GLOBAL CASH ACCESS HOLDINGS, INC., 10-Q filed on 5/6/2014
Quarterly Report
Document and Entity Information
3 Months Ended
Mar. 31, 2014
Apr. 25, 2014
Document and Entity Information
 
 
Entity Registrant Name
Global Cash Access Holdings, Inc. 
 
Entity Central Index Key
0001318568 
 
Document Type
10-Q 
 
Document Period End Date
Mar. 31, 2014 
 
Amendment Flag
false 
 
Current Fiscal Year End Date
--12-31 
 
Entity Current Reporting Status
Yes 
 
Entity Filer Category
Accelerated Filer 
 
Entity Common Stock, Shares Outstanding
 
65,836,052 
Document Fiscal Year Focus
2014 
 
Document Fiscal Period Focus
Q1 
 
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended
Mar. 31, 2014
Mar. 31, 2013
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
 
 
Revenues
$ 150,571 
$ 146,822 
Costs and expenses
 
 
Cost of revenues (exclusive of depreciation and amortization)
113,238 
111,099 
Operating expenses
20,039 
18,984 
Depreciation
1,927 
1,568 
Amortization
2,354 
2,270 
Total costs and expenses
137,558 
133,921 
Operating income
13,013 
12,901 
Other expenses
 
 
Interest expense, net of interest income
1,546 
3,163 
Total other expenses
1,546 
3,163 
Income from operations before tax
11,467 
9,738 
Income tax provision
3,978 
3,602 
Net income
7,489 
6,136 
Foreign currency translation
(415)
Comprehensive income
$ 7,490 
$ 5,721 
Earnings per share
 
 
Basic (in dollars per share)
$ 0.11 
$ 0.09 
Diluted (in dollars per share)
$ 0.11 
$ 0.09 
Weighted average common shares outstanding
 
 
Basic (in shares)
65,910 
66,697 
Diluted (in shares)
67,370 
67,882 
CONDENSED CONSOLIDATED BALANCE SHEETS (USD $)
In Thousands, unless otherwise specified
Mar. 31, 2014
Dec. 31, 2013
ASSETS
 
 
Cash and cash equivalents
$ 194,566 
$ 114,254 
Restricted cash and cash equivalents
336 
290 
Settlement receivables
29,963 
38,265 
Other receivables, net of allowances for doubtful accounts of $2.6 million and $2.8 million, respectively
15,850 
16,962 
Inventory
11,247 
9,413 
Prepaid expenses and other assets
27,706 
26,770 
Property, equipment and leasehold improvements, net
18,746 
18,710 
Goodwill
180,059 
180,084 
Other intangible assets, net
32,161 
31,535 
Deferred income taxes, net
88,011 
91,044 
Total assets
598,645 
527,327 
Liabilities
 
 
Settlement liabilities
199,805 
145,022 
Accounts payable and accrued expenses
71,067 
60,701 
Borrowings
100,000 
103,000 
Total liabilities
370,872 
308,723 
Commitments and Contingencies (Note 6)
   
   
Stockholders' Equity
 
 
Common stock, $0.001 par value, 500,000 shares authorized and 89,825 and 89,233 shares issued at March 31, 2014 and December 31, 2013, respectively
90 
89 
Convertible preferred stock, $0.001 par value, 50,000 shares authorized and 0 shares outstanding at March 31, 2014 and December 31, 2013
   
   
Additional paid-in capital
235,961 
231,516 
Retained earnings
155,501 
148,012 
Accumulated other comprehensive income
2,828 
2,827 
Treasury stock, at cost, 23,636 and 23,303 shares at March 31, 2014 and December 31, 2013, respectively
(166,607)
(163,840)
Total stockholders' equity
227,773 
218,604 
Total liabilities and stockholders' equity
$ 598,645 
$ 527,327 
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)
In Millions, except Share data in Thousands, unless otherwise specified
Mar. 31, 2014
Dec. 31, 2013
CONDENSED CONSOLIDATED BALANCE SHEETS
 
 
Allowances for doubtful accounts
$ 2.6 
$ 2.8 
Common stock, par value (in dollars per share)
$ 0.001 
$ 0.001 
Common stock, shares authorized
500,000 
500,000 
Common stock, shares issued
89,825 
89,233 
Convertible preferred stock, par value (in dollars per share)
$ 0.001 
$ 0.001 
Convertible preferred stock, shares authorized
50,000 
50,000 
Convertible preferred stock, shares outstanding
Treasury stock, shares
23,636 
23,303 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2014
Mar. 31, 2013
Cash flows from operating activities
 
 
Net income
$ 7,489 
$ 6,136 
Adjustments to reconcile net income to cash provided by/(used in) operating activities:
 
 
Depreciation
1,927 
1,568 
Amortization of intangibles
2,354 
2,270 
Amortization of financing costs
471 
403 
Loss/(gain) on sale or disposal of assets
124 
(9)
Provision for bad debts
2,014 
2,110 
Stock-based compensation
2,057 
1,171 
Changes in operating assets and liabilities:
 
 
Settlement receivables
8,285 
(89,490)
Other receivables, net
(1,008)
(1,694)
Inventory
(1,835)
97 
Prepaid and other assets
(1,357)
(542)
Deferred income taxes
3,033 
3,399 
Settlement liabilities
54,904 
(1,373)
Accounts payable and accrued expenses
8,139 
4,390 
Net cash provided by/(used in) operating activities
86,597 
(71,564)
Cash flows from investing activities
 
 
Capital expenditures
(3,025)
(2,934)
Proceeds from sale of fixed assets
192 
31 
Changes in restricted cash and cash equivalents
(46)
 
Net cash used in investing activities
(2,879)
(2,903)
Cash flows from financing activities
 
 
Repayments against credit facility
(3,000)
(4,000)
Proceeds from exercise of stock options
2,440 
962 
Purchase of treasury stock
(2,767)
(4,587)
Net cash used in financing activities
(3,327)
(7,625)
Effect of exchange rates on cash
(79)
(226)
Cash and cash equivalents
 
 
Net increase/(decrease) for the period
80,312 
(82,318)
Balance, beginning of the period
114,254 
153,020 
Balance, end of the period
194,566 
70,702 
Supplemental cash flow disclosures
 
 
Cash paid for interest
1,690 
2,777 
Cash paid for income tax, net of refunds
303 
85 
Accrued and unpaid capital expenditures
$ 2,233 
 
BUSINESS
BUSINESS

1.              BUSINESS

 

Overview

 

Global Cash Access Holdings, Inc. (“Holdings”) is a holding company, the principal asset of which is the capital stock of Global Cash Access, Inc. (“GCA”). Unless otherwise indicated, the terms “the Company,” “Holdings,” “we,” “us” and “our” refer to Holdings together with its consolidated subsidiaries.

