Filed by Bowne Pure Compliance
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2008
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
For the transition period from
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to
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Commission File Number 001-32622
GLOBAL CASH ACCESS HOLDINGS, INC.
(Exact name of Registrant as specified in our charter)
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Delaware
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20-0723270 |
(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification Number) |
3525 East Post Road, Suite 120, Las Vegas, Nevada 89120
(Address of principal executive offices including Zip code)
(800) 833-7110
(Registrants telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of Each Class
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Name of Each Exchange on Which Registered |
Common Stock, $0.001 par value per share
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New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act. YES o NO þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
15(d) of the Act. YES o NO þ
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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer. See definition of accelerated filer, large accelerated
filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer o
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Accelerated filer þ
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Non-accelerated filer o
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(Do not check if a smaller
reporting company) |
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Indicate by 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 June 30, 2008, the aggregate market value of the registrants common stock held by
non-affiliates was approximately $320 million.
There
were 76,937,863 shares of the registrants common stock issued and outstanding as of the
close of business on March 4, 2009.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrants definitive Proxy Statement for its 2009 Annual Meeting of Stockholders
to be held on April 30, 2009 are incorporated by reference into this Annual Report on Form 10-K in
response to Part III, Items 10, 11, 12, 13, and 14. Except as expressly incorporated by reference,
the registrants Proxy Statement shall not be deemed to be a part of this Annual Report on Form
10-K.
GLOBAL CASH ACCESS HOLDINGS, INC.
ANNUAL REPORT ON FORM 10-K
FOR FISCAL YEAR ENDED DECEMBER 31, 2008
TABLE OF CONTENTS
2
PART I
CAUTIONARY NOTICE REGARDING
FORWARD-LOOKING STATEMENTS
Unless the context requires otherwise, references in this report to Global Cash Access the Company, we,
us, and our refer to Global Cash Access Holdings, Inc. and our respective subsidiaries.
We believe that it is important to communicate our plans and expectations about the future to our shareholders and
to the public. Some of the statements we use in this report, and in some of the documents we incorporate by reference
in this report, contain forward-looking statements concerning our business operations, economic performance and
financial condition, including in particular: our business strategy and means to implement the strategy; the amount of
future results of operations, such as revenue, certain expenses, operating margins, income tax rates, shares
outstanding, capital expenditures, operating metrics, and earnings per share; our success and our timing in developing
and introducing new products or services and expanding our business; and the successful integration of future
acquisitions. You can sometimes identify forward looking-statements by our use of the words believes, anticipates,
expects, intends, plan, forecast, guidance and similar expressions. For these statements, we claim the
protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act
of 1995.
Forward-looking statements include, but are not limited to, statements regarding the following matters: trends in
gaming establishment and patron usage of our products; benefits realized by using our products; product development and
regulatory approval; gaming regulatory, card association and statutory compliance; consumer collection activities;
future competition; future tax liabilities; international expansion; resolution of litigation; dividend policy; new
customer contracts and contract renewals; future results of operations (including revenue, expenses, margins, earnings,
cash flow and capital expenditures); future interest rates and interest expense; future borrowings; and future equity
incentive activity and compensation expense.
These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ
materially from those projected or assumed, including but not limited to the following: gaming establishment and
patron preferences; national and international economic conditions; changes in gaming regulatory, card association and
statutory requirements; regulatory approval difficulties; competitive pressures; operational limitations; gaming market
contraction; changes to tax laws; uncertainty of litigation outcome; interest rate fluctuation; inaccuracies in
underlying operating assumptions; unanticipated expenses or capital needs; technological obsolescence; and employee
turnover. In addition, the forward-looking statements regarding out future results of operations are based on our assumptions
that revenue will increase in 2009 as a result of our 2008 acquisitions, interest expense will be lower due to lower
debt balances and interest rates, and we do not lose key customer relationships. If any of these assumptions prove to
be incorrect, the results contemplated by the forward-looking statements regarding our future results of operations are
unlikely to be realized. Additional factors that could cause actual results to differ materially are included under the heading Risk
Factors These factors include, but are not limited to, those set forth in Item 1ARisk Factors of this report, those
set forth elsewhere in this report and those set forth in our press releases, reports and other filings made with the
Securities and Exchange Commission, or SEC. These cautionary statements qualify all of our forward-looking statements,
and you are cautioned not to place undue reliance on these forward-looking statements.
Our forward-looking statements speak only as of the date they are made and should not be relied upon as
representing our plans and expectations as of any subsequent date. While we may elect to update or revise
forward-looking statements at some time in the future, we specifically disclaim any obligation to publicly release the
results of any revisions to our forward-looking statements.
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ITEM 1. BUSINESS
Global Cash Access Holdings, Inc. (the Company or Holdings) is a holding company, the
principal asset of which is the capital stock of Global Cash Access, Inc. (GCA). GCA directly or
indirectly owns all of the assets and either all or a majority of the equity interests of the
subsidiaries that operate our business. These subsidiaries include Cash Systems, Inc. (a Delaware
corporation), Cash Systems, Inc. (a Minnesota corporation), Global Cash Access (Canada), Inc. (GCA
Canada), Global Cash Access (UK) Ltd. (GCA
UK), Global Cash Access (BVI), Inc. (GCA BVI), Arriva
Card, Inc. (Arriva), Global Cash Access Switzerland A.G. (GCA Switzerland), Global Cash Access
(Belgium), S.A. (GCA Belgium), Innovative Funds Transfer, LLC (IFT) Global Cash Access (HK)
Ltd. (GCA HK), GCA (Macau), S.A. (GCA Macau), Global Cash Access (South Africa)(Pty.) Ltd.
(GCA SA), Global Cash Access (Panama), Inc., Game Financial Caribbean, N.V. and Global Cash
Access (Belize), Limited (GCA Belize). IFT is a joint venture that is 60% owned by GCA and 40%
owned by International Game Technology (IGT). Unless otherwise indicated, the terms we, us,
our, our company and our business refer to Global Cash Access Holdings, Inc. together with
its consolidated subsidiaries.
Overview
We are a provider of cash access products and related services to the gaming industry in the
United States and several international markets. Our products and services provide gaming
establishment patrons access to cash through a variety of methods, including Automated Teller
Machine (ATM) cash withdrawals, credit card cash advances, point-of-sale (POS) debit card
transactions, check verification and warranty services and money transfers. In addition, we also
provide products and services that improve credit decision-making, automate cashier operations and
enhance patron marketing activities for gaming establishments. Commencing in the third quarter of
2006, we began offering, through Arriva, the Arriva Card, a private-label revolving credit card
aimed at consumers who perform cash advance transactions in gaming establishments. On February 7,
2008, the Companys Board of Directors approved a plan to exit the Arriva business. The Company
has since actively marketed the Arriva business for sale. The assets associated with the Companys
Arriva operations have been segregated and reported as held for sale in the accompanying
consolidated balance sheets as of December 31, 2008 and 2007, and the results of operations
for the Arriva line of business have been classified to discontinued operations for the years ended
December 31, 2008, 2007 and 2006. See further discussion in Note
12 of notes to consolidated financial statements.
We provide cash access products and related services at gaming establishments worldwide. In
general, our contracts with gaming establishments are exclusive and range in duration from one to
three years.
In 2008, we processed over 103.4 million transactions, which resulted in approximately $23.5
billion in cash being disbursed to gaming patrons. For the year ended December 31, 2008, we
generated revenues and operating income from continuing operations of $671.6 million and $78.6
million, respectively. A summary of our financial information is
contained in Note 15 of notes to consolidated financial statements.
We began our operations in July 1998 as a joint venture limited liability company among M&C
International, entities affiliated with Bank of America, N.A. (Bank of America) and First Data
Corporation (First Data). In September 2000, Bank of America sold its entire ownership interest
in us to M&C International and First Data. In March 2004, all of our outstanding ownership
interests were contributed to a holding company, and all of First Datas ownership interest in us
was redeemed. Simultaneously, Bank of America reacquired an ownership interest in us (the
Recapitalization). In May 2004, M&C International sold a portion of its ownership interest to a
number of private equity investors, including entities affiliated with Summit Partners, and we
converted from a limited liability company to a corporation (the Private Equity Restructuring).
In September 2005, we completed an initial public offering of our common stock. In 2007, M&C
International distributed its holdings of our common stock to its two principals, Karim Maskatiya
and Robert Cucinotta.
Our principal executive offices are located at 3525 East Post Road, Suite 120, Las Vegas,
Nevada 89120. Our telephone number is (800) 833-7110. Our Internet web site address is
http://www.gcainc.com. The information on our web site is not part of this Annual Report on Form
10-K or our other filings with the United States Securities and Exchange Commission (SEC).
Our Business
Our cash access products and services enable three primary types of electronic payment
transactions: ATM cash withdrawals, credit card cash advances and POS debit card transactions. As
of December 31, 2008, patrons could complete any of these three transactions at many of our Casino
Cash Plus 3-in-1 ATMs, or 3-in-1 Enabled redemption devices.
In addition, patrons can complete credit card cash advances and POS debit card transactions at any
of our QuikCash kiosks, all of which we own. We also provide check verification and warranty
services to gaming establishments that cash patron checks. Commencing in the third quarter of
2006, through Arriva, we began offering the Arriva Card, a private-label revolving credit card
aimed at consumers who perform cash advance transactions in gaming establishments. On February 7,
2008, the Companys Board of Directors approved a plan to exit the Arriva business. The Company
has since actively marketed the Arriva business for sale.
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ATM Cash Withdrawals
ATM cash withdrawal transactions represent the largest category of electronic payment
transactions that we process, as measured by dollar and transaction volume. In an ATM cash
withdrawal, a patron directly accesses funds from a device enabled with our ATM service by either
using an ATM card to withdraw funds from his or her bank account or using a credit card to access
his or her line of credit; in either event the patron must use the Personal Identification Number
(PIN) associated with such card. Our processor then routes the transaction request through an
electronic funds transfer (EFT) network to the patrons bank or issuer. Depending upon a number
of factors, including the patrons account balance or credit limit and daily withdrawal limit
(which is usually $300 to $500 during a 24-hour period and is determined by the patrons bank or
issuer), the bank or issuer will
either decline or authorize the transaction. If the transaction is authorized, then the
ATM-enabled device dispenses the cash to the customer. For a transaction using an ATM card, the
patrons bank account is debited by the amount of cash disbursed plus a service fee that we assess
the patron for the use of ATM service. For a transaction using a credit card, the patrons credit
card account is charged by the amount of cash disbursed plus a service fee that we assess the
patron for the use of our ATM service. The service fee is currently a fixed dollar amount and not
a percentage of the transaction size. In most circumstances we pay a fee to our gaming
establishment customer for the right to operate on its premises. We
also receive a fee, which we refer
to as reverse interchange, from the patrons bank for accommodating the banks customer.
Credit Card Cash Advances and POS Debit Card Transactions
Patrons
can also perform credit card cash advances and POS debit card transactions using many
of our enabled devices. A patrons credit card cash advance limit is usually a sub-limit of the
total credit line and is set by the card-issuing bank. These limits vary significantly and can be
larger or smaller than the POS debit limit. A credit card cash advance transaction obligates the
patron to repay the issuing bank over time on terms that are preset by the cardholder agreement. A
patrons POS debit card allows him or her to make cash withdrawals at the point of sale in an
amount equal to the lesser of the amount of funds in his or her account or a daily limit that is
generally five to ten times as large as the patrons daily ATM limit. A POS debit card transaction
immediately reduces the balance in the patrons account.
When a patron requests a credit card cash advance or POS debit card transaction, our processor
routes the transaction request through one of the card associations (e.g., VISA or MasterCard) or
EFT networks (e.g., Star, Interlink or Maestro) to the issuing bank. Depending upon several
factors, such as the available credit or bank account balance, the transaction is either authorized
or declined by the issuing bank. If authorized, the patrons bank account is debited or their
credit card balance is increased by an amount equal to the funds requested plus a service fee that
we charge the patron. The service fee is a percentage of the transaction size. If the transaction
is authorized, the device informs the patron that the transaction has
been approved. The device instructs the patron to proceed to the gaming
establishments cashier to complete the transaction, because credit card cash advances and POS
debit card transactions must
currently be completed in face-to-face environments and a unique signature must be received in
order to comply with rules of the card associations. Once at the cashier, the patron
acknowledges payment of the fee and authorizes the transaction by placing his or her signature on a
money order issued by our money order provider and made payable to the gaming establishment in an
amount equal to the face amount and receives the face amount in cash. We remit the face amount to
our money order provider and retain the fee. The gaming establishment deposits the money order in
its own bank, and after a period of two to three days, the money order is presented to our money
order provider for payment. In general, we pay the gaming establishment a portion of the service
fee as a commission for the right to operate on their premises, although this payment as percentage
of the fee is generally smaller for credit card cash advances and POS debit card transactions than
for ATM withdrawals. In addition, we are obligated to pay interchange fees to the issuing bank and
processing costs related to the electronic payment transaction.
Check Verification and Warranty Services
Although the usage of checks relative to other forms of payment is declining, patrons still
cash checks at gaming establishments to fund their gaming play. When a patron presents a check at
the cashier, the gaming establishment can (a) accept or deny the transaction based on its own
customer information and at its own risk; (b) obtain third-party verification information about the
check writer and the check to manage its risk; or (c) obtain a warranty on payment of the check
which entitles the gaming establishment to reimbursement of the full face amount of the check if it
is dishonored.`
There are a number of check verification services. One such service is our Central Credit
database, which is used primarily by gaming establishments to make credit issuing decisions.
Central Credit maintains information on the check cashing history of
many gaming establishment patrons. In general, we
do not charge separately for check verification queries to our Central Credit database on a per
transaction basis, but rather charge a fixed monthly subscription fee.
If a gaming establishment chooses to have a check warranted, it sends a request to a check
warranty service provider, asking whether it will warrant the check. If the check warranty service
provider warrants payment on the check, the gaming establishment is obligated to pay a fee for that
service. The gaming establishment then pays the patron the face amount and deposits the check. If
the check is dishonored by the patrons bank, the gaming establishment invokes the warranty, and
the check warranty service provider purchases the check from the gaming establishment for the face
amount and then pursues collection activities on its own.
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We currently provide check warranty services on two platforms: TRS Recovery Services
(formerly known as TeleCheck Recovery Services, Inc.) (TeleCheck) and Central Credit Check
Warranty. Our Central Credit Check Warranty product is currently the larger of the two platforms
as measured by face amount of checks warranted. Under our agreement with TeleCheck, we receive all
of the check warranty revenue and we pay a portion of TeleChecks operating expenses and warranty
expenses. Operating expenses are fixed at a percentage of check warranty revenues. Warranty
expenses are defined as any amounts paid by TeleCheck to gaming establishments to purchase
dishonored checks. Our agreement further provides that TeleCheck will pay us the actual
collections realized within 120 days after a check is purchased, subject to the obligation to pay
us a guaranteed minimum amount of dishonored checks. In our Central Credit Check Warranty product,
we receive all of the warranty revenue and incur all of the warranty risk, collection
responsibility and operating expenses. We use and pay certain third party services to assist us in
the warranty decision and the collection processes.
Central Credit
In addition to the three primary types of electronic payment transactions described above, a
small number of gaming establishment patrons choose to access funds through credit extended by the
gaming establishment. Central Credit is a gaming patron credit bureau specifically designed for
the gaming industry to allow gaming establishments to improve their credit-granting decisions. Our
Central Credit database contains gaming patron credit history and transaction data on gaming
patrons. Our gaming credit reports are comprised of information recorded from patron credit
histories at hundreds of gaming establishments. We provide such information to gaming
establishments, who use that data, among other things, to determine if or how much credit they will
grant credit to a patron. At a gaming establishments request, we can augment the information
provided in our gaming credit reports with traditional credit reports or bank ratings provided by
third-party consumer credit bureaus and bank reporting agencies. We charge our customers for
access to gaming patron credit reports on a monthly basis; our fees are a combination of a fixed
minimum fee plus per-transaction charges for certain requests.
Other
We also market money transfer services that allow patrons to receive money transfers at gaming
establishments and provide information services that automate cashier operations and enhance patron
marketing activities. In the third quarter of 2006, we launched the Arriva Card, a credit card for
consumers who perform cash advance transactions in gaming
establishments. CIT Bank was the issuer
of the card and provided the credit to the customers, while Arriva is the administrator and
servicer of Arriva Card accounts. As servicer, we earn interest and other fees from customers
related to the use of their Arriva Cards. On February 7, 2008, the Companys Board of Directors
approved a plan to exit the Arriva business. The Company has since actively marketed the Arriva
business for sale.
ATM Cash Withdrawals
Our Products and Services
Our customer solutions consist of cash access products and services, information services and
cashless gaming products.
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Cash Access Products and Services |
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Information Services |
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Cashless Gaming Products |
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Casino Cash Plus 3-in-1
ATM |
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Central Credit |
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3-in-1 Enabled Redemption Devices |
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QuikCash Plus Web |
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Powercash |
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Check verification and warranty |
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QuikReports |
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QuikMarketing |
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Cash Access Products and Services
We provide gaming establishments with the ability to enable their patrons to access cash
through a variety of products and services.
Casino Cash Plus 3-in-1 ATM is an unmanned, cash-dispensing machine that offers patrons a
quick way to access cash through ATM cash withdrawals, POS debit card transactions and credit card
cash advances directly or using our patented 3-in-1 rollover functionality. Our patented 3-in-1
rollover functionality allows a gaming patron to easily convert an unsuccessful ATM cash
withdrawal into a POS debit card transaction or a credit card cash advance. When a patron is
denied a standard ATM transaction, our 3-in-1 rollover functionality automatically provides the
option of obtaining funds via a POS debit card transaction or a credit card cash advance. For
authorized ATM transactions, the Casino Cash Plus 3-in-1 ATM dispenses cash to the patron. For
successful POS debit card transactions and credit card cash advances, once the transaction is
authorized, the Casino Cash Plus 3-in-1 ATM instructs the patron to
proceed to the casino cashier, who
completes the transaction by undertaking certain procedures in accordance with the rules of the
major card associations, printing the money order, and dispensing cash to the patron. In addition
to our own ATM, we have a strategic alliance with Capital One, N.A. (Capital One), pursuant to
which we have incorporated our 3-in-1 rollover functionality into Capital One ATMs and redemption
devices that are located in gaming establishments. As of December 31, 2008, we had incorporated
our 3-in-1 rollover functionality into 162 Capital One ATMs and redemption devices that are
located in gaming establishments.
QuikCash is the brand name of our stand-alone, non-ATM cash advance kiosks for the gaming
industry. Our QuikCash kiosks are customer-activated terminals that provide patrons with access to
credit card cash advances and POS debit card transactions. Once the transaction is authorized, the
patron is instructed to proceed to the casino cashier, who undertakes certain procedures in accordance with
the rules of the major card associations, prints the money order, and dispenses cash to the patron.
Check verification and warranty services allow gaming establishments to manage or eliminate
risk on patron checks that they cash. A gaming establishment can query our Central Credit database
to review the check cashing history of a gaming establishment patron before deciding whether to
cash the patrons check. If the gaming establishment wants additional protection against loss, it
can seek a warranty on payment of the check. We have an exclusive relationship with TeleCheck to
market check warranty services to gaming establishments. As an alternative to TeleChecks check
warranty service, we have developed our own Central Credit Check Warranty service that is based
upon our Central Credit database, our proprietary patron transaction database, third-party risk
analytics and actuarial assumptions.
Money transfer services are provided through a contractual relationship with Western Union
Financial Services, Inc. (Western Union). We are the worldwide exclusive marketer to the gaming
industry of Western Unions electronic and paper-based systems for receiving funds transfers at
gaming establishments. Western Union contracts directly with gaming establishments and we receive
a monthly payment based upon the number of transactions completed.
Information Services
We market our information services to gaming establishments to improve credit decision-making,
to automate cashier operations and to enhance patron marketing activities.
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Improve Credit Decision-Making
Central
Credit is the leading gaming patron credit bureau that allows gaming establishments
to improve their credit-granting decisions. Our Central Credit database contains decades of gaming
patron credit history and transaction data on millions of gaming patrons. Our gaming credit
reports are comprised of information recorded from patron experiences at hundreds of gaming
establishments. We provide such information to gaming establishments, who use that data, for among
other things, to determine if or how much credit they will grant to a patron. To allow gaming
establishments to improve their credit-granting decisions, Central Credit offers a variety of
tools, including underwriting of gaming patron credit requests, and gaming credit reports. At a
gaming establishments request, we can augment the information provided in our gaming credit
reports with traditional credit reports or bank ratings obtained from third-party consumer credit
bureaus and bank reporting agencies.
Automated Cashier Operations
QuikCash Plus (QCP) Web is a proprietary browser-based, full service cash access transaction
processing system for gaming establishment cashier operations that runs on a gaming establishments
own computer hardware. Cashiers using QCP Web can process credit card cash advances, POS debit
card transactions, check verification and warranty services and money transfer services online
through a single terminal. QCP Web reduces cage operating complexity, improves transaction times,
saves space by eliminating multiple pieces of hardware and reduces training requirements for cage
operators, potentially lowering operating costs for gaming establishments. QCP Web is delivered as
an application service with a customizable user interface that allows gaming establishments to add
additional workstations by simply connecting them to the application server. In addition, QCP Web
can assist gaming establishments in satisfying legal reporting requirements by providing
information that may assist in completing required regulatory reports such as Currency Transaction
Reports (CTRs) and Suspicious Activity Reports (SARs).
Enhance Patron Marketing
Gaming establishment marketing professionals can use our patron data to develop, implement and
refine their customer loyalty programs. Because we have data on patron cash access activity across
multiple gaming establishments, we are uniquely able to help an operator understand how much of a
patrons cash access activity, in aggregate, is being done in other gaming establishments in order
to gauge the patrons loyalty to the gaming establishment.
QuikReports is a browser-based reporting tool that provides marketing professionals with
real-time access to, and analysis of, information on patron cash access activity. We provide this
information through a secure Internet connection at user-specified levels of detail ranging from
aggregated summary information to individual cash access transactions. For example, an operator
may use QuikReports to focus its marketing efforts on target patrons by generating a report of the
patrons who accessed the greatest amounts of cash at the operators gaming establishment during a
specified period, and comparing the amounts of cash accessed at the operators gaming
establishments with the aggregate amounts of cash accessed at other gaming establishments that are
part of our network. A gaming establishment may also use QuikReports to monitor or analyze the
cash access activities of its patrons to determine peak periods, the relative popularity of various
cash access methods, or the traffic volumes, at particular machines in particular locations.
QuikMarketing. Through our QuikMarketing service, we query our proprietary patron transaction
database using criteria supplied by the gaming establishment. We then assist in the distribution
through a third-party mailhouse of gaming establishment-supplied marketing materials to patrons in
our database that match target patron criteria supplied by the gaming establishment. Our
proprietary patron transaction database includes information that is captured from transactions we
process in which personal information is available; ATM transactions are not included. Patrons may
opt out of having their names included in QuikMarketing mailing lists
Cashless Gaming Products
A recent trend in gaming has been the movement towards cashless gaming as a more efficient
means for gaming operators to manage their slot machine operations. Cashless gaming, also known as
ticket-in-ticket-out (TITO), reduces the amount of cash utilized in slot machines by dispensing
bar-coded tickets instead of cash for jackpots and cash-outs. To capitalize on the movement
towards cashless gaming initiatives, we have developed, together with our strategic partners,
products that facilitate an efficient means of accessing funds in a cashless gaming environment.
Our cash access services are platform independent and our existing infrastructure has been designed
to be adaptable to new platforms and/or operating environments.
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3-in-1 Enabled Redemption Device is a multi-function patron kiosk, which incorporates our
3-in-1 rollover functionality for cash access into self-service kiosks for slot ticket redemption
services provided by redemption device manufacturers, including NRT Technology Corporation (NRT).
When a patron presses the cash out button on a cashless slot machine, the patron receives the
value of the paper slot ticket dispensed from a printer embedded in the slot machine. The ticket
can then be inserted into other slot machines or exchanged for cash at a redemption device. The
availability of our cash access services on these slot ticket redemption devices provides us with
additional points of contact with gaming patrons at locations that are closer to the slot machines
than traditional cash access devices that are typically located on the periphery of the area within
the gaming establishment where gaming activity is conducted. These additional points of contact
provide gaming patrons with more opportunities to access their cash with less cashier involvement,
thereby creating labor cost savings for gaming establishments. In addition, by incorporating our
cash access services into a redemption device, we enjoy the benefit of the redemption device
manufacturers existing relationships with gaming establishments and its sales and marketing
efforts directed towards additional gaming establishments. We have the exclusive right to provide
cash access services on self-service redemption devices serviced by NRT. We have a similar
alliance with Western Money Systems, another provider of slot ticket and player point redemption
kiosks, subject to completion of development and regulatory approval. We have an agreement with
MCA Processing LLC, an entity controlled by two significant
stockholders and former directors, under which we operate. Although
we have installed our services on several MCA Processing, LLC
devices, we have discontinued any further installations. We have a similar alliance with Glory (U.S.A.) Inc.
Powercash is a product that leverages a players loyalty card to enable that player to load funds on that card
from their checking accounts, credit cards or debit cards. The player can then use those funds to play at the devices
they are using without first obtaining cash.
Credit Card Servicing
On February 7, 2008, the Companys Board of Directors approved a plan to exit the Arriva
business, and has since actively marketed the Arriva business for sale. The Arriva Card was a
private label credit card issued by CIT Bank. The Arriva Card was structured specifically for use
in any gaming establishment in the United States and the Caribbean in which the Company provided
cash advance services. The Arriva Card was first issued in July 2006 and the last transaction
occurred on April 21, 2008. As of December 31, 2008, there were only 6,155 cardholders of the
Arriva Card with the only remaining business being collections of accounts receivable.
Customer Service
We operate a customer service call center from our facility in Las Vegas, Nevada that is
accessible 24 hours a day, 365 days a year. Our customer service representatives assist cashier
personnel and gaming patrons in their use of our products and services. Through our use of
third-party translation services, our customer service representatives can serve gaming
establishment customers and patrons in approximately 150 different languages.
Intellectual Property
We believe that the ability to introduce and respond to technological innovation in the gaming
industry will be an increasingly important qualification for the future success of any provider of
cash access services. Our continued competitiveness will depend on the pace of our product
development; our patent, copyright, trademark and trade secret protection; and our relationships
with customers. Our business development personnel work with gaming establishments, our joint
venture partners, our strategic partners and the suppliers of the financial services upon which our
cash access services rely to design and develop innovative cash access products and services and to
identify potential new solutions for the delivery and distribution of cash in gaming
establishments.
We
have four issued United States patents and eight pending United States patent applications.
We have nineteen United States trademark registrations, including one registered United States trademark relating to our
name. In addition to our United States trademark registrations, we
have trademarks already resgistered in the United States that are
registered or pending registration in jurisdictions outside the United States. However, we
rely principally on
unregistered copyrights and trade secrets for protection of our intellectual property.
9
Our ACMs use biometric facial recognition technology and our patented 3-in-1 rollover
functionality to provide credit card cash advances, POS debit card transactions, ATM cash
withdrawals, check cashing and money transfer services at a single, unmanned machine. These
technologies are key differentiating technologies from our competitors.
During
2008, the Company made payments for software development and system maintenance to Infonox on
the Web (Infonox) pursuant to agreements with Infonox. At the time the Company entered into these
agreements, Infonox was controlled by Karim Masakatiya and Robert Cucinotta, who were also then
members of our Board of Directors, and for a portion of 2008, Infonox was controlled by
family members of Mr. Maskatiya. Infonox was acquired by Total
System Services, Inc. on November 4, 2008 and is no
longer controlled by members of Mr. Maskatiyas family.
Sales and Marketing
We sell and market our products and services to gaming establishments primarily through the
use of a direct sales force. The target customers of our direct sales force are gaming
establishments in the United States and in international markets where gaming is conducted. Our
target customers include traditional land-based casinos, gaming establishments operated on Native
American lands, casinos, riverboats, cruise ships with gaming operations, pari-mutuel wagering
facilities and card rooms. In 2008, 2007 and 2006, respectively, revenues from our operations
outside the United States comprised 2.0%, 3.0% and 3.0% of our revenues.
Our sales and marketing efforts are directed by 13 sales executives, each with business
development responsibility for the gaming establishments in those regions. These sales executives
target all levels of gaming establishment personnel, including senior executives, finance
professionals, marketing staff and cashiers, and seek to educate them on the benefits of our cash
access products and services.
The sales executives are supported by 35 field account managers, who provide on site customer
service to most of our customers. These field account managers reside in the vicinity of the
specific gaming establishments that they support to ensure that they respond to the customer
service needs of those gaming establishments.
We also have joint sales efforts with a number of strategic partners, including NRT, Western
Money Systems and Capital One, which allow us to market our cash access services to gaming
establishments through channels other than our direct sales force.
Competition
We compete with other providers of cash access services to the gaming industry. Our principal
competitor in North America is Global Payments Inc. operating as Cash & Win. We also compete with
financial institutions, such as U.S. Bancorp and other regional and local banks that operate ATMs
on the premises of gaming establishments. Some of these other providers and financial institutions
have also established cooperative relationships with each other to expand their service offerings.
In markets outside North America, we encounter competition from banks and other financial service
companies established in those markets.
We face potential competition from gaming establishments that may choose to operate their own
in-house cash access systems rather than outsource to us. In the past, some gaming establishments
have operated their own in-house cash access systems. We believe that almost all gaming
establishments, however, outsource their cash access service to third-party providers because
providing these services is not a core competency of gaming establishment operators, and because
gaming establishment operators are unable to achieve the same scale that can be obtained by
third-party providers that deploy cash access services across multiple gaming establishments.
We may in the future also face competition from traditional transaction processors, such as
First Data, that may choose to enter the gaming patron cash access services market. In connection
with our redemption of First Datas interest in us, First Data agreed not to compete with us prior
to March 10, 2007. Given its familiarity with our business, operations and industry as a result of
being our majority owner from inception until March 10, 2004, First Data could be a significant
competitive threat now that this covenant not to compete has expired. In addition, we may in the
future face potential competition from new entrants into the
market for cash access products and related services and, subject to certain covenants made by
some of the banks that sponsor us into the card associations, competition from such banks during
and after expiration of our contracts with such banks. Some of these potential competitors may
have a number of significant advantages over us, including greater name recognition and marketing
power, longer operating histories, pre-existing relationships with current or potential customers
and significantly greater financial, marketing and other resources and access to capital which
allow them to respond more quickly to new or changing opportunities.
10
Regulation
Various aspects of our business are subject to gaming regulation and financial services
regulation. Depending on the nature of the noncompliance, our failure to comply with these
regulations may result in the suspension or revocation of any license
or registration at issue, cessation of our service as
well as the imposition of civil fines and criminal penalties.
Gaming Regulation
We are subject to a variety of gaming and other regulations in the jurisdictions in which we
operate. As a general matter, we are regulated by gaming commissions or similar authorities at the
state or tribal level, such as the New Jersey Casino Control Commission and New Jersey Division of
Gaming Enforcement. In some jurisdictions, such as Nevada, we are considered a supplier of
associated equipment and could be required by the regulatory authorities, in their discretion, to
file a license application. In such event, any of our officers, directors or beneficial owners of
our securities could be required to apply for a license or a finding of suitability. Most of the
jurisdictions in which we operate distinguish between gaming-related suppliers and vendors, such as
manufacturers of slot machine or other gaming devices, and non-gaming suppliers and vendors, such
as food and beverage purveyors, construction contractors and laundry and linen suppliers. In these
jurisdictions, we are typically characterized as a non-gaming supplier or vendor and we must obtain
a non-gaming suppliers or vendors license, qualification or approval. The licensure,
qualification and approval requirements and the regulations imposed on non-gaming suppliers and
vendors are generally less stringent than for gaming-related suppliers and vendors, and as such, we
are often subject to a lesser degree of regulation than our customers that directly engage in
gaming activities. However, some of the jurisdictions in which we do business do not distinguish
between gaming-related and non-gaming related suppliers and vendors, and other jurisdictions
categorize our services and/or products as gaming related, and we are subject to the same stringent
licensing, qualification or approval requirements and regulations that are imposed upon vendors and
suppliers that would be characterized as gaming-related in other jurisdictions. Most state and
many tribal gaming regulators require us to obtain and maintain a permit or license to provide our
services to gaming establishments. The process of obtaining such permits or licenses often
involves substantial disclosure of information about us, our officers, directors and beneficial
owners of our securities, and involves a determination by the regulators as to our suitability as a
supplier or vendor to gaming establishments.
The expansion of our business, the introduction of new cash access products or services, or
changes to applicable rules and regulations may result in us being characterized as a
gaming-related supplier or vendor in jurisdictions in which we are now a non-gaming related
supplier or vendor. These differences may result in a regulatory characterization of us as a
gaming-related supplier or vendor, which would subject us to an increased regulatory burden which
could include, but is not limited to: requiring the licensure or finding of suitability of any of
our officers, directors, key employees or beneficial owners of our securities; the termination or
disassociation with such officer, director, key employee or beneficial owner of our securities that
fails to file an application or to obtain a license or finding of suitability; the submission of
detailed financial and operating reports; submission of reports of material loans, leases and
financing; and, requiring regulatory approval of some commercial transactions such as the transfer
or pledge of equity interests in the Company. These regulatory burdens are imposed upon
gaming-related suppliers or vendors on an ongoing basis.
Gaming regulatory authorities have broad discretion and can require any beneficial holder of
our securities, regardless of the number of shares of common stock or amount of debt securities
owned, to file an application, be investigated, and be subject to a determination of suitability.
If the beneficial holder of our securities who must be found suitable is a corporation,
partnership, or trust, such entity must submit detailed business and financial information
including a list of its officers, directors, partners and beneficial owners. Further disclosure by
those officers, directors, partners and beneficial owners may be required. Under some
circumstances and in some jurisdictions, an institutional investor, as defined in the applicable
gaming regulations, that acquires a specified amount of our securities may apply to the regulatory
authority for a waiver of these licensure, qualification or finding of suitability requirements,
provided the institutional investor holds the voting securities for investment purposes only. An
institutional investor will not be deemed to hold voting securities for investment purposes unless
the securities were acquired and are held in the ordinary course of its business.
11
The changes in our ownership, management and corporate structure that resulted from the
recapitalizations of our ownership in 2004 and our conversion from a limited liability company to a
corporation in 2004, required us to notify many of the state and tribal gaming regulators under
whose jurisdiction we operate. In many cases, those regulators asked us for further
information and explanation of those changes. To date, we believe we
have satisfied these inquiries. Given the magnitude of the changes in
our ownership that resulted from the recapitalizations, we were required to re-apply for new
permits or licenses in some jurisdictions, but were not required to discontinue our operations
during the period of re-application. In 2005 we notified many of the state and tribal gaming
regulators under whose jurisdictions we operate of our initial public offering of common stock,
which required further disclosures or re-applications for new permits or licenses, none of which
required us to discontinue our operations in any such jurisdictions. In some jurisdictions we are
in the process of obtaining licenses and have yet to receive final approval of such licenses from
the applicable regulatory authority. In these jurisdictions, we operate under temporary licenses
or without a license. We may not be issued a license in these
jurisdictions. Additionally, we operate under temporary approvals in
some jurisdictions, as a result of renewal applications or
applications filed as a result of our acquisitions of Certegy Gaming
Services (CGS) and Cash Systems, Inc. (CSI).
Financial Services Regulation
Anti-Money Laundering. The USA PATRIOT Act of 2001 and its implementing federal regulations
require us to establish and maintain an anti-money laundering program. Our anti-money laundering
program includes: (1) internal policies, procedures, and controls designated to identify and report
money laundering; (2) a designated compliance officer; (3) an ongoing employee training program;
and (4) an independent audit function to test the program.
In addition, the cash access services that we provide are subject to recordkeeping and
reporting obligations under the Bank Secrecy Act. Our gaming establishment customers and we are
required to file a SAR with the U.S. Treasury Departments Financial Crimes Enforcement Network to
report any suspicious transaction relevant to a possible violation of law or regulation. To be
reportable, the transaction must meet criteria that are designed to identify the hiding or
disguising of funds derived from illegal activities. Our gaming establishment customers, in
situations where our cash access services are provided through gaming establishment cashier
personnel, and we, in situations where we provide our cash access services directly to patrons
through satellite cages or booths that we staff and operate, are required to file a CTR of each
deposit, withdrawal, exchange of currency or other payment or transfer by, through, or to us which
involves a transaction in currency of more than $10,000 in a single day. Our QCP Web product can
assist in identifying transactions that give rise to reporting obligations. When we issue or sell
drafts for currency in amounts between $3,000 and $10,000, we maintain a record of information
about the purchaser, such as the purchasers address, Social Security Number and date of birth.
Following the events of September 11, 2001, the United States and other governments have
imposed and are considering a variety of new regulations focused on the detection and prevention of
money laundering and money transmitting to or from terrorists and other criminals. Compliance with
these new regulations may impact our business operations or increase our costs.
Fund Transfers. Our POS debit card transactions and ATM services are subject to the
Electronic Fund Transfer Act, which provides cardholders with rights with respect to electronic
fund transfers, including the right to dispute unauthorized charges, charges that list the wrong
date or amount, charges for goods and services that are not accepted or delivered as agreed, math
errors and charges for which a cardholder asks for an explanation or written proof of transaction
along with a claimed error or request for clarification. We have implemented the necessary
policies and procedures in order to comply with the regulatory requirements for fund transfers.
Money Transmitter. Most states require a money transmitter license in order to issue the
negotiable instruments that are used to complete credit card cash advance and POS debit card
transactions. On November 27, 2006, we entered into an agreement with Integrated Payment Systems,
Inc. (IPS), whereby IPS appointed us as IPSs agent to use and sell IPS money orders in
connection with credit card and point-of-sale debit card transactions consummated by us for patrons
of gaming establishments. This agreement has a three-year term. IPS holds the required money
transmitter licenses and is our sole and exclusive provider of money orders. We are entitled to
receive monthly commission payments from IPS for money orders used and sold by us and we are
obligated to pay transaction fees per money order to IPS.
12
Credit Reporting. Our Central Credit gaming patron credit bureau services and check
verification and warranty services are subject to the Fair Credit Reporting Act and the Fair and
Accurate Credit Transactions Act of 2003 and their implementing rules, which require consumer
credit bureaus, such as Central Credit, to provide credit report information to businesses only for
certain purposes and to otherwise safeguard credit report information; to disclose to
consumers their credit report on request; and to permit consumers to dispute and correct inaccurate
or incomplete information in their credit report. These laws and rules also govern the information
that may be contained in a consumer credit report. We continue to implement policies and
procedures as well as adapt our business practices in order to comply with these laws and
regulations. In addition to federal regulation, our Central Credit gaming patron credit bureau
services are subject to the state credit reporting regulations which impose similar requirements to
the Fair Credit Reporting Act and the Fair and Accurate Credit Transactions Act of 2003. Our
credit granting programs such as QuikCredit, also are subject to federal and state credit reporting
laws and rules, requiring, among other things, that we notify consumers when we deny credit based
on credit report information.
Debt Collection. Although we currently outsource most of our debt collection efforts to third
parties, we do engage in debt collection efforts for credit extended via the Arriva Card. We may
engage in efforts to collect on our QuikCredit service, dishonored checks purchased by Central
Credit pursuant to our check warranty services, returns from customer payments on their account
with the Arriva Card and chargebacks on our cash advance products. All such collection practices
may be subject to the Fair Debt Collections Practices Act, which prohibits unfair, deceptive or
abusive debt collection practices, as well as consumer-debt-collection laws and regulation adopted
by the various states.
Privacy Regulations. Our collection of information from patrons who obtain from us financial
products and services, such as our cash access services, are subject to the financial information
privacy protection provisions of the Gramm-Leach-Bliley Act and its implementing federal
regulations. We gather, as permitted by law, non-public, personally-identifiable financial
information from patrons who use our cash access services, such as names, addresses, telephone
numbers, bank and credit card account numbers and transaction information. The Gramm-Leach-Bliley
Act requires us to safeguard and protect the privacy of such non-public personal information.
Also, the Gramm-Leach-Bliley Act requires us to make disclosures to patrons regarding our privacy
and information sharing policies and give patrons the opportunity to direct us not to disclose
information about them to unaffiliated third parties in certain situations. In this regard, we
provide patrons with a privacy notice, an opportunity to review our privacy policy, and an
opportunity to opt out of specified types of disclosures. In addition to the federal
Gramm-Leach-Bliley Act privacy regulations we are subject to state privacy regulations. Some state
privacy regulations impose more stringent limitations on access and use of personal information.
We continue to implement policies and programs as well as adapt our business practices in order to
comply with federal and state privacy laws and regulations.
ATM Operations. Our ATM services are subject to applicable state banking regulations in each
jurisdiction in which we operate ATMs. These regulations require, among other things, that we
register with the state banking regulators as an operator of ATMs, that we provide gaming patrons
with notices of the transaction fees assessed upon use of our ATMs, that our transaction fees do
not exceed designated maximums, that we offer gaming patrons a means of resolving disputes with us,
and that we comply with prescribed safety and security requirements.
Check Cashing. In jurisdictions in which we serve as a check casher or agree to defer deposit
of gaming patrons checks under our QuikCredit services, we are subject to the state licensing
requirements and regulations governing check cashing activities. Generally, these regulations
require us to obtain a license from the states banking regulators to operate as a check casher.
Some states also impose restrictions on this activity such as restrictions on the amounts of
service fees that may be imposed on the cashing of certain types of checks, requirements as to
records that must be kept with respect to dishonored checks, and requirements as to the contents of
receipts that must be delivered to gaming patrons at the time a check is cashed.
Arriva Card. On February 7, 2008, the Companys Board of Directors approved a plan to exit
the Arriva business, and has since actively marketed the Arriva business for sale. The Arriva Card
was a private label credit card issued by CIT Bank.
