GLOBAL CASH ACCESS HOLDINGS, INC., 10-Q filed on 11/4/2014
Quarterly Report
Document and Entity Information
9 Months Ended
Sep. 30, 2014
Oct. 24, 2014
Document and Entity Information
 
 
Entity Registrant Name
Global Cash Access Holdings, Inc. 
 
Entity Central Index Key
0001318568 
 
Document Type
10-Q 
 
Document Period End Date
Sep. 30, 2014 
 
Amendment Flag
false 
 
Current Fiscal Year End Date
--12-31 
 
Entity Current Reporting Status
Yes 
 
Entity Filer Category
Accelerated Filer 
 
Entity Common Stock, Shares Outstanding
 
65,551,453 
Document Fiscal Year Focus
2014 
 
Document Fiscal Period Focus
Q3 
 
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2014
Sep. 30, 2013
Sep. 30, 2014
Sep. 30, 2013
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
 
 
 
 
Revenues
$ 145,481 
$ 146,101 
$ 440,998 
$ 441,987 
Costs and expenses
 
 
 
 
Cost of revenues (exclusive of depreciation and amortization)
108,568 
111,106 
331,181 
333,928 
Operating expenses
20,934 
19,248 
62,233 
57,710 
Depreciation
1,856 
1,908 
5,702 
5,421 
Amortization
3,352 
2,419 
8,476 
6,974 
Total costs and expenses
134,710 
134,681 
407,592 
404,033 
Operating income
10,771 
11,420 
33,406 
37,954 
Other expenses
 
 
 
 
Interest expense, net of interest income
1,996 
2,255 
5,625 
8,151 
Total other expenses
1,996 
2,255 
5,625 
8,151 
Income from operations before tax
8,775 
9,165 
27,781 
29,803 
Income tax provision
3,099 
3,383 
9,892 
11,109 
Net income
5,676 
5,782 
17,889 
18,694 
Foreign currency translation
(839)
591 
(457)
79 
Comprehensive income
$ 4,837 
$ 6,373 
$ 17,432 
$ 18,773 
Earnings per share
 
 
 
 
Basic (in dollars per share)
$ 0.09 
$ 0.09 
$ 0.27 
$ 0.28 
Diluted (in dollars per share)
$ 0.09 
$ 0.09 
$ 0.27 
$ 0.28 
Weighted average common shares outstanding
 
 
 
 
Basic (in shares)
65,589 
65,525 
65,853 
66,108 
Diluted (in shares)
66,747 
66,630 
67,051 
67,158 
CONDENSED CONSOLIDATED BALANCE SHEETS (USD $)
In Thousands, unless otherwise specified
Sep. 30, 2014
Dec. 31, 2013
ASSETS
 
 
Cash and cash equivalents
$ 106,499 
$ 114,254 
Restricted cash and cash equivalents
367 
290 
Settlement receivables
27,372 
38,265 
Other receivables, net of allowances for doubtful accounts of $2.8 million for both periods
17,223 
16,962 
Inventory
10,905 
9,413 
Prepaid expenses and other assets
28,404 
26,770 
Property, equipment and leasehold improvements, net
19,707 
18,710 
Goodwill
188,491 
180,084 
Other intangible assets, net
39,314 
31,535 
Deferred income taxes, net
79,828 
91,044 
Total assets
518,110 
527,327 
Liabilities
 
 
Settlement liabilities
116,711 
145,022 
Accounts payable and accrued expenses
69,005 
60,701 
Borrowings
95,743 
103,000 
Total liabilities
281,459 
308,723 
Commitments and Contingencies (Note 7)
   
   
Stockholders' Equity
 
 
Common stock, $0.001 par value, 500,000 shares authorized and 90,350 and 89,233 shares issued at September 30, 2014 and December 31, 2013, respectively
90 
89 
Convertible preferred stock, $0.001 par value, 50,000 shares authorized and 0 shares outstanding at September 30, 2014 and December 31, 2013
   
   
Additional paid-in capital
244,247 
231,516 
Retained earnings
165,901 
148,012 
Accumulated other comprehensive income
2,370 
2,827 
Treasury stock, at cost, 24,807 and 23,303 shares at September 30, 2014 and December 31, 2013, respectively
(175,957)
(163,840)
Total stockholders' equity
236,651 
218,604 
Total liabilities and stockholders' equity
$ 518,110 
$ 527,327 
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)
In Millions, except Share data in Thousands, unless otherwise specified
Sep. 30, 2014
Dec. 31, 2013
CONDENSED CONSOLIDATED BALANCE SHEETS
 
 
Allowances for doubtful accounts
$ 2.8 
$ 2.8 
Common stock, par value (in dollars per share)
$ 0.001 
$ 0.001 
Common stock, shares authorized
500,000 
500,000 
Common stock, shares issued
90,350 
89,233 
Convertible preferred stock, par value (in dollars per share)
$ 0.001 
$ 0.001 
Convertible preferred stock, shares authorized
50,000 
50,000 
Convertible preferred stock, shares outstanding
Treasury stock, shares
24,807 
23,303 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (USD $)
In Thousands, unless otherwise specified
9 Months Ended
Sep. 30, 2014
Sep. 30, 2013
Cash flows from operating activities
 
 
Net income
$ 17,889 
$ 18,694 
Adjustments to reconcile net income to cash provided by operating activities:
 
 
Depreciation
5,702 
5,421 
Amortization of intangibles
8,476 
6,974 
Amortization of financing costs
1,412 
1,323 
Loss on sale or disposal of assets
79 
158 
Provision for bad debts
6,770 
5,882 
Stock-based compensation
7,533 
3,702 
Changes in operating assets and liabilities:
 
 
Settlement receivables
10,828 
5,050 
Other receivables, net
(6,547)
(8,264)
Inventory
(1,430)
(1,847)
Prepaid and other assets
(2,927)
(1,726)
Deferred income taxes
8,554 
10,335 
Settlement liabilities
(28,125)
(20,127)
Accounts payable and accrued expenses
1,226 
188 
Net cash provided by operating activities
29,440 
25,763 
Cash flows from investing activities
 
 
Acquisitions, net of cash acquired
(11,845)
 
Capital expenditures
(11,035)
(9,165)
Proceeds from sale of fixed assets
298 
83 
Changes in restricted cash and cash equivalents
(77)
(91)
Net cash used in investing activities
(22,659)
(9,173)
Cash flows from financing activities
 
 
Issuance costs of amended credit facility
 
(764)
Repayments against credit facility
(7,258)
(15,000)
Proceeds from exercise of stock options
5,251 
3,776 
Purchase of treasury stock
(12,117)
(14,631)
Net cash used in financing activities
(14,124)
(26,619)
Effect of exchange rates on cash
(412)
(1)
Cash and cash equivalents
 
 
Net decrease for the period
(7,755)
(10,030)
Balance, beginning of the period
114,254 
153,020 
Balance, end of the period
106,499 
142,990 
Supplemental cash flow disclosures
 
 
Cash paid for interest
5,154 
6,978 
Cash paid for income tax, net of refunds
874 
538 
Non-cash tenant improvements paid by landlord
 
2,930 
Accrued and unpaid capital expenditures
2,260 
2,339 
Accrued and unpaid contingent liability for NEWwave acquisition
$ 2,463 
 
BUSINESS
BUSINESS

1.BUSINESS

 

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.

 

We are a leading provider of fully integrated cash access solutions and related services to the gaming industry. Our products and services provide: (a) 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; (b) integrated cash access devices and related services, such as slot machine ticket redemption and jackpot kiosks to the gaming industry; (c) products and services that improve credit decision making, automate cashier operations and enhance patron marketing activities for gaming establishments; (d) compliance, audit and data solutions; and (e) online payment processing solutions for gaming operators in states that offer intra-state, Internet-based gaming and lottery activities.

BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

2.BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

Our unaudited condensed consolidated financial statements included herein have been prepared by us 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 we believe 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, 2014 are not necessarily indicative of results to be expected for the full fiscal year.

 

Our unaudited condensed consolidated financial statements should be read in conjunction with the annual consolidated financial statements and notes thereto included within our Annual Report on Form 10-K for the year ended December 31, 2013 (the “2013 10-K”).

 

Principles of Consolidation

 

Intercompany transactions and balances have been eliminated in consolidation.

 

Cash and Cash Equivalents

 

Cash and cash equivalents include cash and all balances on deposit in banks and financial institutions. We consider all highly liquid investments with maturities of three months or less at the time of purchase to be cash and cash equivalents. Such balances generally exceed the federal insurance limits; however, we periodically evaluate the creditworthiness of these institutions to minimize risk.

 

Restricted Cash and Cash Equivalents

 

As part of our online payment solutions for gaming operators, we hold deposits on behalf of lottery patrons. These funds can be utilized by lottery patrons for the purchase of lottery tickets. We reflect this cash as restricted cash and maintain a liability for these funds in accounts payable and accrued expenses. In addition, we have a sponsorship agreement that requires us to maintain a minimum deposit as collateral for any potential chargeback loss activity occurring as a result of the sponsorship arrangement. All interest received on this deposit is recorded to restricted cash and cash equivalents.

 

ATM Funding Agreements

 

We obtain all of the cash required to operate our ATMs through various ATM Funding Agreements. Some gaming establishments provide the cash utilized within the ATM (“Site-Funded”). The Site-Funded receivables are generated for the amount of cash dispensed from transactions performed at our ATMs and we are liable to these gaming establishments for the face amount of the cash dispensed. In our condensed consolidated balance sheets, the amount of the receivable for transactions processed on these ATM transactions is included within settlement receivables and the amount due to the gaming establishments for the face amount of dispensing transactions is included within settlement liabilities.

 

For the non-Site-Funded locations, our Contract Cash Solutions Agreement with Wells Fargo allows us to use funds owned by Wells Fargo to provide the currency needed for normal operating requirements for our ATMs. Under this agreement, all currency supplied by Wells Fargo remains its sole property at all times until the cash is dispensed, at which time Wells Fargo obtains an interest in the corresponding settlement receivables. As the cash supplied is never our asset, it is not reflected on our balance sheet. We are charged a cash usage fee on the average daily balance of funds utilized multiplied by a contractually defined cash usage rate for the cash used in these ATMs, which is included as interest expense in our condensed consolidated statements of income and comprehensive income. We recognize the fees as interest expense due to the similar operational characteristics to a revolving line of credit, the fact that the fees are calculated on a financial index and the fees are paid for access to a capital resource.

 

Settlement Receivables and Settlement Liabilities

 

In the credit card cash access and Point-of-Sale (“POS”) debit card cash access transactions we provide, the gaming establishments are reimbursed for the cash disbursed to gaming patrons through the issuance of a negotiable instrument or through electronic settlement. We receive reimbursement from the patrons’ credit or debit card issuers for the transactions in an amount equal to the funds owed to the gaming establishments plus the fee charged to the patrons. These reimbursements are included within the settlement receivables on our condensed consolidated balance sheets. The amounts owed to gaming establishments are included within settlement liabilities on our condensed consolidated balance sheets.