 

We are a global provider of cash access services and related equipment and services to the gaming industry. Our products and services: (a) provide gaming establishment patrons access to cash through a variety of methods, including Automated Teller Machine (“ATM”) cash withdrawals, credit card cash access transactions, point-of-sale (“POS”) debit card transactions, check verification and warranty services and money transfers; (b) provide integrated cash access devices and related services, such as slot machine ticket redemption and jackpot kiosks to the gaming industry; (c) provide products and services that improve credit decision-making, automate cashier operations and enhance patron marketing activities for gaming establishments; and (d) provide online payment processing solutions for gaming operators in states that offer intra-state, Internet-based gaming and lottery activities.

 

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

2.              BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

Our unaudited condensed consolidated financial statements included herein have been prepared by us pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Some of the information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States have been condensed or omitted pursuant to such rules and regulations, although we believe the disclosures are adequate to make the information presented not misleading. In the opinion of management, all adjustments (which include normal recurring adjustments) necessary for a fair presentation of results for the interim periods have been made. The results for the three months ended March 31, 2014 are not necessarily indicative of results to be expected for the full fiscal year.

 

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

 

Principles of Consolidation

 

Intercompany transactions and balances have been eliminated in consolidation.

 

Cash and Cash Equivalents

 

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

 

Restricted Cash and Cash Equivalents

 

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

 

ATM Funding Agreements

 

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

 

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

 

Settlement Receivables and Settlement Liabilities

 

In the credit card cash access and POS debit card cash access transactions provided by us, the gaming establishment is reimbursed for the cash disbursed to gaming patrons through the issuance of a negotiable instrument or through electronic settlement. We receive reimbursement from the patron’s credit or debit card issuer for the transaction in an amount equal to the amount owed to the gaming establishment plus the fee charged to the patron. This reimbursement is included within the settlement receivables on our condensed consolidated balance sheets. The amounts owed to gaming establishments are included within settlement liabilities on our condensed consolidated balance sheets.

 

Warranty Receivables

 

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

 

Unamortized Debt Issuance Costs

 

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

 

Property, Equipment and Leasehold Improvements

 

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

 

Repairs and maintenance costs are expensed as incurred.

 

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

 

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

 

Goodwill

 

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

 

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

 

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. Customer contracts require us to make renewal assumptions, which impact the estimated useful lives of such assets. Capitalized software development costs require us to make certain judgments as to the stages of development and costs eligible for capitalization. Capitalized software costs placed in service are amortized over their useful lives, generally not to exceed three years. The acquisition cost of the 3-in-1 rollover patent is being amortized over the term of the patent, which expires in 2018. Other intangible assets are reviewed annually for impairment based on the fair value of our reporting units as compared to the carrying amounts, or whenever events or circumstances indicate that the carrying amounts may not be recoverable. This assessment requires the use of estimates about future operating results. Changes in forecasted operations can materially affect these estimates, which could materially affect our results of operations. We do not believe that any of our other intangible assets were impaired as of March 31, 2014 and December 31, 2013.

 

Fair Values of Financial Instruments

 

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

 

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

 

Interest Rate Cap

 

In conjunction with the terms and conditions of the Senior Credit Facility, we purchased a $150.0 million notional amount interest rate cap with an effective date of January 5, 2012 and a term of three years. We purchased this interest rate cap to partially reduce our exposure to increases in the London Interbank Offer Rate (“LIBOR’) above 1.5% during the term of the interest rate cap with respect to our variable rate debt obligations under the Senior Credit Facility and our obligations under the Contract Cash Solutions Agreement with Wells Fargo. This interest rate cap is recorded in other assets in the balance sheet, and is marked to market based on a quoted market price with the effects offset in our condensed consolidated statements of income and comprehensive income. The interest rate cap carrying value and fair value approximate each other and these values were insignificant as of March 31, 2014 and December 31, 2013.

 

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

 

 

 

Level of

 

 

 

Carrying

 

 

Hierarchy(*)

 

Fair Value

 

Value

 

 

 

 

 

 

 

March 31, 2014

 

 

 

 

 

 

Senior credit facility

 

2

 

$

100,188

 

$

100,000

 

 

 

 

 

 

 

December 31, 2013

 

 

 

 

 

 

Senior credit facility

 

2

 

$

104,030

 

$

103,000

 

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

 

Inventory

 

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

 

Revenue Recognition

 

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

 

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

 

Cost of Revenues (exclusive of depreciation and amortization)

 

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

 

Advertising, Marketing and Promotional Costs

 

We expense advertising, marketing and promotional costs as incurred. Total advertising, marketing and promotional costs, included in operating expenses in our condensed consolidated statements of income and comprehensive income, were $0.2 million and $0.1 million for the three months ended March 31, 2014 and 2013, respectively.

 

Income Taxes

 

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

 

Foreign Currency Translation

 

Foreign currency denominated assets and liabilities for those foreign entities for which the local currency is the functional currency are translated into U.S. dollars based on exchange rates prevailing at the end of each 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 our condensed consolidated statements of income and comprehensive income.

 

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

 

Use of Estimates

 

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

 

·

the estimated reserve for warranty expense associated with our check warranty receivables;

·

the valuation and recognition of share-based compensation;

·

the valuation allowance on our deferred income tax assets;

·

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

·

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

·

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

·

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

 

Earnings Applicable to Common Stock

 

Basic earnings per share is calculated by dividing net income by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect the effect of potential common stock resulting from assumed stock option exercises and vesting of restricted stock.

 

Share-Based Compensation

 

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

 

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

 

During the three months ended March 31, 2014, we issued a market-based performance option to our Chief Executive Officer that will vest if our average stock price in any period of 30 consecutive trading days meets certain target prices during a four year period that commenced on the grant date of this option. If these target prices are not met during such four year period, the unvested shares underlying the option will terminate. The option was measured at fair value on the grant date using a lattice-based valuation model based on the median time horizon from the date of grant for this option to the vesting date for those paths that achieved the target threshold(s). The compensation expense associated with this award is recognized on a straight-line basis over the median vesting period calculated under such valuation model.

 

Forfeitures are estimated at the grant date for our time-based and market-based options, with such estimates updated periodically; and with actual forfeitures recognized currently to the extent they differ from the estimates. Unless otherwise provided by the administrator of the 2005 Plan, an option granted under the 2005 Plan generally expires ten years from the date of grant. The exercise price of stock options is generally the closing market price of our common stock on the date of the stock option grant.

 

ATM FUNDING AGREEMENTS
ATM FUNDING AGREEMENTS

3.              ATM FUNDING AGREEMENTS

 

Our Contract Cash Solutions Agreement with Wells Fargo allows us to utilize a maximum of $500.0 million.  This agreement is scheduled to terminate on November 30, 2015.  The outstanding balances of ATM cash we utilized were $324.8 million and $427.1 million as of March 31, 2014 and December 31, 2013, respectively.  The cash usage fees were $0.6 million for the three months ended March 31, 2014 and 2013. We are exposed to interest rate risk to the extent that the applicable LIBOR increases, subject to the interest rate cap.

 

We are responsible for any losses of cash in the ATMs under our agreement with Wells Fargo and we are self-insured for this risk. We incurred no material losses related to this self-insurance for the three months ended March 31, 2014 and 2013.

