Attached files
file | filename |
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EX-31.2 - EXHIBIT 31.2 - Everi Holdings Inc. | c07618exv31w2.htm |
EX-31.1 - EXHIBIT 31.1 - Everi Holdings Inc. | c07618exv31w1.htm |
EX-32.2 - EXHIBIT 32.2 - Everi Holdings Inc. | c07618exv32w2.htm |
EX-32.1 - EXHIBIT 32.1 - Everi Holdings Inc. | c07618exv32w1.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2010
OR
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE TRANSITION PERIOD FROM TO
Commission file no 001 32622
GLOBAL CASH ACCESS HOLDINGS, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE | 20-0723270 | |
(State or Other Jurisdiction of | (I.R.S. Employer I.D. No.) | |
Incorporation or Organization) | ||
3525 EAST POST ROAD, SUITE 120 | ||
LAS VEGAS, NEVADA | 89120 | |
(Address of Principal Executive Offices) | (Zip Code) |
Registrants telephone number, including area code:
(800) 833-7110
(800) 833-7110
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed
by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate website, if any, every Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for
such shorter period that the registrant was required to submit and post such files). Yes o No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See definition of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act.
Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o | Smaller reporting company o |
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 November 3, 2010, there were 64,865,731 shares of the Registrants $0.001 par value
per share common stock outstanding.
TABLE OF CONTENTS
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42 | ||||||||
43 | ||||||||
44 | ||||||||
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Exhibit 31.1 | ||||||||
Exhibit 31.2 | ||||||||
Exhibit 32.1 | ||||||||
Exhibit 32.2 |
2
Table of Contents
PART I: FINANCIAL INFORMATION
ITEM 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
GLOBAL CASH ACCESS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except par value)
(unaudited)
September 30, | December 31, | |||||||
2010 | 2009 | |||||||
ASSETS |
||||||||
Cash and cash equivalents |
$ | 43,249 | $ | 84,768 | ||||
Restricted cash and cash equivalents |
469 | 369 | ||||||
Settlement receivables |
16,862 | 11,001 | ||||||
Other receivables, net |
17,300 | 24,523 | ||||||
Inventory |
4,970 | | ||||||
Prepaid and other assets |
9,020 | 10,415 | ||||||
Property, equipment and leasehold improvements, net |
18,670 | 19,419 | ||||||
Goodwill |
184,571 | 174,354 | ||||||
Other intangibles, net |
24,603 | 28,154 | ||||||
Deferred income taxes |
137,207 | 148,764 | ||||||
Total assets |
$ | 456,921 | $ | 501,767 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
LIABILITIES: |
||||||||
Settlement liabilities |
$ | 45,138 | $ | 61,313 | ||||
Accounts payable |
31,153 | 28,482 | ||||||
Accrued expenses |
14,328 | 16,813 | ||||||
Borrowings |
224,000 | 249,750 | ||||||
Total liabilities |
314,619 | 356,358 | ||||||
COMMITMENTS AND CONTINGENCIES (NOTE 5) |
||||||||
STOCKHOLDERS EQUITY |
||||||||
Common stock, $0.001 par value, 500,000 shares authorized and 84,925
and 83,344 shares issued at September 30, 2010 and December 31, 2009,
respectively |
85 | 83 | ||||||
Preferred stock, $0.001 par value, 50,000 shares authorized and 0 shares
outstanding at September 30, 2010 and December 31, 2009, respectively |
| | ||||||
Additional paid in capital |
195,497 | 183,486 | ||||||
Retained earnings |
89,055 | 71,302 | ||||||
Accumulated other comprehensive income |
2,386 | 2,190 | ||||||
Treasury stock, at cost, 20,545 and 15,404 shares at September 30, 2010 and
December 31, 2009, respectively |
(144,721 | ) | (111,564 | ) | ||||
Total Global Cash Access Holdings, Inc. stockholders equity |
142,302 | 145,497 | ||||||
Minority interest |
| (88 | ) | |||||
Total stockholders equity |
142,302 | 145,409 | ||||||
Total liabilities and stockholders equity |
$ | 456,921 | $ | 501,767 | ||||
See notes to unaudited condensed consolidated financial statements.
3
Table of Contents
GLOBAL CASH ACCESS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE
INCOME
(amounts in thousands, except per share)
(unaudited)
(unaudited)
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30 | September 30 | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
REVENUES |
||||||||||||||||
Cash Advance |
$ | 60,546 | $ | 69,741 | $ | 190,514 | $ | 225,899 | ||||||||
ATM |
79,727 | 81,544 | 242,136 | 252,585 | ||||||||||||
Check Services |
6,442 | 9,464 | 22,030 | 30,791 | ||||||||||||
Central Credit and other revenues |
5,406 | 3,570 | 13,103 | 9,689 | ||||||||||||
Total revenues |
152,121 | 164,319 | 467,783 | 518,964 | ||||||||||||
Cost of revenues (exclusive of depreciation and amortization) |
(116,077 | ) | (123,996 | ) | (355,744 | ) | (390,662 | ) | ||||||||
Operating expenses |
(18,740 | ) | (18,595 | ) | (57,036 | ) | (58,722 | ) | ||||||||
Amortization |
(1,729 | ) | (1,883 | ) | (5,418 | ) | (6,212 | ) | ||||||||
Depreciation |
(2,252 | ) | (2,376 | ) | (7,011 | ) | (7,338 | ) | ||||||||
OPERATING INCOME |
13,323 | 17,469 | 42,574 | 56,030 | ||||||||||||
INTEREST INCOME (EXPENSE), NET |
||||||||||||||||
Interest income |
44 | 63 | 123 | 262 | ||||||||||||
Interest expense |
(3,977 | ) | (4,463 | ) | (12,517 | ) | (13,886 | ) | ||||||||
Total interest expense, net |
(3,933 | ) | (4,400 | ) | (12,394 | ) | (13,624 | ) | ||||||||
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME
TAX PROVISION |
9,390 | 13,069 | 30,180 | 42,406 | ||||||||||||
INCOME TAX PROVISION |
(4,471 | ) | (4,966 | ) | (12,371 | ) | (16,114 | ) | ||||||||
INCOME FROM CONTINUING OPERATIONS, NET OF TAX |
4,919 | 8,103 | 17,809 | 26,292 | ||||||||||||
INCOME FROM DISCONTINUED OPERATIONS,
NET OF TAX |
| | | 44 | ||||||||||||
NET INCOME |
4,919 | 8,103 | 17,809 | 26,336 | ||||||||||||
PLUS: NET INCOME (LOSS) ATTRIBUTABLE
TO MINORITY INTEREST |
| 12 | (56 | ) | 45 | |||||||||||
NET INCOME ATTRIBUTABLE TO GLOBAL CASH ACCESS
HOLDINGS, INC. AND SUBSIDIARIES |
4,919 | 8,115 | 17,753 | 26,381 | ||||||||||||
Foreign currency translation, net of tax |
376 | 345 | 196 | 796 | ||||||||||||
COMPREHENSIVE INCOME |
$ | 5,295 | $ | 8,460 | $ | 17,949 | $ | 27,177 | ||||||||
Basic net income per share of common stock: |
||||||||||||||||
Continuing operations |
$ | 0.08 | $ | 0.11 | $ | 0.27 | $ | 0.35 | ||||||||
Discontinued operations |
$ | | $ | | $ | | $ | | ||||||||
Basic net income per share of common stock: |
$ | 0.08 | $ | 0.11 | $ | 0.27 | $ | 0.35 | ||||||||
Diluted net income per share of common stock: |
||||||||||||||||
Continuing operations |
$ | 0.07 | $ | 0.11 | $ | 0.26 | $ | 0.34 | ||||||||
Discontinued operations |
$ | | $ | | $ | | $ | | ||||||||
Diluted net income per share of common stock: |
$ | 0.07 | $ | 0.11 | $ | 0.26 | $ | 0.34 | ||||||||
Weighted average number of common shares outstanding: |
||||||||||||||||
Basic |
65,384 | 72,182 | 66,543 | 75,692 | ||||||||||||
Diluted |
66,240 | 73,845 | 68,186 | 76,566 |
See notes to unaudited condensed consolidated financial statements.
4
Table of Contents
GLOBAL CASH ACCESS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
(unaudited)
Nine Months Ended | ||||||||
September 30 | ||||||||
2010 | 2009 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
Net income |
$ | 17,809 | $ | 26,336 | ||||
Adjustments to reconcile net income to cash provided
by operating activities: |
||||||||
Amortization of financing costs |
729 | 729 | ||||||
Amortization of intangibles |
5,418 | 6,296 | ||||||
Depreciation |
7,011 | 7,338 | ||||||
Loss on sale or disposal of assets |
28 | 26 | ||||||
Provision for bad debts |
3,793 | 5,952 | ||||||
Stock-based compensation |
6,414 | 6,203 | ||||||
Changes in operating assets and liabilities: |
||||||||
Settlement receivables |
7,774 | 46,804 | ||||||
Other receivables, net |
2,646 | (2,254 | ) | |||||
Inventory |
368 | | ||||||
Prepaid and other assets |
1,105 | 87 | ||||||
Deferred income taxes |
11,796 | 12,358 | ||||||
Settlement liabilities |
(29,828 | ) | (42,083 | ) | ||||
Accounts payable |
1,908 | (4,011 | ) | |||||
Accrued expenses |
(1,978 | ) | (4,955 | ) | ||||
Net cash provided by operating activities |
34,993 | 58,826 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||
Acquisition of Western Money, Inc., net of cash |
(15,354 | ) | | |||||
Purchase of property, equipment and leasehold improvements and other intangibles |
(7,787 | ) | (5,297 | ) | ||||
Other |
(100 | ) | (18 | ) | ||||
Net cash used in investing activities |
(23,241 | ) | (5,315 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
Repayment of senior subordinated debt |
(25,000 | ) | | |||||
Repayments under credit facility |
(750 | ) | (15,750 | ) | ||||
Proceeds from exercise of stock options |
5,599 | 2,621 | ||||||
Purchase of treasury stock |
(33,157 | ) | (42,028 | ) | ||||
Net cash used in financing activities |
(53,308 | ) | (55,157 | ) | ||||
See notes to unaudited condensed consolidated financial statements.
5
Table of Contents
GLOBAL CASH ACCESS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
(unaudited)
Nine Months Ended | ||||||||
September 30 | ||||||||
2010 | 2009 | |||||||
NET EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS |
$ | 37 | $ | (1,790 | ) | |||
NET DECREASE IN CASH AND CASH EQUIVALENTS |
(41,519 | ) | (3,436 | ) | ||||
CASH AND CASH EQUIVALENTS Beginning of period |
84,768 | 77,148 | ||||||
CASH AND CASH EQUIVALENTS End of period |
$ | 43,249 | $ | 73,712 | ||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION: |
||||||||
Cash paid for interest |
$ | 15,081 | $ | 16,889 | ||||
Cash paid for taxes, net of refunds |
$ | 497 | $ | 3,670 | ||||
See notes to unaudited condensed consolidated financial statements.
6
Table of Contents
GLOBAL CASH ACCESS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. | BUSINESS AND BASIS OF PRESENTATION |
Overview |
Global Cash Access Holdings, Inc. (Holdings) is a holding company, the principal asset of
which is the capital stock of Global Cash Access, Inc. (GCA). Unless otherwise indicated,
the terms the Company, Holdings, we, us and our refer to Holdings together with its
consolidated subsidiaries. Holdings was formed on February 4, 2004 for the purpose of holding
all of the outstanding capital stock of GCA and to guarantee the obligations under our senior
secured credit facilities.
The Company is a provider in the United States and several international jurisdictions of
cash access products and data intelligence services and solutions to the gaming industry. Our
services and solutions provide gaming establishment patrons access to cash through a variety of
methods, including automated teller machine (ATM) cash withdrawals, credit card cash access
transactions, point-of-sale (POS) debit card transactions, check verification and warranty
services and money transfers. In addition, the Company also provides products and services
that improve credit decision-making, automate cashier operations and enhance patron marketing
activities for gaming establishments. These services are provided either directly by GCA or
through one of its subsidiaries.
The Company also owns and operates a credit reporting agency for the gaming industry
through a wholly-owned subsidiary, Central Credit, LLC (Central Credit), which provides
credit-information services and credit-reporting history on gaming patrons to various gaming
establishments. Central Credit operates in both international and domestic gaming markets.
GCA acquired all of the outstanding capital stock of Western Money Systems (Western
Money) on May 5, 2010 for an aggregate purchase price of $15.4 million. Western Money is a
manufacturer of redemption kiosk devices. The results of operations of Western Money, from the
acquisition date, are included in Central Credit and other revenues for the three and nine
months ended September 30, 2010. Western Money derives substantially all of its revenue from
the sale of redemption kiosk devices and derives the balance of its revenue from the provision
of certain professional services, software licensing and certain other ancillary fees
associated with the sale, installation and operation of such redemption kiosk devices.
The Company provides some services in conjunction with other third party companies that
are beneficially owned or controlled by First Data Corporation (First Data), including TRS
Recovery Services, Inc. and Western Union Financial Services, Inc. (Western Union). GCA is a
money transfer agent for Western Union. Western Union contracts directly with the gaming
establishments and provides GCA commissions on Western Union transactions processed by the
gaming establishment. These commissions are included as part of Central Credit and other
revenues in the accompanying unaudited condensed consolidated statements of income.
