GLOBAL CASH ACCESS HOLDINGS, INC., 10-K filed on 3/12/2012
Annual Report
Document and Entity Information (USD $)
In Millions, except Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2011
Feb. 29, 2012
Jun. 30, 2011
Document and Entity Information
 
 
 
Entity Registrant Name
Global Cash Access Holdings, Inc. 
 
 
Entity Central Index Key
0001318568 
 
 
Document Type
10-K 
 
 
Document Period End Date
Dec. 31, 2011 
 
 
Amendment Flag
false 
 
 
Current Fiscal Year End Date
--12-31 
 
 
Entity Well-known Seasoned Issuer
No 
 
 
Entity Voluntary Filers
No 
 
 
Entity Current Reporting Status
Yes 
 
 
Entity Filer Category
Accelerated Filer 
 
 
Entity Public Float
 
 
$ 205.7 
Entity Common Stock, Shares Outstanding
 
65,106,029 
 
Document Fiscal Year Focus
2011 
 
 
Document Fiscal Period Focus
FY 
 
 
CONSOLIDATED BALANCE SHEETS (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2011
Dec. 31, 2010
ASSETS
 
 
Cash and cash equivalents
$ 55,535 
$ 60,636 
Restricted cash and cash equivalents
455 
455 
Settlement receivables
80,246 
10,374 
Other receivables, net
16,885 
15,211 
Inventory
7,087 
3,845 
Prepaid expenses and other assets
15,406 
8,200 
Property, equipment and leasehold improvements, net
15,577 
16,648 
Goodwill, net
180,122 
185,110 
Other intangible assets, net
38,216 
26,368 
Deferred income taxes, net
119,538 
131,547 
Total assets
529,067 
458,394 
Liabilities:
 
 
Settlement liabilities
141,827 
59,741 
Accounts payable
32,223 
28,562 
Accrued expenses
21,159 
17,863 
Borrowings
174,000 
208,750 
Total liabilities
369,209 
314,916 
Commitments and Contingencies (Note 6)
   
   
Stockholders' Equity:
 
 
Common stock, $0.001 par value, 500,000 shares authorized and 85,651 and 85,006 shares issued at December 31, 2011 and December 31, 2010, respectively
86 
85 
Convertible preferred stock, $0.001 par value, 50,000 shares authorized and 0 shares outstanding at December 31, 2011 and December 31, 2010, respectively
   
   
Additional paid-in capital
204,735 
197,048 
Retained earnings
97,925 
88,796 
Accumulated other comprehensive income
2,340 
2,587 
Treasury stock, at cost, 20,686 and 20,626 shares at December 31, 2011 and December 31, 2010, respectively
(145,228)
(145,038)
Total stockholders' equity
159,858 
143,478 
Total liabilities and stockholders' equity
$ 529,067 
$ 458,394 
CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)
In Thousands, except Per Share data, unless otherwise specified
Dec. 31, 2011
Dec. 31, 2010
CONSOLIDATED BALANCE SHEETS
 
 
Common stock, par value (in dollars per share)
$ 0.001 
$ 0.001 
Common stock, shares authorized
500,000 
500,000 
Common stock, shares issued
85,651 
85,006 
Common stock, shares outstanding
85,651 
85,006 
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
20,686 
20,626 
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (USD $)
In Thousands, except Per Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2011
Dec. 31, 2010
Dec. 31, 2009
Revenues:
 
 
 
Total revenues
$ 544,063 
$ 605,590 
$ 667,720 
Cost of revenues (exclusive of depreciation and amortization)
419,606 
463,045 
501,810 
Operating expenses
69,517 
73,720 
76,005 
Depreciation and amortization
16,644 
16,195 
17,851 
Operating income
38,296 
52,630 
72,054 
Interest expense, net of interest income
18,638 
16,329 
17,960 
Loss on early extinguishment of debt
943 
 
 
Interest expense, net
19,581 
16,329 
17,960 
Income from continuing operations before income tax provision
18,715 
36,301 
54,094 
Income tax provision
9,586 
18,751 
20,556 
Income from continuing operations, net of tax
9,129 
17,550 
33,538 
Income from discontinued operations, net of tax
 
 
44 
Net income
9,129 
17,550 
33,582 
Plus: net (loss) income attributable to minority interest
 
(56)
56 
Net income attributable to Global Cash Access Holdings, Inc. and Subsidiaries
9,129 
17,494 
33,638 
Foreign currency translation
(247)
397 
947 
Comprehensive income
8,882 
17,891 
34,585 
Basic earnings per share:
 
 
 
Continuing operations (in dollars per share)
$ 0.14 
$ 0.27 
$ 0.45 
Discontinued operations (in dollars per share)
$ 0 
 
 
Net income (in dollars per share)
$ 0.14 
$ 0.27 
$ 0.45 
Diluted earnings per share:
 
 
 
Continuing operations (in dollars per share)
$ 0.14 
$ 0.26 
$ 0.45 
Discontinued operations (in dollars per share)
$ 0 
 
 
Net income (in dollars per share)
$ 0.14 
$ 0.26 
$ 0.45 
Weighted average number of common shares outstanding:
 
 
 
Basic (in shares)
64,673 
65,903 
74,232 
Diluted (in shares)
64,859 
67,272 
75,356 
Cash advance
 
 
 
Revenues:
 
 
 
Total revenues
203,869 
244,139 
289,314 
ATM
 
 
 
Revenues:
 
 
 
Total revenues
283,727 
314,627 
325,953 
Check services
 
 
 
Revenues:
 
 
 
Total revenues
26,269 
28,357 
38,525 
Other revenues
 
 
 
Revenues:
 
 
 
Total revenues
$ 30,198 
$ 18,467 
$ 13,928 
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (USD $)
In Thousands, except Share data, unless otherwise specified
Total
Equity Attributable to GCA Holdings, Inc.
Common Stock - Series A
Additional Paid-in Capital
Retained Earnings
Accumulated Other Comprehensive Income
Treasury Stock
Equity Attributable to Non-Controlling Interest
BALANCE at Dec. 31, 2008
$ 160,878 
$ 160,878 
$ 83 
$ 172,119 
$ 37,659 
$ 1,243 
$ (50,226)
 
BALANCE (in shares) at Dec. 31, 2008
 
 
82,961,129 
 
 
 
 
 
Increase (Decrease) in Stockholders' Equity
 
 
 
 
 
 
 
 
Net income
33,582 
33,638 
 
 
33,638 
 
 
(56)
Foreign currency translation
947 
947 
 
 
 
947 
 
 
Share-based compensation expense
8,454 
8,454 
 
8,454 
 
 
 
 
Exercise of options
2,913 
2,913 
 
2,913 
 
 
 
 
Exercise of options (in shares)
 
 
432,116 
 
 
 
 
 
Restricted stock cancellations (in shares)
 
 
(54,200)
 
 
 
 
 
Treasury share repurchases
(61,159)
(61,159)
 
 
 
 
(61,159)
 
Restricted share vesting withholdings
(179)
(179)
 
 
 
 
(179)
 
Restricted shares vested (in shares)
 
 
4,084 
 
 
 
 
 
Minority interest
(32)
 
 
 
 
 
 
(32)
Other
 
 
 
 
 
Other (in shares)
 
 
1,363 
 
 
 
 
 
BALANCE at Dec. 31, 2009
145,409 
145,497 
83 
183,486 
71,302 
2,190 
(111,564)
(88)
BALANCE (in shares) at Dec. 31, 2009
 
 
83,344,492 
 
 
 
 
 
Increase (Decrease) in Stockholders' Equity
 
 
 
 
 
 
 
 
Net income
17,550 
17,494 
 
 
17,494 
 
 
56 
Foreign currency translation
397 
397 
 
 
 
397 
 
 
Share-based compensation expense
7,935 
7,935 
 
7,935 
 
 
 
 
Exercise of options
5,630 
5,630 
5,629 
 
 
 
 
Exercise of options (in shares)
 
 
1,200,402 
 
 
 
 
 
Treasury share repurchases
(32,675)
(32,675)
 
 
 
 
(32,675)
 
Restricted share vesting withholdings
(799)
(799)
 
 
 
 
(799)
 
Restricted shares vested
 
 
 
 
 
Restricted shares vested (in shares)
 
 
461,552 
 
 
 
 
 
Minority interest
32 
 
 
 
 
 
 
32 
Other
(2)
(2)
 
(2)
 
 
 
 
BALANCE at Dec. 31, 2010
143,478 
143,478 
85 
197,048 
88,796 
2,587 
(145,038)
 
BALANCE (in shares) at Dec. 31, 2010
85,006,000 
 
85,006,446 
 
 
 
 
 
Increase (Decrease) in Stockholders' Equity
 
 
 
 
 
 
 
 
Net income
9,129 
9,129 
 
 
9,129 
 
 
 
Foreign currency translation
(247)
(247)
 
 
 
(247)
 
 
Share-based compensation expense
6,809 
6,809 
 
6,809 
 
 
 
 
Exercise of options
879 
879 
878 
 
 
 
 
Exercise of options (in shares)
 
 
399,273 
 
 
 
 
 
Restricted share vesting withholdings
(190)
(190)
 
 
 
 
(190)
 
Restricted shares vested (in shares)
 
 
245,283 
 
 
 
 
 
BALANCE at Dec. 31, 2011
$ 159,858 
$ 159,858 
$ 86 
$ 204,735 
$ 97,925 
$ 2,340 
$ (145,228)
 
BALANCE (in shares) at Dec. 31, 2011
85,651,000 
 
85,651,002 
 
 
 
 
 
CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2011
Dec. 31, 2010
Dec. 31, 2009
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net income
$ 9,129 
$ 17,550 
$ 33,582 
Adjustments to reconcile net income to cash provided by operating activities:
 
 
 
Amortization of financing costs
1,343 
973 
973 
Amortization of intangibles
8,673 
6,872 
8,196 
Depreciation
7,971 
9,323 
9,740 
Loss/(gain) on sale or disposal of assets
991 
(366)
139 
Provision for bad debts
5,959 
5,908 
7,955 
Loss on early extinguishment of debt
943 
 