 

We operate ATMs at certain customer gaming establishments where the gaming establishments provide the cash required for the ATMs’ operational needs. We are 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 on our condensed consolidated balance sheets and was $116.6 million and $68.9 million as of March 31, 2014 and December 31, 2013, respectively.

 

ACCOUNTS PAYABLE AND ACCRUED EXPENSES
ACCOUNTS PAYABLE AND ACCRUED EXPENSES

4.              ACCOUNTS PAYABLE AND ACCRUED EXPENSES

 

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

 

 

 

At

 

 

March 31, 2014

 

December 31, 2013

 

 

 

 

 

Accounts payable

 

$

40,122

 

$

35,662

Payroll and related expenses

 

3,081

 

4,758

Processing and related expenses

 

5,186

 

4,330

Deferred revenues

 

12,807

 

7,883

Other

 

9,871

 

8,068

 

 

 

 

 

Total accounts payable and accrued expenses

 

$

71,067

 

$

60,701

BORROWINGS
BORROWINGS

5.              BORROWINGS

 

Senior Credit Facility

 

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

 

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

 

We had $100.0 million of outstanding indebtedness under the Senior Credit Facility, all of which was outstanding under the term loan facility as of March 31, 2014.

 

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

 

The weighted average interest rate was 4.0% for the three months ended March 31, 2014. We also had no amounts outstanding under our letter of credit sub facility that is part of our revolving credit facility as of March 31, 2014. The Senior Credit Facility is unconditionally guaranteed by Holdings and each direct and indirect domestic subsidiary of GCA. All amounts owing under the Senior Credit Facility are secured by a first priority perfected security interest in all stock (but only 65% of the stock of foreign subsidiaries), other equity interests and promissory notes owned by us and a first priority perfected security interest in all other tangible and intangible assets owned by us and our guarantors.

 

The Credit Agreement contains customary affirmative and negative covenants, financial covenants, representations and warranties and events of defaults. We were in compliance with the required covenants as of March 31, 2014.

 

COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES

6.              COMMITMENTS AND CONTINGENCIES

 

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

 

SHAREHOLDERS' EQUITY
SHAREHOLDERS' EQUITY

7.              SHAREHOLDERS’ EQUITY

 

Common Stock Repurchase Program

 

Our current share repurchase program grants us the authority to repurchase up to $40.0 million of our outstanding common stock over a two year period, which commenced in the first quarter of 2013. We have repurchased approximately 0.3 million and 0.6 million shares of common stock for cash of $2.5 million and $4.7 million under the share repurchase program during the three months ended March 31, 2014 and 2013, respectively. Since its inception, we have repurchased $20.7 million in cash with $19.3 million remaining under the program as of March 31, 2014. We completed the share repurchases with cash on hand and we intend to continue to use cash on hand for these share repurchases. The repurchase program authorizes us to buy our common stock from time to time through open market, privately negotiated or other transactions, including pursuant to trading plans established in accordance with Rules 10b5-1 and 10b-18 of the Securities Exchange Act of 1934, as amended, or by a combination of such methods. The share repurchase program is subject to prevailing market conditions and other considerations and may be suspended or discontinued at any time.

 

Treasury Stock

 

In addition to open market purchases of common stock authorized under the Common Stock Repurchase Program, employees may direct us to withhold vested shares of restricted stock to satisfy the minimum statutory withholding requirements applicable to their restricted stock vesting. We repurchased or withheld from restricted stock awards approximately 31,000 shares and 6,000 shares of common stock at an aggregate purchase price of approximately $0.3 million and $0.1 million to satisfy the minimum applicable tax withholding obligations incident to the vesting of such restricted stock awards during the three months ended March 31, 2014 and 2013, respectively.

 

WEIGHTED AVERAGE COMMON SHARES
WEIGHTED AVERAGE COMMON SHARES

8.              WEIGHTED AVERAGE COMMON SHARES

 

The weighted average number of common shares outstanding used in the computation of basic and diluted earnings per share is as follows (in thousands):

 

 

 

Three Months Ended March 31,

 

 

2014

 

2013

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding - basic

 

65,910

 

66,697

 

 

 

 

 

Potential dilution from equity awards(1)

 

1,460

 

1,185

 

 

 

 

 

Weighted average number of common shares outstanding - diluted

 

67,370

 

67,882

 

 

 

(1)         The potential dilution excludes the weighted average effect of equity awards to acquire 5.1 million and 5.6 million of our common stock for the three months ended March 31, 2014 and 2013, respectively, because the application of the treasury stock method, as required, makes them anti-dilutive.

 

SHARE-BASED COMPENSATION
SHARE-BASED COMPENSATION

9.              SHARE-BASED COMPENSATION

 

Equity Incentive Awards

 

In January 2005, we adopted the 2005 Stock Incentive Plan (the “2005 Plan”) to attract and retain the best available personnel, to provide additional incentives to employees, directors and consultants and thus to promote the success of our business. The 2005 Plan is administered by 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, our time-based stock options granted under the 2005 Plan (other than those granted to non-employee directors) will vest at a rate of 25% of the shares underlying the option after one year and the remaining shares vest in equal portions over the following 36 months, such that all shares are vested after four years.

 

Our market-based performance stock option granted under the 2005 Plan will vest if our average stock price in any period of 30 consecutive trading days meets certain target prices during a four year period that commenced on the date of grant for this option.  If these target prices are not met during such four year period, the unvested shares underlying the option will terminate.

 

The vesting provisions of restricted stock are similar to those applicable to time-based stock options. As these restricted shares are issued primarily to our employees, many of the shares issued will be withheld by us to satisfy the statutory withholding requirements applicable to the restricted stock grants. Therefore, as these awards vest the actual number of shares outstanding as a result of the restricted stock awards is reduced. These shares will vest over a period of four years.

 

A summary of award activity under the 2005 Plan is as follows (in thousands):

 

 

 

Stock Options

Granted

 

Restricted Stock
Granted

 

Equity Awards

Available for Grant

 

 

 

 

 

 

 

 

 

Outstanding, December 31, 2013

 

8,872

 

404

 

4,399

 

 

 

 

 

 

 

 

 

Additional authorized shares

 

-

 

-

 

1,978

 

Granted

 

2,008

 

-

 

(2,008)

 

Exercised options or vested shares

 

(484)

 

(107)

 

-

 

Canceled or forfeited

 

(336)

 

(97)

 

433

 

 

 

 

 

 

 

 

 

Outstanding, March 31, 2014

 

10,060

 

200

 

4,802

 

 

Stock Options

 

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

 

 

 

Three Months Ended March 31,

 

 

 

2014

 

2013

 

 

 

 

 

 

 

Risk-free interest rate

 

1%

 

1%

 

Expected life of options (in years)

 

4

 

4

 

Expected volatility

 

53%

 

61%

 

Expected dividend yield

 

0%

 

0%

 

 

The fair value of our market performance-based options was determined as of the date of grant using a lattice-based option valuation model with the following weighted-average assumptions:

 

 

 

Three Months Ended

March 31,

 

 

 

2014

 

 

 