 

Warranty Receivables

 

If a gaming establishment chooses to have a check warranted it sends a request to our third party check warranty service provider, asking whether it would be willing to accept the risk of cashing the check. If the check warranty provider accepts the risk and warrants the check, the gaming establishment negotiates the patron’s check by providing cash for the face amount of the check. If the check is dishonored by the patron’s bank upon presentment, 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. In our Central Credit Check Warranty product under our agreement with the third party service provider, we receive all of the check warranty revenue. We are exposed to risk for the losses associated with any warranted items that cannot be collected from patrons issuing the items. Warranty receivables are defined as any amounts paid by the third party check warranty service provider to gaming establishments to purchase dishonored checks. The warranty receivables amount is recorded in other receivables, net on our condensed consolidated balance sheets. On a monthly basis, we evaluate the collectability of the outstanding balances and establish 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) on our condensed consolidated statements of income and comprehensive income. Additionally, we pay a fee to the third party check warranty service provider for their service which is included in operating expenses on our condensed consolidated statements of income and comprehensive income.

 

Unamortized Debt Issuance Costs

 

Debt issuance costs incurred in connection with long-term borrowings are capitalized and amortized to interest expense based upon the related debt agreements using the effective interest method. Unamortized debt issuance costs are included in prepaid expenses and other assets on our condensed consolidated balance sheets.

 

Property, Equipment and Leasehold Improvements

 

Property, equipment and leasehold improvements are stated at cost, less accumulated depreciation, computed using the straight-line method over the lesser of the estimated life of the related assets, generally three to five years, or the related lease term.

 

Repairs and maintenance costs are expensed as incurred.

 

Upon sale or retirement, the costs and related accumulated depreciation are eliminated from the accounts and any resulting gain or loss is reflected in our condensed consolidated statements of income and comprehensive income.

 

Property, equipment and leasehold improvements are reviewed for impairment whenever events or circumstances indicate that their carrying amounts may not be recoverable. Impairment is indicated when undiscounted future cash flows do not exceed the asset’s carrying value. There was no impairment for any of our property, equipment, or leasehold improvements as of September 30, 2014 and December 31, 2013.

 

Goodwill

 

Goodwill represents the excess of the purchase price over the identifiable tangible and intangible assets acquired plus liabilities assumed arising from business combinations.

 

We test for impairment annually on a reporting unit basis, at the beginning of our fourth fiscal quarter, or more often, under certain circumstances. The annual impairment test is completed using either: a qualitative Step 0 assessment based on reviewing relevant events and circumstances; or a quantitative Step 1 assessment, which determines the fair value of the reporting unit using an income approach that discounts future cash flows based on the estimated future results of our reporting units and a market approach that compares market multiples of comparable companies to determine whether or not any impairment exists. If the fair value of a reporting unit is less than its carrying amount, we use the Step 2 assessment to determine the impairment. Our goodwill was not impaired as of September 30, 2014 and December 31, 2013.

 

Other Intangible Assets

 

Other intangible assets consist primarily of customer contracts (rights to provide cash access services and compliance, audit and data services to gaming establishment customers) acquired through business combinations and acquisitions, capitalized software development and technology costs and the acquisition cost of our patent related to the 3-in-1 rollover technology acquired in 2005. Customer contracts require us to make renewal assumptions, which impact the estimated useful lives of such assets. Capitalized software development and technology costs require us to make certain judgments as to the stages of development and costs eligible for capitalization. Capitalized software costs placed in service are amortized over their useful lives, generally not to exceed three years. The acquisition cost of the 3-in-1 Rollover patent is being amortized over the term of the patent, which expires in 2018. Other intangible assets are reviewed annually for impairment and whenever events or circumstances indicate that the carrying amounts may not be recoverable. This assessment requires the use of estimates about future operating results. Changes in forecasted operations can materially affect these estimates, which could materially affect our results of operations. Our other intangible assets were not impaired as of September 30, 2014 and December 31, 2013.

 

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, restricted cash and cash equivalents, other receivables, net, settlement receivables, settlement liabilities, accounts payable and accrued expenses approximates fair value due to the short-term maturities of these instruments. The fair value of our borrowings are estimated based on various inputs to determine a market price, such as: market demand and supply, size of tranche, maturity and similar instruments trading in more active markets. The fair values of all other financial instruments approximate their book values as the instruments are short-term in nature or contain market rates of interest.

 

Interest Rate Cap

 

In conjunction with the terms and conditions of the Senior Credit Facility, we purchased a $150.0 million notional amount interest rate cap with an effective date of January 5, 2012 and a term of three years. We purchased this interest rate cap to partially reduce our exposure to increases in the London Interbank Offer Rate (“LIBOR’) above 1.5% during the term of the interest rate cap with respect to our variable rate debt obligations under the Senior Credit Facility and our obligations under the Contract Cash Solutions Agreement with Wells Fargo. This interest rate cap is recorded in other assets in the balance sheet, and is marked to market based on a quoted market price with the effects offset in our condensed consolidated statements of income and comprehensive income. The interest rate cap carrying value and fair value approximate each other and these values were not material as of September 30, 2014 and December 31, 2013.

 

The following table presents the fair value and carrying value of our borrowings (amounts in thousands):

 

 

 

Level of
Hierarchy(*)

 

Fair Value

 

Carrying
Value

 

 

 

 

 

 

 

 

 

September 30, 2014

 

 

 

 

 

 

 

Senior credit facility

 

2

 

$

95,623 

 

$

95,743 

 

 

 

 

 

 

 

 

 

December 31, 2013

 

 

 

 

 

 

 

Senior credit facility

 

2

 

$

104,030 

 

$

103,000 

 

 

 

(*) 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 primarily consists of parts as well as finished goods and work-in-progress. Inventory is stated at lower of cost or market accounted for using the average cost method. The cost of inventory includes cost of materials, labor, overhead and freight.

 

Revenue Recognition

 

We recognize revenue when evidence of an arrangement exists, services have been rendered, the price is fixed or determinable and collectability is reasonably assured. We evaluate our revenue streams for proper timing of revenue recognition. Revenue is recognized as products are delivered or services are performed.

 

In certain cases, we also enter into revenue arrangements that include the delivery of multiple elements.  Revenue recognition for these types of transactions occurs when the relevant criteria for each multiple deliverable element have been met.

 

In certain other cases, we enter into revenue arrangements that include the use of software license rights, maintenance, support and professional services for our compliance, audit and data services offerings. Revenue for these products and services is recognized under the software recognition guidance.

 

Cost of Revenues (exclusive of depreciation and amortization)

 

The cost of revenues (exclusive of depreciation and amortization) represents the direct costs required to perform revenue generating transactions. The principal costs included within cost of revenues (exclusive of depreciation and amortization) are commissions paid to gaming establishments, interchange fees paid to credit and debit card networks, transaction processing fees to our transaction processor, inventory costs associated with the sale of our integrated kiosks, check cashing warranties and third-party licensing costs.

 

Advertising, Marketing and Promotional Costs

 

We expense advertising, marketing and promotional costs as incurred. Total advertising, marketing and promotional costs, included in operating expenses in our condensed consolidated statements of income and comprehensive income, were $0.2 million and $0.6 million and $0.3 million and $0.6 million for the three and nine months ended September 30, 2014 and 2013, respectively.

 

Income Taxes

 

Income tax expense includes U.S. and international income taxes, plus the provision for U.S. taxes on undistributed earnings of international subsidiaries not deemed to be permanently invested. Since it is management’s practice and intent to reinvest the earnings in the international operations of our foreign subsidiaries, U.S. federal income taxes have not been provided on the undistributed earnings of any foreign subsidiaries except for GCA Macau. Some items of income and expense are not reported in tax returns and our condensed consolidated financial statements in the same year. The tax effect of such temporary differences is reported as deferred income taxes.

 

Foreign Currency Translation

 

Foreign currency denominated assets and liabilities for those foreign entities for which the local currency is the functional currency are translated into U.S. dollars based on exchange rates prevailing at the end of each period. Revenues and expenses are translated at average exchange rates during the period. The effects of these translations are included in other comprehensive income in our condensed consolidated statements of income and comprehensive income.

 

Translation adjustments on intercompany balances of a long-term investment nature are recorded as a component of accumulated other comprehensive income in our condensed consolidated balance sheets.

 

Use of Estimates

 

We have made estimates and judgments affecting the amounts reported in our condensed consolidated financial statements and the accompanying notes. The actual results may differ from these estimates. These accounting estimates incorporated into the condensed consolidated financial statements include, but are not limited to:

 

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 income tax assets;

the estimated cash flows in assessing the recoverability of long-lived assets;

the projections for future performance, weighted average cost of capital (“WACC”) and growth rates as well as other factors used in our annual goodwill and other intangible assets impairment evaluations;

the renewal assumptions used for customer contracts to estimate the useful lives of such assets; and

the judgments used to determine the stages of development and costs eligible for capitalization as internally developed software.

 

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 reflect the effect of potential common stock resulting from assumed stock option exercises and vesting of restricted stock.

 

Share-Based Compensation

 

Share-based payment awards result in a cost that is measured at fair value on the award’s grant date.

 

Our time-based stock options, including our cliff vesting time-based awards, expected to be exercised currently, and in future periods, were measured at fair value on the grant date using the Black Scholes model. Our restricted stock awards expected to be vested currently, and in future periods, were measured at fair value based on the stock price on the grant date. The compensation expense is recognized on a straight-line basis over the awards’ vesting periods.

 

Our market-based stock options will vest if our average stock price in any period of 30 consecutive trading days meets certain target prices during a four year period that commenced on the grant date of these options. If these target prices are not met during the four year period, the unvested shares underlying the options will terminate except if there is a change in control of the Company as defined in the 2014 Equity Incentive Plan, in which case, the unvested shares underlying such options shall become fully vested on the effective date of such change in control transaction. The options were measured at fair value on the grant date using a lattice-based valuation model based on the median time horizon from the date of grant for these options to the vesting date for those paths that achieved the target threshold(s). The compensation expense is recognized on a straight-line basis over the median vesting periods calculated under such valuation model.

 

Forfeitures are estimated at the grant date for our time-based and market-based awards, with such estimates updated periodically; and with actual forfeitures recognized currently to the extent they differ from the estimates. Unless otherwise provided by the administrator of our equity incentive plans, stock options granted under our plans generally expire ten years from the date of grant. The exercise price of stock options is generally the closing market price of our common stock on the date of the stock option grant.