Prior to December 31, 2009, the Company operated a subsidiary Arriva Card, Inc. (Arriva)
that issued consumer revolving credit accounts. On February 7, 2008, the Companys Board of
Directors approved a plan to exit the Arriva business. The Company determined as of July 1,
2009, the results of operations for the Arriva line of business were no longer material and the
results of operations for the three and nine months ended September 30, 2010 have been included
in continuing operations.
Innovative Funds Transfer, LLC (IFT), formerly known as QuikPlay, LLC, was a joint
venture that was formed on December 6, 2000, and owned 60% by GCA and 40% by International Game
Technology (IGT). IFT was consolidated in the Companys consolidated financial statements
prior to April 19, 2010, at which time GCA and IGT dissolved IFT. The dissolution of IFT did
not have a material impact on the condensed consolidated financial statements of the Company.
7
Table of Contents
GLOBAL CASH ACCESS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Basis of Presentation
The unaudited condensed consolidated financial statements included herein have been
prepared by the Company pursuant to the rules and regulations of the Securities and Exchange
Commission (SEC). Some of the information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting principles in
the United States have been condensed or omitted pursuant to such rules and regulations,
although the Company believes that the disclosures are adequate to make the information
presented not misleading. In the opinion of management, all adjustments (which include normal
recurring adjustments) necessary for a fair presentation of results for the interim periods
have been made. The results for the three and nine months ended September 30, 2010 are not
necessarily indicative of results to be expected for the full fiscal year.
These unaudited condensed consolidated financial statements should be read in conjunction
with the annual consolidated financial statements and notes thereto included within the
Companys Annual Report on Form 10-K for the year ended December 31, 2009 (the 2009 10-K).
Use of Estimates
The Company has made estimates and judgments affecting the amounts reported in these
financial statements and the accompanying notes. The actual results may differ from these
estimates. The significant accounting estimates incorporated into the Companys unaudited
condensed 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 valuation allowance on our deferred tax asset; and |
||
| the estimated cash flows in assessing the recoverability of long-lived assets. |
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Principles of Consolidation
The unaudited condensed consolidated financial statements presented for the three and nine
months ended September 30, 2010 and 2009 and as of September 30, 2010 and December 31, 2009
include the accounts of Holdings and its subsidiaries.
All intercompany transactions and balances have been eliminated in consolidation.
Earnings Applicable to Common Stock
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 reflects the
effect of potential common stock resulting from assumed stock option exercises.
8
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GLOBAL CASH ACCESS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The weighted-average number of common shares outstanding used in the computation of basic
and diluted earnings per share is as follows (in thousands):
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Weighted average common shares outstanding basic (1) |
65,384 | 72,182 | 66,543 | 75,692 | ||||||||||||
Potential dilution from equity grants (2)(3) |
856 | 1,663 | 1,643 | 874 | ||||||||||||
Weighted average common shares outstanding diluted |
66,240 | 73,845 | 68,186 | 76,566 | ||||||||||||
(1) | Included in the calculation of weighted average common shares outstanding basic are
220 and 470 unvested shares of restricted common stock of Holdings granted in share-based
payment transactions for the three and nine months ended September 30, 2010, respectively,
that are participating securities because such shares have voting rights as well as the
right to participate in dividend distributions made by the Company to its common
stockholders. |
|
(2) | The potential dilution excludes the weighted average effect of stock options to
acquire 618 and 1,252 and 7,533 and 7,995 shares of common stock of Holdings for the three
and nine months ended September 30, 2010 and 2009, respectively, because the application
of the treasury stock method, as required, makes them anti-dilutive. |
|
(3) | The potential dilution excludes the weighted average effect of shares of time-based
shares of restricted common stock of Holdings of 238 and 391 and 477 and 778 shares for
the three and nine months ended September 30, 2010 and 2009, respectively, because the
application of the treasury stock method, as required, makes them anti-dilutive. |
Warranty Receivables
In the check services transactions provided by Central Credit, Central Credit warrants
check cashing transactions performed at gaming establishments. 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. The gaming establishment then pays the patron the
check 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 full check amount and then pursues collection
activities on its own. 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 unaudited condensed consolidated balance sheets. On a monthly basis, Central Credit 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 unaudited condensed
consolidated statements of income. Warranty receivables that are older than 90 days are fully
reserved, and the Company writes off all warranty receivables that are older than one year in
age.
A summary of the activity for the check warranty reserve for the nine months ended
September 30, 2010, is as follows (amounts in thousands):
Balance at | Additions | Balance at | ||||||||||||||
Beginning of | Charged to | End of | ||||||||||||||
Period | Expense | Deductions | Period | |||||||||||||
Nine months ended September 30, 2010 |
$ | 8,595 | $ | 6,688 | $ | (8,823 | ) | $ | 6,460 |
9
Table of Contents
GLOBAL CASH ACCESS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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 Bank of America Treasury
Services Agreement (Treasury Services Agreement), 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):
As of September 30, 2010 | As of December 31, 2009 | |||||||||||||||||||
Fair | Carrying | Fair | Carrying | |||||||||||||||||
Value | Value | Value | Value | Level (1) | ||||||||||||||||
Senior secured credit facility |
$ | 96,250 | $ | 96,250 | $ | 97,000 | $ | 97,000 | 2 | |||||||||||
Senior subordinated notes |
$ | 128,517 | $ | 127,750 | $ | 153,132 | $ | 152,750 | 1 |
(1)- | Level 1 indicates that the fair value is determined by using quoted prices in active markets
for identical investments. Level 2 indicates that the fair value is determined using pricing inputs
other than quoted prices in active markets such as models or other valuation methodologies. Level 3
indicates that the fair value is determined using pricing inputs that are unobservable for the
investment and include situations where there is little, if any, market activity for the
investment. Significant management estimates and judgment are used in the determination of the fair
value of level 3 pricing inputs. |
Inventory
Inventory, which consists of finished goods such as redemption kiosk devices,
work-in-progress and raw materials is stated at lower of cost or market. The cost of inventory
includes cost of materials, labor, overhead and freight. Inventory is accounted for using the
average cost method. Inventory as of September 30, 2010 and December 31, 2009 was $5.0 million
and $0, respectively. All inventory was acquired as part of the Western Money acquisition in
May 2010. Inventory is still subject to final purchase accounting adjustments of Western
Money.
3. | ATM FUNDING AGREEMENTS |
Bank of America Treasury Services Agreement
On December 19, 2007, GCA entered into the Treasury Services Agreement that allowed for
the Company to utilize up to $410 million in funds owned by Bank of America, N.A. (Bank of
America) to provide the currency needed for normal operating requirements for many of the ATMs
operated by the Company. 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. The Treasury Services Agreement expires on December 19, 2010 and the
Company is currently in negotiations with a new ATM currency provider to replace Bank of
America on or prior to the expiration of the term of the Treasury Services Agreement.
10
Table of Contents
GLOBAL CASH ACCESS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The Company recognizes the fees that it pays to Bank of America for cash usage pursuant to
the Treasury Services Agreement as interest expense in our financial statements for the
following reasons:
| the Treasury Services Agreement operates in a fashion similar to a revolving line of
credit in that amounts are drawn and repaid on a daily basis; |
||
| the resource being procured by the Company under the terms of the Treasury Services
Agreement is a financial resource and in the absence of such an arrangement, the
Company would be required to obtain sufficient alternative financing either on balance
sheet or off balance sheet in order to meet its financial obligations; |
||
| the fees of the Treasury Services Agreement are assessed on the outstanding balance
during the applicable period and include a base rate which is tied to LIBOR and a
spread, similar to a credit spread, of 25 basis points; and |
||
| the fees incurred by the Company under the Treasury Services Agreement are a
function of both the prevailing rate of LIBOR as dictated by the capital markets and
the average outstanding balance during the applicable period as previously noted. The
fees do not vary with revenue or any other underlying driver of revenue such as
transaction count or dollars processed as is the case with all costs classified as cost
of revenue such as interchange expense and processing fees. |
Pursuant to the Treasury Services Agreement, the limit on the maximum allowable currency
to be provided by Bank of America is $410 million. The amount provided by Bank of America can
be increased above $410 million at the option of Bank of America.
For the three and nine months ended September 30, 2010 and 2009, the cash usage fees
incurred by the Company were $0.5 million and $1.4 million and $0.5 million and $1.7 million,
respectively. At September 30, 2010 and December 31, 2009, the outstanding balance of ATM cash
utilized by the Company from Bank of America was $379.9 million and $428.3 million,
respectively, and the cash usage interest rates in effect were 0.507% and 0.483%, respectively.
The Company is responsible for any losses of cash in the ATMs under the Treasury Services
Agreement. The Company is self-insured related to this risk. For the three and nine months
ended September 30, 2010 and 2009, the Company has incurred no material losses related to this
self-insurance.
Site Funded ATMs
The Company operates some ATMs at customer locations where the customer provides the cash
required for the ATM operational needs. The Company 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 unaudited condensed consolidated balance
sheets and was $26.0 million and $37.3 million as of September 30, 2010 and December 31, 2009,
respectively. The Company operated 1,527 and 1,456 site-funded ATMs as of September 30, 2010
and December 31, 2009, respectively.
4. | BENEFIT PLANS |
The Company has issued stock options to acquire shares of the common stock of the Company
(options) to directors, officers and key employees under the Companys 2005 Stock Incentive
Plan (the 2005 Plan). Generally, options 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. Options are issued at the current market price on
the date of grant, with a contractual term of 10 years.
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GLOBAL CASH ACCESS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
A summary of award activity under the 2005 Plan as of September 30, 2010 and changes
during the nine months ended is as follows:
Weighted | ||||||||||||||||
Average | Weighted | |||||||||||||||
Exercise | Average Life | Aggregate | ||||||||||||||
Options | Prices | Remaining | Intrinsic Value | |||||||||||||
(in thousands) | ||||||||||||||||
Outstanding December 31, 2009 |
8,861,833 | $ | 6.98 | 8.0 years | $ | 15,763 | ||||||||||
Granted |
1,790,690 | 7.28 | ||||||||||||||
Exercised |
(1,186,327 | ) | 4.72 | |||||||||||||
Forfeited |
(507,985 | ) | 5.55 | |||||||||||||
Outstanding September 30, 2010 |
8,958,211 | $ | 6.97 | 7.6 years | $ | 3,021 | ||||||||||
Exercisable September 30, 2010 |
4,142,117 | $ | 8.83 | 6.6 years | $ | 653 | ||||||||||
The fair value of options was determined as of the date of grant using Black-Scholes
option pricing model with the following weighted-average assumption in the period ended
September 30, 2010 and 2009.
2010 | 2009 | |||||||
Risk-free interest rate |
2.1 | % | 2.9 | % | ||||
Expected life of options (in years) |
6.3 | 6.3 | ||||||
Expected volatility of GCAs stock price |
61.6 | % | 46.2 | % | ||||
Expected dividend yield |
0.0 | % | 0.0 | % |
There were options granted to acquire 1.8 million shares of common stock during the nine
months ended September 30, 2010. During the nine months ended September 30, 2010, the Company
received $5.6 million in proceeds from the exercise of options. During the nine months ended
September 30, 2010, the Company recorded $5.1 million in non-cash compensation expense related
to options granted that are expected to vest. As of September 30, 2010, there was $12.6 million
in unrecognized compensation expense related to options expected to vest. This cost is expected
to be recognized on a straight-line basis over a weighted average period of 1.1 years.
There were options granted to acquire 3.0 million shares of common stock during the nine
months ended September 30, 2009. During the nine months ended September 30, 2009, the Company
received $2.7 million in proceeds from the exercise of options. During the nine months ended
September 30, 2009, we recorded $4.5 million in non-cash compensation expense related to
options granted that are expected to vest. As of September 30, 2009, there was $13.8 million
in unrecognized compensation expense related to options expected to vest over 2.4 years.
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GLOBAL CASH ACCESS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Restricted Stock
The Company issued shares of restricted common stock of the Company to directors, officers
and key employees in the first quarters of 2006, 2007, 2008 and 2009. The vesting provisions
are similar to those applicable to options. Because these shares of restricted stock are issued
primarily to employees of the Company, some of the shares issued will be withheld by the
Company to satisfy the minimum statutory tax withholding requirements applicable to such
restricted stock awards. Therefore, as these awards vest the actual number of shares
outstanding as a result of the restricted stock awards is reduced and the number of shares
included within treasury stock is increased by the amount of shares withheld. During the nine
months ended September 30, 2010, the Company withheld 101,479 shares of restricted stock from
employees with a cumulative vesting commencement date fair value of $0.7 million. These
amounts have been included as part of the total treasury stock repurchased during the period.