 
Stock-based compensation
6,809 
7,935 
8,454 
Changes in operating assets and liabilities:
 
 
 
Settlement receivables
(69,881)
1,660 
9,220 
Other receivables, net
(8,125)
2,757 
(11,850)
Inventory
(3,146)
814 
 
Prepaid and other assets
(2,323)
1,567 
577 
Deferred income taxes
9,252 
17,505 
19,578 
Settlement liabilities
82,125 
(2,655)
13,505 
Accounts payable
3,658 
(715)
(7,528)
Accrued expenses
874 
(230)
(1,578)
Net cash provided by operating activities
54,252 
68,898 
90,963 
CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Acquisitions, net of cash
(10,763)
(15,354)
 
Purchase of property, equipment, leasehold improvements and other intangibles
(7,420)
(9,051)
(7,254)
Changes in restricted cash and cash equivalents
 
(87)
19 
Net cash used in investing activities
(18,183)
(24,492)
(7,235)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Repayments against old credit facility
(208,750)
(41,000)
(16,000)
Securing of new credit facility
214,000 
 
 
Issuance costs of new credit facility
(7,099)
 
 
Repayments against new credit facility
(40,000)
 
 
Proceeds from exercise of stock options
812 
5,629 
2,913 
Purchase of treasury stock
(190)
(33,474)
(61,338)
Net cash used in financing activities
(41,227)
(68,845)
(74,425)
NET EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
57 
307 
(1,683)
NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS
(5,101)
(24,132)
7,620 
CASH AND CASH EQUIVALENTS - Beginning of Period
60,636 
84,768 
77,148 
CASH AND CASH EQUIVALENTS - End of Period
55,535 
60,636 
84,768 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
 
 
 
Cash paid for interest
19,166 
15,922 
17,634 
Cash paid for taxes, net of refunds
366 
689 
3,795 
NON-CASH TRANSACTIONS:
 
 
 
Purchase of other intangibles
 
$ 1,500 
 
BUSINESS AND BASIS OF PRESENTATION
BUSINESS AND BASIS OF PRESENTATION

1. BUSINESS AND BASIS OF PRESENTATION

        Global Cash Access Holdings, Inc. is a holding company, the principal asset of which is the capital stock of Global Cash Access, Inc. Unless otherwise indicated, the terms "the Company," "Holdings," "we," "us" and "our" refer to Global Cash Access Holdings, Inc. together with its consolidated subsidiaries. Holdings was formed on February 4, 2004, for the purpose of holding all of the outstanding capital stock of Global Cash Access, Inc. ("GCA") and to guarantee the obligations under our borrowings.

        The Company is a provider in the United States and several international jurisdictions of cash access products and data intelligence services and solutions to the gaming industry. The Company's services and solutions provide gaming establishment patrons access to cash through a variety of methods, including automated teller machine ("ATM") cash withdrawals, credit card cash access transactions, point-of-sale ("POS") debit card cash access transactions, check verification and warranty services and money transfers. In addition, the Company also provides products and services that improve credit decision-making, automate cash operations and enhance patron marketing activities for gaming establishments. These services are provided to patrons at gaming establishments directly by GCA or through one of its subsidiaries.

        The Company also owns and operates a credit reporting agency for the gaming industry through a wholly-owned subsidiary, Central Credit LLC ("Central Credit"), which provides credit information services and credit reporting history on gaming patrons to various gaming establishments. Central Credit operates in both international and domestic gaming markets.

        In May 2010, we completed the acquisition of Western Money Systems ("Western Money"), a manufacturer of slot machine ticket redemption and jackpot kiosks. The results of operations of Western Money have been reflected in the applicable business segment financial information following this acquisition. In November 2011, we purchased substantially all of the assets of MCA Processing LLC ("MCA"), a provider of cash access services and products to the gaming industry. The results of operations related to the acquisition of MCA are included in the applicable cash advance and ATM business segment financial information following this acquisition.

        We announced on February 28, 2008, that we intended to exit the Arriva Card, Inc. ("Arriva") business. The results of operations for the Arriva line of business have been classified to discontinued operations for the six months ended June 2009. The Company determined that, as of July 1, 2009, the results of operations for the Arriva line of business were no longer material and the results of operations for the six months ended December 31, 2009 have been classified in continuing operations.

        Innovative Funds Transfer, LLC ("IFT") formerly known as QuikPlay, LLC was a joint venture that was formed on December 6, 2000 and owned 60% by GCA and 40% by International Gaming Technology ("IGT"). IGT is one of the largest manufacturers of gaming equipment in the United States. GCA was the managing member of this entity and IFT was consolidated in the Company's consolidated financial statements prior to April 19, 2010, at which time GCA and IGT dissolved IFT. The dissolution of IFT did not have a material impact on the consolidated financial statements of the Company.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

        All significant 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. The Company considers all highly liquid investments with maturities of three months or less at the time of purchase to be cash and cash equivalents. Such balances may at times exceed the federal insurance limits. However, the Company periodically evaluates the creditworthiness of these institutions to minimize risk.

Restricted Cash and Cash Equivalents

        As part of certain of our sponsorship agreements, we are required to maintain minimum deposits as collateral for any potential chargeback loss activity occurring as a result of the sponsorship arrangements. All interest received on these deposits is also recorded to restricted cash and cash equivalents. As of December 31, 2011, the total balance of restricted cash and cash equivalents was $0.5 million.

ATM Funding Agreements

        The Company obtains all of the cash required to operate its ATMs through various ATM Funding Agreements more fully described in Note 3. Some gaming establishments provide the cash utilized within the ATM ("Site-Funded"). The Site-Funded receivables generated for the amount of cash dispensed from transactions performed at our ATMs are owned by GCA and GCA is liable to the gaming establishment for the face amount of the cash dispensed. In the consolidated balance sheets, the amount of the receivable for transactions processed on these ATM transactions is included within settlement receivables and the amount due to the gaming establishment for the face amount of dispensing transactions is included within settlement liabilities.

        For our non-Site-Funded locations, up until December 13, 2010, GCA obtained the necessary cash to service these machines through the Bank of America Amended Treasury Services Agreement ("Treasury Services Agreement"). On December 17, 2010, GCA terminated the Treasury Services Agreement with Bank of America. On November 12, 2010, GCA entered into the Contract Cash Solutions Agreement with Wells Fargo Bank, N.A. ("Wells Fargo"). Under the terms of these agreements, neither the cash utilized within the ATMs nor the receivables generated for the amount of cash dispensed through transactions on the ATMs are owned or controlled by GCA. These amounts have been netted and reflected in the consolidated balance sheets. We are charged a cash usage fee for the cash used in these ATMs, which is included as interest expense in the consolidated statements of income. The Company recognizes 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 POS debit card cash access transactions provided by GCA, the gaming establishment is reimbursed for the cash disbursed to gaming patrons, in most instances, through the issuance of a negotiable instrument, and, in some instances, through electronic settlement. GCA receives reimbursement from the patron's credit or debit card issuer for the transaction in an amount equal to the amount owing to the gaming establishment plus the fee charged to the patron. This reimbursement is included within the settlement receivables on the consolidated balance sheets. The unpaid negotiable instrument amounts owing to gaming establishments are included within settlement liabilities on the consolidated balance sheets.

Warranty Receivables

        In the check services transactions provided by Central Credit, Central Credit warrants check cashing transactions performed at gaming establishments. If a gaming establishment chooses to have a check warranted, it sends a request to a check warranty service provider asking whether it will warrant the check. The gaming establishment then pays the patron the check amount and deposits the check. If the check is dishonored by the patron's bank, the gaming establishment invokes the warranty and the check warranty service provider purchases the check from the gaming establishment for the full check amount and then pursues collection activities on its own. All amounts paid out to the gaming establishment related to these items result in a warranty receivable from the patron. This amount is recorded in other receivables, net on the consolidated balance sheets. On a monthly basis, Central Credit evaluates the collectability of the outstanding balances and establishes a reserve for the face amount of the expected losses on these receivables. The warranty expense associated with this reserve is included within cost of revenues (exclusive of depreciation and amortization) in the condensed consolidated statements of income. The Company writes off substantially all warranty receivables that are practically older than one year in age.

        A summary activity of the reserve for warranty losses for the two years ended December 31, 2011 and 2010 is as follows (amounts in thousands):

 
  Amount  

Balance, December 31, 2009

  $ 8,596  

Warranty expense provision

   
6,208
 

Charge offs against reserve

    (7,768 )
       

Balance, December 31, 2010

    7,036  

Warranty expense provision

   
5,700
 

Charge offs against reserve

    (5,980 )
       

Balance, December 31, 2011

  $ 6,756  
       

Discontinued Operations

        On February 28, 2008, the Company announced its intention to exit the Arriva business. Accordingly, the operations for Arriva have been classified as discontinued operations for the six months ended June 30, 2009. In July 2009, it was determined that the Arriva business was no longer significant and therefore not included in discontinued operations for the second half of 2009.

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 straight-line method, which approximates the effective interest method. Unamortized debt issuance costs are included in prepaid and other assets on the consolidated balance sheets.

Property, Equipment and Leasehold Improvements

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

        Repairs and maintenance costs are expensed as incurred.

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

        Property, equipment and leasehold improvements are reviewed for impairment whenever events or circumstances indicate that their carrying amounts may not be recoverable. Impairment is indicated when undiscounted future cash flows do not exceed the asset's carrying value. As of December 31, 2011, the Company does not believe any of its property, equipment, or leasehold improvements are impaired.

Acquisitions

        The Company accounts for business combinations in accordance with the accounting standards, which require that the assets acquired and liabilities assumed be recorded at their estimated fair values.

Western Money

        The Company completed its acquisition of Western Money in May 2010, in which 100 percent of the outstanding common shares of Western Money were acquired for a purchase price net of cash of approximately $15.4 million. This acquisition did not have a material impact on the consolidated financial statements of the Company as of and for the year ended December 31, 2010. During the quarter ended June 30, 2011, the Company completed its determination of the estimated fair values of assets acquired and liabilities assumed in the Western Money acquisition.