Lending. We currently operate our QuikCredit service at one of our customer locations in
Florida. QuikCredit is a service where a patron writes a check payable to a gaming establishment
that deposits this check under deferred presentment terms. In other states in which we are deemed
to operate as a short-term consumer or payday lender as a result of our QuikCredit services, we are
subject to the various state regulations governing the terms of the loans. Typically, the state
regulations limit the amount that a lender or service provider may lend or provide and, in some
cases, the number of loans or transactions that a lender or service provider may make to any
customer at one time, restrict the amount of finance or service charges or fees that the lender or
service provider may assess in connection with any loan or transaction. The lender or service
provider must also comply with various consumer disclosure requirements, which are typically
similar or equivalent to the Federal Truth in Lending Act and corresponding federal regulations, in
connection with the loans or transactions.
13
Network and Card Association Regulation. In addition to the governmental regulation described
above, some of our services are also subject to rules promulgated by various payment networks, EFT
networks and card associations. For example, we must comply with the Payment Card Industry (PCI)
Data Security Standard. Since June 30, 2006 we have been designated as a compliant service
provider under the PCI Data Security Standard. On an annual basis, we must be certified to
maintain our status as a compliant service provider.
Other Regulation
When contracting with tribal owned or controlled gaming establishments, we become subject to
tribal laws and regulations that may differ materially from the non-tribal laws and regulations
under which we generally operate. In addition to tribal gaming regulations that may require us to
provide disclosures or obtain licenses or permits to conduct our business on tribal lands, we may
also become subject to tribal laws that govern our contracts. These tribal governing laws may not
provide us with processes, procedures and remedies that enable us to enforce our rights as
effectively and advantageously as the processes, procedures and remedies that would be afforded to
us under non-tribal laws, or to enforce our rights at all, and may expose us to an increased risk
of contract repudiation as compared to that inherent in dealing with non-tribal customers. Many
tribal laws permit redress to a tribal adjudicatory body to resolve disputes; however, such redress
is largely untested in our experience. We may be precluded from enforcing our rights against a
tribal body under the legal doctrine of sovereign immunity.
We are also subject to a variety of gaming regulations and other laws in the international
markets in which we operate. We expect to become subject to additional gaming regulations and
other laws in the jurisdictions into which we expand our operations. Our expansion into new
markets is dependent upon our ability to comply with the regulatory regimes adopted by such
jurisdictions. For example, our entry into Macau SAR was subject to receipt of approvals, licenses
or waivers by or from the Monetary Authority of Macau, the Macau Gaming Commission and the Macau
Gaming Inspection and Coordination Bureau. Difficulties in obtaining approvals, licenses or
waivers from the monetary and gaming authorities, in addition to other potential regulatory and
quasi-regulatory issues that we have not yet ascertained, may arise in other international
jurisdictions into which we wish to enter.
As we develop new services and new products, we may become subject to additional federal and
state regulations. For example, in the event that we form or acquire a bank or industrial loan
company, we would become subject to a number of additional banking and financial institution
regulations, which may include the Bank Holding Company Act. These additional regulations could
substantially restrict the nature of the business in which we may engage and the nature of the
businesses in which we may invest.
Employees
As of December 31, 2008, we had 626 employees. We are not subject to any collective
bargaining agreements and have never been subject to a work stoppage. We believe that we have
maintained good relationships with our employees.
Available Information
Our Internet address is http://www.gcainc.com We make available free of charge in the
Investor Relations portion of our website under SEC Filings our Annual Reports on Form 10-K,
Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports as soon
as reasonably practicable after we electronically file or furnish such materials to the SEC. The
SEC maintains an Internet site that contains reports, proxy and information statements and other
information regarding our filings at http://www.sec.gov.
14
ITEM 1A. RISK FACTORS
Risks Related to Our Business
If we are unable to maintain our current customers on terms that are favorable to us, our
business, financial condition and operating results may suffer a material adverse effect.
We enter into contracts with our gaming establishment customers to provide our cash access
products and related services. Our contracts typically have a term ranging from one to five years
in duration, but some are terminable upon 30 days advance notice or are terminable by our gaming
establishment customers in the event that we fail to satisfy specific covenants set forth in the
contracts, including gaming regulatory compliance covenants. We are typically required to
renegotiate the terms of our customer contracts upon their expiration, and in some circumstances we
may be forced to modify the terms of our contracts before they expire. When we have successfully
renewed these contracts, these negotiations have in the past resulted in, and in the future may
result in, financial and other terms that are less favorable to us than the terms of the expired
contracts. In particular, we are often required to pay a higher commission rate to a gaming
establishment than we previously paid in order to renew the relationship. Assuming constant
transaction volume, increases in commissions or other incentives paid to gaming establishments
would reduce our operating results. We may not succeed in renewing these contracts when they
expire, which would result in a complete loss of revenue from that customer, either for an extended
period of time or forever. If we are required to pay higher commission rates or agree to other
less favorable terms to retain our customers or we are not able to renew our relationships with our
customers upon the expiration of our contracts, our business, financial condition and operating
results would be harmed.
Competition in the market for cash access services is intense, which could result in higher
commissions or loss of customers to our competitors.
The market for cash access products and related services is intensely competitive, and we
expect competition to increase and intensify in the future. We compete with other providers of cash
access products and services such as Global Payment Systems (operating as Cash & Win). We compete
with financial institutions such as U.S. Bancorp and other regional and local banks that operate
ATMs on the premises of gaming establishments. In markets outside North America, we encounter
competition from banks and other financial service companies established in those markets. We face
competition from gaming establishments that choose to operate cash access systems on their own
behalf rather than outsource to us. We may in the future also face competition from traditional
transaction processors, such as First Data, that may choose to enter the gaming patron cash
services market. Given its familiarity with our specific industry and business and operations as a
result of being our majority owner from inception until March 10, 2004, First Data could be a
significant competitive threat. In addition, we may in the future face potential competition from
new entrants into the market for cash access products and related services, such as banks. Some of
our competitors and potential competitors have significant advantages over us, including greater
name recognition, longer operating histories, pre-existing relationships with current or potential
customers including pre-existing relationships relating to other financial services, significantly
greater financial, marketing, technological and other resources and more ready access to capital
which allow them to respond more quickly to new or changing opportunities.
Other providers of cash access products and services to gaming establishments have in the past
increased, and may in the future continue to increase, the commissions or other incentives they pay
to gaming establishments in order to win those gaming establishments as customers and to gain
market share. To the extent that competitive pressures force us to increase commissions or other
incentives to establish or maintain relationships with gaming establishments, our business and
operating results could be adversely affected.
Because of significant concentration among our top customers, the loss of a top customer could
have a material adverse effect on our revenues and profitability.
For the years ended December 31, 2008 and 2007, our five largest customers accounted for
approximately 34.2% and 40.3% of our revenues, respectively. Our largest customer accounted for
16.2% and 19.3% of our revenues in the years ended December 31, 2008 and 2007, respectively. The
loss of, or a substantial decrease in revenues from, any one of our top customers could have a
material adverse effect on our business and operating results.
As our contracts are often executed by one corporation for the provision of services at
multiple gaming establishments, the loss of a single contract often results in the loss of multiple
gaming establishments. Consolidation among operators of gaming establishments may also result in
the loss of a top customer to the extent that customers of ours are acquired by our competitors
customers.
15
Our indebtedness could materially adversely affect our operations and financial results and
prevent us from obtaining additional financing, if necessary.
As of December 31, 2008, we had total indebtedness of $265.8 million in principal amount (of
which $152.8 million consisted of senior subordinated notes and $113.0 million consisted of senior
secured debt). Our substantial indebtedness could have important consequences. For example, it:
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makes it more difficult for us to satisfy our obligations with respect to either our
senior secured debt or our senior subordinated notes, which, if we fail to do, could
result in the acceleration of all of our debt; |
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increases our vulnerability to general adverse economic and industry conditions; |
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may require us to dedicate a substantial portion of our cash flow from operations to
payments on our indebtedness, which would reduce the availability of our cash flow to
fund working capital, capital expenditures, expansion efforts and other general
corporate purposes; |
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limits our flexibility in planning for, or reacting to, changes in our business and
the industry in which we operate; |
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restricts our ability to pay dividends or repurchase our common stock; |
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places us at a competitive disadvantage compared to our competitors that have less
debt; |
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restricts our ability to acquire businesses or technologies that would benefit our
business; |
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restricts our ability to engage in transactions with affiliates or create liens or
guarantees; and |
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limits, along with the financial and other restrictive covenants in our other
indebtedness, among other things, our ability to borrow additional funds. |
In addition, our senior secured credit facilities and the indenture for the Notes contain
financial and other restrictive covenants that limit our ability to engage in activities that we
may believe to be in our long-term best interests. Our failure to comply with those covenants
could result in an event of default, which if not cured or waived, could result in the acceleration
of all of our debt.
Our senior secured debt currently bears interest at a rate that is based on LIBOR, and is
adjusted periodically to reflect changes in LIBOR. We are therefore exposed to the risk of
increased interest expense in the event of any increase in LIBOR.
To service our indebtedness we will require a significant amount of cash, and our ability to
generate cash flow depends on many factors beyond our control.
Our ability to generate cash flow from operations depends on general economic, financial,
competitive, legislative, regulatory and other factors that are beyond our control. Due to these
factors, it is possible that our business will not generate sufficient cash flow from operations to
enable us to pay our indebtedness as it matures and to fund our other liquidity needs. This would
cause us to have to borrow money to meet these needs and future borrowing may not be available to
us at all or in an amount sufficient to satisfy these needs. In such events, we will need to
refinance all or a portion of our indebtedness on or before maturity. We may not be able to
refinance any of our indebtedness on commercially reasonable terms or at all. We could have to
adopt one or more alternatives, such as reducing or delaying planned expenses and capital
expenditures, selling assets, restructuring debt or obtaining additional equity or debt financing
or joint venture partners. We may not be able to affect any of these financing strategies on
satisfactory terms, if at all. Our failure to generate sufficient cash flow to satisfy our debt
obligations or to refinance our obligations on commercially reasonable terms would have a material
adverse effect on our business and our ability to satisfy our obligations with respect to our
indebtedness.
The terms of our senior secured debt may require us to dedicate a substantial portion of our
cash flow from operations to payments on our indebtedness, which will reduce the availability of
our cash flow to fund working capital, capital expenditures, expansion efforts and other general
corporate purposes.
16
We may encounter difficulties managing our growth, including growth through acquisitions or
strategic investments, or the change of any of our providers, which could adversely affect our
operating results.
Growth, including growth through acquisitions or strategic investments, or the change of any
of our service providers, involve various risks, such as:
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difficulty integrating the technologies, operations and personnel from the acquired
business or a new service provider; |
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overestimation of potential synergies or a delay in realizing those synergies; |
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disruption to our ongoing business, including the diversion of managements
attention and of resources from our principal business; |
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inability to obtain the desired financial and strategic benefits from the
acquisition or investment; |
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reduced ability to control maintenance schedules, system availability, functionality
or customer service levels of a new service provider; |
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loss of customers of an acquired business; |
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assumption of unanticipated liabilities; |
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loss of key employees of an acquired business; and |
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entering into new markets in which we have limited prior experience. |
Acquisitions and strategic investments could also result in substantial cash expenditures, the
dilutive issuance of our equity securities, the incurrence of additional debt and contingent
liabilities, and amortization expenses related to other intangible assets that could adversely
affect our business, operating results and financial condition. Acquisitions and strategic
investments may also be highly dependent upon the retention and performance of existing management
and employees of acquired businesses for the day-to-day management and future operating results of
these businesses. Our ability to consummate acquisitions may be impaired by a number of factors,
including decreases in the trading price of our common stock, our inability to comply with
covenants relating to our existing debt or our inability to incur additional debt that is required
to consummate acquisitions or finance the post closing operation of acquired businesses.
Changes in interchange rates and other fees may affect our cost of revenues (exclusive of
depreciation and amortization) and net income.
We pay credit card associations fees for services they provide in settling transactions routed
through their networks, called interchange fees. In addition, we pay fees to participate in
various ATM or POS debit card networks as well as processing fees to process our transactions. The
amounts of these interchange fees are fixed by the card associations and networks in their sole
discretion, and are subject to increase at any time. VISA and MasterCard both increased applicable
interchange fees in April 2007. Also, in 2004, VISAs Interlink network, through which we process
a substantial portion of our POS debit card transactions, materially increased the interchange
rates for those transactions. Since that date, the proportion of our POS debit card transactions
that are routed on the Interlink network has increased, resulting in a decrease in profitability of
our POS debit card business. Certain of our contracts enable us to pass through increases in
interchange or processing fees to our customers, but competitive pressures might prevent us from
passing all or some of these fees through to our customers in the future. To the extent that we
are unable to pass through to our customers all or any portion of any increase in interchange or
processing fees, our cost of revenues (exclusive of depreciation and amortization) would increase
and our net income would decrease, assuming no change in transaction volumes. Any such decrease in
net income could have a material adverse effect on our financial condition and operating results.
Additionally, the transformation of the ownership structure of Visa and MasterCard from private
associations of issuing banks to publicly traded corporations may negatively impact the manner in
which these card associations manage and determine interchange rates. This could have a material
adverse effect on our business and operating results.
We receive fees from the issuers of ATM cards that are used in our ATMs, which we call reverse
interchange fees. The amounts of these reverse interchange fees are fixed by electronic funds
transfer networks, and are subject to decrease in their discretion at any time. Our contracts with
gaming operators do not enable us to pass through to our customers the amount of any
decrease in reverse interchange fees. To the extent that reverse interchange fees are
reduced, our net income would decrease, assuming no change in transaction volumes, which may result
in a material adverse effect on our operating results.
17
A material increase in market interest rates or changing regulations could adversely affect
our ATM business.
Pursuant to our contract with Bank of America, we are obligated to pay a monthly fee that is
based upon the amount of cash used to supply our ATMs and a market interest rate. Assuming no
change in the amount of cash used to supply our ATMs, an increase in market interest rates will
result in an increase in the monthly fee that we must pay to obtain this supply of cash, thereby
increasing our ATM operating costs. Any increase in the amount of cash required to supply our ATMs
would magnify the impact of an increase in market interest rates. For the years ended December 31,
2008 and 2007, we incurred approximately $9.3 million and $15.9 million, respectively, in aggregate
fees to Bank of America for this supply of cash.
Our ATM services are subject to the applicable state banking regulations in each jurisdiction
in which we operate ATMs. Our ATM services may also be subject to local regulations relating to
the imposition of daily limits on the amounts that may be withdrawn from ATMs, the location of ATMs
and our ability to surcharge cardholders who use our ATMs. These regulations may impose
significant burdens on our ability to operate ATMs profitably in some locations, or at all.
Moreover, because these regulations are subject to change, we may be forced to modify our ATM
operations in a manner inconsistent with the assumptions upon which we relied when entering into
contracts to provide ATM services at gaming establishments.
An unexpectedly high level of chargebacks, as the result of fraud or otherwise, could
adversely affect our cash advance business.
When patrons use our cash access services, we either dispense cash or produce a negotiable
instrument that can be exchanged for cash. If a completed cash access transaction is subsequently
disputed and if we are unsuccessful in establishing the validity of the transaction, we may not be
able to collect payment for such transaction and such transaction becomes a chargeback. In the
event that we incur chargebacks in excess of specified levels, First Data will have the right to
terminate its indemnification obligations to BAMS, and we could lose our no-cost sponsorship into
the card associations. In addition, in the event that we incur chargebacks in excess of specified
levels, we could be censured by the card associations by way of fines or otherwise.
In certain foreign regions in which we currently operate or may operate in the future, new
card security features, such as the chip-and-pin feature, have been developed as a fraud deterrent.
We must upgrade our devices in certain international jurisdictions to accept these new
technologies. Until we comply with these security features, we will bear the chargeback risk on
transactions completed without the use of these new technologies or may not be able to operate in
such jurisdiction at all.
An unexpected increase in check warranty expenses could adversely affect our check warranty
business.
We currently rely on TeleCheck to provide check warranty services to many of our customers.
When a gaming establishment obtains an authorization from TeleCheck pursuant to its check warranty
service, TeleCheck warrants payment on the patrons check. If the patrons check is subsequently
dishonored upon presentment for payment, TeleCheck purchases the dishonored check from the gaming
establishment for its face amount. Pursuant to the terms of our contract with TeleCheck, we share
a portion of the loss associated with these dishonored checks. Although this contract limits the
loss percentage of the dishonored checks to which we are exposed, there is no limit on the
aggregate dollar amount to which we are exposed, which is a function of the face amount of checks
warranted. TeleCheck manages and mitigates these dishonored checks through the use of risk
analytics and collection efforts, including the additional fees that it is entitled to collect from
check writers of dishonored checks. During the years ended December 31, 2008 and 2007, our
warranty expenses with respect to TeleChecks check warranty service were $5.8 million and $5.7
million, respectively. We have no control over TeleChecks decision to warrant payment on a
particular check, and we have limited visibility into TeleChecks collection activities. As a
result, we may incur an unexpectedly high level of check warranty expenses at any time.
As an alternative to TeleChecks check warranty service, we have developed our own Central
Credit check warranty service that is based upon our own proprietary information, data from
third-party databases, and third-party risk analytics and actuarial assumptions. If these risk
analytics or actuarial assumptions are ineffective, we may incur an unexpectedly high level of
check warranty.
18
The loss of our sponsorship into the Visa U.S.A., Visa International and MasterCard card
associations would have a material adverse effect on our business.
We cannot provide cash access services involving VISA cards and MasterCard cards in the United
States without sponsorship into the Visa U.S.A. and MasterCard card associations. BAMS has agreed
to sponsor us into the card associations at no cost to us through September 2010, subject to First
Datas continued indemnification of BAMS for any losses it may suffer as a result of such
sponsorship. First Data will have the right to terminate its indemnification obligations prior to
September 2010 in the event that we breach indemnification obligations that we owe to First Data,
in the event that we incur chargebacks in excess of specified levels, in the event that we are
fined in excess of specified amounts for violating card associations operating rules, or in the
event that we amend the sponsorship agreement without First Datas consent.
In the event that First Data terminates its indemnification obligations and as a result we
lose our sponsorship by BAMS into the card associations, we would need to obtain sponsorship into
the card associations through another member of the card associations that is capable of supporting
our transaction volume. We would not be able to obtain such alternate sponsorship on terms as
favorable to us as the terms of our current sponsorship by BAMS, which is at no cost to us, or at
all.
We cannot provide cash access services involving VISA cards and MasterCard cards outside of
the United States without a processing agreement with or sponsorship into the Visa International
and MasterCard card associations by a bank in each foreign jurisdiction in which we conduct cash
access transactions. We are currently a party to processing agreements or sponsored into these
card associations by foreign banks in each of the foreign jurisdictions in which we conduct cash
access transactions. In the event that any foreign bank that currently is a party to such
processing agreement or sponsors us into these card associations terminates such processing
agreement or its sponsorship of us, we would need to obtain a processing agreement or sponsorship
into the card associations through another foreign bank that is capable of supporting our
transaction volume in the relevant jurisdiction. We may not be able to obtain alternate
sponsorship or processing arrangements in any region on terms as favorable to us as the terms of
our current sponsorship by or processing arrangements with foreign banks, or at all.
We are subject to extensive rules and regulations of card associations, including MasterCard
International, Visa International and Visa U.S.A., that are always subject to change, which may
harm our business.
A substantial portion of our revenues during the period covered by this report were derived
from transactions subject to the extensive rules and regulations of the leading card associations,
Visa International and Visa U.S.A. (collectively VISA), and MasterCard International
(MasterCard). The rules and regulations do not expressly address some of the contexts and
settings in which we process cash access transactions, or do so in a manner subject to varying
interpretations. As an example, we and certain of our providers must comply with the Payment Card
Industry Data Security Standard. The failure by any of such providers to comply with such
standards could result in our being finedbecoming exposed to the risk of ?.
The card associations rules and regulations are always subject to change, and the card
associations may modify their rules and regulations from time to time. Our inability to anticipate
changes in rules, regulations or the interpretation or application thereof may result in
substantial disruption to our business. In the event that the card associations or our sponsoring
banks determine that the manner in which we process certain types of card transactions is not in
compliance with existing rules and regulations, or if the card associations adopt new rules or
regulations that prohibit or restrict the manner in which we process certain types of card
transactions, we may be forced to pay a fine, modify the manner in which we operate our business or
stop processing certain types of cash access transactions altogether, any of which could have a
material negative impact on our business and operating results.
We also process transactions involving the use of the proprietary credit cards such as those
offered by Discover Card and American Express as well as other regional card issued in certain
international markets. The rules and regulations of the proprietary credit card networks that
service these cards present risks to us that are similar to those posed by the rules and
regulations of VISA and MasterCard.
19
Our products and services are complex, depend on a myriad of complex networks and technologies
and may be subject to software or hardware errors or failures that could lead to an increase in our
costs, reduce our revenues or damage our reputation.
Our products and services, and the networks and third-party services upon which our products
and services are based, are complex and may contain undetected errors or may suffer unexpected
failures. We are exposed to the risk of failure of our proprietary computer systems, many of which
are deployed, operated, monitored and supported by Infonox, which we do not control. We rely on
Infonox to detect and respond to errors and failures in our proprietary computer systems. We rely
on NRT, Western Money Systems and Glory for software development and system support of the
self-service slot ticket and player point redemption kiosks that incorporate our cash access
services. We are exposed to the risk of failure of the computer systems that are owned, operated
and managed by USA Payments Systems, which we do not control. USA Payment Systems owns the data
centers through which most of our transactions are processed, and we rely on USA Payment Systems to
maintain the security and integrity of our transaction data, including backups thereof. We are in
the process of transitioning from USA Payment Systems to an alternate electronic payment processor
and will be subject to the same risks with respect to our successor
processor as we are with USA
Payment Systems. We also are exposed to the risk of failure of card association and electronic
funds transfer networks that are used to process and settle our transactions. These networks,
which are owned and operated by others, are subject to planned and unplanned outages and may suffer
degradations in performance during peak processing times. Finally, we are subject to the risk of
disruption to, or failure of, the telecommunications infrastructure upon which the interfaces among
these systems are based. All of these systems and networks, upon which we rely to provide our
services, are potentially vulnerable to computer viruses, physical or electronic break-ins, natural
disasters and similar disruptions, which could lead to interruptions, delays, loss of data, public
release of confidential data or the inability to complete patron transactions.
Because of our dependence on a few providers, or in some cases one provider, for some of the
financial services we offer to patrons, the loss of a provider could have a material adverse effect
on our business or our financial performance.
We depend on a few providers, or in some cases one provider, for some of the financial
services that we offer to patrons. The loss of any of these providers could have a material
adverse effect on our business and financial performance.
Money Order Instruments. We currently rely on IPS to issue the negotiable instruments that
are used to complete credit card cash advance and POS debit card transactions. Most states require
a money transmitter license in order to issue the negotiable instruments that are used to complete
credit card cash advance and POS debit card transactions. We do not hold any money transmitter
licenses, but currently issue negotiable instruments as an agent of IPS, which holds the required
money transmitter licenses, pursuant to an agreement that expires on December 31, 2009.
Prior to such date we will either be required to enter in an agency relationship with another
third-party that holds the required money transmitter licenses or obtain our own money transmitter
licenses. We may not be able to enter into an agreement for such an agency relationship on terms
that are favorable to us prior to the expiration of our agreement with IPS, or at all, and we may
not be able to obtain our own money transmitter licenses, in which case we may be unable to provide
our credit card cash advance and POS debit card transactions, which would have a material adverse
effect on our business and financial performance.
Check Warranty Services. We rely on TeleCheck to provide many of the check warranty services
that our gaming establishment customers contract with us to use when cashing patron checks. Unless
extended pursuant to its terms, our contract with TeleCheck expires on September 30, 2008. Unless
we and TeleCheck mutually agree to a new contract, we will need to make alternative arrangements
for the provision of check warranty services and we may not have any continuing interest in those
contracts that are executed directly between the gaming establishments and TeleCheck, which may
have a significant impact on revenues derived from check services. We may not be able to make such
alternative arrangements on terms that are as favorable to us as the terms of our contract with
TeleCheck, or on any terms at all. In addition, our Central Credit check warranty service, as
currently deployed, uses risk analytics provided by third-party providers.
Authorizations and Settlement. We rely on USA Payments and USA Payment Systems to provide
processing services by obtaining authorizations for credit card cash advances, POS debit card
transactions, ATM cash withdrawal transactions and to provide settlement transaction files to card
associations for some of these transactions. Additionally, USA Payment Systems may in some cases
be dependent upon a single access point to connect to the various transaction processing networks.
Our agreement with USA Payments and USA Payment Systems has purportedly been terminated by USA
Payments and USA Payment Systems based upon allegations that we dispute. Our intention to
transition to a new processor within the transition period set forth in our agreement with USA
Payments and USA Payment Systems or at all has a number of risks, including those described above
under We may encounter difficulties managing our growth .
20
Card Association Sponsorship. We rely on Bank of America Merchant Services (BAMS), which is
affiliated with Bank of America Corporation, for sponsorship into the Visa U.S.A. and MasterCard
card associations for domestic transactions at no cost
to us through September 2010. We also rely on a foreign bank in each foreign jurisdiction in
which we operate, for example Banco Weng Hang in Macau SAR, to process transactions conducted in
these jurisdictions through the Visa International and MasterCard card associations.
ATM Cash Supply. We rely exclusively on Bank of America to supply cash for substantially all
of our ATMs. Under our agreement, Bank of America is not obligated to supply us with more than
$410 million in cash at any given time; however, to satisfy our ATM cash supply needs, Bank of
America has regularly provided us with cash in excess of this limit. If Bank of America ever
refuses to provide cash in excess of this limit, we would have an inadequate supply of cash for our
ATMs. Upon the expiration of our agreement with Bank of America for the supply of ATM on December
19, 2010, we may not be able to obtain such adequate supply of cash on terms that are favorable to
us or at all.
Software Development and System Support. We rely on Infonox, USAPayments and USA Payment
Systems for software development and system support. In addition, we rely on NRT, Western Money
Systems and Glory for software development and system support related to their self-service slot
ticket and player point redemption kiosks that incorporate our cash access services.
Product Development. We rely on our joint venture partner and strategic partners for some of
our product development. These activities have risks resulting from unproven combinations of
disparate products and services, reduced flexibility in making design changes in response to market
changes, reduced control over product completion schedules and the risk of disputes with our joint
venture partners and strategic partners.
Money Transfers. We rely on Western Union Financial Services, Inc. (Western Union) to
facilitate money transfers. We have provided Western Union with notice of termination of our
Amended and Restated Western Union North America Network Agency Agreement. In the event that we do
not enter into a new agreement with Western Union or another entity to facilitate money transfers,
we may not be able to continue the provision of money transfer services.
If we are unable to protect our intellectual property adequately, we may lose a valuable
competitive advantage or be forced to incur costly litigation to protect our rights.
Our success depends on developing and protecting our intellectual property. We have entered
into license agreements with other parties for intellectual property that is critical to our
business. We rely on the terms of these license agreements, as well as copyright, patent,
trademark and trade secret laws to protect our intellectual property. We also rely on other
confidentiality and contractual agreements and arrangements with our employees, affiliates,
business partners and customers to establish and protect our intellectual property and similar
proprietary rights.
We have also entered into license agreements with other parties for the exclusive use of their
technology and intellectual property rights in the gaming industry, such as our license to use
portions of the software infrastructure upon which our systems operate from Infonox. We rely on
these other parties to maintain and protect this technology and the related intellectual property
rights. If our licensors fail to protect their intellectual property rights in material that we
license and we are unable to protect such intellectual property rights, the value of our licenses
may diminish significantly and our business could be significantly harmed.
We may have to rely on costly litigation to enforce our intellectual property rights and
contractual rights. By pursuing this type of litigation, we become exposed to the risk of
counterclaims and the risk that defendants will attempt to invalidate our right to the subject
intellectual property or otherwise limit its scope.
In addition, we may face claims of infringement that could interfere with our ability to use
technology or other intellectual property rights that are material to our business operations. In
the event a claim of infringement against us is successful, we may be required to pay royalties to
use technology or other intellectual property rights that we had been using or we may be required
to enter into a license agreement and pay license fees, or we may be required to stop using the
technology or other intellectual property rights that we had been using. We may be unable to
obtain necessary licenses from third parties at a reasonable cost or within a reasonable time. Any
litigation of this type, whether successful or unsuccessful, could result in substantial costs to
us and diversions of our resources.
21
Our business depends on our ability to introduce new, commercially viable products and
services in a timely manner.
Our product development efforts are based upon a number of complex assumptions, including
assumptions relating to gaming patron habits, changes in the popularity and prevalence of certain
types of payment methods, anticipated transaction volumes, the costs and time required to bring new
products and services to market, and the willingness and ability of both patrons and gaming
establishment personnel to use new products and services and bear the economic costs of doing so.
Our new products and services may not achieve market acceptance if any of our assumptions are
wrong, or for other reasons.
Our ability to introduce new products and services may also require regulatory approvals,
which may significantly increase the costs associated with developing a new product or service and
the time required to introduce a new product or service into the marketplace. In order to obtain
these regulatory approvals we may need to modify our products and services which would increase our
costs of development and may make our products or services less likely to achieve market
acceptance.
Our ability to grow our business through the introduction of new products and services depends
in part on our joint development activities with third parties over whom we have little or no
control. We have engaged in joint development projects with third parties in the past and we
expect to continue doing so in the future. Joint development can magnify several risks for us,
including the loss of control over development of aspects of the jointly developed products and
disputes with our joint venture partners.
We may suffer significant expense in our exit from the consumer credit business through the
discontinuance of the Arriva Card.
On February 28, 2008, we announced that we would discontinue offering the Arriva Card, a
private label credit card. We have incurred significant bad debt losses from this
business and as part of this discontinuance, we may incur further losses from consumers who are
unwilling or unable to pay their balances or from the loss we may experience from selling a portion
or all of the receivable balance to another entity. As of December 31, 2008 the balance of net
accounts receivable was $1.5 million.
We may not successfully enter new markets.
If and as new and developing domestic markets develop, competition among providers of cash
access products and services will intensify. If we attempt to enter these markets, we will have to
expand our sales and marketing presence in these markets. In competitive bidding situations, we
may not enjoy the advantage of being the incumbent provider of cash access products and services to
gaming establishments in these new markets and developers and operators of gaming establishments in
these new markets may have pre-existing relationships with our competitors. We may also face the
uncertainty of compliance with new or developing regulatory regimes with which we are not currently
familiar and oversight by regulators that are not familiar with us, or our business. Each of these
risks could materially impair our ability to successfully expand our operations into these new and
developing domestic markets.
Attempting to enter international markets in which we have not previously operated may expose
us to political, economic, tax, legal and regulatory risks not faced by businesses that operate
only in the United States. The legal and regulatory regimes of foreign markets and their
ramifications on our business are less certain. Our international operations will be subject to a
variety of risks, including different regulatory requirements and interpretations, trade barriers,
difficulties in staffing and managing foreign operations, higher rates of fraud, fluctuations in
currency exchange rates, difficulty in enforcing or interpreting contracts or legislation,
political and economic instability and potentially adverse tax consequences. Difficulties in
obtaining approvals, licenses or waivers from the monetary and gaming authorities of other
jurisdictions, in addition to other potential regulatory and quasi-regulatory issues that we have
not yet ascertained, may arise in international jurisdictions into which we attempt to enter. In
these new markets, our operations will rely on an infrastructure of financial services and
telecommunications facilities that may not be sufficient to support our business needs, such as the
authorization and settlement services that are required to implement electronic payment
transactions and the telecommunications facilities that would enable us to reliably connect our
networks to our products at gaming establishments in these new markets. In these new markets, we
may additionally provide services based upon interpretations of applicable law, which
interpretation may be subject to regulatory or judicial review. These risks, among others, could
materially adversely affect our business and operating results. In connection with our expansion
into new international markets, we may forge strategic relationships with business partners to
assist us. The success of our expansion into these markets therefore may depend in part upon the
success of the business partners with whom we forge these strategic relationships. If we do not
successfully form strategic relationships with the right business partners or if we are not able to
overcome cultural differences or differences in business practices, our ability to penetrate these
new international markets will suffer.
22
We are also subject to the risk that the domestic or international markets that we attempt to
enter or expand into may not develop as quickly as anticipated, or at all. The development of new
gaming markets is subject to political, social, regulatory and economic forces beyond our control.
The expansion of gaming activities in new markets can be very controversial and may depend heavily
on the support and sponsorship of local government. Changes in government leadership, failure to
obtain requisite voter support in referendums, failure of legislators to enact enabling legislation
and limitations on the volume of gaming activity that is permitted in particular markets may
inhibit the development of new markets.
Our estimates of the potential future transaction volumes in new markets are based on a
variety of assumptions, which may prove to be inaccurate. To the extent that we overestimate the
potential of a new market, incorrectly gauge the timing of the development of a new market, or fail
to anticipate the differences between a new market and our existing markets, we may fail in our
strategy of growing our business by expanding into new markets. Moreover, if we are unable to meet
the needs of our existing customers as they enter markets that we do not currently serve; our
relationships with these customers could be harmed.
We depend on key personnel that may be difficult to replace.
Our future success depends upon our ability to attract, train and retain key executives and
managers. We may need to increase the number of key managers as we further develop our products
and services and as we enter new markets and expand in existing markets. Our ability to enter into
contracts with gaming establishments depends in large part on the relationships that our key
managers have formed with management-level personnel of gaming establishments. Competition for
individuals with such relationships is intense, and we may not be successful in recruiting such
personnel. Our employees are subject to certain noncompetition covenants following their departure
from the Company, which noncompetition covenants could be rendered unenforceable in whole or in
part. As such, we may not be able to retain such individuals as they may leave our Company and go
to work for our competitors. Our sales efforts would be particularly hampered by the defection of
personnel with long-standing relationships with management-level personnel of gaming
establishments. If we are unable to attract or retain key personnel, our business, financial
condition, operating results and liquidity could be materially adversely affected.
Failure to maintain an effective system of internal control over financial reporting may lead
to our inability to accurately report our financial results. As a result, current and potential
stockholders could lose confidence in our financial reporting, which could harm our business, our
reputation and the trading price of our stock.
Effective internal control over financial reporting is necessary for us to provide reliable
financial reports. If we cannot provide reliable financial reports, our business and operating
results could be harmed.
The Companys assessment of its internal control over financial reporting has identified
material weaknesses in the past, each of which was subsequently remediated. New material
weaknesses may arise in the future. Any material weaknesses could cause us to fail to meet our
reporting obligations, cause investors to lose confidence in our reported financial information,
cause a decline or volatility in our stock prices, cause a reduction in our credit ratings or
tarnish our public perception. Also, increased expenses due to remediation costs and increased
regulatory scrutiny are also possible. Failure to remediate the prior material weaknesses in full
or the need to remediate a future material weakness could adversely affect our financial condition
or results of operations. Inadequate internal control over financial reporting could also cause
investors to lose confidence in our reported financial information, which could have a negative
effect on the trading price of our stock and our reputation.
Changes by M&C International and First Data to certain of their tax returns may have an impact
on the value of a component of our deferred tax asset. In addition, changes in tax laws,
regulations and interpretations may adversely affect our business.
In connection with the Recapitalization and Private Equity Restructuring that occurred in
2004, we recorded a deferred tax asset of $247.0 million. In connection with this deferred tax
asset, we expect to pay a significantly lower amount in United States federal income taxes than we
provide for in our income statements. Our calculation of the starting balance of the deferred tax
asset is based upon information we received from M&C International and First Data about the gains
they recorded in the Recapitalization and the Private Equity Restructuring. If M&C International
or First Data change their calculation of the gains and file amended tax returns, we may be
required to recalculate the starting balance of the deferred tax asset and the annual amortization
thereof.
Unanticipated changes in applicable income tax rates or laws or changes in our tax position
could adversely impact our future results of operations. Our future effective tax rates could be
affected by changes in the valuation of our deferred tax asset as a
result of an audit or otherwise. Additionally, changes in tax laws or interpretations of such
laws by domestic and foreign tax authorities could affect our results of operations.
23
We operate our business in regions subject to natural disasters. Any interruption to our
business resulting from a natural disaster will adversely affect our revenues and results of
operations.
In the event of a natural disaster, the operations of gaming establishments could be
negatively impacted or consumer demand for gaming could decline, or both, and as a result, our
business could be interrupted, which will adversely affect our revenues and results of operations.
For example, we believe that our revenues and results of operations in Louisiana and Mississippi
were reduced in 2006 from what we would otherwise have expected as a result of Hurricanes Katrina
and Rita, and that reduction may continue in the future. We do not carry any business interruption
insurance.
Risks related to the industry
Economic downturns, a decline in the popularity of gaming or responsible gaming pressures
could reduce the number of patrons that use our services or the amounts of cash that they access
using our services.
We provide our cash access products and related services exclusively to gaming establishments
for the purpose of enabling their patrons to access cash. As a result, our business depends on
consumer demand for gaming. Gaming is a discretionary leisure activity, and participation in
discretionary leisure activities has in the past and may in the future decline during economic
downturns because consumers have less disposable income. Gaming activity may also decline based on
changes in consumer confidence related to general economic conditions or outlook, fears of war,
future acts of terrorism, or other factors. A reduction in tourism could also result in a decline
in gaming activity. Finally, a legislature or regulatory authority may prohibit or significantly
restrict gaming activities in its jurisdiction. Gaming competes with other leisure activities as a
form of consumer entertainment and may lose popularity as new leisure activities arise or as other
leisure activities become more popular. In addition, gaming in traditional gaming establishments
(where we provide our services) competes with Internet-based gaming, which is currently not lawful
in the United States of America. The popularity and acceptance of gaming is also influenced by the
prevailing social mores and changes in social mores could result in reduced acceptance of gaming as
a leisure activity. To the extent that the popularity of gaming in traditional gaming
establishments declines as a result of either of these factors, the demand for our cash access
services may decline and our business may be harmed.
Our ability to sustain our existing customer relationships and establish new customer
relationships depends in part on the support of, or lack of opposition from, social responsibility
organizations that are dedicated to addressing problem gaming. We may be affected by litigation or
lobbying efforts to combat problem gaming because we provide patrons the ability to access their
cash in gaming establishments.
Changes in consumer willingness to pay a fee to access their funds could reduce the demand for
our cash access products and services.
Our business depends upon the willingness of patrons to pay a service fee to access their own
funds on the premises of a gaming establishment. In most retail environments, consumers typically
do not pay an additional fee for using non-cash payment methods such as credit cards, POS debit
cards or checks. Gaming patrons could bring more cash with them to gaming establishments, or
access cash outside of gaming establishments without paying a fee for the convenience of not having
to leave the gaming establishment. To the extent that gaming patrons become unwilling to pay these
fees for convenience or lower cost cash access alternatives become available, the demand for cash
access services within gaming establishments will decline and our business could suffer.
24
We are subject to extensive governmental gaming regulation, which may harm our business.
We are subject to a variety of regulations in the jurisdictions in which we operate. Most of
the gaming regulators in jurisdictions in which we operate distinguish between gaming-related
suppliers and vendors, such as manufacturers of slot machine or other gaming devices, and
non-gaming suppliers and vendors, such as food and beverage purveyors and construction contractors.
In these jurisdictions, we are generally characterized as a non-gaming supplier or vendor and we
must obtain a non-gaming suppliers or vendors license, qualification or approval. The obtaining
of these licenses, qualifications or approvals and the regulations imposed on non-gaming suppliers
and vendors are typically less stringent than for gaming related suppliers and
vendors. However, some of the gaming regulators in jurisdictions in which we do business do
not distinguish between gaming-related and non-gaming related suppliers and vendors, and in those
jurisdictions we currently are subject to the same stringent licensing, qualification and approval
requirements and regulations that are imposed upon vendors and suppliers that would be
characterized as gaming-related in other jurisdictions. Such requirements include licensure or
finding of suitability for some of our officers, directors and beneficial owners of our securities.
If gaming regulatory authorities were to find any such officer, director or beneficial owner
unsuitable, or if any such officer, director, or beneficial owner fails to comply with any
licensure requirements, we would be required to sever our relationship with that person. Severing
our relationship with a person may require such individual ceasing to provide services to us in any
capacity, including as an officer, director, employee or consultant, such person divesting himself,
herself or itself of all or substantially all of its equity interest in us, and we refraining from
conducting any business or maintaining any business relationship with such person or any entity
that such person is a director, officer or stockholder of or otherwise affiliated with. Any of the
foregoing could be costly to the Company and materially disruptive of its management and
operations. Our failure to sever our relationship with a person in a manner acceptable to the
gaming regulatory authorities or at all may result in the loss or denial of licensure or a finding
of unsuitability, which loss or denial of licensure of finding of unsuitability by a gaming
regulatory authority may prohibit us from continuing to operate in such jurisdiction. Any loss or
denial of licensure or finding of unsuitability in any one jurisdiction would likely result in
similar adverse regulatory actions in several other jurisdictions, resulting in a domino effect of
adverse regulatory actions. The effects of the internal investigation that we announced on
November 14, 2007 have resulted in heightened scrutiny from gaming regulators and an increased risk
of regulatory intervention as has the activities of certain of our stockholders in the conduct of
businesses unaffiliated with the Company.
Some public issuances of securities and other transactions by us also require the approval of
regulatory authorities.
If we must obtain a gaming-related suppliers or vendors license, qualification or approval
because of the introduction of new products (such as products related to cashless gaming) or
services or because of a change in the laws or regulations, or interpretation thereof, our business
could be materially adversely affected. This increased regulation over our business could include,
but is not limited to: requiring the licensure or finding of suitability in many jurisdictions of
any officer, director, key employee or beneficial owner of our securities; the termination or
disassociation with any officer, director, key employee or beneficial owner of our securities that
fails to file an application or to obtain a license or finding of suitability; the submission of
detailed financial and operating reports; submission of reports of material loans, leases and
financing; and, requiring regulatory approval of some commercial transactions such as the transfer
or pledge of equity interests in us.