 

Recently Issued Accounting Pronouncements Not Yet Adopted

 

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, which creates FASB Accounting Standards Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers” and supersedes ASC Topic 605, “Revenue Recognition”. The guidance replaces industry-specific guidance and establishes a single five-step model to identify and recognize revenue. The core principle of the guidance is that an entity should recognize revenue upon transfer of control of promised goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. Additionally, the guidance requires the entity to disclose further quantitative and qualitative information regarding the nature and amount of revenues arising from contracts with customers, as well as other information about the significant judgments and estimates used in recognizing revenues from contracts with customers. This guidance is effective for interim and annual reporting periods beginning after December 15, 2016. Early application is not permitted. This guidance may be adopted retrospectively or under a modified retrospective method where the cumulative effect is recognized at the date of initial application. We are currently evaluating the impact of adopting this guidance on our Consolidated Financial Statements and disclosures included within Notes to Consolidated.

ATM FUNDING AGREEMENTS
ATM FUNDING AGREEMENTS

3.ATM FUNDING AGREEMENTS

 

Our Contract Cash Solutions Agreement with Wells Fargo allows us to utilize a maximum of $500.0 million to provide the currency needed for normal operating requirements for our ATMs.  This agreement is scheduled to terminate on November 30, 2015.  The outstanding balances of ATM cash we utilized were $295.3 million and $427.1 million as of September 30, 2014 and December 31, 2013, respectively.  For the three and nine months ended September 30, 2014 and 2013, the cash usage fees incurred by the Company were $0.6 million and $1.8 million and $0.6 million and $1.7 million, respectively. We are exposed to interest rate risk to the extent that the applicable LIBOR increases, subject to the interest rate cap.

 

We are responsible for any losses of cash in the ATMs under our agreement with Wells Fargo and we are self-insured for this risk. We incurred no material losses related to this self-insurance for the three and nine months ended September 30, 2014 and 2013.

 

We operate ATMs at certain gaming establishments where they provide the cash required for the ATMs’ operational needs. We are required to reimburse the customers for the amount of cash dispensed from these Site-Funded ATMs. The Site-Funded ATM liability is included within settlement liabilities on our condensed consolidated balance sheets and was $58.2 million and $68.9 million as of September 30, 2014 and December 31, 2013, respectively.

ACCOUNTS PAYABLE AND ACCRUED EXPENSES
ACCOUNTS PAYABLE AND ACCRUED EXPENSES

4.ACCOUNTS PAYABLE AND ACCRUED EXPENSES

 

The following table presents our accounts payable and accrued expenses (amounts in thousands):

 

 

 

At

 

 

 

September 30, 2014

 

December 31, 2013

 

 

 

 

 

 

 

Accounts payable

 

$

36,379 

 

$

35,662 

 

Payroll and related expenses

 

$

4,471 

 

4,758 

 

Processing and related expenses

 

$

4,033 

 

4,330 

 

Deferred and unearned revenues

 

$

11,630 

 

7,883 

 

Other

 

$

12,492 

 

8,068 

 

 

 

 

 

 

 

Total accounts payable and accrued expenses

 

$

69,005 

 

$

60,701 

 

 

BUSINESS COMBINATIONS
BUSINESS COMBINATIONS

5.BUSINESS COMBINATIONS

 

NEWave, Inc.

 

In April 2014, we acquired all of the outstanding capital stock of NEWave, Inc., (“NEWave”) for an aggregate purchase price of approximately $14.9 million, of which approximately $2.5 million is expected to be paid one year from the closing date. NEWave is a supplier of compliance, audit and data efficiency software to the gaming industry.

 

We have not provided the supplemental pro forma impact of the NEWave acquisition on the revenue and earnings of the combined entity as if the acquisition date had been January 1, 2014, or 2013, and the amount of revenue and earnings derived from NEWave have not been presented on a supplemental basis as such amounts are not material for the three and nine months ended September 30, 2014 and 2013, respectively.

 

Pending Acquisition of Multimedia Games Holding Company, Inc.

 

On September 8, 2014, the Company entered into a merger agreement to acquire all the outstanding stock of Multimedia Games Holding Company, Inc. (“Multimedia Games”) for $36.50 per share, for an aggregate purchase price of approximately $1.2 billion in cash.

 

The closing of the merger is subject to customary closing conditions, including but not limited to: (a) the approval of the merger by the shareholders of Multimedia Games; and (b) the receipt of certain gaming regulatory approvals.

 

In connection with the pending acquisition of Multimedia Games, the Company entered into a commitment letter with Bank of America, N.A. (“Bank of America”), Merrill Lynch, Pierce, Fenner & Smith Incorporated (“Merrill Lynch”), Deutsche Bank AG New York Branch (“DBNY”), and Deutsche Bank Securities Inc. (“DBSI” and together with Bank of America, Merrill Lynch, and DBNY, the “Commitment Parties”), pursuant to which the Commitment Parties have agreed to provide debt financing. The debt financing is anticipated to consist of: (1) senior secured credit facilities in an aggregate principal amount of $850.0 million, comprised of a $800.0 million senior secured term loan and a $50.0 million senior secured revolving credit facility; and (2) senior unsecured notes yielding $400.0 million in aggregate gross cash proceeds and/or, to the extent that the issuance of such notes yields less than $400.0 million in aggregate gross cash proceeds or such cash proceeds are otherwise unavailable, a senior unsecured bridge loan facility up to an aggregate principal amount of $400.0 million (less the cash proceeds received from the notes and available for use (if any)). The funding of the debt financing is contingent on the satisfaction of certain conditions set forth in the commitment letter. Based on our ability to meet the conditions set forth in the commitment letter, we expect to have sufficient funds to complete the acquisition and meet our anticipated requirements for working capital, capital expenditures and scheduled interest payments for the foreseeable future.  We also intend to use the funds from the debt financing to pay any remaining balance on our Senior Credit Facility at the close of the acquisition.  If the conditions to closing the merger have been satisfied and we are unable to close because the debt financing is unavailable, we would be required to pay Multimedia Games a termination fee of $50 million. We anticipate the closing of the Multimedia Games acquisition to occur in late December 2014 or early 2015, subject to obtaining all necessary regulatory approvals.

BORROWINGS
BORROWINGS

6.BORROWINGS

 

Senior Credit Facility

 

We have a Credit Agreement (the “Credit Agreement”) with certain lenders, Deutsche Bank Trust Company Americas, as Administrative Agent and Wells Fargo Securities, LLC, as Syndication Agent. The Credit Agreement provides for a $210.0 million term loan facility and a $35.0 million revolving credit facility (the “Senior Credit Facility”). The revolving credit facility includes provisions for the issuance of up to $10.0 million of letters of credit and up to $5.0 million in swing-line loans.

 

The term loan requires principal repayments of one quarter of 1% of the aggregate initial principal amount of term loans, adjusted for any non-mandatory prepayments per quarter, as well as annual mandatory prepayment provisions based on an excess cash flow sweep equal to a fixed percentage of excess cash flow (as defined in the Credit Agreement). The remaining principal is due on the maturity date, March 1, 2016. The Credit Agreement contains mandatory prepayment provisions which, under certain circumstances, such as asset or equity sales, obligate us to apply defined portions of our cash flow to prepayment of the Senior Credit Facility.

 

We had $95.7 million of outstanding indebtedness under the Senior Credit Facility, all of which was outstanding under the term loan facility as of September 30, 2014.

 

In May 2013, we entered into a second amendment to our Credit Agreement, dated March 1, 2011, among Deutsche Bank Trust Company Americas, as administrative agent and the various lenders who are a party thereto (the “Amended Credit Agreement”). The Amended Credit Agreement reduces the interest rate on borrowings under the term loan facility from LIBOR plus a margin of 5.5% (subject to a minimum LIBOR rate of 1.50%) to LIBOR plus a margin of 3.0% (subject to a minimum LIBOR rate of 1.0%). In addition, the original Credit Agreement provided for an increase option permitting us to arrange with existing and/or new lenders for them to provide up to an aggregate of $50.0 million in additional term loan commitments. The Amended Credit Agreement now provides us with an increase option to arrange with existing and/or new lenders additional term loan and/or revolving credit facility loan amounts in excess of $50.0 million so long as our total leverage ratio after giving effect to such additional loan amount does not exceed 2.50:1.00 (as such leverage ratio is calculated and defined under the Amended Credit Agreement).

 

The weighted average interest rate was 4.0% for the three and nine months ended September 30, 2014. We also had no amounts outstanding under our letter of credit sub facility that is part of our revolving credit facility as of September 30, 2014. The Senior Credit Facility is unconditionally guaranteed by Holdings and each direct and indirect domestic subsidiary of GCA. All amounts owing under the Senior Credit Facility are secured by a first priority perfected security interest in all stock (but only 65% of the stock of foreign subsidiaries), other equity interests and promissory notes owned by us and a first priority perfected security interest in all other tangible and intangible assets owned by us and our guarantors.

 

The Credit Agreement contains customary affirmative and negative covenants, financial covenants, representations and warranties and events of defaults. We were in compliance with the required covenants as of September 30, 2014.

 

COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES

7.COMMITMENTS AND CONTINGENCIES

 

We are subject to a variety of claims and suits that arise from time to time in the ordinary course of business including those discussed below. We do not believe the liabilities, if any, which may ultimately result from the outcome of such matters, individually or in the aggregate, will have a material adverse impact on our financial position, liquidity or results of operations.

 

 

Multimedia Games Merger Litigation

 

In October 2014, four complaints were filed by purported stockholders of Multimedia Games naming as defendants, among others, Holdings, and Movie Merger Sub, Inc., a wholly owned subsidiary of Holdings (“Merger Sub”).   The following three complaints were filed in the United States District Court for the Western District of Texas: Daniel Fumia, David Eykyn, and Mike Eykyn v. Multimedia Games Holding Company, Inc., Global Cash Access Holdings, Inc., et al., Case No 1:14-cv-00922; Maciel v. Multimedia Games Holding Company, Inc., Global Cash Access Holdings, Inc., et. al., Case No. 1:14-cv-00964; and Coffman v. Multimedia Games Holding Company, Inc., Global Cash Access Holdings, Inc., et. al., Case No. 1:14-cv-00966.  One of these complaints is a putative class action, another is an individual suit with respect to certain claims and a putative class action with respect to other claims, and the other complaint is both a putative class action and derivative litigation, all purportedly on behalf of Multimedia Games shareholders.  The fourth complaint, Gregory Lewis v. Global Cash Access Holdings, Inc., et. al, Case No. D-1-GN-14-004324, was filed in the District Court of Travis County, Texas, 201st Judicial District as both a putative class action and derivative shareholder litigation purportedly on behalf of Multimedia Games shareholders.

 

The complaints allege, among other things, that the directors of Multimedia Games breached their fiduciary duties in connection with the acquisition of MGAM by Holdings and Merger Sub by approving a transaction that would purportedly provide certain shareholders and directors with preferential treatment at the expense of Multimedia Games’ other shareholders and also thereby allegedly violate Sections 14(a) and 20(a) of the Securities Exchange Act of 1934.  The claim against Holdings and Merger Sub is for allegedly aiding and abetting the Multimedia Games directors’ purported breaches of fiduciary duties.  The complaints seek an injunction to prevent Multimedia Games and Holdings from completing the acquisition unless Multimedia Games’ directors adopt procedures or a process that purportedly complies with their fiduciary duties to Multimedia Games shareholders.  The complaints also seek other declaratory relief and rescission, to the extent already implemented, from the merger agreement between Multimedia Games and Holdings and an award to plaintiff of costs and attorney’s fees, among other things.  We intend to vigorously defend these matters.