        The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition for Western Money (in thousands):

 
  Amount  

Net working capital

  $ 3,516  

Property, plant and equipment

    2,320  

Goodwill

    5,745  

Intangible assets

    6,284  

Deferred income tax liabilities

    (2,498 )
       

Net assets acquired (excluding cash)

  $ 15,367  
       

        In connection with the acquisition, the Company acquired approximately $6.3 million of intangible assets, of which $4.0 million was assigned to customer contracts, which will be amortized over eleven years on an accelerated basis. The adjustments to the preliminary fair value amounts have not been applied retrospectively to the consolidated balance sheet or the consolidated statements of income and comprehensive income during the prior year as the impact of the final purchase price allocations was not material to previously reported financial statements.

        Other intangibles acquired include $0.7 million of trademarks which will be amortized on a straight-line basis over 10 years and $1.4 million of developed technology and $0.2 million of non-compete agreements both of which will be amortized on a straight-line basis over their useful lives of 5 years and 2 years, respectively.

MCA Processing

        On November 15, 2011, the Company acquired substantially all of the assets of MCA Processing LLC for approximately $13.4 million, of which approximately $2.6 million is expected to be paid one year from the closing date. MCA is a provider of ATM, debit card and credit card cash access services to gaming establishments and also manufactures, sells, licenses and services redemption kiosk devices.

        Although not currently a shareholder of the company, in conjunction with the purchase of certain of the assets of MCA Processing, LLC, a former shareholder of the Company, Robert Cucinotta, and USA Payment Systems, an entity affiliated with Robert Cucinotta, entered into non-competition agreements with the Company.

        The amount of revenue and earnings included in the Company's income statement for the year ended December 31, 2011, and the supplemental pro forma impact on the revenue and earnings of the combined entity had the acquisition date been January 1, 2011, or 2010, have not been presented as such amounts are not material.

Goodwill

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

        The Company accounts for goodwill in accordance with FASB guidance, which addresses how intangible assets that are acquired individually or with a group of other assets should be accounted for in financial statements upon their acquisition. This guidance also addresses how goodwill and other intangible assets should be accounted for after they have been initially recognized in the financial statements. The Company tests for impairment annually, or more often under certain circumstances. The Company does not believe that any of its goodwill is impaired as of December 31, 2011 and 2010 based upon the results of our impairment testing.

        The changes in the carrying amount of goodwill for the years ended December 31, 2010 and 2011 are as follows (in thousands):

 
  Cash Advance   ATM   Check Services   Other   Total  

Balance, December 31, 2009

  $ 100,895   $ 33,051   $ 23,281   $ 17,127   $ 174,354  

Goodwill acquired during the year

                10,756     10,756  
                       

Balance, December 31, 2010

  $ 100,895   $ 33,051   $ 23,281   $ 27,883   $ 185,110  
                       

Goodwill adjustments

    23             (5,011 )   (4,988 )
                       

Balance, December 31, 2011

  $ 100,918   $ 33,051   $ 23,281   $ 22,872   $ 180,122  
                       

        The changes in goodwill to the Other reportable segment were primarily due to the acquisition of Western Money in 2010 and final purchase price allocation for Western Money completed in the second quarter of 2011. The changes in goodwill to Cash Advance were primarily due to foreign currency translation adjustments. All goodwill has been allocated to its respective reporting units, per the table above.

        In accordance with ASC 350, we test goodwill at the reporting unit level for impairment on an annual basis and between annual tests if events and circumstances indicate it is more likely than not that the fair value of a reporting unit is less than its carrying amount.

        In performing the annual impairment test, we utilize the two-step approach prescribed under ASC 350. The first step requires a comparison of the carrying value of each reporting unit to its estimated fair value. To estimate the fair value of our reporting units for Step 1, we use a combination of the income approach and the market approach. The income approach is based on a discounted cash flow analysis, or DCF method. This method involves estimating the after-tax cash flows attributable to a reporting unit and then discounting the after-tax cash flows to a present value ("DCF"), using a risk-adjusted discount rate. Assumptions used in the DCF require the exercise of significant judgment, including judgment about appropriate discount rates and terminal values, growth rates and the amount and timing of expected future cash flows. The forecasted cash flows are based on our most recent budget and for years beyond the budget. Our budgets are based on estimated future growth rates. We believe our assumptions are consistent with the plans and estimates used to manage the underlying businesses. The discount rates, which are intended to reflect the risks inherent in future cash flow projections, used in the DCF are based on estimates of the weighted-average cost of capital, or WACC, of market participants relative to each respective reporting unit. The market approach considers comparable market data based on multiples of revenue or earnings before taxes, depreciation and amortization ("EBITDA").

        If the carrying value of a reporting unit exceeds its estimated fair value, we are required to perform the second step of the goodwill impairment test to measure the amount of impairment loss, if any. The second step of the goodwill impairment test compares the implied fair value of a reporting unit's goodwill to its carrying value. The implied fair value of goodwill is derived by performing a hypothetical purchase price allocation for the reporting unit as of the measurement date, allocating the reporting unit's estimated fair value to its assets and liabilities. The residual amount from performing this allocation represents the implied fair value of goodwill. To the extent this amount is below the carrying amount of goodwill, an impairment charge is recorded.

        We conducted our annual impairment test for our reporting units during the fourth quarter of 2011 and no impairment was identified.

        Key assumptions used in estimating fair value under the discounted cash flow approach included a discount rate of 12.5%, projected compound average revenue growth rates of 2.0% to 3.0% and terminal value growth rates of 2.0%. The discounted cash flow analyses for our segments included estimated future cash inflows from operations and estimated future cash outflows for capital expenditures.

        Key assumptions used in estimating fair value under the market approach were based on observed market multiples of enterprise value to revenue and EBITDA for both comparable publicly-traded companies and recent merger and acquisition transactions involving similar companies to estimate appropriate controlling basis multiples to apply to each of the reporting units. Based on the multiples implied by this market data, we selected multiples of revenue of 0.3 to 2.7 times and multiples of EBITDA of 6.5 times.

        The estimate of fair value requires significant judgment. We based our fair value estimates on assumptions that we believe to be reasonable but that are unpredictable and inherently uncertain, including estimates of future growth rates and operating margins and assumptions about the overall economic climate and the competitive environment for our business units. There can be no assurance that our estimates and assumptions made for purposes of our goodwill and identifiable intangible asset testing as of the time of testing will prove to be accurate predictions of the future. If our assumptions regarding business plans, competitive environments or anticipated growth rates are not correct, we may be required to record goodwill and/or intangible asset impairment charges in future periods, whether in connection with our next annual impairment testing or earlier, if an indicator of an impairment is present before our next annual evaluation.

Other Intangible Assets

        Other intangible assets consist primarily of customer contracts (rights to provide cash access services to gaming establishment customers) acquired through business combinations and acquisitions, capitalized software development costs and the acquisition cost of our patent related to the "3-in-1 rollover" technology acquired in 2005. The acquisition cost of the 3-in-1 rollover patent is being amortized over the term of the patent, which expires in 2018. Patents and trademarks are generally amortized on a straight-line basis over 17 years and other intangibles are generally amortized on a straight-line basis over periods ranging from 3 to 14 years.

 
  2011   2010  

Computer software

  $ 24,719   $ 21,008  

Patents and trademarks

    11,134     10,357  

Customer contracts

    50,649     35,759  

Non-compete agreements

    1,400     400  
           

Sub-total

    87,902     67,524  

Less: accumulated amortization

   
(49,686

)
 
(41,156

)
           

Total

  $ 38,216   $ 26,368  
           

        Amortization expense related to these intangibles totaled approximately $8.7 million, $6.9 million and $8.1 million, for the years ended December 31, 2011, 2010 and 2009, respectively. There were disposals of intangible assets of $0.6 million and $0.5 million in 2011 and 2010, respectively.

        At December 31, 2011, the total amount of net book value of amortizable intangible assets was approximately $38.2 million. The anticipated amortization expense related to other intangible assets, assuming no subsequent impairment of the underlying assets, is as follows (in millions):

2012

  $ 10,431  

2013

    9,221  

2014

    7,344  

2015

    5,538  

2016

    2,551  

Thereafter

    3,131  
       

 

  $ 38,216  
       

        The Company accounts for the costs related to computer software developed or obtained for internal use in accordance with FASB guidance, which establishes that computer software costs that are incurred in the preliminary project stage should be expensed as incurred. Costs incurred in the application development phase and any upgrades and enhancements that modify the existing software and result in additional functionality are capitalized and amortized over their useful lives, generally not to exceed three years. These costs consist of outside professional fees related to the development of our systems. The Company capitalized $0.2 million, $0.1 million and $1.1 million, of development costs for the years ended December 31, 2011, 2010 and 2009, respectively.

Fair Values of Financial Instruments

        The fair value of a financial instrument represents the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Fair value estimates are made at a specific point in time, based upon relevant market information about the financial instrument.

        The carrying amount of cash and cash equivalents, other receivables, net, settlement receivables and settlement liabilities approximates fair value due to the short-term maturities of these instruments. The fair value of GCA's borrowings are estimated based on quoted market prices for the same issue or in instances where no market exists the quoted market prices for similar issues with similar terms are used to estimate fair value. The fair values of all other financial instruments, including amounts outstanding under the ATM funding agreements, approximate their book values as the instruments are short-term in nature or contain market rates of interest. The following table presents the fair value and carrying value of GCA's borrowings (amounts in thousands):

 
  Level of
Hierarchy(1)
  Fair
Value
  Carrying
Value
 

December 31, 2011

                   

New senior secured credit facility

    1   $ 173,565   $ 174,000  

December 31, 2010

                   

Old Senior Secured Credit Facility

    2   $ 81,000   $ 81,000  

Senior Subordinated Notes

    1   $ 128,229   $ 127,750  

(1)
Level 1 indicates that the fair value is determined by using quoted prices in active markets for identical investments. Level 2 indicates that the fair value is determined using pricing inputs other than quoted prices in active markets such as models or other valuation methodologies. Level 3 indicates that the fair value is determined using pricing inputs that are unobservable for the investment and include situations where there is little, if any, market activity for the investment. Significant management estimates and judgment are used in the determination of the fair value of level 3 pricing inputs.