Regulatory authorities at the federal, state, local and tribal levels have broad powers with
respect to the licensing of gaming-related activities and may revoke, suspend, condition or limit
our licenses, impose substantial fines and take other actions against us or the gaming
establishments that are our customers, any one of which could have a material adverse effect on our
business, financial condition and operating results. Any new gaming license or related approval
that may be required in the future may not be granted, and our existing licenses may not be renewed
or may be revoked, suspended or limited. If additional gaming regulations are adopted in a
jurisdiction in which we operate, such regulations could impose restrictions or costs that could
have a material adverse effect on our business. From time to time, various proposals are
introduced in the legislatures of some of the jurisdictions in which we have existing or planned
operations that, if enacted, could adversely affect the tax, regulatory, operational or other
aspects of the gaming industry or cash access in the gaming industry. Legislation of this type may
be enacted in the future.
In addition, some of the new products and services that we may develop cannot be offered in
the absence of regulatory approval of the product or service or licensing of us, or both. These
approvals could require that we and our officers, directors or ultimate beneficial owners obtain a
license or be found suitable and that the product or service be approved after testing and review.
We may fail to obtain any such approvals in the future. When contracting with tribal owned or
controlled gaming establishments, we become subject to tribal laws and regulations that may differ
materially from the non-tribal laws and regulations under which we generally operate. In addition
to tribal gaming regulations that may require us to provide disclosures or obtain licenses or
permits to conduct our business on tribal lands, we may also become subject to tribal laws that
govern our contracts. These tribal governing laws may not provide us with processes, procedures
and remedies that enable us to enforce our rights as effectively and advantageously as the
processes, procedures and remedies that would be afforded to us under non-tribal laws, or to
enforce our rights at all. Many tribal laws permit redress to a tribal adjudicatory body to
resolve disputes; however, such redress is largely untested in our experience. We may be precluded
from enforcing our rights against a tribal body under the legal doctrine of sovereign immunity. A
change in tribal laws and regulations or our inability to obtain required licenses or licenses to
operate on tribal lands or enforce our contract rights under tribal law could have a material
adverse effect on our business, financial condition and operating results.
25
Many of the financial services that we provide are subject to extensive rules and regulations,
which may harm our business.
Our Central Credit gaming patron credit bureau services are subject to the Fair Credit
Reporting Act, the Fair and Accurate Credit Transactions Act of 2003 and similar state laws. Our
QuikCredit service and TeleChecks and our collection practices in connection with dishonored
checks with respect to which TeleCheck or Central Credit has issued authorizations pursuant to
TeleChecks or Central Credits check warranty service, are subject to the Fair Debt Collections
Practices Act and applicable state laws relating to debt collection. All of our cash access
services and patron marketing services are subject to the privacy provisions of state and federal
law, including the Gramm-Leach-Bliley Act. Our POS debit card transactions and ATM withdrawal
services are subject to the Electronic Fund Transfer Act. Our ATM services are subject to the
applicable state banking regulations in each jurisdiction in which we operate ATMs. Our ATM
services may also be subject to local regulations relating to the imposition of daily limits on the
amounts that may be withdrawn from ATMs, the location of ATMs and our ability to surcharge
cardholders who use our ATMs. The cash access services we provide are subject to recordkeeping and
reporting obligations under the Bank Secrecy Act and the USA PATRIOT Act of 2001. We are required
to file suspicious activity reports, or SARs, with respect to transactions completed at all gaming
establishments at which our cash access services are provided. If we are found to be noncompliant
in any way with these laws, we could be subject to substantial civil and criminal penalties. In
jurisdictions in which we serve as a check casher or offer our QuikCredit service, we are subject
to the applicable state licensing requirements and regulations governing check cashing activities
and deferred deposit service providers. We are considering obtaining money transmitter licenses in
many states, which would cause us to become subject to state licensing requirements and regulations
governing money transmitters.
We are subject to formal or informal audits, inquiries or reviews from time to time by the
regulatory authorities that enforce these financial services rules and regulations. In the event
that any regulatory authority determines that the manner in which we provide cash access services,
patron marketing services, gaming patron credit bureau services or private label credit cards is
not in compliance with existing rules and regulations, or the regulatory authorities adopt new
rules or regulations that prohibit or restrict the manner in which we provide cash access services,
patron marketing services, gaming patron credit bureau services or private label credit cards, we
may be forced to modify the manner in which we operate, or stop processing certain types of cash
access transactions, providing patron marketing services, gaming patron credit bureau services or
private label credit cards altogether. We may also be required to pay substantial penalties and
fines if we fail to comply with applicable rules and regulations. For example, if we fail to file
CTRs or SARs on a timely basis or if we are found to be noncompliant in any way with either the
Bank Secrecy Act or the USA PATRIOT Act of 2001, we could be subject to substantial civil and
criminal penalties. In addition, our failure to comply with applicable rules and regulations could
subject us to private litigation.
By providing the Arriva Card to consumers, we also have become subject to a variety of state
and federal laws governing credit reporting and collection practices, and such collection
regulations may impede or even prevent our ability to collect amounts owed to us. These
regulations include, but are not limited to, the Federal Truth in Lending Act (Regulation Z) and
the Equal Credit Opportunity Act (Regulation B). In addition, by providing the Arriva Card to
consumers, we have become subject to an extensive array of federal and state statutes and
regulations applicable to consumer lending including, but not limited to, the Fair Debt Collection
Practices Act, the Fair Credit Reporting Act and the Fair and Accurate Credit Transactions Act. If
our collection practices while we exit the consumer business are deemed to be in violation of these
rules and regulations we could be subject to fines and penalties which could have a material
adverse effect upon our business, cash flows or results of operations.
Consumer privacy laws may change, requiring us to change our business practices or expend
significant amounts on compliance with such laws.
Our patron marketing services depend on our ability to collect and use non-public personal
information relating to patrons who use our products and services and the transactions they
consummate using our services. We are required by federal and state privacy laws and rules to
safeguard and protect the privacy of such information, to make disclosures to patrons regarding our
privacy and information sharing policies and, in some cases, to provide patrons an opportunity to
opt out of the use of their information for certain purposes. The failure or circumvention of
the means by which we safeguard and protect the privacy of information we gather may result in the
dissemination of non-public personal information, which may harm our reputation and may expose us
to liability to the affected individuals and regulatory enforcement proceedings or fines.
Regulators reviewing our policies and practices may require us to modify our practices in a
material or immaterial manner or impose fines or other penalties if they believe that our policies
and practices do not meet the necessary standard. To the extent that our patron-marketing services
have in the past failed or now or in the future fail to comply with applicable law, our privacy
policies or the notices that we provide to patrons, we may become subject to actions by a
regulatory authority or patrons which cause us to pay
monetary penalties or require us to modify the manner in which we provide patron-marketing services. To the extent
that patrons exercise their right to opt out, our ability to leverage existing and future
databases of information would be curtailed. Consumer and data privacy laws are evolving, and due
to recent high profile thefts and losses of sensitive consumer information from protected
databases, such laws may be broadened in their scope and application, impose additional
requirements and restrictions on gathering, encrypting and using patron information or narrow the
types of information that may be collected or used for marketing or other purposes or require
patrons to opt-in to the use of their information for specific purposes, or impose additional
fines or potentially costly compliance requirements which will hamper the value of our
patron-marketing services.
26
Risks related to our capital structure
Our common stock has only been publicly traded since September 22, 2005 and we expect that the
price of our common stock will fluctuate substantially.
There has been a public market for our common stock since September 22, 2005. The market
price of our common stock may fluctuate significantly in response to a number of factors, some of
which are beyond our control, including those described above under Risks related to our
business, Risks related to the industry and the following:
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our failure to maintain our current customers, including because of consolidation in the
gaming industry; |
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increases in commissions paid to gaming establishments as a result of competition; |
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increases in interchange rates or processing or other fees paid by us or decreases in
reverse interchange rates; |
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actual or anticipated fluctuations in our or our competitors revenue, operating results
or growth rate; |
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our inability to adequately protect or enforce our intellectual property rights; |
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any adverse results in litigation initiated by us or by others against us; |
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our inability to make payments on our outstanding indebtedness as they become due or our
inability to undertake actions that might otherwise benefit us based on the financial and
other restrictive covenants contained in our senior secured credit facilities and the
indenture for our senior subordinated notes; |
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the loss of a significant supplier or strategic partner, or the failure of a significant
supplier or strategic partner to provide the goods or services that we rely on them for; |
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our inability to introduce successful, new products and services in a timely manner or
the introduction of new products or services by our competitors that reduce the demand for
our products and services; |
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our failure to successfully enter new markets or the failure of new markets to develop
in the time and manner that we anticipate; |
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announcements by our competitors of significant new contracts or contract renewals or of
new products or services; |
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changes in general economic conditions, financial markets, the gaming industry or the
payments processing industry; |
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the trading volume of our common stock; |
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sales of common stock or other actions by our current officers, directors and
stockholders; |
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acquisitions, strategic alliances or joint ventures involving us or our competitors; |
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future sales of our common stock or other securities; |
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the failure of securities analysts to cover our common stock or changes in financial
estimates or recommendations by analysts; |
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our failure to meet the revenue, net income or earnings per share estimates of
securities analysts or investors; |
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additions or departures of key personnel; |
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terrorist acts, theft, vandalism, fires, floods or other natural disasters; and |
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rumors or speculation as to any of the above which we may be unable to confirm or deny
due to disclosure restrictions imposed on us by law or which we otherwise deem imprudent to
comment upon. |
27
Securities litigation involving the Company may be time consuming, expensive, distracting and
result in an adverse resolution that materially adversely affects us.
Following our public announcement on November 14, 2007 of an internal investigation by an
independent committee of our Board of Directors and the delay in filing our Quarterly Report on
Form 10-Q for the quarter ended September 30, 2007, the trading price of our common stock suffered
a significant decline. Derivative and securities class action litigation is often brought against
a company following a decline in the market price of its securities.
On December 12, 2007, a derivative action was filed by a stockholder on behalf of the Company in
the United States District Court, District of Nevada against certain of our current and former
directors, our former chief executive officer and our former chief financial officer, alleging
breach of fiduciary duties, waste of corporate assets, unjust enrichment and violations of Sections
10(b) and 20(a) of the Exchange Act, as amended. On February 8, 2008, an additional derivative
action was filed by a separate stockholder on behalf of the Company in the United States District
Court, District of Nevada against certain of our current and former directors, our former chief
executive officer and our former chief financial officer, alleging breach of fiduciary duties,
insider trading and waste of corporate assets. On May 5, 2008, the foregoing actions were
consolidated and an amended complaint was filed that continues to pursue only state law claims but
not violations of Sections 10(b) or 20(a) of the Exchange Act, as amended. Following the filing of
motions to dismiss by the defendants, a second amended complaint was filed. Thereafter, plaintiffs
amended again in December 2008. The third amended complaint alleges essentially the same legal
claims as former complaints and seeks, among other things, damages in favor of the Company, certain
corporate actions to purportedly improve the Companys corporate governance, and an award of costs
and expenses to the plaintiff stockholders including attorneys fees. The defendants are seeking
to dismiss the third amended complaint. The Company has indemnification agreements with each of
the individual defendants that may cause the Company to incur expenses associated with the defense
of this action and that may also protect such individuals from liability to the Company. The
Company also maintains director and officer liability insurance that may provide for reimbursement
of some of the expenses associated with this action. At this stage of the litigation, the Company
is unable to make an evaluation of whether the likelihood of an unfavorable outcome is either
probable or remote or the amount or range of potential loss; however, the Company believes it has
meritorious defenses and will vigorously defend this action.
On April 11, 2008, a class action was filed by a stockholder in the United States District Court,
Southern District of New York against the Company, certain of our former directors, our former
chief executive officer, M&C International, Summit Partners, L.P., and certain underwriters to two
prior stock offerings to the public. On June 10, 2008, an additional class action was filed,
naming essentially the same defendants and stating similar claims. On June 26, 2008, the foregoing
actions were consolidated in New York, and the Court appointed a lead plaintiff and lead counsel.
In August 2008, the lead plaintiff filed a consolidated amended complaint. The consolidated
amended complaint names as additional defendants our former chief financial officer, certain
current and former directors and additional underwriters and defendants and purports to allege
violations of Sections 11, 12(a)(2) and 15 the Securities Act of 1933. The plaintiffs seek, among
other things, damages and rescission. Following motions by defendants, the action transferred to
the District of Nevada in October 2008 and consolidated with the pending derivative action for
pretrial purposes. Defendants are seeking to dismiss the class action complaint. The Company has
indemnification agreements with each of the other defendants that may cause the Company to incur
expenses associated with the defense of this action and that may also protect such defendants from
liability to the Company.
The Company also maintains director and officer liability insurance that may provide for
reimbursement of some of the expenses associated with this action. At this stage of the litigation,
the Company is unable to make an evaluation of whether the likelihood of an unfavorable outcome is
either probable or remote or the amount or range of potential loss; however the Company believes it
has meritorious defenses and will vigorously defend this action.
We are threatened with or named as a defendant in various lawsuits arising in the ordinary
course of business, such as personal injury claims and employment-related claims as well being
threatened or named as a defendant in lawsuits arising in the ordinary course of business and
assumed as a result of the acquisition of CGS and for which we have indemnification rights. It is
not possible to determine the ultimate disposition of these matters; however, we are of the opinion
that the final resolution of any such threatened or pending litigation, individually or in the
aggregate, is not likely to have a material adverse effect on our business, cash flows, results of
operations or financial position.
28
Future sales of our common stock may cause the market price of our common stock to drop
significantly, even if our business is doing well.
The market price of our common stock could decline as a result of sales of additional shares
of our common stock by us or our stockholders or the perception that these sales could occur.
Certain stockholders have the right to require us to register their shares of our common stock. If
we propose to register any of our securities under the Securities Act of 1933 either for our own
account or for the accounts of other stockholders, subject to some conditions and limitations, the
holders of registration rights will be entitled to include their shares of common stock in the
registered offering. In addition, holders of registration rights may require us on not more than
five occasions to file a registration statement under the Securities Act of 1933 with respect to
their shares of common stock. Further, the holders of registration rights may require us to
register their shares on Form S-3 if and when we are eligible to use this form. We are required to
pay the costs and expenses of the registration (other than underwriting discounts and commissions
and fees) and sale of all such shares of common stock.
In the future, we will also issue additional shares or options to purchase additional shares
to our employees, directors and consultants, in connection with corporate alliances or
acquisitions, and in follow-on offerings to raise additional capital. Based on all of these
factors, sales of a substantial number of shares of our common stock in the public market could
occur at any time. These sales could reduce the market price of our common stock. In addition,
future sales of our common stock by our stockholders could make it more difficult for us to sell
additional shares of our common stock or other securities in the future.
Some provisions of our certificate of incorporation and bylaws may delay or prevent
transactions that many stockholders may favor.
Some provisions of our amended and restated certificate of incorporation and amended and
restated bylaws may have the effect of delaying, discouraging, or preventing a merger or
acquisition that our stockholders may consider favorable or a change in our management or our Board
of Directors. These provisions:
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divide our Board of Directors into three separate classes serving staggered three-year
terms, which will have the effect of requiring at least two annual stockholder meetings
instead of one, to replace a majority of our directors, which could have the effect of
delaying of preventing a change in our control or management; |
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provide that special meetings of stockholders can only be called by our Board of
Directors, Chairman of the Board or Chief Executive Officer. In addition, the business
permitted to be conducted at any special meeting of stockholders is limited to the business
specified in the notice of such meeting to the stockholders; |
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provide for an advance notice procedure with regard to business to be brought before a
meeting of stockholders which may delay or preclude stockholders from bringing matters
before a meeting of stockholders or from making nominations for directors at a meeting of
stockholders, which could delay or deter takeover attempts or changes in management; |
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eliminate the right of stockholders to act by written consent so that all stockholder
actions must be effected at a duly called meeting; |
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provide that directors may only be removed for cause with the approval of stockholders
holding a majority of our outstanding voting stock; |
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provide that vacancies on our Board of Directors may be filled by a majority, although
less than a quorum, of directors in office and that our Board of Directors may fix the
number of directors by resolution; |
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allow our Board of Directors to issue shares of preferred stock with rights senior to
those of the common stock and that otherwise could adversely affect the rights and powers,
including voting rights and the right to approve or not to approve an acquisition or other
change in control, of the holders of common stock, without any further vote or action by
the stockholders; and |
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do not provide for cumulative voting for our directors, which may make it more difficult
for stockholders owning less than a majority of our stock to elect any directors to our
Board of Directors. In addition, we are also subject to Section 203 of the Delaware
General Corporation Law, which provides, subject to enumerated exceptions, that if a person
acquires 15% or more of our voting stock, the person is an interested stockholder and may
not engage in business combinations with us for a period of three years from the time the
person acquired 15% or more of our voting stock. |
29
These provisions may have the effect of entrenching our management team and may deprive our
stockholders of the opportunity to sell shares to potential acquirers at a premium over prevailing
prices. This potential inability to obtain a premium could reduce the price of our common stock.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Our headquarters are located in a facility in Las Vegas, Nevada consisting of approximately
40,000 square feet of office space, which is under a lease through April 2011. We also lease
several other properties: remote sales offices in Atlantic City, New Jersey under a lease through
July 2010, in Macau SAR under a lease through February 2010, in Burnsville, Minnesota under lease
through July 2009, and in Las Vegas, Nevada under lease through July 2009. We believe that these
facilities are adequate for our business as presently conducted.
ITEM 3. LEGAL PROCEEDINGS
On December 12, 2007, a derivative action was filed by a stockholder on behalf of the Company in
the United States District Court, District of Nevada against certain of our current and former
directors, our former chief executive officer and our former chief financial officer, alleging
breach of fiduciary duties, waste of corporate assets, unjust enrichment and violations of Sections
10(b) and 20(a) of the Exchange Act, as amended. On February 8, 2008, an additional derivative
action was filed by a separate stockholder on behalf of the Company in the United States District
Court, District of Nevada against certain of our current and former directors, our former chief
executive officer and our former chief financial officer, alleging breach of fiduciary duties,
insider trading and waste of corporate assets. On May 5, 2008, the foregoing actions were
consolidated and an amended complaint was filed that continues to pursue only state law claims but
not violations of Sections 10(b) or 20(a) of the Exchange Act, as amended. Following the filing of
motions to dismiss by the defendants, a second amended complaint was filed. Thereafter, plaintiffs
amended again in December 2008. The third amended complaint alleges essentially the same legal
claims as former complaints and seeks, among other things, damages in favor of the Company, certain
corporate actions to purportedly improve the Companys corporate governance, and an award of costs
and expenses to the plaintiff stockholders including attorneys fees. The defendants are seeking
to dismiss the third amended complaint. The Company has indemnification agreements with each of
the individual defendants that may cause the Company to incur expenses associated with the defense
of this action and that may also protect such individuals from liability to the Company. The
Company also maintains director and officer liability insurance that may provide for reimbursement
of some of the expenses associated with this action. At this stage of the litigation, the Company
is unable to make an evaluation of whether the likelihood of an unfavorable outcome is either
probable or remote or the amount or range of potential loss; however, the Company believes it has
meritorious defenses and will vigorously defend this action.
On April 11, 2008, a class action was filed by a stockholder in the United States District Court,
Southern District of New York against the Company, certain of our former directors, our former
chief executive officer, M&C International, Summit Partners, L.P., and certain underwriters to two
prior stock offerings to the public. On June 10, 2008, an additional class action was filed,
naming essentially the same defendants and stating similar claims. On June 26, 2008, the foregoing
actions were consolidated in New York, and the Court appointed a lead plaintiff and lead counsel.
In August 2008, the lead plaintiff filed a consolidated amended complaint. The consolidated
amended complaint names as additional defendants our former chief financial officer, certain
current and former directors and additional underwriters and defendants and purports to allege
violations of Sections 11, 12(a)(2) and 15 the Securities Act of 1933. The plaintiffs seek, among
other things, damages and rescission. Following motions by defendants, the action transferred to
the District of Nevada in October 2008 and consolidated with the pending derivative action for
pretrial purposes. Defendants are seeking to dismiss the class action complaint. The Company has
indemnification agreements with each of the other defendants that may cause the Company to incur
expenses associated with the defense of this action and that may also protect such defendants from
liability to the Company. The Company also maintains director and officer liability insurance that
may provide for reimbursement of some of the expenses associated with this action. At this stage of
the litigation,
the Company is unable to make an evaluation of whether the likelihood of an unfavorable outcome is
either probable or remote or the amount or range of potential loss; however the Company believes it
has meritorious defenses and will vigorously defend this action.
30
We are threatened with or named as a defendant in various lawsuits arising in the ordinary
course of business, such as personal injury claims and employment-related claims as well being
threatened or named as a defendant in lawsuits arising in the ordinary course of business and
assumed as a result of the acquisition of Certegy Gaming Services
(CGS) and for which we have indemnification rights. It is
not possible to determine the ultimate disposition of these matters; however, we are of the opinion
that the final resolution of any such threatened or pending litigation, individually or in the
aggregate, is not likely to have a material adverse effect on our business, cash flows, results of
operations or financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth quarter of the
fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
Our common stock has traded on the New York Stock Exchange under the symbol GCA since
September 23, 2005. Prior to that time, there was no public
market for our stock. On March 4, 2009 there were 16
holders of record of our common stock. Because many of our shares of common
stock are held by brokers and other institutions on behalf of stockholders, we are unable to
estimate the total number of beneficial stockholders represented by these record holders.
The following table sets forth for the indicated periods, the high and low closing sale prices
per share of our common stock:
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Price Range |
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High |
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Low |
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2008: |
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First Quarter |
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$ |
5.93 |
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$ |
5.48 |
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Second Quarter |
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6.88 |
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6.48 |
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Third Quarter |
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5.98 |
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5.65 |
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Fourth Quarter |
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2.99 |
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2.72 |
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2007: |
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First Quarter |
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$ |
16.69 |
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$ |
14.33 |
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Second Quarter |
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16.81 |
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15.35 |
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Third Quarter |
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16.56 |
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10.55 |
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Fourth Quarter |
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11.25 |
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3.06 |
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On
March 4, 2009, the closing sale price of our common stock on the New York Stock Exchange
was $3.27.
Dividend Policy
We have never declared or paid any cash dividends on our capital stock and do not anticipate
paying any dividends on our common stock in the foreseeable future. We currently intend to retain
all our earnings to finance the growth and development of our business. Any future change in our
dividend policy will be made at the discretion of our Board of Directors and will depend
on contractual restrictions, our results of operations, earnings, capital requirements and
other factors considered relevant by our Board of Directors. In addition, our senior secured
credit facilities and the indenture governing our senior subordinated notes limit the ability of
GCA to declare and pay cash dividends. Because we conduct our business entirely through GCA and
its subsidiaries, as a practical matter these restrictions similarly limit our ability to pay
dividends on our common stock.
31
Common Stock Repurchases
On February 6, 2007, the Companys Board of Directors authorized the repurchase pursuant to
Rule 10b-18 under the Securities and Exchange Act of 1934, as amended, of up to $50.0 million worth
of the Companys issued and outstanding common stock, subject to compliance with any contractual
limitations on such repurchases under the Companys financing agreements in effect from time to
time, including but not limited to those relating to the Companys senior secured indebtedness and
senior subordinated notes. The maximum authorized repurchases were completed during the first
quarter of 2008.
ISSUER PURCHASES AND WITHHOLDING OF EQUITY SECURITIES
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximate Dollar |
|
|
|
|
|
|
|
|
|
|
|
Total Number of Shares |
|
|
Value of Shares that |
|
|
|
Total Number of |
|
|
Average Price per |
|
|
Purchased as Part of |
|
|
May Yet Be Purchased |
|
|
|
Shares Purchased or |
|
|
Share Purchased or |
|
|
Publicly Announced |
|
|
Under the Plans or |
|
|
|
Withheld |
|
|
Withheld |
|
|
Plans or Programs |
|
|
Programs |
|
10/1/08 10/31/08 |
|
|
0 |
(1) |
|
|
0.00 |
(3) |
|
|
0 |
(1) |
|
|
0 |
(5) |
|
|
|
2,422 |
(2) |
|
|
3.58 |
(4) |
|
|
2,422 |
(2) |
|
|
|
|
11/1/08 11/30/08 |
|
|
0 |
(1) |
|
|
0.00 |
(3) |
|
|
0 |
(1) |
|
|
0 |
(5) |
|
|
|
2,679 |
(2) |
|
|
3.47 |
(4) |
|
|
2,679 |
(2) |
|
|
|
|
12/1/08 12/31/08 |
|
|
0 |
(1) |
|
|
0.00 |
(3) |
|
|
0 |
(1) |
|
|
0 |
(5) |
|
|
|
2,193 |
(2) |
|
|
2.64 |
(4) |
|
|
2,193 |
(2) |
|
|
|
|
Subtotals |
|
|
0 |
(1) |
|
|
0.00 |
(3) |
|
|
0 |
(1) |
|
|
|
|
|
|
|
7,294 |
(2) |
|
|
0.00 |
(4) |
|
|
7,294 |
(2) |
|
|
|
|
Total |
|
|
7,294 |
|
|
|
0.00 |
|
|
|
7,294 |
|
|
|
|
|
|
|
|
(1) |
|
Represents shares of common stock that we repurchased in open market transactions
pursuant to the Rule 10b-18 share repurchase authorization that we publicly announced on
February 8, 2007. Our board of directors authorized the repurchase up to $50 million worth
of common stock. The share buyback program did not obligate us to repurchase any specific
number of shares and could have been suspended or terminated at any time. No time frame for
the completion of the authorized repurchases was specified in the board of directors
authorization. The maximum authorized repurchases were completed during the quarter ending
March 31, 2008. |
|
(2) |
|
Represents shares of common stock that were withheld from restricted stock awards to
satisfy the minimum applicable tax withholding obligations incident to the vesting of such
restricted stock awards. |
|
(3) |
|
Represents the average price per share of shares of common stock repurchased pursuant
to the Rule 10b-18 share buyback program. |
|
(4) |
|
Represents the average price per share of shares of common stock withheld from
restricted stock awards on the date of withholding. |
|
(5) |
|
Represents the maximum approximate dollar value of shares of common stock available for
repurchase pursuant to the Rule 10b-18 share repurchase authorization at the end of the
stated period. There is no limitation on the number of shares of common stock that may be
withheld from restricted stock awards to satisfy the minimum applicable tax withholding
obligations incident to the vesting of such restricted stock awards. |
32
STOCK PERFORMANCE GRAPH
The line graph below compares the cumulative total stockholder return on our common stock with
the cumulative total return of the Standard & Poors 500 Index and the Standard & Poors
Information Technology Index during the approximately 39-month period ending December 31, 2008. As
a result of changes in our operations and focus, we believe that the S&P Information Technology
Index is a better comparison point for the performance of companies that operate in our industry.
The graph assumes that $100 was invested on September 23, 2005 (the first day our common stock
was publicly traded) in our common stock and the $100 was invested on August 31, 2005 in the S&P
500 Index and the S&P Information Technology Index, and that all dividends were reinvested.
Research Data Group, Inc. furnished this data. Cumulative total stockholder returns for our common
stock, the S&P 500 Index and the S&P Information Technology Index are based on the calendar month
end closing prices. The comparisons in the graph are required by the Securities and Exchange
Commission and are not intended to forecast or be indicative of possible future performance of our
common stock.
33
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data should be read in conjunction with our
audited consolidated financial statements and related notes and Managements Discussion and
Analysis of Financial Condition and Results of Operations appearing elsewhere in this Annual
Report on Form 10-K. The selected consolidated financial data for the fiscal years ended December
31, 2008, 2007, 2006, 2005, and 2004 have been derived from our audited consolidated financial
statements, some of which are included herein. Our selected consolidated financial data may not be indicative of our future financial
condition or results of operations. The pro forma income tax amounts below have been calculated to
reflect the taxes that would have been reported had we been subject to federal and state income
taxes as a corporation during the periods presented.
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31, |
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
|
(amounts in thousands, except per share) |
|
Income Statement Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash advance |
|
$ |
326,476 |
|
|
$ |
316,094 |
|
|
$ |
287,053 |
|
|
$ |
235,055 |
|
|
$ |
209,962 |
|
ATM |
|
|
289,122 |
|
|
|
240,575 |
|
|
|
221,727 |
|
|
|
182,291 |
|
|
|
158,433 |
|
Check services |
|
|
42,366 |
|
|
|
31,126 |
|
|
|
29,166 |
|
|
|
26,376 |
|
|
|
23,768 |
|
Central Credit and other revenues |
|
|
13,644 |
|
|
|
10,145 |
|
|
|
9,827 |
|
|
|
10,358 |
|
|
|
10,840 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
671,608 |
|
|
|
597,940 |
|
|
|
547,773 |
|
|
|
454,080 |
|
|
|
403,003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues (exclusive of depreciation and amortization) |
|
|
(492,974 |
) |
|
|
(428,508 |
) |
|
|
(384,718 |
) |
|
|
(308,481 |
) |
|
|
(270,095 |
) |
Operating expenses |
|
|
(83,962 |
) |
|
|
(79,614 |
) |
|
|
(65,021 |
) |
|
|
(51,206 |
) |
|
|
(45,339 |
) |
Depreciation and amortization |
|
|
(16,026 |
) |
|
|
(11,600 |
) |
|
|
(9,794 |
) |
|
|
(12,109 |
) |
|
|
(13,548 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
78,646 |
|
|
|
78,218 |
|
|
|
88,240 |
|
|
|
82,284 |
|
|
|
74,021 |
|
Interest expense, net (1) |
|
|
(27,888 |
) |
|
|
(34,515 |
) |
|
|
(42,038 |
) |
|
|
(51,879 |
) |
|
|
(32,025 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income tax (provision) benefit
and minority ownership loss |
|
|
50,758 |
|
|
|
43,703 |
|
|
|
46,202 |
|
|
|
30,405 |
|
|
|
41,996 |
|
Income tax (provision) benefit |
|
|
(23,349 |
) |
|
|
(16,709 |
) |
|
|
(17,832 |
) |
|
|
(7,953 |
) |
|
|
212,422 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before minority ownership loss |
|
|
27,409 |
|
|
|
26,994 |
|
|
|
28,370 |
|
|
|
22,452 |
|
|
|
254,418 |
|
Minority ownership loss, net of tax (2) |
|
|
86 |
|
|
|
236 |
|
|
|
183 |
|
|
|
139 |
|
|
|
137 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
27,495 |
|
|
|
27,230 |
|
|
|
28,553 |
|
|
|
22,591 |
|
|
|
254,555 |
|
Loss from discontinued operations, net of tax |
|
|
(3,939 |
) |
|
|
(3,526 |
) |
|
|
(1,944 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
23,556 |
|
|
$ |
23,704 |
|
|
$ |
26,609 |
|
|
$ |
22,591 |
|
|
$ |
254,555 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
0.36 |
|
|
$ |
0.34 |
|
|
$ |
0.35 |
|
|
$ |
0.49 |
|
|
$ |
7.91 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations |
|
$ |
(0.05 |
) |
|
$ |
(0.05 |
) |
|
$ |
(0.02 |
) |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
0.31 |
|
|
$ |
0.29 |
|
|
$ |
0.33 |
|
|
$ |
0.49 |
|
|
$ |
7.91 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
0.36 |
|
|
$ |
0.33 |
|
|
$ |
0.35 |
|
|
$ |
0.30 |
|
|
$ |
3.56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations |
|
$ |
(0.05 |
) |
|
$ |
(0.04 |
) |
|
$ |
(0.03 |
) |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
0.31 |
|
|
$ |
0.29 |
|
|
$ |
0.32 |
|
|
$ |
0.30 |
|
|
$ |
3.56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
76,787 |
|
|
|
81,108 |
|
|
|
81,641 |
|
|
|
45,643 |
|
|
|
32,175 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
76,796 |
|
|
|
81,377 |
|
|
|
81,921 |
|
|
|
74,486 |
|
|
|
71,566 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma computation related to conversion to corporation for income tax purposes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax benefit (provision) and minority ownership losshistorical |
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
$ |
41,996 |
|
Income tax provisionhistorical, exclusive of one-time tax benefit (3) |
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
(10,443 |
) |
Pro forma income tax provisionunaudited (4) |
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
(4,600 |
) |
Minority ownership loss historical loss, net of tax |
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
137 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income |
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
$ |
27,090 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
$ |
0.84 |
|
Diluted |
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
$ |
0.38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Data:
(at end of period) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
77,148 |
|
|
$ |
71,063 |
|
|
$ |
42,269 |
|
|
$ |
35,123 |
|
|
$ |
49,577 |
|
Total assets |
|
|
559,150 |
|
|
|
538,302 |
|
|
|
587,474 |
|
|
|
510,418 |
|
|
|
496,625 |
|
Total borrowings |
|
|
265,750 |
|
|
|
263,480 |
|
|
|
274,480 |
|
|
|
321,412 |
|
|
|
478,250 |
|
Stockholders equity (deficiency) and members capital |
|
|
160,878 |
|
|
|
138,296 |
|
|
|
132,157 |
|
|
|
94,484 |
|
|
|
(56,779 |
) |
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31, |
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
Other Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
$ |
71,324 |
|
|
$ |
91,874 |
|
|
$ |
70,079 |
|
|
$ |
38,585 |
|
|
$ |
75,212 |
|
Net cash used in investing activities (5) |
|
|
(58,708 |
) |
|
|
(10,960 |
) |
|
|
(17,061 |
) |
|
|
(17,860 |
) |
|
|
(4,861 |
) |
Net cash used in financing activities |
|
|
(7,217 |
) |
|
|
(49,715 |
) |
|
|
(46,761 |
) |
|
|
(35,190 |
) |
|
|
(43,950 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Data (unaudited): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate dollar amount processed (in billions): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash advance |
|
$ |
6.5 |
|
|
$ |
6.4 |
|
|
$ |
5.7 |
|
|
$ |
4.7 |
|
|
$ |
4.2 |
|
ATM |
|
$ |
15.2 |
|
|
$ |
13.6 |
|
|
$ |
12.3 |
|
|
$ |
9.9 |
|
|
$ |
8.4 |
|
Check warranty |
|
$ |
1.8 |
|
|
$ |
1.4 |
|
|
$ |
1.3 |
|
|
$ |
1.1 |
|
|
$ |
0.9 |
|
Number of transactions completed (in millions): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash advance |
|
|
12.2 |
|
|
|
11.3 |
|
|
|
10.4 |
|
|
|
9.1 |
|
|
|
8.8 |
|
ATM |
|
|
84.7 |
|
|
|
73.5 |
|
|
|
69.2 |
|
|
|
58.9 |
|
|
|
53.2 |
|
Check warranty |
|
|
6.5 |
|
|
|
5.3 |
|
|
|
5.1 |
|
|
|
4.7 |
|
|
|
4.3 |
|
|
|
|
(1) |
|
Interest expense, net, includes interest income and loss on early extinguishment of debt. |
|
(2) |
|
Minority ownership loss, net of tax, represents the portion of the loss from operations of
IFT that is attributable to the 40% ownership interest in IFT that is not owned by us. |
|
(3) |
|
In connection with our conversion to a taxable corporate entity for United States income tax
purposes, we recognized a net tax asset created by a step up in the tax basis of our net
assets due to the redemption of ownership interests in us by First Data and the sale of
ownership interests in us to private equity investors. For purposes of determining the pro
forma net income, the recognition of this one-time step up in basis has been excluded from our
pro forma tax computation. |
|
(4) |
|
The pro forma un-audited income tax adjustments represent the tax effects that would have
been reported had the Company been subject to United States federal and state income taxes as
a corporation. Pro forma expenses are based upon the statutory income tax rates and
adjustments to income for estimated permanent differences occurring during the period. Actual
rates and expenses could have differed had the Company been subject to United States federal
and state income taxes for all periods presented. Therefore, the un-audited pro forma amounts
are for informational purposes only and are intended to be indicative of the results of
operations had the Company been subject to United States federal and state income taxes for
all periods presented. |
The following table presents the computation of the pro forma income tax expense for all
the periods presented
(amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31, |
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
Income before income taxes, as reported |
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
$ |
41,996 |
|
Effective pro forma income tax rate |
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
36.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma income tax expense |
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
$ |
15,119 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5) |
|
In 2004, net cash used in investing activities includes $1.0 million of non-compete payments
to two former executives. |
36
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations
should be read in conjunction with the consolidated financial statements and related notes
contained herein and the information included in our other filings with the Securities and Exchange
Commission. This discussion includes forward-looking statements within the meaning of Section
27A of the Securities Act and Section 21E of the Exchange Act. All statements in this Annual
Report on Form 10-K other than statements of historical fact are forward-looking statements. These
forward-looking statements involve known and unknown risks and uncertainties. Our actual results
may differ materially from those projected or assumed in such forward-looking statements. Among
the factors that could cause actual results to differ materially are the risk factors discussed
under Item 1A. All forward-looking statements and risk factors included in this document are made as of the date
of this report, based on information available to us as of such date. We assume no obligation to
update any forward-looking statement or risk factor.
Overview
We are a provider of cash access products and related services to the gaming industry in the
United States and several international markets. Our products and services provide gaming
establishment patrons access to cash through a variety of methods, including ATM cash withdrawals,
credit card cash advances, POS debit cash advances, check cashing and money transfers. In
addition, we also provide products and services that improve credit decision-making, automate
cashier operations and enhance patron marketing activities for gaming establishments.
We began our operations as a joint venture limited liability company among M&C International,
entities affiliated with Bank of America Corporation and First Data in July 1998. In
September 2000, Bank of America Corporation sold its entire ownership interest in us to M&C
International and First Data. In March 2004, GCA issued $235 million in aggregate principal amount
of 8 3/4% senior subordinated notes due 2012 and borrowed $260 million under senior secured credit
facilities. Global Cash Access Holdings, Inc. was formed to hold all of the outstanding ownership
interests of Global Cash Access, Inc. and has guaranteed the obligations under the senior secured
credit facilities. A substantial portion of the proceeds of these senior subordinated notes and
senior secured credit facilities were used to redeem all of First Datas ownership interest in us
and a portion of M&C Internationals ownership interest in us through a recapitalization (the
Recapitalization), in which Bank of America Corporation reacquired an ownership interest in us.
In May 2004, we completed a private equity restructuring (the Private Equity Restructuring) in
which M&C International sold a portion of its ownership interest in us to a number of private
equity investors, including entities affiliated with Summit Partners, and we converted from a
limited liability company to a Delaware corporation.
In September 2005, we completed an initial public offering of common stock. In connection
with that offering, our various equity securities that were outstanding prior to the offering were
converted into common stock. In addition, we became a guarantor, on a subordinated basis, of
Global Cash Access, Inc.s senior subordinated notes. In 2007, M&C International distributed its
holdings of our common stock to its two principals, Karim Maskatiya and Robert Cucinotta.
Commencing in the third quarter of 2006, we began marketing the Arriva Card, a private-label
revolving credit card aimed at consumers who perform cash advance transactions in gaming
establishments. We announced on February 28, 2008 that we intended to exit the Arriva business.
We have since began marketing the assets of Arriva for sale and accordingly, have classified the
net assets of Arriva as available for sale in our consolidated balance sheets as of December 31,
2008 and 2007 and have reclassified the operating results of Arriva to discontinued operations in
the consolidated statements of income for the years ended December 31, 2008, 2007 and 2006.
In
April 2008, we completed the acquisition of CGS, an enterprise providing cash access and check products
and services to the gaming industry similar to GCA. The results of operations of CGS
have been reflected in the applicable business segment financial information following this
acquisition. In August 2008, we completed the acquisition of CSI, a provider of cash access and related services
to the retail and gaming industries similar to GCA. The results of operations of
CSI have been reflected in the applicable business segment financial information following this
acquisition.
Other than insubstantial assets that are immaterial in amount and nature, the sole asset of
Global Cash Access Holdings, Inc. is the capital stock of Global Cash Access, Inc. The consolidated
financial data set forth and discussed below reflects our financial condition as if Global Cash
Access, Inc. had been a wholly-owned subsidiary of Global Cash Access Holdings, Inc. during each of
the periods and at the dates presented.
37
Principal Sources of Revenues and Expenses
Our principal sources of revenues include:
Cash Advance Revenues. Cash advance revenues are comprised of transaction fees assessed to
gaming patrons in connection with credit card cash advances and POS debit card transactions at the
time the transactions are authorized. Such fees are based on a combination of a fixed amount plus
a percentage of the face amount of the credit card cash advance or POS debit card transaction
amount.
ATM Revenues. ATM revenues are comprised of transaction fees in the form of cardholder
surcharges assessed to gaming patrons in connection with ATM cash withdrawals at the time the
transactions are authorized and reverse interchange fees paid to us by the patrons issuing banks.
Cardholder surcharges are recognized as revenue when a transaction is initiated and reverse
interchange is recognized as revenue on a monthly basis based on the total transactions occurring
during the month. The cardholder surcharges assessed to gaming patrons in connection with ATM cash
withdrawals are currently a fixed dollar amount and not a percentage of the transaction amount.
Check Services Revenues. Check services revenues are principally comprised of check warranty
revenues and are generally based upon a percentage of the face amount of checks warranted. These
fees are paid to us by gaming establishments. In some cases, gaming establishments pass on the
fees to patrons. From 2002 to 2004, the face amount of checks warranted declined. In the fourth
quarter of 2004, we introduced our Central Credit Check Warranty product, and its successful
adoption in the marketplace has contributed to an increase in the face amount of checks warranted.
Central Credit Revenues. Central Credit revenues are based upon either a flat monthly
unlimited usage fee or a variable fee structure driven by the volume of patron credit histories
generated.
Other Revenues. Other Revenues are based on a fee for a specific service performed. Other
Revenues were comprised mostly of revenue generated from Global
Recovery Services Revenues (GRS).