SHAREHOLDERS' EQUITY
SHAREHOLDERS' EQUITY

8.SHAREHOLDERS’ EQUITY

 

Common Stock Repurchase Program

 

Our current share repurchase program grants us the authority to repurchase up to $40.0 million of our outstanding common stock over a two year period, which commenced in the first quarter of 2013. We repurchased approximately 0.7 million and 1.5 million shares of common stock for cash of $5.5 million and $11.7 million under the share repurchase program during the three and nine months ended September 30, 2014, respectively. We repurchased approximately 0.4 million and 2.1 million shares of common stock for cash of $2.8 million and $14.5 million under the share repurchase program during the three and nine months ended September 30, 2013, respectively. Since its inception, we have repurchased 4.0 million shares of common stock for an aggregate of $30.0 million in cash and have $10.0 million remaining under the program as of September 30, 2014. We completed the share repurchases with cash on hand. The repurchase program authorizes us to buy our common stock from time to time through open market, privately negotiated or other transactions, including pursuant to trading plans established in accordance with Rules 10b5-1 and 10b-18 of the Securities Exchange Act of 1934, as amended, or by a combination of such methods. The share repurchase program is subject to prevailing market conditions and other considerations and may be suspended or discontinued at any time. Due to our pending acquisition of Multimedia Games, we do not intend to buy back additional shares of our common stock through the end of the repurchase program in December 2014.

 

Treasury Stock

 

In addition to open market purchases of common stock authorized under our share repurchase program, employees may direct us to withhold vested shares of restricted stock to satisfy the minimum statutory withholding requirements applicable to their restricted stock vesting. We repurchased or withheld from restricted stock awards approximately 3,000 shares and 46,000 shares of common stock at an aggregate purchase price of approximately $27,400 and $396,100 to satisfy the minimum applicable tax withholding obligations incident to the vesting of such restricted stock awards during the three and nine months ended September 30, 2014, respectively. We repurchased or withheld from restricted stock awards approximately 1,000 shares and 12,000 shares of common stock at an aggregate purchase price of approximately $8,200 and $86,600 to satisfy the minimum applicable tax withholding obligations incident to the vesting of such restricted stock awards during the three and nine months ended September 30, 2013, respectively.

WEIGHTED AVERAGE COMMON SHARES
WEIGHTED AVERAGE COMMON SHARES

9.WEIGHTED AVERAGE COMMON SHARES

 

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 September 30,

 

Nine Months Ended September 30,

 

 

 

2014

 

2013

 

2014

 

2013

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding - basic

 

65,589 

 

65,525 

 

65,853 

 

66,108 

 

Potential dilution from equity awards(1)

 

1,158 

 

1,105 

 

1,198 

 

1,050 

 

Weighted average number of common shares outstanding - diluted

 

66,747 

 

66,630 

 

67,051 

 

67,158 

 

 

(1)

The potential dilution excludes the weighted average effect of equity awards to acquire 8.0 million and 7.0 million and 6.1 million and 6.0 million of our common stock for the three and nine months ended September 30, 2014 and 2013, respectively, because the application of the treasury stock method, as required, makes them anti-dilutive.

SHARE-BASED COMPENSATION
SHARE-BASED COMPENSATION

10.SHARE-BASED COMPENSATION

 

Equity Incentive Awards

 

In January 2005, we adopted the 2005 Stock Incentive Plan (the “2005 Plan”) to attract and retain the best available personnel, to provide additional incentives to employees, directors and consultants and thus to promote the success of our business. The 2005 Plan is administered by our Compensation Committee. The administrator of the 2005 Plan has the authority to select individuals who are to receive options or other equity incentive awards under the 2005 Plan and to specify the terms and conditions of grants of options or other equity incentive awards, the vesting provisions, the term and the exercise price.

 

In May 2014, we adopted the 2014 Equity Incentive Plan (the “2014 Plan”) to attract and retain the best available personnel, to provide additional incentives to employees, directors and consultants and thus to promote the success of our business. The 2014 Plan is administered by our Compensation Committee. The administrator of the 2014 Plan has the authority to select individuals who are to receive options or other equity incentive awards under the 2014 Plan and to specify the terms and conditions of grants of options or other equity incentive awards, the vesting provisions, the term and the exercise price.

 

Generally, our time-based stock options granted under the 2005 Plan (other than those granted to non-employee directors) will vest at a rate of 25% of the shares underlying the option after one year and the remaining shares vest in equal portions over the following 36 months, such that all shares are vested after four years.

 

Generally, our time-based stock options granted under the 2014 Plan will vest at a rate of 25% per year on each of the first four yearly anniversaries of the option grant dates.

 

Our market-based stock options granted under the 2005 Plan typically vest if our average stock price in any period of 30 consecutive trading days meets certain target prices during a four year period that commenced on the date of grant for these options.  If these target prices are not met during such four year period, the unvested shares underlying the options will terminate, except if there is a change in control of the Company as defined in the 2005 Plan, in which case, the unvested shares underlying such options shall become fully vested on the effective date of such change in control.

 

Our cliff vesting time-based stock options granted under the 2005 Plan will vest based on the requisite service periods with a portion to vest after five years and another portion to vest after six years.

 

The vesting provisions of restricted stock under the 2005 Plan are similar to those applicable to time-based stock options under the 2005 Plan. As these restricted shares were issued primarily to our employees when all or a portion of the restricted stock award vests, in most cases, a certain portion of the shares subject to the restricted stock award will be withheld by us to satisfy the statutory withholding requirements applicable to the restricted stock grants. Therefore, as these awards vest the actual number of shares outstanding as a result of the restricted stock awards is reduced. These restricted shares will vest over a period of four years.

 

A summary of award activity is as follows (in thousands):

 

 

 

Stock Options
Granted

 

Restricted Stock
Granted

 

 

 

 

 

 

 

Outstanding, December 31, 2013

 

8,872 

 

404 

 

 

 

 

 

 

 

Additional authorized shares

 

-

 

-

 

Granted

 

4,983 

 

-

 

Exercised options or vested shares

 

(951)

 

(166)

 

Canceled or forfeited

 

(692)

 

(99)

 

 

 

 

 

 

 

Outstanding, September 30, 2014

 

12,212 

 

139 

 

 

The maximum number of shares available for future equity awards under the 2014 Plan is approximately 10.3 million shares of our common stock; and there are no shares available for future equity awards under the 2005 Plan.

 

Stock Options

 

The fair value of our time-based options was determined as of the date of grant using the Black Scholes option pricing model with the following weighted-average assumptions:

 

 

 

Nine Months Ended September 30,

 

 

 

2014

 

2013

 

 

 

 

 

 

 

Risk-free interest rate

 

1% 

 

1% 

 

Expected life of options (in years)

 

 

 

Expected volatility

 

54% 

 

61% 

 

Expected dividend yield

 

0% 

 

0% 

 

 

The fair value of our cliff vesting time-based options was determined using the Black Scholes option pricing model as of the date of grant. For the five year cliff vesting time-based options, the assumptions were: (a) risk-free interest rate of 2%; (b) expected term of five years; (c) expected volatility of 52%; and (d) no expected dividend yield. For the six year cliff vesting time-based options, the assumptions were: (a) risk-free interest rate of 2%; (b) expected term of six years; (c) expected volatility of 58%; and (d) no expected dividend yield.

 

The fair value of our market-based options was determined using a lattice-based option valuation model as of the date of grant. For the market-based options issued in the first quarter 2014, the assumptions were: (a) risk-free interest rate of 1%; (b) measurement period of four years; (c) expected volatility of 51%; and (d) no expected dividend yield. For the market-based options issued in the second quarter 2014, the assumptions were: (a) risk-free interest rate of 1%; (b) measurement period of four years; (c) expected volatility of 52%; and (d) no expected dividend yield.

 

The following table presents the options activity:

 

 

 

Number of
Common Shares
(in thousands)

 

Weighted Average
Exercise Price
(per share)

 

Weighted
Average Life
Remaining
(years)

 

Aggregate
Intrinsic Value
(in thousands)

 

 

 

 

 

 

 

 

 

 

 

Outstanding, December 31, 2013

 

8,872 

 

$

7.54 

 

5.9 

 

$

27,301 

 

 

 

 

 

 

 

 

 

 

 

Granted

 

4,983 

 

7.53 

 

 

 

 

 

Exercised

 

(951)

 

5.45 

 

 

 

 

 

Canceled or forfeited

 

(692)

 

6.99 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding, September 30, 2014

 

12,212 

 

$

7.73 

 

6.5 

 

$

6,073 

 

 

 

 

 

 

 

 

 

 

 

Vested and expected to vest, September 30, 2014

 

11,171 

 

$

7.78 

 

6.3 

 

$

5,829 

 

 

 

 

 

 

 

 

 

 

 

Exercisable, September 30, 2014

 

6,430 

 

$

8.10 

 

4.1 

 

$

4,769 

 

 

There were 10,000 and 5.0 million and 15,000 and 1.2 million options granted during the three and nine months ended September 30, 2014 and 2013, respectively. The weighted average grant date fair value per share of the options granted was $3.54 and $3.27 and $2.98 and $3.31 for the three and nine months ended September 30, 2014 and 2013, respectively. The total intrinsic value of options exercised was $0.4 million and $2.8 million and $0.8 million and $2.3 million for the three and nine months ended September 30, 2014 and 2013, respectively.

 

There was $13.4 million in unrecognized compensation expense related to options expected to vest as of September 30, 2014 and is expected to be recognized on a straight-line basis over a weighted average period of 2.8 years. We received $5.3 million in proceeds from the exercise of options and recorded $6.6 million in non-cash compensation expense related to options granted that are expected to vest for the nine months ended September 30, 2014.

 

There was $8.3 million in unrecognized compensation expense related to options expected to vest as of September 30, 2013 and was expected to be recognized on a straight-line basis over a weighted average period of 2.6 years. We received $3.8 million in proceeds from the exercise of options and recorded $3.2 million in non-cash compensation expense related to options granted that were expected to vest for the nine months ended September 30, 2013.