Inventory

        Inventory, which consists primarily of finished goods such as redemption kiosk devices, as well as work-in-progress and parts, is stated at lower of cost or market. The cost of inventory includes cost of materials, labor, overhead and freight. Inventory is accounted for using the average cost method. Inventory as of December 31, 2011 and 2010 was $7.1 million and $3.9 million, respectively.

Revenue Recognition

        The Company recognizes revenue when evidence of an arrangement exists, services have been rendered, the price is fixed or determinable and collectability is reasonably assured. The Company evaluates its revenue streams for proper timing of revenue recognition.

        Cash advance revenue is comprised of the fee charged to patrons for credit card cash access and POS debit card transactions. Revenue recognition occurs at the point a negotiable instrument is generated by the gaming establishment cage for the patron's transaction or cash is dispensed from an ATM.

        ATM revenue is comprised of upfront patron transaction fees or surcharges assessed at the time the transaction is initiated and a percentage of interchange fees paid by the patron's issuing bank. These issuing banks share the interchange revenue (reverse interchange) with GCA to cover the cost incurred by GCA to acquire the ATM transaction. Upfront patron transaction fees are recognized when a transaction is initiated and reverse interchange is recognized on a monthly basis based on the total transactions occurring during the month.

        In general, check service revenue is comprised of a fee based upon a percentage of the face amount of total checks warranted, and is recognized on a monthly basis.

        Central Credit revenue is based upon either a flat monthly, unlimited usage fee or a variable fee structure driven by the volume of patron credit histories generated. This revenue is recognized on a monthly basis based on the total transactions occurring during the month. Revenue derived from our patron marketing products and services is recognized upon completion of services.

        Western Money derives substantially all of its revenue from the sale of cash access devices such as jackpot and ATM enabled redemption kiosks and derives the balance of its revenue from the provision of certain professional services, software licensing, and certain other ancillary fees associated with the sale of, installation and operation of those devices. Revenue is recognized as products are delivered and or services are performed.

Cost of Revenues (Exclusive of Depreciation and Amortization)

        The cost of revenues (exclusive of depreciation and amortization), represent the direct costs required to perform revenue generating transactions. The principal costs included within cost of revenues (exclusive of depreciation and amortization) are commissions paid to gaming establishments, interchange fees paid to credit and debit card networks, transaction processing fees to our transaction processor and check cashing warranties.

Advertising, Marketing and Promotional Costs

        The Company expenses advertising, marketing and promotional costs as incurred. Total advertising, marketing and promotional costs, included in operating expenses in the consolidated statements of income, were $0.6 million, $0.8 million and $0.5 million for the years ended December 31, 2011, 2010 and 2009, 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 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 year. Revenues and expenses are translated at average exchange rates during the year. The effects of foreign exchange gains and losses arising from these translations are included as a component of other comprehensive income on the consolidated statements of income. Translation adjustments on intercompany balances of a long-term investment nature are recorded as a component of accumulated other comprehensive income on the Company's consolidated balance sheets.

Use of Estimates

        The Company has made estimates and judgments affecting the amounts reported in these financial statements and the accompanying notes. The actual results may differ from these estimates. These accounting estimates incorporated into the Company's 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; and

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

    the budgets for future performance, weighted average cost of capital ("WACC") and growth rates as well as other factors used in our annual goodwill impairment evaluation.

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. The weighted-average number of common shares outstanding used in the computation of basic and diluted earnings per share is as follows at December 31, (amounts in thousands):

 
  2011   2010   2009  

Weighted average number of common shares outstanding—basic(1)

    64,673     65,903     74,232  

Potential dilution from equity grants(2)(3)

    186     1,369     1,124  
               

Weighted average number of common shares outstanding—diluted

    64,859     67,272     75,356  
               

(1)
Included in the calculation of weighted average common shares outstanding—basic are approximately 42,000, 407,000 and 614,000 of unvested shares of restricted common stock of Holdings granted in share-based payment transactions for the years ended December 31, 2011, 2010 and 2009, respectively, that are participating securities because such shares have voting rights as well as the right to participate in dividend distributions made by the Company to its common shareholders.

(2)
The potential dilution excludes the weighted average effect of stock options to acquire approximately 8.1 million, 6.9 million and 6.5 million shares of common stock of Holdings for the years ended December 31, 2011, 2010 and 2009, respectively, because the application of the treasury stock method, as required, makes them anti-dilutive.

(3)
The potential dilution excludes the weighted average effect of shares of time-based shares of restricted common stock of Holdings of approximately 18,000, 0 and 1,500 shares for the years ended December 31, 2011, 2010 and 2009, respectively, as the application of the treasury stock method makes them anti-dilutive.

Stock-Based Compensation

        Share-based payment awards result in a cost that is measured at fair value on the award's grant date. Stock options expected to be exercised currently and in future periods are measured at fair value using the Black-Scholes model with the expense associated with these awards being recognized on the straight-line basis over the awards' vesting period. Forfeitures are estimated at the time of grant, with such estimate updated periodically and with actual forfeitures recognized currently to the extent they differ from the estimates.

        The estimated per share weighted-average fair value of stock options granted during 2011, 2010 and 2009 was $2.04, $4.24 and $1.38, respectively.

        We have estimated the fair value of options granted at the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions in the years ended December 31,:

 
  2011   2010   2009  

Risk-free interest rate

    2.4 %   2.5 %   2.0 %

Expected life of options (in years)

    6.3     6.3     6.3  

Expected volatility

    62.9 %   60.1 %   57.5 %

Expected dividend yield

    0.0 %   0.0 %   0.0 %

        The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant. The expected volatility for options granted in 2011 was based upon our historical volatility. The expected dividend yield is based on the Company's historical practice of not paying dividends. Stock-based compensation related to time-based restricted shares is calculated based on the closing market price of the Company's common stock on the date of grant, reduced by the present value of dividends expected to be paid, if any, on the Company's common stock prior to vesting of the restricted stock.

Recently Issued Accounting Pronouncements

        On June 16, 2011, the FASB issued ASU 2011-05, which revises the manner in which entities present comprehensive income in their financial statements. The new guidance removes the presentation options in ASC 220 and requires entities to report components of comprehensive income in either (1) a continuous statement of comprehensive income or (2) two separate but consecutive statements. Adoption of this amended guidance is not expected to have an impact on the Company's financial position, results of operations or cash flows.

        In September 2011, the FASB issued ASU 2011-08, which simplifies how entities, both public and nonpublic, test goodwill for impairment. The amendments in the update permit an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in Topic 350. The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent. Previous guidance under Topic 350 required an entity to test goodwill for impairment, on at least an annual basis, by comparing the fair value of a reporting unit with its carrying amount, including goodwill (step one). If the fair value of a reporting unit is less than its carrying amount, then the second step of the test must be performed to measure the amount of the impairment loss, if any. Adoption of this amended guidance is not expected to have an impact on the Company's financial position, results of operations or cash flows.

ATM FUNDING AGREEMENTS
ATM FUNDING AGREEMENTS

3. ATM FUNDING AGREEMENTS

Wells Fargo Contract Cash Solutions Agreement

        On November 12, 2010, the Company executed the Contract Cash Solutions Agreement with Wells Fargo for a pilot period which began on November 18, 2010, and expired on December 13, 2010. Upon expiration of the pilot period of the Contract Cash Solutions Agreement, full transition of vault cash services from Bank of America to Wells Fargo occurred, and on December 17, 2010, the Company terminated the Treasury Services Agreement with Bank of America.

        The Contract Cash Solutions Agreement allows for the Company to utilize up to $400.0 million in funds owned by Wells Fargo to provide the currency needed for normal operating requirements for the Company's ATMs. For the use of these funds, the Company pays Wells Fargo a cash usage fee on the average daily balance of funds utilized multiplied by a contractually defined cash usage rate.

        The Company recognized the fees that it paid to Bank of America and Wells Fargo for cash usage pursuant to the Treasury Services Agreement and Contract Cash Solutions Agreement, respectively, which are reflected as interest expense in our financial statements for the following reasons:

  • the Treasury Services Agreement and Contract Cash Solutions Agreement operate in a fashion similar to a revolving line of credit in that amounts are drawn and repaid on a daily basis;
  • the resource being procured by the Company under the terms of the Treasury Services Agreement and Contract Cash Solutions Agreement are a financial resource and in the absence of such an arrangement, the Company would be required to obtain sufficient alternative financing either on balance sheet or off balance sheet in order to meet its financial obligations;

    the fees of the Treasury Services Agreement and Contract Cash Solutions Agreement are assessed on the outstanding balances during the applicable period and include a base rate which is tied to LIBOR and a margin; and

    the fees incurred by the Company under the Treasury Services Agreement and Contract Cash Solutions Agreement are a function of both the prevailing rate of LIBOR as dictated by the capital markets and the average outstanding balance during the applicable period as previously noted. The fees do not vary with revenue or any other underlying driver of revenue such as transaction count or dollars processed as is the case with all costs classified as cost of revenue such as interchange expense and processing fees.

        Pursuant to the Contract Cash Solutions Agreement, the limit on the maximum allowable currency is $400.0 million. Wells Fargo has agreed to supply the Company with up to $50.0 million in excess of this limit for a calendar day up to four times per calendar year and subject to certain additional conditions and limitations, and in certain cases, upon approval, the Company can be supplied up to $475.0 million. On December 31, 2011, we received a temporary authorization to exceed this limit due to the high demand for cash access services on New Year's Eve.

        At December 31, 2011 and 2010, the outstanding balance of ATM cash utilized by GCA from Wells Fargo was $467.8 million $368.4 million, respectively. For the years ended December 31, 2011, 2010 and 2009, the cash usage fees incurred by the Company were $2.8 million, $1.9 million and $2.2 million, respectively. The cash usage fee is included within interest expense on the Company's consolidated statements of income.