 

 

Risk-free interest rate

 

1%

 

Measurement period (in years)

 

4

 

Expected volatility

 

51%

 

Expected dividend yield

 

0%

 

 

The following table presents the options activity under the 2005 Stock Plan:

 

 

 

Number of

Common Shares

(in thousands)

 

Weighted Average
Exercise Price

(per share)

 

Weighted

Average Life

Remaining

(years)

 

Aggregate

Intrinsic Value

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

Outstanding, December 31, 2013

 

8,872

 

$

7.54

 

5.9

 

$

27,301

 

 

 

 

 

 

 

 

 

 

 

Granted

 

2,008

 

8.92

 

 

 

 

 

Exercised

 

(484)

 

4.93

 

 

 

 

 

Canceled or forfeited

 

(336)

 

6.89

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding, March 31, 2014

 

10,060

 

$

7.96

 

6.2

 

$

6,441

 

 

 

 

 

 

 

 

 

 

 

Vested and expected to vest, March 31, 2014

 

9,496

 

$

7.99

 

6.0

 

$

6,113

 

 

 

 

 

 

 

 

 

 

 

Exercisable, March 31, 2014

 

6,330

 

$

8.22

 

4.5

 

$

4,556

 

 

There were 2.0 million and 1.2 million options granted during the three months ended March 31, 2014 and 2013, respectively. The weighted average grant date fair value per share of the options granted was $3.88 and $3.32 for the three months ended March 31, 2014 and 2013, respectively.  The total intrinsic value of options exercised was $1.7 million and $0.7 million for the three months ended March 31, 2014 and 2013, respectively.

 

There was $12.0 million in unrecognized compensation expense related to options expected to vest as of March 31, 2014.  This cost is expected to be recognized on a straight-line basis over a weighted average period of 3.1 years. We received $2.4 million in proceeds from the exercise of options and recorded $1.6 million in non-cash compensation expense related to options granted that are expected to vest for the three months ended March 31, 2014.

 

There was $10.5 million in unrecognized compensation expense related to options expected to vest as of March 31, 2013.  This cost was expected to be recognized on a straight-line basis over a weighted average period of 2.9 years. We received $1.0 million in proceeds from the exercise of options and recorded $1.1 million in non-cash compensation expense related to options granted that are expected to vest for the three months ended March 31, 2013.

 

Restricted Stock

 

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

 

 

 

Shares

Outstanding

(in thousands)

 

Weighted

Average Grant

Date Fair Value

(per share)

 

 

 

 

 

 

 

Outstanding, December 31, 2013

 

404

 

$

7.05

 

 

 

 

 

 

 

Vested

 

(107)

 

3.79

 

Forfeited

 

(97)

 

6.90

 

 

 

 

 

 

 

Outstanding, March 31, 2014

 

200

 

$

7.11

 

 

There was no restricted stock granted during the three months ended March 31, 2014.  There were 0.4 million shares of time-based restricted shares granted for the three months ended March 31, 2013. The weighted average grant date fair value per share of restricted stock granted was $7.09 for the three months ended March 31, 2013.  The total fair value of shares vested were $0.7 million and $0.2 million for the three months ended March 31, 2014 and 2013, respectively.

 

There was $1.7 million in unrecognized compensation expense related to shares of time-based restricted shares expected to vest as of March 31, 2014. This cost is expected to be recognized on a straight-line basis over a weighted average period of 2.8 years. There were 0.1 million shares of time-based restricted shares vested and we recorded $0.4 million in non-cash compensation expense related to the restricted stock granted that is expected to vest for the three months ended March 31, 2014.

 

There was $2.6 million in unrecognized compensation expense related to shares of time-based restricted shares expected to vest as of March 31, 2013. This cost was expected to be recognized on a straight-line basis over a weighted average period of 3.8 years. There were 26,000 shares of time-based restricted shares vested and we recorded $0.1 million in non-cash compensation expense related to the restricted stock granted that is expected to vest for the three months ended March 31, 2013.

 

INCOME TAXES
INCOME TAXES

10.      INCOME TAXES

 

The provision for income tax reflected an effective income tax rate of 34.7% for the three months ended March 31, 2014, which was lower than the statutory federal rate of 35.0% primarily due to the favorable foreign tax rate applicable to our foreign source income. The provision for income tax reflected an effective income tax rate of 37.0% for the same period in the prior year, which was greater than the statutory federal rate of 35.0% due in part to state taxes and the non-cash compensation expenses related to stock options.

 

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

 

SEGMENT INFORMATION
SEGMENT INFORMATION

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

 

We operate in three distinct business segments: (1) cash advance, (2) ATM and (3) check services. These segments are monitored separately by management for performance against its internal forecast and are consistent with our internal management reporting. The Other segment consists of certain lines of business, none of which exceeds the established materiality for segment reporting, and includes: Integrated Kiosk Sales, Kiosk Parts and Services, Central Credit reporting services and Casino Marketing Services, among others.

 

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

 

Our business is predominantly domestic, with no specific regional concentrations and no significant assets in foreign locations.

 

Major Customers

 

For the three months ended March 31, 2014 and 2013, none of our customers had combined revenues from all segments equal to or greater than 10%.  Our five largest customers accounted for approximately 33% and 37% of revenues for the three months ended March 31, 2014 and 2013, respectively.

 

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

 

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

 

 

 

For the Three Months Ended March 31,

 

 

 

2014

 

2013

 

 

 

 

 

 

 

Revenues

 

 

 

 

 

Cash advance

 

$

62,029

 

$

58,695

 

ATM

 

73,330

 

75,276

 

Check services

 

5,264

 

5,871

 

Other

 

9,948

 

6,980

 

 

 

 

 

 

 

Total revenues

 

$

150,571

 

$

146,822

 

 

 

 

 

 

 

Operating income

 

 

 

 

 

Cash advance

 

$

18,113

 

$

15,745

 

ATM

 

6,264

 

6,979

 

Check services

 

2,872

 

3,396

 

Other

 

3,996

 

3,444

 

Corporate

 

(18,232)

 

(16,663)

 

 

 

 

 

 

 

Total operating income

 

$

13,013

 

$

12,901

 

 

 

 

At

 

 

 

March 31, 2014

 

December 31, 2013

 

Total assets

 

 

 

 

 

Cash advance

 

$

 140,577

 

$

145,939

 

ATM

 

65,589

 

69,627

 

Check services

 

29,639

 

30,930

 

Other

 

65,324

 

56,946

 

Corporate

 

297,516

 

223,885

 

 

 

 

 

 

 

Total assets

 

$

 598,645

 

$

527,327

 

 

SUBSEQUENT EVENTS
SUBSEQUENT EVENTS

12.       SUBSEQUENT EVENTS

 

In April 2014, we executed a stock purchase agreement to acquire all of the outstanding capital stock of NEWave, Inc., (“NEWave”) using cash available. NEWave is a supplier of compliance and efficiency software to the gaming industry and we believe this acquisition will complement our integrated solutions. The acquisition of NEWave will not have a material impact on our results of operations and financial condition.