 

Restricted Stock

 

The following table presents a summary of non-vested awards for our time-based restricted stock:

 

 

 

Shares
Outstanding
(in thousands)

 

Weighted
Average Grant
Date Fair Value
(per share)

 

 

 

 

 

 

 

Outstanding, December 31, 2013

 

404 

 

$

7.05 

 

 

 

 

 

 

 

Vested

 

(166)

 

7.09 

 

Forfeited

 

(99)

 

6.90 

 

 

 

 

 

 

 

Outstanding, September 30, 2014

 

139 

 

$

7.11 

 

 

There was no restricted stock granted during the three or nine months ended September 30, 2014, respectively. There was no restricted stock granted during the three months ended September 30, 2013, while there was 0.4 million restricted shares granted during the nine months ended September 30, 2013. The weighted average grant date fair value per share of restricted stock granted was $7.09 for the nine months ended September 30, 2013.  The total fair value of restricted stock vested was $0.1 million and $1.1 million and $0.1 million and $0.4 million for the three and nine months ended September 30, 2014 and 2013, respectively.

 

There was $1.2 million in unrecognized compensation expense related to restricted stock expected to vest as of September 30, 2014 and is expected to be recognized on a straight-line basis over a weighted average period of 2.3 years. There were 0.2 million restricted shares vested and we recorded $0.9 million in non-cash compensation expense related to the restricted stock granted that is expected to vest for the nine months ended September 30, 2014.

 

There was $2.3 million in unrecognized compensation expense related to shares of time-based restricted shares expected to vest as of September 30, 2013 and was expected to be recognized on a straight-line basis over a weighted average period of 3.3 years. There were 53,000 restricted shares vested and we recorded $0.5 million in non-cash compensation expense related to the restricted stock granted that was expected to vest for the nine months ended September 30, 2013.

INCOME TAXES
INCOME TAXES

11.INCOME TAXES

 

The provision for income tax reflected an effective income tax rate of 35.3% and 35.6% for the three and nine months ended September 30, 2014, respectively, which was slightly higher than the statutory federal rate of 35.0% due in part to state taxes and certain non-deductible amounts; partially offset by a favorable foreign tax rate applicable to certain foreign source income. The provision for income tax reflected an effective income tax rate of 36.9% and 37.3% for the same periods in the prior year, which were both greater than the statutory federal rate of 35.0% due in part to state taxes and the non-cash compensation expenses related to stock options.

 

We have analyzed filing positions in all of the federal, state and foreign jurisdictions where we are required to file income tax returns, as well as all open tax years in these jurisdictions. We believe that our income tax filing positions and deductions will be sustained upon audit and we do not anticipate any adjustments that will result in a material change to our financial position. We may from time to time be assessed interest or penalties by tax jurisdictions, although any such assessments historically have been minimal and immaterial to our financial results. Our policy for recording interest and penalties associated with audits and unrecognized tax benefits is to record such items as a component of income tax expense.

SEGMENT INFORMATION
SEGMENT INFORMATION

12.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 performance. Our 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.

 

We operate in three distinct business segments: (1) Cash Advance, (2) ATM and (3) Check Services. These segments are monitored separately by management for performance against its internal forecast and are consistent with our internal management reporting. The Other segment consists of certain lines of business, none of which exceeds the established materiality for segment reporting, and includes: fully integrated kiosk sales, kiosk parts and services; Central Credit reporting services; compliance, audit and data solutions and Casino Marketing Services, among others. In connection with our fully integrated solution offerings, we provide kiosks to our gaming establishment customers, whereby the related costs are allocated to the Cash Advance and ATM segments.

 

We do not allocate depreciation and amortization expenses to the business segments.  Certain corporate overhead expenses have been allocated to the segments for identifiable items related to such segments or based on a reasonable methodology.

 

Our 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, 2014 and 2013, none of our customers had combined revenues from all segments equal to or greater than 10%. Our five largest customers accounted for approximately 29% of revenues for the three and nine months ended September 30, 2014 and 33% for the three and nine months ended September 30, 2013.

 

The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies.

 

The following tables present our segment information (in thousands):

 

 

 

For the Three Months Ended September 30,

 

For the Nine Months Ended September 30,

 

 

 

2014

 

2013

 

2014

 

2013

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

 

 

 

 

 

 

 

 

Cash Advance

 

$

57,544 

 

$

58,305 

 

$

177,185 

 

$

174,292 

 

ATM

 

70,151 

 

71,634 

 

213,172 

 

219,881 

 

Check Services

 

5,518 

 

5,385 

 

16,146 

 

16,786 

 

Other

 

12,268 

 

10,777 

 

34,495 

 

31,028 

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

$

145,481 

 

$

146,101 

 

$

440,998 

 

$

441,987 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

 

 

 

 

 

 

 

 

Cash Advance

 

$

15,196 

 

$

15,190 

 

$

48,980 

 

$

46,503 

 

ATM

 

6,488 

 

6,114 

 

18,834 

 

19,323 

 

Check Services

 

2,560 

 

3,074 

 

8,220 

 

9,874 

 

Other

 

6,314 

 

4,399 

 

14,786 

 

14,031 

 

Corporate

 

(19,787)

 

(17,357)

 

(57,414)

 

(51,777)

 

 

 

 

 

 

 

 

 

 

 

Total operating income

 

$

10,771 

 

$

11,420 

 

$

33,406 

 

$

37,954 

 

 

 

 

At

 

 

 

September 30, 2014

 

December 31, 2013

 

Total assets

 

 

 

 

 

Cash advance

 

$

138,470 

 

$

145,939 

 

ATM

 

66,125 

 

69,627 

 

Check services

 

28,930 

 

30,930 

 

Other

 

79,962 

 

56,946 

 

Corporate

 

204,623 

 

223,885 

 

 

 

 

 

 

 

Total assets

 

$

518,110 

 

$

527,327 

 

 

SUBSEQUENT EVENTS
SUBSEQUENT EVENTS

13.SUBSEQUENT EVENTS

 

On October 3, 2014, Holdings and GCA entered into a third amendment to the Credit Agreement (the “Amendment”). The Amendment will facilitate the debt financing for the Multimedia Games acquisition by, among other things, enabling GCA, through a newly formed subsidiary, to incur such debt financing into a special escrow account pending the closing of the acquisition and then to use such amounts, together with cash on hand, to pay the merger consideration and related fees and expenses of the acquisition.

 

BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

Basis of Presentation

 

Our unaudited condensed consolidated financial statements included herein have been prepared by us 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 we believe 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, 2014 are not necessarily indicative of results to be expected for the full fiscal year.

 

Our unaudited condensed consolidated financial statements should be read in conjunction with the annual consolidated financial statements and notes thereto included within our Annual Report on Form 10-K for the year ended December 31, 2013 (the “2013 10-K”).

 

Principles of Consolidation

 

Intercompany transactions and balances have been eliminated in consolidation. 

Cash and Cash Equivalents

 

Cash and cash equivalents include cash and all balances on deposit in banks and financial institutions. We consider all highly liquid investments with maturities of three months or less at the time of purchase to be cash and cash equivalents. Such balances generally exceed the federal insurance limits; however, we periodically evaluate the creditworthiness of these institutions to minimize risk.

Restricted Cash and Cash Equivalents

 

As part of our online payment solutions for gaming operators, we hold deposits on behalf of lottery patrons. These funds can be utilized by lottery patrons for the purchase of lottery tickets. We reflect this cash as restricted cash and maintain a liability for these funds in accounts payable and accrued expenses. In addition, we have a sponsorship agreement that requires us to maintain a minimum deposit as collateral for any potential chargeback loss activity occurring as a result of the sponsorship arrangement. All interest received on this deposit is recorded to restricted cash and cash equivalents.

ATM Funding Agreements

 

We obtain all of the cash required to operate our ATMs through various ATM Funding Agreements. Some gaming establishments provide the cash utilized within the ATM (“Site-Funded”). The Site-Funded receivables are generated for the amount of cash dispensed from transactions performed at our ATMs and we are liable to these gaming establishments for the face amount of the cash dispensed. In our condensed consolidated balance sheets, the amount of the receivable for transactions processed on these ATM transactions is included within settlement receivables and the amount due to the gaming establishments for the face amount of dispensing transactions is included within settlement liabilities.

 

For the non-Site-Funded locations, our Contract Cash Solutions Agreement with Wells Fargo allows us to use funds owned by Wells Fargo to provide the currency needed for normal operating requirements for our ATMs. Under this agreement, all currency supplied by Wells Fargo remains its sole property at all times until the cash is dispensed, at which time Wells Fargo obtains an interest in the corresponding settlement receivables. As the cash supplied is never our asset, it is not reflected on our balance sheet. We are charged a cash usage fee on the average daily balance of funds utilized multiplied by a contractually defined cash usage rate for the cash used in these ATMs, which is included as interest expense in our condensed consolidated statements of income and comprehensive income. We recognize the fees as interest expense due to the similar operational characteristics to a revolving line of credit, the fact that the fees are calculated on a financial index and the fees are paid for access to a capital resource.

 

 

Settlement Receivables and Settlement Liabilities

 

In the credit card cash access and Point-of-Sale (“POS”) debit card cash access transactions we provide, the gaming establishments are reimbursed for the cash disbursed to gaming patrons through the issuance of a negotiable instrument or through electronic settlement. We receive reimbursement from the patrons’ credit or debit card issuers for the transactions in an amount equal to the funds owed to the gaming establishments plus the fee charged to the patrons. These reimbursements are included within the settlement receivables on our condensed consolidated balance sheets. The amounts owed to gaming establishments are included within settlement liabilities on our condensed consolidated balance sheets.

 

Warranty Receivables

 

If a gaming establishment chooses to have a check warranted it sends a request to our third party check warranty service provider, asking whether it would be willing to accept the risk of cashing the check. If the check warranty provider accepts the risk and warrants the check, the gaming establishment negotiates the patron’s check by providing cash for the face amount of the check. If the check is dishonored by the patron’s bank upon presentment, 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. In our Central Credit Check Warranty product under our agreement with the third party service provider, we receive all of the check warranty revenue. We are exposed to risk for the losses associated with any warranted items that cannot be collected from patrons issuing the items. Warranty receivables are defined as any amounts paid by the third party check warranty service provider to gaming establishments to purchase dishonored checks. The warranty receivables amount is recorded in other receivables, net on our condensed consolidated balance sheets. On a monthly basis, we evaluate the collectability of the outstanding balances and establish 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) on our condensed consolidated statements of income and comprehensive income. Additionally, we pay a fee to the third party check warranty service provider for their service which is included in operating expenses on our condensed consolidated statements of income and comprehensive income.

 

Unamortized Debt Issuance Costs

 

Debt issuance costs incurred in connection with long-term borrowings are capitalized and amortized to interest expense based upon the related debt agreements using the effective interest method. Unamortized debt issuance costs are included in prepaid expenses and other assets on our condensed consolidated balance sheets.

 

Property, Equipment and Leasehold Improvements

 

Property, equipment and leasehold improvements are stated at cost, less accumulated depreciation, computed using the straight-line method over the lesser of the estimated life of the related assets, generally three to five years, or the related lease term.

 

Repairs and maintenance costs are expensed as incurred.

 

Upon sale or retirement, the costs and related accumulated depreciation are eliminated from the accounts and any resulting gain or loss is reflected in our condensed consolidated statements of income and comprehensive income.