A summary of all non-vested awards for the Companys time-based restricted stock awards as
of September 30, 2010 is as follows:
Weighted Average | ||||||||||||
Shares | Grant Date Fair | Aggregate | ||||||||||
Outstanding | Value | Fair Value | ||||||||||
Balance, December 31, 2009 |
1,041,756 | $ | 3.12 | $ | 3,254 | |||||||
Granted |
| | | |||||||||
Vested |
(394,023 | ) | 3.75 | (1,478 | ) | |||||||
Canceled |
(75,198 | ) | 2.76 | (208 | ) | |||||||
Balance September 30, 2010 |
572,535 | $ | 2.74 | $ | 1,569 | |||||||
There were 394,023 shares of time-based restricted stock vested during the nine months
ended September 30, 2010. During the nine months ended September 30, 2010, we recorded $1.3
million in non-cash compensation expense related to the restricted stock granted that is
expected to vest. As of September 30, 2010, there was $1.7 million in unrecognized
compensation expense related to shares of time-based restricted stock expected to vest. This
cost is expected to be recognized on a straight-line basis over a weighted average period of
1.0 years.
5. | COMMITMENTS AND CONTINGENCIES |
Litigation Claims and Assessments
On March 22, 2010, an action was commenced by Sightline Payments, LLC in the United States
District Court, District of Nevada, against Holdings and GCA. The complaint alleges antitrust
violations of Sections 1 and 2 of the Sherman Act and Section 7 of the Clayton Act. The
plaintiff seeks damages in the amount of $300 million and that such damages be trebled. On
August 8, 2010, the District Court issued an Order and Judgment granting the Companys motion
to dismiss this action. On August 13, 2010, Sightline Payments, LLC filed a Notice of Appeal
of the Order and Judgment granting the Companys motion to dismiss. The Company maintains
insurance that will provide for reimbursement of certain 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 16, 2010, the Company commenced an action in the
District Court of Nevada, Clark County, against the three current principals of Sightline
Payments, LLC, all of whom are former executives of the Company. The Company alleges
misappropriation of trade secrets, breach of contract, breach of duty of good faith and fair
dealing and seeks damages and declaratory and injunctive relief. The Company has received a
temporary restraining order barring the defendants in this action from making any continued
disclosure of the Companys proprietary and confidential information.
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GLOBAL CASH ACCESS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
On July 7, 2010, an action was commenced by Automated Systems America, Inc. in the United
States District Court, Central District of California, against Holdings, GCA and certain
current employees of GCA. The complaint seeks a declaratory judgment of invalidity,
unenforceability and non-infringement of certain patents owned by the Company and alleges
antitrust violations of Section 2 of the Sherman Act, unfair competition violations under the
Lanham Act and tortuous interference and
defamation per se. The plaintiff seeks damages in excess of $2 million, punitive damages,
and a trebling of damages associated with the allegations under Section 2 of the Sherman Act.
The Company maintains 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.
Commitments
TSYS Acquiring Solutions, Inc. (TSYS) Processing Commitments. The Company obtains
transaction processing services for electronic payment processing pursuant to an agreement with
TSYS. Under terms of this agreement, which expires in June 2013, GCA is obligated to pay TSYS
monthly processing fees.
Bank of America Amended and Restated Sponsorship Agreement. On October 1, 2010, GCA and
Bank of America, N.A. (Bank of America) entered into an Amended and Restated Sponsorship
Agreement, which superseded the existing Sponsorship Agreement between GCA and B.A. Merchant
Services, Inc., an affiliate of Bank of America, which expired on September 10, 2010. Pursuant
to the Amended and Restated Sponsorship Agreement, Bank of America will continue to provide
sponsorship services to GCA through November 12, 2010 upon substantially the same financial
terms and conditions, except that GCA has agreed to maintain a letter of credit for the benefit
of Bank of America during the term of the Amended and Restated Sponsorship Agreement and for a
period of nine months thereafter to secure GCAs obligations under the Amended and Restated
Sponsorship Agreement. On November 5, 2010, GCA and Bank of America entered into
an amendment to the Amended and Restated Sponsorship Agreement previously
executed on October 1, 2010. Pursuant to this amendment, the term of the Amended and Restated Sponsorship Agreement
has been extended until April 1, 2011. In addition, GCA has agreed to pay Bank of
America a mutually agreed upon fee based on a percentage of dollar volume of credit
and signature debit transactions processed by GCA and that are subject to
the sponsorship services being provided by Bank of America. (See Note 11 - Subsequent Events).
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 of a Bank Identification
Number and Interbank Card Association license under the applicable VISA U.S.A. and MasterCard
International 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 this
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 is adjusted annually based upon
the underlying cash advance volume covered by the Sponsorship Indemnification Agreement. As of
December 31, 2009, the outstanding balance for this letter of credit was $4.1 million. As of
September 30, 2010, the outstanding balance for this letter of credit was $0.3 million.
6. | BORROWINGS |
Second Amended and Restated Credit Agreement
On November 1, 2006, GCA and Holdings entered into a Second Amended and Restated Credit
Agreement with certain lenders. 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 swing line loan
sublimit.
All amounts outstanding under the Second Amended and Restated Credit Agreement are due and
payable on November 3, 2011 (unless such obligations are accelerated pursuant to the terms and
conditions of the Second Amended and Restated Credit Agreement.) The Company is currently in
the process of reviewing potential financing options to refinance the indebtedness outstanding
under the Second Amended and Restated Credit Agreement.
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GLOBAL CASH ACCESS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
As of September 30, 2010 and December 31, 2009, the Company had $96.2 million and $97.0
million, respectively, in borrowings under the term loan facility, $0 under the revolving
credit line, and $0.3 million in letters of credit issued and outstanding. The letters of
credit issued and outstanding reduce amounts available under the revolving portion of the
Second Amended and Restated Credit Agreement. Borrowings under this loan facility bear
interest at a specified number of basis points above a specified base interest rate. As of
September 30, 2010, the weighted average interest rate, inclusive of the applicable margin of
112.5 basis points, was 1.381%.
The Second Amended and Restated Credit Agreement contains customary affirmative and
negative covenants, financial covenants, representations and warranties and events of default,
which are subject to important exceptions and qualifications, as set forth in the Second
Amended and Restated Credit Agreement. As of September 30, 2010, the Company is in compliance
with the required covenants.
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, GCA
completed an exchange offer of such notes for registered notes of like tenor and effect (the
Notes). Interest on the Notes accrues based upon a 360-day year comprised of twelve 30-day
months and is payable semi annually on March 15th and September 15th. All of the Companys
existing and future domestic wholly owned subsidiaries are guarantors of the Notes on a senior
subordinated basis. On May 3, 2010, GCA redeemed prior to their maturity $25.0 million in the
aggregate principal amount of the Notes at a redemption price of 100% of the principal amount
of such Notes. As of December 31, 2009, GCA had $152.8 million in borrowings outstanding under
the Notes Offering and as of September 30, 2010 had $127.8 million in borrowings outstanding
under the Notes Offering.
7. | CAPITAL STOCK |
Common Stock Repurchases
On February 23, 2010, 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 $25.0
million worth of the Companys 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 the Notes. For the three and nine months ended September 30, 2010,
the Company purchased 1,933,341 of its shares of common stock pursuant to this repurchase
authorization for an aggregate purchase price of $7.4 million.
In addition, during the three and nine months ended September 30, 2010, the Company
repurchased or withheld from restricted stock awards 15,656 and 101,479 shares of common stock
at an aggregate purchase price of $0.1 million and $0.7 million, respectively, to satisfy the
minimum applicable tax withholding obligations incident to the vesting of such restricted stock
awards.
8. | RELATED PARTY TRANSACTIONS |
Prior to obtaining processing services from TSYS, the Company obtained transaction
processing services, pursuant to the Amended and Restated Agreement for Electronic Payment
Processing from USA Payments and USA Payment Systems (together USAP), a company controlled by
Karim Maskatiya and Robert Cucinotta, who were former members of our Board of Directors through
the dates of their respective resignations of May 7, 2008 and May 20, 2008. On January 5,
2009, the Company commenced an action in the State of Nevada District Court, Clark County
against USAP in connection with various disputes relating to the Amended and Restated Agreement
for Electronic Payment Processing. In October 2009, USAP paid the Company $1.8 million
pursuant to an executed settlement agreement and agreed to the settlement of all claims and
matters between the parties.
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GLOBAL CASH ACCESS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
On April 8, 2010, the Company repurchased in a privately negotiated transaction 3,105,590
shares of its outstanding common stock from various entities affiliated with Summit Partners,
L.P. for an aggregate purchase price of $25.0 million at a purchase price of $8.05 per share of
common stock. Charles J. Fitzgerald, is a managing partner of Summit Partners, L.P. and until
his term expired on April 29, 2010, was a member of the Companys Board of Directors. The
Company funded this repurchase with its cash on hand. This repurchase was made pursuant to a
new authorization by the Board of Directors of the Company in March 2010, separate from the
$25.0 million share repurchase program previously made on February 23, 2010.
The following table represents the transactions with related parties for the three and
nine months ended September 30, 2010 and 2009 (amounts in thousands):
Three Months Ended | Nine Months Ended | |||||||||||||||||
Name of | September 30, | September 30, | ||||||||||||||||
Related Party | Description of Transaction | 2010 | 2009 | 2010 | 2009 | |||||||||||||
USA Payments and USA Payment Systems |
Transaction processing charges included in cost of revenues (exclusive of depreciation and amortization) | $ | | $ | 703 | $ | | $ | 4,009 | |||||||||
Pass through billing related to gateway fees, telecom and other items included in cost of revenues (exclusive of depreciation and amortization) and operating expenses |
$ | | $ | 326 | $ | | $ | 853 | ||||||||||
Summit Partners, L.P. |
Repurchase of 3,105,590 shares of common stock pursuant to the authorization by the Board of Directors in March 2010 | $ | | $ | | $ | 25,000 | $ | |
9. | INCOME TAXES |
The Companys effective income tax rate from continuing operations for the three and nine
months ended September 30, 2010 was 47.6% and 41.0%, respectively, compared to 38.0% for both
the three and nine months ended September 30, 2009. This increase is due primarily to prior
year tax return and income tax payable true-ups, combined with an increase in the effect of
incentive stock options in proportion to lower pretax income amounts.
The following table presents the recorded income tax expense for the three and nine months
ended September 30, (amounts in thousands):
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Provision for income taxes: |
||||||||||||||||
Provision for income taxes on continuing operations, as
reported |
$ | 4,471 | $ | 4,966 | $ | 12,371 | $ | 16,114 | ||||||||
Provision for income taxes, discontinued operations |
| | | 25 | ||||||||||||
Provision for income taxes, consolidated |
4,471 | 4,966 | 12,371 | 16,139 | ||||||||||||
Provision (benefit) for income taxes, minority loss (income) |
| 7 | (31 | ) | 25 | |||||||||||
Provision for income taxes attributable to GCA Holdings, Inc. |
$ | 4,471 | $ | 4,973 | $ | 12,340 | $ | 16,164 | ||||||||
The Company accounts for uncertain tax positions in accordance with the accounting
guidance issued in July 2006, which clarifies the accounting and disclosure for uncertainty in
tax positions. As of September 30, 2010, there has been no change to the balance of
unrecognized tax benefits reported at December 31, 2009.
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GLOBAL CASH ACCESS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
10. | SEGMENT INFORMATION |
Operating segments 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 the performance
of the Company. 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 or services that can be, and often are, marketed and sold
separately to our customers.
The Company operates in three distinct business segments: (1) cash advance transactions,
(2) ATM transactions, and (3) check services. These segments are monitored separately by
management for performance against its internal forecasts and are consistent with the Companys
internal management reporting.
Other lines of business, none of which exceed the established materiality for segment
reporting, include credit reporting services, Western Money, Western Union, Casino Marketing
Services and Global Recovery Services, among others.
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 three and nine months ended September 30, 2010 and 2009, the combined revenues
from all segments from our largest customer, Harrahs Operating Company, Inc. and its
subsidiaries and affiliates, was approximately $21.3 million and $64.3 million and $23.3
million and $72.4 million, respectively, representing 14.2% and 13.8% and 14.3% and 14.0% of
the Companys total consolidated revenues, respectively. Our five largest customers accounted
for approximately 35.5% and 34.8% and 34.6% and 34.1%, respectively, of our total revenue for
the three and nine months ended September 30, 2010 and 2009, respectively.
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GLOBAL CASH ACCESS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The tables below present the results of operations by operating segment for the three and
nine months ended September 30, 2010 and 2009 and total assets by operating segment as of
September 30, 2010 and December 31, 2009 (amounts in thousands):
The accounting policies of the operating segments are the same as those described in the
summary of significant accounting policies.