This revenue results from a fee collected from GCA clients for research and investigation, using GCAs
proprietary data base to identify funds associated with individual
credit card cash advance and POS debit card transaction money transfers that were
issued upon the completion of such a transaction for which a charge or
debit was made to a cardholders
account but the bank draft was not successfully deposited by GCAs client.
Our principal costs and expenses include:
Cost of Revenues (exclusive of Depreciation and Amortization). Cost of revenues are costs and
expenses directly related to the generation of revenue and exclude depreciation and amortization.
For credit card cash advance and POS debit card transactions, ATM
transactions and, to a much lesser extent, check services, we pay a commission to the
gaming establishment at which the transaction occurs. Commissions are the largest component of
cost of revenues (exclusive of depreciation and amortization). We expect commissions to increase
as a percentage of revenue as new contracts are signed or existing contracts are renewed. We pay
credit card associations and POS debit networks interchange fees for services they provide in
routing transactions through their networks. In addition, we pay fees to participate in various
ATM networks. The amounts of these interchange fees are determined by the card associations and
networks in their sole discretion, and are subject to increase in their discretion from time to
time. Many of our cash access contracts enable us to pass through to our gaming establishment
customers, who may in turn pass through to patrons, the amount of any increase in interchange or
processing fees. In the past, the major card associations have increased interchange rates at
least annually, and they may do so in the future. We pay connectivity and processing fees to our
network services providers. We incur warranty expense when checks that we have warranted through
our Central Credit check warranty service or that TeleCheck has warranted through its check
warranty service are dishonored upon presentment for payment. Our contract with TeleCheck limits
our warranty expense for checks warranted by TeleCheck to a maximum percentage of the total face
amount of dishonored checks. We have no limits on warranty expense for our Central Credit check
warranty service. Other cost of revenues (exclusive of depreciation and amortization) consists
primarily of costs related to delivering our Central Credit service and our patron marketing
activities.
38
Operating Expenses. Operating expenses consist primarily of salaries and benefits, armored
carrier expenses, bank fees, legal expenses, telecommunications expenses and the cost of repair and
maintenance on our cash access devices.
Interest Income. We generate interest income on the amount of cash in our bank accounts and
on cash that is deposited into accounts to settle our credit card cash advance and POS debit card
transactions.
Interest Expense. Interest expense includes interest incurred on our senior secured credit
facilities and our senior subordinated notes, and the amortization of deferred financing costs.
Interest expense also includes the cash usage fees associated with the cash used in our ATMs.
Loss on Early Extinguishment of Debt. Loss on early extinguishment of debt includes the
redemption premiums paid to retire our borrowings and the write-off of the deferred financing costs
related to retired borrowings for the year ended December 31, 2006.
Income Tax. Our earnings are subject to taxation under the tax laws of the jurisdictions in
which we operate. Prior to our conversion to a Delaware corporation, our domestic earnings were
not subject to taxation because we were organized as a Delaware limited liability company, which is
a flow-through entity for tax purposes. Subsequent to our conversion to a Delaware corporation,
our domestic earnings have been subject to corporate taxation.
Minority Interest, Net of Tax. We operate IFT, a joint venture with IGT. We own 60% of the
equity interests of IFT and IGT owns 40% of the equity interests. The joint venture was formed to
develop and market cash access products using slot tickets. The minority interest shown on the
consolidated financial statements reflects the addition to our net income of the 40% of IFTs
losses that are attributable to IGT net of the expected tax benefit associated with those losses.
39
Results of Operations
Year Ended December 31, 2008 Compared to Year Ended December 31, 2007
The following table sets forth the condensed consolidated results of operations for the years
ended December 31, 2008 and December 31, 2007 (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008 |
|
|
December 31, 2007 |
|
|
|
$ |
|
|
% |
|
|
$ |
|
|
% |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash advance |
|
$ |
326,476 |
|
|
|
48.6 |
% |
|
$ |
316,094 |
|
|
|
52.9 |
% |
ATM |
|
|
289,122 |
|
|
|
43.0 |
|
|
|
240,575 |
|
|
|
40.2 |
|
Check services |
|
|
42,366 |
|
|
|
6.3 |
|
|
|
31,126 |
|
|
|
5.2 |
|
Central Credit and other revenues |
|
|
13,644 |
|
|
|
2.0 |
|
|
|
10,145 |
|
|
|
1.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
671,608 |
|
|
|
100.0 |
|
|
|
597,940 |
|
|
|
100.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues (exclusive of depreciation and amortization) |
|
|
(492,974 |
) |
|
|
(73.4 |
) |
|
|
(428,508 |
) |
|
|
(71.7 |
) |
Operating expenses |
|
|
(83,962 |
) |
|
|
(12.5 |
) |
|
|
(79,614 |
) |
|
|
(13.3 |
) |
Depreciation and amortization |
|
|
(16,026 |
) |
|
|
(2.4 |
) |
|
|
(11,600 |
) |
|
|
(1.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
78,646 |
|
|
|
11.7 |
|
|
|
78,218 |
|
|
|
13.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
(27,888 |
) |
|
|
(4.2 |
) |
|
|
(34,515 |
) |
|
|
(5.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income tax provision
and minority ownership loss |
|
|
50,758 |
|
|
|
7.6 |
|
|
|
43,703 |
|
|
|
7.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision |
|
|
(23,349 |
) |
|
|
(3.5 |
) |
|
|
(16,709 |
) |
|
|
(2.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before minority ownership loss |
|
|
27,409 |
|
|
|
4.1 |
|
|
|
26,994 |
|
|
|
4.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority ownership loss, net of tax |
|
|
86 |
|
|
|
0.0 |
|
|
|
236 |
|
|
|
0.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
27,495 |
|
|
|
4.1 |
|
|
$ |
27,230 |
|
|
|
4.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from
discontinued operations, net of tax |
|
$ |
(3,939 |
) |
|
|
(0.6 |
) |
|
$ |
(3,526 |
) |
|
|
(0.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
23,556 |
|
|
|
3.5 |
% |
|
$ |
23,704 |
|
|
|
4.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40
Total Revenues
Total revenues for the year ended December 31, 2008 were $671.6 million, an increase of $73.7
million, or 12.3%, as compared to the year ended December 31, 2007. Increases in revenue were
driven by the acquisition of CGS and CSI. These increases were offset by the cessation of cash
advance services in the United Kingdom in September 2007 driven by changes in the regulatory environment in
that jurisdiction. We define same-store revenue as revenue derived from a gaming property that was
operating on GCAs platform during the entire reference period excluding those revenues derived
from CGS and CSI customers. The increase in revenues is further discussed on a product basis
below:
Cash Advance. Cash advance revenue for the year ended December 31, 2008 was $326.5 million,
an increase of $10.4 million, or 3.3%, as compared to the year ended December 31, 2007. This
increase was driven by the acquisitions of CGS in April 2008 and
CSI effective in August 2008. This increase in revenue driven by
the acquisitions was offset by the cessation of the United Kingdom business in
2007 and a decline in same-store revenues of approximately 7.7%
due to unfavorable economic conditions.
ATM. ATM revenue for the year ended December 31, 2008 was $289.1 million, an increase of
$48.5 million, or 20.2%, as compared to the year ended December 31, 2007. The increase was
primarily attributable to the acquisitions of CGS effective in April 2008 and CSI effective in
August 2008. Transactions increased by 14.7% whereas revenue per transaction decreased by 2.0%.
This increase in revenue driven by the acquisitions was offset by
declines in same-store revenue of approximately 4.4% due to unfavorable economic conditions.
Check
Services. Check services revenue for the year ended December 31, 2008 was $42.4
million, an increase of $11.3 million, or 36.3%, as compared to the year ended December 31, 2007.
This increase was primarily attributable to the acquisitions of CGS effective in April 2008 and CSI
effective in August 2008. This increase was driven both by an increase in the number of checks warranted
by 23. 3% and an increase in the per face value of checks warranted by 2.1%.
Central Credit and Other. Central Credit and other revenues for the year ended December 31,
2008, were $13.6 million, an increase of $3.5 million, or
34.6%, as compared to the year ended
December 31, 2007. This increase was primarily attributable to
the acquisitions of CGS effective in
April 2008 and CSI effective in August 2008 compounded by additional revenue from GRS which is new
to 2008. We do not expect GRS to contribute material revenue to 2009
and beyond.
We expect revenues in 2009 to continue to increase due to the additional business from the
integration of CGS and CSI, despite the economic downturn.
We provide our cash access products and related services exclusively to gaming establishments for
the purpose of enabling our patrons to access cash. As a result, our business depends on consumer
demand for gaming. Gaming is a discretionary leisure activity and participation in discretionary
leisure activities has in the past and may in the future decline during economic downturns as fewer
patrons frequent gaming establishments due to a lack of confidence related to general economic
conditions. With fewer patrons visiting gaming establishments there may be less gaming activity
which could result in a decrease in use of our cash access products and related services during
fiscal year 2009.
Costs and Expenses
Cost of Revenues (exclusive of Depreciation and Amortization). Cost of revenues (exclusive of
depreciation and amortization) for the year ended December 31, 2008, were $493.0 million, an
increase of $64.5 million, or 15.0%, as compared to the year ended December 31, 2007. As a
percentage of revenue, Cost of revenue (exclusive of depreciation and amortization) increased from
71.7% in 2007 to 73.4% in 2008. This increase was primarily
attributable to the acquisitions of CGS
effective in April 2008 and CSI effective in 2008. Both CGS and CSI had higher cost of revenue
(exclusive of depreciation and amortization) as a percentage of revenue than GCAs historical
business. Cost of revenues (exclusive of depreciation and amortization) increased by 15% and
revenues increased by only 12% which resulted in gross margins improving by only 5% over last year.
Operating Expenses. Operating expenses for the year ended December 31, 2008 were $84.0 million, an
increase of $4.4 million, or 5.5%, as compared to the year ended December 31, 2007. The increase
in operating expenses is driven primarily by the acquisitions of GCS and CSI. In each case, GCA
increased the number of booth operations that it manages for its customers resulting in booth
employees and increased number of ATMs which are maintained resulting in increased ATM management
costs. Also, the integration of CSI resulted in increased costs associated specifically with
integration activities such as one-time device set-up charges and increase travel. Operating
expenses as a percentage of revenue remained relatively flat with a slight decrease of 0.8% over
last year.
Depreciation and Amortization. Depreciation expense for the year ended December 31, 2008 was
$8.9 million, an increase of $2.6 million, or 41.3%, as compared to the year ended December 31,
2007. This increase is due primarily to the increase in depreciable assets and amortizing
intangibles due to the acquisitions of CGS and CSI partially offset by the cessation of
amortization of GCA customer contracts that had become fully amortized.
41
Primarily as a result of the factors described above, operating income for the year ended
December 31, 2008 was $78.6 million and relatively flat as compared to the year ended December 31,
2007.
Interest Expense, Net. Interest expense, net, was $27.9 million in 2008, a decrease of $6.6
million, or 19.1%, from $34.5 million in 2007. The decrease
resulted from significantly lower
interest rates compared to the prior period moderated by higher average outstanding borrowings and
a higher average draw on the Bank of America Treasury Services Agreement. The average balances
drawn on this agreement were $319.2 million and $285.2 million for the years ended December 31,
2008 and 2007, respectively. Assuming a constant level of LIBOR, we expect that interest expense,
net will decline in 2009 as a result of lower anticipated levels of outstanding indebtedness and
lower average rates for 2009.
Primarily as a result of the foregoing, income before income tax provision and minority
ownership loss was $50.8 million for the year ended December 31, 2008, an increase of $7.1 million,
or 16.3%, as compared to the prior year.
Income Tax. Income tax expense was $23.3 million for the year ended December 31, 2008. The
increase in income tax expense during 2008 is primarily attributable to certain equity awards to
former officers which expired in the fourth quarter which resulted in an effective tax rate for the
year of 46%.
Primarily as a result of the foregoing, income before minority ownership loss was $27.4
million for the year ended December 31, 2006, an increase of $0.4 million, or 1.5%, as compared to
the prior year.
Minority Ownership Loss, net of Tax. Minority ownership loss, net of tax, attributable to IFT
for the year ended December 31, 2008 was $86,000, a decrease of
$150,000 or 63.6% from $236,000 for
the year ended December 31, 2007. We expect that IFT will record a loss in 2009 as well.
Primarily as a result of the foregoing, net income was $23.6 million for the year ended
December 31, 2008, a decrease of $0.1 million or 0.4%, as compared to the prior year.
42
Year Ended December 31, 2007 Compared to Year Ended December 31, 2006
The following table sets forth the condensed consolidated results of operations for the years
ended December 31, 2007 and December 31, 2006 (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007 |
|
|
December 31, 2006 |
|
|
|
$ |
|
|
% |
|
|
$ |
|
|
% |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash advance |
|
$ |
316,094 |
|
|
|
52.9 |
% |
|
$ |
287,053 |
|
|
|
52.4 |
% |
ATM |
|
|
240,575 |
|
|
|
40.2 |
|
|
|
221,727 |
|
|
|
40.5 |
|
Check services |
|
|
31,126 |
|
|
|
5.2 |
|
|
|
29,166 |
|
|
|
5.3 |
|
Central Credit and other revenues |
|
|
10,145 |
|
|
|
1.7 |
|
|
|
9,827 |
|
|
|
1.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
597,940 |
|
|
|
100.0 |
|
|
|
547,773 |
|
|
|
100.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues (exclusive of depreciation and amortization) |
|
|
(428,508 |
) |
|
|
(71.7 |
) |
|
|
(384,718 |
) |
|
|
(70.2 |
) |
Operating expenses |
|
|
(79,614 |
) |
|
|
(13.3 |
) |
|
|
(65,021 |
) |
|
|
(11.9 |
) |
Depreciation and amortization |
|
|
(11,600 |
) |
|
|
(1.9 |
) |
|
|
(9,794 |
) |
|
|
(1.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
78,218 |
|
|
|
13.1 |
|
|
|
88,240 |
|
|
|
16.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income (expense), net |
|
|
(34,515 |
) |
|
|
(5.8 |
) |
|
|
(42,038 |
) |
|
|
(7.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income tax (provision)
benefit and minority ownership loss |
|
|
43,703 |
|
|
|
7.3 |
|
|
|
46,202 |
|
|
|
8.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax (provision) benefit |
|
|
(16,709 |
) |
|
|
(2.8 |
) |
|
|
(17,832 |
) |
|
|
(3.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before minority ownership loss |
|
|
26,994 |
|
|
|
4.5 |
|
|
|
28,370 |
|
|
|
5.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority ownership loss, net of tax |
|
|
236 |
|
|
|
0.0 |
|
|
|
183 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
27,230 |
|
|
|
4.6 |
|
|
$ |
28,553 |
|
|
|
5.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from
discontinued operations, net of tax |
|
$ |
(3,526 |
) |
|
|
(0.6 |
) |
|
$ |
(1,944 |
) |
|
|
(0.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
23,704 |
|
|
|
4.0 |
% |
|
$ |
26,609 |
|
|
|
4.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
Total revenues for the year ended December 31, 2007 were $597.9 million, an increase of $50.2
million, or 9.2%, as compared to the year ended December 31, 2006. This increase was primarily due
to the reasons described below.
Cash Advance. Cash advance revenue for the year ended December 31, 2007 was $316.0 million,
an increase of $29.0 million, or 10.1%, as compared to the year ended December 31, 2006. This
increase was driven by increases in both the total number of cash advance transactions occurring at
our cage sites or ATMs within our customers facilities and an increase in the average amount of
cash advanced per transaction.
ATM. ATM revenue for the year ended December 31, 2007 was $240.6 million, an increase of
$18.9 million, or 8.5%, as compared to the year ended December 31, 2006. The increase was
primarily attributable to an increase in the number of transactions occurring at the ATMs that we
manage at our customers properties.
Check Services. Check services revenue for the year ended December 31, 2007 was $31.2
million, an increase of $2.0 million, or 7.0%, as compared to the year ended December 31, 2006.
This increase was driven both by an increase in the number of checks warranted and an increase in
the total face value of checks warranted.
Central Credit and Other. Central Credit and other revenues for the year ended December 31,
2007, were $10.1 million, an increase of $0.3 million, or 3.2%, as compared to the year ended
December 31, 2006. The increase was primarily due to the addition of new contracts for credit
check services.
43
Costs and Expenses
Cost of Revenues (exclusive of Depreciation and Amortization). Cost of revenues (exclusive of
depreciation and amortization) increased 11.4% from $384.7 million to $428.5 million. As a
percentage of revenue, Cost of revenue (exclusive of depreciation and amortization) increased from
70.2% in 2006 to 71.6% in 2007. This increase is primarily due to an increased proportion of
interchange fees driven by the increased proportion of revenue coming from cash advance
transactions and increased commissions paid to our customers as a percentage of revenue resulting
from renewals at rates less favorable to the Company in 2007.
Operating Expenses. Operating expenses for the year ended December 31, 2007 were $79.6
million, an increase of $14.6 million, or 22.4%, as compared to the year ended December 31, 2006.
This increase in operating expenses is primarily attributed to: (1) an increase in professional
services fees related to the conduct of an internal investigation in the fourth quarter of 2007 of
approximately $4.3 million; (2) an increase in non-cash stock compensation expense of $13.1 million
due primarily to departure of our former CEO and CFO resulting in an accelerated recognition of
otherwise amortizing costs; and (3) approximately $2.5 million of additional payroll expense from
the growth in average head count and approximately $0.8 million in termination benefits to former
executives. Offsetting these increases are other operating income of (1) $2.6 million related to
our settlement of the Visa Check/MasterMoney Antitrust Litigation; and
(2) $1.0 million in recovery
of escheatment items related to our booth operations.
Depreciation and Amortization. Depreciation expense for the year ended December 31, 2007 was
$6.3 million, an increase of $1.9 million, or 44.2%, as compared to the year ended December 31,
2006. This increase was primarily driven by increased capital expenditures resulting from
increased ATM placement at our customers properties. Amortization expense, which relates
principally to computer software, customer contracts and our 3-in-1 rollover patent was flat in
2007 as compared to 2006.
Primarily as a result of the factors described above, operating income for the year ended
December 31, 2007 was $78.2 million, a decrease of $10.0 million, or 11.4%, as compared to the year
ended December 31, 2006.
Interest Income (Expense), Net. Interest income (expense), net, was $34.5 million in 2007, a
decrease of $7.5 million, or 17.9%, from $42.0 million in 2006. Interest income was $3.6 million
in 2007, an increase of $0.1, or 4.4%, as compared to 2006, due primarily to higher interest rates
in 2007 as compared to 2006. Interest expense for the year ended December 31, 2007, was $38.1
million, a decrease of $7.4 million, or 16.2%, as compared to December 31, 2006. Interest expense
on borrowings (including amortization of deferred financing costs) was $22.2 million in 2007 as
compared to $26.4 million in 2006. The decrease in interest expense was largely due to a lower
average amount of outstanding indebtedness in 2007. The cash usage fee for cash used in our ATMs
is included in interest expense. ATM cash usage fees were $15.9 million in 2007 as compared to
$15.7 million in 2006, an increase of $0.2 million or 1.5%. The increase resulted primarily from
increases in LIBOR on which those funds are priced to 5.6% in 2007 as compared to 5.4% in 2006.
The average balance of ATM cash in 2007 was $285.2 million, compared to $289.2 million in 2006. In
2006, we incurred losses on early extinguishment of debt of $3.4 million resulting from the
write-off of deferred financing fees from our refinancing of our senior secured indebtedness.
Primarily as a result of the foregoing, income before income tax provision and minority ownership
loss was $43.7 million for the year ended December 31, 2007, a decrease of $2.5 million, or 5.4%,
as compared to the prior year.
Income Tax. Income tax expense was $16.7 million for the year ended December 31, 2007. The
decrease in income tax expense during 2007 is primarily attributable to a decrease in taxable
income as well as a slightly greater effective US federal tax rate. The higher effective rate of
38.9% in 2007 was principally due to the significant increase in non-deductibility of expense
related to certain equity awards granted to our employees offset by tax basis adjustments related
to certain of our subsidiary tax-based carrying values.
Primarily as a result of the foregoing, income before minority ownership loss was $27.0
million for the year ended December 31, 2007, a decrease of $1.3 million, or 4.5%, as compared to
the prior year.
Minority Ownership Loss, net of Tax. Minority ownership loss, net of tax, attributable to IFT
for the year ended December 31, 2007 was $235,000, an decrease of $51,000 or 17.8% from $286,000
for the year ended December 31, 2006.
Primarily as a result of the foregoing, net income was $23.7 million for the year ended
December 31, 2007, a decrease of $2.9 million, or 10.9%, as compared to the prior year.
44
Critical Accounting Policies
The preparation of our financial statements in conformity with United States GAAP requires us
to make estimates and assumptions that affect our reported amounts of assets and liabilities,
revenues and expenses, and related disclosures of contingent assets and liabilities in our
consolidated financial statements. The SEC has defined a companys critical accounting policies as
the ones that are most important to the portrayal of the financial condition and results of
operations, and which require management to make its most difficult and subjective judgments, often
as a result of the need to make estimates about matters that are inherently uncertain. Based on
this definition, we have identified our critical accounting policies as those addressed below. We
also have other key accounting policies that involve the use of estimates, judgments and
assumptions. You should review the notes to our consolidated financial statements for a summary of
these policies. We believe that our estimates and assumptions are reasonable, based upon
information presently available; however, actual results may differ from these estimates under
different assumptions or conditions.
Goodwill.
We have approximately $183.9 million in net unamortized goodwill on our consolidated
balance sheet at December 31, 2008 resulting from our acquisition of other businesses. We account
for goodwill in accordance with Statement of Financial Accounting Standards No. 142, Goodwill and
Other Intangible Assets, which requires an annual review of goodwill and other non-amortizing
intangible assets for impairment. Our most recent annual assessment was performed as of October 1,
2008 and was updated to December 31, 2008. It was determined that no
impairment adjustment was necessary at either date. The annual
evaluation of goodwill and other non-amortizing intangible assets requires the use of estimates
about future operating results of each reporting unit to determine their estimated fair value.
Changes in forecasted operations can materially affect these estimates, which could significantly
affect our results of operations.
Income Taxes. We are subject to income taxes in the United States as well as various states
and foreign jurisdictions in which we operate. We account for income taxes under SFAS No. 109,
Accounting for Income Taxes (SFAS No. 109),
whereby deferred tax assets and liabilities are recognized for the
expected future tax consequences of events that have been included in the financial statements or
income tax returns. Deferred tax assets and liabilities are determined based upon differences
between financial statement carrying amounts of existing assets and their respective tax bases
using enacted tax rates expected to apply to taxable income in years in which those temporary
differences are expected to be recovered or settled.
We use FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN
48), which clarifies the accounting for uncertainty in income taxes recognized in the financial
statements in accordance with SFAS No. 109.
The effect on the income tax provision and deferred tax assets and liabilities of a change in
rates is recognized in income in the period that includes the enactment date. We believe that it
is more likely than not that we will be able to utilize our deferred tax assets. Therefore we have
not provided any valuation allowance against our recorded deferred tax assets.
Revenue Recognition. We recognize revenue when evidence of an arrangement exists, services
have been rendered, our price is fixed or determinable and collectibility is reasonably assured.
We evaluate our revenue streams for proper timing of revenue recognition.
Cash advance revenue is comprised of upfront patron transaction fees assessed at the time
the transaction is initiated and a percentage of the face amount of the cash advance. Cash advance
revenue is recognized at the point that a negotiable money order instrument is generated by the
gaming establishment cashier.
ATM revenue is comprised of upfront patron transaction fees assessed at the time the
transaction is initiated and a percentage of interchange fees paid by the patrons issuing bank.
These issuing banks share the interchange revenue, or reverse interchange, with us to cover the
costs we incur to acquire the ATM transaction. Upfront patron transaction fees are recognized when
a transaction is authorized and reverse interchange is recognized on a monthly basis.
Check services revenue is generally contractually based upon a percentage of the face amount
of total checks warranted. Check services revenue is recognized on a monthly basis.
Central Credit revenue is based upon either a flat monthly, unlimited usage fee or a variable
fee structure driven by the volume of patron credit histories generated. This revenue is
recognized on a monthly basis. Revenue derived from our patron marketing products and services is
recognized upon completion of services.
45
Recently Issued Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS No. 157),
which clarifies the definition of fair value whenever another standard requires or permits assets
or liabilities to be measured at fair value. Specifically, the standard clarifies that fair value
should be based on the assumptions market participants would use when pricing the asset or
liability, and establishes a fair value hierarchy that prioritizes the information used to develop
those assumptions. SFAS No. 157 does not expand the use of fair value to any new circumstances.
SFAS No. 157 also requires expanded financial statement disclosures about fair value measurements,
including disclosure of the methods used and the effect on earnings. SFAS No. 157 is effective for
certain financial assets and liabilities for fiscal years beginning after November 15, 2007. The
adoption of SFAS No. 157 did not have a significant impact on our consolidated financial
statements.
SFAS No. 157 requires enhanced disclosures about investments that are measured and reported at
fair value. On February 7, 2008, the Companys Board of Directors approved a plan to exit the
Arriva business. Pursuant to the provisions of SFAS No. 157, the Company estimated the fair value
of the Arriva net assets as of based on preliminary offers the Company had
received in connection with its marketing efforts as well as through the application of a net
present value methodology. Based on managements decision to discontinue the operations of the
Arriva business, we recorded a pre-tax charge of $5.5 million to reduce the net assets of the
Arriva business to their estimated fair value. The carrying value of the
Arriva assets as of December 31, 2008 was approximately $1.5 million.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities (SFAS No. 159). SFAS No. 159 permits companies to choose to measure certain
financial instruments and other items at fair value. The standard requires that unrealized gains
and losses are reported in earnings for items measured using the fair value option. SFAS No. 159 is
effective beginning January 1, 2008. The adoption of SFAS No. 159 did not have a significant impact
on our consolidated financial statements, as we did not elect the fair value model for any of our
financial assets or liabilities.
In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations
(SFAS No. 141(R)). Under SFAS No. 141(R), an entity is required to recognize the assets
acquired, liabilities assumed, contractual contingencies, and contingent consideration at their
fair value on the acquisition date. It further requires that acquisition-related costs are
recognized separately from the acquisition and expensed as incurred, restructuring costs generally
are expensed in periods subsequent to the acquisition date, and changes in accounting for deferred
tax asset valuation allowances and acquired income tax uncertainties after the measurement period
impact income tax expense. SFAS No. 141(R) is effective for business combinations with an
acquisition date in the first quarter of 2009.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated
Financial Statements (SFAS No. 160), which establishes standards for the accounting and reporting
of noncontrolling interests in subsidiaries (that is, minority interests) in consolidated financial
statements and for the loss of control of subsidiaries. SFAS No. 160 requires: (1) the equity
interest of noncontrolling shareholders, partners, or other equity holders in subsidiaries to be
accounted for and presented in equity, separately from the parent shareholders equity, rather than
as liabilities or as mezzanine items between liabilities and equity; (2) the amount of
consolidated net income attributable to the parent and to the noncontrolling interests be clearly
identified and presented on the face of the consolidated statement of income; and (3) when a
subsidiary is deconsolidated, any retained noncontrolling equity investment in the former
subsidiary be initially measured at fair value. The gain or loss on the deconsolidation of the
subsidiary is measured using the fair value of any noncontrolling equity investment rather than the
carrying amount of that retained investment. SFAS No. 160 is effective beginning on January 1,
2009. Early adoption of the Statement is prohibited. Although the adoption of SFAS No. 160 will
have an impact on the presentation of the consolidated financial statements it is not expected to
have material impact on our consolidated financial statements.
46
Liquidity and Capital Resources
Cash Flows
The following table summarizes our cash flows for the years ended December 31, 2008 and 2007,
respectively:
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
$ |
71,324 |
|
|
$ |
91,874 |
|
Net cash used in investing activities |
|
|
(58,708 |
) |
|
|
(10,960 |
) |
Net cash used in financing activities |
|
|
(7,217 |
) |
|
|
(49,715 |
) |
Net effect of exchange rates on cash and cash equivalents |
|
|
686 |
|
|
|
(1,055 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
|
6,085 |
|
|
|
30,144 |
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTSBeginning of period |
|
|
71,063 |
|
|
|
40,919 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTSEnd of period |
|
$ |
77,148 |
|
|
$ |
71,063 |
|
|
|
|
|
|
|
|
Our
principal source of liquidity is cash flows from operating
activities, which were $71.3
million and $91.9 million for the years ended December 31,
2008 and 2007, respectively. Cash flows from operating activities
decreased approximately $20.6 million. Of this decrease,
changes in operating assets and liabilities accounted for a net
decrease of $24.3 million while the
change in non-cash equity expense compounded the decrease by $13.2 million in cash flow from
operating activities. Partially offsetting this decrease is $17.0 million resulting from changes
in bad debt, depreciation and amortization and the net increase in cash tax savings added back to
the deferred income tax asset.
Net
cash used in investing activities totaled $58.7 million and $11.0 million for the years
ended December 31, 2008 and 2007, respectively, an increase of
$47.7 million.
Included in this increase is the CGS acquisition for
$20.8 million and the CSI acquisition for $30.1 million which both occurred in the year ended December 31,
2008. Partially offsetting this increase is $2.5 million of decreased capital expenditures.
Net cash used in financing activities was $7.2 million and $49.7 million for the years ended
December 31, 2008 and 2007, respectively. During the year ended December 31, 2008, we repaid $118.7
million of our credit facilities and borrowed $121.0 million, which resulted in $13.3 million cash
inflows provided by financing activities. In 2007, the Companys Board of Directors authorized the
repurchase of up to $50 million worth of shares of common stock. During the year ended December
31, 2008, we repurchased $9.5 million worth of common stock in open market purchases and employee
tax withholding transactions from vesting of restricted shares under the Companys equity incentive
programs. No new shares can be repurchased under the plans.
Borrowings
On November 1, 2006, GCA and Holdings entered into a Second Amended and Restated Credit
Agreement with certain lenders, Bank of America, as Administrative Agent and Wachovia Bank, N.A.,
as Syndication Agent (the Second Amended and Restated Credit Agreement). The Second Amended and
Restated Credit Agreement amended and restated the First Amended and Restated Credit Agreement that
previously governed the terms of GCAs existing senior secured credit facilities to provide for a
$100.0 million term loan facility and a $100.0 million five-year revolving credit facility, with a
$25.0 million letter of credit sublimit and a $5.0 million swingline loan sublimit. The Second
Amended and Restated Credit Agreement also contains an increase option permitting GCA to arrange
with existing lenders and/or new lenders for them to provide up to an aggregate of $150.0 million
in additional term loan or revolving credit commitments.
47
The Second Amended and Restated Credit Agreement significantly amended and restated the terms
of the First Amended and Restated Credit Agreement to, among other things, reduce the rate at which
interest accrues on certain borrowings under the senior secured credit facilities and modify
certain other terms, conditions, provisions and covenants in connection with the senior secured
credit facilities.
Principal, together with accrued and unpaid interest, is due on the maturity date, November 1,
2011. GCA may prepay the loans and terminate the commitments at any time, without premium or
penalty, subject to certain qualifications set forth in the Second Amended and Restated Credit
Agreement. Furthermore, the Second Amended and Restated Credit Agreement contains mandatory
prepayment provisions which, under certain circumstances, obligate GCA to apply defined portions of
its cash flow to prepayment of the senior secured credit facilities.
Pursuant to the Second Amended and Restated Credit Agreement, the senior secured credit
facilities continue to be secured by substantially all of the assets of the Company, GCA and GCAs
wholly-owned domestic subsidiaries other than Arriva, and will continue to be guaranteed by the
Company and all of GCAs wholly-owned domestic subsidiaries other than Arriva.
The Second Amended and Restated Credit Agreement contains customary affirmative and negative
covenants, financial covenants, representations and warranties and events of defaults, which are
subject to important exceptions and qualifications, as set forth in the Second Amended and Restated
Credit Agreement.
The Second Amended and Restated Credit Agreement resulted in the write-off of $3.4 million of
remaining capitalized deferred financing costs associated with the First Amended and Restated
Credit Agreement in the fourth quarter of 2006. As of December 31, 2006, the remaining capitalized
deferred financing costs associated with the Second Amended and Restated Credit Agreement were
$1.4 million.
On March 10, 2004, we completed a private placement offering of $235.0 million of
83/4% senior subordinated notes due 2012 (the Notes). All of Global Cash Access,
Inc.s existing and future domestic wholly owned subsidiaries are guarantors of the Notes on a
senior subordinated basis. In addition, effective upon the closing of our initial public offering
of common stock, Holdings guaranteed, on a subordinated basis, all of Global Cash Access, Inc.s
obligations under the Notes.
Interest on the Notes accrues based upon a 360-day year comprised of twelve 30-day months and
is payable semiannually on March 15th and September 15th. On October 31,
2005, $82.3 million or 35% of these Notes were redeemed at a price of 108.75% of face, out of the
net proceeds from our initial public offering. The Company may redeem all or a potion of the Notes
at redemption prices of 104.375%, on or after March 15, 2008, 102.188% on or after March 15, 2009,
or 100.00% on or after March 15, 2010.
48
The following is a summary of our contractual cash obligations as of December 31, 2008,
including our senior subordinated notes and our senior secured credit facilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2 - 3 |
|
|
4 - 5 |
|
|
After |
|
Contractual Cash Obligations |
|
Total |
|
|
1 Year |
|
|
Years |
|
|
Years |
|
|
5 Years |
|
|
|
(amounts in thousands) |
|
Long-term debt obligations |
|
$ |
265,750 |
|
|
$ |
16,000 |
|
|
$ |
1,000 |
|
|
$ |
96,000 |
|
|
$ |
152,750 |
|
Estimated interest obligations (1) |
|
|
53,194 |
|
|
|
15,647 |
|
|
|
15,626 |
|
|
|
15,238 |
|
|
|
6,683 |
|
Operating lease obligations |
|
|
1,222 |
|
|
|
697 |
|
|
|
522 |
|
|
|
3 |
|
|
|
|
|
Purchase obligations (2) |
|
|
7,476 |
|
|
|
2,341 |
|
|
|
2,341 |
|
|
|
2,341 |
|
|
|
453 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash obligations (3) |
|
$ |
327,642 |
|
|
$ |
34,685 |
|
|
$ |
19,489 |
|
|
$ |
113,582 |
|
|
$ |
159,886 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Estimated interest payments are computed using the interest rate in effect at December 31, 2008
multiplied by the principal balance outstanding after scheduled principal amortization payments.
For the senior secured credit facility and the senior subordinated notes the rates assumed are
2.09% and 8.75%, respectively. |
|
(2) |
|
Included in purchase
obligations are minimum transaction processing services from USA Payments,
a company controlled by Robert Cucinotta and Karim Maskatiya
and minimum account maintenance charges under our
Fiserv agreement. |
|
(3) |
|
We have entered into three year employment contracts with certain of our executive officers
that will expire over the next two years. Significant contract provisions include minimum annual
base salaries, bonus compensation, and non-compete provisions. These contracts are at will
employment agreements, under which the employee or we may terminate employment. If we terminate any
of these employees without cause, then we are obligated to pay the employee severance benefits as
specified in their individual contract. We have excluded these obligations under employment
contracts from the totals presented in this table as the amount and timing of the amount settled in
cash is not known. |
Deferred Tax Asset
As of December 31, 2008, we had a net deferred income tax asset of $156.5 million. We recognized a
deferred tax asset upon our conversion from a limited liability company to a corporation on May 14,
2004. Prior to that time, all tax attributes flowed through to the members of the limited
liability company. The principal component of the deferred tax asset is a difference between our
assets for financial accounting and tax purposes. This difference results from a significant
balance of acquired goodwill of approximately $687 million that was generated as part of the
conversion to a corporation plus approximately $98 million in pre-existing goodwill carried over
from periods prior to the conversion. Both of these assets are recorded for tax purposes but not
for financial accounting purposes. They are amortized over 15 years for tax purposes, resulting in
annual pretax income being $52.3 million lower for tax purposes than for financial accounting
purposes. At an estimated blended domestic effective tax rate of 36.0%, this results in tax
payments being approximately $18.8 million less than the provision for income taxes shown on the
income statement for financial accounting purposes. This is an expected aggregate of $199.4
million in cash savings over the remaining life of the portion of our deferred tax asset related to
the conversion.
Other Liquidity Needs and Resources
Bank of America supplies us with currency needed for normal operating requirements of our ATMs
pursuant to a Treasury Services Agreement. Under the terms of this agreement, we pay a monthly
cash usage fee based upon the product of the average daily dollars outstanding in all ATMs
multiplied by the average LIBOR one-month United States dollar deposits for each day that rate is
published in that month plus a margin of 25 basis points. We are therefore exposed to interest
rate risk to the extent that applicable LIBOR increases. As of December 31, 2008, the rate in
effect, inclusive of the 25 basis points margin, was 1.4%, and the currency supplied by Bank of
America pursuant to this agreement was $521.8 million.
We need supplies of cash to support our foreign operations. For some foreign jurisdictions,
such as the United Kingdom, applicable law and cross-border treaties allow us to transfer funds
between our domestic and foreign operations efficiently. For other foreign jurisdictions, we must
rely on the supply of cash generated by our operations in those foreign jurisdictions, and the cost
of repatriation is prohibitive. For example, GCA Canada, the subsidiary through which we operate
in Canada, generates a
supply of cash that is sufficient to support its operations, and all cash generated through
such operations is retained by GCA Canada. As we expand our operations into new foreign
jurisdictions, we must rely on treaty-favored cross-border transfers of funds, the supply of cash
generated by our operations in those foreign jurisdictions or alternate sources of working capital.
49
We operate IFT, a joint venture with IGT. We own 60% of the equity interests of IFT and IGT
owns 40%. The joint venture was formed to develop and market cash access products using slot
tickets. Pursuant to the terms of our agreement with IGT, we are obligated to contribute up to our
pro rata share of $10.0 million in capital to IFT. Our obligation to contribute additional capital
in IFT is conditioned upon capital calls, the necessity of which, are determined in our sole
discretion. As of December 31 2008, we had contributed a total of $4.6 million in IFT, and are
committed to invest up to $1.4 million in additional capital investments if required.
We believe that borrowings available under our senior secured credit facilities, together with
our anticipated operating cash flows, will be adequate to meet our anticipated future requirements
for working capital, capital expenditures and scheduled interest payments on the Notes and under
our senior secured credit facilities for the next 12 months and for the foreseeable future.
Although no additional financing is currently contemplated, we may seek, if necessary or otherwise
advisable and to the extent permitted under the indenture governing the Notes and the terms of the
senior secured credit facilities, additional financing through bank borrowings or public or private
debt or equity financings. We cannot ensure that additional financing, if needed, will be
available to us, or that, if available, the financing will be on terms favorable to us. The terms
of any additional debt or equity financing that we may obtain in the future could impose additional
limitations on our operations and/or management structure. We also cannot ensure that the
estimates of our liquidity needs are accurate or that new business developments or other unforeseen
events will not occur, resulting in the need to raise additional funds.
Off-Balance Sheet Arrangements
Bank
of America Amended Treasury Services Agreement (Amended
Treasury Services Agreement). We obtain currency to meet the normal
operating requirements of our domestic ATMs and ACMs pursuant to the Amendment of the Treasury
Services Agreement with Bank of America. Under this agreement, all currency supplied by Bank of
America remains the sole property of Bank of America at all times until it is dispensed, at which
time Bank of America obtains an interest in the corresponding settlement receivable. Because it is
never an asset of ours, supplied cash is not reflected on our balance sheet. At December 31, 2008,
the total currency obtained from Bank of America pursuant to this agreement was $521.8 million.
Because Bank of America obtains an interest in our settlement receivables, there is no liability
corresponding to the supplied cash reflected on our balance sheet. The fees that we pay to Bank of
America for cash usage pursuant to the Amended Treasury Services Agreement are reflected
as interest expense in our financial statements. Foreign gaming establishments supply the currency
needs for the ATMs located on their premises. We rely exclusively on Bank of America to supply cash for substantially all of our ATMs. Under our
agreement, Bank of America is not obligated to supply us with more than $410 million in cash at any
given time, however, to satisfy our ATM cash supply needs, Bank of America has regularly supplied
us with cash in excess of this limit. To the extent that Bank of America is unable to supply us
with cash either to satisfy our agreement with Bank of America or in excess of the $410 million,
due to liquidity constraints or otherwise, we would have to obtain an alternate source of cash.
Senior
Secured Credit Facility. As of December 31, 2008, we had $3.7 million in standby
letters of credit outstanding as collateral security for First Data related to a Sponsorship
Indemnification Agreement whereby First Data agreed to continue its guarantee of performance for us
to Bank of America for our sponsorship as a Bank Identification Number and Interbank Card
Association licensee under the applicable VISA and MasterCard rules. GCA has agreed to indemnify
First Data and its affiliates against any and all losses and expenses arising from its
indemnification obligations pursuant to that agreement.
Effects of Inflation
Our monetary assets, consisting primarily of cash and receivables, are not significantly
affected by inflation. Our non-monetary assets, consisting primarily of our deferred tax asset,
goodwill and other intangible assets, are not affected by inflation. We believe that replacement
costs of equipment, furniture and leasehold improvements will not materially affect our operations.
However, the rate of inflation affects our operating expenses, such as those for salaries and
benefits, armored carrier expenses, telecommunications expenses and equipment repair and
maintenance services, which may not be readily recoverable in the financial terms under which we
provide our cash access products and services to gaming establishments and their patrons.
50
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the normal course of business, we are exposed to foreign currency exchange risk. We
operate and conduct business in foreign countries and, as a result, are exposed to movements in
foreign currency exchange rates. Our exposure to foreign currency exchange risk related to our
foreign operations is not material to our results of operations, cash flows or financial position.
At present, we do not hedge this risk. At present, we do not hold any derivative securities of any
kind.
Bank of America supplies us with currency needed for normal operating requirements of our
domestic ATMs pursuant to the Amended Treasury Services Terms.