 

Property, equipment and leasehold improvements are reviewed for impairment whenever events or circumstances indicate that their carrying amounts may not be recoverable. Impairment is indicated when undiscounted future cash flows do not exceed the asset’s carrying value. There was no impairment for any of our property, equipment, or leasehold improvements as of September 30, 2014 and December 31, 2013.

 

Goodwill

 

Goodwill represents the excess of the purchase price over the identifiable tangible and intangible assets acquired plus liabilities assumed arising from business combinations.

 

We test for impairment annually on a reporting unit basis, at the beginning of our fourth fiscal quarter, or more often, under certain circumstances. The annual impairment test is completed using either: a qualitative Step 0 assessment based on reviewing relevant events and circumstances; or a quantitative Step 1 assessment, which determines the fair value of the reporting unit using an income approach that discounts future cash flows based on the estimated future results of our reporting units and a market approach that compares market multiples of comparable companies to determine whether or not any impairment exists. If the fair value of a reporting unit is less than its carrying amount, we use the Step 2 assessment to determine the impairment. Our goodwill was not impaired as of September 30, 2014 and December 31, 2013.

 

Other Intangible Assets

 

Other intangible assets consist primarily of customer contracts (rights to provide cash access services and compliance, audit and data services to gaming establishment customers) acquired through business combinations and acquisitions, capitalized software development and technology costs and the acquisition cost of our patent related to the 3-in-1 rollover technology acquired in 2005. Customer contracts require us to make renewal assumptions, which impact the estimated useful lives of such assets. Capitalized software development and technology costs require us to make certain judgments as to the stages of development and costs eligible for capitalization. Capitalized software costs placed in service are amortized over their useful lives, generally not to exceed three years. The acquisition cost of the 3-in-1 Rollover patent is being amortized over the term of the patent, which expires in 2018. Other intangible assets are reviewed annually for impairment and whenever events or circumstances indicate that the carrying amounts may not be recoverable. This assessment requires the use of estimates about future operating results. Changes in forecasted operations can materially affect these estimates, which could materially affect our results of operations. Our other intangible assets were not impaired as of September 30, 2014 and December 31, 2013.

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, restricted cash and cash equivalents, other receivables, net, settlement receivables, settlement liabilities, accounts payable and accrued expenses approximates fair value due to the short-term maturities of these instruments. The fair value of our borrowings are estimated based on various inputs to determine a market price, such as: market demand and supply, size of tranche, maturity and similar instruments trading in more active markets. The fair values of all other financial instruments approximate their book values as the instruments are short-term in nature or contain market rates of interest.

 

Interest Rate Cap

 

In conjunction with the terms and conditions of the Senior Credit Facility, we purchased a $150.0 million notional amount interest rate cap with an effective date of January 5, 2012 and a term of three years. We purchased this interest rate cap to partially reduce our exposure to increases in the London Interbank Offer Rate (“LIBOR’) above 1.5% during the term of the interest rate cap with respect to our variable rate debt obligations under the Senior Credit Facility and our obligations under the Contract Cash Solutions Agreement with Wells Fargo. This interest rate cap is recorded in other assets in the balance sheet, and is marked to market based on a quoted market price with the effects offset in our condensed consolidated statements of income and comprehensive income. The interest rate cap carrying value and fair value approximate each other and these values were not material as of September 30, 2014 and December 31, 2013.

 

The following table presents the fair value and carrying value of our borrowings (amounts in thousands):

 

 

 

Level of
Hierarchy(*)

 

Fair Value

 

Carrying
Value

 

 

 

 

 

 

 

 

 

September 30, 2014

 

 

 

 

 

 

 

Senior credit facility

 

2

 

$

95,623 

 

$

95,743 

 

 

 

 

 

 

 

 

 

December 31, 2013

 

 

 

 

 

 

 

Senior credit facility

 

2

 

$

104,030 

 

$

103,000 

 

 

 

(*) 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 primarily consists of parts as well as finished goods and work-in-progress. Inventory is stated at lower of cost or market accounted for using the average cost method. The cost of inventory includes cost of materials, labor, overhead and freight.

 

 

Revenue Recognition

 

We recognize revenue when evidence of an arrangement exists, services have been rendered, the price is fixed or determinable and collectability is reasonably assured. We evaluate our revenue streams for proper timing of revenue recognition. Revenue is recognized as products are delivered or services are performed.

 

In certain cases, we also enter into revenue arrangements that include the delivery of multiple elements.  Revenue recognition for these types of transactions occurs when the relevant criteria for each multiple deliverable element have been met.

 

In certain other cases, we enter into revenue arrangements that include the use of software license rights, maintenance, support and professional services for our compliance, audit and data services offerings. Revenue for these products and services is recognized under the software recognition guidance.

 

Cost of Revenues (exclusive of depreciation and amortization)

 

The cost of revenues (exclusive of depreciation and amortization) represents the direct costs required to perform revenue generating transactions. The principal costs included within cost of revenues (exclusive of depreciation and amortization) are commissions paid to gaming establishments, interchange fees paid to credit and debit card networks, transaction processing fees to our transaction processor, inventory costs associated with the sale of our integrated kiosks, check cashing warranties and third-party licensing costs.

 

 

Advertising, Marketing and Promotional Costs

 

We expense advertising, marketing and promotional costs as incurred. Total advertising, marketing and promotional costs, included in operating expenses in our condensed consolidated statements of income and comprehensive income, were $0.2 million and $0.6 million and $0.3 million and $0.6 million for the three and nine months ended September 30, 2014 and 2013, respectively.

 

Income Taxes

 

Income tax expense includes U.S. and international income taxes, plus the provision for U.S. taxes on undistributed earnings of international subsidiaries not deemed to be permanently invested. Since it is management’s practice and intent to reinvest the earnings in the international operations of our foreign subsidiaries, U.S. federal income taxes have not been provided on the undistributed earnings of any foreign subsidiaries except for GCA Macau. Some items of income and expense are not reported in tax returns and our condensed consolidated financial statements in the same year. The tax effect of such temporary differences is reported as deferred income taxes.

 

Foreign Currency Translation

 

Foreign currency denominated assets and liabilities for those foreign entities for which the local currency is the functional currency are translated into U.S. dollars based on exchange rates prevailing at the end of each period. Revenues and expenses are translated at average exchange rates during the period. The effects of these translations are included in other comprehensive income in our condensed consolidated statements of income and comprehensive income.

 

Translation adjustments on intercompany balances of a long-term investment nature are recorded as a component of accumulated other comprehensive income in our condensed consolidated balance sheets. 

Use of Estimates

 

We have made estimates and judgments affecting the amounts reported in our condensed consolidated financial statements and the accompanying notes. The actual results may differ from these estimates. These accounting estimates incorporated into the condensed consolidated financial statements include, but are not limited to:

 

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 income tax assets;

the estimated cash flows in assessing the recoverability of long-lived assets;

the projections for future performance, weighted average cost of capital (“WACC”) and growth rates as well as other factors used in our annual goodwill and other intangible assets impairment evaluations;

the renewal assumptions used for customer contracts to estimate the useful lives of such assets; and

the judgments used to determine the stages of development and costs eligible for capitalization as internally developed software.

 

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 reflect the effect of potential common stock resulting from assumed stock option exercises and vesting of restricted stock.

 

Share-Based Compensation

 

Share-based payment awards result in a cost that is measured at fair value on the award’s grant date.

 

Our time-based stock options, including our cliff vesting time-based awards, expected to be exercised currently, and in future periods, were measured at fair value on the grant date using the Black Scholes model. Our restricted stock awards expected to be vested currently, and in future periods, were measured at fair value based on the stock price on the grant date. The compensation expense is recognized on a straight-line basis over the awards’ vesting periods.

 

Our market-based stock options will vest if our average stock price in any period of 30 consecutive trading days meets certain target prices during a four year period that commenced on the grant date of these options. If these target prices are not met during the four year period, the unvested shares underlying the options will terminate except if there is a change in control of the Company as defined in the 2014 Equity Incentive Plan, in which case, the unvested shares underlying such options shall become fully vested on the effective date of such change in control transaction. The options were measured at fair value on the grant date using a lattice-based valuation model based on the median time horizon from the date of grant for these options to the vesting date for those paths that achieved the target threshold(s). The compensation expense is recognized on a straight-line basis over the median vesting periods calculated under such valuation model.

 

Forfeitures are estimated at the grant date for our time-based and market-based awards, with such estimates updated periodically; and with actual forfeitures recognized currently to the extent they differ from the estimates. Unless otherwise provided by the administrator of our equity incentive plans, stock options granted under our plans generally expire ten years from the date of grant. The exercise price of stock options is generally the closing market price of our common stock on the date of the stock option grant.

 

BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)
Schedule of fair value and carrying value of our borrowings

The following table presents the fair value and carrying value of our borrowings (amounts in thousands):

 

 

 

Level of
Hierarchy(*)

 

Fair Value

 

Carrying
Value

 

 

 

 

 

 

 

 

 

September 30, 2014

 

 

 

 

 

 

 

Senior credit facility

 

2

 

$

95,623 

 

$

95,743 

 

 

 

 

 

 

 

 

 

December 31, 2013

 

 

 

 

 

 

 

Senior credit facility

 

2

 

$

104,030 

 

$

103,000 

 

 

ACCOUNTS PAYABLE AND ACCRUED EXPENSES (Tables)
Schedule of accounts payable and accrued expenses

The following table presents our accounts payable and accrued expenses (amounts in thousands):

 

 

 

At

 

 

 

September 30, 2014

 

December 31, 2013

 

 

 

 

 

 

 

Accounts payable

 

$

36,379 

 

$

35,662 

 

Payroll and related expenses

 

$

4,471 

 

4,758 

 

Processing and related expenses

 

$

4,033 

 

4,330 

 

Deferred and unearned revenues

 

$

11,630 

 

7,883 

 

Other

 

$

12,492 

 

8,068 

 

 

 

 

 

 

 

Total accounts payable and accrued expenses

 

$

69,005 

 

$

60,701 

 

 

 

WEIGHTED AVERAGE COMMON SHARES (Tables)
Schedule of weighted average number of common shares outstanding used in the computation of basic and diluted earnings per share

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 September 30,

 

Nine Months Ended September 30,

 

 

 

2014

 

2013

 

2014

 

2013

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding - basic

 

65,589 

 

65,525 

 

65,853 

 

66,108 

 

Potential dilution from equity awards(1)

 

1,158 

 

1,105 

 

1,198 

 

1,050 

 

Weighted average number of common shares outstanding - diluted

 

66,747 

 

66,630 

 

67,051 

 

67,158 

 

 

(1)

The potential dilution excludes the weighted average effect of equity awards to acquire 8.0 million and 7.0 million and 6.1 million and 6.0 million of our common stock for the three and nine months ended September 30, 2014 and 2013, respectively, because the application of the treasury stock method, as required, makes them anti-dilutive.

