was $12.8 million and $21.9 million for the three months ended December 31, 2009 and 2010, respectively. For the six months ended December 31, 2009 and 2010, interest expense, net was $24.5 million and $43.5 million, respectively. Included in interest expense was $2.4 million and $2.1 million of non-cash interest related to the Convertible Notes for the three months ended December 31, 2009 and 2010, respectively. For the six months ended December 31, 2009 and 2010, non-cash interest related to the Convertible Notes for the six months ended December 31, 2009 and 2010 was $4.8 million and $4.1 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 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,

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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 December 31, 2010, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the Company has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.

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

Assets and Liabilities Measured at Fair Value on a Recurring Basis at December 31, 2010
(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)				December 31, 2010
Assets
Derivative financial instruments		$	—			$	—			$	—			$	—
Liabilities
Derivative financial instruments		$	—			$	66.8			$	—			$	66.8

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

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.

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

     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

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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.

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 December 31, 2010, the Company did not have any outstanding foreign currency derivatives that were designated as hedges.

Cash Flow Hedges of Multiple Risks

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

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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

						Pay Fixed				Receive Floating				Receive Floating
Foreign Currency Derivatives		Pay Fixed Notional				Strike Rate				Notional				Index
USD-CAD Cross Currency Swap		CAD 181,658,135					8.75	%		$	157,987,500			3 mo. LIBOR + 2.75% per annum
USD-CAD Cross Currency Swap		CAD 60,820,448					7.47	%		$	52,662,500			3 mo. LIBOR + 2.75% per annum
USD-CAD Cross Currency Swap		CAD 82,972,163					7.41	%		$	71,812,500			3 mo. LIBOR + 2.75% per annum

Non-designated Hedges of Commodity Risk

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

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 December 31, 2010

As of December 31, 2010

Balance Sheet Location

Fair Value

Balance Sheet Location

Fair Value

Derivatives not designated as hedging instruments:

Commodity Options

Derivatives

$

—

Derivatives

$

0.2

Cross Currency Swaps

Derivatives

—

Derivatives

66.6

Total derivatives not designated as hedging instruments

$

—

$

66.8

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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

Tabular Disclosure of the Effect of Derivative Instruments on the Consolidated Statement of Operations for the Six Months Ending December 31, 2009

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)

(3.3

)

Interest Expense

(0.8

)

Tax Benefit

1.3

Total

$

(2.7

)

$

(3.4

)

$

(3.3

)

Tabular Disclosure of the Effect of Derivative Instruments on the Consolidated Statement of Operations for the Six Months Ending December 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)

$

(0.2

)

Cross Currency Swaps

$

—

Interest Expense

$

(3.2

)

Loss on derivatives not designated as hedges

$

(24.6

)

Tax Benefit

0.8

Total

$

—

$

(2.4

)

$

(24.8

)

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 December 31, 2010, the fair value of derivatives is in a net liability position of $68.8 million. This amount includes accrued interest but excludes any adjustment for non-performance risk. As of December 31, 2010, the Company has not posted, nor is it required to post, any collateral related to these agreements. If the Company breached any of these provisions it would be required to settle its obligations under the agreements at their termination value of $68.8 million at December 31, 2010.

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								Six months ended
		December 31,								December 31,
		2009				2010				2009				2010
Net income		$	7.0			$	19.8			$	12.4			$	31.9
Foreign currency translation adjustment(1)			3.4				(12.0	)			7.7				(4.3	)
Fair value adjustments for derivatives, net(2)			(2.2	)			—				(2.7	)			—
Amortization of accumulated other comprehensive income related to ineffective cash flow hedges (3)			3.1				1.3				3.4				2.5
Comprehensive income			11.3				9.1				20.8				30.1
Net income (loss) applicable to non-controlling interests			(0.1	)			(0.2	)			—				(0.4	)
Comprehensive income attributable to Dollar Financial Corp.		$	11.4			$	9.3			$	20.8			$	30.5

Accumulated other comprehensive income, net of related tax, consisted of unrealized losses on terminated cross-currency interest rate swaps of $9.1 million at December 31, 2010, compared to $10.6 million of net unrealized losses on terminated cross-currency interest rate swaps at June 30, 2010.

9. Income Taxes

Income Tax Provision

     The provision for income taxes was $13.9 million for the six months ended December 31, 2009 compared to a provision of $16.6 million for the six months ended December 31, 2010. The Company’s effective tax rate was 52.9% for the six months ended December 31, 2009 and was 34.2% for the six months ended December 31, 2010. The decrease in the effective tax rate for the three months ended December 31, 2010 as compared to the prior year was primarily a result of the taxation of the unrealized foreign currency exchange gains (classified as ordinary) in Canada at the lower statutory rate, as well as the unrealized foreign currency exchange gains (classified as capital) in Canada which are only 50% taxable. The Company’s effective tax rate differs from the U.S. federal statutory rate of 35% due to foreign taxes, permanent differences and a valuation allowance on U.S. and certain foreign deferred tax assets. At December 31, 2010, the Company maintained deferred tax assets of $118.5 million, which is offset by a valuation allowance of $86.5 million, which represents a decrease of $5.8 million in the net deferred tax asset during the six months ended December 31, 2010. The change for the period in the Company’s deferred tax assets and valuation allowances is presented in the table below and more fully described in the paragraphs that follow.

DOLLAR FINANCIAL CORP.

NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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

										Net
		Deferred				Valuation				Deferred
		Tax Asset				Allowance				Tax Asset
Balance at June 30, 2010		$	122.8			$	85.0			$	37.8
Foreign increase/(decrease)			(4.3	)			1.5				(5.8	)
Balance at December 31, 2010		$	118.5			$	86.5			$	32.0