Under the terms of this agreement, we pay a monthly cash usage fee based upon the product
of the average daily dollars outstanding in all ATMs multiplied by the average LIBOR for
one-month United States dollar deposits for each day that rate is published in that month plus a
margin of 25 basis points. We are therefore exposed to interest rate risk to the extent that
applicable LIBOR increases. As of December 31, 2008, the rate in effect, inclusive of the 25 basis
point margin, was 1.4% and the currency supplied by Bank of America pursuant to this agreement was
$521.8 million. Based upon the average outstanding amount of currency to be supplied by Bank of
America pursuant to this agreement during 2008, which was $319.0 million, each 1% increase in
applicable LIBOR would have a $2.9 million impact on income before taxes and minority ownership
loss over a 12-month period.
Our senior secured credit facilities bear interest at rates that can vary over time. We have
the option of having interest on the outstanding amounts under these credit facilities paid based
on a base rate (equivalent to the prime rate) or based on the Eurodollar rate (equivalent to
LIBOR). We have historically elected to pay interest based on the one month United States dollar
LIBOR, and we expect to continue to pay interest based on LIBOR of various maturities. Our
interest expense on these credit facilities is the applicable LIBOR plus a margin of 112.5 basis
points for the term loan portion and LIBOR plus 112.5 basis points for the revolving credit
portion. At December 31, 2008, we had $15.0 million drawn under the revolving credit portion and
we had $98.0 million outstanding under the term loan portion at an interest rate, including the
margin, of approximately 1.6%. Based upon the outstanding balance on the term loan of
$113.0 million on December 31, 2008, each 1% increase in applicable LIBOR would add an additional
$1.1 million of interest expense over a 12-month period.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
51
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Global Cash Access Holdings, Inc.
Las Vegas, Nevada
We have audited the accompanying consolidated balance sheets of Global Cash Access Holdings, Inc.
and subsidiaries (the Company) as of December 31, 2008 and 2007, and the related consolidated
statements of income and comprehensive income, stockholders equity, and cash flows for each of the
three years in the period ended December 31, 2008. These financial statements are the
responsibility of the Companys management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects,
the financial position of Global Cash Access Holdings, Inc. and subsidiaries at December 31, 2008
and 2007, and the results of their operations and their cash flows for each of the three years in
the period ended December 31, 2008, in conformity with accounting principles generally accepted in
the United States of America.
As
discussed in Note 11 of the Notes to the Consolidated Financial Statements, effective January 1,
2007, the Company adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes-an
interpretation of FASB Statement No. 109.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the Companys internal control over financial reporting as of December 31,
2008, based on the criteria established in Internal ControlIntegrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission and
our report dated March 9,
2009 expressed an unqualified opinion on the Companys internal control over financial reporting.
/s/
Deloitte & Touche
Las Vegas, Nevada
March 9, 2009
52
GLOBAL CASH ACCESS HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2008 AND 2007
(amounts in thousands, except share amounts)
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
77,148 |
|
|
$ |
71,063 |
|
Restricted cash and cash equivalents |
|
|
388 |
|
|
|
1,380 |
|
Settlement receivables |
|
|
51,604 |
|
|
|
61,066 |
|
Other receivables, net |
|
|
16,759 |
|
|
|
14,424 |
|
Prepaid and other assets |
|
|
11,867 |
|
|
|
7,618 |
|
Assets held for sale |
|
|
1,540 |
|
|
|
12,180 |
|
Property, equipment and leasehold improvements, net |
|
|
24,419 |
|
|
|
22,803 |
|
Goodwill, net |
|
|
183,929 |
|
|
|
156,889 |
|
Other intangibles, net |
|
|
34,982 |
|
|
|
13,652 |
|
Deferred income taxes, net |
|
|
156,514 |
|
|
|
177,227 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
559,150 |
|
|
$ |
538,302 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
|
|
Settlement liabilities |
|
$ |
79,150 |
|
|
$ |
93,727 |
|
Accounts payable |
|
|
35,561 |
|
|
|
22,402 |
|
Accrued expenses |
|
|
17,811 |
|
|
|
20,262 |
|
Borrowings |
|
|
265,750 |
|
|
|
263,480 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
398,272 |
|
|
|
399,871 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS
AND CONTINGENCIES (NOTE 7) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MINORITY INTEREST |
|
|
|
|
|
|
135 |
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
Common stock, $0.001 par value, 500,000 shares authorized and
82,961 and 82,981 shares outstanding at December 31, 2008 and
2007, respectively |
|
|
83 |
|
|
|
83 |
|
Convertible preferred stock, $0.001 par value, 50,000 shares
authorized
and 0 shares outstanding at December 31, 2008 and 2007,
respectively |
|
|
|
|
|
|
|
|
Additional paid in capital |
|
|
172,119 |
|
|
|
163,070 |
|
Retained earnings |
|
|
37,659 |
|
|
|
14,103 |
|
Accumulated other comprehensive income |
|
|
1,243 |
|
|
|
2,708 |
|
Treasury stock, at cost, 6,017 and 4,563 shares at December 31, 2008
and 2007, respectively |
|
|
(50,226 |
) |
|
|
(41,668 |
) |
|
|
|
|
|
|
|
Total stockholders equity |
|
|
160,878 |
|
|
|
138,296 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
559,150 |
|
|
$ |
538,302 |
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
53
GLOBAL CASH ACCESS HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 2008, 2007, AND 2006
(amounts in thousands, except earnings per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
REVENUES: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash advance |
|
$ |
326,476 |
|
|
$ |
316,094 |
|
|
$ |
287,053 |
|
ATM |
|
|
289,122 |
|
|
|
240,575 |
|
|
|
221,727 |
|
Check services |
|
|
42,366 |
|
|
|
31,126 |
|
|
|
29,166 |
|
Central Credit and other revenues |
|
|
13,644 |
|
|
|
10,145 |
|
|
|
9,827 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
671,608 |
|
|
|
597,940 |
|
|
|
547,773 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues (exclusive of depreciation and amortization) |
|
|
(492,974 |
) |
|
|
(428,508 |
) |
|
|
(384,718 |
) |
Operating expenses |
|
|
(83,962 |
) |
|
|
(79,614 |
) |
|
|
(65,021 |
) |
Amortization |
|
|
(7,151 |
) |
|
|
(5,301 |
) |
|
|
(5,425 |
) |
Depreciation |
|
|
(8,875 |
) |
|
|
(6,299 |
) |
|
|
(4,369 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME |
|
|
78,646 |
|
|
|
78,218 |
|
|
|
88,240 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST INCOME (EXPENSE), NET |
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
2,229 |
|
|
|
3,631 |
|
|
|
3,477 |
|
Interest expense |
|
|
(30,117 |
) |
|
|
(38,146 |
) |
|
|
(42,098 |
) |
Loss on early extinguishment of debt |
|
|
|
|
|
|
|
|
|
|
(3,417 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income (expense), net |
|
|
(27,888 |
) |
|
|
(34,515 |
) |
|
|
(42,038 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAX
PROVISION AND MINORITY LOSS |
|
|
50,758 |
|
|
|
43,703 |
|
|
|
46,202 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME TAX PROVISION |
|
|
(23,349 |
) |
|
|
(16,709 |
) |
|
|
(17,832 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME FROM CONTINUING OPERATIONS BEFORE MINORITY
OWNERSHIP LOSS |
|
|
27,409 |
|
|
|
26,994 |
|
|
|
28,370 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MINORITY OWNERSHIP LOSS, NET OF TAX |
|
|
86 |
|
|
|
236 |
|
|
|
183 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME FROM CONTINUING OPERATIONS |
|
|
27,495 |
|
|
|
27,230 |
|
|
|
28,553 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS FROM DISCONTINUED OPERATIONS, NET OF TAX |
|
|
(3,939 |
) |
|
|
(3,526 |
) |
|
|
(1,944 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME |
|
|
23,556 |
|
|
|
23,704 |
|
|
|
26,609 |
|
Foreign
currency translation, net of tax |
|
|
(1,465 |
) |
|
|
547 |
|
|
|
435 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE INCOME |
|
$ |
22,091 |
|
|
$ |
24,251 |
|
|
$ |
27,044 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
0.36 |
|
|
$ |
0.34 |
|
|
$ |
0.35 |
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations |
|
$ |
(0.05 |
) |
|
$ |
(0.05 |
) |
|
$ |
(0.02 |
) |
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
0.31 |
|
|
$ |
0.29 |
|
|
$ |
0.33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
0.36 |
|
|
$ |
0.33 |
|
|
$ |
0.35 |
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations |
|
$ |
(0.05 |
) |
|
$ |
(0.04 |
) |
|
$ |
(0.03 |
) |
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
0.31 |
|
|
$ |
0.29 |
|
|
$ |
0.32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
76,787 |
|
|
|
81,108 |
|
|
|
81,641 |
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
76,796 |
|
|
|
81,377 |
|
|
|
81,921 |
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
54
GLOBAL CASH ACCESS HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT
OF STOCKHOLDERS EQUITY
FOR THE YEARS ENDED
DECEMBER 31, 2008, 2007, AND 2006
(amounts in thousands, except shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained |
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
Common Stock - Series A |
|
|
Additional |
|
|
Earnings |
|
|
Other |
|
|
|
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
Paid in |
|
|
(Accumulated |
|
|
Comprehensive |
|
|
|
|
|
|
|
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit) |
|
|
Income |
|
|
Treasury Stock |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCEDecember 31, 2005 |
|
|
81,553,568 |
|
|
$ |
82 |
|
|
$ |
128,886 |
|
|
$ |
(36,210 |
) |
|
$ |
1,726 |
|
|
$ |
|
|
|
$ |
94,484 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,609 |
|
|
|
|
|
|
|
|
|
|
|
26,609 |
|
Foreign currency translation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
435 |
|
|
|
|
|
|
|
435 |
|
Share-based compensation expense |
|
|
|
|
|
|
|
|
|
|
9,141 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,141 |
|
Restricted stock grants |
|
|
619,747 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock cancellations |
|
|
(10,500 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options |
|
|
149,709 |
|
|
|
|
|
|
|
1,488 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,488 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCEDecember 31, 2006 |
|
|
82,312,524 |
|
|
$ |
82 |
|
|
$ |
139,515 |
|
|
$ |
(9,601 |
) |
|
$ |
2,161 |
|
|
$ |
|
|
|
$ |
132,157 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,704 |
|
|
|
|
|
|
|
|
|
|
|
23,704 |
|
Foreign currency translation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
547 |
|
|
|
|
|
|
|
547 |
|
Share-based compensation expense |
|
|
|
|
|
|
|
|
|
|
22,269 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,269 |
|
Restricted stock grants |
|
|
747,000 |
|
|
|
1 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock cancellations |
|
|
(181,061 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options |
|
|
103,249 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury share repurchases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(38,462 |
) |
|
|
(38,462 |
) |
Restricted share vesting withholdings |
|
|
|
|
|
|
|
|
|
|
1,287 |
|
|
|
|
|
|
|
|
|
|
|
(3,206 |
) |
|
|
(1,919 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCEDecember 31, 2007 |
|
|
82,981,712 |
|
|
$ |
83 |
|
|
$ |
163,070 |
|
|
$ |
14,103 |
|
|
$ |
2,708 |
|
|
$ |
(41,668 |
) |
|
$ |
138,296 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,556 |
|
|
|
|
|
|
|
|
|
|
|
23,556 |
|
Foreign currency translation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,465 |
) |
|
|
|
|
|
|
(1,465 |
) |
Share-based compensation expense |
|
|
|
|
|
|
|
|
|
|
9,049 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,049 |
|
Restricted stock grants |
|
|
5,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock cancellations |
|
|
(26,083 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury share repurchases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,233 |
) |
|
|
(8,233 |
) |
Restricted share vesting withholdings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(325 |
) |
|
|
(325 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCEDecember 31, 2008 |
|
|
82,961,129 |
|
|
$ |
83 |
|
|
$ |
172,119 |
|
|
$ |
37,659 |
|
|
$ |
1,243 |
|
|
$ |
(50,226 |
) |
|
$ |
160,878 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
55
GLOBAL CASH ACCESS HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2008, 2007, AND 2006
(amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
23,556 |
|
|
$ |
23,704 |
|
|
$ |
26,609 |
|
Adjustments to reconcile net income to cash provided by
operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of financing costs |
|
|
973 |
|
|
|
973 |
|
|
|
1,584 |
|
Amortization of intangibles |
|
|
6,802 |
|
|
|
5,487 |
|
|
|
5,520 |
|
Depreciation |
|
|
9,418 |
|
|
|
6,302 |
|
|
|
4,369 |
|
(Gain)loss on sale or disposal of assets |
|
|
|
|
|
|
139 |
|
|
|
(6 |
) |
Loss on early extinguishment of debt |
|
|
|
|
|
|
|
|
|
|
3,417 |
|
Provision for bad debts |
|
|
17,565 |
|
|
|
11,184 |
|
|
|
6,483 |
|
Deferred income taxes |
|
|
20,677 |
|
|
|
14,514 |
|
|
|
15,899 |
|
Minority ownership loss |
|
|
(135 |
) |
|
|
(368 |
) |
|
|
(287 |
) |
Stock-based compensation |
|
|
9,050 |
|
|
|
22,269 |
|
|
|
9,141 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Settlement receivables |
|
|
16,474 |
|
|
|
76,737 |
|
|
|
(76,654 |
) |
Other receivables, net |
|
|
4,281 |
|
|
|
(22,827 |
) |
|
|
(10,503 |
) |
Prepaid and other assets |
|
|
(1,400 |
) |
|
|
1,071 |
|
|
|
(1,906 |
) |
Settlement liabilities |
|
|
(30,649 |
) |
|
|
(44,797 |
) |
|
|
78,188 |
|
Accounts payable |
|
|
8,393 |
|
|
|
(3,855 |
) |
|
|
5,867 |
|
Accrued expenses |
|
|
(13,681 |
) |
|
|
1,341 |
|
|
|
2,358 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
71,324 |
|
|
|
91,874 |
|
|
|
70,079 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
Certegy Gaming acquisition, net of cash |
|
|
(20,783 |
) |
|
|
|
|
|
|
|
|
Cash Systems Inc acquisition, net of cash |
|
|
(30,098 |
) |
|
|
|
|
|
|
|
|
Purchase of property, equipment and leasehold improvements |
|
|
(8,135 |
) |
|
|
(9,502 |
) |
|
|
(14,195 |
) |
Purchase of other intangibles |
|
|
(684 |
) |
|
|
(1,428 |
) |
|
|
(1,516 |
) |
Changes in restricted cash and cash equivalents |
|
|
992 |
|
|
|
(30 |
) |
|
|
(1,350 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(58,708 |
) |
|
|
(10,960 |
) |
|
|
(17,061 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings under credit facility |
|
|
121,000 |
|
|
|
|
|
|
|
121,730 |
|
Repayments under credit facility |
|
|
(118,730 |
) |
|
|
(11,000 |
) |
|
|
(168,662 |
) |
Debt issuance costs |
|
|
|
|
|
|
(23 |
) |
|
|
(1,557 |
) |
Proceeds from exercise of stock options |
|
|
|
|
|
|
1,287 |
|
|
|
1,488 |
|
Purchase of treasury stock |
|
|
(9,487 |
) |
|
|
(40,379 |
) |
|
|
|
|
Minority capital contributions |
|
|
|
|
|
|
400 |
|
|
|
240 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(7,217 |
) |
|
|
(49,715 |
) |
|
|
(46,761 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET EFFECT OF EXCHANGE RATE CHANGES ON
CASH AND CASH EQUIVALENTS |
|
$ |
686 |
|
|
$ |
(1,055 |
) |
|
$ |
(461 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCREASE IN CASH AND CASH EQUIVALENTS |
|
|
6,085 |
|
|
|
30,144 |
|
|
|
5,796 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTSBeginning of period |
|
|
71,063 |
|
|
|
40,919 |
|
|
|
35,123 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTSEnd of period |
|
$ |
77,148 |
|
|
$ |
71,063 |
|
|
$ |
40,919 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during year for: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
$ |
29,459 |
|
|
$ |
37,549 |
|
|
$ |
38,735 |
|
|
|
|
|
|
|
|
|
|
|
Income taxes |
|
$ |
617 |
|
|
$ |
1,055 |
|
|
$ |
410 |
|
|
|
|
|
|
|
|
|
|
|
Difference
in timing of treasury share purchases |
|
$ |
929 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated
financial statements.
56
GLOBAL CASH ACCESS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND BASIS OF PRESENTATION
Global Cash Access Holdings, Inc. is a holding company, the principal asset of which is the
capital stock of Global Cash Access, Inc. Unless otherwise indicated, the terms the Company,
Holdings, we, us and our refer to Global Cash Access Holdings, Inc. together with its
consolidated subsidiaries. Holdings, was formed on February 4, 2004, for the purpose of holding
all of the outstanding capital stock of Global Cash Access, Inc. (GCA) and to guarantee the
obligations under our senior secured credit facilities.
GCA is a financial services company that provides cash access products and services to the
gaming industry. The Companys cash access products and services allow gaming patrons to access
funds through a variety of methods, including credit card cash
advances, point-of-sale (POS) debit card
cash advances, automated teller machine (ATM) withdrawals, check cashing transactions and money
transfers. These services are provided to patrons at gaming establishments directly by the Company
or through one of its consolidated subsidiaries.
The Company also owns and operates a credit reporting agency for the gaming industry through a
wholly-owned subsidiary, Central, and provides credit-information services
and credit-reporting history on gaming patrons to various gaming establishments. Central operates
in both international and domestic gaming markets. Commencing in the third quarter of 2006, the
Company, through Arriva, began marketing a credit card aimed at consumers who perform cash advance
transactions in gaming establishments. On February 7, 2008, the Companys Board of Directors
approved a plan to exit the Arriva business. The Company has since actively marketed the Arriva
business for sale. The assets associated with Arriva operations have been segregated
and reported as held for sale in the accompanying consolidated balance sheets as of
December 31, 2008 and 2007, and the results of operations for the Arriva business have been
classified to discontinued operations for each of the three years in the period ended December 31,
2008. See further discussion in Note 12.
IFT, formerly known as QuikPlay, LLC, is a joint venture formed on December 6, 2000, owned 60%
by GCA and 40% by International Game Technology (IGT). IGT is one of the largest manufacturers
of gaming equipment in the United States. As GCA is the managing member of this entity, IFT has
been consolidated in the Companys consolidated financial statements for all periods presented.
The Company provides some services in conjunction with companies wholly owned by First Data
Corporation (First Data), including Integrated Payment Systems, Inc. and IPS Canada, Inc.
(collectively, IPS), TRS Recovery Services, Inc., and Western Union Financial Services, Inc.
(Western Union). GCA is a money transfer agent for Western Union, a wholly owned subsidiary of
First Data. Western Union contracts directly with the
gaming establishments and provides GCA commissions on the transactions processed by the gaming
establishment. These commissions are included as part of other revenues in the accompanying
consolidated statements of income.
57
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
All significant intercompany transactions and balances have been
eliminated in consolidation. Certain reclassifications within the consolidated financial
statements have been made in the prior years in order to conform to the current year presentation.
Cash and Cash Equivalents
Cash and cash equivalents include cash and all balances on deposit in banks and financial
institutions. The Company considers all highly liquid investments with maturities of three months
or less at the time of purchase to be cash and cash equivalents. Such balances may at times exceed
the federal insurance limits. However, the Company periodically evaluates the creditworthiness of
these institutions to minimize risk.
Restricted Cash and Cash Equivalents
As part of certain of our sponsorship agreements, we are required to maintain
minimum deposits of $350,000 as collateral for any potential chargeback loss activity occurring as
a result of the sponsorship arrangements.
ATM Funding Agreements
The Company obtains all of the cash required to operate its ATMs through various ATM Funding
Agreements more fully described in Note 4. Some gaming establishments provide the cash utilized
within the ATM (Site-Funded). The receivables generated for the amount of cash dispensed from
transactions performed at our ATMs are owned by GCA and GCA is liable to the gaming establishment
for the face amount of the cash dispensed. In the consolidated balance sheets, the amount
receivable for transactions processed on these ATM transactions is included within settlement
receivables and the amount due to the gaming establishment for the face amount of dispensing
transactions is included within settlement liabilities. As of December 31, 2008 and 2007, the
Company operated 1,299 and 944 ATMs, respectively, that were Site-Funded. For our non-Site Funded
locations, GCA obtains the necessary cash to service these machines
through the Amended
Treasury Services Terms and Conditions Booklet with Bank of America. Under the terms of this
agreement, neither the cash utilized within the ATMs nor the receivables generated for the amount
of cash dispensed through transactions on the ATMs are owned or controlled by GCA. Therefore,
these amounts have been excluded from the consolidated balance sheets. We are
charged a cash usage fee for the cash used in these ATMs, which is included as interest
expense in the consolidated statements of income.
58
Settlement Receivables and Settlement Liabilities
In
the credit card cash advance and POS debit card cash access transactions provided by GCA and GCA Canada, the
gaming establishment is reimbursed for the cash disbursed to gaming
patrons through a money order issued
by IPS. IPS is a licensed issuer of payment instruments that is wholly owned by First Data.
Pursuant to the agreement with IPS, GCA indemnifies IPS for any losses incurred in conjunction with
credit cash advance transactions, and thus, assumes all of the risks and rewards.
GCA receives reimbursement from the patrons credit or debit card issuer for the transaction in an
amount equal to the money order issued to the gaming establishment plus the fee charged to
the patron. This reimbursement is included within the settlement receivables on the consolidated
balance sheets. GCA then remits to IPS the amount of the money order issued to the gaming establishment.
The amount of unpaid money orders are included within settlement liabilities on the consolidated balance
sheets.
Warranty Receivables
In the check services transactions provided by Central, Central warrants check cashing
transactions performed at gaming establishments. If a gaming establishment accepts a payroll or
personal check from a patron that we warrant, Central is obligated to reimburse the property for
the full face value of any dishonored checks. All amounts paid out to the gaming establishment
related to these items result in a warranty receivable from the patron. This amount is recorded in
other receivables, net on the consolidated balance sheets. On a monthly basis, Central evaluates
the collectibility of the outstanding balances and establishes a reserve for the face amount of the
expected losses on these receivables. The warranty expense associated with this reserve is
included within cost of revenues (exclusive of depreciation and amortization) in the consolidated
statements of income. The Company writes off all warranty receivables that are older than one year
in age.
A summary activity of the reserve for warranty losses as of December 31, 2008 and 2007 is as
follows (amounts in thousands):
|
|
|
|
|
Balance, December 31, 2006 |
|
$ |
9,481 |
|
Warranty expense provision |
|
|
6,776 |
|
Charge offs against reserve |
|
|
(8,835 |
) |
|
|
|
|
Balance, December 31, 2007 |
|
$ |
7,422 |
|
Warranty expense provision |
|
|
12,647 |
|
Charge offs against reserve |
|
|
(8,954 |
) |
|
|
|
|
Balance, December 31, 2008 |
|
$ |
11,115 |
|
|
|
|
|
Unamortized Debt Issuance Costs
Debt issuance costs incurred in connection with the issuance of the senior secured credit
facility and the senior subordinated notes are capitalized and amortized to interest expense based
upon the related debt agreements using the straight-line method, which approximates the effective
interest method. Unamortized debt issuance costs are included in prepaid and other assets on the
consolidated balance sheets.
Property, Equipment and Leasehold Improvements
Property, equipment and leasehold improvements are stated at cost, less accumulated
depreciation, computed using the straight-line method over the lesser of the estimated life of the
related assets, generally three to five years, or the related lease
term.
59
Repairs and maintenance costs are expensed as incurred.
Upon sale or retirement, the costs and related accumulated depreciation are eliminated from
the accounts and any resulting gain or loss is reflected in the consolidated statements of income.
Property, equipment and leasehold improvements are reviewed for impairment whenever events or
circumstances indicate that their carrying amounts may not be recoverable. Impairment is indicated
when undiscounted future cash flows do not exceed the assets carrying value. As of December 31,
2008, the Company does not believe any of its property, equipment, or leasehold improvements are
impaired.
Goodwill
Goodwill represents the excess of the purchase price over the identifiable tangible and
intangible assets acquired plus liabilities assumed arising from business combinations.
The Company accounts for goodwill in accordance with SFAS No. 142, Goodwill and Other
Intangible Assets, which addresses how intangible assets that are acquired individually or with a
group of other assets (but not those acquired in a business combination) should be accounted for in
financial statements upon their acquisition. This Statement also addresses how goodwill and other
intangible assets should be accounted for after they have been initially recognized in the
financial statements. The Company tests for impairment annually, or more often under certain
circumstances. The Company does not believe that any of its goodwill is impaired as of December
31, 2008 based upon the results of our impairment testing.
The changes in the carrying amount of goodwill for the year ended December 31, 2008 are as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advance |
|
|
ATM |
|
|
Credit Reporting |
|
|
Check Services |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of January 1, 2008 |
|
$ |
93,385 |
|
|
$ |
24,033 |
|
|
$ |
17,127 |
|
|
$ |
22,344 |
|
|
$ |
156,889 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill acquired during the
year |
|
|
13,869 |
|
|
|
11,530 |
|
|
|
|
|
|
|
1,641 |
|
|
|
27,040 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2008 |
|
$ |
107,254 |
|
|
$ |
35,563 |
|
|
$ |
17,127 |
|
|
$ |
23,985 |
|
|
$ |
183,929 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Intangible Assets
Other intangible assets consist primarily of customer contracts (rights to provide processing
services to gaming establishment customers) acquired through business combinations and acquisitions, capitalized software
development costs and the acquisition cost of our patent related to the 3-in-1 rollover
technology acquired in 2005. The acquisition cost of the 3-in-1 rollover patent is being amortized
over its remaining legal life of 11 years. Excluding the patent, other intangibles are amortized
on a straight-line basis over periods ranging from 3 to 10 years.
Other intangibles consist of the following as of December 31, (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
Computer software |
|
$ |
19,882 |
|
|
$ |
12,979 |
|
Patents and trademarks |
|
|
10,066 |
|
|
|
10,000 |
|
Customer contracts |
|
|
34,451 |
|
|
|
34,516 |
|
Non-compete agreements |
|
|
200 |
|
|
|
60 |
|
|
|
|
|
|
|
|
|
|
|
64,600 |
|
|
|
57,555 |
|
Less accumulated amortization |
|
|
(29,617 |
) |
|
|
(43,903 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
34,982 |
|
|
$ |
13,652 |
|
|
|
|
|
|
|
|
60
Amortization
expense related to these intangibles totaled approximately $7.2, $5.3 million and
$5.5 million, for the years ended December 31, 2008, 2007, and 2006, respectively.
At December 31, 2008 the anticipated amortization expense related to other intangible assets,
assuming no subsequent impairment of the underlying assets, is as follows (in thousands):
|
|
|
|
|
2009 |
|
|
7,487 |
|
2010 |
|
|
6,477 |
|
2011 |
|
|
4,669 |
|
2012 |
|
|
4,270 |
|
2013 |
|
|
4,040 |
|
Thereafter |
|
|
8,039 |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
34,982 |
|
|
|
|
|
The Company accounts for the costs related to computer software developed or obtained for internal
use in accordance with the American Institute of Certified Public Accountants Statement of
Position 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use
(SOP 98-1). SOP 98-1 establishes that computer software costs that are incurred in the
preliminary project stage should be expensed as incurred. Costs incurred in the application
development phase and any upgrades and enhancements that modify the existing software and result in
additional functionality are capitalized and amortized over their useful lives, generally not to
exceed three years. These costs consist of outside professional fees related to the development of
our systems. The Company capitalized $0.2 million, $0.9 million and $1.3 million, of
development costs for the years ended December 31, 2008, 2007 and 2006, respectively.
Chargebacks
The Company has established an allowance for chargebacks on credit and debit card cash advance
transactions based upon past experience with losses arising from disputed charges by customers.
Management periodically reviews the recorded balance to ensure the recorded amount adequately
covers the expected losses to be incurred from disputed charges. The recorded allowance for
chargebacks is included within accrued expenses on the consolidated balance sheets and had a
balance of $0.3 million as of December 31, 2008 and 2007, respectively. The Company expensed $0.3
million in chargeback losses on credit and debit card cash advance transactions for the years ended
December 31, 2008, 2007, and 2006, respectively.
Fair Values of Financial Instruments
The fair value of a financial instrument represents the amount at which the instrument could
be exchanged in a current transaction between willing parties, other than in a forced or
liquidation sale. Fair value estimates are made at a specific point in time, based upon relevant
market information about the financial instrument.
The carrying amount of cash and cash equivalents, other receivables, net, settlement
receivables and settlement liabilities approximates fair value due to the short-term maturities of
these instruments. The fair value of GCAs borrowings are estimated based on quoted market prices
for the same issue or in instances where no market exists the quoted market prices for similar
issues with similar terms are used to estimate fair value. The fair values of all other financial
instruments, including amounts outstanding under the ATM funding agreements, approximate their book
values as the instruments are short-term in nature or contain market rates of interest. The
following table presents the fair value and carrying value of GCAs borrowings (amounts in
thousands):
|
|
|
|
|
|
|
|
|
|
|
Fair Value |
|
|
Carrying Value |
|
December 31, 2008: |
|
|
|
|
|
|
|
|
Senior secured credit facility |
|
$ |
113,000 |
|
|
$ |
113,000 |
|
Senior subordinated notes |
|
$ |
120,863 |
|
|
$ |
152,750 |
|
|
|
|
|
|
|
|
|
|
December 31, 2007: |
|
|
|
|
|
|
|
|
Senior secured credit facility |
|
$ |
108,514 |
|
|
$ |
110,730 |
|
Senior subordinated notes |
|
$ |
143,585 |
|
|
$ |
152,750 |
|
61
Revenue Recognition
The Company recognizes revenue when evidence of an arrangement exists, services have been
rendered, the price is fixed or determinable and collectibility is reasonably assured. The Company
evaluates its revenue streams for proper timing of revenue recognition.
Cash
advance revenue is comprised of the fee charged to patrons for credit card cash
advances and POS debit card transactions. Revenue recognition occurs
at the point an IPS money order is generated by the gaming
establishment cage for the patrons transaction or cash is dispensed from an ATM.
ATM revenue is comprised of upfront patron transaction fees or surcharges assessed at the time
the transaction is initiated and a percentage of interchange fees paid by the patrons issuing
bank. These issuing banks share the interchange revenue (reverse interchange) with GCA to cover
the cost incurred by GCA to acquire the ATM transaction. Upfront patron transaction fees are
recognized when a transaction is initiated and reverse interchange is recognized on a monthly basis
based on the total transactions occurring during the month.
In general, check service revenue is comprised of a fee based upon a percentage of the face
amount of total checks warranted, and is recognized on a monthly basis.
Credit reporting revenue is based upon either a flat monthly, unlimited usage fee or a
variable fee structure driven by the volume of patron credit histories generated. This revenue is
recognized on a monthly basis based on the total transactions occurring during the month. Revenue
derived from our patron marketing products and services is recognized upon completion of services.
Global
Recovery Services revenue is comprised of a fee collected from GCA clients for research
and investigation, using GCAs proprietary data base, conducted in order to identify funds
associated with individual credit card cash advance and POS debit
card transactions
money transfers that were issued upon the completion of such a
transaction for which a charge or debit was made to a cardholders account but the bank draft was not
successfully deposited by GCAs client.
Cost of Revenues (Exclusive of Depreciation and Amortization)
The cost of revenues (exclusive of depreciation and amortization), represent the direct costs
required to perform revenue generating transactions. The principal costs included within cost of
revenues (exclusive of depreciation and amortization) are commissions paid to gaming
establishments, interchange fees paid to credit and debit card networks, transaction processing
fees to our transaction processor and check cashing warranties.
Advertising Costs
The Company expenses advertising costs as incurred. Total advertising expense, included in
operating expenses in the consolidated statements of income, was $0.2 million, $0.4 million, and
$0.2 million for the years ended December 31, 2008, 2007, and 2006, respectively.
Income Taxes
Income tax expense includes U.S. and international income taxes, plus the provision for U.S.
taxes on undistributed earnings of international subsidiaries not deemed to be permanently
invested. Since it is managements practice and intent to reinvest the earnings in the
international operations of our foreign subsidiaries, U.S. federal income taxes have not been
provided on the undistributed earnings of any foreign subsidiaries except for GCA Macau. Some
items of income and expense are not reported in tax returns and financial statements in the same
year. The tax effect of such temporary differences is reported as deferred income taxes.
62
Foreign Currency Translation
Foreign currency denominated assets and liabilities for those foreign entities for which the
local currency is the functional currency are translated into U.S. dollars based on exchange rates
prevailing at the end of each year. Revenues and expenses are translated at average exchange rates
during the year. The effects of foreign exchange gains and losses arising from these translations
are included as a component of other comprehensive income on the consolidated statements of income.
Translation adjustments on intercompany balances of a long-term investment nature are recorded as
a component of accumulated other comprehensive income on the Companys consolidated balance sheets.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and assumptions that
affect the amounts reported in consolidated financial statements and accompanying notes.
Significant estimates incorporated in the consolidated financial statements include:
|
|
|
the estimated reserve for warranty expense associated with our check warranty receivables, |
|
|
|
|
the valuation and recognition of share-based compensation, |
|
|
|
|
the estimated useful lives for depreciable and amortizable assets, |
|
|
|
|
the estimated cash flows in assessing the recoverability of long-lived assets, and |
|
|
|
|
the estimated fair value of our reporting units determined as part of our annual impairment
tests. |
Actual results could differ from these estimates.
Earnings Applicable to Common Stock
In accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No.
128, Earnings per Share, basic earnings per share is calculated by dividing net income by the
weighted-average number of common shares outstanding for the period. Diluted earnings per share
reflect the effect of potential common stock resulting from assumed stock option exercises. The weighted-average number of common shares outstanding used in
the computation of basic and diluted earnings per share is as follows at December 31, (amounts in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding basic |
|
|
76,787 |
|
|
|
81,108 |
|
|
|
81,641 |
|
Potential dilution from equity grants (1) |
|
|
9 |
|
|
|
269 |
|
|
|
280 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding diluted |
|
|
76,796 |
|
|
|
81,377 |
|
|
|
81,921 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The potential dilution
excludes stock options to acquire 7,640,100, 2,640,906 and 4,016,684,
shares of common stock at December 31, 2008, 2007 and 2006, respectively, and 199,686, 321,485 and
554,076 shares of unvested restricted stock at December 31, 2008, 2007 and 2006, respectively, as
the application of the treasury stock method, as required by SFAS No. 128, makes them
anti-dilutive. |
63
Stock-Based Compensation
Under
SFAS No. 123(R) Share-Based Payment (SFAS
No.123(R)) and SAB No. 110, share-based payment awards
result in a cost that is measured at fair value on the awards grant date. Stock options expected to be exercised currently
and in future periods are measured at fair value using the Black-Scholes model with the expense
associated with these awards being recognized on the straight-line basis over the awards vesting
period. Forfeitures are estimated at the time of grant, with such estimate updated periodically
and with actual forfeitures recognized currently to the extent they differ from the estimates.
The estimated per share weighted-average fair value of stock options granted during 2008, 2007
and 2006 was $3.24, $4.22 and $7.33, respectively.
We have estimated the fair value of options granted at the date of grant using the
Black-Scholes option-pricing model with the following weighted-average assumptions in the years
ended December 31,:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
Risk-free interest rate |
|
|
2.9 |
% |
|
|
4.2 |
% |
|
|
4.8 |
% |
Expected life of options (in years) |
|
|
6.3 |
|
|
|
6.3 |
|
|
|
6.3 |
|
Expected volatility |
|
|
46.3 |
% |
|
|
33.6 |
% |
|
|
37.3 |
% |
Expected dividend yield |
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
0.0 |
% |
The expected life (estimated period of time outstanding) of options granted was estimated
using the Safe Harbor calculation permitted by SEC Staff Accounting
Bulletin No. 110. The risk-free rate is based on the U.S.
Treasury yield curve in effect at the time of grant. The expected volatility for options granted
in 2008 was based upon our historical volatility and was based on an estimate of the volatility for
similar companies within our industry in 2007 and 2006 as our Company did not have a significant
history on a public market. The expected dividend yield is based on the Companys historical
practice of not paying dividends.
Stock-based compensation related to time-based restricted shares is calculated based on the
closing market price of the Companys common stock on the date of grant, reduced by the present
value of dividends expected to be paid, if any, on the Companys common stock prior to vesting of
the restricted stock.
Fair Value Measures
In September 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 157 Fair
Value Measurements (SFAS No. 157) which defines fair value, establishes a hierarchical
framework for measuring fair value in GAAP, and expands disclosures about fair value measurements.
SFAS No. 157 does not require any new fair value measurements, but provides guidance on how to
measure fair value by providing a fair value hierarchy used to classify the source of the
information. In February 2008, the FASB issued FASB Staff Position (FSP) FAS 157-2, an amendment
to SFAS No. 157, delaying the effective date of SFAS No. 157, for non-financial assets and
non-financial liabilities, except for items that are recognized or disclosed at fair value in the
financial statements on a recurring basis (at least annually). As of January 1, 2008, we partially
adopted SFAS No. 157, which, among other things, requires
enhanced disclosures about financial assets and liabilities that are measured and reported at fair value.
Financial
assets and liabilities measured and reported at fair value are classified and disclosed in one of the
following categories:
Level 1 Quoted prices are available in active markets for identical investments as of the
reporting date. The types of investments included in Level 1 include listed equities and listed
derivatives.
Level 2 Pricing inputs are other than quoted prices in active markets, which are either
directly or indirectly observable as of the reporting date, and fair value is determined through
the use of models or other valuation methodologies. The types of investments included in Level 2 include corporate bonds and loans,
less liquid and restricted equity securities and certain over-the-counter derivatives.
Level 3 Pricing inputs are unobservable for the investment and include situations where
there is little, if any, market activity for the investment. The inputs into the determination of
fair value require significant management judgment or estimation.
64
As of February 7, 2008, the Company decided to discontinue its Arriva business and classified
its assets, consisting primarily of receivables due from cardholders, as held for sale on its
consolidated balance sheet and classified the related operations as discontinued operations on its
consolidated statement of income. The Company adjusted the
receivables held for sale to fair value using the expected net present value of future discounted cash flows, a
Level 3 input in the hierarchical framework. As a result of this assessment, the Company recorded a
pretax valuation adjustment as a charge to income of $5.5 million for the year ended December 31,
2008 (see Note 12).
Fair
Value Measurements Using Significant Unobservable Inputs (Level 3) (in
thousands)
|
|
|
|
|
Receivable balance, 12/31/07 |
|
$ |
12,180 |
|
Collections
and write-offs |
|
|
(5,263 |
) |
Fair value adjustment |
|
|
(5,377 |
) |
Reserves |
|
|
|
|
|
|
|
|
Carrying value, 12/31/08 |
|
$ |
1,540 |
|
|
|
|
|
Recently Issued Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157,
which clarifies the definition of fair value whenever another standard requires or permits assets
or liabilities to be measured at fair value. Specifically, the standard clarifies that fair value
should be based on the assumptions market participants would use when pricing the asset or
liability, and establishes a fair value hierarchy that prioritizes the information used to develop
those assumptions. SFAS No. 157 does not expand the use of fair value to any new circumstances.
SFAS No. 157 also requires expanded financial statement disclosures about fair value measurements,
including disclosure of the methods used and the effect on earnings. SFAS No. 157 is effective for
fiscal years beginning after November 15, 2007. The adoption of
this standard did not have a material impact on the consolidated
financial statements.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities (SFAS No. 159). SFAS No. 159 permits companies to choose to measure certain
financial instruments and other items at fair value. The standard requires that unrealized gains
and losses are reported in earnings for items measured using the fair value option. SFAS No. 159 is
effective beginning January 1, 2008. The adoption of
this standard did not have a material impact on the consolidated
financial statements.
In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations
(SFAS No. 141(R)). Under SFAS No. 141(R), an entity is required to recognize the assets
acquired, liabilities assumed, contractual contingencies, and contingent consideration at their
fair value on the acquisition date. It further requires that acquisition-related costs are
recognized separately from the acquisition and expensed as incurred, restructuring costs generally
are expensed in periods subsequent to the acquisition date, and changes in accounting for deferred
tax asset valuation allowances and acquired income tax uncertainties after the measurement period
impact income tax expense. SFAS No. 141(R) is effective for business combinations with an
acquisition date of January 1, 2009 or later.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated
Financial Statements (SFAS No. 160), which establishes standards for the accounting and reporting
of noncontrolling interests in subsidiaries (that is, minority interests) in consolidated financial
statements and for the loss of control of
subsidiaries. SFAS No. 160 requires: (1) the equity interest of noncontrolling shareholders,
partners, or other equity holders in subsidiaries to be accounted for and presented in equity,
separately from the parent shareholders equity, rather than as liabilities or as mezzanine items
between liabilities and equity; (2) the amount of consolidated net income attributable to the
parent and to the noncontrolling interests be clearly identified and presented on the face of the
consolidated statement of income; and (3) when a subsidiary is deconsolidated, any retained
noncontrolling equity investment in the former subsidiary be initially measured at fair value. The
gain or loss on the deconsolidation of the subsidiary is measured using the fair value of any
noncontrolling equity investment rather than the carrying amount of that retained investment. SFAS
No. 160 is effective beginning on January 1, 2009. Early adoption of the Statement is prohibited.
The Company does not believe the adoption of this standard will
have a material impact on our consolidated financial statements.
65
3. ACQUISITIONS
The Company accounts for business combinations in accordance with Statement of Financial
Accounting Standards No. 141 Accounting for Business Combinations (SFAS No. 141). SFAS No.
141 requires that the assets acquired and liabilities assumed be recorded at their estimated
fair values.