 

SHARE-BASED COMPENSATION (Tables)

A summary of award activity is as follows (in thousands):

 

 

 

Stock Options
Granted

 

Restricted Stock
Granted

 

 

 

 

 

 

 

Outstanding, December 31, 2013

 

8,872 

 

404 

 

 

 

 

 

 

 

Additional authorized shares

 

-

 

-

 

Granted

 

4,983 

 

-

 

Exercised options or vested shares

 

(951)

 

(166)

 

Canceled or forfeited

 

(692)

 

(99)

 

 

 

 

 

 

 

Outstanding, September 30, 2014

 

12,212 

 

139 

 

 

 

 

 

Number of
Common Shares
(in thousands)

 

Weighted Average
Exercise Price
(per share)

 

Weighted
Average Life
Remaining
(years)

 

Aggregate
Intrinsic Value
(in thousands)

 

 

 

 

 

 

 

 

 

 

 

Outstanding, December 31, 2013

 

8,872 

 

$

7.54 

 

5.9 

 

$

27,301 

 

 

 

 

 

 

 

 

 

 

 

Granted

 

4,983 

 

7.53 

 

 

 

 

 

Exercised

 

(951)

 

5.45 

 

 

 

 

 

Canceled or forfeited

 

(692)

 

6.99 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding, September 30, 2014

 

12,212 

 

$

7.73 

 

6.5 

 

$

6,073 

 

 

 

 

 

 

 

 

 

 

 

Vested and expected to vest, September 30, 2014

 

11,171 

 

$

7.78 

 

6.3 

 

$

5,829 

 

 

 

 

 

 

 

 

 

 

 

Exercisable, September 30, 2014

 

6,430 

 

$

8.10 

 

4.1 

 

$

4,769 

 

 

 

 

 

Shares
Outstanding
(in thousands)

 

Weighted
Average Grant
Date Fair Value
(per share)

 

 

 

 

 

 

 

Outstanding, December 31, 2013

 

404 

 

$

7.05 

 

 

 

 

 

 

 

Vested

 

(166)

 

7.09 

 

Forfeited

 

(99)

 

6.90 

 

 

 

 

 

 

 

Outstanding, September 30, 2014

 

139 

 

$

7.11 

 

 

 

 

 

Nine Months Ended September 30,

 

 

 

2014

 

2013

 

 

 

 

 

 

 

Risk-free interest rate

 

1% 

 

1% 

 

Expected life of options (in years)

 

 

 

Expected volatility

 

54% 

 

61% 

 

Expected dividend yield

 

0% 

 

0% 

 

 

SEGMENT INFORMATION (Tables)
Schedule of results of operations and total assets by operating segment

The following tables present our segment information (in thousands):

 

 

 

For the Three Months Ended September 30,

 

For the Nine Months Ended September 30,

 

 

 

2014

 

2013

 

2014

 

2013

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

 

 

 

 

 

 

 

 

Cash Advance

 

$

57,544 

 

$

58,305 

 

$

177,185 

 

$

174,292 

 

ATM

 

70,151 

 

71,634 

 

213,172 

 

219,881 

 

Check Services

 

5,518 

 

5,385 

 

16,146 

 

16,786 

 

Other

 

12,268 

 

10,777 

 

34,495 

 

31,028 

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

$

145,481 

 

$

146,101 

 

$

440,998 

 

$

441,987 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

 

 

 

 

 

 

 

 

Cash Advance

 

$

15,196 

 

$

15,190 

 

$

48,980 

 

$

46,503 

 

ATM

 

6,488 

 

6,114 

 

18,834 

 

19,323 

 

Check Services

 

2,560 

 

3,074 

 

8,220 

 

9,874 

 

Other

 

6,314 

 

4,399 

 

14,786 

 

14,031 

 

Corporate

 

(19,787)

 

(17,357)

 

(57,414)

 

(51,777)

 

 

 

 

 

 

 

 

 

 

 

Total operating income

 

$

10,771 

 

$

11,420 

 

$

33,406 

 

$

37,954 

 

 

 

 

At

 

 

 

September 30, 2014

 

December 31, 2013

 

Total assets

 

 

 

 

 

Cash advance

 

$

138,470 

 

$

145,939 

 

ATM

 

66,125 

 

69,627 

 

Check services

 

28,930 

 

30,930 

 

Other

 

79,962 

 

56,946 

 

Corporate

 

204,623 

 

223,885 

 

 

 

 

 

 

 

Total assets

 

$

518,110 

 

$

527,327 

 

 

BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) (USD $)
In Millions, unless otherwise specified
9 Months Ended 12 Months Ended
Sep. 30, 2014
Dec. 31, 2013
Property, Plant and Equipment [Line Items]
 
 
Impairment of property, equipment or leasehold improvements
$ 0 
$ 0 
Minimum [Member]
 
 
Property, Plant and Equipment [Line Items]
 
 
Estimated life
3 years 
 
Maximum [Member]
 
 
Property, Plant and Equipment [Line Items]
 
 
Estimated life
5 years 
 
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 2) (Software Development [Member], Maximum [Member])
9 Months Ended
Sep. 30, 2014
Software Development [Member] |
Maximum [Member]
 
Finite-Lived Intangible Assets [Line Items]
 
Useful lives
3 years 
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 3) (USD $)
0 Months Ended 3 Months Ended 9 Months Ended 0 Months Ended
Jan. 5, 2012
Sep. 30, 2014
Sep. 30, 2013
Sep. 30, 2014
Sep. 30, 2013
Jan. 5, 2012
London Interbank Offered Rate LIBOR [Member]
Sep. 30, 2014
Fair Value Inputs Level2 [Member]
Line Of Credit [Member]
Dec. 31, 2013
Fair Value Inputs Level2 [Member]
Line Of Credit [Member]
Sep. 30, 2014
Fair Value Inputs Level2 [Member]
Carrying Reported Amount Fair Value Disclosure [Member]
Line Of Credit [Member]
Dec. 31, 2013
Fair Value Inputs Level2 [Member]
Carrying Reported Amount Fair Value Disclosure [Member]
Line Of Credit [Member]
Interest Rate Cap
 
 
 
 
 
 
 
 
 
 
Notional amount
$ 150,000,000 
 
 
 
 
 
 
 
 
 
Term of interest rate cap
3 years 
 
 
 
 
 
 
 
 
 
Variable rate basis
 
 
 
 
 
LIBOR 
 
 
 
 
Increase in LIBOR which is covered by interest rate cap (as a percent)
 
 
 
 
 
1.50% 
 
 
 
 
Senior credit facility
 
 
 
 
 
 
95,623,000 
104,030,000 
95,743,000 
103,000,000 
Advertising, Marketing and Promotional Costs
 
 
 
 
 
 
 
 
 
 
Total advertising, marketing and promotional costs
 
$ 200,000 
$ 300,000 
$ 600,000 
$ 600,000 
 
 
 
 
 
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 4)
9 Months Ended
Sep. 30, 2014
Market Performance Based Options [Member]
 
Stock-Based Compensation
 
Vesting condition period over which average stock price should meet target prices
30 days 
Vesting period
4 years 
Market Performance Based Options [Member] |
ExecutiveOfficer [Member]
 
Stock-Based Compensation
 
Vesting condition period over which average stock price should meet target prices
30 days 
Vesting period
4 years 
Stock Option [Member]
 
Stock-Based Compensation
 
Expiration period
10 years 
ATM FUNDING AGREEMENTS (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2014
Sep. 30, 2013
Sep. 30, 2014
Sep. 30, 2013
Dec. 31, 2013
ATM Funding Agreements
 
 
 
 
 
Gains (losses) related to self-insurance
$ 0 
$ 0 
$ 0 
$ 0 
 
Site-Funded ATM liability
58.2 
 
58.2 
 
68.9 
Indemnification Guarantee [Member] |
Cash [Member]
 
 
 
 
 
ATM Funding Agreements
 
 
 
 
 
Cash usage fees incurred
0.6 
0.6 
1.8 
1.7 
 
Indemnification Guarantee [Member] |
Contract Cash Solutions Agreement [Member] |
Cash [Member]
 
 
 
 
 
ATM Funding Agreements
 
 
 
 
 
Outstanding balance of ATM cash utilized
295.3 
 
295.3 
 
427.1 
Indemnification Guarantee [Member] |
Second Amendment Contract Cash Solutions Agreement [Member] |
Cash [Member] |
Maximum [Member]
 
 
 
 
 
ATM Funding Agreements
 
 
 
 
 
Maximum amount
$ 500.0 
 
$ 500.0 
 
 
ACCOUNTS PAYABLE AND ACCRUED EXPENSES (Details) (USD $)
In Thousands, unless otherwise specified
Sep. 30, 2014
Dec. 31, 2013
Accounts payable and accrued expenses
 
 
Accounts payable
$ 36,379 
$ 35,662 
Payroll and related expenses
4,471 
4,758 
Processing and related expenses
4,033 
4,330 
Deferred and unearned revenues
11,630 
7,883 
Other
12,492 
8,068 
Total accounts payable and accrued expenses
$ 69,005 
$ 60,701 
BUSINESS COMBINATIONS (Details) (USD $)
9 Months Ended 0 Months Ended 9 Months Ended
Sep. 30, 2014
Sep. 30, 2014
NEWave Inc
Sep. 8, 2014
Multimedia Games Holding Company Inc
Sep. 30, 2014
Senior Secured Credit Facility Member
Sep. 30, 2014
Senior Secured Term Loan Member
Sep. 30, 2014
Senior Secured Revolving Credit Facility [Member]
Sep. 30, 2014
Senior Unsecured Notes [Member]
Sep. 30, 2014
Senior Unsecured Bridge Loan Facility [Member]
Business Combinations
 
 
 
 
 
 
 
 
Purchase consideration Transferred
 
$ 14,900,000 
$ 1,200,000,000 
 
 
 
 
 
Purchase of stock price per share
 
 
$ 36.50 
 
 
 
 
 
Aggregate principal amount of debt
 
 
 
850,000,000 
800,000,000 
50,000,000 
 
400,000,000 
Gross cash proceeds from senior unsecured notes
 
 
 
 
 
 
400,000,000 
 
Termination fee due if unavailability of debt financing prevents closure of acquisition
 
 
50,000,000 
 
 
 
 
 
Accrued and unpaid contingent liability for NEWwave acquisition
$ 2,463,000 
$ 2,463,000 
 
 
 
 
 
 
Period for expected consideration payment
 
1 year 
 
 
 
 
 