        The Company is responsible for any losses of cash in the ATMs under its agreements with Wells Fargo. The Company is self insured related to this risk. For the years ended December 31, 2011, 2010, and 2009, the Company has incurred no material losses related to this self insurance.

Site-Funded ATMs

        The Company operates ATMs at certain customer gaming establishments where the gaming establishment provides the cash required for the ATM operational needs. GCA is required to reimburse the customer for the amount of cash dispensed from these Site-Funded ATMs. The Site-Funded ATM liability is included within settlement liabilities in the accompanying consolidated balance sheets and was $85.9 million and $28.8 million as of December 31, 2011 and 2010, respectively.

PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS

4. PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS

        Property, equipment and leasehold improvements consist of the following as of December 31, (in thousands):

 
  Useful Life   2011   2010  

ATM equipment

  5   $ 55,800   $ 66,200  

Cash advance equipment

  3     6,578     6,528  

Office, computer and other equipment

  3     8,799     6,253  

Leasehold and building improvements

  Lease Term     2,788     2,747  
               

Sub-total

        73,965     81,728  

Less: accumulated depreciation

       
(58,388

)
 
(65,080

)
               

Total

     
$

15,577
 
$

16,648
 
               
BENEFIT PLANS
BENEFIT PLANS

5. BENEFIT PLANS

Defined Contribution Plan

        The Company has a retirement savings plan (the "401(k) Plan") under Section 401(k) of the Internal Revenue Code covering its employees. The 401(k) Plan allows employees to defer up to the lesser of the Internal Revenue Code prescribed maximum amount or 100% of their income on a pre-tax basis through contributions to the plan. As a benefit to employees, the Company matches a percentage of these employee contributions. Expenses related to the matching portion of the contributions to the 401(k) Plan were $0.2 million, $0.5 million and $0.5 million for the years ended December 31, 2011, 2010 and 2009, respectively.

Equity Incentive Awards

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

        Generally, stock options and restricted stock granted under the 2005 Plan (other than those granted to non-employee directors) will vest at a rate of 25% of the shares underlying the option after one year and the remaining shares vest in equal portions over the following 36 months, such that all shares are vested after four years. Unless otherwise provided by the administrator, an option granted under the 2005 Plan generally expires ten years from the date of grant. Stock options are issued at the closing market price on the date of grant.

        As of December 31, 2011, the Company had reserved 18,179,520 shares of common stock for the grant of stock options and other equity incentive awards under the 2005 Plan. On the first business day of each fiscal year beginning with the fiscal year commencing on January 1, 2006, annual increases will be added to the 2005 Plan equal to the lesser of: 3,800,000 shares, 3% of all outstanding shares of our common stock immediately prior to such increase, or a lesser amount determined by our Board of Directors.

        A summary of award activity under the Company's 2005 Plan as of December 31, 2011 and changes during the three years then ended are as follows:

 
  Weighted Average
Exercise Price
(Per Share)
  Stock Options
Granted
  Restricted Stock
Granted
  Equity Awards
Available for
Grant
 

Balance outstanding—December 31, 2008

  $ 8.93     6,995,492     190,251     2,856,568  

Additional authorized shares

   
N/A
   
   
   
2,488,819
 

Granted

  $ 2.47     2,981,500     1,047,875     (4,029,375 )

Exercised/vested

  $ 6.75     (432,116 )   (142,170 )    

Canceled or forfeited

  $ 6.52     (683,043 )   (54,200 )   737,243  
                     

Balance outstanding—December 31, 2009

  $ 6.98     8,861,833     1,041,756     2,053,255  
                     

Additional authorized shares

    N/A             2,500,334  

Granted

  $ 7.24     1,790,690         (1,790,690 )

Exercised/vested

  $ 4.69     (1,200,402 )   (461,552 )    

Canceled or forfeited

  $ 5.50     (696,011 )   (99,154 )   795,165  
                     

Balance outstanding—December 31, 2010

  $ 7.50     8,756,110     481,050     3,558,064  
                     

Additional authorized shares

    N/A             1,931,400  

Granted

  $ 3.40     2,136,150         (2,136,150 )

Exercised/vested

  $ 2.20     (399,273 )   (245,283 )    

Canceled or forfeited

  $ 6.83     (1,265,446 )   (37,488 )   1,302,934  
                     

Balance outstanding—December 31, 2011

  $ 6.87     9,227,541     198,279     4,656,248  
                   

        In February 2009, our Board of Directors approved the grant of options to issue 2.8 million shares of common stock to existing employees, newly hired employees and certain non-employee members of the Company's Board of Directors. These shares vest over a four-year period. The estimated total fair value of the awards at the date of grant was $4.1 million. In February 2010, our Board of Directors approved the grant of options to issue 1.4 million shares of common stock to existing employees, newly hired employees and certain non-employee members of the Company's Board of Directors. These shares vest over a four-year period. The estimated total fair value of the awards at the date of the grant was $6.4 million. In March 2011, our Board of Directors approved the grant of options to issue 1.9 million shares of common stock to existing employees, newly hired employees and certain non-employee members of the Company's Board of Directors. These shares vest over a four-year period. The estimated total fair value of the awards at the date of the grant was $3.2 million.

Stock Options

        Stock options granted typically vest at a rate of 25% of the shares underlying the option after one year and the remaining shares vest in equal portions over the following 36 months, such that all shares are vested after four years and allow the option holder to purchase stock over specified periods of time, generally ten years, from the date of grant, at a fixed price equal to the market value of the common stock on date of grant.

        The following tables summarize additional information regarding the options that have been granted under the 2005 Plan:

 
  Number of
Common Shares
  Weighted Average
Exercise Price
(Per Share)
  Weighted
Average Life
Remaining
(Years)
  Aggregate
Intrinsic Value
 
 
   
   
   
  (in thousands)
 

Balance outstanding—December 31, 2009

    8,861,833   $ 6.98     8.0 years   $ 15,763  

Granted

   
1,790,690
   
             

Exercised

    (1,200,402 )                

Canceled or forfeited

    (696,011 )                
                         

Balance outstanding—December 31, 2010

    8,756,110   $ 7.50     7.3 years   $ 2,336  
                         

Granted

    2,136,150                  

Exercised

    (399,273 )                

Canceled or forfeited

    (1,265,446 )                
                         

Balance outstanding—December 31, 2011

    9,227,541   $ 6.87     6.9 years   $ 6,118  
                         

Balance exercisable—December 31, 2011

    5,839,673   $ 8.41     5.9 years   $ 1,263  
                         

Balance expected to be exercised

    5,346,279   $ 8.39     5.9 years   $ 1,147  
                         

 

 
   
  Options Outstanding   Options Exercisable  
Range of Exercise Prices   Number
Outstanding
  Weighted
Average
Remaining
Contract
Life (Years)
  Weighted
Average
Exercise
Prices
  Number
Exercisable
  Weighted
Average
Exercise
Price
 
$   $ 5.99     3,739,241     8.3   $ 3.14     1,119,971   $ 2.99  
  6.00     8.99     3,191,805     6.9     7.18     2,423,207     7.04  
  9.00     12.99     1,000,000     5.8     9.99     1,000,000     9.99  
  13.00     13.99     849,828     3.1     13.98     849,828     13.98  
  14.00     14.99     160,000     4.4     14.22     160,000     14.22  
  15.00     15.99     151,667     4.5     15.22     151,667     15.22  
  16.00     18.99     135,000     4.7     16.80     135,000     16.80  
                                     
              9,227,541                 5,839,673        
                                     

        The weighted-average grant-date fair value per share of the options granted during the years ended December 31, 2011, 2010 and 2009 was $2.04, $4.24 and $1.38, respectively.

        During the year ended December 31, 2011, we recorded $6.8 million in non-cash compensation expense related to options granted that are expected to vest. As of December 31, 2011, there was $6.9 million in unrecognized compensation expense related to options expected to vest. That cost is expected to be recognized on a straight-line basis over a weighted average period of 1.4 years.

        During the years ended December 31, 2010 and 2009, we recorded $6.3 million and $6.1 million, respectively, in non-cash compensation expense related to options granted that are expected to vest.

        For the years ended December 31, 2011, 2010 and 2009, we received $0.8 million, $5.6 million and $2.9 million in cash from the exercise of 399,273, 1,200,402 and 432,116 options, respectively.

Restricted Stock

        The Company began issuing restricted stock to employees in the first quarter of 2006. The vesting provisions are similar to those applicable to stock options. Because these restricted shares are issued primarily to employees of the Company, many of the shares issued will be withheld by the Company to satisfy the statutory withholding requirements applicable to the restricted stock grants. Therefore, as these awards vest the actual number of shares outstanding as a result of the restricted stock awards is reduced. These shares will vest over a period of four years. There are certain restricted stock shares that have rights to the dividends declared and voting rights, and, therefore, the shares are considered issued and outstanding prior to vesting.

        A summary of non-vested share awards for the Company's time-based restricted shares as of December 31, 2011 and changes during the two years then ended are as follows:

 
  Shares
Outstanding
  Weighted
Average Grant
Date Fair Value
(Per Share)
  Aggregate
Fair Value
 
 
   
   
  (in thousands)
 

Balance outstanding—December 31, 2009

    1,041,756   $ 3.16   $ 3,289  

Granted

   
   
   
 

Vested

    (461,552 )   3.88     (1,793 )

Forfeited

    (99,154 )   2.72     (269 )
                 

Balance outstanding—December 31, 2010

    481,050   $ 2.55   $ 1,227  
                 

Granted

             

Vested

    (245,283 )   2.88     (707 )

Forfeited

    (37,488 )   2.21     (83 )
                 

Balance outstanding—December 31, 2011

    198,279   $ 2.20   $ 437  
                 

        During the years ended December 31, 2011, 2010 and 2009, we recorded approximately $0, $1.6 million and $2.4 million in non-cash compensation expense, respectively, related to the restricted stock granted that is expected to vest. As of December 31, 2011, there was $0.5 million in unrecognized compensation expense related to time-based restricted shares expected to vest. That cost is expected to be recognized on a straight-line basis over a weighted average period of 1.2 years.

COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES

6. COMMITMENTS AND CONTINGENCIES

Lease Obligations

        The Company leases office facilities and operating equipment under cancelable and non-cancelable agreements. Total rent expense was approximately $0.7 million, $0.9 million and $0.6 million, for the years ended December 31, 2011, 2010 and 2009, respectively.

        At December 31, 2011, the minimum aggregate rental commitment under all non-cancelable operating leases for the years then ending was (in thousands):

 
  Amount  

2012

  $ 750  

2013

    408  

2014

    234  

2015

     

2016

     

Thereafter

     
       

 

  $ 1,392  
       

Litigation Settlement Awards

VISA Check/MasterMoney Antitrust Litigation

        The VISA Check/MasterMoney Antitrust Litigation began in October 1996 with the filing of lawsuits by certain retailers and retail trade associations against VISA U.S.A. Inc. ("VISA") and MasterCard International ("MasterCard").

        In the action against VISA and MasterCard, plaintiffs claimed, among other things, that VISA and MasterCard, individually, and in conspiracy with each other and with their member banks, have violated the federal antitrust laws by forcing merchants who accept VISA and/or MasterCard-branded credit cards for payment also to accept VISA and/or MasterCard-branded debit cards for payment (the "Honor All Cards Policy"), and by conspiring and attempting to monopolize a market for general purpose point of sale debit cards. The plaintiffs claimed that the defendants' actions caused merchants to pay excessive fees on VISA and MasterCard signature debit and credit transactions and on on-line PIN debit transactions, and have injured competition, merchants and consumers.

        On June 4, 2003, the plaintiffs entered into separate settlement agreements with VISA and MasterCard. Under terms of the settlements, VISA and MasterCard agreed to eliminate their "Honor All Cards Policy", to lower debit card fees for an interim period by one-third and to refund over $3 billion to merchants who accepted their cards from October 1992 through June 2003. As the Company accepted VISA and MasterCard branded debit cards during this covered period (i.e. October 25, 1992 through June 21, 2003), we were members of the covered class and entitled to settlement under the agreement.

        In December 2007, the Company's claim award was affirmed by the court. We engaged a third party to assist us in the preparation of the claim and collection of any award due to us in this action. For this service we agreed to a collection fee that would be deducted from any amounts received. The Company received $0.4 million and $2.8 million, which it recognized as a reduction to operating expenses in the accompanying consolidated statements of income for the years ended December 31, 2010 and 2009, respectively. For the year ended December 31, 2011, the Company did not receive any additional payments against this claim.

USA Payment Systems

        Karim Maskatiya and Robert Cucinotta were members of the Company's Board of Directors through the dates of their respective resignations of May 7, 2008 and May 20, 2008. On January 5, 2009, the Company commenced an action in the State of Nevada District Court, Clark County, against USA Payments and USA Payment Systems (together "USAP"), companies owned or controlled by Messrs. Maskatiya and Cucinotta in connection with various disputes relating to the Amended and Restated Agreement for Electronic Processing, pursuant to which USAP provided the Company with transaction processing services. In October 2009, USAP paid the Company $1.8 million pursuant to an executed settlement agreement and agreed to the settlement of all claims and matters between the parties.

Litigation Claims and Assessments

Automated Systems America, Inc.

        On July 7, 2010, an action was commenced by Automated Systems America, Inc. in the United States District Court, Central District of California, against Holdings, GCA and certain current employees of GCA. The complaint seeks a declaratory judgment of invalidity, unenforceability and non-infringement of certain patents owned by the Company and alleges antitrust violations of Section 2 of the Sherman Act, unfair competition violations under the Lanham Act and tortuous interference and defamation per se. The plaintiff seeks damages in excess of $2 million, punitive damages, and a trebling of damages associated with the allegations under Section 2 of the Sherman Act. On March 3, 2011, the Company filed a motion to dismiss this action. In February 2012, the District Court entered an order granting the Company's motion to dismiss this action without prejudice, allowing the plaintiff to file a new complaint if it chooses to do so. At this stage of the litigation, the Company is unable to make an evaluation of whether the likelihood of an unfavorable outcome is either probable or remote or the amount or range of potential loss; however, the Company believes it has meritorious defenses and will vigorously defend this action.

        We are also subject to a variety of other claims and suits that arise from time to time in the ordinary course of its business. 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.

BORROWINGS
BORROWINGS

7. BORROWINGS

        As of December 31, 2010, we had total indebtedness of $208.8 million in principal amount (of which $127.8 million consisted of senior subordinated notes described below and $81.0 million consisted of senior secured debt under the Second Amended and Restated Credit Agreement described below, collectively referred to as the "Old Credit Facility"). On March 1, 2011, GCA, together with its sole stockholder, Holdings entered into 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 "New 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 swingline loans. We used the proceeds from the New Senior Credit Facility to repay all outstanding indebtedness under our existing senior secured credit facility under the Second Amended and Restated Credit Agreement and to defease our senior subordinated notes.

        The Credit Agreement also contains an increase option permitting GCA to arrange with existing lenders and/or new lenders for them to provide up to an aggregate of $50.0 million in additional term loan commitments. All $210.0 million of available borrowings under the term loan facility were borrowed concurrent with the establishment of the New Senior Credit Facility. Once repaid, no amounts under the term loan facility may be re-borrowed. In addition, $4.0 million of available borrowings under the revolving credit facility were borrowed concurrent with the establishment of the New Senior Credit Facility. Once repaid, amounts under the revolving credit facility may be re-borrowed.

        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. GCA may prepay the loans and terminate the commitments at any time after the first year, without premium or penalty, subject to certain qualifications set forth in the Credit Agreement. Furthermore, the Credit Agreement contains mandatory prepayment provisions which, under certain circumstances, such as asset or equity sales, obligate GCA to apply defined portions of its cash flow to prepayment of the New Senior Credit Facility.

        Borrowings under the New Senior Credit Facility bear interest at either (x) a specified base rate plus a 4.50% margin, or (y) LIBOR plus a 5.50% margin. The base rate minimum is 2.50% and the LIBOR minimum is 1.50%. Interest in respect of base rate loans is payable quarterly in arrears and interest in respect of LIBOR loans is payable in arrears at the end of the applicable interest period and every three months in the case of interest periods in excess of three months. Interest is also payable at the time of repayment of any loans and at maturity. As of December 31, 2011, we had $174.0 million of outstanding indebtedness under the New Senior Credit Facility, consisting of $174.0 million under the term loan facility with no amounts outstanding under the revolving credit facility. The weighted average interest rate, inclusive of the applicable margin of 550 basis points, was 7.0%. We also had no amounts outstanding under our letter of credit sub facility that is part of our revolving credit facility as of December 31, 2011.

        The New Senior Credit Facility is unconditionally guaranteed by Holdings and each direct and indirect domestic subsidiary of GCA. All amounts owing under the New 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 GCA and a first priority perfected security interest in all other tangible and intangible assets owned by GCA and the guarantors.

        The Credit Agreement contains customary affirmative and negative covenants, financial covenants, representations and warranties and events of defaults. In addition, the Credit Agreement limits the ability of the Company to declare and pay cash dividends. As of December 31, 2011, the Company is in compliance with the required covenants.

Second Amended and Restated Credit Agreement

        On November 1, 2006, GCA and Holdings entered into the Second Amended and Restated Credit Agreement with certain lenders, Bank of America, N.A., as Administrative Agent and Wachovia Bank, N.A., as Syndication Agent. The Second Amended and Restated Credit Agreement significantly amended and restated the terms of GCA's existing senior secured credit facilities to provide for a $100.0 million term loan facility and a $100.0 million five-year revolving credit facility, with a $25.0 million letter of credit sublimit and a $5.0 million swingline loan sublimit.

        Borrowings under the Second Amended and Restated Credit Agreement bore interest at LIBOR plus an applicable margin, which was based on the Company's Senior Leverage Ratio (as defined under the Second Amended and Restated Credit Agreement). As of December 31, 2010, the applicable margin was 112.5 basis points and the effective rate of interest was 1.39%. Principal, together with accrued and unpaid interest, was due on the maturity date, November 1, 2011. As of December 31, 2010, the balance of this financial instrument was $81.0 million with $0 outstanding under the revolving portion and $2.8 million in letters of credit issued and outstanding.

Senior Subordinated Notes

        On March 10, 2004, GCA completed a private placement offering of $235.0 million of 8.75% senior subordinated notes due 2012 (the "Notes"). All of GCA's existing and future domestic wholly owned subsidiaries were guarantors of the Notes on a senior subordinated basis. In addition, effective upon the closing of our initial public offering of common stock, Holdings guaranteed, on a subordinated basis, all of GCA's obligations under the Notes.

        Interest on the Notes accrued based upon a 360-day year comprised of twelve 30-day months and was payable semiannually on March 15th and September 15th. On October 31, 2005, $82.3 million or 35% of these Notes were redeemed at a price of 108.75% of face, out of the net proceeds from our initial public offering. GCA could have redeemed all or a portion of the Notes at redemption prices of 104.375%, on or after March 15, 2008, 102.19% on or after March 15, 2009, or 100.00% on or after March 15, 2010. On May 3, 2010, GCA redeemed prior to their maturity $25.0 million in the aggregate principal amount of the Notes at a redemption price of 100% of the principal amount of such Notes. As of December 31, 2010, the Company had $127.8 million in borrowings outstanding under the indenture governing the Notes.

        On March 1, 2011, the Company defeased our obligations under the Senior Subordinated Notes.

Minimum Aggregate Repayment Schedule

        At December 31, 2011, the minimum aggregate repayment (excluding excess cash flow payments) for all borrowings for the years then ending was (in thousands):

 
  Amount  

2012

  $ 1,740  

2013

    1,740  

2014

    1,740  

2015

    1,740  

2016

    167,040  

Thereafter

     
       

 

  $ 174,000  
       
CAPITAL STOCK
CAPITAL STOCK

8. CAPITAL STOCK

        In September 2005, the Company completed an initial public offering of 16,064,157 shares of common stock at $14.00 per share. Existing stockholders sold 7,064,157 of these shares and the remaining 9,000,000 shares were sold by the Company. In October 2005, the underwriters exercised their option to purchase an additional 1,053,568 shares of stock from the Company and 1,165,656 shares of stock from the existing stockholders. The net proceeds to the Company from this combined equity offering were $130.9 million after deducting underwriting discounts. On October 31, 2005, the Company used $90.3 million of the net proceeds to repay $82.25 million of senior subordinated notes and to pay a redemption premium and accrued interest on the repaid notes. Also on October 31, 2005, the Company used $20.0 million of the IPO proceeds to repay $20.0 million of the term loan portion of the Company's then existing credit facility.