GCA completed its acquisition of CSI in August 2008, in which 100 percent
of the issued and outstanding common shares of CSI were converted into the right to receive cash
in the amount of $0.50 per share. In connection with the acquisition, GCA provided CSI with
funds to repay all of its outstanding convertible promissory notes. The amounts provided by GCA
to repay all of the outstanding convertible promissory notes and convert each of the outstanding
shares into the right to receive $0.50 was approximately $30.1 million. The results of CSIs
operations have been included in the consolidated financial statements for the year ended
December 31, 2008 from the date of acquisition. The CSI acquisition was conducted in order to
increase transactional volumes over a relatively fixed cost structure.
The
following table summarizes the assets acquired and the liabilities assumed at the date
of acquisition for CSI, (in thousands):
|
|
|
|
|
Net working capital (excluding cash) |
|
$ |
(762 |
) |
Property, plant and equipment, net |
|
|
815 |
|
Intangible assets |
|
|
14,356 |
|
Goodwill |
|
|
15,689 |
|
|
|
|
|
Net assets acquired (excluding cash) |
|
$ |
30,098 |
|
GCA is in the process of finalizing its preliminary estimates of assets acquired and liabilities
assumed and accordingly, those preliminary estimates are subject to change.
In
connection with the acquisitions, the Company has preliminarily
assigned $14.4 million of the
purchase price to intangible assets, of which $13.2 million were
assigned to customer contracts.
These intangible assets are being amortized on an accelerated basis over their estimated useful
lives as indicated below. The Company recognized $1.2 million of
amortization on CSI customer contracts in 2008.
The
following table shows the estimated annual amortization of the
customer contracts (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount |
|
|
2009 |
|
|
2010 |
|
|
2011 |
|
|
2012 |
|
|
2013 |
|
|
Thereafter |
|
Customer contracts |
|
$ |
12,045 |
|
|
$ |
2,508 |
|
|
$ |
1,933 |
|
|
$ |
1,655 |
|
|
$ |
1,541 |
|
|
$ |
1,268 |
|
|
$ |
3,140 |
|
Other intangibles acquired include $2.4 million of computer software with estimated useful lives
of three to five years.
GCA
completed its acquisition of CGS in April 2008, in
which 100 percent of the outstanding common shares of CGS were acquired for a purchase price net
of cash net of $20.8 million. The results of CGSs operations have been included in the
consolidated financial statements for the year ended December 31, 2008, from the date of
acquisition.
66
The following table summarizes the estimated fair values of the assets acquired and
the liabilities assumed at the date of acquisition for CGS, April 1, 2008 (in thousands):
|
|
|
|
|
Net working capital (excluding cash) |
|
$ |
(4,601 |
) |
Property, plant and equipment, net |
|
|
1,568 |
|
Intangible assets |
|
|
12,300 |
|
Goodwill |
|
|
11,517 |
|
|
|
|
|
Net assets acquired (excluding cash) |
|
|
20,784 |
|
In
connection with the acquisitions, the Company acquired $12.3 million of intangible assets, of
which $12.1 million were assigned to customer contracts. These intangible assets are being
amortized on an accelerated basis over their estimated useful lives of approximately as
indicated below. The Company recognized $1.3 million of
amortization on CGS customer contracts in 2008.
The
following table shows the amortization of the customer contracts (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount |
|
|
2009 |
|
|
2010 |
|
|
2011 |
|
|
2012 |
|
|
2013 |
|
|
Thereafter |
|
Customer contracts |
|
$ |
10,780 |
|
|
$ |
1,906 |
|
|
$ |
2,105 |
|
|
$ |
1,622 |
|
|
$ |
1,523 |
|
|
$ |
1,039 |
|
|
$ |
2,585 |
|
Other
intangibles acquired include $0.2 million of covenants not to compete with estimated
useful lives of three years.
The following table presents our unaudited pro forma results of operations of the Company as
though the aggregated acquisitions of CSI and CGS occurred as of the beginning of the periods
being reported. The unaudited pro forma financial information is for informational purposes
only and does not purport to present what our results would actually have been had these
transactions actually occurred on the dates presented or to project our results of operations
for any future period.
Unaudited Pro Forma Information:
(in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
For the years ended |
|
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
737,396 |
|
|
$ |
799,204 |
|
Income (loss) from continuing operations |
|
$ |
20,307 |
|
|
$ |
3,116 |
|
Net income (loss) |
|
$ |
16,368 |
|
|
$ |
(410 |
) |
|
|
|
|
|
|
|
|
|
Net income (loss) per common share: |
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.21 |
|
|
$ |
(0.01 |
) |
Diluted |
|
$ |
0.21 |
|
|
$ |
(0.01 |
) |
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
Basic |
|
|
76,787 |
|
|
|
81,108 |
|
Diluted |
|
|
76,796 |
|
|
|
81,377 |
|
4. ATM FUNDING AGREEMENTS
Bank of America Amended Treasury Services Agreement
On December 19, 2007, GCA entered into an Amendment of the Treasury Services Terms and
Conditions Booklet with Bank of America, N.A. that allowed for the Company to utilize up to $360
million in funds owned by Bank of America to provide the currency needed for normal operating
requirements for the Companys ATMs. For use of these funds, the Company pays Bank of
America a cash usage fee equal to the average daily balance of funds
utilized multiplied by the one-month LIBOR rate plus 25 basis points. Prior to this
agreement, GCA operated under another Amendment of the Treasury Services Agreement dated March 8, 2004
that provided for $300 million in available funds and a cash usage fee that was equal to the
average daily balance of funds utilized multiplied by the one-month LIBOR rate plus 25 basis
points.
67
On March 13, 2008, the Company entered into an Agreement to Amend the Amendment of the
Treasury Services Terms and Conditions Booklet. Pursuant to this Agreement to Amend, the limit on
the maximum allowable currency to be provided by Bank of America was increased to $410 million. The amount provided by Bank of America can be
increased above $410 million at the option of Bank of America. All other terms of the Amendment of the Treasury Services Terms and Conditions Booklet remain in
full force and effect.
At December 31, 2008 and 2007, the outstanding balance of ATM cash utilized by GCA from Bank
of America was $521.8 million and $368.1 million, respectively. For the years ended December 31,
2008, 2007 and 2006, the cash usage fees incurred by the Company were $9.3 million, $15.9 million
and $15.7 million, respectively. The cash usage fee is included within interest expense on the
Companys consolidated statements of income. The rate in effect at December 31, 2008, to compute
the cash usage fee was 1.4%.
The
Company is responsible for any losses of cash in the ATMs under
the agreement with Bank of America. The Company is self insured related to this risk.
For the years ended December 31, 2008, 2007, and 2006, the
Company has incurred no material losses related to this self insurance.
Site Funded ATMs
The Company operates ATMs at certain customer gaming establishments where the gaming
establishment provides the cash required for the ATM operational needs. GCA is required to
reimburse the customer for the amount of cash dispensed from these Site Funded ATMs. The Site
Funded ATM liability is included within settlement liabilities in the accompanying consolidated
balance sheets and was $50.6 million and $58.1 million as of December 31, 2008 and 2007,
respectively. The Company operated 1,299 and 944 Site Funded ATMs, as of December 31, 2008 and 2007,
respectively.
5. PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property, equipment and leasehold improvements consist of the following as of December 31, (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
ATM equipment |
|
$ |
58,929 |
|
|
$ |
51,405 |
|
Cash advance equipment |
|
|
8,320 |
|
|
|
7,099 |
|
Office, computer and other equipment |
|
|
5,193 |
|
|
|
3,692 |
|
Leasehold and building improvements |
|
|
2,554 |
|
|
|
2,486 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74,996 |
|
|
|
64,682 |
|
Less accumulated depreciation |
|
|
(50,577 |
) |
|
|
(41,879 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
24,419 |
|
|
$ |
22,803 |
|
|
|
|
|
|
|
|
6. BENEFIT PLANS
Defined Contribution Plan
The Company has a retirement savings plan (the 401(k) Plan) under Section 401(k) of the
Internal Revenue Code covering its employees. The 401(k) Plan allows employees to defer up to the
lesser of the Internal Revenue
Code prescribed maximum amount or 100% of their income on a pre-tax basis through
contributions to the plan. As a benefit to employees, the Company matches a percentage of these
employee contributions. Expenses related to the matching portion of the contributions to the
401(k) plan were $0.5 million, $0.5 million and
$0.4 million for the years ended December 31, 2008,
2007 and 2006, respectively.
Equity Incentive Awards
In January 2005, the Company adopted the 2005 Stock Incentive Plan (the 2005 Plan) to
attract and retain the best available personnel, to provide additional incentives to employees,
directors and consultants and thus to promote the success of the Companys business. The 2005
Plan is administered by the Board of Directors but may be
administered by our Compensation Committee. The administrator of the
2005 Plan has the authority to select individuals who
are to receive options or other equity incentive awards under the 2005 Plan and to specify the
terms and conditions of grants of options or other equity incentive awards, the vesting provisions,
the term and the exercise price.
68
Generally, stock options and restricted stock granted under the 2005 Plan (other than those
granted to non-employee directors) will vest at a rate of 25% of the shares underlying the option
after one year and the remaining shares vest in equal portions over the following 36 months, such
that all shares are vested after four years. Unless otherwise provided by the administrator, an
option granted under the 2005 Plan generally expires 10 years from the date of grant. Stock
options are issued at the closing market price on the date of grant.
As
of December 31, 2008, the Company had reserved 11,258,967 shares of common stock for the
grant of stock options and other equity incentive awards under the 2005 Plan. On the first
business day of each fiscal year beginning with the fiscal year commencing on January 1, 2006,
annual increases will be added to the 2005 Plan equal to the lesser of: 3,800,000 shares, 3% of all
outstanding shares of our common stock immediately prior to such increase, or a lesser amount
determined by our Board of Directors.
A summary of award activity under the Companys 2005 Plan as of December 31, 2008 and changes
during the two years then ended are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Option - |
|
|
Number of Common Shares |
|
|
|
Weighted Average |
|
|
|
|
|
|
|
|
|
|
Equity Awards |
|
|
|
Exercise Price |
|
|
Stock Options |
|
|
Restricted Stock |
|
|
Available for |
|
|
|
(Per Share) |
|
|
Granted |
|
|
Granted |
|
|
Grant |
|
Balance outstanding December 31, 2006 |
|
$ |
14.20 |
|
|
|
3,625,135 |
|
|
|
602,997 |
|
|
|
2,004,131 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional authorized shares |
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
2,469,376 |
|
Granted |
|
$ |
10.21 |
|
|
|
1,050,000 |
|
|
|
747,000 |
|
|
|
(1,797,000 |
) |
Exercised |
|
$ |
16.33 |
|
|
|
(76,248 |
) |
|
|
(771,652 |
) |
|
|
|
|
Forfeited or canceled |
|
$ |
14.30 |
|
|
|
(315,731 |
) |
|
|
(181,561 |
) |
|
|
497,292 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance outstanding December 31, 2007 |
|
$ |
13.21 |
|
|
|
4,283,156 |
|
|
|
396,784 |
|
|
|
3,173,799 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional authorized shares |
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
2,493,570 |
|
Granted |
|
$ |
6.66 |
|
|
|
4,531,500 |
|
|
|
5,500 |
|
|
|
(4,537,000 |
) |
Exercised |
|
$ |
16.34 |
|
|
|
|
|
|
|
(185,950 |
) |
|
|
|
|
Forfeited or canceled |
|
$ |
13.16 |
|
|
|
(1,819,164 |
) |
|
|
(26,083 |
) |
|
|
1,845,247 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance outstanding December 31, 2008 |
|
$ |
8.93 |
|
|
|
6,995,492 |
|
|
|
190,251 |
|
|
|
2,975,616 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In addition to the 2005 Plan, the Company granted our former Chief Financial Officer an option
to acquire 722,215 shares of common stock as part of his employment agreement in 2004 (Hagerty
Option). This option had an exercise price of $8.05 per share and would expire 10 years from the
date of grant. Under the terms of the Hagerty Option, 25% of the shares subject to the Hagerty
Option vested on July 12, 2005 and 1/48 of the shares subject to the Hagerty Option vested on the
12th day of each month thereafter. Upon termination of Mr. Hagertys employment with the Company
in July 2007, all of the shares subject to the Hagerty Option immediately vested. During the years
ended December 31, 2007 and 2006, Mr. Hagerty exercised his option to acquire 27,000 and 100,000
shares of common stock. At December 31, 2007, Mr. Hagerty had the option to acquire 595,215 shares
of common stock. This option expired in January 2008.
In February 2008, our Board of Directors approved the grant of options to acquire 4.1 million
shares of common stock to existing employees, newly hired employees and certain non-employee
members of the Companys Board of Directors. These shares will vest over a four-year period. The
estimated total fair value of the awards at the date of grant was
$12.2 million.
69
Stock Options
Stock options granted typically vest at a rate of 25% of the shares underlying the option
after one year and the remaining shares vest in equal portions over the following 36 months, such
that all shares are vested after four years and allow the option holder to purchase stock over
specified periods of time, generally ten years, from the date of grant, at a fixed price equal to
the market value on date of grant.
The following tables summarize additional information regarding the options that have been
granted under the 2005 Plan and the option grant to our former Chief Financial Officer upon
commencement of his employment in 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Avg. |
|
|
Weighted |
|
|
|
|
|
|
Number of |
|
|
Exercise Price |
|
|
Average Life |
|
|
Aggregate |
|
|
|
Common Shares |
|
|
(Per Share) |
|
|
Remaining |
|
|
Intrinsic Value |
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance outstanding December 31, 2007 |
|
|
4,878,371 |
|
|
$ |
12.58 |
|
|
|
|
|
|
$ |
30,560 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
4,531,500 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
Exercised |
|
|
0 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
Cancelled or forfeited |
|
|
(2,576,546 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance outstanding December 31, 2008 |
|
|
6,833,325 |
|
|
$ |
8.90 |
|
|
8.51 years |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance exercisable December 31, 2008 |
|
|
1,676,518 |
|
|
$ |
13.19 |
|
|
6.92 years |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance expected to be exercised |
|
|
0 |
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding |
|
|
Options Exercisable |
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
Range of |
|
|
|
|
|
Remaining |
|
|
Average |
|
|
|
|
|
|
Average |
|
Exercise |
|
Number |
|
|
Contract |
|
|
Exercise |
|
|
Number |
|
|
Exercise |
|
Prices |
|
Outstanding |
|
|
Life |
|
|
Prices |
|
|
Exercisable |
|
|
Price |
|
$0.00
- $6.99 |
|
|
4,284,000 |
|
|
9.2 years |
|
$ |
6.66 |
|
|
|
87,499 |
|
|
$ |
6.71 |
|
$9.00 - $9.99 |
|
|
1,000,000 |
|
|
8.8 years |
|
$ |
9.99 |
|
|
|
270,833 |
|
|
$ |
9.99 |
|
$13.00 - $13.99 |
|
|
1,092,657 |
|
|
6.1 years |
|
$ |
13.99 |
|
|
|
1,039,024 |
|
|
$ |
13.99 |
|
$14.00 - $14.99 |
|
|
160,000 |
|
|
7.4 years |
|
$ |
14.22 |
|
|
|
103,749 |
|
|
$ |
14.13 |
|
$15.00 - $15.99 |
|
|
151,668 |
|
|
7.5 years |
|
$ |
15.22 |
|
|
|
91,874 |
|
|
$ |
15.24 |
|
$16.00 - $16.99 |
|
|
105,000 |
|
|
7.8 years |
|
$ |
16.05 |
|
|
|
56,874 |
|
|
$ |
16.05 |
|
$18.00 - $18.99 |
|
|
40,000 |
|
|
7.3 years |
|
$ |
18.94 |
|
|
|
26,665 |
|
|
$ |
18.94 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,833,325 |
|
|
|
|
|
|
|
|
|
|
|
1,676,518 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted-average grant-date fair value per share of the options granted during the years
ended
December 31, 2008, 2007 and 2006 was $6.66, $4.22 and $7.33, respectively.
During the year ended December 31, 2008, we recorded $7.1 million in
non-cash compensation expense related to options granted that are expected to vest. As of December
31, 2008, there was $14.7 million in unrecognized compensation expense related to options expected
to vest. That cost is expected to be recognized on a straight-line basis over a weighted average
period of 1.9 years.
70
During the year ended December 31, 2007, we received $1.3 million in cash from the exercise of
stock options. The total intrinsic value of options exercised during the year ended December 31,
2007, was $1.8 million. During the year ended December 31, 2007, we recorded $10.5 million in
non-cash compensation expense related to options granted that are expected to vest.
During the year ended December 31, 2006, we received $1.5 million in cash from the exercise of
stock options. The total intrinsic value of options exercised during the year ended December 31,
2006, was $0.8 million. During the year ended December 31, 2006, we recorded $7.0 million in
non-cash compensation expense related to options granted that are expected to vest.
Restricted Stock
The Company began issuing restricted stock to employees in the first quarter of 2006. The
vesting provisions are similar to those applicable to stock options. Because these restricted
shares are issued primarily to employees of the Company, many of the shares issued will be withheld
by the Company to satisfy the statutory withholding requirements applicable to the restricted stock
grants. Therefore, as these awards vest the actual number of shares outstanding as a result of the
restricted stock awards is reduced. These shares will vest over a period of four years. Prior to
vesting, the restricted stock has rights to the dividends declared and voting rights, therefore
they are considered issued and outstanding.
A summary of non-vested share awards for the Companys time-based restricted shares as of
December 31, 2008 and changes during the years then ended are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Shares |
|
|
Average Grant |
|
|
Aggregate Fair |
|
|
|
Outstanding |
|
|
Date Fair Value |
|
|
Value |
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2006 |
|
|
602,997 |
|
|
$ |
16.95 |
|
|
$ |
10,221 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
747,000 |
|
|
$ |
16.19 |
|
|
$ |
12,094 |
|
Vested |
|
|
(771,652 |
) |
|
$ |
16.72 |
|
|
$ |
(12,902 |
) |
Forfeited |
|
|
(181,561 |
) |
|
$ |
16.52 |
|
|
$ |
(2,999 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2007 |
|
|
396,784 |
|
|
$ |
16.18 |
|
|
$ |
6,414 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
5,500 |
|
|
$ |
6.87 |
|
|
$ |
38 |
|
Vested |
|
|
(185,950 |
) |
|
$ |
16.34 |
|
|
$ |
(3,038 |
) |
Forfeited |
|
|
(26,083 |
) |
|
$ |
16.54 |
|
|
$ |
(431 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2008 |
|
|
190,251 |
|
|
$ |
15.67 |
|
|
$ |
2,983 |
|
|
|
|
|
|
|
|
|
|
|
|
|
During the years ended December 31, 2008 and 2007, we recorded $1.9 million and $11.8 million
in non-cash compensation expense, respectively, related to the restricted stock granted that is
expected to vest. As of December 31, 2008, there was $3.1 million in unrecognized compensation
expense related to time-based restricted shares expected to vest. That cost is expected to be
recognized on a straight-line basis over a weighted average period of 1.7 years.
7. COMMITMENTS AND CONTINGENCIES
Lease Obligations
The Company leases office facilities and operating equipment under cancelable and
non-cancelable agreements. Total rent expense was approximately $0.6 million, $0.6 million and
$0.5 million, for the years ended December 31, 2008, 2007, and 2006, respectively.
71
At December 31, 2008, the minimum aggregate rental commitment under all non-cancelable
operating leases for the years then ending was (in thousands):
|
|
|
|
|
2009 |
|
|
697 |
|
2010 |
|
|
522 |
|
2011 |
|
|
3 |
|
2012 |
|
|
|
|
Thereafter |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,222 |
|
|
|
|
|
Litigation Settlement Award
Visa Check/MasterMoney Antitrust Litigation. The Visa Check/MasterMoney Antitrust Litigation
began in October 1996 with the filing of lawsuits by certain retailers and retail trade
associations against Visa U.S.A. Inc. (Visa) and MasterCard International Incorporated
(MasterCard).
In
the action against Visa and MasterCard, Plaintiffs claimed, among other things, that Visa
and MasterCard, individually, and in conspiracy with each other and with their member banks, have
violated the federal antitrust laws by forcing merchants who accept Visa and/or MasterCard-branded
credit cards for payment also to accept Visa and/or MasterCard-branded debit cards for payment (the
Honor All Cards Policy), and by conspiring and attempting to monopolize a market for general
purpose point of sale debit cards. The plaintiffs claimed that the defendants actions caused
merchants to pay excessive fees on Visa and MasterCard signature debit and credit transactions and
on on-line PIN debit transactions, and have injured competition, merchants and consumers.
On
June 4, 2003, the plaintiffs entered into separate settlement agreements with Visa and
MasterCard. Under terms of the settlements, Visa and MasterCard agreed to eliminate their Honor
All Cards Policy, to lower debit card fees for an interim period by one-third and to refund over
$3 billion to merchants who accepted their cards from October 1992 through June 2003. As the
Company accepted Visa and MasterCard branded debit cards during this covered period (i.e. October
25, 1992 through June 21, 2003), we were members of the covered class and entitled to settlement
under the agreement.
In December 2007, the Companys claim award was affirmed by the court. We engaged a third
party to assist us in the preparation of the claim and collection of any award due to us in this
action. For this service we agreed to a collection fee that would be deducted from any amounts
received. The net recovery of $2.6 million is included as a
reduction to operating expenses in the
accompanying consolidated statements of income for the year ended December 31, 2007. In December
2008, the Company recognized an additional net recovery of
$0.4 million which is included as a reduction to operating expenses in the accompanying consolidated statements of income for the year ended
December 31, 2008. The Company does not expect any additional payments against this claim.
72
Litigation Claims and Assessments
On December 12, 2007, a derivative action was filed by a stockholder on behalf of the Company in
the United States District Court, District of Nevada against certain of our current and former
directors, our former chief executive officer and our former chief financial officer, alleging
breach of fiduciary duties, waste of corporate assets, unjust enrichment and violations of Sections
10(b) and 20(a) of the Exchange Act, as amended. On February 8, 2008, an additional derivative
action was filed by a separate stockholder on behalf of the Company in the United States District
Court, District of Nevada against certain of our current and former directors, our former chief
executive officer and our former chief financial officer, alleging breach of fiduciary duties,
insider trading and waste of corporate assets. On May 5, 2008, the foregoing actions were
consolidated and an amended complaint was filed that continues to pursue only state law claims but
not violations of Sections 10(b) or 20(a) of the Exchange Act, as amended. Following the filing of
motions to dismiss by the defendants, a second amended complaint was filed. Thereafter, plaintiffs
amended again in December 2008. The third amended complaint alleges essentially the same legal
claims as former complaints and seeks, among other things, damages in favor of the Company, certain
corporate actions to purportedly improve the Companys corporate governance, and an award of costs
and expenses to the plaintiff stockholders including attorneys fees. The defendants are seeking
to dismiss the third amended complaint. The Company has indemnification agreements with each of
the individual defendants that may cause the Company to incur expenses associated with the defense
of this action and that may also protect such individuals from liability to the Company. The
Company also maintains director and officer liability insurance that may provide for reimbursement
of some of the expenses associated with this action. At this stage of the litigation, the Company
is unable to make an evaluation of whether the likelihood of an unfavorable outcome is either
probable or remote or the amount or range of potential loss; however, the Company believes it has
meritorious defenses and will vigorously defend this action.
On April 11, 2008, a class action was filed by a stockholder in the United States District Court,
Southern District of New York against the Company, certain of our former directors, our former
chief executive officer, M&C International, Summit Partners, L.P., and certain underwriters to two
prior stock offerings to the public. On June 10, 2008, an additional class action was filed,
naming essentially the same defendants and stating similar claims. On June 26, 2008, the foregoing
actions were consolidated in New York, and the Court appointed a lead plaintiff and lead counsel.
In August 2008, the lead plaintiff filed a consolidated amended complaint. The consolidated
amended complaint names as additional defendants our former chief financial officer, certain
current and former directors and additional underwriters and defendants and purports to allege
violations of Sections 11, 12(a)(2) and 15 the Securities Act of 1933. The plaintiffs seek, among
other things, damages and rescission. Following motions by defendants, the action transferred to
the District of Nevada in October 2008 and consolidated with the pending derivative action for
pretrial purposes. Defendants are seeking to dismiss the class action complaint. The Company has
indemnification agreements with each of the other defendants that may cause the Company to incur
expenses associated with the defense of this action and that may also protect such defendants from
liability to the Company.
The Company also maintains director and officer liability insurance that may provide for
reimbursement of some of the expenses associated with this action. At this stage of the litigation,
the Company is unable to make an evaluation of whether the likelihood of an unfavorable outcome is
either probable or remote or the amount or range of potential loss; however the Company believes it
has meritorious defenses and will vigorously defend this action.
We are threatened with or named as a defendant in various lawsuits arising in the ordinary
course of business, such as personal injury claims and employment-related claims as well being
threatened or named as a defendant in lawsuits arising in the ordinary course of business and
assumed as a result of the acquisition of CGS and for which we have indemnification rights. It is
not possible to determine the ultimate disposition of these matters; however, we are of the opinion
that the final resolution of any such threatened or pending litigation, individually or in the
aggregate, is not likely to have a material adverse effect on our business, cash flows, results of
operations or financial position.
73
Commitments
USA Payments Processing Commitments. The Company obtains transaction processing services
pursuant to the Amended and Restated Agreement for Electronic Payment
Processing from USA Payments Systems
a company controlled by Karim Maskatiya and Robert Cucinotta, who are
founders and significant stockholders of the Company and former
members of our Board of Directors. Under terms of this agreement, GCA
is obligated to pay USA Payment Systems
$2.3 million annually in fixed monthly processing fees and minimum annual transaction volume fees
through the termination of this agreement in March 2014.
Fiserv Processing Commitments. Arriva entered into a Letter of Understanding with Fiserv
Solutions, Inc. (Fiserv), which was effective March 10, 2008, related to the processing of our
private label credit card. Under the terms of the agreement with Fiserv, Arriva is committed to pay
the greater of 120% of the prevailing prices for the services utilized or $25,000 in monthly
minimum processing fees until the services are no longer utilized.
Innovative Funds Transfer, LLC Required Capital Investment. Pursuant to the terms of our
agreement with IGT, we are obligated to invest up to our pro rata
share of $10.0 million in
capital to IFT. Our obligation to invest additional capital in IFT is conditioned upon capital
calls, which are in our sole discretion. As of December 31, 2008, we had invested a total of
$4.6 million in IFT, and are committed to invest up to $1.4 million in additional capital
investments if required.
First Data Sponsorship Indemnification Agreement. On March 10, 2004, GCA and
First Data entered into a Sponsorship Indemnification Agreement whereby First Data
agreed to continue its guarantee of performance by us to Bank of America for our sponsorship as a
Bank Identification Number and Interbank Card Association licensee under the applicable VISA and
MasterCard rules. GCA has agreed to indemnify First Data and its affiliates against any and all
losses and expenses arising from its indemnification obligations pursuant to that agreement. As
collateral security for prompt and complete performance of GCAs obligations under this agreement,
GCA was required to cause a letter of credit in the amount of $3.0 million to be issued to First
Data to cover any indemnified amounts not paid under terms of this agreement. The required amount
of this letter of credit will be adjusted annually based upon the underlying cash advance volume
covered by the Sponsorship Indemnification Agreement. In March 2008, the $3.2 million letter of
credit expired. In April 2008, the letter of credit was reissued for $3.4 million.
8. BORROWINGS
Senior Secured Credit Facility
On November 1, 2006, GCA and Holdings entered into a Second Amended and Restated Credit
Agreement with certain lenders, Bank of America, N.A., as Administrative Agent and Wachovia Bank,
N.A., as Syndication Agent, (the Second Amended and Restated Credit Agreement).
The Second Amended and Restated Credit Agreement significantly amended and restated the terms
of GCAs existing senior secured credit facilities to provide for a $100.0 million term loan
facility and a $100.0 million five-year revolving credit facility, with a $25.0 million letter of
credit sublimit and a $5.0 million swingline loan sublimit. The Second Amended and Restated Credit
Agreement also contains an increase option permitting GCA to arrange with existing lenders and/or
new lenders to provide up to an aggregate of $150.0 million in additional term loan or revolving
credit commitments.
Borrowings under the Second Amended and Restated Credit Agreement bear interest at LIBOR plus
an Applicable Margin, which is based on the Companys Senior Leverage Ratio (as defined). At
December 31, 2008 and 2007, the Applicable Margin was 112.5 basis points and 87.5 basis points and
the effective rate of interest was 2.09% and 5.72%, respectively. Principal, together with accrued
and unpaid interest, is due on the maturity date, November 1, 2011. GCA may prepay the loans and
terminate the commitments at any time, without premium or penalty, subject to certain
qualifications set forth in the agreement. Furthermore, the Second Amended and Restated Credit
Agreement contains mandatory prepayment provisions which, under certain circumstances, obligate GCA
to apply portions of its Excess Cash Flow (as defined) to prepayment of the senior secured credit
facilities.
74
As of December 31, 2008, the scheduled quarterly amortization payments on the term loan
portion of the Second Amended and Restated Credit Agreement are $250,000 through September 30, 2010
with the remaining balance of the term loan and any outstanding amounts under the revolving credit
loans due to be repaid on November 1, 2011.
Pursuant to the Second Amended and Restated Credit Agreement, the senior secured credit
facility continues to be secured by substantially all of the assets of the Company, GCA and GCAs
wholly-owned domestic subsidiaries other than Arriva, and will continue to be guaranteed by the
Company and all of GCAs wholly-owned domestic subsidiaries other than Arriva.
The Second Amended and Restated Credit Agreement contains customary affirmative and negative
covenants, financial covenants, representations and warranties and events of defaults, which are
subject to important exceptions and qualifications, as set forth in the Second Amended and Restated
Credit Agreement. Additionally, we have a covenant related to our allowable capital expenditures.
The Company believes it was in compliance with all of its debt covenants that were applicable as of
December 31, 2008.
As of December 31, 2008 and 2007, the Company had $98.0 million and $99.0 million,
respectively, in borrowings under the term loan, $15.0 million and $11.7 million, respectively,
under the revolving portion and $3.7 million and $3.2 million, respectively, in letters of credit
issued and outstanding. The letters of credits issued and outstanding reduce amounts available
under the revolving portion of the Second Amended and Restated Credit Agreement. Prior to November
1, 2006, the Companys senior secured credit facility was provided pursuant to the Amended and
Restated Credit Agreement (the First Amended and Restated Credit Agreement). This facility
provided for a term loan portion of borrowings and a revolving loan portion of borrowings.
Interest expense, under the terms of the First Amended and Restated Credit Agreement, was generally
determined based upon LIBOR plus an applicable margin.
Senior Subordinated Notes
On March 10, 2004, GCA completed a private placement offering of $235 million 8.75% Senior
Subordinated Notes due March 15, 2012 (the Notes Offering). On October 14, 2004, we completed an
exchange offer of the notes for registered notes of like tenor and effect. The Notes Offering
resulted in proceeds to the Company of $228.3 million net of issuance costs and offering expenses.
Interest on the notes accrues based upon a 360-day year comprised of twelve 30-day months and is
payable semiannually on March 15th and September 15th. Proceeds of the Notes Offering were
utilized to finance in part the redemption of ownership interests in us by First Data Corp and pay
related fees and expenses.
All of the Companys existing and future domestic wholly owned subsidiaries are guarantors of
the notes on a senior subordinated basis. Under terms of the indenture, up to 35% of these notes
may have been redeemed before March 15, 2007, at a price of 108.75% of face, out of the net
proceeds from an equity offering. In October 2005, the Company redeemed $82.25 million of these
notes plus $7.2 million of redemption premium, with the proceeds of its initial public offering
(IPO) of equity securities. The Company may redeem all or a portion of the notes at redemption
prices of 104.375% on or after March 15, 2008, 102.188% on or after March 15, 2009 or 100.000% on
or after March 15, 2010.
As of December 31, 2008 and 2007, the Company had $152.8 million in borrowings outstanding
under the Notes Offering. At December 31, 2008, we believe that we were in compliance with all of
our covenants under the Notes Offering.
Loss on Early Extinguishment of Debt
In November 2006, completion of the refinancing related to the Second Amended and Restated
Credit Agreement resulted in the write-off of $3.4 million, representing all of the remaining
capitalized deferred financing costs associated with the First Amended and Restated Credit
Agreement. These amounts have been included within the loss on early extinguishment of debt.
75
Minimum Aggregate Repayment Schedule
At December 31, 2008, the minimum aggregate repayment (excluding excess cash flow payments)
for all borrowings for the years then ending was (in thousands):
|
|
|
|
|
2009 |
|
$ |
16,000 |
|
2010 |
|
|
1,000 |
|
2011 |
|
|
96,000 |
|
2012 |
|
|
152,750 |
|
2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
265,750 |
|
|
|
|
|
9. CAPITAL STOCK
In September 2005, the Company completed an initial public offering of 16,064,157 shares of
common stock at $14.00 per share. Existing stockholders sold 7,064,157 of these shares and the
remaining 9,000,000 shares were sold by the Company. In October 2005, the underwriters exercised
their option to purchase an additional 1,053,568 shares of stock from the Company and 1,165,656
shares of stock from the existing stockholders. The net proceeds to the Company from this combined
equity offering were $130.9 million after deducting underwriting discounts. On October 31, 2005,
the Company used $90.3 million of the net proceeds to repay $82.25 million of Senior Subordinated
Notes and to pay a redemption premium and accrued interest on the repaid notes. Also on October
31, 2005, the Company used $20.0 million of the IPO proceeds to repay $20.0 million of the term
loan portion of the First Amended and Restated Credit Agreement.
Preferred Stock. The amended and restated certificate of incorporation allows our Board of
Directors, without further action by stockholders, to issue up to 50,000,000 shares of preferred
stock in one or more series and to fix the designations, powers, preferences, privileges and
relative participating, optional, or special rights as well as the qualifications, limitations or
restrictions of the preferred stock, including dividend rights, conversion rights, voting rights,
terms of redemption and liquidation preferences. As of December 31, 2008, we had no shares of
preferred stock outstanding.
Common Stock. Subject to the preferences that may apply to shares of preferred stock that may
be outstanding at the time, the holders of outstanding shares of common stock are entitled to
receive dividends out of assets legally available at the times and in the amounts as our Board of
Directors may from time to time determine. All dividends are non-cumulative. In the event of the
liquidation, dissolution or winding up of the Company, the holders of common stock are entitled to
share ratably in all assets remaining after the payment of liabilities, subject to the prior
distribution rights of preferred stock, if any, then outstanding. Each stockholder is entitled to
one vote for each share of common stock held on all matters submitted to a vote of stockholders.
Cumulative voting for the election of directors is not provided for. The common stock is not
entitled to preemptive rights and is not subject to conversion or redemption. There are no sinking
fund provisions applicable to the common stock. Each outstanding share of common stock is fully
paid and non-assessable. As of December 31, 2008 we had 82,961,129 shares of common stock
outstanding (including 190,251 shares of non-vested restricted stock).
Common Stock Repurchase Program. On February 6, 2007, the Companys Board of Directors
authorized the repurchase of up $50.0 million of the Companys issued and outstanding common stock,
subject to compliance with any contractual limitations on such repurchases under the Companys
financing agreements in effect from time to time, including but not limited to those relating to
the Companys senior secured indebtedness and senior subordinated notes. As of December 31, 2008,
the Company had completed the repurchase of all $50.0 million of stock under the Common Stock Repurchase Program.
76
Treasury Stock. In addition to open market purchases of common stock authorized under the
Common Stock Repurchase Program, employees may direct the Company to withhold vested shares of
restricted stock to satisfy the minimum statutory withholding requirements applicable to their
restricted stock vesting. The following table provides the treasury stock activity occurring in
2008 (number of shares and cost in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number |
|
|
|
|
|
|
|
|
|
of Shares |
|
|
Average Price per |
|
|
Cost of Shares |
|
|
|
Purchased or |
|
|
Share Purchased |
|
|
Purchased or |
|
|
|
Withheld |
|
|
or Withheld |
|
|
Withheld |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2007 |
|
|
4,563 |
|
|
$ |
9.13 |
|
|
$ |
41,668 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares purchase |
|
|
1,398 |
|
|
$ |
5.89 |
|
|
|
8,233 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares withheld from restricted stock vesting |
|
|
56 |
|
|
$ |
5.79 |
|
|
|
325 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008 |
|
|
6,017 |
|
|
$ |
8.35 |
|
|
$ |
50,226 |
|
|
|
|
|
|
|
|
|
|
|
|
10. RELATED PARTY TRANSACTIONS
Karim Maskatiya and Robert Cucinotta were members of our Board of Directors through the dates
of their respective resignations of May 7, 2008 and May 20, 2008. As of December 31, 2008, Mr.
Masakatiya and Mr. Cucinotta owned 11.8% and 11.8%, respectively, of the outstanding equity
interests of the Company. The Company made payments for software development costs and system
maintenance to Infonox on the Web (Infonox) pursuant to agreements with Infonox. At the time the
Company entered into these agreements, Infonox was controlled by Karim Masakatiya and Robert
Cucinotta, who were also then members of our Board of Directors, and
during a portion of the period presented,
Infonox was controlled by family members of Mr. Maskatiya. These family members of Mr. Maskatiya
owned a majority of the ownership interests, and controlled the Board
of Directors of Infonox
until the closing of the sale of Infonox to Total System Services, Inc. on November 4, 2008.
On October 9, 2006, GCA and Infonox, entered into a Joint Amendment to the Amended and
Restated Software License Agreement and the Consulting Agreement that have been in effect since
May 31, 2000 (collectively the Infonox Agreements). Under terms of the Infonox Agreements, both
parties have agreed that they will comply with and adhere to the payment card industry (PCI) data
security standard (DSS) in effect from time to time and shall implement and maintain appropriate
measures designed to meet the objectives of PCI DSS.
The
Company obtains transaction processing services from USA Payment
Systems, a company controlled by
Karim Maskatiya and Robert Cucinotta, pursuant to the Amended and Restated Agreement for Electronic
Payment Processing. Under terms of this agreement, GCA pays a fee to USA Payments for transaction
processing services, which is reflected in cost of revenues (exclusive of depreciation and
amortization), and pays other directly identifiable operating expenses that are included within
operating expenses in the consolidated statements of income. Pursuant to this agreement, GCA is
obligated to pay USA Payments a monthly, fixed processing fee and transaction fees that total
$2.3 million annually through the termination of this agreement in March 2014. Additionally, we
reimburse USA Payments for invoices related mainly to gateway fees and other processing charges
incurred on behalf of the Company from unrelated third parties. These expenses are also classified
as part of cost of revenues (exclusive of depreciation and amortization). In September 2005, the
Company acquired the 3-in-1 rollover patent from USA Payments for
$10.0 million. USA Payments has provided written notice of
termination of this agreement as a result of alleged breaches by the
Company, which the Company disputes. Notwithstanding this dispute,
the Company is in the process of transitioning to a successor
processor during a 180-day transition period.
Karim
Maskatiya and Robert Cucinotta also own MCA Processing, LLC, an
assembler and distributor of redemption devices. From time to time,
GCA has procured those devices on behalf of our customers.
77
The following table represents the transactions with related parties for the years ended
December 31, (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Description of Transaction |
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Infonox on the Web: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software development costs and
maintenance expense |
|
$ |
3,536 |
|
|
$ |
3,594 |
|
|
$ |
1,976 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
USA Payments & USA Payments Systems: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction processing charges |
|
|
3,171 |
|
|
|
3,010 |
|
|
|
2,908 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass through billing related to
gateway fees, telecom and other
items |
|
|
1,185 |
|
|
|
1,384 |
|
|
|
1,312 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sublease income earned for leasing
out corporate office space for
backup servers |
|
|
(20 |
) |
|
|
(18 |
) |
|
|
(18 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
MCA
Processing LLC: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment
purchases |
|
|
710 |
|
|
|
|
|
|
|
|
|
The following table details the amounts receivable from or (liabilities to) these related
parties that are recorded as part of other receivables, net, accounts payable or accrued expenses
in the consolidated balance sheets as of December 31, (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
M&C
International and related companies |
|
$ |
(1 |
) |
|
$ |
31 |
|
|
$ |
42 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total included within receivables, other |
|
$ |
(1 |
) |
|
$ |
31 |
|
|
$ |
42 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
USA Payment Systems |
|
$ |
(212 |
) |
|
$ |
(193 |
) |
|
$ |
(149 |
) |
Infonox on the Web |
|
|
(447 |
) |
|
|
(372 |
) |
|
|
(633 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total included within accounts payable
and
accrued expenses |
|
$ |
(659 |
) |
|
$ |
(565 |
) |
|
$ |
(782 |
) |
|
|
|
|
|
|
|
|
|
|
78
11. INCOME TAXES
In July 2006, the FASB issued FIN 48, which clarifies the accounting and disclosure for
uncertainty in tax positions, as defined. FIN 48 provides that a tax benefit from an uncertain tax
position may be recognized when it is more likely than not that the position will be sustained upon
examination, including resolutions of any related appeals or litigation processes, based on the
technical merits. Income tax positions must meet a more-likely-than-not recognition threshold at
the effective date to be recognized upon the adoption of FIN 48 and in subsequent periods. This
interpretation also provides guidance on measurement, derecognition, classification, interest and
penalties, accounting in interim periods, disclosure and transition. The Company was subject to the
provisions of FIN 48 as of January 1, 2007, and has analyzed filing positions in all of the federal
and state jurisdictions where it is required to file income tax returns, as well as all open tax
years in these jurisdictions. The Company believes that its income tax filing positions and
deductions will be sustained on audit and does not anticipate any adjustments that will result in a
material change to its financial position. Therefore, no reserves for uncertain income tax
positions have been recorded pursuant to FIN 48. In addition, the Company did not record a
cumulative effect adjustment related to the adoption of FIN 48.
We may from time to time be assessed interest or penalties by tax jurisdictions, although any
such assessments historically have been minimal and immaterial to our financial results. The
Companys policy for recording interest and penalties associated with audits and unrecognized tax
benefits is to record such items as a component of income tax expenses.