 
BORROWINGS (Details) (USD $)
0 Months Ended 3 Months Ended 9 Months Ended 1 Months Ended 9 Months Ended 1 Months Ended 9 Months Ended
Sep. 30, 2014
Dec. 31, 2013
Jan. 5, 2012
London Interbank Offered Rate LIBOR [Member]
Sep. 30, 2014
Line Of Credit [Member]
Sep. 30, 2014
Line Of Credit [Member]
Sep. 30, 2014
Term Loan [Member]
Sep. 30, 2014
Term Loan [Member]
Maximum [Member]
May 31, 2013
Term Loan [Member]
London Interbank Offered Rate LIBOR [Member]
Sep. 30, 2014
Term Loan [Member]
London Interbank Offered Rate LIBOR [Member]
May 31, 2013
Term Loan [Member]
London Interbank Offered Rate LIBOR [Member]
Minimum [Member]
Sep. 30, 2014
Term Loan [Member]
London Interbank Offered Rate LIBOR [Member]
Minimum [Member]
Sep. 30, 2014
Term Loan Original Commitments Increase Option [Member]
Sep. 30, 2014
Revolving Credit Facility [Member]
May 31, 2013
Revolving Credit Facility [Member]
Sep. 30, 2014
Letter Of Credit [Member]
Sep. 30, 2014
Swingline Loans [Member]
BORROWINGS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Maximum borrowing capacity
 
 
 
 
 
$ 210,000,000 
 
 
 
 
 
 
$ 35,000,000 
 
$ 10,000,000 
$ 5,000,000 
Percentage of the aggregate initial principal amount required to be repaid
 
 
 
 
 
0.25% 
 
 
 
 
 
 
 
 
 
 
Outstanding indebtedness
95,743,000 
103,000,000 
 
 
 
95,700,000 
 
 
 
 
 
 
 
 
 
 
Variable rate basis
 
 
LIBOR 
 
 
 
 
LIBOR 
LIBOR 
 
 
 
 
 
 
 
Interest rate margin (as a percent)
 
 
 
 
 
 
 
5.50% 
3.00% 
 
 
 
 
 
 
 
Variable rate of debt (as a percent)
 
 
 
 
 
 
 
 
 
1.50% 
1.00% 
 
 
 
 
 
Maximum borrowing capacity after amendment
 
 
 
 
 
 
 
 
 
 
 
50,000,000 
 
 
 
 
Minimum borrowing capacity after amendment
 
 
 
 
 
 
 
 
 
 
 
 
50,000,000 
50,000,000 
 
 
Total leverage ratio after amendment in Credit Agreement
 
 
 
 
 
 
2.50 
 
 
 
 
 
 
 
 
 
Weighted average interest rate (as a percent)
 
 
 
4.00% 
4.00% 
 
 
 
 
 
 
 
 
 
 
 
Outstanding amount under letter of credit sub facility
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$ 0 
 
Percentage of the stock of foreign subsidiaries by which the amounts under the credit facility are secured
 
 
 
 
65.00% 
 
 
 
 
 
 
 
 
 
 
 
COMMITMENTS AND CONTINGENCIES (Details) (Multimedia Games Merger Litigation, Subsequent Event [Member])
1 Months Ended
Oct. 31, 2014
item
Litigation Claims and Assessments
 
Number of claims filed
United States District Court
 
Litigation Claims and Assessments
 
Number of claims filed
Putative Class Action
 
Litigation Claims and Assessments
 
Number of claims filed
SHAREHOLDERS' EQUITY (Details) (USD $)
3 Months Ended 9 Months Ended 21 Months Ended
Sep. 30, 2014
Sep. 30, 2013
Mar. 31, 2013
Sep. 30, 2014
Sep. 30, 2013
Sep. 30, 2014
Common Stock Repurchase Program
 
 
 
 
 
 
Period of share repurchase under new share repurchase program
 
 
2 years 
 
 
 
Shares of common stock repurchased
700,000 
400,000 
 
1,500,000 
2,100,000 
4,000,000 
Aggregate purchase price of shares repurchased
$ 5,500,000 
$ 2,800,000 
 
$ 11,700,000 
$ 14,500,000 
$ 30,000,000 
Value of remaining authorized shares under the program
10,000,000 
 
 
10,000,000 
 
10,000,000 
Total Number of Shares Purchased or Withheld
 
 
 
 
 
 
Shares withheld from restricted stock vesting
3,000 
1,000 
 
46,000 
12,000 
 
Cost of Shares Purchased or Withheld
 
 
 
 
 
 
Shares withheld from restricted stock vesting (in dollars)
27,400 
8,200 
 
396,100 
86,600 
 
Maximum [Member]
 
 
 
 
 
 
Common Stock Repurchase Program
 
 
 
 
 
 
Authorized repurchase amount
$ 40,000,000 
 
 
$ 40,000,000 
 
$ 40,000,000 
WEIGHTED AVERAGE COMMON SHARES (Details)
3 Months Ended 9 Months Ended
Sep. 30, 2014
Sep. 30, 2013
Sep. 30, 2014
Sep. 30, 2013
Weighted-average number of common shares outstanding used in the computation of basic and diluted earnings per share
 
 
 
 
Weighted average number of common shares outstanding - basic
65,589,000 
65,525,000 
65,853,000 
66,108,000 
Potential dilution from equity awards(1)
1,158,000 
1,105,000 
1,198,000 
1,050,000 
Weighted average number of common shares outstanding - diluted
66,747,000 
66,630,000 
67,051,000 
67,158,000 
Anti-dilutive equity awards excluded from computation of earnings per share (in shares)
8,000,000 
6,100,000 
7,000,000 
6,000,000 
SHARE-BASED COMPENSATION (Details) (USD $)
3 Months Ended 9 Months Ended 12 Months Ended
Sep. 30, 2014
Sep. 30, 2013
Sep. 30, 2014
Sep. 30, 2013
Dec. 31, 2013
Additional disclosures
 
 
 
 
 
Number of shares available for grant
10,300,000 
 
10,300,000 
 
 
Stock Option [Member]
 
 
 
 
 
Stock Options Granted
 
 
 
 
 
Balance outstanding at the beginning of the period (in shares)
 
 
8,872,000 
 
 
Granted (in shares)
10,000 
15,000 
4,983,000 
1,200,000 
 
Exercised options (in shares)
 
 
(951,000)
 
 
Canceled or forfeited (in shares)
 
 
(692,000)
 
 
Balance outstanding at the end of the period (in shares)
12,212,000 
 
12,212,000 
 
8,872,000 
Vested and expected to vest (in shares)
11,171,000 
 
11,171,000 
 
 
Balance exercisable at the end of the period (in shares)
6,430,000 
 
6,430,000 
 
 
Weighted Average Exercise Price
 
 
 
 
 
Balance outstanding at the beginning of the period (in dollars per share)
 
 
$ 7.54 
 
 
Granted (in dollars per share)
 
 
$ 7.53 
 
 
Exercised options (in dollars per share)
 
 
$ 5.45 
 
 
Canceled or forfeited (in dollars per share)
 
 
$ 6.99 
 
 
Balance outstanding at the end of the period (in dollars per share)
$ 7.73 
 
$ 7.73 
 
$ 7.54 
Vested and expected to vest (in dollars per share)
$ 7.78 
 
$ 7.78 
 
 
Balance exercisable at the end of the period (in dollars per share)
$ 8.10 
 
$ 8.10 
 
 
Weighted Average Life Remaining
 
 
 
 
 
Balance outstanding at the beginning of the period
 
 
6 years 6 months 
 
5 years 10 months 24 days 
Balance outstanding at the end of the period
 
 
6 years 6 months 
 
5 years 10 months 24 days 
Vested and expected to vest
 
 
6 years 3 months 18 days 
 
 
Balance exercisable at the end of the period
 
 
4 years 1 month 6 days 
 
 
Aggregate Intrinsic Value
 
 
 
 
 
Balance outstanding at the beginning of the period (in dollars)
 
 
$ 27,301,000 
 
 
Balance outstanding at the end of the period (in dollars)
6,073,000 
 
6,073,000 
 
27,301,000 
Vested and expected to vest (in dollars)
5,829,000 
 
5,829,000 
 
 
Balance exercisable at the end of the period (in dollars)
4,769,000 
 
4,769,000 
 
 
Additional disclosures
 
 
 
 
 
Total intrinsic value of options exercised
400,000 
800,000 
2,800,000 
2,300,000 
 
Restricted Stock [Member]
 
 
 
 
 
Restricted Stock Granted
 
 
 
 
 
Balance outstanding at the beginning of the period (in shares)
 
 
404,000 
 
 
Granted (in shares)
400,000 
 
Vested (in shares)
 
 
(166,000)
53,000 
 
Forfeited (in shares)
 
 
(99,000)
 
 
Balance outstanding at the end of the period (in shares)
139,000 
 
139,000 
 
 
Additional disclosures
 
 
 
 
 
Total fair value of shares vested
$ 100,000 
$ 1,100,000 
$ 100,000 
$ 400,000 
 
Time Based Options [Member]
 
 
 
 
 
Equity Incentive Awards
 
 
 
 
 
Vesting rate (as a percent)
 
 
25.00% 
 
 
Vesting period for 25% of shares
 
 
1 year 
 
 
Vesting period for remaining shares
 
 
36 months 
 
 
Vesting period
 
 
4 years 
 
 
Weighted-average assumptions used in estimating fair value
 
 
 
 
 
Risk-free interest rate (as a percent)
 
 
1.00% 
1.00% 
 
Expected life of options
 
 
4 years 
4 years 
 
Expected volatility (as a percent)
 
 
54.00% 
61.00% 
 
Expected dividend yield (as a percent)
 
 
0.00% 
0.00% 
 
FiveyearCliffVestingTimebasedOptions [Member]
 
 
 
 
 
Weighted-average assumptions used in estimating fair value
 
 
 
 
 
Risk-free interest rate (as a percent)
 
 
2.00% 
 
 
Expected life of options
 
 
5 years 
 
 
Expected volatility (as a percent)
 
 
52.00% 
 
 
Expected dividend yield (as a percent)
 
 
0.00% 
 
 
SixyearCliffVestingTimebasedOptions [Member]
 
 
 
 
 
Weighted-average assumptions used in estimating fair value
 
 
 
 
 
Risk-free interest rate (as a percent)
 
 
2.00% 
 
 
Expected life of options
 
 
6 years 
 
 
Expected volatility (as a percent)
 
 
58.00% 
 
 
Expected dividend yield (as a percent)
 
 
0.00% 
 
 
Market Performance Based Options [Member]
 
 
 
 
 
Equity Incentive Awards
 
 
 
 
 
Vesting period
 
 
4 years 
 
 
Vesting condition period over which average stock price should meet target prices
 
 
30 days 
 
 
Market Performance Based Options [Member] |
Chief Executive Officer [Member]
 
 
 
 
 
Weighted-average assumptions used in estimating fair value
 
 
 
 
 
Risk-free interest rate (as a percent)
 
 
1.00% 
 
 
Expected life of options
 
 
4 years 
 
 
Expected volatility (as a percent)
 
 
51.00% 
 
 
Expected dividend yield (as a percent)
 
 
0.00% 
 
 
Market Performance Based Options [Member] |
ExecutiveOfficer [Member]