        Preferred Stock.    The Company's amended and restated certificate of incorporation allows our Board of Directors, without further action by stockholders, to issue up to 50,000,000 shares of preferred stock in one or more series and to fix the designations, powers, preferences, privileges and relative participating, optional, or special rights as well as the qualifications, limitations or restrictions of the preferred stock, including dividend rights, conversion rights, voting rights, terms of redemption and liquidation preferences. As of December 31, 2011, we had no shares of preferred stock outstanding.

        Common Stock.    Subject to the preferences that may apply to shares of preferred stock that may be outstanding at the time, the holders of outstanding shares of common stock are entitled to receive dividends out of assets legally available at the times and in the amounts as our Board of Directors may from time to time determine. All dividends are non-cumulative. In the event of the liquidation, dissolution or winding up of the Company, the holders of common stock are entitled to share ratably in all assets remaining after the payment of liabilities, subject to the prior distribution rights of preferred stock, if any, then outstanding. Each stockholder is entitled to one vote for each share of common stock held on all matters submitted to a vote of stockholders. Cumulative voting for the election of directors is not provided for. The common stock is not entitled to preemptive rights and is not subject to conversion or redemption. There are no sinking fund provisions applicable to the common stock. Each outstanding share of common stock is fully paid and non-assessable. As of December 31, 2011, we had 85,651,002 shares of common stock issued.

        Common Stock Repurchase Program.    On February 23, 2010, the Company's Board of Directors authorized the repurchase pursuant to Rule 10b-18 under the Securities and Exchange Act of 1934, as amended, of up to an additional $25.0 million worth of the Company's outstanding common stock, subject to the compliance with such contractual limitations on such repurchases under the Company's financing agreements in effect from time to time, including but not limited to those relating to the Company's senior secured indebtedness and senior subordinated notes. For the year ended December 31, 2010, the Company repurchased 2.0 million of its shares of common stock pursuant to this repurchase authorization for an aggregate purchase price of $7.7 million. For the year ended December 31, 2011, the Company did not repurchase any shares of common stock, pursuant to this repurchase authorization.

        On April 8, 2010, the Company repurchased in a privately negotiated transaction 3,105,590 shares of its outstanding common stock from various entities affiliated with Summit Partners, L.P. for an aggregate purchase price of $25.0 million at a purchase price of $8.05 per share of common stock. Charles J. Fitzgerald is a managing partner of Summit Partners, L.P. and until his term expired on April 29, 2010, was a member of the Company's Board of Directors. The Company funded this repurchase with cash on hand. This repurchase was made pursuant to a new authorization by the Board of Directors of the Company in March 2010, separate from the $25.0 million share repurchase program previously made on February 23, 2010.

        Treasury Stock.    In addition to open market purchases of common stock authorized under the Common Stock Repurchase Program, employees may direct the Company to withhold vested shares of restricted stock to satisfy the minimum statutory withholding requirements applicable to their restricted stock vesting. For the year ended December 31, 2011, the Company repurchased or withheld from restricted stock awards 59,167 shares of common stock at an aggregate purchase price of $0.2 million to satisfy the minimum applicable tax withholding obligations incident to the vesting of such restricted stock awards.

        The following table provides the treasury stock activity occurring in 2011 (number of shares and cost in thousands):

 
  Total Number of
Shares Purchased
or Withheld
  Average Price per Share
Purchased or Withheld
(Per Share)
  Cost of Shares
Purchased or
Withheld
 

Balance outstanding—December 31, 2010

    20,627   $ 7.03   $ 145,038  

Shares withheld from restricted stock vesting

    59     3.22     190  
                 

Balance outstanding—December 31, 2011

    20,686   $ 7.02   $ 145,228  
               
RELATED PARTY TRANSACTIONS
RELATED PARTY TRANSACTIONS

9. RELATED PARTY TRANSACTIONS

        Karim Maskatiya and Robert Cucinotta were members of our Board of Directors through the dates of their respective resignations of May 7, 2008 and May 20, 2008. In June 2009, the Company repurchased 5,785,602 shares from Robert Cucinotta, which is believed to be all of the shares previously held by Mr. Cucinotta. In June 2009, Karim Maskatiya disposed of a number of shares in open market transactions, which is believed to be all of the shares previously held by Mr. Maskatiya.

        Prior to obtaining processing services from TSYS, the Company obtained processing services, pursuant to the Amended and Restated Agreement for Electronic Payment Processing from USAP, a company controlled by Messrs. Maskatiya and Cucinotta. On January 5, 2009, the Company commenced an action in the State of Nevada District Court, Clark County against USAP in connection with various disputes relating to the Amended and Restated Agreement for Electronic Payment Processing. In October 2009, USAP paid the Company $1.8 million pursuant to an executed settlement agreement and agreed to the settlement of all claims and matters between the parties.

        On April 8, 2010, the Company repurchased in a privately negotiated transaction 3,105,590 shares of its outstanding common stock from various entities affiliated with Summit Partners, L.P. for an aggregate purchase price of $25.0 million at a purchase price of $8.05 per share of common stock. Charles J. Fitzgerald is a managing partner of Summit Partners, L.P. and until his term expired on April 29, 2010, was a member of the Company's Board of Directors. The Company funded this repurchase with cash on hand. This repurchase was made pursuant to a new authorization by the Board of Directors of the Company in March 2010, separate from the $25.0 million share repurchase program previously made on February 23, 2010.

        Michael Rumbolz, who serves as a member of our Board of Directors, also serves as a member of the board of directors of Affinity Gaming Gaming, LLC ("Affinity Gaming"). The Company provides various cash access products and services to Affinity Gaming. Mr. Rumbolz receives both cash and equity compensation from Affinity Gaming in consideration for serving on the board of directors of Affinity Gaming, however, none of this consideration is tied in any manner to the Company's performance or obligations under its cash access agreements with Affinity Gaming. In addition, Mr. Rumbolz was not involved in the negotiation of the Company's cash access agreements with Affinity Gaming.

INCOME TAXES
INCOME TAXES

10. INCOME TAXES

        The income tax provision (benefit) attributable to continuing operations and discontinued operations for the years ended December 31 is as follows (amounts in thousands):

 
  2011   2010   2009  

Income tax provision/(benefit)

                   

Continuing operations

 
$

9,586
 
$

18,751
 
$

20,556
 

Discontinued operations

            25  
               

 

  $ 9,586   $ 18,751   $ 20,581  
               

        The following table presents the domestic and foreign components of pretax income and recorded income tax expense attributable to continuing operations for the years ended December 31 (amounts are in thousands):

 
  2011   2010   2009  

Components of pre-tax income

                   

Domestic

 
$

18,705
 
$

35,838
 
$

53,717
 

Foreign

    10     463     377  
               

Consolidated

  $ 18,715   $ 36,301   $ 54,094  
               

Provision/(benefit) for income tax

                   

Domestic

 
$

9,528
 
$

17,680
 
$

20,616
 

Foreign

    58     1,040     (29 )
               

Consolidated

    9,586     18,720     20,587  

Income tax provision/(benefit) from minority ownership loss

   
   
31
   
(31

)
               

Provision for income tax, as reported

  $ 9,586   $ 18,751   $ 20,556  
               

        The Company's income tax provision attributable to income from continuing operations before income tax consists of the following components as of December 31 (amounts in thousands):

 
  2011   2010   2009  

Current

  $ 334   $ 1,283   $ 1,001  

Deferred

    9,252     17,468     19,555  
               

Total provision for income tax

  $ 9,586   $ 18,751   $ 20,556  
               

        The reconciliation between the Company's effective tax rate on income from continuing operations and the statutory tax rate for the years ended December 31 is as follows:

 
  2011   2010   2009  

Effect of:

                   

Federal statutory rate

    35.0 %   35.0 %   35.0 %

Foreign provision

    0.1 %   (0.1 )%   (0.3 )%

State/province income tax

    2.4 %   1.7 %   2.6 %

Non-deductible compensation cost

    7.8 %   2.4 %   1.9 %

Change in valuation allowance

    2.1 %   (4.1 )%   1.0 %

Adjustment to carrying value

    3.6 %   0.0 %   (2.3 )%

Foreign dividends and IRC Sec. 956 inclusions, net of foreign tax deduction

    0.2 %   14.7 %   0.0 %

Non-deductible expenses and other items

    0.0 %   2.1 %   0.1 %
               

Effective tax rate

    51.2 %   51.7 %   38.0 %
               

        The following table outlines the principal components of deferred tax items at December 31 (amounts in thousands):

 
  2011   2010   2009  

Deferred tax assets related to:

                   

Intangibles

  $ 82,088   $ 102,598   $ 121,710  

Net operating losses

    29,733     16,576     11,370  

Stock compensation expense

    5,412     4,768     3,912  

Accounts receivable allowances

    2,770     6,675     7,421  

Accrued and prepaid expenses

    702     300     586  

Other

    492     734     472  

Property, equipment and leasehold improvements

        235     614  

Foreign tax credits

            4,297  

Valuation allowance

    (905 )       (1,475 )
               

Total deferred income tax assets

  $ 120,292   $ 131,886   $ 148,907  
               

Deferred tax liabilities related to:

                   

Property, equipment and leasehold improvements

  $ 242   $   $  

Other

    512     339     143  
               

Total deferred income tax liabilities

  $ 754   $ 339   $ 143  
               

Deferred income taxes, net

  $ 119,538   $ 131,547   $ 148,764  
               

        For all of our investments in foreign subsidiaries, except for GCA (Macau), S.A. ("GCA Macau") and one-time repatriation events in 2010, deferred taxes have not been provided on unrepatriated foreign earnings. Unrepatriated earnings as of December 31, 2011, are approximately $3.2 million. These earnings are considered permanently reinvested, as it is management's intention to reinvest foreign earnings in foreign operations. The Company projects that it will have sufficient cash flow in the U.S. and does not need to repatriate these foreign earnings to finance U.S. operations.