Cash | Check | |||||||||||||||||||||||
Advance | ATM | Services | Other | Corporate | Total | |||||||||||||||||||
Three Months Ended September 30,
2010 |
||||||||||||||||||||||||
Revenues |
$ | 60,546 | $ | 79,727 | $ | 6,442 | $ | 5,406 | $ | | $ | 152,121 | ||||||||||||
Operating income (1) |
$ | 12,008 | $ | 10,656 | $ | 3,863 | $ | 3,154 | $ | (16,358 | ) | $ | 13,323 | |||||||||||
Three Months Ended September 30,
2009 |
||||||||||||||||||||||||
Revenues |
$ | 69,741 | $ | 81,544 | $ | 9,464 | $ | 3,570 | $ | | $ | 164,319 | ||||||||||||
Operating income (1) |
15,253 | 10,747 | 5,491 | 2,973 | (16,995 | ) | 17,469 | |||||||||||||||||
Nine Months Ended September 30, 2010 |
||||||||||||||||||||||||
Revenues |
$ | 190,514 | $ | 242,136 | $ | 22,030 | $ | 13,103 | $ | | $ | 467,783 | ||||||||||||
Operating income (1) |
$ | 39,386 | $ | 31,202 | $ | 13,068 | $ | 9,754 | $ | (50,836 | ) | $ | 42,574 | |||||||||||
Nine Months Ended September 30, 2009 |
||||||||||||||||||||||||
Revenues |
$ | 225,899 | $ | 252,585 | $ | 30,791 | $ | 9,689 | $ | | $ | 518,964 | ||||||||||||
Operating income (1) |
$ | 50,242 | $ | 33,256 | $ | 17,408 | $ | 7,894 | $ | (52,770 | ) | $ | 56,030 |
(1) | Depreciation and amortization for segment presentation purposes have been included within the
Corporate segment. |
September 30, | December 31, | |||||||
Total Assets | 2010 | 2009 | ||||||
Cash advance |
$ | 138,197 | $ | 151,811 | ||||
ATM |
81,751 | 77,863 | ||||||
Check services |
34,039 | 47,136 | ||||||
Other |
41,053 | 24,526 | ||||||
Corporate |
161,881 | 200,431 | ||||||
Total assets (1) |
$ | 456,921 | $ | 501,767 | ||||
(1)- | Cash advance assets for the period ending December 31, 2009 have been adjusted from $134.4
million, ATM assets from $89.1 million, other assets from $35.6 million and corporate assets from
$195.6 million to correct a mis-classification of segment assets as of December 31, 2009. The reclassification of this segment information had no impact on income from operations or net income as previously reported. |
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GLOBAL CASH ACCESS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
11. | SUBSEQUENT EVENTS |
On October 1, 2010, GCA and Bank of America entered into an Amended and Restated
Sponsorship Agreement, pursuant to which Bank of America will continue to provide sponsorship
services to GCA through November 12, 2010 upon substantially the same financial terms and
conditions, except that GCA has agreed to maintain a letter of credit in the amount of $2.5
million for the benefit of Bank of America during the term of the Amended and Restated
Sponsorship Agreement and for a period of nine months thereafter to secure GCAs obligations
under the Amended and Restated Sponsorship Agreement.
On November 5, 2010, GCA and Bank of America entered into an amendment to the
Amended and Restated Sponsorship Agreement previously executed on October 1, 2010.
Pursuant to this amendment, the term of the Amended and Restated
Sponsorship Agreement has been extended until April 1, 2011. In
addition, GCA has agreed to pay Bank of America a
mutually agreed upon fee based on a percentage of dollar volume of credit and
signature debit transactions processed by GCA and that are subject to the
sponsorship services being provided by Bank of America.
12. | GUARANTOR INFORMATION |
In March 2004, pursuant to the Notes Offering, GCA issued $235 million in aggregate
principal amount of the Notes. At September 30, 2010 and December 31, 2009 there were $127.8
million and $152.8 million, respectively, in Notes outstanding. The Notes are guaranteed by all
of GCAs existing domestic 100% 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 the Notes. These guarantees are full, unconditional, joint and
several. Global Cash Access (Canada) Inc., Global Cash Access (BVI), Inc., Global Cash Access
Switzerland, AG, Global Cash Access (HK) Ltd., GCA (Macau), S.A., Game Financial Caribbean
N.V., Global Cash Access (Panama), Inc., Global Cash Access (UK) Ltd., Global Cash Access
(Belize) Ltd., and G.C.A. Incorporated, all of which are wholly owned subsidiaries of the
Company, do not guarantee the Notes. Prior to its dissolution, IFT, which was a joint venture,
did not guarantee the Notes. The following consolidating schedules present separate unaudited
condensed financial statement information on a combined basis for GCA only, the issuer, as well
as GCAs guarantor subsidiaries and non-guarantor subsidiaries and affiliates, as of September
30, 2010 and December 31, 2009, and for the three and nine months ended September 30, 2010 and
2009:
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GLOBAL CASH ACCESS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING SCHEDULE BALANCE SHEET INFORMATION
SEPTEMBER 30, 2010
SEPTEMBER 30, 2010
(amounts in thousands)
(unaudited)
(unaudited)
Combined | Combined | Elimination | ||||||||||||||||||||||
Parent | Issuer | Guarantors | Non-Guarantors | Entries * | Consolidated | |||||||||||||||||||
ASSETS |
||||||||||||||||||||||||
Cash and cash equivalents |
$ | | $ | 31,782 | $ | 487 | $ | 10,980 | $ | | $ | 43,249 | ||||||||||||
Restricted cash and cash equivalents |
| 469 | | | | 469 | ||||||||||||||||||
Settlement receivables |
| 33,383 | | 1,353 | (17,874 | ) | 16,862 | |||||||||||||||||
Other receivables, net |
50,886 | 145,938 | 94,285 | 22,753 | (296,562 | ) | 17,300 | |||||||||||||||||
Inventory, net |
| | 4,970 | | | 4,970 | ||||||||||||||||||
Prepaid and other assets |
| 8,257 | 522 | 241 | | 9,020 | ||||||||||||||||||
Investment in subsidiaries |
142,301 | 121,126 | | | (263,427 | ) | | |||||||||||||||||
Property, equipment and
leasehold improvements, net |
| 17,882 | 440 | 348 | | 18,670 | ||||||||||||||||||
Goodwill |
| 128,064 | 55,702 | 805 | | 184,571 | ||||||||||||||||||
Other intangibles, net |
| 24,220 | 159 | 224 | | 24,603 | ||||||||||||||||||
Deferred income taxes |
| 125,567 | 11,648 | (8 | ) | | 137,207 | |||||||||||||||||
TOTAL |
$ | 193,187 | $ | 636,688 | $ | 168,213 | $ | 36,696 | $ | (577,863 | ) | $ | 456,921 | |||||||||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||||||||||||||||||
LIABILITIES: |
||||||||||||||||||||||||
Settlement liabilities |
$ | | $ | 60,406 | $ | | $ | 2,606 | $ | (17,874 | ) | $ | 45,138 | |||||||||||
Accounts payable |
| 30,466 | 555 | 132 | | 31,153 | ||||||||||||||||||
Accrued expenses |
50,885 | 179,514 | 66,188 | 14,303 | (296,562 | ) | 14,328 | |||||||||||||||||
Borrowings |
| 224,000 | | | | 224,000 | ||||||||||||||||||
Total liabilities |
50,885 | 494,386 | 66,743 | 17,041 | (314,436 | ) | 314,619 | |||||||||||||||||
COMMITMENTS AND CONTINGENCIES |
||||||||||||||||||||||||
STOCKHOLDERS EQUITY: |
||||||||||||||||||||||||
Total stockholders equity attributable to GCA, Inc. |
142,302 | 142,302 | 101,470 | 19,655 | (263,427 | ) | 142,302 | |||||||||||||||||
MINORITY INTEREST |
| | | | | | ||||||||||||||||||
Total stockholders equity |
142,302 | 142,302 | 101,470 | 19,655 | (263,427 | ) | 142,302 | |||||||||||||||||
Total liabilities and stockholders equity |
$ | 193,187 | $ | 636,688 | $ | 168,213 | $ | 36,696 | $ | (577,863 | ) | $ | 456,921 | |||||||||||
* | Eliminations include intercompany investments and management fees |
20
Table of Contents
GLOBAL CASH ACCESS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING SCHEDULE BALANCE SHEET INFORMATION
DECEMBER 31, 2009
DECEMBER 31, 2009
(amounts in thousands)
(unaudited)
(unaudited)
Combined | Combined | Elimination | ||||||||||||||||||||||
Parent | Issuer | Guarantors | Non-Guarantors | Entries* | Consolidated | |||||||||||||||||||
ASSETS |
||||||||||||||||||||||||
Cash and cash equivalents |
$ | | $ | 74,272 | $ | 301 | $ | 10,195 | $ | | $ | 84,768 | ||||||||||||
Restricted cash and cash equivalents |
| 369 | | | | 369 | ||||||||||||||||||
Settlement receivables |
| 40,872 | | 1,593 | (31,464 | ) | 11,001 | |||||||||||||||||
Other receivables, net |
12 | 18,174 | 91,557 | 1,456 | (86,676 | ) | 24,523 | |||||||||||||||||
Prepaid and other assets |
| 9,458 | 762 | 195 | | 10,415 | ||||||||||||||||||
Investment in subsidiaries |
145,409 | 110,037 | | | (255,446 | ) | | |||||||||||||||||
Property, equipment and
leasehold improvements, net |
| 18,528 | 427 | 464 | | 19,419 | ||||||||||||||||||
Goodwill |
| 128,064 | 45,500 | 790 | | 174,354 | ||||||||||||||||||
Other intangibles, net |
| 27,592 | 56 | 506 | | 28,154 | ||||||||||||||||||
Deferred income taxes |
| 137,073 | 11,617 | 74 | | 148,764 | ||||||||||||||||||
TOTAL |
$ | 145,421 | $ | 564,439 | $ | 150,220 | $ | 15,273 | $ | (373,586 | ) | $ | 501,767 | |||||||||||
LIABILITIES AND
STOCKHOLDERS EQUITY |
||||||||||||||||||||||||
LIABILITIES: |
||||||||||||||||||||||||
Settlement liabilities |
$ | | $ | 89,610 | $ | 8 | $ | 3,159 | $ | (31,464 | ) | $ | 61,313 | |||||||||||
Accounts payable |
| 28,182 | 162 | 138 | | 28,482 | ||||||||||||||||||
Accrued expenses |
12 | 51,488 | 47,422 | 4,567 | (86,676 | ) | 16,813 | |||||||||||||||||
Borrowings |
| 249,750 | | | | 249,750 | ||||||||||||||||||
Total liabilities |
12 | 419,030 | 47,592 | 7,864 | (118,140 | ) | 356,358 | |||||||||||||||||
COMMITMENTS AND
CONTINGENCIES |
||||||||||||||||||||||||
STOCKHOLDERS EQUITY: |
||||||||||||||||||||||||
Total stockholders equity
attributable to GCA, Inc. |
145,497 | 145,497 | 102,628 | 7,409 | (255,534 | ) | 145,497 | |||||||||||||||||
MINORITY INTEREST |
(88 | ) | (88 | ) | | | 88 | (88 | ) | |||||||||||||||
Total stockholders equity |
145,409 | 145,409 | 102,628 | 7,409 | (255,446 | ) | 145,409 | |||||||||||||||||
Total liabilities and stockholders
equity |
$ | 145,421 | $ | 564,439 | $ | 150,220 | $ | 15,273 | $ | (373,586 | ) | $ | 501,767 | |||||||||||
* | Eliminations include intercompany investments and management fees |
21
Table of Contents
GLOBAL CASH ACCESS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING SCHEDULE STATEMENT OF INCOME INFORMATION
THREE MONTHS ENDED SEPTEMBER 30, 2010
(amounts in thousands)
(unaudited)
(unaudited)
Combined | Combined | |||||||||||||||||||||||
Parent | Issuer | Guarantors | Non-Guarantors | Eliminations * | Consolidated | |||||||||||||||||||
REVENUES: |
||||||||||||||||||||||||
Cash advance |
$ | | $ | 58,741 | $ | | $ | 1,805 | $ | | $ | 60,546 | ||||||||||||
ATM |
| 79,693 | | 34 | | 79,727 | ||||||||||||||||||
Check services |
| 2,714 | 3,728 | | | 6,442 | ||||||||||||||||||
Central Credit and other revenues |
4,919 | 4,424 | 3,691 | | (7,628 | ) | 5,406 | |||||||||||||||||
Total revenues |