The income tax provision (benefit) attributable to continuing operations and discontinued operations is
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
Continuing Operations |
|
$ |
23,349 |
|
|
$ |
16,709 |
|
|
$ |
17,832 |
|
Discontinued Operations |
|
|
(2,214 |
) |
|
$ |
(1,983 |
) |
|
$ |
(1,094 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
21,135 |
|
|
$ |
14,726 |
|
|
$ |
16,738 |
|
|
|
|
|
|
|
|
|
|
|
79
The following table presents the domestic and foreign components of pretax income and recorded
income tax expense attributable to continuing operations for the years ended December 31, (amounts
are in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
Components of pretax income: |
|
|
|
|
|
|
|
|
|
|
|
|
Domestic |
|
$ |
49,043 |
|
|
$ |
39,914 |
|
|
$ |
41,257 |
|
Foreign |
|
|
1,715 |
|
|
|
3,789 |
|
|
|
4,945 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
$ |
50,758 |
|
|
$ |
43,703 |
|
|
$ |
46,202 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
Domestic |
|
$ |
22,978 |
|
|
$ |
16,018 |
|
|
$ |
16,678 |
|
Foreign |
|
|
420 |
|
|
|
823 |
|
|
|
1,257 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
$ |
23,398 |
|
|
$ |
16,841 |
|
|
$ |
17,935 |
|
Income tax benefit from minority
ownership loss |
|
|
(49 |
) |
|
|
(132 |
) |
|
|
(103 |
) |
|
|
|
|
|
|
|
|
|
|
Provision for income taxes, as reported |
|
$ |
23,349 |
|
|
$ |
16,709 |
|
|
$ |
17,832 |
|
|
|
|
|
|
|
|
|
|
|
|
The Companys income tax provision attributable to income from continuing
operations before income taxes consists of the following components as of
December 31, (amounts in thousands): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
Current |
|
$ |
437 |
|
|
$ |
858 |
|
|
$ |
1,257 |
|
Deferred |
|
|
22,912 |
|
|
|
15,851 |
|
|
|
16,575 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision for income taxes |
|
$ |
23,349 |
|
|
$ |
16,709 |
|
|
$ |
17,832 |
|
|
|
|
|
|
|
|
|
|
|
80
The reconciliation between the Companys effective tax rate on income from continuing
operations and the statutory tax rate for the years ended December 31, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
Federal statutory rate |
|
|
35.00 |
% |
|
|
35.00 |
% |
|
|
35.00 |
% |
Effect of: |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign provision |
|
|
(0.37 |
) |
|
|
(0.28 |
) |
|
|
(0.06 |
) |
State/Province income tax |
|
|
1.29 |
|
|
|
0.97 |
|
|
|
1.05 |
|
Non-deductible compensation cost |
|
|
10.51 |
|
|
|
3.59 |
|
|
|
2.00 |
|
Change in valuation allowance |
|
|
(0.73 |
) |
|
|
3.02 |
|
|
|
|
|
Non-deductible expenses and other items |
|
|
0.30 |
|
|
|
0.34 |
|
|
|
0.61 |
|
Adjustment to carrying value |
|
|
|
|
|
|
(4.41 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate |
|
|
46.00 |
% |
|
|
38.23 |
% |
|
|
38.60 |
% |
|
|
|
|
|
|
|
|
|
|
The following table outlines the principal components of deferred tax items at December 31,
(amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
Deferred tax assets related to: |
|
|
|
|
|
|
|
|
|
|
|
|
Property, equipment and leasehold improvements |
|
$ |
49 |
|
|
$ |
919 |
|
|
$ |
603 |
|
Accounts receivable allowances |
|
|
5,786 |
|
|
|
4,283 |
|
|
|
3,857 |
|
Foreign tax credits |
|
|
4,297 |
|
|
|
4,297 |
|
|
|
3,872 |
|
Net operating losses |
|
|
2,492 |
|
|
|
4,469 |
|
|
|
3,939 |
|
Stock options FAS 123(R) expense |
|
|
2,374 |
|
|
|
4,973 |
|
|
|
2,269 |
|
Intangibles |
|
|
142,394 |
|
|
|
160,446 |
|
|
|
178,190 |
|
Accrued and prepaid expenses |
|
|
|
|
|
|
|
|
|
|
45 |
|
Other |
|
|
315 |
|
|
|
262 |
|
|
|
|
|
Valuation allowance |
|
|
(949 |
) |
|
|
(1,319 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred income tax assets |
|
|
156,758 |
|
|
|
178,330 |
|
|
|
192,775 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities related to: |
|
|
|
|
|
|
|
|
|
|
|
|
Basis differences related to foreign currency
translation adjustments |
|
|
|
|
|
|
514 |
|
|
|
|
|
Accrued and prepaid expenses |
|
|
87 |
|
|
|
314 |
|
|
|
|
|
Other |
|
|
157 |
|
|
|
275 |
|
|
|
1,034 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred income tax liabilities |
|
|
244 |
|
|
|
1,103 |
|
|
|
1,034 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes, net |
|
$ |
156,514 |
|
|
$ |
177,227 |
|
|
$ |
191,741 |
|
|
|
|
|
|
|
|
|
|
|
For all of our investments in foreign subsidiaries, except for GCA Macau, deferred taxes have
not been provided on unrepatriated earnings in the amount of approximately $6.1 million. These
earnings are considered permanently reinvested, as it is managements intention to reinvest foreign
profits to finance foreign operations.
As
of December 31, 2008 the Company has approximately $7.0 million accumulated federal net
operating losses. The net operating losses can be carried forward and applied to offset taxable
income for 20 years and will expire starting in 2025.
81
As
of December 31, 2008, the Company had approximately $4.3 million in foreign tax credits
available. Foreign tax credits can be offset against future taxable income subject to certain
limitations for a period of 10 years. Approximately $0.6 million, $1.2 million, $1.0 million, $0.9
million and $0.6 million will expire in 2013, 2014, 2015, 2016 and 2017, respectively. During the year ended December 31, 2007, the Company recorded a valuation allowance related to
foreign tax credit deferred tax assets of approximately $1.3 million, due to the expected
expiration of a portion of the foreign tax credit carryforwards, which begin to expire in 2013. As
of December 31, 2008, there has been no change to the expected portion of the foreign tax credit
carryforwards. Realization of the deferred tax assets is dependent on generating sufficient
taxable income in future periods or within applicable carryback periods. Although realization is
not assured, management had recorded a net deferred tax asset for the amount it believes is more
likely than not to be realized. The amount of the deferred tax asset is considered realizable,
however, could be reduced in the near term if estimates of future taxable income are reduced.
As of December 31, 2008, we had a net deferred income tax asset of $156.5 million. We recognized a
deferred tax asset upon our conversion from a limited liability company to a corporation on May 14,
2004. Prior to that time, all tax attributes flowed through to the members of the limited
liability company. The principal component of the deferred tax asset is a difference between our
assets for financial accounting and tax purposes. This difference results from a significant
balance of acquired goodwill of approximately $687 million that was generated as part of the
conversion to a corporation plus approximately $98 million in pre-existing goodwill carried over
from periods prior to the conversion. Both of these assets are recorded for tax purposes but not
for financial accounting purposes. They are amortized over 15 years for tax purposes, resulting in
annual pretax income being $52.3 million lower for tax purposes than for financial accounting
purposes. At an estimated blended domestic effective tax rate of 36.0%, this results in tax
payments being approximately $18.8 million less than the provision for income taxes shown on the
income statement for financial accounting purposes. This is an
expected aggregate of $194.7 million in cash savings over the remaining life of the portion of our deferred tax asset related to
the conversion.
The following is a tabular reconciliation of the total amounts of unrecognized tax benefits for the
year, (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
Unrecognized
Tax Benefit January 1, |
|
$ |
|
|
|
$ |
500 |
|
Gross
increases tax positions in prior period |
|
|
|
|
|
|
|
|
Gross
decreases tax positions in prior period |
|
|
|
|
|
$ |
(500 |
) |
Settlements |
|
|
|
|
|
|
|
|
Lapse of
statute of limitations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized
Tax Benefit December 31, |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
During the year ended December 31, 2007, the Company filed changes in accounting method with
the Internal Revenue Service related to two income tax return methods that gave rise to
unrecognized tax benefits at the beginning of the period. The change in accounting methods that
were filed with the Internal Revenue Service resulted in decreasing of the unrecognized tax benefit
to zero. There has been no change to the Companys unrecognized tax benefits
during the year ended December 31, 2008.
The Company does not anticipate that the total amount of its unrecognized tax benefits will
significantly change during the next twelve months.
The
Company is subject to taxation in the U.S. and various states and
foreign jurisdictions. As of December 21, 2008, the Companys tax years for 2005, 2006, 2007 and 2008 are subject to
examination by the tax authorities. With few exceptions, as of
December 31, 2008, the Company is no longer subject to U.S.
federal, state, local or foreign examination by tax authorities for
years before 2008. Tax year 2004 was open as of December 31,
2007.
12. DISCONTINUED OPERATIONS
On February 7, 2008, the Companys Board of Directors approved a plan to exit the Arriva
business. The Company has since actively marketed the Arriva business for sale and accordingly, has classified the net assets of Arriva as available for sale on the consolidated balance
sheets. The Company estimated the fair value of the Arriva net assets as of December 31, 2008
based on preliminary offers the Company had received in connection with its marketing efforts
as well as through the application of a net present value methodology. Based on the Companys
decision to exit the Arriva business, it recorded pre-tax charges of $5.5 million to reduce the
net assets of the Arriva business to their estimated fair value through December 31, 2008.
As of December 31, 2008 and 2007 the components of assets held for sale are as follows (amounts
in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,616 |
|
|
$ |
13,201 |
|
Total liabilities |
|
|
(76 |
) |
|
|
(1,021 |
) |
|
|
|
|
|
|
|
Assets held for sale |
|
$ |
1,540 |
|
|
$ |
12,180 |
|
|
|
|
|
|
|
|
82
As a result of the implementation of the plan to dispose of the Arriva business, the operating
results of the Arriva business have been removed from continuing operations and reported as
discontinued operations in the condensed consolidated statements of income and comprehensive
income.
Selected financial information that has been reported as discontinued operations for the years
ended December 31, 2008, 2007 and 2006 are as follows (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
Revenue |
|
$ |
2,305 |
|
|
$ |
2,949 |
|
|
$ |
376 |
|
Pretax income(loss) |
|
$ |
(6,149 |
) |
|
$ |
(5,508 |
) |
|
$ |
(2,452 |
) |
Cash
flows from discontinued operations for the years ended
December 31, 2008, 2007 and 2006 have not been separately identified in the consolidated statement of cash flows.
13. SEGMENT INFORMATION
Operating segments as defined by SFAS No. 131, Disclosures About Segments of an Enterprise and
Related Information, are components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker, or decision-making
group, in deciding how to allocate resources and in assessing performance. The Companys chief
operating decision-making group consists of the Chief Executive Officer and Chief Financial
Officer. The operating segments are reviewed separately because each represents products that can
be, and often are, sold separately to our customers.
The
Company operates in three distinct business segments: (1) cash
advance, (2) ATM and (3) check services. The Other lines of business category, none
of which exceed the established materiality for segment reporting,
include credit reporting services, Western Union, direct marketing and IFT, among others.
These segments are monitored separately by the Chief Executive Officer and Chief Financial
Officer for performance against our internal forecast and are consistent with our internal
management reporting. The Companys internal management reporting does not allocate overhead or
depreciation and amortization expenses to the respective business segments. For the segment
information presented below, these amounts have been allocated to the respective segments based
upon relation to the business segment (where identifiable) or on respective revenue contribution.
The Companys business is predominantly domestic, with no specific regional concentrations and
no significant assets in foreign locations.
Major customers For the years ended December 31, 2008, 2007 and 2006, the combined revenues
from all segments for our largest customer, were $107.9 million,
$115.3 million and $97.9 million, respectively,
representing 16.1%, 19.3% and 17.9% respectively,
of the Companys total consolidated revenues, respectively.
83
The accounting policies of the operating segments are generally the same as those described in
the summary of significant accounting policies. The tables below present the results of operations
and total assets by operating segment as of, and for the years ended (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
|
|
|
|
|
Check |
|
|
|
|
|
|
|
|
|
|
|
|
Advance |
|
|
ATM |
|
|
Services |
|
|
Other |
|
|
Corporate |
|
|
Total |
|
December 31, 2008: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
326,476 |
|
|
$ |
289,122 |
|
|
$ |
42,366 |
|
|
$ |
13,644 |
|
|
$ |
0 |
|
|
$ |
671,608 |
|
Operating income
exclusive of
depreciation and
amortization |
|
|
74,684 |
|
|
|
45,550 |
|
|
|
18,594 |
|
|
|
11,078 |
|
|
|
(71,260 |
) |
|
|
78,646 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
316,094 |
|
|
$ |
240,575 |
|
|
$ |
31,126 |
|
|
$ |
10,145 |
|
|
$ |
|
|
|
$ |
597,940 |
|
Operating income
exclusive of
depreciation and
amortization |
|
|
77,672 |
|
|
|
43,738 |
|
|
|
13,697 |
|
|
|
8,627 |
|
|
|
(65,516 |
) |
|
|
78,218 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
287,053 |
|
|
$ |
221,727 |
|
|
$ |
29,166 |
|
|
$ |
9,827 |
|
|
$ |
|
|
|
$ |
547,773 |
|
Operating income
exclusive of
depreciation and
amortization |
|
|
76,294 |
|
|
|
41,817 |
|
|
|
9,846 |
|
|
|
5,442 |
|
|
|
(45,159 |
) |
|
|
88,240 |
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
Total Assets |
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
Cash advance |
|
$ |
172,882 |
|
|
$ |
153,444 |
|
ATM |
|
|
111,781 |
|
|
|
68,627 |
|
Check services |
|
|
39,412 |
|
|
|
29,749 |
|
Other |
|
|
22,732 |
|
|
|
27,756 |
|
Discontinued operations |
|
|
1,560 |
|
|
|
18,731 |
|
Corporate |
|
|
210,783 |
|
|
|
239,995 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
559,150 |
|
|
$ |
538,302 |
|
|
|
|
|
|
|
|
14. SUBSEQUENT EVENTS
On February 13, 2009, the Company received written notice from USA Payments of the termination of the Amended and
Restated Agreement for Electronic Payment Processing, dated as of March 10, 2004, by and among GCA, USA Payments and
USA Payment Systems (the Agreement). The Company disputes the alleged breaches of the Agreement upon which the notice
of termination was based, as well as the right of USA Payments to terminate the Agreement.
To the Companys knowledge, Karim Maskatiya and Robert Cucinotta directly or indirectly hold significant ownership
interests in, and serve on the boards of directors of, USA Payment Systems and USA Payments. At the time that the
Company entered into the Agreement, Messrs. Maskatiya and Cucinotta were members of the Companys board of directors
and controlled a majority of the outstanding equity interests in the Company.
84
This Agreement was to expire according to its terms on March 10, 2014. USA Payment Systems and USA Payments have
acknowledged their obligation pursuant to the Agreement to continue to provide services to the Company during a 180-day
transition period. The Company disputes the right of USA Payments to terminate the Agreement. If this dispute is
resolved with the mutual agreement of the Company and USA Payments, the Company may continue to receive services under
the Agreement or a successor agreement with USA Payments or USA Payment Systems. If the Company and USA are unable to
resolve the dispute, the Company will transition to another provider of electronic payment processing services in the
180-day transition period. To prepare for the potential need to transition to a new provider, the Company is already
engaged in discussions with an alternate provider.
15. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First |
|
|
Second |
|
|
Third |
|
|
Fourth |
|
|
|
|
|
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|
Year |
|
|
|
(amounts in thousands, except earnings per share) |
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
143,485 |
|
|
$ |
166,808 |
|
|
$ |
185,059 |
|
|
$ |
176,256 |
|
|
$ |
671,608 |
|
Operating income |
|
|
18,254 |
|
|
|
20,627 |
|
|
|
21,316 |
|
|
|
18,449 |
|
|
|
78,646 |
|
Income from continuing
operations |
|
|
6,148 |
|
|
|
8,456 |
|
|
|
8,405 |
|
|
|
4,487 |
|
|
|
27,495 |
|
Net income |
|
|
1,746 |
|
|
|
8,696 |
|
|
|
8,560 |
|
|
|
4,560 |
|
|
|
23,556 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
0.08 |
|
|
$ |
0.11 |
|
|
$ |
0.11 |
|
|
$ |
0.06 |
|
|
$ |
0.36 |
|
Net income |
|
$ |
0.02 |
|
|
$ |
0.11 |
|
|
$ |
0.11 |
|
|
$ |
0.06 |
|
|
$ |
0.31 |
|
Diluted earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
0.08 |
|
|
$ |
0.11 |
|
|
$ |
0.11 |
|
|
$ |
0.06 |
|
|
$ |
0.36 |
|
Net income |
|
$ |
0.02 |
|
|
$ |
0.11 |
|
|
$ |
0.11 |
|
|
$ |
0.06 |
|
|
$ |
0.31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
148,177 |
|
|
$ |
150,797 |
|
|
$ |
155,762 |
|
|
$ |
143,204 |
|
|
$ |
597,940 |
|
Operating income |
|
|
22,383 |
|
|
|
23,685 |
|
|
|
19,027 |
|
|
|
13,123 |
|
|
|
78,218 |
|
Income from continuing
operations |
|
|
8,587 |
|
|
|
9,303 |
|
|
|
6,497 |
|
|
|
2,843 |
|
|
|
27,230 |
|
Net income |
|
|
7,914 |
|
|
|
8,568 |
|
|
|
5,323 |
|
|
|
1,899 |
|
|
|
23,704 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
0.11 |
|
|
$ |
0.11 |
|
|
$ |
0.08 |
|
|
$ |
0.04 |
|
|
$ |
0.34 |
|
Net income |
|
$ |
0.10 |
|
|
$ |
0.10 |
|
|
$ |
0.07 |
|
|
$ |
0.02 |
|
|
$ |
0.29 |
|
Diluted earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
0.10 |
|
|
$ |
0.11 |
|
|
$ |
0.08 |
|
|
$ |
0.04 |
|
|
$ |
0.33 |
|
Net income |
|
$ |
0.10 |
|
|
$ |
0.10 |
|
|
$ |
0.07 |
|
|
$ |
0.02 |
|
|
$ |
0.29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
129,835 |
|
|
$ |
133,574 |
|
|
$ |
142,789 |
|
|
$ |
141,575 |
|
|
$ |
547,773 |
|
Operating income |
|
|
20,792 |
|
|
|
20,426 |
|
|
|
22,607 |
|
|
|
24,415 |
|
|
|
88,240 |
|
Income from continuing
operations |
|
|
7,013 |
|
|
|
6,490 |
|
|
|
8,015 |
|
|
|
7,035 |
|
|
|
28,553 |
|
Net income |
|
|
6,963 |
|
|
|
6,279 |
|
|
|
7,815 |
|
|
|
5,552 |
|
|
|
26,609 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
0.08 |
|
|
$ |
0.20 |
|
|
$ |
0.25 |
|
|
$ |
0.05 |
|
|
$ |
0.35 |
|
Net income |
|
$ |
0.08 |
|
|
$ |
0.09 |
|
|
$ |
0.11 |
|
|
$ |
0.05 |
|
|
$ |
0.33 |
|
Diluted earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
0.08 |
|
|
$ |
0.08 |
|
|
$ |
0.10 |
|
|
$ |
0.09 |
|
|
$ |
0.35 |
|
Net income |
|
$ |
0.07 |
|
|
$ |
0.08 |
|
|
$ |
0.10 |
|
|
$ |
0.07 |
|
|
$ |
0.32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic shares |
|
|
76,977 |
|
|
|
76,702 |
|
|
|
76,723 |
|
|
|
76,745 |
|
|
|
76,787 |
|
Diluted shares |
|
|
76,979 |
|
|
|
76,703 |
|
|
|
76,724 |
|
|
|
76,755 |
|
|
|
76,796 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic shares |
|
|
81,764 |
|
|
|
81,752 |
|
|
|
81,484 |
|
|
|
79,450 |
|
|
|
81,108 |
|
Diluted shares |
|
|
82,044 |
|
|
|
82,084 |
|
|
|
81,705 |
|
|
|
79,466 |
|
|
|
81,377 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic shares |
|
|
81,556 |
|
|
|
81,619 |
|
|
|
81,690 |
|
|
|
81,699 |
|
|
|
81,641 |
|
Diluted shares |
|
|
81,556 |
|
|
|
82,230 |
|
|
|
82,212 |
|
|
|
82,036 |
|
|
|
81,921 |
|
|
|
|
(1) |
|
The sum of the quarterly per share amounts may not equal the annual
amount reported, as per share amounts are computed independently for each
quarter and for the full year. |
85
16. GUARANTOR INFORMATION
In
March 2004, GCA issued $235 million in aggregate principal amount of 83/4% senior
subordinated notes due 2012 (the Notes). There were $152.8 million in Notes outstanding at
December 31, 2008 and 2007. The Notes are guaranteed by all of the GCAs existing domestic
wholly-owned subsidiaries. In addition, effective upon the closing of the Companys initial public
offering of common stock, Holdings guaranteed, on a subordinated basis, GCAs obligations under
these Notes. These guarantees are full, unconditional, joint and
several. GCA Canada, GCA BVI, GCA
Switzerland, GCA HK, and GCA Macau; all wholly owned non-domestic subsidiaries, and IFT, a
consolidated joint venture, do not guarantee the Notes. The following consolidating schedules
present separate unaudited financial statement information on a combined basis for the parent only,
the issuer, as well as the Companys guarantor subsidiaries and non-guarantor subsidiaries and
affiliate, as of and for the years ended December 31, 2008 and 2007.
86
GLOBAL CASH ACCESS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING SCHEDULE BALANCE SHEET INFORMATION
DECEMBER 31, 2008
(amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined |
|
|
Combined Non- |
|
|
Elimination |
|
|
|
|
|
|
Parent |
|
|
Issuer |
|
|
Guarantors |
|
|
Guarantors |
|
|
Entries * |
|
|
Consolidated |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
|
|
|
$ |
45,122 |
|
|
$ |
17,555 |
|
|
$ |
14,471 |
|
|
$ |
|
|
|
$ |
77,148 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash and cash equivalents |
|
|
|
|
|
|
388 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
388 |
|
Settlement receivables |
|
|
|
|
|
|
48,649 |
|
|
|
87 |
|
|
|
2,868 |
|
|
|
|
|
|
|
51,604 |
|
Other receivables, net |
|
|
|
|
|
|
36,305 |
|
|
|
69,868 |
|
|
|
474 |
|
|
|
(89,888 |
) |
|
|
16,759 |
|
Prepaid and other assets |
|
|
|
|
|
|
10,888 |
|
|
|
670 |
|
|
|
309 |
|
|
|
|
|
|
|
11,867 |
|
Investment in subsidiaries |
|
|
162,973 |
|
|
|
78,820 |
|
|
|
|
|
|
|
|
|
|
|
(241,793 |
) |
|
|
|
|
Asset held for sale |
|
|
|
|
|
|
|
|
|
|
1,540 |
|
|
|
|
|
|
|
|
|
|
|
1,540 |
|
Property, equipment and
leasehold improvements, net |
|
|
|
|
|
|
22,808 |
|
|
|
906 |
|
|
|
705 |
|
|
|
|
|
|
|
24,419 |
|
Goodwill, net |
|
|
|
|
|
|
128,191 |
|
|
|
55,061 |
|
|
|
677 |
|
|
|
|
|
|
|
183,929 |
|
Other intangibles, net |
|
|
|
|
|
|
21,911 |
|
|
|
12,788 |
|
|
|
283 |
|
|
|
|
|
|
|
34,982 |
|
Deferred income taxes, net |
|
|
|
|
|
|
156,522 |
|
|
|
13 |
|
|
|
(21 |
) |
|
|
|
|
|
|
156,514 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL |
|
$ |
162,973 |
|
|
$ |
549,604 |
|
|
$ |
158,488 |
|
|
$ |
19,766 |
|
|
$ |
(331,681 |
) |
|
$ |
559,150 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
(DEFICIT) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement liabilities |
|
$ |
|
|
|
$ |
70,132 |
|
|
$ |
322 |
|
|
$ |
8,696 |
|
|
$ |
|
|
|
$ |
79,150 |
|
Accounts payable |
|
|
|
|
|
|
34,445 |
|
|
|
927 |
|
|
|
189 |
|
|
|
|
|
|
|
35,561 |
|
Accrued expenses |
|
|
|
|
|
|
20,709 |
|
|
|
82,327 |
|
|
|
4,660 |
|
|
|
(89,885 |
) |
|
|
17,811 |
|
Borrowings |
|
|
|
|
|
|
265,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
265,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
|
|
|
|
391,036 |
|
|
|
83,576 |
|
|
|
13,545 |
|
|
|
(89,885 |
) |
|
|
398,272 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MINORITY INTEREST |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY |
|
|
162,973 |
|
|
|
158,568 |
|
|
|
72,912 |
|
|
|
6,221 |
|
|
|
(241,796 |
) |
|
|
160,878 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL |
|
$ |
162,973 |
|
|
$ |
549,604 |
|
|
$ |
158,488 |
|
|
$ |
19,766 |
|
|
$ |
(331,681 |
) |
|
$ |
559,150 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Eliminations include intercompany investments and management fees |
87
GLOBAL CASH ACCESS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING SCHEDULE BALANCE SHEET INFORMATION
DECEMBER 31, 2007
(amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined |
|
|
Combined Non- |
|
|
Elimination |
|
|
|
|
|
|
Parent |
|
|
Issuer |
|
|
Guarantors |
|
|
Guarantors |
|
|
Entries * |
|
|
Consolidated |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
|
|
|
$ |
54,411 |
|
|
$ |
5,411 |
|
|
$ |
11,241 |
|
|
$ |
|
|
|
$ |
71,063 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash and cash
equivalents |
|
|
|
|
|
|
380 |
|
|
|
1,000 |
|
|
|
|
|
|
|
|
|
|
|
1,380 |
|
Settlement receivables |
|
|
|
|
|
|
56,344 |
|
|
|
635 |
|
|
|
4,722 |
|
|
|
(635 |
) |
|
|
61,066 |
|
Other receivables, net |
|
|
928 |
|
|
|
18,010 |
|
|
|
44,324 |
|
|
|
121 |
|
|
|
(48,959 |
) |
|
|
14,424 |
|
Prepaid and other assets |
|
|
|
|
|
|
7,279 |
|
|
|
3 |
|
|
|
336 |
|
|
|
|
|
|
|
7,618 |
|
Investment in subsidiaries |
|
|
138,296 |
|
|
|
97,306 |
|
|
|
|
|
|
|
|
|
|
|
(235,602 |
) |
|
|
|
|
Asset held for sale |
|
|
|
|
|
|
|
|
|
|
12,180 |
|
|
|
|
|
|
|
|
|
|
|
12,180 |
|
Property, equipment and
leasehold improvements, net |
|
|
|
|
|
|
21,721 |
|
|
|
164 |
|
|
|
918 |
|
|
|
|
|
|
|
22,803 |
|
Goodwill, net |
|
|
|
|
|
|
116,574 |
|
|
|
39,471 |
|
|
|
844 |
|
|
|
|
|
|
|
156,889 |
|
Other intangibles, net |
|
|
|
|
|
|
13,290 |
|
|
|
55 |
|
|
|
307 |
|
|
|
|
|
|
|
13,652 |
|
Deferred income taxes, net |
|
|
|
|
|
|
177,199 |
|
|
|
|
|
|
|
28 |
|
|
|
|
|
|
|
177,227 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL |
|
$ |
139,224 |
|
|
$ |
562,513 |
|
|
$ |
103,244 |
|
|
$ |
18,517 |
|
|
$ |
(285,196 |
) |
|
$ |
538,302 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS
EQUITY (DEFICIT) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement liabilities |
|
$ |
|
|
|
$ |
85,751 |
|
|
$ |
635 |
|
|
$ |
7,976 |
|
|
$ |
(635 |
) |
|
$ |
93,727 |
|
Accounts payable |
|
|
|
|
|
|
21,947 |
|
|
|
107 |
|
|
|
348 |
|
|
|
|
|
|
|
22,402 |
|
Accrued expenses |
|
|
928 |
|
|
|
52,904 |
|
|
|
11,856 |
|
|
|
3,533 |
|
|
|
(48,959 |
) |
|
|
20,262 |
|
Borrowings |
|
|
|
|
|
|
263,480 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
263,480 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
928 |
|
|
|
424,082 |
|
|
|
12,598 |
|
|
|
11,857 |
|
|
|
(49,594 |
) |
|
|
399,871 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MINORITY INTEREST |
|
|
|
|
|
|
135 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
135 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY |
|
|
138,296 |
|
|
|
138,296 |
|
|
|
90,646 |
|
|
|
6,660 |
|
|
|
(235,602 |
) |
|
|
138,296 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL |
|
$ |
139,224 |
|
|
$ |
562,513 |
|
|
$ |
103,244 |
|
|
$ |
18,517 |
|
|
$ |
(285,196 |
) |
|
$ |
538,302 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Eliminations include intercompany investments and management fees |
88
GLOBAL CASH ACCESS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING SCHEDULE STATEMENT OF INCOME INFORMATION
YEAR ENDED DECEMBER 31, 2008
(amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined |
|
|
Combined Non- |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Issuer |
|
|
Guarantors |
|
|
Guarantors |
|
|
Eliminations * |
|
|
Consolidated |
|
REVENUES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash advance |
|
$ |
|
|
|
$ |
311,091 |
|
|
$ |
3,249 |
|
|
$ |
12,136 |
|
|
$ |
|
|
|
$ |
326,476 |
|
ATM |
|
|
|
|
|
|
283,820 |
|
|
|
4,121 |
|
|
|
1,181 |
|
|
|
|
|
|
|
289,122 |
|
Check services |
|
|
|
|
|
|
16,447 |
|
|
|
25,919 |
|
|
|
|
|
|
|
|
|
|
|
42,366 |
|
Central Credit and other revenues |
|
|
25,644 |
|
|
|
1,243 |
|
|
|
9,356 |
|
|
|
14 |
|
|
|
(22,613 |
) |
|
|
13,644 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
25,644 |
|
|
|
612,601 |
|
|
|
42,645 |
|
|
|
13,331 |
|
|
|
(22,613 |
) |
|
|
671,608 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues (exclusive of depreciation and amortization) |
|
|
|
|
|
|
(448,750 |
) |
|
|
(35,005 |
) |
|
|
(9,219 |
) |
|
|
|
|
|
|
(492,974 |
) |
Operating expenses |
|
|
|
|
|
|
(75,898 |
) |
|
|
(6,162 |
) |
|
|
(2,717 |
) |
|
|
815 |
|
|
|
(83,962 |
) |
Amortization |
|
|
|
|
|
|
(5,801 |
) |
|
|
(1,183 |
) |
|
|
(167 |
) |
|
|
|
|
|
|
(7,151 |
) |
Depreciation |
|
|
|
|
|
|
(7,900 |
) |
|
|
(690 |
) |
|
|
(285 |
) |
|
|
|
|
|
|
(8,875 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME (LOSS) |
|
|
25,649 |
|
|
|
74,252 |
|
|
|
(395 |
) |
|
|
943 |
|
|
|
(21,798 |
) |
|
|
78,646 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST INCOME (EXPENSE), NET |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
|
|
|
|
2,002 |
|
|
|
43 |
|
|
|
184 |
|
|
|
|
|
|
|
2,229 |
|
Interest expense |
|
|
|
|
|
|
(29,935 |
) |
|
|
(134 |
) |
|
|
(48 |
) |
|
|
|
|
|
|
(30,117 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income (expense), net |
|
|
|
|
|
|
(27,933 |
) |
|
|
(91 |
) |
|
|
136 |
|
|
|
|
|
|
|
(27,888 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE INCOME TAX PROVISION
AND MINORITY OWNERSHIP LOSS |
|
|
25,644 |
|
|
|
46,319 |
|
|
|
(486 |
) |
|
|
1,079 |
|
|
|
(21,798 |
) |
|
|
50,758 |
|
INCOME TAX PROVISION |
|
|
(2,088 |
) |
|
|
(22,849 |
) |
|
|
|
|
|
|
(496 |
) |
|
|
2,084 |
|
|
|
(23,349 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE MINORITY
OWNERSHIP LOSS |
|
|
23,556 |
|
|
|
23,470 |
|
|
|
(486 |
) |
|
|
583 |
|
|
|
(19,714 |
) |
|
|
27,409 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MINORITY OWNERSHIP LOSS, NET OF TAX |
|
|
|
|
|
|
86 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
86 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME FROM CONTINUING OPERATIONS |
|
|
23,556 |
|
|
|
23,556 |
|
|
|
(486 |
) |
|
|
583 |
|
|
|
(19,714 |
) |
|
|
27,495 |
|
LOSS FROM DISCONTINUED OPERATIONS |
|
|
|
|
|
|
|
|
|
|
(3,939 |
) |
|
|
|
|
|
|
|
|
|
|
(3,939 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) |
|
$ |
23,556 |
|
|
$ |
23,556 |
|
|
$ |
(4,425 |
) |
|
$ |
583 |
|
|
$ |
(19,714 |
) |
|
$ |
23,556 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Eliminations include earnings on subsidiaries and management fees |
89
GLOBAL CASH ACCESS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING SCHEDULE STATEMENT OF INCOME INFORMATION
YEAR ENDED DECEMBER 31, 2007
(amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined |
|
|
Combined Non- |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Issuer |
|
|
Guarantors |
|
|
Guarantors |
|
|
Eliminations * |
|
|
Consolidated |
|
REVENUES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash advance |
|
$ |
|
|
|
$ |
307,862 |
|
|
$ |
|
|
|
$ |
8,232 |
|
|
$ |
|
|
|
$ |
316,094 |
|
ATM |
|
|
|
|
|
|
240,318 |
|
|
|
|
|
|
|
257 |
|
|
|
|
|
|
|
240,575 |
|
Check services |
|
|
|
|
|
|
15,050 |
|
|
|
16,076 |
|
|
|
|
|
|
|
|
|
|
|
31,126 |
|
Central Credit and other revenues |
|
|
23,704 |
|
|
|
11,376 |
|
|
|
8,770 |
|
|
|
117 |
|
|
|
(33,822 |
) |
|
|
10,145 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
23,704 |
|
|
|
574,606 |
|
|
|
24,846 |
|
|
|
8,606 |
|
|
|
(33,822 |
) |
|
|
597,940 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues (exclusive of depreciation and
amortization) |
|
|
|
|
|
|
(415,215 |
) |
|
|
(8,070 |
) |
|
|
(5,223 |
) |
|
|
|
|
|
|
(428,508 |
) |
Operating expenses |
|
|
|
|
|
|
(73,885 |
) |
|
|
(3,523 |
) |
|
|
(2,795 |
) |
|
|
589 |
|
|
|
(79,614 |
) |
Amortization |
|
|
|
|
|
|
(5,078 |
) |
|
|
(76 |
) |
|
|
(147 |
) |
|
|
|
|
|
|
(5,301 |
) |
Depreciation |
|
|
|
|
|
|
(6,062 |
) |
|
|
(33 |
) |
|
|
(204 |
) |
|
|
|
|
|
|
(6,299 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME (LOSS) |
|
|
23,704 |
|
|
|
74,366 |
|
|
|
13,144 |
|
|
|
237 |
|
|
|
(33,233 |
) |
|
|
78,218 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST INCOME (EXPENSE), NET |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
|
|
|
|
3,480 |
|
|
|
|
|
|
|
151 |
|
|
|
|
|
|
|
3,631 |
|
Interest expense |
|
|
|
|
|
|
(38,077 |
) |
|
|
(1 |
) |
|
|
(68 |
) |
|
|
|
|
|
|
(38,146 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income (expense), net |
|
|
|
|
|
|
(34,597 |
) |
|
|
(1 |
) |
|
|
83 |
|
|
|
|
|
|
|
(34,515 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE INCOME TAX PROVISION
AND MINORITY OWNERSHIP LOSS |
|
|
23,704 |
|
|
|
39,769 |
|
|
|
13,143 |
|
|
|
320 |
|
|
|
(33,233 |
) |
|
|
43,703 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME TAX PROVISION |
|
|
|
|
|
|
(16,301 |
) |
|
|
|
|
|
|
(408 |
) |
|
|
|
|
|
|
(16,709 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE MINORITY
OWNERSHIP LOSS |
|
|
23,704 |
|
|
|
23,468 |
|
|
|
13,143 |
|
|
|
(88 |
) |
|
|
(33,233 |
) |
|
|
26,994 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MINORITY OWNERSHIP LOSS, NET OF TAX |
|
|
|
|
|
|
236 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
236 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME FROM CONTINUING OPERATIONS |
|
|
23,704 |
|
|
|
23,704 |
|
|
|
13,143 |
|
|
|
(88 |
) |
|
|
(33,233 |
) |
|
|
27,230 |
|
LOSS FROM DISCONTINUED OPERATIONS |
|
|
|
|
|
|
|
|
|
|
(3,526 |
) |
|
|
|
|
|
|
|
|
|
|
(3,526 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) |
|
$ |
23,704 |
|
|
$ |
23,704 |
|
|
$ |
9,617 |
|
|
$ |
(88 |
) |
|
$ |
(33,233 |
) |
|
$ |
23,704 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Eliminations include earnings on subsidiaries and management fees |
90
GLOBAL CASH ACCESS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING SCHEDULE STATEMENT OF INCOME INFORMATION
YEAR ENDED DECEMBER 31, 2006
(amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined |
|
|
Combined Non- |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Issuer |
|
|
Guarantors |
|
|
Guarantors |
|
|
Eliminations * |
|
|
Consolidated |
|
REVENUES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash advance |
|
$ |
|
|
|
$ |
281,733 |
|
|
$ |
|
|
|
$ |
5,320 |
|
|
$ |
|
|
|
$ |
287,053 |
|
ATM |
|
|
|
|
|
|
221,727 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
221,727 |
|
Check services |
|
|
|
|
|
|
18,345 |
|
|
|
10,821 |
|
|
|
|
|
|
|
|
|
|
|
29,166 |
|
Central Credit and other revenues |
|
|
26,609 |
|
|
|
7,944 |
|
|
|
8,511 |
|
|
|
100 |
|
|
|
(33,337 |
) |
|
|
9,827 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
26,609 |
|
|
|
529,749 |
|
|
|
19,332 |
|
|
|
5,420 |
|
|
|
(33,337 |
) |
|
|
547,773 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues (exclusive of depreciation and
amortization) |
|
|
|
|
|
|
(373,899 |
) |
|
|
(7,752 |
) |
|
|
(3,067 |
) |
|
|
|
|
|
|
(384,718 |
) |
Operating expenses |
|
|
|
|
|
|
(60,218 |
) |
|
|
(3,444 |
) |
|
|
(1,930 |
) |
|
|
571 |
|
|
|
(65,021 |
) |
Amortization |
|
|
|
|
|
|
(5,259 |
) |
|
|
(72 |
) |
|
|
(94 |
) |
|
|
|
|
|
|
(5,425 |
) |
Depreciation |
|
|
|
|
|
|
(4,317 |
) |
|
|
(7 |
) |
|
|
(45 |
) |
|
|
|
|
|
|
(4,369 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME (LOSS) |
|
|
26,609 |
|
|
|
86,056 |
|
|
|
8,057 |
|
|
|
284 |
|
|
|
(32,766 |
) |
|
|
88,240 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST INCOME (EXPENSE), NET |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
|
|
|
|
3,325 |
|
|
|
|
|
|
|
152 |
|
|
|
|
|
|
|
3,477 |
|
Interest expense |
|
|
|
|
|
|
(42,098 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(42,098 |
) |
Loss on extinguishment of debt |
|
|
|
|
|
|
(3,417 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,417 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income (expense), net |
|
|
|
|
|
|
(42,190 |
) |
|
|
|
|
|
|
152 |
|
|
|
|
|
|
|
(42,038 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE INCOME TAX PROVISION
AND MINORITY OWNERSHIP LOSS |
|
|
26,609 |
|
|
|
43,866 |
|
|
|
8,057 |
|
|
|
436 |
|
|
|
(32,766 |
) |
|
|
46,202 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME TAX PROVISION |
|
|
|
|
|
|
(17,441 |
) |
|
|
|
|
|
|
(391 |
) |
|
|
|
|
|
|
(17,832 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE MINORITY
OWNERSHIP LOSS |
|
|
26,609 |
|
|
|
26,425 |
|
|
|
8,057 |
|
|
|
45 |
|
|
|
(32,766 |
) |
|
|
28,370 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MINORITY OWNERSHIP LOSS, NET OF TAX |
|
|
|
|
|
|
183 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
183 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME FROM CONTINUING OPERATIONS |
|
|
26,609 |
|
|
|
26,609 |
|
|
|
8,057 |
|
|
|
45 |
|
|
|
(32,766 |
) |
|
|
28,553 |
|
LOSS FROM DISCONTINUED OPERATIONS |
|
|
|
|
|
|
|
|
|
|
(1,944 |
) |
|
|
|
|
|
|
|
|
|
|
(1,944 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) |
|
$ |
26,609 |
|
|
$ |
26,609 |
|
|
$ |
6,113 |
|
|
$ |
45 |
|
|
$ |
(32,766 |
) |
|
$ |
26,609 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Eliminations include earnings on subsidiaries and management fees |
91
GLOBAL CASH ACCESS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING SCHEDULE STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2008
(amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined |
|
|
Combined Non- |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Issuer |
|
|
Guarantors |
|
|
Guarantors |
|
|
Eliminations * |
|
|
Consolidated |
|
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
23,556 |
|
|
$ |
23,556 |
|
|
$ |
(4,422 |
) |
|
$ |
684 |
|
|
$ |
(19,818 |
) |
|
$ |
23,556 |
|
Adjustments to reconcile net income (loss) to
cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of financing costs |
|
|
|
|
|
|
973 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
973 |
|
Amortization of intangibles |
|
|
|
|
|
|
8,440 |
|
|
|
693 |
|
|
|
285 |
|
|
|
|
|
|
|
9,418 |
|
Depreciation |
|
|
|
|
|
|
5,263 |
|
|
|
1,372 |
|
|
|
167 |
|
|
|
|
|
|
|
6,802 |
|
Loss on disposal of assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for bad debts |
|
|
|
|
|
|
|
|
|
|
17,565 |
|
|
|
|
|
|
|
|
|
|
|
17,565 |
|
Deferred income taxes |
|
|
|
|
|
|
20,677 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,677 |
|
Equity income |
|
|
(23,556 |
) |
|
|
3,738 |
|
|
|
|
|
|
|
|
|
|
|
19,818 |
|
|
|
|
|
Minority ownership loss |
|
|
|
|
|
|
(135 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(135 |
) |
Stock-based compensation |
|
|
|
|
|
|
9,050 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,050 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement receivables |
|
|
|
|
|
|
10,164 |
|
|
|
4,456 |
|
|
|
1,854 |
|
|
|
|
|
|
|
16,474 |
|
Other receivables, net |
|
|
929 |
|
|
|
(16,401 |
) |
|
|
(31,672 |
) |
|
|
12,587 |
|
|
|
38,838 |
|
|
|
4,281 |
|
Prepaid and other assets |
|
|
|
|
|
|
(2,193 |
) |
|
|
987 |
|
|
|
(194 |
) |
|
|
|
|
|
|
(1,400 |
) |
Settlement liabilities |
|
|
|
|
|
|
(20,413 |
) |
|
|
(10,956 |
) |
|
|
720 |
|
|
|
|
|
|
|
(30,649 |
) |
Accounts payable |
|
|
|
|
|
|