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

Basis of Presentation

 

Our unaudited condensed consolidated financial statements included herein have been prepared by us pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Some of the information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States have been condensed or omitted pursuant to such rules and regulations, although we believe the disclosures are adequate to make the information presented not misleading. In the opinion of management, all adjustments (which include normal recurring adjustments) necessary for a fair presentation of results for the interim periods have been made. The results for the three months ended March 31, 2014 are not necessarily indicative of results to be expected for the full fiscal year.

 

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

 

Principles of Consolidation

 

Intercompany transactions and balances have been eliminated in consolidation.

 

Cash and Cash Equivalents

 

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

 

Restricted Cash and Cash Equivalents

 

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

 

ATM Funding Agreements

 

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

 

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

 

Settlement Receivables and Settlement Liabilities

 

In the credit card cash access and POS debit card cash access transactions provided by us, the gaming establishment is reimbursed for the cash disbursed to gaming patrons through the issuance of a negotiable instrument or through electronic settlement. We receive reimbursement from the patron’s credit or debit card issuer for the transaction in an amount equal to the amount owed to the gaming establishment plus the fee charged to the patron. This reimbursement is included within the settlement receivables on our condensed consolidated balance sheets. The amounts owed to gaming establishments are included within settlement liabilities on our condensed consolidated balance sheets.

 

Warranty Receivables

 

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

 

Unamortized Debt Issuance Costs

 

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

 

Property, Equipment and Leasehold Improvements

 

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

 

Repairs and maintenance costs are expensed as incurred.

 

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

 

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

 

Goodwill

 

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

 

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

 

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. Customer contracts require us to make renewal assumptions, which impact the estimated useful lives of such assets. Capitalized software development costs require us to make certain judgments as to the stages of development and costs eligible for capitalization. Capitalized software costs placed in service are amortized over their useful lives, generally not to exceed three years. The acquisition cost of the 3-in-1 rollover patent is being amortized over the term of the patent, which expires in 2018. Other intangible assets are reviewed annually for impairment based on the fair value of our reporting units as compared to the carrying amounts, or whenever events or circumstances indicate that the carrying amounts may not be recoverable. This assessment requires the use of estimates about future operating results. Changes in forecasted operations can materially affect these estimates, which could materially affect our results of operations. We do not believe that any of our other intangible assets were impaired as of March 31, 2014 and December 31, 2013.

 

Fair Values of Financial Instruments

 

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

 

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

 

Interest Rate Cap

 

In conjunction with the terms and conditions of the Senior Credit Facility, we purchased a $150.0 million notional amount interest rate cap with an effective date of January 5, 2012 and a term of three years. We purchased this interest rate cap to partially reduce our exposure to increases in the London Interbank Offer Rate (“LIBOR’) above 1.5% during the term of the interest rate cap with respect to our variable rate debt obligations under the Senior Credit Facility and our obligations under the Contract Cash Solutions Agreement with Wells Fargo. This interest rate cap is recorded in other assets in the balance sheet, and is marked to market based on a quoted market price with the effects offset in our condensed consolidated statements of income and comprehensive income. The interest rate cap carrying value and fair value approximate each other and these values were insignificant as of March 31, 2014 and December 31, 2013.

 

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

 

 

 

Level of

 

 

 

Carrying

 

 

Hierarchy(*)

 

Fair Value

 

Value

 

 

 

 

 

 

 

March 31, 2014

 

 

 

 

 

 

Senior credit facility

 

2

 

$

100,188

 

$

100,000

 

 

 

 

 

 

 

December 31, 2013

 

 

 

 

 

 

Senior credit facility

 

2

 

$

104,030

 

$

103,000

 

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

 

Inventory

 

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

 

Revenue Recognition

 

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

 

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

 

Cost of Revenues (exclusive of depreciation and amortization)

 

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

 

Advertising, Marketing and Promotional Costs

 

We expense advertising, marketing and promotional costs as incurred. Total advertising, marketing and promotional costs, included in operating expenses in our condensed consolidated statements of income and comprehensive income, were $0.2 million and $0.1 million for the three months ended March 31, 2014 and 2013, respectively.

 

Income Taxes

 

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

 

Foreign Currency Translation

 

Foreign currency denominated assets and liabilities for those foreign entities for which the local currency is the functional currency are translated into U.S. dollars based on exchange rates prevailing at the end of each 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 our condensed consolidated statements of income and comprehensive income.

 

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

 

Use of Estimates

 

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

 

·

the estimated reserve for warranty expense associated with our check warranty receivables;

·

the valuation and recognition of share-based compensation;

·

the valuation allowance on our deferred income tax assets;

·

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

·

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

·

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

·

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

 

Earnings Applicable to Common Stock

 

Basic earnings per share is calculated by dividing net income by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect the effect of potential common stock resulting from assumed stock option exercises and vesting of restricted stock.

 

Share-Based Compensation

 

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

 

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

 

During the three months ended March 31, 2014, we issued a market-based performance option to our Chief Executive Officer that will vest if our average stock price in any period of 30 consecutive trading days meets certain target prices during a four year period that commenced on the grant date of this option. If these target prices are not met during such four year period, the unvested shares underlying the option will terminate. The option was measured at fair value on the grant date using a lattice-based valuation model based on the median time horizon from the date of grant for this option to the vesting date for those paths that achieved the target threshold(s). The compensation expense associated with this award is recognized on a straight-line basis over the median vesting period calculated under such valuation model.

 

Forfeitures are estimated at the grant date for our time-based and market-based options, with such estimates updated periodically; and with actual forfeitures recognized currently to the extent they differ from the estimates. Unless otherwise provided by the administrator of the 2005 Plan, an option granted under the 2005 Plan generally expires ten years from the date of grant. The exercise price of stock options is generally the closing market price of our common stock on the date of the stock option grant.

 

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

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

 

 

 

Level of

 

 

 

Carrying

 

 

Hierarchy(*)

 

Fair Value

 

Value

 

 

 

 

 

 

 

March 31, 2014

 

 

 

 

 

 

Senior credit facility

 

2

 

$

100,188

 

$

100,000

 

 

 

 

 

 

 

December 31, 2013

 

 

 

 

 

 

Senior credit facility

 

2

 

$

104,030

 

$

103,000

 

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

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

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

 

 

 

At

 

 

March 31, 2014

 

December 31, 2013

 

 

 

 

 

Accounts payable

 

$

40,122

 

$

35,662

Payroll and related expenses

 

3,081

 

4,758

Processing and related expenses

 

5,186

 

4,330

Deferred revenues

 

12,807

 

7,883

Other

 

9,871

 

8,068

 

 

 

 

 

Total accounts payable and accrued expenses

 

$

71,067

 

$

60,701

 

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

The weighted average number of common shares outstanding used in the computation of basic and diluted earnings per share is as follows (in thousands):

 

 

 

Three Months Ended March 31,

 

 

2014

 

2013

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding - basic

 

65,910

 

66,697

 

 

 

 

 

Potential dilution from equity awards(1)

 

1,460

 

1,185

 

 

 

 

 

Weighted average number of common shares outstanding - diluted

 

67,370

 

67,882

 

 

 

(1)         The potential dilution excludes the weighted average effect of equity awards to acquire 5.1 million and 5.6 million of our common stock for the three months ended March 31, 2014 and 2013, respectively, because the application of the treasury stock method, as required, makes them anti-dilutive.