4,919 | 145,572 | 7,419 | 1,839 | (7,628 | ) | 152,121 | |||||||||||||||||
Cost of revenues (exclusive of depreciation and amortization) |
| (112,937 | ) | (1,907 | ) | (1,233 | ) | | (116,077 | ) | ||||||||||||||
Operating expenses |
| (15,844 | ) | (2,527 | ) | (521 | ) | 152 | (18,740 | ) | ||||||||||||||
Amortization |
| (1,677 | ) | (8 | ) | (44 | ) | | (1,729 | ) | ||||||||||||||
Depreciation |
| (2,129 | ) | (84 | ) | (39 | ) | | (2,252 | ) | ||||||||||||||
OPERATING INCOME |
4,919 | 12,985 | 2,893 | 2 | (7,476 | ) | 13,323 | |||||||||||||||||
INTEREST INCOME (EXPENSE), NET |
||||||||||||||||||||||||
Interest income |
| 32 | | 12 | | 44 | ||||||||||||||||||
Interest expense |
| (3,975 | ) | | (2 | ) | | (3,977 | ) | |||||||||||||||
Total interest income (expense) , net |
| (3,943 | ) | | 10 | | (3,933 | ) | ||||||||||||||||
INCOME (LOSS) BEFORE INCOME TAX PROVISION |
4,919 | 9,042 | 2,893 | 12 | (7,476 | ) | 9,390 | |||||||||||||||||
INCOME TAX PROVISION |
| (4,125 | ) | (45 | ) | (301 | ) | | (4,471 | ) | ||||||||||||||
INCOME (LOSS) FROM CONTINUING OPERATIONS,
NET OF TAX |
4,919 | 4,917 | 2,848 | (289 | ) | (7,476 | ) | 4,919 | ||||||||||||||||
INCOME (LOSS) FROM DISCONTINUED OPERATIONS,
NET OF TAX |
| | | | | | ||||||||||||||||||
NET INCOME (LOSS) |
4,919 | 4,917 | 2,848 | (289 | ) | (7,476 | ) | 4,919 | ||||||||||||||||
PLUS: NET LOSS ATTRIBUTABLE TO MINORITY
INTEREST |
| | | | | | ||||||||||||||||||
NET INCOME ATTRIBUTABLE TO GCA, INC. |
$ | 4,919 | $ | 4,917 | $ | 2,848 | $ | (289 | ) | $ | (7,476 | ) | $ | 4,919 | ||||||||||
* | Eliminations include earnings on subsidiaries and management fees |
22
Table of Contents
GLOBAL CASH ACCESS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING SCHEDULE STATEMENT OF INCOME INFORMATION
THREE MONTHS ENDED SEPTEMBER 30, 2009
(amounts in thousands)
(unaudited)
Combined | Combined | |||||||||||||||||||||||
Parent | Issuer | Guarantors | Non-Guarantors | Eliminations * | Consolidated | |||||||||||||||||||
REVENUES: |
||||||||||||||||||||||||
Cash advance |
$ | | $ | 67,576 | $ | | $ | 2,165 | $ | | $ | 69,741 | ||||||||||||
ATM |
| 81,407 | | 137 | | 81,544 | ||||||||||||||||||
Check services |
| 4,259 | 5,205 | | | 9,464 | ||||||||||||||||||
Central Credit and other revenues |
8,115 | 6,113 | 2,226 | | (12,884 | ) | 3,570 | |||||||||||||||||
Total revenues |
8,115 | 159,355 | 7,431 | 2,302 | (12,884 | ) | 164,319 | |||||||||||||||||
Cost of revenues (exclusive of
depreciation and amortization) |
| (120,296 | ) | (2,065 | ) | (1,635 | ) | | (123,996 | ) | ||||||||||||||
Operating expenses |
| (17,588 | ) | (760 | ) | (395 | ) | 148 | (18,595 | ) | ||||||||||||||
Amortization |
| (1,817 | ) | (23 | ) | (43 | ) | | (1,883 | ) | ||||||||||||||
Depreciation |
| (2,204 | ) | (98 | ) | (74 | ) | | (2,376 | ) | ||||||||||||||
OPERATING INCOME |
8,115 | 17,450 | 4,485 | 155 | (12,736 | ) | 17,469 | |||||||||||||||||
INTEREST INCOME (EXPENSE), NET |
||||||||||||||||||||||||
Interest income |
| 57 | | 6 | | 63 | ||||||||||||||||||
Interest expense |
| (4,463 | ) | | | | (4,463 | ) | ||||||||||||||||
Total interest income (expense), net |
| (4,406 | ) | | 6 | | (4,400 | ) | ||||||||||||||||
INCOME (LOSS) BEFORE
INCOME TAX (PROVISION) BENEFIT |
8,115 | 13,044 | 4,485 | 161 | (12,736 | ) | 13,069 | |||||||||||||||||
INCOME TAX PROVISION |
| (4,907 | ) | (13 | ) | (46 | ) | | (4,966 | ) | ||||||||||||||
INCOME (LOSS) FROM CONTINUING
OPERATIONS, NET OF TAX |
8,115 | 8,137 | 4,472 | 115 | (12,736 | ) | 8,103 | |||||||||||||||||
LOSS ON DISCONTINUED OPERATIONS,
NET OF TAX |
| | | | | | ||||||||||||||||||
NET INCOME (LOSS) |
8,115 | 8,137 | 4,472 | 115 | (12,736 | ) | 8,103 | |||||||||||||||||
PLUS: NET GAIN ATTRIBUTABLE TO
MINORITY INTEREST |
| 12 | | | | 12 | ||||||||||||||||||
NET INCOME ATTRIBUTABLE
TO HOLDINGS |
$ | 8,115 | $ | 8,149 | $ | 4,472 | $ | 115 | $ | (12,736 | ) | $ | 8,115 | |||||||||||
* | Eliminations include earnings on subsidiaries and management fees |
23
Table of Contents
GLOBAL CASH ACCESS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING SCHEDULE STATEMENT OF INCOME INFORMATION
NINE MONTHS ENDED SEPTEMBER 30, 2010
(amounts in thousands)
(unaudited)
Combined | Combined | |||||||||||||||||||||||
Parent | Issuer | Guarantors | Non-Guarantors | Eliminations * | Consolidated | |||||||||||||||||||
REVENUES: |
||||||||||||||||||||||||
Cash advance |
$ | | $ | 184,882 | $ | | $ | 5,632 | $ | | $ | 190,514 | ||||||||||||
ATM |
| 242,026 | | 110 | | 242,136 | ||||||||||||||||||
Check services |
| 10,522 | 11,508 | | | 22,030 | ||||||||||||||||||
Central Credit and other revenues |
17,753 | 14,168 | 10,852 | | (29,670 | ) | 13,103 | |||||||||||||||||
Total revenues |
17,753 | 451,598 | 22,360 | 5,742 | (29,670 | ) | 467,783 | |||||||||||||||||
Cost of revenues (exclusive of
depreciation and amortization) |
| (346,263 | ) | (5,725 | ) | (3,756 | ) | | (355,744 | ) | ||||||||||||||
Operating expenses |
| (51,535 | ) | (4,866 | ) | (1,134 | ) | 499 | (57,036 | ) | ||||||||||||||
Amortization |
| (5,253 | ) | (24 | ) | (141 | ) | | (5,418 | ) | ||||||||||||||
Depreciation |
| (6,633 | ) | (246 | ) | (132 | ) | | (7,011 | ) | ||||||||||||||
OPERATING INCOME |
17,753 | 41,914 | 11,499 | 579 | (29,171 | ) | 42,574 | |||||||||||||||||
INTEREST INCOME (EXPENSE), NET |
||||||||||||||||||||||||
Interest income |
| 98 | | 25 | | 123 | ||||||||||||||||||
Interest expense |
| (12,515 | ) | | (2 | ) | | (12,517 | ) | |||||||||||||||
Total interest income (expense) , net |
| (12,417 | ) | | 23 | | (12,394 | ) | ||||||||||||||||
INCOME (LOSS) BEFORE
INCOME TAX (PROVISION) BENEFIT |
17,753 | 29,497 | 11,499 | 602 | (29,171 | ) | 30,180 | |||||||||||||||||
INCOME TAX PROVISION |
| (11,688 | ) | (181 | ) | (502 | ) | | (12,371 | ) | ||||||||||||||
INCOME (LOSS) FROM CONTINUING
OPERATIONS, NET OF TAX |
17,753 | 17,809 | 11,318 | 100 | (29,171 | ) | 17,809 | |||||||||||||||||
LOSS ON DISCONTINUED OPERATIONS,
NET OF TAX |
| | | | | | ||||||||||||||||||
NET INCOME (LOSS) |
17,753 | 17,809 | 11,318 | 100 | (29,171 | ) | 17,809 | |||||||||||||||||
PLUS: NET LOSS ATTRIBUTABLE TO
MINORITY INTEREST |
| (56 | ) | | | | (56 | ) | ||||||||||||||||
NET INCOME ATTRIBUTABLE
TO HOLDINGS |
$ | 17,753 | $ | 17,753 | $ | 11,318 | $ | 100 | $ | (29,171 | ) | $ | 17,753 | |||||||||||
* | Eliminations include earnings on subsidiaries and management fees |
24
Table of Contents
GLOBAL CASH ACCESS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING SCHEDULE STATEMENT OF INCOME INFORMATION
NINE MONTHS ENDED SEPTEMBER 30, 2009
(amounts in thousands)
(amounts in thousands)
(unaudited)
Combined | Combined | |||||||||||||||||||||||
Parent | Issuer | Guarantors | Non-Guarantors | Eliminations * | Consolidated | |||||||||||||||||||
REVENUES: |
||||||||||||||||||||||||
Cash advance |
$ | | $ | 218,476 | $ | | $ | 7,423 | $ | | $ | 225,899 | ||||||||||||
ATM |
| 252,016 | (48 | ) | 617 | | 252,585 | |||||||||||||||||
Check services |
| 13,005 | 17,786 | | | 30,791 | ||||||||||||||||||
Central Credit and other revenues |
26,381 | 17,753 | 6,499 | | (40,944 | ) | 9,689 | |||||||||||||||||
Total revenues |
26,381 | 501,250 | 24,237 | 8,040 | (40,944 | ) | 518,964 | |||||||||||||||||
Cost of revenues (exclusive
of depreciation and
amortization) |
| (377,901 | ) | (6,943 | ) | (5,818 | ) | | (390,662 | ) | ||||||||||||||
Operating expenses |
| (55,207 | ) | (2,322 | ) | (1,683 | ) | 490 | (58,722 | ) | ||||||||||||||
Amortization |
| (5,488 | ) | (600 | ) | (124 | ) | | (6,212 | ) | ||||||||||||||
Depreciation |
| (6,758 | ) | (360 | ) | (220 | ) | | (7,338 | ) | ||||||||||||||
OPERATING INCOME |
26,381 | 55,896 | 14,012 | 195 | (40,454 | ) | 56,030 | |||||||||||||||||
INTEREST INCOME (EXPENSE), NET |
||||||||||||||||||||||||
Interest income |
| 233 | | 29 | | 262 | ||||||||||||||||||
Interest expense |
| (13,886 | ) | | | | (13,886 | ) | ||||||||||||||||
Total interest income
(expense) , net |
| (13,653 | ) | | 29 | | (13,624 | ) | ||||||||||||||||
INCOME (LOSS) BEFORE
INCOME TAX (PROVISION) BENEFIT |
26,381 | 42,243 | 14,012 | 224 | (40,454 | ) | 42,406 | |||||||||||||||||
INCOME TAX PROVISION |
| (15,899 | ) | (13 | ) | (202 | ) | | (16,114 | ) | ||||||||||||||
INCOME (LOSS) FROM CONTINUING
OPERATIONS, NET OF TAX |
26,381 | 26,344 | 13,999 | 22 | (40,454 | ) | 26,292 | |||||||||||||||||
LOSS ON DISCONTINUED OPERATIONS,
NET OF TAX |
| | 44 | | | 44 | ||||||||||||||||||
NET INCOME (LOSS) |
26,381 | 26,344 | 14,043 | 22 | (40,454 | ) | 26,336 | |||||||||||||||||
PLUS: NET LOSS ATTRIBUTABLE TO
MINORITY INTEREST |
| 45 | | | | 45 | ||||||||||||||||||
NET INCOME
ATTRIBUTABLE
TO GCA HOLDINGS |
$ | 26,381 | $ | 26,389 | $ | 14,043 | $ | 22 | $ | (40,454 | ) | $ | 26,381 | |||||||||||
25
Table of Contents
GLOBAL CASH ACCESS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED SCHEDULE STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2010
(amounts in thousands)
(unaudited)
CONDENSED CONSOLIDATED SCHEDULE STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2010
(amounts in thousands)
(unaudited)
Combined | Combined | |||||||||||||||||||||||
Parent | Issuer | Guarantors | Non-Guarantors | Eliminations * | Consolidated | |||||||||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||||||||||||||||||
Net income |
$ | 17,753 | $ | 17,436 | $ | 11,317 | $ | 474 | $ | (29,171 | ) | $ | 17,809 | |||||||||||
Adjustments to reconcile net income to
cash provided by operating activities: |
||||||||||||||||||||||||
Amortization of financing costs |
| 729 | | | | 729 | ||||||||||||||||||
Amortization of intangibles |
| 6,639 | 246 | 126 | | 7,011 | ||||||||||||||||||
Depreciation |
| 5,262 | 24 | 132 | 5,418 | |||||||||||||||||||
Gain (loss) on sale of or disposal of assets |
| 308 | | (280 | ) | 28 | ||||||||||||||||||
Provision for bad debts |
| | 3,793 | | 3,793 | |||||||||||||||||||
Equity Income (Loss) |
(17,753 | ) | (11,418 | ) | | | 29,171 | | ||||||||||||||||
Stock-based compensation |
| 6,414 | | | 6,414 | |||||||||||||||||||
Changes in operating assets and liabilities: |
| |||||||||||||||||||||||
Settlement receivables |
| (10,394 | ) | | 294 | 17,874 | 7,774 | |||||||||||||||||
Receivables other, net |
| 44,650 | 50,176 | 257 | (92,437 | ) | 2,646 | |||||||||||||||||
Inventory, net |
| | 368 | 368 | ||||||||||||||||||||
Prepaid and other assets |
| 1,141 | (2 | ) | (34 | ) | 1,105 | |||||||||||||||||
Deferred income taxes |
| 11,617 | 179 | | | 11,796 | ||||||||||||||||||
Settlement liabilities |
| (11,335 | ) | | (619 | ) | (17,874 | ) | (29,828 | ) | ||||||||||||||