        As a result of certain realization requirements under the FASB guidance on share-based payments, the table of deferred tax assets and liabilities shown above does not include certain deferred tax assets at December 31, 2011, 2010 and 2009 that arose directly from tax deductions related to equity compensation in excess of compensation recognized for financial reporting. Equity will be increased by $1.7 million if and when such deferred tax assets are ultimately realized. The Company uses the FASB guidance on income taxes ordering for purposes of determining when excess tax benefits have been realized.

        The Company paid foreign taxes of $7.0 million in prior years related to the former UK branch and the one-time repatriation events in 2010. Due to the uncertainty of future foreign source and taxable income, the Company elected to deduct these foreign taxes. In making such determination, we considered all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, projected future foreign source income, tax planning strategies and recent financial operations. These assumptions required significant judgment about the forecasts of future taxable and foreign source income.

        As of December 31, 2011, the Company has approximately $83.0 million accumulated federal net operating losses. The net operating losses can be carried forward and applied to offset taxable income for 20 years and will expire starting in 2025.

        The Company has state net operating loss carry forwards which will expire in 2012 through 2031. The determination and utilization of these state net operating loss carry forwards are dependent upon apportionment percentages and other respective state laws, which can change from year to year. As of December 31, 2011, the Company has approximately $2.3 million accumulated state net operating losses. We have a valuation allowance of $0.8 million related to certain state net operating loss carry forwards, which are expected to expire before utilization, due to shorter carry forward periods and decreased apportionment percentages in those states.

        At December 31, 2011, we had a net deferred income tax asset of $119.5 million. We recognized a deferred tax asset upon our conversion from a limited liability company to a corporation on May 14, 2004. Prior to that time, all tax attributes flowed through to the members of the limited liability company. The principal component of the deferred tax asset is a difference between our assets for financial accounting and tax purposes. This difference results from a significant balance of acquired goodwill of approximately $687 million that was generated as part of the conversion to a corporation plus approximately $98 million in pre-existing goodwill carried over from periods prior to the conversion. Both of these assets are recorded for tax purposes but not for accounting purposes. This asset is amortized over 15 years for tax purposes, resulting in annual pretax income being $52.3 million lower for tax purposes than for financial accounting purposes. At an estimated blended domestic effective tax rate of 36.1%, this results in tax payments being approximately $18.9 million less than the annual provision for income taxes shown on the income statement for financial accounting purposes, or the amount of the annual provision, if less. There is an expected aggregate of $138.6 million in cash savings over the remaining life of the portion of our deferred tax asset related to the conversion. This deferred tax asset may be subject to certain limitations. We believe that it is more likely than not that we will be able to utilize our deferred tax asset, exclusive of a small amount of charitable contribution carry forwards (which expire in 2015 and 2016 if not utilized), and certain state and foreign net operating loss carry forwards. However, the utilization of this tax asset is subject to many factors beyond our control including our earnings, a change of control of the Company and future estimations of earnings.

        The Company has analyzed filing positions in all of the federal, state and foreign jurisdictions where it is required to file income tax returns, as well as all open tax years in these jurisdictions. The Company believes that its income tax filing positions and deductions will be sustained upon audit and does not anticipate any adjustments that will result in a material change to its 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. The Company's policy for recording interest and penalties associated with audits and unrecognized tax benefits is to record such items as a component of income tax expenses.

        The Company is subject to taxation in the U.S. and various states and foreign jurisdictions. The Company is currently under examination by the state of New York for 2006 through 2008. The Company has a number of federal and state income tax years still open for examination as a result of the net operating loss carry forwards. Accordingly, the Company is subject to examination for both U.S. federal and a few state tax returns for the years 2005 to present. For the remaining state, local and foreign jurisdictions, with few exceptions, the Company is no longer subject to examination by tax authorities for years before 2008.

SEGMENT INFORMATION
SEGMENT INFORMATION

11. 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. The Company's chief operating decision-making group consists of the Chief Executive Officer and Chief Financial Officer. The operating segments are reviewed separately because each represents products that can be, and often are, sold separately to our customers.

        The Company operates in three distinct business segments: (1) cash advance, (2) ATM and (3) check services. These segments are monitored separately by management for performance against its internal forecast and are consistent with the Company's internal management reporting. Other lines of business, none of which exceed the established materiality for segment reporting, include Western Money, credit reporting services and Casino Marketing Services, among others.

        The Company's internal management reporting does not allocate overhead or depreciation and amortization expenses to the respective business segments. For the segment information presented below, these amounts have been allocated to the respective segments based upon relation to the business segment (where identifiable) or on respective revenue contribution.

        The Company's business is predominantly domestic, with no specific regional concentrations and no significant assets in foreign locations.

        Major customers—For the year ended December 31, 2011, no single customer accounted for more than 10.0% of the Company's revenues. For the years ended December 31, 2010 and 2009, the combined revenues from all segments for our largest customer, Caesars Entertainment and its subsidiaries and affiliates was approximately $79.6 million and $92.8 million, respectively, representing 13.3% and 14.1%, respectively, of the Company's total consolidated revenues. In August 2010, Caesars announced its intention not to renew its agreements with us for the provision of cash access services with the Company, which expired in November 2010. We reacquired a portion of the Caesars business in connection with the MCA Processing asset purchase acquisition in November 2011. Our five largest customers accounted for approximately 28.4%, 34.6% and 34.4% of our total revenue in 2011, 2010 and 2009, respectively.

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

        The tables below present the results of operations and total assets by operating segment as of, and for the years ended December 31, 2011, 2010 and 2009 (amounts in thousands):

 
  Cash
Advance
  ATM   Check
Services
  Other   Corporate   Total  

December 31, 2011:

                                     

Revenues

  $ 203,869   $ 283,727   $ 26,269   $ 30,198   $   $ 544,063  

Operating income

    38,468     34,832     14,197     14,808     (64,009 )   38,296  

December 31, 2010:

                                     

Revenues

  $ 244,139   $ 314,627   $ 28,357   $ 18,467   $   $ 605,590  

Operating income

    49,439     41,102     15,798     11,398     (65,107 )   52,630  

December 31, 2009:

                                     

Revenues

  $ 289,314   $ 325,953   $ 38,525   $ 13,928   $   $ 667,720  

Operating income

    63,323     43,854     21,564     11,406     (68,093 )   72,054  

 

 
  2011   2010  

Cash Advance

  $ 164,515   $ 138,631  

ATM

    98,418     52,424  

Check services

    37,231     33,816  

Other

    39,570     38,003  

Corporate

    189,333     195,520  
           

Total Assets

  $ 529,067   $ 458,394  
           
SUBSEQUENT EVENTS
SUBSEQUENT EVENTS

12. SUBSEQUENT EVENTS

Interest Rate Cap

        In conjunction with the terms and conditions of the New Senior Credit Facility, GCA purchased a $150.0 million notional amount interest rate cap with an effective date of January 5, 2012 and a term of three years. GCA purchased this interest rate cap to partially reduce the Company's exposure to increases in the LIBOR above 1.5% during the term of the interest rate cap with respect to its variable rate debt obligations under the New Senior Credit Facility and its obligations under the Contract Cash Solutions Agreement with Wells Fargo. An interest rate cap is a derivative financial instrument whereby the buyer receives payments at the end of each period in which the underlying interest rate exceeds a defined interest rate on a specific notional amount.

QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

13. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

 
  First
Quarter
  Second
Quarter
  Third
Quarter
  Fourth
Quarter
  Year  

2011

                               

Revenues

  $ 134,389   $ 135,052   $ 136,889   $ 137,733   $ 544,063  

Operating income

    9,305     7,141     7,609     14,241     38,296  

Income from continuing operations, net of tax

    1,742     1,010     1,839     4,538     9,129  

Net income attributable to GCA, Holdings, Inc. 

    1,742     1,010     1,839     4,538     9,129  

Basic earnings per share:

                               

Continuing operations

  $ 0.03   $ 0.02   $ 0.03   $ 0.07   $ 0.14  

Net income

  $ 0.03   $ 0.02   $ 0.03   $ 0.07   $ 0.14  

Diluted earnings per share:

                               

Continuing operations

  $ 0.03   $ 0.02   $ 0.03   $ 0.07   $ 0.14  

Net income attributable to GCA, Holdings, Inc. 

  $ 0.03   $ 0.02   $ 0.03   $ 0.07   $ 0.14  

2010

                               

Revenues

  $ 158,512   $ 157,150   $ 152,121   $ 137,807   $ 605,590  

Operating income

    15,523     13,729     13,323     10,055     52,630  

Income/(loss) from continuing operations, net of tax

    6,945     5,945     4,919     (259 )   17,550  

Net income/(loss) attributable to GCA, Holdings, Inc. 

    6,950     5,884     4,919     (259 )   17,494  

Basic earnings per share:

                               

Continuing operations

  $ 0.10   $ 0.09   $ 0.08   $ (0.00 ) $ 0.27  

Net income

  $ 0.10   $ 0.09   $ 0.08   $ (0.00 ) $ 0.27  

Diluted earnings per share:

                               

Continuing operations

  $ 0.10   $ 0.09   $ 0.07   $ (0.00 ) $ 0.26  

Net income attributable to GCA, Holdings, Inc. 

  $ 0.10   $ 0.09   $ 0.07   $ (0.00 ) $ 0.26  

2011

                               

Basic shares

    63,952     63,969     64,712     64,871     64,673  

Diluted shares

    64,182     64,094     64,751     65,227     64,859  

2010

                               

Basic shares

    68,268     65,836     65,384     64,002     65,903  

Diluted shares

    70,513     67,926     66,240     64,200     67,272