SHARE-BASED COMPENSATION (Tables)

A summary of award activity under the 2005 Plan is as follows (in thousands):

 

 

 

Stock Options

Granted

 

Restricted Stock
Granted

 

Equity Awards

Available for Grant

 

 

 

 

 

 

 

 

 

Outstanding, December 31, 2013

 

8,872

 

404

 

4,399

 

 

 

 

 

 

 

 

 

Additional authorized shares

 

-

 

-

 

1,978

 

Granted

 

2,008

 

-

 

(2,008)

 

Exercised options or vested shares

 

(484)

 

(107)

 

-

 

Canceled or forfeited

 

(336)

 

(97)

 

433

 

 

 

 

 

 

 

 

 

Outstanding, March 31, 2014

 

10,060

 

200

 

4,802

 

 

 

 

Number of

Common Shares

(in thousands)

 

Weighted Average
Exercise Price

(per share)

 

Weighted

Average Life

Remaining

(years)

 

Aggregate

Intrinsic Value

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

Outstanding, December 31, 2013

 

8,872

 

$

7.54

 

5.9

 

$

27,301

 

 

 

 

 

 

 

 

 

 

 

Granted

 

2,008

 

8.92

 

 

 

 

 

Exercised

 

(484)

 

4.93

 

 

 

 

 

Canceled or forfeited

 

(336)

 

6.89

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding, March 31, 2014

 

10,060

 

$

7.96

 

6.2

 

$

6,441

 

 

 

 

 

 

 

 

 

 

 

Vested and expected to vest, March 31, 2014

 

9,496

 

$

7.99

 

6.0

 

$

6,113

 

 

 

 

 

 

 

 

 

 

 

Exercisable, March 31, 2014

 

6,330

 

$

8.22

 

4.5

 

$

4,556

 

 

 

 

Shares

Outstanding

(in thousands)

 

Weighted

Average Grant

Date Fair Value

(per share)

 

 

 

 

 

 

 

Outstanding, December 31, 2013

 

404

 

$

7.05

 

 

 

 

 

 

 

Vested

 

(107)

 

3.79

 

Forfeited

 

(97)

 

6.90

 

 

 

 

 

 

 

Outstanding, March 31, 2014

 

200

 

$

7.11

 

 

 

 

Three Months Ended March 31,

 

 

 

2014

 

2013

 

 

 

 

 

 

 

Risk-free interest rate

 

1%

 

1%

 

Expected life of options (in years)

 

4

 

4

 

Expected volatility

 

53%

 

61%

 

Expected dividend yield

 

0%

 

0%

 

 

 

 

Three Months Ended

March 31,

 

 

 

2014

 

 

 

 

 

Risk-free interest rate

 

1%

 

Measurement period (in years)

 

4

 

Expected volatility

 

51%

 

Expected dividend yield

 

0%

 

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

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

 

 

 

For the Three Months Ended March 31,

 

 

 

2014

 

2013

 

 

 

 

 

 

 

Revenues

 

 

 

 

 

Cash advance

 

$

62,029

 

$

58,695

 

ATM

 

73,330

 

75,276

 

Check services

 

5,264

 

5,871

 

Other

 

9,948

 

6,980

 

 

 

 

 

 

 

Total revenues

 

$

150,571

 

$

146,822

 

 

 

 

 

 

 

Operating income

 

 

 

 

 

Cash advance

 

$

18,113

 

$

15,745

 

ATM

 

6,264

 

6,979

 

Check services

 

2,872

 

3,396

 

Other

 

3,996

 

3,444

 

Corporate

 

(18,232)

 

(16,663)

 

 

 

 

 

 

 

Total operating income

 

$

13,013

 

$

12,901

 

 

 

 

At

 

 

 

March 31, 2014

 

December 31, 2013

 

Total assets

 

 

 

 

 

Cash advance

 

$

 140,577

 

$

145,939

 

ATM

 

65,589

 

69,627

 

Check services

 

29,639

 

30,930

 

Other

 

65,324

 

56,946

 

Corporate

 

297,516

 

223,885

 

 

 

 

 

 

 

Total assets

 

$

 598,645

 

$

527,327

 

 

BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) (USD $)
In Thousands, unless otherwise specified
Mar. 31, 2014
Dec. 31, 2013
Restricted Cash and Cash Equivalents
 
 
Balance of restricted cash and cash equivalents
$ 336 
$ 290 
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 2) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2014
Mar. 31, 2013
Property, Equipment and Leasehold Improvements
 
 
Impairment of property, equipment or leasehold improvements
$ 0 
$ 0 
Minimum
 
 
Property, Equipment and Leasehold Improvements
 
 
Estimated life
3 years 
 
Maximum
 
 
Property, Equipment and Leasehold Improvements
 
 
Estimated life
5 years 
 
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 3) (Capitalized software development cost, Maximum)
3 Months Ended
Mar. 31, 2014
Capitalized software development cost |
Maximum
 
Other Intangible Assets
 
Useful lives
3 years 
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 4) (USD $)
0 Months Ended 3 Months Ended
Jan. 5, 2012
Mar. 31, 2014
Mar. 31, 2013
Mar. 31, 2014
Fair Value, Level 2
Senior credit facility
Dec. 31, 2013
Fair Value, Level 2
Senior credit facility
Mar. 31, 2014
Fair Value, Level 2
Carrying Value
Senior credit facility
Dec. 31, 2013
Fair Value, Level 2
Carrying Value
Senior credit facility
Inventory
 
 
 
 
 
 
 
Notional amount
$ 150,000,000 
 
 
 
 
 
 
Term of interest rate cap
3 years 
 
 
 
 
 
 
Variable rate basis
LIBOR 
 
 
 
 
 
 
Increase in LIBOR which is covered by interest rate cap (as a percent)
1.50% 
 
 
 
 
 
 
Fair value and carrying value of borrowings and interest rate cap
 
 
 
 
 
 
 
Senior credit facility
 
 
 
100,188,000 
104,030,000 
100,000,000 
103,000,000 
Advertising, Marketing and Promotional Costs
 
 
 
 
 
 
 
Total advertising, marketing and promotional costs
 
$ 200,000 
$ 100,000 
 
 
 
 
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 5)
3 Months Ended
Mar. 31, 2014
Market performance-based options
 
Stock-Based Compensation
 
Vesting condition period over which average stock price should meet target prices
30 days 
Vesting period
4 years 
Market performance-based options |
Chief Executive Officer
 
Stock-Based Compensation
 
Vesting condition period over which average stock price should meet target prices
30 days 
Vesting period
4 years 
Stock options
 
Stock-Based Compensation
 
Expiration period
10 years 
ATM FUNDING AGREEMENTS (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2014
Mar. 31, 2013
Dec. 31, 2013
ATM Funding Agreements
 