Accounts payable |
| 2,286 | (369 | ) | (9 | ) | 1,908 | |||||||||||||||||
Accrued expenses |
81 | (39,078 | ) | (49,501 | ) | 246 | 86,274 | (1,978 | ) | |||||||||||||||
Net cash provided by (used in) operating activities |
$ | 81 | $ | 24,257 | $ | 16,231 | $ | 587 | $ | (6,163 | ) | $ | 34,993 | |||||||||||
* | Eliminations include intercompany investments and management fees |
26
Table of Contents
GLOBAL CASH ACCESS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED SCHEDULE STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2010
(amounts in thousands)
(unaudited)
CONDENSED CONSOLIDATED SCHEDULE STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2010
(amounts in thousands)
(unaudited)
Combined | Combined | |||||||||||||||||||||||
Parent | Issuer | Guarantors | Non-Guarantors | Eliminations * | Consolidated | |||||||||||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||||||||||||||||||
Western Money Systems acquisition, net of cash |
$ | | $ | | $ | (15,354 | ) | $ | | $ | | $ | (15,354 | ) | ||||||||||
IFT dissolution |
| 457 | | (457 | ) | | | |||||||||||||||||
Purchase of property, equipment and leasehold
improvements and intangibles |
| (7,640 | ) | (64 | ) | (83 | ) | | (7,787 | ) | ||||||||||||||
Other |
| (100 | ) | | | | (100 | ) | ||||||||||||||||
Investment in subsidiaries |
21,063 | | (484 | ) | | (20,579 | ) | | ||||||||||||||||
Net cash (used in) provided by investing activities |
21,063 | (7,283 | ) | (15,902 | ) | (540 | ) | (20,579 | ) | (23,241 | ) | |||||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||||||||||||||||||
Repayments of senior subordinated debt |
| (25,000 | ) | | | | (25,000 | ) | ||||||||||||||||
Repayments under the credit facility |
| (750 | ) | | | | (750 | ) | ||||||||||||||||
Capital contributions |
6,414 | (33,156 | ) | | | 26,742 | | |||||||||||||||||
Proceeds from exercises of stock options |
5,599 | | | | | 5,599 | ||||||||||||||||||
Purchase of treasury stock |
(33,157 | ) | | | | | (33,157 | ) | ||||||||||||||||
Net cash (used in) provided by financing activities |
(21,144 | ) | (58,906 | ) | | | 26,742 | (53,308 | ) | |||||||||||||||
NET EFFECT OF EXCHANGE RATE CHANGES
ON CASH AND CASH EQUIVALENTS |
| (160 | ) | | 197 | | 37 | |||||||||||||||||
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS |
| (42,092 | ) | 329 | 244 | | (41,519 | ) | ||||||||||||||||
CASH AND CASH EQUIVALENTSBeginning of period |
| 74,416 | 157 | 10,195 | | 84,768 | ||||||||||||||||||
CASH AND CASH EQUIVALENTSEnd of period |
$ | | $ | 32,324 | $ | 486 | $ | 10,439 | $ | | $ | 43,249 | ||||||||||||
* | Eliminations include intercompany investments and management fees |
27
Table of Contents
GLOBAL CASH ACCESS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED SCHEDULE STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2009
(amounts in thousands)
(unaudited)
CONDENSED CONSOLIDATED SCHEDULE STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2009
(amounts in thousands)
(unaudited)
Combined | Combined | |||||||||||||||||||||||
Parent | Issuer | Guarantors | Non-Guarantors | Eliminations * | Consolidated | |||||||||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||||||||||||||||||
Net income |
$ | 26,311 | $ | 26,336 | $ | 14,075 | $ | 23 | $ | (40,409 | ) | $ | 26,336 | |||||||||||
Adjustments to reconcile net income to
cash provided by operating activities: |
||||||||||||||||||||||||
Amortization of financing costs |
| 729 | | | | 729 | ||||||||||||||||||
Depreciation |
| 5,493 | 679 | 124 | | 6,296 | ||||||||||||||||||
Amortization of intangibles |
| 6,763 | 355 | 220 | | 7,338 | ||||||||||||||||||
Loss (gain) on sale of or disposal of assets |
| 22 | 4 | | | 26 | ||||||||||||||||||
Provision for bad debts |
| | 5,952 | | | 5,952 | ||||||||||||||||||
Equity income in subsidiaries |
(26,311 | ) | (14,098 | ) | | | 40,409 | | ||||||||||||||||
Stock-based compensation |
| 6,203 | | | | 6,203 | ||||||||||||||||||
Changes in operating assets and liabilities: |
||||||||||||||||||||||||
Settlement receivables |
| 45,385 | 87 | 1,332 | | 46,804 | ||||||||||||||||||
Receivables other, net |
| 19,939 | (13,645 | ) | (368 | ) | (8,180 | ) | (2,254 | ) | ||||||||||||||
Prepaid and other assets |
| (631 | ) | 596 | 122 | | 87 | |||||||||||||||||
Deferred income taxes |
| 12,364 | 50 | (56 | ) | | 12,358 | |||||||||||||||||
Settlement liabilities |
| (35,696 | ) | (322 | ) | (6,065 | ) | | (42,083 | ) | ||||||||||||||
Accounts payable |
| (2,906 | ) | (1,063 | ) | (42 | ) | | (4,011 | ) | ||||||||||||||
Accrued expenses |
| 23,128 | (33,312 | ) | (330 | ) | 5,559 | (4,955 | ) | |||||||||||||||
Net cash provided by (used in) operating activities |
$ | | $ | 93,031 | $ | (26,544 | ) | $ | (5,040 | ) | $ | (2,621 | ) | $ | 58,826 | |||||||||
* | Eliminations include intercompany investments and management fees |
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GLOBAL CASH ACCESS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED SCHEDULE STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2009
(amounts in thousands)
(unaudited)
CONDENSED CONSOLIDATED SCHEDULE STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2009
(amounts in thousands)
(unaudited)
Combined | Combined | |||||||||||||||||||||||
Parent | Issuer | Guarantors | Non-Guarantors | Eliminations * | Consolidated | |||||||||||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||||||||||||||||||
Purchase of property, equipment and
leasehold improvements and intangibles |
$ | (15,682 | ) | $ | 10,786 | $ | (401 | ) | $ | | $ | | $ | (5,297 | ) | |||||||||
Other |
| 20 | (38 | ) | | | (18 | ) | ||||||||||||||||
Investments in subsidiaries |
(3,772 | ) | 1,473 | | | 2,299 | | |||||||||||||||||
Net cash (used in) provided by investing activities |
(19,454 | ) | 12,279 | (439 | ) | | 2,299 | (5,315 | ) | |||||||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||||||||||||||||||
Repayments under credit facility |
| (15,750 | ) | | | | (15,750 | ) | ||||||||||||||||
Purchase of treasury stock |
(118 | ) | (41,910 | ) | | | | (42,028 | ) | |||||||||||||||
Proceeds from exercise of stock options |
2,621 | | | | | 2,621 | ||||||||||||||||||
Capital contributions |
1,269 | (118 | ) | (1,472 | ) | | 321 | | ||||||||||||||||
Net cash provided by (used in) financing activities |
3,772 | (57,778 | ) | (1,472 | ) | | 321 | (55,157 | ) | |||||||||||||||
NET EFFECT OF EXCHANGE RATE CHANGES
ON CASH AND CASH EQUIVALENTS |
| (2,465 | ) | | 675 | | (1,790 | ) | ||||||||||||||||
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS |
| 18,599 | (17,268 | ) | (4,767 | ) | | (3,436 | ) | |||||||||||||||
CASH AND CASH EQUIVALENTS |
||||||||||||||||||||||||
Beginning of period |
| 45,122 | 17,555 | 14,471 | | 77,148 | ||||||||||||||||||
CASH AND CASH EQUIVALENTS |
||||||||||||||||||||||||
End of period |
$ | | $ | 63,721 | $ | 287 | $ | 9,704 | $ | | $ | 73,712 | ||||||||||||
* | Eliminations include intercompany investments and management fees |
29
Table of Contents
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Our Managements Discussion and Analysis of our Financial Condition and Results of
Operations (MD&A) begins with an overview of our business which includes our business goals,
key events occurring in the three and nine months ended September 30, 2010, certain subsequent
events that occurred after September 30, 2010, and certain trends, risks and challenges. We
then discuss our results of operations for the three and nine months ended September 30, 2010
as compared to the same period for 2009, respectively. This is followed by a description of our
liquidity and capital resources, including discussions about sources and uses of cash, our
borrowings, deferred tax asset, other liquidity needs and off-balance sheet arrangements. We
conclude with a discussion of critical accounting policies and their impact on our unaudited
condensed consolidated financial statements.
You should read the following discussion together with our condensed consolidated
financial statements and the notes to those financial statements included in this Quarterly
Report on Form 10-Q and our 2009 10-K. When reviewing our MD&A, you should also refer to the
description of our Critical Accounting Policies and Estimates in our 2009 10-K because
understanding these policies and estimates is important in order to fully understand our
reported financial results and our business outlook for future periods. In addition to
historical information, this discussion contains forward-looking statements as defined in the
U.S. Private Securities Litigation Reform Act of 1995. In this context, forward-looking
statements often address our expected future business and financial performance, and often
contain words such as expect, anticipate, intend, plan, believe, seek, or will.
Forward-looking statements by their nature address matters that are, to different degrees,
uncertain. For us, particular uncertainties that could adversely or positively affect our
future results include: the future financial performance of the gaming industry, the behavior
of financial markets, including fluctuations in interest rates; the impact of regulation and
regulatory changes, investigative and legal actions; strategic actions, including acquisitions
and dispositions; future integration of acquired businesses and numerous other matters of
national, regional and global scale, including those of a political, economic, business and
competitive nature. All forward-looking statements are subject to various risks and
uncertainties that could cause our actual future results to differ materially from those
presently anticipated due to a variety of factors, including those discussed in Item 1A of our
2009 10-K.
Overview
The Company is a provider in the United States and several international jurisdictions of cash
access and data intelligence services and solutions to the gaming industry. Our services and
solutions provide gaming establishment patrons access to cash through a variety of methods,
including ATM cash withdrawals, credit card cash access transactions, POS debit card
transactions, check verification and warranty services and money transfers. In addition, the
Company also provides products and services that improve credit decision-making, automate
cashier operations and enhance patron marketing activities for gaming establishments. The
Company also manufactures and sells redemption kiosk devices through its Western Money
subsidiary. These services are provided either directly by GCA or through one of its
subsidiaries.