10,988 |
|
|
|
(2,435 |
) |
|
|
(160 |
) |
|
|
|
|
|
|
8,393 |
|
Accrued expenses |
|
|
(929 |
) |
|
|
(39,143 |
) |
|
|
63,998 |
|
|
|
1,231 |
|
|
|
(38,838 |
) |
|
|
(13,681 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
|
|
|
|
14,564 |
|
|
|
39,586 |
|
|
|
17,174 |
|
|
|
|
|
|
|
71,324 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certegy
Gaming acquisition, net of cash |
|
|
|
|
|
|
(20,783 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20,783 |
) |
Cash Systems, Inc. acquisition, net of cash |
|
|
|
|
|
|
|
|
|
|
(30,098 |
) |
|
|
|
|
|
|
|
|
|
|
(30,098 |
) |
Purchase of property, equipment and leasehold improvements |
|
|
|
|
|
|
(8,205 |
) |
|
|
(76 |
) |
|
|
146 |
|
|
|
|
|
|
|
(8,135 |
) |
Purchase of other intangibles |
|
|
|
|
|
|
(541 |
) |
|
|
|
|
|
|
(143 |
) |
|
|
|
|
|
|
(684 |
) |
Changes in restricted cash and cash equivalents |
|
|
|
|
|
|
(8 |
) |
|
|
1,000 |
|
|
|
|
|
|
|
|
|
|
|
992 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in subsidiaries |
|
|
9,487 |
|
|
|
11,310 |
|
|
|
|
|
|
|
|
|
|
|
(20,797 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
9,487 |
|
|
|
(18,227 |
) |
|
|
(29,174 |
) |
|
|
3 |
|
|
|
(20,797 |
) |
|
|
(58,708 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Eliminations include earnings on subsidiaries and management fees |
(Continued)
92
GLOBAL CASH ACCESS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED SCHEDULE STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2008
(amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined |
|
|
Combined Non- |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Issuer |
|
|
Guarantors |
|
|
Guarantors |
|
|
Eliminations * |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings
under credit facility |
|
$ |
|
|
|
$ |
121,000 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
121,000 |
|
Repayments under credit facility |
|
|
|
|
|
|
(118,730 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(118,730 |
) |
Debt issuance costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of treasury stock |
|
|
(9,487 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,487 |
) |
Minority capital contributions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital contributions |
|
|
|
|
|
|
(9,486 |
) |
|
|
(11,311 |
) |
|
|
|
|
|
|
20,797 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
(9,487 |
) |
|
|
(7,216 |
) |
|
|
(11,311 |
) |
|
|
|
|
|
|
20,797 |
|
|
|
(7,217 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET EFFECT OF EXCHANGE RATE CHANGES
ON CASH AND CASH EQUIVALENTS |
|
|
|
|
|
|
1,586 |
|
|
|
|
|
|
|
(900 |
) |
|
|
|
|
|
|
686 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE IN CASH AND CASH EQUIVALENTS |
|
|
|
|
|
|
(9,293 |
) |
|
|
(899 |
) |
|
|
16,277 |
|
|
|
|
|
|
|
6,085 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTSBeginning
of period |
|
|
|
|
|
|
54,411 |
|
|
|
5,411 |
|
|
|
11,241 |
|
|
|
|
|
|
|
71,063 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTSEnd
of period |
|
$ |
|
|
|
$ |
45,118 |
|
|
$ |
4,512 |
|
|
$ |
27,518 |
|
|
$ |
|
|
|
$ |
77,148 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Eliminations include intercompany investments and management fees |
93
GLOBAL CASH ACCESS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING SCHEDULE STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2007
(amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined |
|
|
Combined Non- |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Issuer |
|
|
Guarantors |
|
|
Guarantors |
|
|
Eliminations * |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
23,704 |
|
|
$ |
23,704 |
|
|
$ |
7,637 |
|
|
$ |
(90 |
) |
|
$ |
(31,251 |
) |
|
$ |
23,704 |
|
Adjustments to reconcile net income (loss) to
cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of financing costs |
|
|
|
|
|
|
973 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
973 |
|
Amortization of intangibles |
|
|
|
|
|
|
5,078 |
|
|
|
262 |
|
|
|
147 |
|
|
|
|
|
|
|
5,487 |
|
Depreciation |
|
|
|
|
|
|
6,062 |
|
|
|
37 |
|
|
|
203 |
|
|
|
|
|
|
|
6,302 |
|
Loss on disposal of assets |
|
|
|
|
|
|
139 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
139 |
|
Provision for bad debts |
|
|
|
|
|
|
|
|
|
|
11,184 |
|
|
|
|
|
|
|
|
|
|
|
11,184 |
|
Deferred income taxes |
|
|
|
|
|
|
14,542 |
|
|
|
|
|
|
|
(28 |
) |
|
|
|
|
|
|
14,514 |
|
Equity income |
|
|
(23,704 |
) |
|
|
(7,547 |
) |
|
|
|
|
|
|
|
|
|
|
31,251 |
|
|
|
|
|
Minority ownership loss |
|
|
|
|
|
|
(368 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(368 |
) |
Stock-based compensation |
|
|
|
|
|
|
22,269 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,269 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement receivables |
|
|
|
|
|
|
81,867 |
|
|
|
236 |
|
|
|
(948 |
) |
|
|
(4,418 |
) |
|
|
76,737 |
|
Other receivables, net |
|
|
36 |
|
|
|
11,796 |
|
|
|
(37,194 |
) |
|
|
375 |
|
|
|
2,160 |
|
|
|
(22,827 |
) |
Prepaid and other assets |
|
|
|
|
|
|
1,676 |
|
|
|
(588 |
) |
|
|
(17 |
) |
|
|
|
|
|
|
1,071 |
|
Settlement liabilities |
|
|
|
|
|
|
(50,545 |
) |
|
|
(4,418 |
) |
|
|
5,748 |
|
|
|
4,418 |
|
|
|
(44,797 |
) |
Accounts payable |
|
|
|
|
|
|
(3,709 |
) |
|
|
108 |
|
|
|
(254 |
) |
|
|
|
|
|
|
(3,855 |
) |
Accrued expenses |
|
|
(360 |
) |
|
|
(9,558 |
) |
|
|
11,731 |
|
|
|
1,688 |
|
|
|
(2,160 |
) |
|
|
1,341 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
(324 |
) |
|
|
96,379 |
|
|
|
(11,005 |
) |
|
|
6,824 |
|
|
|
|
|
|
|
91,874 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property, equipment and leasehold
improvements |
|
|
|
|
|
|
(8,364 |
) |
|
|
(183 |
) |
|
|
(955 |
) |
|
|
|
|
|
|
(9,502 |
) |
Purchase of other intangibles |
|
|
|
|
|
|
(1,094 |
) |
|
|
(77 |
) |
|
|
(257 |
) |
|
|
|
|
|
|
(1,428 |
) |
Changes in restricted cash and cash equivalents |
|
|
|
|
|
|
(30 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(30 |
) |
|
Investments in subsidiaries |
|
|
39,416 |
|
|
|
(15,100 |
) |
|
|
|
|
|
|
|
|
|
|
(24,316 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
39,416 |
|
|
|
(24,588 |
) |
|
|
(260 |
) |
|
|
(1,212 |
) |
|
|
(24,316 |
) |
|
|
(10,960 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Eliminations include intercompany investments and management fees |
(Continued)
94
GLOBAL CASH ACCESS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED SCHEDULE STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2007
(amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined |
|
|
Combined Non- |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Issuer |
|
|
Guarantors |
|
|
Guarantors |
|
|
Eliminations * |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments under credit facility |
|
$ |
|
|
|
$ |
(11,000 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(11,000 |
) |
Debt issuance costs |
|
|
|
|
|
|
(23 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23 |
) |
Exercise of stock options |
|
|
1,287 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,287 |
|
Purchase of treasury stock |
|
|
(40,379 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(40,379 |
) |
Minority capital contributions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
400 |
|
|
|
400 |
|
Capital contributions |
|
|
|
|
|
|
(39,416 |
) |
|
|
14,500 |
|
|
|
1,000 |
|
|
|
23,916 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used
in) financing activities |
|
|
(39,092 |
) |
|
|
(50,439 |
) |
|
|
14,500 |
|
|
|
1,000 |
|
|
|
24,316 |
|
|
|
(49,715 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET EFFECT OF EXCHANGE RATE CHANGES
ON CASH AND CASH EQUIVALENTS |
|
|
|
|
|
|
(1,963 |
) |
|
|
|
|
|
|
908 |
|
|
|
|
|
|
|
(1,055 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE IN CASH AND CASH
EQUIVALENTS |
|
|
|
|
|
|
19,389 |
|
|
|
3,235 |
|
|
|
7,520 |
|
|
|
|
|
|
|
30,144 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTSBeginning
of period |
|
|
|
|
|
|
35,022 |
|
|
|
2,176 |
|
|
|
3,721 |
|
|
|
|
|
|
|
40,919 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTSEnd
of period |
|
$ |
|
|
|
$ |
54,411 |
|
|
$ |
5,411 |
|
|
$ |
11,241 |
|
|
$ |
|
|
|
$ |
71,063 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Eliminations include earnings on subsidiaries and management fees |
95
GLOBAL CASH ACCESS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING SCHEDULE STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2006
(amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined |
|
|
Combined Non- |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Issuer |
|
|
Guarantors |
|
|
Guarantors |
|
|
Eliminations * |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
26,609 |
|
|
$ |
26,609 |
|
|
$ |
5,021 |
|
|
$ |
42 |
|
|
$ |
(31,672 |
) |
|
$ |
26,609 |
|
Adjustments to reconcile net income (loss) to
cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of financing costs |
|
|
|
|
|
|
1,584 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,584 |
|
Amortization of intangibles |
|
|
|
|
|
|
5,259 |
|
|
|
167 |
|
|
|
94 |
|
|
|
|
|
|
|
5,520 |
|
Depreciation |
|
|
|
|
|
|
4,317 |
|
|
|
7 |
|
|
|
45 |
|
|
|
|
|
|
|
4,369 |
|
Gain on sale or disposal of assets |
|
|
|
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6 |
) |
Loss on early extinguishment of debt |
|
|
|
|
|
|
3,417 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,417 |
|
Provision for bad debts |
|
|
|
|
|
|
|
|
|
|
6,483 |
|
|
|
|
|
|
|
|
|
|
|
6,483 |
|
Deferred income taxes |
|
|
|
|
|
|
15,899 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,899 |
|
Equity income |
|
|
(26,609 |
) |
|
|
(5,063 |
) |
|
|
|
|
|
|
|
|
|
|
31,672 |
|
|
|
|
|
Minority ownership loss |
|
|
|
|
|
|
(287 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(287 |
) |
Stock-based compensation |
|
|
|
|
|
|
9,141 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,141 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement receivables |
|
|
|
|
|
|
(78,621 |
) |
|
|
(2,186 |
) |
|
|
(2,639 |
) |
|
|
6,792 |
|
|
|
(76,654 |
) |
Other receivables, net |
|
|
|
|
|
|
(19,211 |
) |
|
|
(15,141 |
) |
|
|
(858 |
) |
|
|
24,707 |
|
|
|
(10,503 |
) |
Prepaid and other assets |
|
|
|
|
|
|
(1,833 |
) |
|
|
(1 |
) |
|
|
(72 |
) |
|
|
|
|
|
|
(1,906 |
) |
Settlement liabilities |
|
|
|
|
|
|
76,965 |
|
|
|
5,053 |
|
|
|
1,223 |
|
|
|
(5,053 |
) |
|
|
78,188 |
|
Accounts payable |
|
|
|
|
|
|
5,552 |
|
|
|
(10 |
) |
|
|
325 |
|
|
|
|
|
|
|
5,867 |
|
Accrued expenses |
|
|
|
|
|
|
22,950 |
|
|
|
3,103 |
|
|
|
2,751 |
|
|
|
(26,446 |
) |
|
|
2,358 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
|
|
|
|
66,672 |
|
|
|
2,496 |
|
|
|
911 |
|
|
|
|
|
|
|
70,079 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property, equipment and leasehold improvements |
|
|
|
|
|
|
(13,830 |
) |
|
|
(30 |
) |
|
|
(335 |
) |
|
|
|
|
|
|
(14,195 |
) |
Purchase of other intangibles |
|
|
|
|
|
|
(820 |
) |
|
|
(566 |
) |
|
|
(130 |
) |
|
|
|
|
|
|
(1,516 |
) |
Changes in restricted cash and cash equivalents |
|
|
|
|
|
|
(350 |
) |
|
|
(1,000 |
) |
|
|
|
|
|
|
|
|
|
|
(1,350 |
) |
Investments in subsidiaries |
|
|
(1,488 |
) |
|
|
(1,360 |
) |
|
|
|
|
|
|
|
|
|
|
2,848 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(1,488 |
) |
|
|
(16,360 |
) |
|
|
(1,596 |
) |
|
|
(465 |
) |
|
|
2,848 |
|
|
|
(17,061 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Eliminations include intercompany investments and management fees |
(Continued)
96
GLOBAL CASH ACCESS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED SCHEDULE STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2006
(amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined |
|
|
Combined Non- |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Issuer |
|
|
Guarantors |
|
|
Guarantors |
|
|
Eliminations * |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings under credit facility |
|
$ |
|
|
|
$ |
121,730 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
121,730 |
|
Repayments under credit facility |
|
|
|
|
|
|
(168,662 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(168,662 |
) |
Debt issuance costs |
|
|
|
|
|
|
(1,557 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,557 |
) |
Exercise of stock options |
|
|
1,488 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,488 |
|
Minority capital contributions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
240 |
|
|
|
240 |
|
Capital contributions |
|
|
|
|
|
|
1,488 |
|
|
|
1,000 |
|
|
|
600 |
|
|
|
(3,088 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
1,488 |
|
|
|
(47,001 |
) |
|
|
1,000 |
|
|
|
600 |
|
|
|
(2,848 |
) |
|
|
(46,761 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET EFFECT OF EXCHANGE RATE CHANGES
ON CASH AND CASH EQUIVALENTS |
|
|
|
|
|
|
(526 |
) |
|
|
|
|
|
|
65 |
|
|
|
|
|
|
|
(461 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE IN CASH AND CASH EQUIVALENTS |
|
|
|
|
|
|
2,785 |
|
|
|
1,900 |
|
|
|
1,111 |
|
|
|
|
|
|
|
5,796 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTSBeginning
of period |
|
|
|
|
|
|
32,237 |
|
|
|
276 |
|
|
|
2,610 |
|
|
|
|
|
|
|
35,123 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTSEnd
of period |
|
$ |
|
|
|
$ |
35,022 |
|
|
$ |
2,176 |
|
|
$ |
3,721 |
|
|
$ |
|
|
|
$ |
40,919 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Eliminations include intercompany investments and management fees |
97
ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Attached as exhibits to this Annual Report on Form 10-K are certifications of our Chief Executive
Officer and Chief Financial Officer, which are required pursuant to Rule 13a-14 of the Exchange
Act. This Controls and Procedures section of this Annual Report on Form 10-K includes information
concerning managements assessment of our internal control over financial reporting and the
controls evaluation referenced in the certifications. The report of Deloitte & Touche, LLP, our
independent registered public accounting firm, is also included below. Deloitte & Touche LLPs
report addresses their audit of our internal control over financial reporting. This section of the
Annual Report on Form 10-K should be read in conjunction with the certifications and the report of
Deloitte & Touche, LLP for a more complete understanding of the matters presented.
Evaluation of Disclosure Controls and Procedures
Managements
Report of Internal Control over Financial Reporting
We maintain disclosure controls and procedures that are designed to provide reasonable
assurance that information required to be disclosed in our reports under the Securities Exchange
Act of 1934 is recorded, processed, summarized, and reported within the time period specified in
the Securities and Exchange Commissions rules and forms and that such information is accumulated
and communicated to our management, including our Chief Executive Officer and Chief Financial
Officer, as appropriate, to allow timely decisions regarding required disclosure.
As required by Rule 13a-15(b) promulgated under the Exchange Act, our management, with the
participation of our Chief Executive Officer and Chief Financial Officer, evaluated the design and
operating effectiveness as of December 31, 2008 of our disclosure controls and procedures, as
defined in Rule 13a-15(e) promulgated under the Exchange Act. Based on this evaluation our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures
were effective as of December 31, 2008.
Management conducted an evaluation of the effectiveness of our internal control over financial
reporting based on the framework in Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation,
management concluded that the Companys internal control over financial reporting was effective as
of December 31, 2008. Deloitte & Touche LLP has
audited our internal control over financial reporting as of December 31, 2008 as stated in their
attestation report which is included herein.
Changes
in Internal Control over Financial Reporting during the Quarter Ended December 31, 2008
No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act) occurred during the fourth quarter ended December 31, 2008 that
has materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting.
98
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Global Cash Access, Inc.
Las Vegas, Nevada
We have audited the internal control over financial reporting of Global Cash Access Holdings,
Inc. and subsidiaries (the Company) as of December 31, 2008, based on criteria established in
Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission. The Companys management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the effectiveness of internal control
over financial reporting, included in the accompanying Managements Report on Internal Control Over
Financial Reporting. Our responsibility is to express an opinion on the Companys internal control
over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk,
and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed by, or under the
supervision of, the companys principal executive and principal financial officers, or persons
performing similar functions, and effected by the companys board of directors, management, and
other personnel to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A companys internal control over financial reporting includes
those policies and procedures that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including
the possibility of collusion or improper management override of controls, material misstatements
due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any
evaluation of the effectiveness of the internal control over financial reporting to future periods
are subject to the risk that the controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2008, based on the criteria established in Internal
Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission.
We have also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated financial statements as of and for the year ended
December 31, 2008 of the Company and our report dated March
9, 2009 expressed an unqualified
opinion on those financial statements and includes an explanatory paragraph related to the adoption
of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes-an interpretation of FASB
Statement No. 109.
/s/
Deloitte & Touche
Las Vegas, Nevada
March 9, 2009
99
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information regarding our directors, executive officers and corporate governance required by
this Item is incorporated by reference to the section entitled
Proposal One Election of Class I
Directors in the Companys Definitive Proxy Statement in
connection with the 2009 Annual Meeting
of Stockholders (the Proxy Statement), which
will be filed with the Securities and Exchange
Commission within 120 days after the fiscal year ended December 31, 2008. Information required by
Item 405 of Regulation S-K is incorporated by reference to the section entitled Section 16(a)
Beneficial Ownership Reporting Compliance in the Proxy Statement. Information required by
10A-3(d) of the Exchange Act is incorporated by reference to the section entitled Board and
Corporate Governance Matters in the Proxy Statement.
We have adopted a Code of Business Conduct and Ethics that is designed to qualify as a code
of ethics within the meaning of Section 406 of the Sarbanes-Oxley Act of 2002 and the rules
promulgated there under. The Code of Business Conduct and Ethics is available on our website at
www.gcainc.com. To the extent required by law, any amendments to, or waivers from, any
provision of the Code of Conduct will be promptly disclosed to the public. To the extent permitted
by such legal requirements, we intend to make such public disclosure by posting the relevant
material on our website in accordance with SEC rules.
On
March 17, 2008, our Chief Executive Officer certified to the New York Stock Exchange that
he was not aware of any violation by us of the New York Stock Exchange Corporate Governance listing
standards as of that date.
We have filed, as an exhibit to this Annual Report on Form 10-K, the certifications required
by Section 302 of the Sarbanes-Oxley Act of 2002 and the rules promulgated there under regarding
the quality of our public disclosure.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this Item is incorporated by reference to the section entitled
Executive Compensation, Directors Compensation and Report of Compensation Committee in the
Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
Information regarding security ownership of certain beneficial owners and management is
incorporated by reference to the section entitled Security Ownership of Certain Beneficial Owners
and Management in the Proxy Statement.
100
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information required by this Item is incorporated by reference to the section entitled
Transactions with Related Persons in the Proxy Statement.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information required by this item is incorporated by reference to the section entitled Audit
and Non-Audit Fees in the Proxy Statement.
101
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES [DALE TO UPDATE]
(a) |
|
The following documents are filed as part of this Annual Report on Form 10-K: |
|
1. |
|
Financial Statements |
|
|
|
|
Report of Deloitte & Touche LLP, Independent Registered Public Accounting Firm |
|
|
|
|
Consolidated Balance Sheets as of December 31, 2008 and 2007 |
|
|
|
|
Consolidated Statements of Income and Comprehensive Income for the three years
ended December 31, 2008 |
|
|
|
|
Consolidated Statement of Stockholders Equity (Deficiency) for the three years
ended December 31, 2008 |
|
|
|
|
Consolidated Statements of Cash Flows for the three years ended December 31, 2008 |
|
|
|
|
Notes to Consolidated Financial Statements |
|
|
2. |
|
Financial Statement Schedules |
|
|
|
|
All schedules have been omitted as they are either not required or not
applicable or the required information is included in the consolidated financial
statements or notes thereto. |
|
|
3. |
|
See Item 15(b) |
|
|
|
|
|
Exhibit Number |
|
Exhibit Description |
|
|
|
|
|
|
2.1 |
(16) |
|
Stock Purchase Agreement, by and among Fidelity National
Transaction Services, Inc., Certegy Gaming Services, Inc. and
Global Cash Access, Inc., dated February 28, 2008. |
|
|
|
|
|
|
2.2 |
(17) |
|
Agreement and Plan of Merger, by and among Cash Systems, Inc.,
Global Cash Access, Inc., and Card Acquisition Subsidiary, Inc.,
a wholly owned subsidiary of Global Cash Access, Inc., dated June
13, 2008. |
|
|
|
|
|
|
3.1 |
(1) |
|
Amended and Restated Certificate of Incorporation. |
|
|
|
|
|
|
3.2 |
(4) |
|
Amended and Restated Bylaws. |
|
|
|
|
|
|
4.2 |
(1) |
|
Indenture relating to $235,000,000 aggregate principal amount of
8 3/4% Senior Subordinated Notes due 2012. |
|
|
|
|
|
|
4.3 |
(1) |
|
Form of 8 3/4% Senior Subordinated Notes due 2012. |
|
|
|
|
|
|
4.4 |
(1) |
|
Assumption Agreement, dated as of June 7, 2004, by Global Cash
Access, Inc. and the Subsidiary Guarantors named therein. |
|
|
|
|
|
|
4.5 |
(1) |
|
Supplemental Indenture by and among Global Cash Access Holdings,
Inc., Global Cash Access, Inc., GCA Access Card, Inc., Central
Credit, LLC and The Bank of New York Trust Company, N.A. and form
of notation of Guarantee by Global Cash Access Holdings, Inc. |
|
|
|
|
|
|
4.6 |
(1) |
|
Supplemental Indenture by and among Global Cash Access, Inc., GCA
Access Card, Inc., Central Credit, LLC and The Bank of New York
Trust Company, N.A. and notation of Guarantee by GCA Access Card,
Inc. |
102
|
|
|
|
|
Exhibit Number |
|
Exhibit Description |
|
|
|
|
|
|
4.7 |
(14) |
|
Supplemental Indenture dated as of April 17, 2008, by and among
Certegy Gaming Services, Inc., a wholly-owned subsidiary of
Global Cash Access, Inc., and successor to Global Cash Access,
L.L.C.; Arriva Card, Inc., formerly known as GCA Access Card,
Inc.; Central Credit, LLC; Global Cash Access Holdings, Inc., and
The Bank of New York Trust Company, N.A., as trustee under the
Indenture. |
|
|
|
|
|
|
10.1 |
(1) |
|
Lease Agreement, dated as of March 8, 2000, by and between Global
Cash Access, L.L.C. and American Pacific Capital Gateway Bldg D
Co., L.L.C. |
|
|
|
|
|
|
10.4 |
(1) |
|
Guaranty, dated as of March 10, 2004, among GCA Holdings, L.L.C.,
the guarantors from time to time party hereto and Bank of
America, N.A., as Administrative Agent. |
|
|
|
|
|
|
10.5 |
(1) |
|
Security Agreement including First and Second Amendments thereto,
dated as of March 10, 2004, among the loan parties from time to
time party thereto and Bank of America, N.A., as Collateral
Agent. |
|
|
|
|
|
|
10.6 |
(1) |
|
Pledge Agreement, dated as of March 10, 2004, among the loan
parties from time to time party thereto and Bank of America,
N.A., as Collateral Agent. |
|
|
|
|
|
|
10.7 |
(1) |
|
Membership Unit Redemption Agreement, dated as of March 10, 2004,
between FDFS Holdings, LLC and GCA Holdings, L.L.C. |
|
|
|
|
|
|
10.8 |
(1) |
|
Sponsorship Agreement, dated as of November 1999, by and between
BA Merchant Services, Inc. and Global Cash Access, L.L.C., as
amended by Amendment Number 1 to the Sponsorship Agreement, dated
as of September 2000, among BA Merchant Services, Global Cash
Access, L.L.C. and First Data Corporation. |
|
|
|
|
|
|
10.9 |
(1) |
|
Sponsorship Indemnification Agreement, dated as of March 10,
2004, by and between Global Cash Access, L.L.C. and First Data
Corporation. |
|
|
|
|
|
|
10.10 |
(1) |
|
Amended and Restated Software License Agreement, dated as of
March 10, 2004, between Infonox on the Web and Global Cash
Access, L.L.C. |
|
|
|
|
|
|
10.11 |
(1) |
|
Professional Services Agreement, dated as of March 10, 2004,
between Infonox on the Web and Global Cash Access, L.L.C. |
|
|
|
|
|
|
10.12 |
(1) |
|
Patent License Agreement, dated as of March 10, 2004, between USA
Payments, Inc. and Global Cash Access, L.L.C. |
103
|
|
|
|
|
Exhibit Number |
|
Exhibit Description |
|
|
10.13 |
(1) |
|
Amended and Restated Electronic Payment Processing Agreement,
dated as of March 10, 2004, between Global Cash Access, L.L.C.,
USA Payments Inc. and USA Payment Systems, Inc. |
|
|
|
|
|
|
10.14 |
(1) |
|
Letter Agreement Relating to Technology, dated May 13, 2004,
among Global Cash Access, L.L.C., USA Payments, Inc., USA Payment
Systems, Inc. and Infonox on the Web. |
|
|
|
|
|
|
10.15 |
(1) |
|
Automated Teller Machine Sponsorship Agreement by and between
Global Cash Access, L.L.C. and Western Union Bank, dated as of
November 12, 2002, and First Amendment to Automated Teller
Machine Sponsorship Agreement, dated as of March 10, 2004,
between Global Cash Access, L.L.C. and First Financial Bank. |
|
|
|
|
|
|
10.16 |
(1) |
|
Membership Unit Purchase Agreement, dated as of March 10, 2004,
by and among Bank of America Corporation, M&C International and
GCA Holdings, L.L.C. |
|
|
|
|
|
|
10.17 |
(1) |
|
Amendment to Treasury Services Terms and Conditions BookletATM
Cash Services, dated as of March 8, 2004, by and between Global
Cash Access, L.L.C. and Bank of America, N.A. |
|
|
|
|
|
|
10.18 |
(1) |
|
Limited Liability Company Agreement of QuikPlay, LLC, dated as of
December 6, 2000, between Global Cash Access, L.L.C. and IGT. |
|
|
|
|
|
|
10.19 |
(1) |
|
Registration Agreement, dated as of May 13, 2004, by and among
GCA Holdings, L.L.C., the Investors named therein, M&C
International and Bank of America Corporation. |
|
|
|
|
|
|
10.20 |
(1) |
|
Stockholders Agreement, dated as of May 13, 2004, by and among
GCA Holdings, L.L.C., the Investors named therein, M&C
International and Bank of America Corporation. |
|
|
|
|
|
|
10.21 |
(1) |
|
Investor Rights Agreement, dated as of May 13, 2004, by and among
GCA Holdings, L.L.C., the Investors named therein and M&C
International. |
|
|
|
|
|
|
*10.22 |
(1) |
|
Global Cash Access Holdings, Inc. 2005 Stock Incentive Plan. |
|
|
|
|
|
|
*10.23 |
(1) |
|
Form of Indemnification Agreement between Global Cash Access
Holdings, Inc. and each of its executive officers and directors. |
|
|
|
|
|
|
10.24 |
(1) |
|
Patent Purchase and License Agreement, dated as of March 22,
2005, by and between Global Cash Access, Inc. and USA Payments,
Inc. |
|
|
|
|
|
|
10.25 |
(1) |
|
Termination and Consent, dated as of March 16, 2005, by and among
Global Cash Access Holdings, Inc. and the other parties thereto. |
|
|
|
|
|
|
10.26 |
(1) |
|
Amended and Restated Credit Agreement, dated as of April 13,
2005, by and among Global Cash Access Holdings, Inc., Global Cash
Access, Inc., the banks and other financial institutions from
time to time party thereto, and Bank of America, N.A., as
Administrative Agent, Swingline Lender and L/C Issuer, as amended
by Amendment No. 1 thereto. |
104
|
|
|
|
|
Exhibit Number |
|
Exhibit Description |
|
|
|
|
|
|
*10.27 |
(1) |
|
Employment Agreement, dated as of September 12, 2005, by and
between Global Cash Access, Inc. and Kathryn S. Lever. |
|
|
|
|
|
|
*10.28 |
(2) |
|
Amendment No. 1 to Employment Agreement, dated as of March 16,
2006, by and between Global Cash Access, Inc. and Kathryn S.
Lever. |
|
|
|
|
|
|
+10.29 |
(20) |
|
Master Service Agreement, dated as of November 27, 2006, by and
between Global Cash Access, Inc. and Integrated Payment Systems,
Inc. |
|
|
|
|
|
|
10.30 |
(3) |
|
Second Amended and Restated Credit Agreement, dated as of
November 1, 2006, by and among Global Cash Access Holdings, Inc.,
Global Cash Access, Inc., the banks and other financial
institutions from time to time party thereto, Bank of America,
N.A., as Administrative Agent, and Wachovia Bank, N.A., as
Syndication Agent. |
|
|
|
|
|
|
10.31 |
(5) |
|
Second Amendment to Security Agreement, dated as of January 25,
2007, by and among Global Cash Access Holdings, Inc., Global Cash
Access, Inc., Central Credit, LLC, and Bank of America, N.A., as
Administrative Agent. |
|
|
|
|
|
|
10.32 |
(6) |
|
Amendment No. 1 to Second Amended and Restated Credit Agreement
dated as of June 22, 2007, by and among Global Cash Access
Holdings, Inc., Global Cash Access, Inc., and Bank of America,
N.A., as Administrative Agent. |
|
|
|
|
|
|
10.33 |
(7) |
|
Amendment No. 2 to Second Amended and Restated Credit Agreement
dated as of August 8, 2007, by and among Global Cash Access
Holdings, Inc., Global Cash Access, Inc., and Bank of America,
N.A., as Administrative Agent. |
|
|
|
|
|
|
*10.34 |
(8) |
|
Employment Agreement with Scott Betts, dated October 31, 2007. |
|
|
|
|
|
|
*10.35 |
(9) |
|
Notices of Stock Option Award and Stock Option Award Agreements
with Scott Betts, dated October 31, 2007. |
|
|
|
|
|
|
10.36 |
(10) |
|
Amendment to Treasury Services Terms and Conditions Booklet,
dated December 19, 2007, by and between Global Cash Access, Inc.
and Bank of America, N.A. |
|
|
|
|
|
|
*10.37 |
(11) |
|
Employment Agreement with George Gresham, dated February 25, 2008. |
|
|
|
|
|
|
*10.38 |
(12) |
|
Notice of Stock Option Award and Stock Option Award Agreement
with George Gresham, dated February 25, 2008. |
105
|
|
|
|
|
Exhibit Number |
|
Exhibit Description |
|
|
|
|
|
|
10.39 |
(13) |
|
Amendment to Treasury Services Terms and Conditions Booklet,
dated as of March 13, 2008, by and between Global Cash Access,
Inc. and Bank of America, N.A. |
|
|
|
|
|
|
10.40 |
(15) |
|
Addendum to Master Service Agreement, dated March 20, 2008, by
and between Integrated Payment Systems Inc. and Global Cash
Access, Inc. |
|
|
|
|
|
|
*10.41 |
(18) |
|
Amendment No. 1 to Employment Agreement, by and between the
Company and Scott Betts, dated August 11, 2008. |
|
|
|
|
|
|
*10.42 |
(19) |
|
Amendment No. 2 to Employment Agreement, by and between the
Company and Kathryn S. Lever dated August 11, 2008. |
|
|
|
|
|
|
12.1 |
|
|
Computation of ratio of earnings to fixed charges. |
|
|
|
|
|
|
21.1 |
|
|
Subsidiaries of the Registrant. |
|
|
|
|
|
|
23.1 |
|
|
Consent of Deloitte & Touche LLP. |
|
|
|
|
|
|
24.1 |
|
|
Power of Attorney (see page 115). |
|
|
|
|
|
|
31.1 |
|
|
Certification of Scott Betts, Chief Executive Officer of Global
Cash Access Holdings, Inc. dated March 10, 2009 in accordance
with Rules 13a-14(a) and 15d-14(a) of the Securities Exchange
Act, as amended, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
|
31.2 |
|
|
Certification of George Gresham, Chief Financial Officer of
Global Cash Access Holdings, Inc. dated March 10, 2009 in
accordance with Rules 13a-14(a) and 15d-14(a) of the Securities
Exchange Act, as amended, as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
|
32.1 |
|
|
Certification of Scott Betts, Chief Executive Officer of Global
Cash Access Holdings, Inc. dated March 10, 2009 in accordance
with 18 U.S.C. 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
|
32.2 |
|
|
Certification of George Gresham, Chief Financial Officer of
Global Cash Access Holdings, Inc. dated March 10, 2009 in
accordance with 18 U.S.C. 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002. |
106
|
|
|
(1) |
|
Incorporated by reference to the same numbered exhibit of the
Companys Registration Statement on Form S-1 (Registration No.
333-123514) filed September 22, 2005. |
|
(2) |
|
Incorporated by reference to Exhibit 10.3 of the Companys
Current Report on Form 8-K filed March 17, 2006. |
|
(3) |
|
Incorporated by reference to Exhibit 10.1 of the Companys
Current Report on Form 8-K filed November 7, 2006. |
|
(4) |
|
Incorporated by reference to Exhibit 3.1 of the Companys Current
Report on Form 8-K filed December 26, 2007. |
|
(5) |
|
Incorporated by reference to Exhibit 10.1 of the Companys
Current Report on Form 8-K filed January 25, 2007. |
|
(6) |
|
Incorporated by reference to Exhibit 10.1 of the Companys
Current Report on Form 8-K filed June 26, 2007. |
|
(7) |
|
Incorporated by reference to Exhibit 10.1 of the Companys
Current Report on Form 8-K filed August 9, 2007. |
|
(8) |
|
Incorporated by reference to Exhibit 10.1 of the Companys
Current Report on Form 8-K filed November 2, 2007. |
|
(9) |
|
Incorporated by reference to Exhibit 10.2 of the Companys
Current Report on Form 8-K filed November 2, 2007. |
|
(10) |
|
Incorporated by reference to Exhibit 10.1 of the Companys
Current Report on Form 8-K filed December 26, 2007. |
|
(11) |
|
Incorporated by reference to Exhibit 10.1 of the Companys
Current Report on Form 8-K filed February 25, 2008. |
107
|
|
|
(12) |
|
Incorporated by reference to Exhibit 10.2 of the Companys
Current Report on Form 8-K filed February 25, 2008. |
|
(13) |
|
Incorporated by reference to Exhibit 10.43 of the Companys
Annual Report on Form 10-K filed March 17, 2008. |
|
(14) |
|
Incorporated by reference to Exhibit 4.1 of the Companys
Quarterly Report on Form 10-Q filed May 14, 2008. |
|
(15) |
|
Incorporated by reference to Exhibit 10.1 of the Companys
Current Report on Form 8-K filed March 21, 2008. |
|
(16) |
|
Incorporated by reference to Exhibit 2.1 of the Companys Current
Report on Form 8-K filed April 2, 2008. |
|
(17) |
|
Incorporated by reference to Exhibit 2.1 of the Companys Current
Report on Form 8-K filed June 19, 2008. |
|
(18) |
|
Incorporated by reference to Exhibit 10.1 of the Companys
Current Report on Form 8-K filed August 12, 2008. |
|
(19) |
|
Incorporated by reference to Exhibit 10.2 of the Companys
Current Report on Form 8-K filed August 12, 2008. |
|
(20) |
|
Incorporated by reference to
Exhibit 10.36 of the Companys Annual Report on Form 10-K filed
on March 30, 2007. |
|
* |
|
Management contracts or compensatory plans or arrangements. |
|
+ |
|
Confidential treatment was
requested with regard to certain
portions of this document. |
|
(c) |
|
See Item 15(a)(2). |
|
108
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the
registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the
undersigned, thereunto duly authorized.
|
|
|
|
|
|
GLOBAL CASH ACCESS HOLDINGS, INC.
|
|
|
By: |
/s/ Scott Betts
|
|
|
|
Scott Betts |
|
|
|
President and Chief Executive Officer
(Principal Executive Officer) |
|
Dated:
March 10, 2009
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and
appoints Scott Betts and George Gresham, and each of them, his attorneys-in-fact, each with the
power of substitution, for him in any and all capacities, to sign any amendments to this Annual
Report on Form 10-K and to file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form
10-K has been signed by the following persons on behalf of the registrant in the capacities and on
the date indicated.
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
|
|
|
|
/s/ Scott Betts
Scott Betts
|
|
President and Chief Executive Officer
(Principal Executive Officer)
and Director
|
|
March 10, 2009 |
|
|
|
|
|
/s/ George Gresham
George Gresham
|
|
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
|
|
March 10, 2009 |
|
|
|
|
|
/s/ Karim Maskatiya
Karim Maskatiya
|
|
Director
|
|
March 10, 2009 |
|
|
|
|
|
/s/ Robert Cucinotta
Robert Cucinotta
|
|
Director
|
|
March 10, 2009 |
|
|
|
|
|
/s/ Walter G. Kortschak
Walter G. Kortschak
|
|
Director
|
|
March 10, 2009 |
|
|
|
|
|
/s/ Charles J. Fitzgerald
Charles J. Fitzgerald
|
|
Director
|
|
March 10, 2009 |
|
|
|
|
|
/s/ E. Miles Kilburn
E. Miles Kilburn
|
|
Director
|
|
March 10, 2009 |
|
|
|
|
|
/s/ Geoff Judge
Geoff Judge
|
|
Director
|
|
March 10, 2009 |
|
|
|
|
|
/s/ Fred C. Enlow
Fred C. Enlow
|
|
Director
|
|
March 10, 2009 |
109
EXHIBIT INDEX
|
|
|
|
|
Exhibit Number |
|
Exhibit Description |
|
|
|
|
|
|
12.1 |
|
|
Computation of ratio of earnings to fixed charges |
|
|
|
|
|
|
21.1 |
|
|
Subsidiaries of the Registrant |
|
|
|
|
|
|
23.1 |
|
|
Consent of Deloitte & Touche LLP |
|
|
|
|
|
|
24.1 |
|
|
Power
of Attorney (see page 112) |
|
|
|
|
|
|
31.1 |
|
|
Certification of Scott Betts, Chief Executive Officer of
Global Cash Access Holdings, Inc. dated March 10, 2009 in
accordance with Rules 13a-14(a) and 15d-14(a) of the
Securities Exchange Act, as amended, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
|
|
|
31.2 |
|
|
Certification of George Gresham, Chief Financial Officer of
Global Cash Access Holdings, Inc. dated March 10, 2009 in
accordance with Rules 13a-14(a) and 15d-14(a) of the
Securities Exchange Act, as amended, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
|
|
|
32.1 |
|
|
Certification of Scott Betts, Chief Executive Officer of
Global Cash Access Holdings, Inc. dated March 10, 2009 in
accordance with 18 U.S.C. 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 |
|
|
|
|
|
|
32.2 |
|
|
Certification of George Gresham, Chief Financial Officer of
Global Cash Access Holdings, Inc. dated March 10, 2009 in
accordance with 18 U.S.C. 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 |
110