 
 
Gains (losses) related to self-insurance
$ 0 
$ 0 
 
Site-Funded ATM liability
116.6 
 
68.9 
Indemnification guarantee |
Wells Fargo owned funds
 
 
 
ATM Funding Agreements
 
 
 
Cash usage fees
0.6 
0.6 
 
Indemnification guarantee |
Contract Cash Solutions Agreement |
Wells Fargo owned funds
 
 
 
ATM Funding Agreements
 
 
 
Outstanding balance of ATM cash utilized
324.8 
 
427.1 
Indemnification guarantee |
Second Amendment, Contract Cash Solutions Agreement |
Wells Fargo owned funds |
Maximum
 
 
 
ATM Funding Agreements
 
 
 
Maximum amount
$ 500.0 
 
 
ACCOUNTS PAYABLE AND ACCRUED EXPENSES (Details) (USD $)
In Thousands, unless otherwise specified
Mar. 31, 2014
Dec. 31, 2013
Accounts payable and accrued expenses
 
 
Accounts payable
$ 40,122 
$ 35,662 
Payroll and related expenses
3,081 
4,758 
Processing and related expenses
5,186 
4,330 
Deferred revenues
12,807 
7,883 
Other
9,871 
8,068 
Total accounts payable and accrued expenses
$ 71,067 
$ 60,701 
BORROWINGS (Details) (USD $)
3 Months Ended 1 Months Ended 3 Months Ended 1 Months Ended 3 Months Ended 3 Months Ended
Mar. 31, 2014
Dec. 31, 2013
Mar. 31, 2014
Senior credit facility
Mar. 31, 2014
Term loan
May 31, 2013
Term loan
LIBOR
Mar. 31, 2014
Term loan
LIBOR
May 31, 2013
Term loan
LIBOR
Minimum
Mar. 31, 2014
Term loan
LIBOR
Minimum
Mar. 31, 2014
Increase option, additional term loan commitment under original credit agreement
Mar. 31, 2014
Increase option, additional term loan commitments under amended credit agreement
May 31, 2013
Increase option, additional term loan commitments under amended credit agreement
Mar. 31, 2014
Revolving credit facility
Mar. 31, 2014
Letters of credit
Mar. 31, 2014
Letters of credit
Maximum
Mar. 31, 2014
Swing-line loans
BORROWINGS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Maximum borrowing capacity
 
 
 
$ 210,000,000 
 
 
 
 
 
 
 
$ 35,000,000 
$ 10,000,000 
 
$ 5,000,000 
Percentage of the aggregate initial principal amount required to be repaid
 
 
 
0.25% 
 
 
 
 
 
 
 
 
 
 
 
Outstanding indebtedness
100,000,000 
103,000,000 
 
100,000,000 
 
 
 
 
 
 
 
 
 
 
 
Variable rate basis
 
 
 
 
LIBOR 
LIBOR 
 
 
 
 
 
 
 
 
 
Interest rate margin (as a percent)
 
 
 
 
5.50% 
3.00% 
 
 
 
 
 
 
 
 
 
Variable rate of debt (as a percent)
 
 
 
 
 
 
1.50% 
1.00% 
 
 
 
 
 
 
 
Maximum borrowing capacity after amendment
 
 
 
 
 
 
 
 
50,000,000 
 
 
 
 
 
 
Minimum borrowing capacity after amendment
 
 
 
 
 
 
 
 
 
50,000,000 
50,000,000 
 
 
 
 
Total leverage ratio after amendment in Credit Agreement
 
 
 
 
 
 
 
 
 
 
 
 
 
2.50 
 
Weighted average interest rate (as a percent)
 
 
4.00% 
 
 
 
 
 
 
 
 
 
 
 
 
Outstanding amount under letter of credit sub facility
 
 
 
 
 
 
 
 
 
 
 
 
$ 0 
 
 
Percentage of the stock of foreign subsidiaries by which the amounts under the credit facility are secured
 
 
65.00% 
 
 
 
 
 
 
 
 
 
 
 
 
SHAREHOLDERS' EQUITY (Details) (USD $)
In Millions, except Share data, unless otherwise specified
3 Months Ended 18 Months Ended
Mar. 31, 2014
Mar. 31, 2013
Mar. 31, 2014
Common Stock Repurchase Program
 
 
 
Period of share repurchase under new share repurchase program
 
2 years 
 
Shares of common stock repurchased
300,000 
600,000 
 
Aggregate purchase price of shares repurchased
$ 2.5 
$ 4.7 
$ 20.7 
Value of remaining authorized shares under the program
 
 
19.3 
Total Number of Shares Purchased or Withheld
 
 
 
Shares withheld from restricted stock vesting
31,000 
6,000 
 
Cost of Shares Purchased or Withheld
 
 
 
Shares withheld from restricted stock vesting (in dollars)
0.3 
0.1 
 
Maximum
 
 
 
Common Stock Repurchase Program
 
 
 
Authorized repurchase amount
$ 40.0 
 
 
WEIGHTED AVERAGE COMMON SHARES (Details)
3 Months Ended
Mar. 31, 2014
Mar. 31, 2013
Weighted-average number of common shares outstanding used in the computation of basic and diluted earnings per share
 
 
Weighted average number of common shares outstanding - basic
65,910,000 
66,697,000 
Potential dilution from equity awards
1,460,000 
1,185,000 
Weighted average number of common shares outstanding - diluted
67,370,000 
67,882,000 
Anti-dilutive equity awards excluded from computation of earnings per share (in shares)
5,100,000 
5,600,000 
SHARE-BASED COMPENSATION (Details) (USD $)
Share data in Thousands, except Per Share data, unless otherwise specified
3 Months Ended 12 Months Ended
Mar. 31, 2014
Mar. 31, 2013
Dec. 31, 2013
Equity Awards Available for Grant
 
 
 
Balance outstanding at the beginning of the period (in shares)
4,399 
 
 
Additional authorized shares (in shares)
1,978 
 
 
Granted (in shares)
(2,008)
 
 
Vested (in shares)
 
 
Canceled or forfeited (in shares)
433 
 
 
Balance outstanding at the end of the period (in shares)
4,802 
 
 
Stock options
 
 
 
Stock Options Granted
 
 
 
Balance outstanding at the beginning of the period (in shares)
8,872 
 
 
Granted (in shares)
2,008 
1,200 
 
Exercised options (in shares)
(484)
 
 
Canceled or forfeited (in shares)
(336)
 
 
Balance outstanding at the end of the period (in shares)
10,060 
 
8,872 
Vested and expected to vest (in shares)
9,496 
 
 
Balance exercisable at the end of the period (in shares)
6,330 
 
 
Weighted Average Exercise Price
 
 
 