Key Events during the Three Months Ended September 30, 2010
| On July 21, 2010, the Company announced the intention of Harrahs Operating
Company, Inc. not to renew its agreements for the provision of ATM, POS debit and
credit card cash access services (the Harrahs Cash Access Agreements) with certain
subsidiaries of the Company, which will expire on November 30, 2010. The expiration
of the Harrahs Cash Access Agreements is not expected to have a material impact on
the Companys operating results for the calendar year 2010. |
||
| On September 2, 2010, the Company announced the appointments of Mary E. Higgins to
Executive Vice President and Chief Financial Officer and Michael Rumbolz to the Board
of Directors as a Class II director. |
30
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Trends
Our strategic planning and forecasting processes include the consideration of economic and
industry-wide trends that may impact our business. We have indentified the more material
positive and negative trends affecting our business as the following:
| The gaming sector in the United States continues to experience a decline in
business as compared to the prior year. Gaming activity continues to expand into more
domestic and international markets. |
||
| The cash access industry in the gaming sector has become increasingly competitive
and is having an adverse affect on the Companys operating margins with respect to new
customers and existing customers that have renewed their cash access agreements with
the Company. |
||
| There continues to be a migration from credit card cash access and POS debit
transactions to ATM withdrawals by patrons of gaming establishments who use our
services. |
||
| There has been an increase in regulatory and legislative activity regarding notice
requirements associated with incidents involving the misappropriation of consumer
data, causing participants in the financial service and other industries to devote
additional efforts to maintaining the security of their data files. |
||
| The credit markets in the U.S. and around the world have been volatile and
unpredictable. |
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Table of Contents
Results of Operations
The following table presents our unaudited condensed consolidated results of operations for
the three and nine months ended September 30, 2010 and 2009 (dollars in thousands):
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||
2010 | 2009 | % | 2010 | 2009 | % | |||||||||||||||||||
REVENUES: |
||||||||||||||||||||||||
Cash advance |
$ | 60,546 | $ | 69,741 | (13 | )% | $ | 190,514 | $ | 225,899 | (16 | )% | ||||||||||||
ATM |
79,727 | 81,544 | (2 | )% | 242,136 | 252,585 | (4 | )% | ||||||||||||||||
Check services |
6,442 | 9,464 | (32 | )% | 22,030 | 30,791 | (28 | )% | ||||||||||||||||
Central Credit and other revenues |
5,406 | 3,570 | 51 | % | 13,103 | 9,689 | 35 | % | ||||||||||||||||
Total revenues |
152,121 | 164,319 | (7 | )% | 467,783 | 518,964 | (10 | )% | ||||||||||||||||
Cost of revenues (exclusive of depreciation
and amortization) |
(116,077 | ) | (123,996 | ) | (6 | )% | (355,744 | ) | (390,662 | ) | (9 | )% | ||||||||||||
Operating expenses |
(18,740 | ) | (18,595 | ) | 1 | % | (57,036 | ) | (58,722 | ) | (3 | )% | ||||||||||||
Amortization |
(1,729 | ) | (1,883 | ) | (8 | )% | (5,418 | ) | (6,212 | ) | (13 | )% | ||||||||||||
Depreciation |
(2,252 | ) | (2,376 | ) | (5 | )% | (7,011 | ) | (7,338 | ) | (4 | )% | ||||||||||||
OPERATING INCOME |
13,323 | 17,469 | (24 | )% | 42,574 | 56,030 | (24 | )% | ||||||||||||||||
INTEREST INCOME (EXPENSE), NET |
||||||||||||||||||||||||
Interest income |
44 | 63 | (30 | )% | 123 | 262 | (53 | )% | ||||||||||||||||
Interest expense |
(3,977 | ) | (4,463 | ) | (11 | )% | (12,517 | ) | (13,886 | ) | (10 | )% | ||||||||||||
Total interest income (expense), net |
(3,933 | ) | (4,400 | ) | (11 | )% | (12,394 | ) | (13,624 | ) | (9 | )% | ||||||||||||
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAX
PROVISION |
9,390 | 13,069 | (28 | )% | 30,180 | 42,406 | (29 | )% | ||||||||||||||||
INCOME TAX PROVISION |
(4,471 | ) | (4,966 | ) | (10 | )% | (12,371 | ) | (16,114 | ) | (23 | )% | ||||||||||||
INCOME FROM CONTINUING OPERATIONS, NET OF TAX |
4,919 | 8,103 | (39 | )% | 17,809 | 26,292 | (32 | )% | ||||||||||||||||
INCOME FROM DISCONTINUED OPERATIONS, NET OF TAX |
| | | | 44 | (100 | )% | |||||||||||||||||
NET INCOME |
4,919 | 8,103 | (39 | )% | 17,809 | 26,336 | (32 | )% | ||||||||||||||||
PLUS: NET LOSS (INCOME) ATTRIBUTABLE TO
MINORITY INTEREST |
| 12 | (100 | )% | (56 | ) | 45 | (224 | )% | |||||||||||||||
NET INCOME ATTRIBUTABLE TO GLOBAL CASH ACCESS
HOLDINGS, INC. AND SUBSIDIARIES |
$ | 4,919 | $ | 8,115 | (39 | )% | $ | 17,753 | $ | 26,381 | (33 | )% | ||||||||||||
OTHER DATA: |
||||||||||||||||||||||||
Aggregate dollar amount processed (in billions): |
||||||||||||||||||||||||
Cash advance |
$ | 1.2 | $ | 1.4 | (14 | )% | $ | 3.8 | $ | 4.5 | (16 | )% | ||||||||||||
ATM |
$ | 3.4 | $ | 3.6 | (6 | )% | $ | 10.5 | $ | 11.2 | (6 | )% | ||||||||||||
Check warranty services |
$ | 0.3 | $ | 0.4 | (25 | )% | $ | 0.9 | $ | 1.3 | (31 | )% | ||||||||||||
Number of transactions completed (in millions): |
||||||||||||||||||||||||
Cash advance |
2.5 | 2.8 | (11 | )% | 7.9 | 9.1 | (13 | )% | ||||||||||||||||
ATM |
19.8 | 20.7 | (4 | )% | 60.4 | 64.7 | (7 | )% | ||||||||||||||||
Check warranty services |
1.2 | 1.5 | (20 | )% | 3.8 | 5.0 | (24 | )% |
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Total Revenues
Total revenues for the three and nine months ended September 30, 2010 were $152.1 million
and $467.8 million, respectively, a decrease of $12.2 million and $51.2 million, or 7.4% and
9.9%, respectively, as compared to the three and nine months ended September 30, 2009. The
primary driver of the decreased revenue for the three and nine months ended September 30, 2010
was a decline in same store revenue by 7.0% and 9.3%, respectively, which was primarily driven
by the decline in credit card cash access revenues. Segment changes in revenue are discussed
below.
Credit card cash access and POS debit transaction revenues for the three and nine months
ended September 30, 2010 were $60.5 million and $190.5 million, a decrease of $9.2 million and
$35.4 million, or 13.2% and 15.7%, respectively, as compared to the three and nine months ended
September 30, 2009. This decrease was primarily due to lower credit card usage by patrons at
gaming establishments. This had a negative impact on our financial results as revenue
generated from a credit card cash access or POS debit transaction is generally more profitable
than revenue generated from an ATM transaction. The number of credit card cash access and POS
debit transactions declined by approximately 0.3 million and 1.2 million, or 10.7% and 13.2%,
respectively, for the three and nine months ended September 30, 2010 as compared to the three
and nine months ended September 30, 2009.
ATM revenues for the three and nine months ended September 30, 2010 were $79.7 million and
$242.1 million, a decrease of $1.8 million and $10.5 million, or 2.2% and 4.2%, respectively,
as compared to the three and nine months ended September 30, 2009. This decrease was primarily
due to the continued decline in attendance by patrons to gaming establishments. The number of
ATM transactions declined by approximately 0.9 million or 4.3%, while revenue and transaction
size per ATM transaction were slightly higher due to a slightly higher average surcharge
assessed per ATM transaction and a slightly higher draw per ATM transaction for the three
months ended September 30, 2010, as compared to the same period of 2009. The number of ATM
transactions declined by approximately 4.3 million, or 6.6%, while revenue per transaction
increased slightly on flat ATM transaction size for the nine months ended September 30, 2010
as compared to the same period of 2009.
Check services revenues for the three and nine months ended September 30, 2010 were $6.4
million and $22.0 million, a decrease of $3.1 million and $8.8 million, or 32.6% and 28.6%,
respectively, as compared to the three and nine months ended September 30, 2009. This decrease
was primarily due to the decrease in number of check services transactions by 0.3 million and
1.2 million, or 20.0% and 24.0%, respectively, largely driven by the loss of customers in this
segment. Check services revenues have also been impacted by a long-term trend in which
consumers continue to move from physical checks to electronic forms of transactions. As a
result of this trend, we expect check services revenues to be lower in 2010 than in 2009.
Other revenues for the three and nine months ended September 30, 2010 were $5.4 million
and $13.1 million, an increase of $1.8 million and $3.4 million, or 50.0% and 35.1%,
respectively. This increase was primarily attributable to the inclusion of results of
operations of Western Money, which was partially offset by the decrease in revenue from Global
Recovery Services and Casino Marketing Services for the three and nine months ended September
30, 2010.
We provide our cash access products and related services almost exclusively to gaming
establishments for the purpose of enabling gaming patrons to access cash. As a result, our
business depends on consumer demand for gaming. Gaming is a discretionary leisure activity and
participation in such activities has in the past and may in the future decline during economic
downturns as fewer patrons frequent gaming establishments or as a result of lower gaming spend
per visit due to the lack of confidence related to 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.
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Table of Contents
Costs and Expenses
Costs of revenues (exclusive of depreciation and amortization) for the three and nine
months ended September 30, 2010 were $116.1 million and $355.7 million, a decrease of $7.9
million and $35.0 million, or 6.4% and 9.0%, respectively, as compared to the three and nine
months ended September 30, 2009. This
decrease was primarily due to the decreases in commission-related expenses and
interchange charges, which are largely correlated with revenue.
Operating expenses (exclusive of depreciation and amortization) for the three and nine
months ended September 30, 2010 were $18.7 million and $57.0 million, an increase of $0.1
million and a decrease of $1.7 million, or 0.5% and 2.9%, respectively, as compared to the
three and nine months ended September 30, 2009. The decrease for the nine months ended
September 30, 2010 as compared to same period of 2009 was primarily due to lower
employee-related costs and lower ATM-related expenses and the decline in cash advance related
operating expenses.
Depreciation and amortization expenses for the three and nine months ended September 30,
2010 were $4.0 million and $12.4 million, a decrease of approximately $0.3 million and $1.2
million, or 7.0% and 8.8%, respectively, as compared to the three and nine months ended
September 30, 2009. This decrease was primarily due to a decrease in amortization due to the
run-off of amortization.
Primarily as a result of the factors described above, operating income for the three and
nine months ended September 30, 2010 was $13.3 million and $42.6 million, a decrease of $4.2
million and $13.4 million, or 24.0% and 23.9%, respectively, as compared to the three and nine
months ended September 30, 2009.
Interest expense, net for the three and nine months ended September 30, 2010 was $3.9
million and $12.4 million, a decrease of $0.5 million and $1.2 million, or 11.4% and 8.8% as
compared to the three and nine months ended September 30, 2009. This decrease is primarily
due to lower interest rates on lower average outstanding borrowings as well as a lower average
draw on the Treasury Services Agreement of $339.9 million and $341.7 million for the three and
nine months ended September 30, 2010, as compared to $356.8 million and $369.6 million for the
three and nine months ended September 30, 2009. Interest income was also lower due to lower
interest rates earned on invested cash balances during the three and nine months ended
September 30, 2010, as compared to the three and nine months ended September 30, 2009.
Income tax expense for the three and nine months ended September 30, 2010 was $4.5 million
and $12.4 million, a decrease of $0.5 million and $3.7 million, or 10.0% and 23.0%,
respectively, as compared to the three and nine months ended September 30, 2009. The provision
for income tax reflected an effective income tax rate of 47.6% and 41.0% for the three and nine
months ended September 30, 2010, respectively, as compared to 38% for both the three and nine
months ended September 30, 2009. The increase in income tax rate for the three and
nine months ended September 30, 2010 as compared to the three and nine months ended September
30, 2009 is due primarily to prior year tax return and income tax payable true-ups, combined
with an increase in the effect of incentive stock options in proportion to lower pretax income
amounts. The decrease in income tax expense was directly related to the decrease in income
from continuing operations before income tax expense of 39.5% and 32.3%, respectively.
Primarily as a result of the foregoing, net income was $4.9 million and $17.8 million, a
decrease of $3.2 million and $8.6 million, or 39.5% and 32.6%, respectively, for the three and
nine months ended September 30, 2010 as compared to the three and nine months ended September
30, 2009.
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Table of Contents
LIQUIDITY AND CAPITAL RESOURCES
Overview
Information about our financial position as of September 30, 2010 and December 31, 2009 is
presented below:
September 30, | December 31, | % | ||||||||||
(in thousands) | 2010 | 2009 | Change | |||||||||
Cash and cash equivalents |
$ | 43,249 | $ | 84,768 | -49 | % | ||||||
Borrowings |
224,000 | 249,750 | -10 | % | ||||||||
Stockholders equity |
142,302 | 145,409 | -2 | % |
Cash Resources
Our cash balance, cash flows and credit facilities are expected to be sufficient to meet
our recurring operating commitments and to fund our planned capital expenditures. Cash and cash
equivalents at September 30, 2010 included cash in non-U.S. jurisdictions of approximately
$17.8 million. These funds are available for operating and investment purposes within the
jurisdiction in which they reside but may be subject to taxation in the United States upon
repatriation.
All amounts outstanding under the Second Amended and Restated Credit Agreement are due and
payable on November 3, 2011 (unless such obligations are accelerated pursuant to the terms and
conditions of the Second Amended and Restated Credit Agreement.)
We provide cash settlement services to our customers. These services involve the movement
of funds between the various parties associated with cash access transactions, and this
activity results in a balance due to us at the end of each business day that we recoup over the
next few business days. The balances due to us are included in settlement receivables. As of
September 30, 2010, approximately $16.9 million was due to us, and we received these funds in
early October 2010. As of September 30, 2010, we had approximately $45.1 million in settlement
liabilities due to our customers for these settlement services which were paid in early October
2010. Based primarily on the switch of processor, on a small portion
of our transactions during the third quarter of 2010, from VISA to
Star, net receivables increased.
Due to the timing differences between receipt of settlement receivables and payments to
customers for settlement liabilities our actual net cash position available for other corporate
purposes is determined as the sum of the cash on hand and our settlement receivables minus our
settlement liabilities.
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Table of Contents
Sources and Uses of Cash
The following table sets forth a summary of our cash flow activity for the nine month
period ended September 30, 2010 and 2009 and should be read in conjunction with our unaudited
condensed consolidated statements of cash flows:
Nine Months Ended | ||||||||
September 30, | September 30, | |||||||
2010 | 2009 | |||||||
Net cash provided by operating activities |
$ | 34,993 | $ | 58,826 | ||||
Net cash used in investing activities |
(23,241 | ) | (5,315 | ) | ||||
Net cash used in financing activities |
(53,308 | ) | (55,157 | ) | ||||
Net effect of exchange rate changes on cash
and cash equivalents |
37 | (1,790 | ) | |||||
Net decrease in cash and cash equivalents |
(41,519 | ) | (3,436 | ) | ||||
Cash and cash equivalents, beginning of period |
84,768 | 77,148 | ||||||
Cash and cash equivalents, end of period |
$ | 43,249 | $ | 73,712 | ||||
Our principal source of liquidity is cash flows from operating activities, which were
$35.0 million and $58.8 million for the nine months ended September 30, 2010 and 2009,
respectively. Net income accounted for $17.8 million and $26.3 million for the nine months
ended September 30, 2010 and 2009, respectively. Changes in operating assets and liabilities
accounted for a net decrease of $6.2 million and an increase of $5.9 million in cash flow from
operating activities for the nine months ended September 30, 2010 and 2009, respectively.
Non-cash expenses include $23.4 million and $26.5 million for the nine months ended September
30, 2010 and 2009, respectively. The decrease from the first nine months of the last year was
due to lower earnings and an increase in settlement receivables due to the switch of
processors from VISA to Star on a portion of our transactions.
Net cash used in investing activities was $23.2 million and $5.3 million for the nine
months ended September 30, 2010 and 2009, respectively. Included in net cash used in investing
activities for the nine months ended September 30, 2010 and 2009, respectively, is $15.4
million and $0 for acquisitions, and $7.8 million and $5.3 million for capital investments and
$0.1 million and $0 for other, respectively.
Net cash used in financing activities was $53.3 million for the nine months ended
September 30, 2010 compared to $55.2 million provided for the nine months ended September 30,
2009. For the nine months ended September 30, 2010, we made payments totaling $25.0 million
against our senior subordinated debt and payments of $0.8 million against our credit facility
as compared to payments made of $15.8 million against our credit facility for the same period
of 2009. We repurchased $25.0 million of shares pursuant to negotiated private transactions,
$7.5 million of shares purchased in open-market transactions and $0.7 million of vested
restricted shares surrendered for taxes during the nine months ended September 30, 2010 as
compared to $42.0 million of shares purchased in open-market transactions and $0.1 million of
vested restricted shares surrendered for taxes during the nine months ended September 30,
2009. We also had proceeds from the exercise of options of $5.6 million and $2.6 million
during the nine months ended September 30, 2010 and 2009, respectively.
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Table of Contents
Deferred Tax Asset
At September 30, 2010, we had a net deferred income tax asset of $137.2 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 accounting purposes. This asset is
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 36.4%, this results in tax payments being approximately $19.0
million less than the provision for income taxes shown on the income statement for financial
accounting purposes. There is an expected aggregate of $163.3 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 Amended Treasury Services Agreement. We obtain currency to meet the
normal operating requirements of domestic ATMs that we operate pursuant to 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
September 30, 2010, the total currency obtained from Bank of America pursuant to this
agreement was $379.9 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 Treasury
Services Agreement are reflected as interest expense in our financial statements.
On March 13, 2008, the Treasury Services Agreement was amended to increase the limit on
the aggregate allowed currency that Bank of America would provide to the Company from $360
million to $410 million.
Senior Secured Credit Facility. As of September 30, 2010, we had $0.3 million in standby
letters of credit issued and outstanding as collateral on surety bonds for certain licenses
held related to our Nevada check cashing licenses.
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, vault cash, 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.
Critical Accounting Policies
The preparation of our financial statements in conformity with accounting principles
generally accepted in the United States of America 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.
There were not any material changes to the critical accounting policies and estimates
discussed in the Companys audited consolidated financial statements for the year ended
December 31, 2009, included in the 2009 10-K (No. 001-32622) filed on March 15, 2010.
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ITEM 3. 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, but continue to evaluate such
foreign currency translation risk exposure. At present, we do not hold any derivative
securities of any kind.
Pursuant to the Treasury Services Agreement, Bank of America supplies us with currency
needed for normal operating requirements of the domestic ATMs we operate. 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 such 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 the applicable
LIBOR increases. As of September 30, 2010, the rate in effect, inclusive of the 25 basis
points margin, was 0.507% and the currency supplied by Bank of America pursuant to this
agreement was $379.9 million. Based upon the average outstanding amount of currency to be
supplied by Bank of America pursuant to this agreement during the first nine months of 2010,
which was $341.7 million, each 1% increase in the applicable LIBOR would have a maximum impact
of $3.4 million on income before taxes over a 12-month period. However, contractually, a
significant portion of that increase would be passed through to our customers. Foreign gaming
establishments supply the currency needs for the ATMs located on their premises.
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. At September 30, 2010, the weighted average interest rate, inclusive of
the applicable margin of 112.5 basis points, was 1.381%. Based upon the outstanding balance on
the senior secured credit facility of $96.2 million on September 30, 2010, each 1% increase in the
applicable LIBOR would add an additional $1.0 million of interest expense over a 12-month
period.
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ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Companys management, with the participation of the chief executive officer (CEO)
and chief financial officer (CFO), evaluated the effectiveness of the Companys disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934) as of the end of the period covered by this report. Based on this
evaluation, the CEO and CFO concluded that the Companys disclosure controls and procedures
are effective, in that they provide a reasonable level of assurance that information required
to be disclosed by the Company in the reports we file or submit under the Securities Exchange
Act of 1934 is recorded, processed, summarized and reported, within the time periods specified
in the SECs rules and forms. The Companys disclosure controls and procedures are designed to
provide reasonable assurance that information required to be disclosed by the Company in such
reports is accumulated and communicated to the Companys management, including our CEO and
CFO, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
No change in our internal control over financial reporting (as defined in Rules 13a-15(f)
and 15d-15(f) under the Securities Exchange Act of 1934) occurred during the nine months ended
September 30, 2010 that has materially affected, or is reasonably likely to materially affect,
our internal control over financial reporting.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On March 22, 2010, an action was commenced by Sightline Payments, LLC in the United
States District Court, District of Nevada, against Holdings and GCA. The complaint alleges
antitrust violations of Sections 1 and 2 of the Sherman Act and Section 7 of the Clayton Act.
The plaintiff seeks damages in the amount of $300 million and that such damages be trebled. On
August 8, 2010, the District Court issued an Order and Judgment granting the Companys motion
to dismiss this action. On August 13, 2010, Sightline Payments, LLC filed a Notice of Appeal
of the Order and Judgment granting the Companys motion to dismiss. The Company maintains
insurance that will provide for reimbursement of certain 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 16, 2010, the Company commenced an action in the
District Court of Nevada, Clark County, against the three current principals of Sightline
Payments, LLC, all of whom are former executives of the Company. The Company alleges
misappropriation of trade secrets, breach of contract, breach of duty of good faith and fair
dealing and seeks damages and declaratory and injunctive relief. The Company has received a
temporary restraining order barring the defendants in this action from making any continued
disclosure of the Companys proprietary and confidential information.
On July 7, 2010, an action was commenced by Automated Systems America, Inc. in the United
States District Court, Central District of California, against Holdings, GCA and certain
current employees of GCA. The complaint seeks a declaratory judgment of invalidity,
unenforceability and non-infringement of certain patents owned by the Company and alleges
antitrust violations of Section 2 of the Sherman Act, unfair competition violations under the
Lanham Act and tortuous interference and defamation per se. The plaintiff seeks damages in
excess of $2 million, punitive damages, and a trebling of damages associated with the
allegations under Section 2 of the Sherman Act. The Company maintains 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.
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ITEM 1A. RISK FACTORS
There are a number of factors that may affect the Companys business and financial
results or stock price. A complete description of these factors is set forth in our 2009 10-K
with any updates to the factors set forth in our Quarterly Reports on Form 10-Q for the periods
ended March 31, 2010 and June 30, 2010.
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
ISSUER PURCHASES AND WITHHOLDING OF EQUITY SECURITIES
Total Number | Maximum | |||||||||||||||
of Shares | Approximate Dollar | |||||||||||||||
Total Number | Average Price | Purchased as | Value of Shares that | |||||||||||||
of Shares | per Share | Part of Publicly | May Yet Be Purchased | |||||||||||||
Purchased or | Purchased or | Announced Plans | Under the Plans or | |||||||||||||
Withheld | Withheld | or Programs | Programs | |||||||||||||
07/1/10
07/31/10 |
| (1) | $ | | | $ | 25,000,000 | (4) | ||||||||
08/1/10 08/31/10 |
1,000,000 | (1) | 3.78 | (3) | 1,000,000 | (1) | $ | 21,222,963 | (4) | |||||||
09/1/10 09/30/10 |
933,341 | (1) | 3.89 | (3) | 933,341 | (1) | $ | 17,592,091 | (4) | |||||||
Subtotals |
1,933,341 | (1) | $ | 3.83 | (3) | 1,933,341 | (1) | |||||||||
07/1/10 07/31/10 |
5,296 | (2) | $ | 6.93 | (3) | | $ | | (4) | |||||||
08/1/10 08/31/10 |
5,207 | (2) | 3.96 | (3) | | $ | | (4) | ||||||||
09/1/10 09/30/10 |
5,153 | (2) | 3.79 | (3) | | $ | | (4) | ||||||||
Subtotals |
15,656 | (2) | $ | 4.91 | (3) | | ||||||||||
Total |
1,948,997 | $ | 3.84 | | ||||||||||||
(1) | Represents the repurchases of common stock pursuant to the Rule 10b-18 share repurchase
authorization that we publicly announced on February 16, 2010. Our Board of Directors
authorized the repurchase of up to $25.0 million worth of common stock. The share buyback
program does not obligate us to repurchase any specific number of shares and can be
suspended or terminated at any time. |
|
(2) | Represents the 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. There are no limitations on the number of shares of common
stock that may be withheld from restricted stock awards to satisfy the minimum tax
withholding obligations incident to the vesting of restricted stock awards. |
|
(3) | Represents the average price per share of common stock purchased pursuant to the Rule
10b-18 share repurchase authorization that we publicly announced on February 16, 2010 or
withheld from restricted stock awards on the date of withholding. |
|
(4) | Represents the maximum approximate dollar value of shares of common stock available for
repurchase pursuant to Rule 10b-18 share repurchase authorization at the end of the stated
period. As of September 30, 2010, the maximum dollar value of shares that may yet be
purchased pursuant to the Rule 10b-18 share buyback program is $17.6 million. However,
there are no limitations 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. |
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ITEM 6. EXHIBITS
Exhibit No. | Description. | |||
10.1 | (1) | Form of Notice of Stock Option Award and Stock Option Award
Agreement Michael Rumbolz effective August 30, 2010. |
||
10.2 | (2) | Agreement with Mary E. Higgins, dated September 2, 2010. |
||
10.3 | (3) | Form of Notice of Stock Option Award and Stock Option Award
Agreement Mary E. Higgins effective September 14, 2010. |
||
31.1 | * | Certification of Scott Betts, Chief Executive Officer of Global
Cash Access Holdings, Inc. dated November 8, 2010 in accordance
with 18 U.S.C. 1350, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. |
||
31.2 | * | Certification of Mary E. Higgins, Chief Financial Officer of
Global Cash Access Holdings, Inc. dated November 8, 2010 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 November 8, 2010 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 Mary E. Higgins, Chief Financial Officer of
Global Cash Access Holdings, Inc. dated November 8, 2010 in
accordance with 18 U.S.C. 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002. |
(1) | Incorporated by reference to Exhibit 10.1 of the Companys Current Report on Form 8-K filed
on September 2, 2010. |
|
(2) | Incorporated by reference to Exhibit 10.2 of the Companys Current Report on Form 8-K filed
on September 2, 2010. |
|
(3) | Incorporated by reference to Exhibit 10.3 of the Companys Current Report on Form 8-K filed
on September 2, 2010. |
|
* | Filed herewith. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
November 8, 2010 (Date) |
GLOBAL CASH ACCESS HOLDINGS, INC. (Registrant) |
|||
By: | /s/ Mary E. Higgins | |||
Mary E. Higgins | ||||
Chief Financial Officer (For the Registrant as Principal Financial Officer) |
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EXHIBIT INDEX
Exhibit No. | Description. | |||
10.1 | (1) | Form of Notice of Stock Option Award and Stock Option Award
Agreement Michael Rumbolz effective August 30, 2010. |
||
10.2 | (2) | Agreement with Mary E. Higgins, dated September 2, 2010. |
||
10.3 | (3) | Form of Notice of Stock Option Award and Stock Option Award
Agreement Mary E. Higgins effective September 14, 2010. |
||
31.1 | * | Certification of Scott Betts, Chief Executive Officer of Global
Cash Access Holdings, Inc. dated November 8, 2010 in accordance
with 18 U.S.C. 1350, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. |
||
31.2 | * | Certification of Mary E. Higgins, Chief Financial Officer of
Global Cash Access Holdings, Inc. dated November 8, 2010 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 November 8, 2010 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 Mary E. Higgins, Chief Financial Officer of
Global Cash Access Holdings, Inc. dated November 8, 2010 in
accordance with 18 U.S.C. 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002. |
(1) | Incorporated by reference to Exhibit 10.1 of the Companys Current Report on Form 8-K filed
on September 2, 2010. |
|
(2) | Incorporated by reference to Exhibit 10.2 of the Companys Current Report on Form 8-K filed
on September 2, 2010. |
|
(3) | Incorporated by reference to Exhibit 10.3 of the Companys Current Report on Form 8-K filed
on September 2, 2010. |
|
* | Filed herewith. |
45