Balance outstanding at the beginning of the period (in dollars per share)
$ 7.54 
 
 
Granted (in dollars per share)
$ 8.92 
 
 
Exercised options (in dollars per share)
$ 4.93 
 
 
Canceled or forfeited (in dollars per share)
$ 6.89 
 
 
Balance outstanding at the end of the period (in dollars per share)
$ 7.96 
 
$ 7.54 
Vested and expected to vest (in dollars per share)
$ 7.99 
 
 
Balance exercisable at the end of the period (in dollars per share)
$ 8.22 
 
 
Equity Awards Available for Grant
 
 
 
Additional authorized shares (in shares)
 
 
Weighted Average Life Remaining
 
 
 
Balance outstanding at the beginning of the period
6 years 2 months 12 days 
 
5 years 10 months 24 days 
Balance outstanding at the end of the period
6 years 2 months 12 days 
 
5 years 10 months 24 days 
Vested and expected to vest
6 years 
 
 
Balance exercisable at the end of the period
4 years 6 months 
 
 
Aggregate Intrinsic Value
 
 
 
Balance outstanding at the beginning of the period (in dollars)
$ 27,301,000 
 
 
Balance outstanding at the end of the period (in dollars)
6,441,000 
 
27,301,000 
Vested and expected to vest (in dollars)
6,113,000 
 
 
Balance exercisable at the end of the period (in dollars)
4,556,000 
 
 
Additional disclosures
 
 
 
Total intrinsic value of options exercised
1,700,000 
700,000 
 
Restricted stock, time-based
 
 
 
Restricted Stock Granted
 
 
 
Balance outstanding at the beginning of the period (in shares)
404 
 
 
Granted (in shares)
400 
 
Vested (in shares)
(107)
(26)
 
Forfeited (in shares)
(97)
 
 
Balance outstanding at the end of the period (in shares)
200 
 
 
Equity Awards Available for Grant
 
 
 
Additional authorized shares (in shares)
 
 
Additional disclosures
 
 
 
Total fair value of shares vested
$ 700,000 
$ 200,000 
 
Time-based options
 
 
 
Equity Incentive Awards
 
 
 
Vesting rate (as a percent)
25.00% 
 
 
Vesting period for 25% of shares
1 year 
 
 
Vesting period for remaining shares
36 months 
 
 
Vesting period
4 years 
 
 
Weighted-average assumptions used in estimating fair value
 
 
 
Risk-free interest rate (as a percent)
1.00% 
1.00% 
 
Expected term/Measurement period
4 years 
4 years 
 
Expected volatility (as a percent)
53.00% 
61.00% 
 
Expected dividend yield (as a percent)
0.00% 
0.00% 
 
Market performance-based options
 
 
 
Equity Incentive Awards
 
 
 
Vesting period
4 years 
 
 
Vesting condition period over which average stock price should meet target prices
30 days 
 
 
Weighted-average assumptions used in estimating fair value
 
 
 
Risk-free interest rate (as a percent)
1.00% 
 
 
Expected term/Measurement period
4 years 
 
 
Expected volatility (as a percent)
51.00% 
 
 
Expected dividend yield (as a percent)
0.00% 
 
 
SHARE-BASED COMPENSATION (Details 2) (USD $)
Share data in Thousands, except Per Share data, unless otherwise specified
3 Months Ended
Mar. 31, 2014
Mar. 31, 2013
Equity Incentive Awards
 
 
Proceeds from exercise of stock options
$ 2,440,000 
$ 962,000 
Stock options
 
 
Equity Incentive Awards
 
 
Weighted average grant date fair value (in dollars per share)
$ 3.88 
$ 3.32 
Unrecognized compensation expense
12,000,000 
10,500,000 
Weighted-average period for recognition of unrecognized compensation expense
3 years 1 month 6 days 
2 years 10 months 24 days 
Proceeds from exercise of stock options
2,400,000 
1,000,000 
Non-cash compensation expense
1,600,000 
1,100,000 
Restricted stock, time-based
 
 
Equity Incentive Awards
 
 
Unrecognized compensation expense
1,700,000 
2,600,000 
Weighted-average period for recognition of unrecognized compensation expense
2 years 9 months 18 days 
3 years 9 months 18 days 
Vested (in shares)
(107)
(26)
Non-cash compensation expense
$ 400,000 
$ 100,000 
Restricted Stock Granted
 
 
Balance outstanding at the beginning of the period (in shares)
404 
 
Granted (in shares)
400 
Vested (in shares)
(107)
(26)
Forfeited (in shares)
(97)
 
Balance outstanding at the end of the period (in shares)
200 
 
Weighted Average Grant Date Fair Value (in dollars per share)
 
 
Balance outstanding at the beginning of the period (in dollars per share)
$ 7.05 
 
Granted (in dollars per share)
$ 0.00 
 
Vested (in dollars per share)
$ 3.79 
 
Forfeited (in dollars per share)
$ 6.90 
 
Balance outstanding at the end of the period (in dollars per share)
$ 7.11 
$ 7.09 
INCOME TAXES (Details)
3 Months Ended
Mar. 31, 2014
Mar. 31, 2013
INCOME TAXES
 
 
Effective tax rate (as a percent)
34.70% 
37.00% 
Statutory federal rate (as a percent)
35.00% 
 
SEGMENT INFORMATION (Details) (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2014
item
Mar. 31, 2013
item
SEGMENT INFORMATION
 
 
Number of segments that exceeded the established materiality for segment reporting
 
Amount of significant assets in foreign locations
$ 0 
 
Major Customers
 
 
Number of customers individually exceeding 10% of consolidated revenue
Number of major customers
 
Five largest customers
 
 
Major Customers
 
 
Revenue (as a percent)
33.00% 
37.00% 
SEGMENT INFORMATION (Details 2) (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2014
Mar. 31, 2013
Results of operations by operating segment
 
 
Revenues
$ 150,571 
$ 146,822 
Operating income
13,013 
12,901 
Corporate
 
 
Results of operations by operating segment
 
 
Operating income
(18,232)
(16,663)
Cash advance
 
 
Results of operations by operating segment
 
 
Revenues
62,029 
58,695 
Operating income
18,113 
15,745 
ATM
 
 
Results of operations by operating segment
 
 
Revenues
73,330 
75,276 
Operating income
6,264 
6,979 
Check services
 
 
Results of operations by operating segment
 
 
Revenues
5,264 
5,871 
Operating income
2,872 
3,396 
Other
 
 
Results of operations by operating segment
 
 
Revenues
9,948 
6,980 
Operating income
$ 3,996 
$ 3,444 
SEGMENT INFORMATION (Details 3) (USD $)
In Thousands, unless otherwise specified
Mar. 31, 2014
Dec. 31, 2013
Assets by operating segment
 
 
Total Assets
$ 598,645 
$ 527,327 
Corporate
 
 
Assets by operating segment
 
 
Total Assets
297,516 
223,885 
Cash advance
 
 
Assets by operating segment
 
 
Total Assets
140,577 
145,939 
ATM
 
 
Assets by operating segment
 
 
Total Assets
65,589 
69,627 
Check services
 
 
Assets by operating segment
 
 
Total Assets
29,639 
30,930 
Other
 
 
Assets by operating segment
 
 
Total Assets
$ 65,324 
$ 56,946